REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Report for January 2022 and Approve the Related Budget Amendments
Report
COUNCIL PILLAR
Enhance Community Engagement and Transparency
BACKGROUND
In compliance with the Charter of the City of Santa Clara and the adopted Investment Policy, the monthly financial report and monthly investment report for January 2022 are submitted for your information. The financial review as of January 31, 2022 provides a year-to-date financial update to the City Council for the current fiscal year. The analysis of the revenues collected and all expenditures measures the level of adherence to the established resource allocation plan and allows the City to monitor and project revenues and expenditures throughout the year.
The Adopted Budget incorporates the estimated revenues and planned expenditures for all funds. The attached Financial Status Report provides the budget to actual revenue and expenditure summaries for the General Fund, Special Revenue Funds and Enterprise Operating Funds, as well as expenditure summary for Capital Improvement Funds and Fund Reserve Balances. Any significant variances are explained in the report.
In accordance with City Council Policy 051 - Donations to the City, included in this report is a monthly activity and annual summary of donations received by department. Although the requirement of the policy is to report quarterly, in its ongoing effort to streamline reporting, the City will include this information monthly in the financial status report.
DISCUSSION
Monthly Financial Status Report (Attachment 1)
The attached report summarizes the City’s financial performance as of January 31, 2022. Financial analysis for the report is provided for the General Fund, select Special Revenue Funds, Enterprise Operating Funds, and Capital Improvement Funds.
Attachment 1 shows that General Fund revenues at 48.5% of the budget through January 2022. While revenues are tracking slightly below the budgeted estimate, collections are higher when compared to last fiscal year (excluding transfers and various permits and charges for services that are now deposited into the new Building Development Services Fund). Concerns remain regarding longer term impacts of COVID-19 on City revenues, particularly Transient Occupancy Tax collections.
As shown in Attachment 1, General Fund departmental expenditures were at 58.3% of budget through January 2022. It should be noted that as approved as part of the FY 2020/21 Budget Year-End Report, $11.2 million of the Fire Department and $14.7 million of the Police Department budgets were shifted to the newly established American Rescue Plan Act (ARPA) Fund. Once actual charges for public safety have been shifted over to the ARPA Fund, expenditure tracking will be below par in the General Fund. Several cost-control measures that were implemented in FY 2019/20 remain in place to generate expenditure savings to partially offset the drop in revenues associated with COVID-19. These measures include a hiring freeze and controls around overtime, as-needed staff, marketing, travel, technology, and vehicle purchases. Expenditure savings are expected by year-end.
As shown in Attachment 1, total revenues through January 2022 for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 52.9% of the budget while total expenses were at 54.2% of the budget.
In the month of January, the City received $50 in donations, for total donations of $89,640.
Economic conditions have improved significantly since the start of the pandemic, with many indicators close to pre-pandemic levels. On a national level, the unemployment rate slightly decreased from 4.0% in January 2022 to 3.8% in February 2022. This rate was well below the record setting high of 14.7% in April 2020, but above the pre-pandemic unemployment rate of 3.5%. The number of unemployed persons dropped slightly from 6.5 million in January 2022 to 6.3 million in February 2022. This unemployment figure continues to remain above the pre-pandemic level of 5.7 million. In 2021, the Gross Domestic Product (GDP) increased by 5.7%, in contrast to the 3.4% decrease in 2020. While GDP has now surpassed the pre-COVID peak in the second quarter 2021, it has not yet reached the pre-pandemic trend. Per the March 2022 UCLA Anderson Forecast, GDP is expected to reach the pre-COVID trend by mid-2022. The March 2022 UCLA Forecast also assumes continued economic growth; however, there is considerable uncertainty. Major risk factors include the future course of the pandemic as well as the impacts of the war between Russia and Ukraine.
Improvement continues at the State and local level. After the State’s largest increase in the unemployment rate in April 2020, the California unemployment rate remained at 5.8% in January 2022. California has now regained 2.26 million jobs, or 82% of the 2.71 million jobs lost due to COVID-19 in March and April 2020. The unemployment rate in this region continues to outperform the State and the nation. The unadjusted unemployment rate in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) was 3.4% in January 2022, up from a revised 2.9% in December 2021. This reflects a drop from the January 2021 level of 6.2% but is higher than the pre-pandemic February 2020 level of 2.6%.
Staff will continue to closely monitor the General Fund revenues and the City’s overall financial performance as the fiscal year progresses.
Monthly Investment Report (Attachment 2)
All securities held by the City of Santa Clara as of January 31, 2022 were in compliance with the City’s Investment Policy Statement regarding current market strategy and long-term goals and objectives. All securities held are rated “A” or higher by two nationally recognized rating agencies. There is adequate cash flow and maturity of investments to meet the City’s needs for the next six months.
The City’s investment strategy for January 2022 was to invest funds not required to meet current obligations in securities listed in the prevailing Investment Policy Statement, with maturities not to exceed five years form the date of purchase. This strategy ensures safety of the City’s funds, provides liquidity to meet the City’s cash needs, and with a reasonable portfolio return of 1.19% in January.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(4) in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
FISCAL IMPACT
From time to time, adjustments to the budget are required to reflect new information, align budgets with actual revenues and expenses, and correct for inadvertent errors. As detailed in Attachment 3, a budget amendment is recommended in the General Fund to recognize anticipated project savings from the Storm Drain Capital Fund and allocate these funds to the Capital Projects Reserve. Additionally, actions are included to recognize $1.8 million for wildland deployment reimbursements to the Fire Department and to use these funds to support fire operations and to partially fund the purchase of a fire engine as reflected in the Vehicle Replacement Fund. An action is also included in the General Fund to increase the transfer from the Parks and Recreation Capital Fund, reflecting a partial repayment of the loan for the Reed Street - Grant Street Sports Park project. A transfer to the Fire Department Operating Grant Trust Fund is included to reflect a City match required for a grant received by the City’s Fire Department. In the Fire Department Operating Grant Trust Fund, actions are recommended to adjust the revenue estimates and appropriations for three grants to align to actual receipt of grant funding and city matching funds. In the Housing and Urban Development Fund, an action is recommended to recognize and appropriate grant funding. In the Convention Center Capital Fund, an action is recommended to appropriate additional funds from fund balance to the Santa Clara Convention Center Condition Assessment Repair project. Attachment 3 also includes recommendations to decrease a revenue estimate and corresponding appropriation in the Clean Energy and Carbon Reduction project in the Electric Utility Capital Fund and to reallocate funding from the Pedestrian and Bicycle Enhancement Facilities project to the Santa Clara School Access Improvement project in the Streets and Highways Capital Fund.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Note and file the Monthly Financial Status and Investment Reports for January 2022 as presented and Approve Related Budget Amendments in various funds requiring five affirmative votes and consistent with City Charter Section 1305, “At any meeting after the adoption of the budget, the City Council may amend or supplement the budget by motion adopted by the affirmative votes of at least five members so as to authorize the transfer of unused balances appropriated for one purpose to another purpose, or to appropriate available revenue not included in the budget,” as noted for each individual item in Attachment 3.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Office of the City Manager
ATTACHMENTS
1. Monthly Financial Status Report January 2022
2. Monthly Investment Report January 2022
3. FY 2021/22 Budget Amendments