REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for February and March 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 reports and monthly investment reports for February and March 2022 are submitted for your information. The financial reviews as of February 28, 2022 and March 31, 2022 provide 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 Reports provide the budget to actual revenue and expenditure summaries for the General Fund, Special Revenue Funds and Enterprise Operating Funds, as well as expenditure summaries for Capital Improvement Funds and fund reserve balances. Any significant variances are explained in the reports.
In accordance with City Council Policy 051 - Donations to the City, included in these reports are 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 Reports (Attachments 1 and 3)
The attached reports summarize the City’s financial performance as of February 28, 2022 (Attachment 1) and March 31, 2022 (Attachment 3). Financial analysis for these reports 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 56.2% of the budget through February 2022, while Attachment 3 shows General Fund revenues at 62.8% through March 2022. In both cases, revenues are tracking close to the budgeted estimate and 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 Attachments 1 and 3, General Fund departmental expenditures were at 55.7% and 63.1% of the budget through February 2022 and March 2022, respectively. 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. These expenditure levels reflect the shifting of eligible public safety charges to the ARPA 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 February 2022 for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 60.9% of the budget while total expenses were at 62.4% of the budget. In Attachment 3, total revenue through March 2022 were at 69.3%, while expenditures ended at 70.6% of the budget.
In the month February, the City received $2,545 in donations, with an additional $350 received in March, for total donations of $92,535.
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 remained relatively flat, slightly decreasing from 3.8% in February 2022 to 3.6% in March 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 6.3 million in February 2022 to 6.0 million in March 2022. This unemployment figure continues to remain above the pre-pandemic level of 5.7 million. In the advance estimate for the first quarter of 2022, GDP decreased at an annual rate of 1.4%, following an increase of 6.9% in the fourth quarter of 2021. 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 dropped to 4.9% in March 2022. California has now regained 2.46 million jobs, or nearly 90% 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 2.5% in March 2022, down from the March 2021 level of 5.8% and 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 Reports (Attachments 2 and 4)
All securities held by the City of Santa Clara as of February 28, 2022 and March 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 February and March 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 from 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 1.25% in February and 1.31% in March.
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 5, actions are recommended in the General Fund to recognize and appropriate wildland deployment and other reimbursements to the Fire Department. A portion of the wildland reimbursements is recommended to be transferred to the Vehicle Replacement Fund to provide additional funding for the replacement of a fire engine. Actions are also recommended in the General Fund and the Cemetery Fund to reflect the write-off of the loans from the General Fund to the Cemetery Fund. The General Fund has historically subsidized the operating costs of the cemetery. The potential repayment of these advances is unlikely in the City’s ten-year General Fund Forecast due to the limited revenue sources from the Cemetery Fund. Attachment 5 includes an action to increase the System Capacity Expansion project in the Electric Utility Capital Fund to cover the costs associated with a third-party agreement for project work. Also recommended is a transfer from the Convention Center Repairs and Upgrades project in the General Government Capital Fund to the Santa Clara Convention Center Condition Assessment Repairs project in the Convention Center Capital Fund to centralize all Convention Center capital funding. Similarly, there are also recommended actions to shift developer contribution revenue estimates and the City loan for the 2330 Monroe Street Project appropriation from the Housing Authority Fund to the Housing Successor Agency Fund in an effort to centralize all funding for this housing project. In the Solid Waste Capital Fund, an action to recognize and appropriate developer contributions for the Post Closure Project, consistent with the developer agreement with Related, is also included in Attachment 5. In the Streets and Highways Capital Fund, an action to recognize and appropriate other agency revenue to the Mission College Boulevard Class IV Bike Lanes project is recommended. A reallocation in funding from the Pedestrian and Bicycle Enhancement project to the Mission College Boulevard Class IV Bike Lanes project is also included in Attachment 5.
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
1. Note and file the Monthly Financial Status and Investment Reports for February and March 2022 as presented; and
2. Approve the Related Budget Amendments in various funds requiring five affirmative votes of at least five members as noted for each individual item in Attachment 5.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Rajeev Batra, City Manager
ATTACHMENTS
1. Monthly Financial Status Report - February 2022
2. Monthly Investment Report - February 2022
3. Monthly Financial Status Report - March 2022
4. Monthly Investment Report - March 2022
5. FY 2021/22 Budget Amendments