REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for April 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 April 2022 are submitted for your information. The financial reviews as of April 30, 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 Report (Attachment 1)
The attached reports summarize the City’s financial performance as of April 30, 2022 (Attachment 1). 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 76.2% of the budget through April 2022. 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 Attachment 1, General Fund departmental expenditures were at 71.4% of budget through April 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. 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 April 2022 for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 77.2% of the budget while total expenses were at 78.4% of the budget.
In the month April, the City received $1,385 in donations for total donations of $93,920.
While economic conditions have improved significantly since the start of the pandemic, economic growth is projected to be slower. On a national level, the unemployment rate remained unchanged at 3.6% between March and April 2022. This rate was well below the record setting high of 14.7% in April 2020, and almost at the pre-pandemic unemployment rate of 3.5%. The number of unemployed persons dropped slightly from 6.0 million in March 2022 to 5.9 million in April 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 surpassed the pre-COVID peak in the second quarter 2021, it has not yet reached the pre-pandemic trend. Per the June 2022 UCLA Anderson Forecast, GDP is expected to remain below the pre-pandemic trend through at least the end of 2024 with projected GDP growth of 2.8% in 2022, 2.0% in 2023, and 1.9% in 2024. These growth rates are down from the March 2022 Forecast that predicted growth of 4.3%, 2.8%, and 2.3%, respectively, for the same years. The UCLA Forecast points to a number of economic impediments, such as the war in Ukraine, COVID-19 lockdowns in China, supply chain constraints and inflation, that are affecting economic growth. The Forecast also expects unemployment to begin rising in 2023 as the economy slows and inflation to remain high for the next two years.
The June 2022 UCLA Anderson Forecast for California also calls for a shallower growth trend than before. Continued COVID-induced disruptions, supply chain issues, capacity constraints including tight labor markets, high energy prices, and financial capital issues will constrain growth. The California unemployment rate dropped to 4.6% in April 2022. California has now regained 2.52 million jobs, or 91% 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 2.2% in April 2022, down from the April 2021 level of 5.5% 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.
Monthly Investment Report (Attachment 2)
All securities held by the City of Santa Clara as of April 30, 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 April 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 1.36% in April.
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 transfer from the Parks and Recreation Capital Fund to the General Fund is recommended as a partial loan repayment for the Reed Street-Grant Street Sports Park Project from Mitigation Fee Act funds. A transfer of unspent project funds in the Public Buildings Capital Fund to the General Fund is also recommended. An action to recognize and appropriate wildland reimbursements is also included for the General Fund. Technical adjustments in the General Fund include a transfer from the Public Works Capital Project Management Fund and a shift of grant funding from the General Fund to the Fire Operating Grant Trust Fund. A budget amendment recognizing a donation to the Police Department is included in the Public Donations Fund. In the Electric Utility Capital Fund, Parks and Recreation Capital Fund, Related Santa Clara Developer Fund, Solid Waste Capital Fund, Streets and Highways Capital Fund, and Water Utility Capital Fund, various actions are included to appropriate additional project funding and, in some cases, shift project funding from one to another. In the Recycled Water Fund, an action is recommended to increase the resource and production category to address higher than anticipated costs.
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 <mailto: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 April 2022 as presented and Approve the Related Budget Amendments.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Rajeev Batra, City Manager
ATTACHMENTS
1. Monthly Financial Status Report April 2022
2. Monthly Investment Report April 2022
3. FY 2021/22 Budget Amendments