REPORT TO COUNCIL
SUBJECT
Title
Action on FY 2023/24 Budget Year-End Report and Approve the Related Budget Amendments
Report
COUNCIL PILLAR
Enhance Community Engagement and Transparency
EXECUTIVE SUMMARY
To close out each fiscal year, a Budget Year-End Report is prepared that reconciles funds based on actual year-end performance and brings forward associated budget adjustments. This report includes changes to fund balances assumed in the development of the FY 2024/25 budget, other adjustments to account for needed changes resulting from actual year-end performance, and recommendations to allocate any additional fund balance above the amounts assumed in the budget or balancing actions if those fund balances drop below the levels assumed in the budget.
This report provides the year-end financial condition of the City of Santa Clara (City) on a budgetary basis for the fiscal year ended June 30, 2024, and a summary of year-end performance for the General Fund, Special Revenue Funds, Enterprise Funds, Internal Service Funds, Debt Service Funds, and Capital Funds. The report includes the recommended approval of a limited number of FY 2023/24 budget amendments to address expenditure overages at year-end, FY 2024/25 budget amendments necessary based on the final FY 2023/24 results, capital project carryover adjustments, and the recommended allocation of the General Fund balance.
In FY 2023/24, the City’s General Fund revenues ended the year above the budgeted estimate and expenditures were below budget, generating additional fund balance available for allocation. Performance in other funds typically met or exceeded expectations.
BACKGROUND
The budgetary year-end close process accounts for the year-end revenues and expenditures as well as the resulting ending reserves and fund balances for each budgeted fund. The funds are reconciled to the budgetary fund balances in the Annual Comprehensive Financial Report (ACFR).
This report includes the following recommended budget adjustments:
1) Required budget ratifications due to over-expended appropriations in FY 2023/24 (Attachment 1); and
2) FY 2024/25 budget actions, including reconciliations of carryover capital projects, grants, special revenue funds, and donation funds; revisions to the starting FY 2024/25 fund balances and reserves based on the actual FY 2023/24 year-end performance; and any other necessary adjustments (Attachment 2).
In addition to the budget actions, this report includes tables that summarize the revenue and expenditure performance by fund (Attachment 3) and a summary of the fund balance adjustments in each fund (Attachment 4).
Section 1305 of the Charter of the City of Santa Clara, entitled 'Budget - Appropriations,' states that:
…from the effective date of the budget, the several amounts stated therein as proposed expenditures shall be and become appropriated to the several departments, offices and agencies for the respective objects and purposes therein named; all appropriations shall lapse at the end of the fiscal year to the extent that they shall not have been expended or lawfully encumbered; and 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.
Because appropriations lapse at the end of each fiscal year, it is necessary to carryover funds to complete capital projects and other projects and to account for grants and donations. Adjustments to the fund balance amounts assumed in the adopted budget are also necessary based on the actual prior year-end results. This includes the allocation of any additional fund balance above the amounts assumed in the budget or balancing actions if those fund balances drop below the levels assumed in the budget.
Each year as part of budget development and budget close-out, staff also reviews the reserve balances, including the General Fund Budget Stabilization Reserve and the Capital Projects Reserve as well as reserve levels in other funds. Per Council Policy, the Budget Stabilization Reserve target is set to cover operations for three months (25% of General Fund expenses) and the Capital Projects Reserve target is set at a minimum balance of $5.0 million with a goal of having sufficient funds to fund capital projects included in the City’s biennial capital budget and five-year CIP. For the FY 2024/25 budget, the City Council approved a Budget Stabilization Reserve level at a minimum level of 15% of expenditures as part of the budget balancing strategy.
DISCUSSION
This report includes a brief summary of budget to actual revenue and expenditure/expense performance for the General Fund, Special Revenue Funds, Internal Service Funds, and Enterprise Funds.
Information is also included regarding the recommended budget amendments, the impact of FY 2023/24 performance on the General Fund, necessary ratifications to address FY 2023/24 expenditure overages, a summary of the unfunded retirement liability and Pension Stabilization Reserve, and the status of General Fund and other reserves.
General Fund
Overall, General Fund revenues exceeded the budget while expenditures ended the year below budget in FY 2023/24. The General Fund ended the year with a surplus of $17.6 million available to distribute. Budget actions are recommended to allocate those additional funds.
General Fund Revenues
In FY 2023/24, actual revenues and transfers of $296.9 million were $13.3 million (4.7%) above the budgeted estimate of $283.5 million as shown in Table 1 below. Revenues exceeded the budget in all categories except the Documentary Transfer Tax. The categories with the largest positive variances include Property Tax ($3.6 million), Interest ($3.4 million), Sales Tax ($1.3 million), and Transient Occupancy Tax ($1.1 million). It is important to note that $3.0 million of the higher revenues in the Licenses and Permits, Other Fees for Services, and Interest categories are allocated to the Advanced Planning Fee Reserve, the Technology Fee Reserve, and the Pension Stabilization Reserve, resulting in net additional revenue of $10.3 million.
Table 1 - FY 2023/24 General Fund Revenues and Transfers From
Final Budget vs. Actual
Following is a discussion of the performance in the major revenue categories.
• Property Tax - Receipts of $90.7 million were $3.6 million (4.1%) above the budgeted estimate of $87.1 million. This collection level was 7.2% above the FY 2022/23 level of $84.6 million, reflecting strong growth in the secured and unsecured property tax categories, partially offset by a decline in the Supplemental property tax category.
There continues to be a legal challenge on the distribution of the property tax related to the Education Revenue Augmentation Fund (under Proposition 98, a portion of property tax receipts are allocated to the ERAF beginning in 1992 and once there are sufficient funds in ERAF to fulfill the obligation to the school districts, excess funds are returned to the taxing entities that contributed the funding). The County of Santa Clara has recommended setting aside 20% of the excess ERAF receipts starting from FY 2020/21. These funds have been set aside in a reserve that was established in FY 2022/23.
• Sales Tax - The sales tax category, which includes general sales tax and public safety sales tax proceeds, totaled $61.8 million. This collection level was $1.3 million (2.1%) above the budgeted estimate of $60.5 million but was 4.2% below the prior year level of $64.5 million. The decline from the prior year was the result of declines in construction (down 19.5%), transportation (down 7.4%), general retail (down 1.0%), and the countywide pool (down 12.2%), partially offset by increases in business-to-business (up 2.0%) and food products (up 7.5%).
• Transient Occupancy Tax (TOT) - TOT receipts totaled $22.3 million in FY 2023/24, exceeding the budget estimate of $21.3 million, the FY 2022/23 receipts of $19.0 million, and the FY 2021/22 receipts of $10.8 million. The increase in receipts is due in part to the 1% TOT rate increase that went into effect in January 2024. This collection level, however, remains below the pre-COVID level of $22.5 million in FY 2018/19.
• Other Taxes - This category includes franchise fees and the documentary transfer tax. In FY 2023/24, receipts totaled $6.74 million, which was 0.1% below the budget of $6.75 million. Documentary transfer taxes of $1.4 million were below the budgeted estimate of $1.6 million and the prior year level of $1.5 million. Franchise fees ended the fiscal year at $5.4 million, which is 4.2% above the budget estimate of $5.2 million and 10.2% above the FY 2022/23 collection level of $4.9 million.
• Licenses and Permits - Receipts totaled $8.8 million, which was $0.2 million above the budgeted estimate of $8.6 million. This was primarily due to advanced planning revenues of $1.2 million that had not been estimated in this category as well as higher parking permits revenue. The advanced planning revenues are allocated to the Advanced Planning Reserve. Categories that fell below budget include business tax and fire permits.
• Fines and Penalties - Revenues totaled $2.57 million, slightly exceeding the budgeted estimate of $2.32 million due to higher than budgeted municipal fines. Actual collections exceeded the FY 2022/23 receipts of $1.4 million primarily due to higher collection charges and municipal fines.
• State Revenues/Other Agencies Revenue - State revenues totaled $327,000, exceeding the budget of $262,000 due to higher motor vehicle in-lieu fees. Other Agencies revenue totaled $481,000, exceeding the budgeted estimate of $389,000 due primarily to the distribution of lease revenue from the Santa Clara Redevelopment Successor Agency.
• Other Fees for Services - This category encompasses various fees and reimbursements, such as those collected for plan check and zoning, engineering, fire prevention, stadium activities, and recreational activities. Revenues totaling $44.4 million ended the year above the final budget of $41.9 million due primarily to higher receipts in the technology fee, fire hazardous generation fees, recreation fees, and planning and zoning fees. The higher collections in these areas were partially offset by lower than budgeted receipts in the engineering fees category. The FY 2023/24 revenues exceeded the FY 2022/23 collection level of $43.2 million, with the largest positive variances in the stadium-related reimbursements, recreation fees, cost allocation plan reimbursements, and planning fees. These positive variances were partially offset by the elimination of fire construction permit fees that have been moved to a separate Fire Development Services Fund.
• Interest Earnings - Earnings totaled $6.9 million and consisted of General Fund interest earning of $5.1 million and investment earnings in the Pension Trust Fund of $1.8 million (these earnings are allocated to the Pension Stabilization Reserve). The General Fund interest earnings of $5.1 million exceeded the budgeted estimate of $3.5 million. This collection level was above the FY 2022/23 level of $4.4 million. The yields on the City’s portfolio were up in FY 2023/24 (e.g., June 2024 securities portfolio yield of 3.35% versus 2.16% in June 2023).
• Rents - Rent revenues totaled $14.9 million, slightly exceeding the budgeted estimate of $14.7 million.
• Other Revenue - This category totaled $1.0 million, well above the budget estimate of $0.4 million. This reflects higher miscellaneous payments, such as donations and escheatment of prior outstanding checks from the City (over three years) that were not processed.
• Transfer from Silicon Valley Power (SVP) - Revenues are directly related to the revenues collected by the City’s Electric Utility Department. Per the City’s charter, SVP pays 5% of their gross cash revenues to the General Fund. Based on SVP’s actual cash revenue collections through June 30, 2024, the City’s General Fund received $33.1 million, which was slightly above the budgeted estimate of $33.0 million and $3.5 million (12.0%) above the FY 2022/23 receipts of $29.6 million.
• Transfers From Other Funds - Transfers of $2.9 million were consistent with the budget.
General Fund Expenditures
In FY 2023/24, actual expenditures of $292.0 million were $10.2 million below the final budget of $302.2 million. The FY 2024/25 Adopted Budget assumed expenditure savings and carryovers of $2.9 million in FY 2023/24 for use in FY 2024/25; factoring out those savings, expenditures ended the year with net savings of $7.3 million.
The detailed comparison of budget to actual expenditures are shown in Tables 2 and 3 below, with Table 2 showing the expenditures by department and Table 3 showing expenditures by category (e.g., salaries; materials, services and supplies; and transfers).
Table 2 - FY 2023/24 General Fund Expenditures and Transfers To
Final Budget vs. Actual by Department
In evaluating the expenditures by department, all departments except Fire and Information Technology remained within their General Fund appropriations. The largest savings were generated in the Parks and Recreation, Finance, and Police Departments, the City Manager’s Office and Non-Departmental.
The Fire Department overspent its appropriation by $191,055 due to higher than anticipated personnel costs. Fire Department Field Operations absences were up 24% through June when compared to the prior fiscal year (from 68,233 hours to 84,744 hours). Through June, compensatory payouts were also up 22% from the prior year and significantly above historical levels. The Information Technology Department is budgeted in a separate fund; small encumbrances totaling $1,746 were erroneously booked in the General Fund and have been corrected in FY 2024/25.
Table 3 - FY 2023/24 General Fund Expenditures and Transfers To
Final Budget vs. Actual by Category
When evaluating the expenditures by category, the personnel-related expenditures were $4.8 million below budget while the non-personnel expenditures were $5.4 million below budget.
Personnel expenditures totaled $204.6 million and were $4.8 million below budget due to savings in the benefits category. FY 2023/24 personnel expenditures were 3.2% above the FY 2022/23 expenditure level of $198.3 million. In FY 2023/24, Fire Department staff that support development services were shifted from the General Fund to a separate fund, reducing the personnel expenses in the General Fund. Factoring out that shift, General Fund personnel expenditures would have increased by 4.5% in FY 2023/24.
Materials, Services, Supplies and Capital Outlay expenditures and encumbrances totaled $38.8 million and ended the year $5.4 million, or 12.7%, below the budget of $44.1 million. The savings were generated in the Materials, Services and Supplies category. The FY 2024/25 Adopted Budget assumed FY 2023/24 expenditure savings of $335,000 would be available to fund the following: Police Department Parks Patrol ($230,000), Library Department Sunday Hours ($92,000), and Parks and Recreation Department Senior Trips ($13,000). In addition, $2.6 million of savings in FY 2023/24 was assumed and carried over to FY 2024/25 for the following: Commerce Plaza maintenance and repair costs ($1.5 million), contractual services for organizational structure review ($100,000), small business assistance ($30,000), personnel investigations ($75,000), ethics documents review ($100,000), labor negotiations ($100,000), City Council initiatives ($250,000), employee recognition ($200,000), and IT analysis ($100,000), and Base Budget adjustments ($127,000). Factoring out the $2.9 million of assumed uses of FY 2023/24 savings, Materials, Services and Supplies expenditure savings totaled $2.5 million.
Transfers of $21.1 million occurred as budgeted.
Recommended Use of General Fund FY 2023/24 Fund Balance
Recommended budget adjustments will allocate the $17.6 million in additional General Fund balance. Actions are also recommended to allocate additional funding, including stadium settlement funds and FEMA reimbursements for prior year Covid-related expenses. These actions are summarized below and detailed in Attachment 2.
Table 4 - Recommended General Fund Budget Actions
|
Recommended Adjustments |
$ Impact |
|
Fund Balance Reconciliation (adjusts for FY 2023/24 year-end revenues and expenditures) |
$17.6 M |
|
Recommended Adjustments |
|
|
General Obligation Bond Implementation (cover staffing and other costs that are not eligible for bond funding) |
$1.00 M |
|
Finance - FHRMS Capital Project (PeopleSoft Upgrade, Purchasing/Contracts Module, P-Cards, Inventory Management) |
$1.00 M |
|
New Commerce/Peddler's Plaza Maintenance Capital Project (from excess rent revenue collected over prior two fiscal years) |
$0.43 M |
|
Transfer to the new Fire CUPA Fund (Fire hazardous materials regulation funded from excess FY 2023/24 revenue) |
$0.39 M |
|
Human Resources Department (labor negotiations, safety evaluations, and as-needed staffing for recruitments) |
$0.34 M |
|
Central Park Library Concrete Sidewalk Replacement Capital Project (increase based on the latest engineer’s estimate) |
$0.22 M |
|
City Clerk - FY 2024/25 Election Costs (based on latest estimates from the County) |
$0.08 M |
|
Human Resources Department - Safety Program Staff (1.0 Division Manager and 1.0 Management Analyst); cost to be absorbed in FY 2024/25 with ongoing cost of $524,000 |
$0.00 M |
|
Capital Projects Reserve (Increase CPR from project savings at the end of FY 2023/24) |
$0.10 M |
|
Transfer from Capital Funds to Return Project Savings to Capital Projects Reserve |
($0.10 M) |
|
Transfer from the PW Capital Projects Management Fund (return FY 2023/24 savings) |
($0.16 M) |
|
Commerce/Peddler's Plaza Carryover Reduction (reduce carryover from FY 2023/24 to FY 2024/25 based on actual FY 2023/24 expenses) |
($1.00 M) |
|
Pension Trust Reserve (1% of GF unfunded liability/bring reserve to 6.4% of liability, other funds will be increased to 10%) |
$5.38 M |
|
Budget Stabilization Reserve (with FEMA reimbursements and Stadium settlement funds, the BSR would increase by $16.2 M (from $53.8 M to $70.0 M); reserve increased from 18% to 23.8% of expenditures |
$7.52 M |
|
Ending Fund Balance (set aside funds to address funding needs that arise during FY 2024/25) |
$2.40 M |
|
Total Adjustments to Allocate Additional Fund Balance |
$17.60 M |
|
Other Adjustments |
|
|
Transfer from the Other City Departments Operating Grant Trust Fund (FEMA COVID Reimbursements)/Budget Stabilization Reserve |
$1.36 M |
|
Other Revenue (Stadium Settlement Funds)/Budget Stabilization Reserve (performance rent for FY 2022/23 and FY 2023/24) |
$7.32 M |
|
Total Other Adjustments |
$8.68 M |
|
Total Adjustments |
$26.28 M |
Capital Projects, Grants, Donations and Other Carryover Reconciliation
Estimates were used to carryover unspent Capital Improvement Program (CIP) funds from FY 2023/24 to FY 2024/25 during the FY 2024/25 and FY 2025/26 adopted CIP budget process. Attachment 2 includes the reconciliation of those project carryover true-up amounts based on actual year-end activity totaling a carryover increase of $20.9 million. When combined with the capital project carryovers included in the FY 2024/25 budget adopted in June 2024, the capital project carryovers to FY 2024/25 total $300.8 million.
Attachment 2 also includes amendments to certain capital projects, totaling $6.8 million. In addition to the year-end true-up amounts and amendments for capital projects, the appropriation carryover of donations and reimbursements of $2.5 million, grants of $8.5 million, and other expenditures that are neither donations nor grants of $6.9 million are also included in Attachment 2.
Other Funds
Attachment 3 - Summary of Revenue and Expenditure Performance summarizes budget to actual performance for the City’s General Fund, Special Revenue Funds, Enterprise Funds, Internal Service Funds, Debt Service Funds, Other Agency Funds, and Capital Funds. By default, year-end savings in the other funds revert to fund balances or are re-appropriated to the next year’s budget through the recommended carryover of expenditures. Any recommended FY 2024/25 budget adjustments are included in Attachment 2 and a summary of the fund balance reconciliations is included in Attachment 4. Following are highlights of the FY 2023/24 performance of other City funds.
Enterprise Funds
Enterprise funds are used to finance and account for operations and activities performed by designated departments in the City or through third-party agreements. The operating revenues and expenses result from providing services and producing and delivering goods in connection with an enterprise fund’s principal ongoing operations. Principal operating revenues of the City’s enterprise funds are charges to customers for services. Operating expenses for the City's enterprise funds include the costs of sales and services, administrative expenses and maintenance of capital assets. Following is a discussion of select Enterprise Funds.
Convention Center Enterprise Fund
The Convention Center Enterprise Fund accounts for the operations of the City’s Convention Center through third-party agreements. The FY 2023/24 final budget reflects the operating budget of the concession’s vendor, the operations management vendor, as well as the City. In FY 2023/24, revenues of $19.7 million were $4.1 million above the budgeted estimate of $15.6 million, while expenditures and encumbrances of $17.6 million ended the year $1.1 million above the final budget of $16.5 million. A budget ratification to correct the overage for FY 2023/24 is included in Attachment 1 due to the higher costs associated with having more events at the Convention Center. The Convention Center performed significantly better in FY 2023/24 as a result of the increase in events. The FY 2023/24 ending fund balance of $7.9 million was $2.8 million above the estimated level of $5.1 million used to develop the FY 2024/25 budget.
A budget action is included in this report to establish an Operations and Maintenance Reserve, consistent with the other enterprise funds.
Electric Utility Fund
The Electric Utility Fund accounts for the operation and maintenance of the City’s electric utility service. This fund receives majority of its revenues from user service charges collected from residential, commercial, and industrial customers.
In FY 2023/24, total revenues and transfers of $732.6 million were above the budget of $724.8 million by $7.8 million, primarily as a result of higher than estimated Interest, wholesale revenue, and charges for services. Customer service charges totaled $654.5 million, reflecting an increase of 17.4% from the $557.4 million received in FY 2022/23; this revenue level was $1.2 million above the budget of $653.3 million. When compared to the prior year, revenues of $712.9 million were up $84.7 million, or 13.5%, from the $628.2 million received in FY 2022/23. Transfers of $19.6 million occurred as budgeted.
Expenditures, including encumbrances and transfers, of $640.0 million were $34.8 million below the budget of $674.8 million. This is attributed primarily to savings in salaries and benefits due to vacancies and savings in resource and production expenditures. Resource and production expenditure savings were due to lower purchase power (including fuel) and transmission expenses.
The total unrestricted fund balance and reserves ended the year at $421.5 million, which was $55.2 million higher than the estimates used to develop the FY 2024/25 budget.
Sewer Utility Fund
The Sewer Utility Fund accounts for the maintenance of the City’s sewer lines and related facilities. These services are provided on a user charge basis to residences and businesses, which is the primary source of revenue for this fund. Revenue receipts totaled $48.4 million, which was $4.9 million above the budgeted estimate of $43.5 million primarily due to the return of funding from the City of San José for the Regional Wastewater Facility capital project. This reflects the reconciliation of the City of Santa Clara’s share of the actual project costs from the prior year. Actual expenditures, including encumbrances and transfers to other funds totaled $36.9 million, ending the year $16,118 above the final budget. This is primarily due to higher resource and production costs. A budget ratification to correct the FY 2023/24 overage is included in Attachment 1 of this report.
The unrestricted ending fund balance and reserves totaled $34.8 million, up $2.7 million from the estimate used to develop the FY 2024/25 budget.
Solid Waste Fund
The Solid Waste Fund accounts for the operations of the City’s solid waste collection and disposal system. This fund receives the majority of its revenues from user service charges and other fees for street sweeping, household hazardous waste, and Clean-Up Campaign services. FY 2023/24 revenues of $39.3 million ended below the budget of $39.9 million by $0.6 million, primarily due to lower refuse collection charges. Expenditures, including encumbrances and transfers, of $39.6 million were $4.5 million below the budget of $44.1 million. This is attributed primarily to lower resource and production and material/services/supplies expenditures. The unrestricted ending fund balance and reserves totaled $12.9 million, which was higher than the $9.1 million assumed in the development of the FY 2024/25 budget.
Water Utility Fund
The Water Utility Fund accounts for the operation of the City’s water utility services. These services are provided on a user charge basis to residences and businesses, which is its primary source of revenue. In FY 2023/24, actual revenue totaled $58.2 million, ending under the budgeted estimate of $60.7 million by $2.5 million. Actual expenditures, including encumbrances and transfers to other funds, totaled $56.0 million, ending the year approximately $0.8 million under the final budget of $56.8 million.
The unrestricted ending fund balance and reserves totaled $17.6 million, which was higher than the $14.1 million fund balance estimate used in the development of the FY2024/25 Adopted Budget.
Special Revenue Funds
Special Revenue Funds are established to account for specific revenue sources that are legally restricted or committed to particular purposes. Following is a discussion of the City Affordable Housing Fund.
City Affordable Housing Fund
This fund promotes and facilitates the construction and retention of affordable housing and accounts for the City’s Below-Market Price Purchase (BMP) Program to assist low- and moderate-income families achieve the goal of homeownership. Revenues in this fund are received from developer in-lieu fees, equity share, principal and interest repayments on housing loans, and interest income on pooled investments.
In FY 2023/24, revenues totaled $0.9 million, which was $0.2 million below the budgeted estimate of $1.2 million primarily due to lower interest on housing loans. FY 2023/24 expenditures and encumbrances of $3.8 million ended the year below the budget of $15.4 million by approximately $11.6 million. Of that unexpended amount, approximately $5.0 million reflects funding for the Civic Center Drive - Low Income Housing project. The carryover of this $5.0 million is recommended in this report to complete this project in the current fiscal year. Also, part of this balance was funding for the HomeKey project on Benton/Lawrence totaling $5.1 million. This amount was carried over, approved separately by the City Council on October 29, 2024.
Based on actual FY 2023/24 revenues and expenditures, the ending fund balance ended the year $11.5 million above the estimate used to develop the FY 2024/25 Adopted Budget.
Required FY 2023/24 Budget Ratifications
Based on the City Charter, the legal appropriation control is designated at the department or office level within a fund. In certain Internal Service and Special Revenue Funds, appropriations are allocated by function rather than departments or offices. In these funds, the appropriation control is at the fund level. Below the appropriation level are expenditure categories and line items. In many cases, actual expenditures may exceed the categories or line items within a department; however, savings from other categories and line items within the same department and fund may offset these overages (for example, savings due to staff vacancies may be offset by an increase in contractual services).
Attachment 1 - FY 2023/24 Budget Amendments describes the appropriations that exceeded the appropriation control authority and are recommended to be adjusted in order to meet the legal appropriation control limit. There were overages in 14 appropriations totaling $1.6 million in 10 funds, which were offset by available fund balance and revenues in all funds. In several cases, the overages were driven by higher revenues and activity levels that resulted in additional expenditures.
Unfunded Retirement Liability
As summarized in Table 5, the Pension Stabilization Reserves in the various funds totaled $42.8 million at the end of FY 2023/24. Per the City’s Budget and Fiscal Policies, the goal is to increase the reserve levels by 1% of the unfunded pension liability each year with a targeted level of 10% by the end of FY 2024/25.
A total contribution of $6.4 million to the pension trust fund is recommended in this report to meet the 10% target in all funds except the General Fund. The recommended General Fund contribution is set at 1% of the unfunded liability and would bring that reserve to just over 6.4% of the total unfunded liability. The General Fund has a lower funded percentage because additional contributions were not made in some of the prior fiscal years due to the significant budget challenges. In total, reserve levels are projected at $49.2 million, or approximately 7.2% of the City’s pension liability amount, based on the figures to be reported in the Consolidated Annual Financial Report GASB 68 Report.
Table 5 - Summary of Unfunded Retirement Liability and Pension Stabilization Reserve
Status of Selected Reserves
As shown in Table 6 below, there is an overall increase in the City’s selected reserves in FY 2024/25. In the FY 2024/25 Budget, the net increase of $20.9 million was primarily the result of increases to the Rate Stabilization and Operations and Maintenance Reserves across all enterprise funds in the City.
The recommended actions in the Year-End Report adjust various reserves, resulting in an increase of $104.5 million. This primarily reflects recommended budget actions to increase the Budget Stabilization Reserve in the General Fund and increases to the Rate Stabilization and Operation and Maintenance reserves in the enterprise funds. This also reflects the increase of $8.9 million to the Pension Trust Reserve, which includes the allocation of FY 2023/24 investment earnings to these reserves as well as adjustments to meet the targeted reserve levels as discussed above.
Table 6 - Summary of Selected Reserves
($ in millions)
ENVIRONMENTAL REVIEW
The actions being considered do not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to section 15378(b)(4) of Title 14 of the California Code of Regulations in that they are 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
The fiscal impact of each fund’s results is discussed in detail in the body of this report and attachments. This report includes detailed descriptions of recommended budget amendments (Attachment 1 and 2); summary of year-end performance for the General Fund, Special Revenue Funds, Enterprise Funds, Internal Service Funds, Debt Service Funds, Other Agency Funds, and Capital Funds as described in the body of this report (see Attachment 3 tables for revenue and expenditure details); and a summary of beginning and ending fund balance adjustments for each fund due to actual results (Attachment 4). Approval of Budget Amendments included in Attachments 1 and 2 is recommended in this report.
COORDINATION
This report was 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>.
RECOMMENDATION
Recommendation
1. Note and file the FY 2023/24 Budget Year-End Report.
2. Establish a Certified Unified Program Agency (CUPA) Fund to account for CUPA-related activities to be managed by the Fire Department.
3. Approve the FY 2023/24 Budget Amendments to address necessary budget ratifications totaling $1,590,060 in 10 funds as set forth in Attachment 1 of this report (five affirmative Council votes required for revenue actions and the use of unused balances as noted for each item in Attachment 1).
4. Approve the FY 2024/25 Budget Amendments, as set forth in Attachment 2. This includes actions in the General Fund to distribute excess funding from the close-out of FY 2023/24 and actions to recognize FEMA reimbursements and Stadium settlement revenue, as detailed below (five affirmative Council votes required to appropriate additional revenue and for the use of unused balances):
a. Increase the Budget Stabilization Reserve in the amount of $7,525,130, offset by an increase to the Beginning Fund Balance, a decrease in expenditures, and transfers from other funds;
b. Increase the Pension Stabilization Reserve in the amount of $5,379,912, offset by an increase to the Beginning Fund Balance;
c. Increase the Non-Departmental budget by $1,000,000 for General Obligation Bond Implementation, offset by an increase to the Beginning Fund Balance;
d. Increase the Human Resources Department budget by $343,000, offset by an increase to the Beginning Fund Balance;
e. Increase the City Clerk’s Office budget by $82,000, offset by an increase to the Beginning Fund Balance;
f. Increase the Transfer to the General Government Capital Fund for the FHRMS Update Project in the amount of $1,000,000, offset by an increase to the Beginning Fund Balance;
g. Increase the Transfer to the Public Buildings Capital Fund for the Building Parking Lot Improvements Project in the amount of $216,000 to fund the library concrete sidewalk replacement project, offset by an increase to the Beginning Fund Balance;
h. Increase the Transfer to the Public Buildings Capital Fund and establish the Commerce/Peddler’s Plaza Maintenance Project in the amount of $429,894 to fund the maintenance of the two properties, offset by an increase to the Beginning Fund Balance;
i. Increase the Transfer from the Other City Operating Grant Trust Fund in the amount of $8,135 to return unused funding related to Covid-19 and to close out the Tobacco Free Cities Grant Program, offset by an increase to the Budget Stabilization Reserve;
j. Increase the Transfer from the Public Works Capital Projects Management Fund in the amount of $162,667 to return savings, offset by an increase to the Budget Stabilization Reserve;
k. Increase the Transfer from the General Government Capital Fund in the amount of $84,237 to return capital project savings and increase the Capital Projects Reserve by $84,237;
l. Increase the Transfer from the Parks and Recreation Capital Fund in the amount of $2,642 to return capital project savings and increase the Capital Projects Reserve by $2,642;
m. Increase the Transfer from the Streets and Highways Capital Fund in the amount of $11,576 to return capital project savings and increase the Capital Projects Reserve by $11,576;
n. Establish a transfer to the newly established Fire CUPA Fund in the amount of $392,826 to track all CUPA-related activities separately, offset by an increase to the Beginning Fund Balance;
o. Decrease the Commerce/Peddler’s Plaza carryover in the City Manager’s Office in the amount of $1,000,000, offset by an increase to the Budget Stabilization Reserve;
p. Increase the Transfer to the Patrick Henry Infrastructure Improvement Fund in the amount of $4,266, offset by an increase to the Beginning Fund Balance;
q. Recognize Beginning Fund Balance - Restricted for Prepayments in the amount of $93,892 and increase the Public Works Department appropriation for remaining developer deposits for third party plan review and inspections;
r. Recognize Stadium settlement revenue in the amount of $7,324,722 and increase the Budget Stabilization Reserve by $7,324,722;
s. Recognize a Transfer from the Other City Departments Operating Grant Trust Fund in the amount of $1,356,446 to recognize FEMA reimbursements for Covid-related expenses and increase the Budget Stabilization Reserve by $1,356,446; and
t. Increase the Unrestricted Ending Fund Balance by $2,400,000 to set aside funds to address funding needs that arise during FY 2024/25.
5. Add 1.0 Division Manager and 1.0 Management Analyst in the Human Resources Department to support the City’s safety program, employee wellness, and the workers’ compensation program.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. FY 2023/24 Budget Amendments
2. FY 2024/25 Budget Amendments
3. Summary of Revenue and Expenditure Performance by Fund
4. Summary of Fund Balance Adjustments