REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for September and October 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 September and October 2022 are submitted for your information. The financial reviews as of September 30, 2022 and October 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 annual budget 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 includes this information monthly in the financial status report.
DISCUSSION
Monthly Financial Status Report (Attachments 1 and 3)
The attached reports summarize the City’s financial performances as of September 30, 2022 and October 31, 2022. Financial analysis is provided for the General Fund, select Special Revenue Funds, Enterprise Operating Funds, and Capital Improvement Funds.
Attachment 1 shows that General Fund revenues (excluding transfers) were trending below budget at 13% through September 2022, largely due to the timing of payments, while Attachment 3 shows General Fund revenues at 20% through October 2022. In both cases, some of the revenues received through September and October account for activity that occurred in FY 2021/22 and those revenues are accrued back to that year. In other cases, such as property tax, most payments are scheduled to occur later in the fiscal year. While it is very early in the fiscal year and limited data is available, General Fund revenues are currently tracking within estimated levels.
As shown in Attachment 1, General Fund departmental expenditures were at 23.1% of budget through September 2022 and Attachment 3 shows General Fund departmental expenditures at 30.9%. Several cost-control measures that were implemented in FY 2019/20 remain in place to generate expenditure savings. These measures include a hiring freeze and controls around overtime, as-needed staff, marketing, travel, technology and vehicle purchases. With these measures, expenditures are expected to end the year below budget.
As shown in Attachment 1 (September 2022) and Attachment 3 (October 2022), total revenues for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 20.6% (September 2022) and 29.1% (October 2022) of the budget. Total expenses were at 20.4% through September and 28.6% through October.
In the months of September and October, the City received $21,430 and $25, respectively, in donations, bringing total donations for FY 2022/23 to $31,999.
Economic indicators are mixed, and there is a tremendous amount of uncertainty. Given this level of uncertainty, the December 2022 UCLA Forecast presented a two-scenario economic forecast - a recession scenario and a no recession scenario. The difference in these scenarios is tied to the Federal Reserve in its setting of monetary policy. Many companies are anticipating a slowdown. A survey of 400 leaders of large U.S. companies by the KPMG consulting firm found that 91% of these CEOs are predicting a recession in the next 12 months with only 34% believing the recession will be mild and short. Consumers are also more pessimistic about current economic conditions. The Conference Board Consumer Confidence Index declined in November 2022 after losing ground in October.
On a national level, the unemployment rate remained unchanged at 3.7% between October 2022 and November 2022. This rate was well below the record setting high of 14.7% in April 2020, and slightly above to the pre-pandemic unemployment rate of 3.5%. In November, the number of unemployed persons dropped slightly to 6.0 million from 6.1 million in October. This unemployment figure has increased above the pre-pandemic level of 5.7 million. In the third quarter 2022 second estimate, the Gross Domestic Product (GDP) increased by 2.9%, following a GDP decrease of 0.6% in the second quarter. The increase in the third quarter primarily reflected increases in exports, consumer spending, business investment, and government spending that were partly offset by a decrease in housing investment and inventory investment.
After the State’s largest increase in the unemployment rate in April 2020, the California unemployment rate increased slightly from 3.8% in September 2022 to 4.0% in October 2022. It is important to note that the September 2022 unemployment rate of 3.8% was the lowest on record for this data set that dates back to 1976. The October 2022 rate is lower compared to the 6.1% rate in October 2021. California has now not only regained all of the 2.76 million nonfarm jobs lost due to COVID-19 in March and April 2020, it has now surpassed it with a gain of 2.79 million jobs since that time. The unadjusted unemployment rate in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) remained unchanged at 2.2% between October 2022 and September 2022.
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 (Attachments 2 and 4)
All securities held by the City of Santa Clara as of September 30, 2022 and October 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 September and October 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 1.56% in September and 1.64% in October.
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. Recommended budget amendments are detailed in Attachment 5. In the Parks and Recreation Capital Fund, actions are included to reallocate funding from the Park Impact Fees Monitoring project to the new Parks and Recreation Master Plan and Facility Condition Assessment Update projects as well as allocate unspent Quimby and Mitigation Fee Act (MFA) fees to the Quimby Developer Reimbursement project and the new MFA Developer Reimbursement project. In the Streets and Highways Capital Fund, actions are recommended to recognize other agency revenue as well as increase a transfer from the Traffic Mitigation Fund to create the new Pruneridge Avenue Signal Timing project.
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 September and October 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 September 2022
2. Monthly Investment Report September 2022
3. Monthly Financial Status Report October 2022
4. Monthly Investment Report October 2022
5. FY 2022/23 Budget Amendments