REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for July and August 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 July and August 2022 are submitted for your information. The financial reviews as of July 31, 2022 and August 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 will include 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 July 31, 2022 and August 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 1.8% through July 2022, largely due to the timing of payments, while Attachment 3 shows General Fund revenues at 4.2% through August 2022. In both cases, the revenues in some categories received in July and August 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 6.7% of budget through July 2022 and Attachment 3 shows departmental expenditures at 14.4% through August 2022, which is below the par level of 16.7% of the budget. 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 (July 2022) and Attachment 3 (August 2022), total revenues for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 1.6% (July 2022) and 11% (August 2022) of the budget. Total expenses were at 2.7% through July and 11.5% through August.
In the month of July, the City received $9,401 in donations, while the City received an additional $1,142 in August, for total donations of $10,543.
Economic indicators are mixed, and there is a tremendous amount of uncertainty. According to the UCLA September 2022 Forecast, the labor market remains strong, consumers have continued to spend, supply chain constraints have eased, commodity prices - particularly crude oil prices - have started to decline, domestic manufacturing along with government defense purchases and investments associated with the shift to renewable energy sources are expected to increase. On the flip side, core inflation remains elevated, the Fed is expected to continue to increase interest rates that may constrain consumer spending, consumers are more pessimistic, housing markets are starting to turn with the increases in mortgage rates, U.S. exports have become more expensive for consumers in other countries with the appreciation of the dollar against other currencies, and there is labor unrest with the decline in real wages and a low unemployment rate. While the UCLA Forecast does not forecast a recession at this time, it did point to an increased risk of a recession over the next 12 months. Companies are anticipating a slowdown. A recent 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.
On a national level, the unemployment rate decreased slightly from 3.7% in August 2022 to 3.5% in September 2022. This rate was well below the record setting high of 14.7% in April 2020, and equal to the pre-pandemic unemployment rate of 3.5%. In September, the number of unemployed persons fell to 5.8 million from 6.0 million in August. This unemployment figure has nearly reached the pre-pandemic level of 5.7 million. In the second quarter 2022 estimate, the Gross Domestic Product (GDP) decreased by 0.6% as a result of rising inflation, higher interest rates, and supply chain issues.
At the State level, the UCLA September 2022 Forecast for California points to continued economic growth, but the forecast is a bit weaker than three months ago due to slowing of growth in the U.S. After the State’s largest increase in the unemployment rate in April 2020, the California unemployment rate dropped to 4.1% in August 2022. California has now regained 98.3% of the 2.7 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 2.4% in August 2022, slightly up from 2.2% in July 2022. However, the August 2022 rate is below the rate of 4.7% in August 2021 and 2.6% in February 2020.
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 July 31st and August 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 July and August 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 1.45% in July and 1.51% in August.
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 General Fund, several actions are recommended, including a transfer from the Advanced Planning Reserve to the General Government Capital Fund to support the Downtown Master Plan project, a reallocation of funding from the Non-Departmental budget to the Department of Public Works’ budget to align funding for stormwater report development costs, the recognition of SVP sponsorship funds to support Parks and Recreation community events, and the recognition of sponsorships and donations to support special events and Senior Center activities. In the Electric Utility Fund, an increase to the materials, services and supplies budget is recommended to address various needs. In both the Fire Department Operating Grant Trust Fund and the Public Donations Fund, actions are included to recognize a grant to the Fire Department and a donation to the Parks and Recreation Department, respectively. The attachment also includes a correction to the other fees for services estimate in the Vehicle Replacement 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 <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 July and August 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 - July 2022
2. Monthly Investment Report - July 2022
3. Monthly Financial Status Report - August 2022
4. Monthly Investment Report - August 2022
5. FY 2022/23 Budget Amendments