REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for April 2023 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 2023 are submitted for your information. The financial reviews as of April 30, 2023 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 (Attachment 1)
The attached reports summarize the City’s financial performance as of April 30, 2023. 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 at 87.5% of the budget through April 2023. General Fund revenues are currently tracking to end the year above the budgeted estimate due to strong performance in a number of categories, including transient occupancy tax, use of money and property, transfers from City utilities, and miscellaneous revenues.
As shown in Attachment 1, General Fund departmental expenditures were at 76% of budget through April 2023. This reflects savings from vacant positions as well as savings generated from cost-control measures that were implemented in FY 2019/20. Expenditures are expected to end the year below budget.
As shown in Attachment 1, total revenues for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 78.4% of the budget through April 30, 2023, while total expenses were at 77.3%. Budget actions are recommended in this report to address higher expenditures in the Electric Utility Fund. Expenditures in this fund are tracking to end the year above budget due higher power purchase and production costs, which are driven by the spikes in natural gas prices. It is anticipated that higher revenues will partially offset these higher costs with the remainder addressed with the use of fund balance. Budget actions are also recommended to address higher expenditures in the Water Recycling Fund and the Cemetery Fund.
In the month of April, the City received $312 in donations, for total donations of $35,655.
Economic indicators are mixed, and there is a tremendous amount of uncertainty. Given this level of uncertainty, the December 2022, March 2023 and June 2023 UCLA Anderson Forecasts presented a two-scenario approach: recession scenario and no recession scenario. The recession scenario predicts a recession occurring at the end of 2023, where “inflation would have continued to come own too slowly in not for the continued Federal Reserve rate hikes. In this scenario, the Federal Reserve forces a mild recession and accepts an economic contraction and higher unemployment to combat inflation.” In the no recession scenario, “economic growth slows but remains positive, inflation ebbs, labor markets slacken mildly, just enough to quell wage inflation, and the Federal Reserve eases its approach to monetary policy tightening” (UCLA Anderson Forecast, June 2023, The More Things Change the More They Stay the Same: Recession or No Recession is Still the Question).
On a national level, the unemployment rate changed little in April 2023 to 3.4% from 3.5% in March 2023. This rate was well below the record setting high of 14.7% in April 2020, and slightly lower than the pre-pandemic unemployment rate of 3.5%. In April, the number of unemployed persons was 5.7 million, which is consistent with the pre-pandemic level of 5.7 million. In the first quarter 2023 advance estimate, the Gross Domestic Product (GDP) increased by 1.1% as a result of higher consumer spending, exports, and federal, State and local spending.
The California unemployment rate was 4.5% in April 2023, up from 4.4% in March 2023 and 4.1% in April 2022. Since April 2020, California has gained 3.12 million jobs; regaining all of the 2.76 million nonfarm jobs lost due to COVID-19 in in March and April 2020. The unadjusted unemployment rate in the San José-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) was 3.0% in April 2023, down slightly from a revised 3.3% in March 2023 but is above the April 2022 level of 2.5% and the February 2020 pre-pandemic level of 2.6%. Between April 2022 and April 2023, employment in this region increased by 32,200 jobs, or 2.8%.
Staff will bring forward the General Fund revenues and the City’s overall financial performance through June 30, 2023 at a later date as part of the Budgetary Year-End Report.
Monthly Investment Report (Attachment 2)
All securities held by the City of Santa Clara as of April 30, 2023 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 2023 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 securities portfolio return of 1.99% 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. Recommended budget amendments are detailed in Attachment 3.
In the General Fund, actions are recommended to recognize fire-related fee and reimbursement revenue and appropriate the funds to the Fire Department. A transfer from the General Fund to the Vehicle Replacement Fund is recommended to fully fund the replacement of a fire truck and a transfer to the General Government Capital Fund is recommended to support the FHRMS (Finance and Human Resources software system) Update project, funded by savings in the Finance and Human Resources Departments and Non-Departmental. Additional funding is also recommended to allocate savings from Non-Departmental to the Fire Department for benefits costs.
Actions are recommended in the Electric Utility Fund to recognize and appropriate additional revenue as well as allocate fund balance to address the higher than anticipated power purchase costs. There are also amendments to shift unrestricted fund balance to various reserves in the fund to meet reserve targets. In addition, actions are recommended to appropriate additional funding in the Cemetery Fund for higher personnel costs and to recognize revenue in the Cemetery Capital Fund. In the Electric Utility Capital Fund, various transfers are recommended from the Water, Sewer, and Recycled Water Utilities to add funding for the Electric Yard Building and Grounds project. Additional actions are also included to shift funding from the Major Engine Overhaul and Repair project to the Replace Balance of Plant Control System project and to recognize and appropriate revenue to the San Tomas Junction project. Actions are also included in the Electric Utility Debt Service Fund to add funding for higher administrative costs.
Several actions are recommended in the Expendable Trust Fund to recognize and appropriate revenue for services rendered by the Information Technology and Public Works Departments. Attachment 3 also recommends recognizing and appropriating seized asset funding to the Police Department. There are also amendments in the Fire Operating Grant Trust Fund, Parks and Recreation Operating Grant Trust Fund, and Public Donations fund to recognize and appropriate various fees, reimbursements and donations from other agencies.
In the Housing and Urban Development Fund, actions are included to adjust the HOME administration appropriation to align the personnel budget to actual activity. Actions to recognize and appropriate fee revenue to several projects in the Parks and Recreation Capital Fund are also recommended. An action is included in the Related Santa Clara Developer Fund to increase the Other Development Project Services appropriation, which is anticipated to be reimbursed by the developer.
In the Sewer Utility Capital and Water Utility Capital Funds, recommendations are included to appropriate additional funding to various projects that had higher than anticipated construction and engineering costs. An action is also included to appropriate funding to the resource and production category in the Water Recycling Fund to account for higher usage. An amendment in the Solid Waste Fund is included to appropriate funding for contracts and personnel costs related to the implementation of SB1383 Local Assistance Grant Program. An amendment is also included in the Solid Waste Capital Fund to increase the Sanitary Landfill Development - Post Closure project for higher than anticipated costs associated with pest control and winter storm repairs.
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 2023 as presented and Approve the Related Budget Amendments (five affirmative Council votes required to appropriate additional revenue or for the use of unused balances).
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jōvan D. Grogan, City Manager
ATTACHMENTS
1. Monthly Financial Status Report - April 2023
2. Monthly Investment Report - April 2023
3. FY 2022/23 Budget Amendments