REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for February 2021 and Approve 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 February 2021 Monthly Financial Report and Investment Report are submitted for your information.
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 (Attachment 1)
The attached report summarizes the City’s financial performance as of February 28, 2021. Financial analysis for the report is provided for the General Fund, select Special Revenue Funds, Enterprise Operating Funds, and Capital Improvement Program Funds.
Attachment 1 shows that General Fund revenues were trending below the budget at 58.3% through February 2021. Excluding transfers that occur at the beginning of the year, this figure drops to 50.2% of the General Fund revenues received through February. Some revenue categories are lower due to the timing of payments (e.g., property tax), but several categories are tracking below as a result of COVID-19 impacts. Based on current trends, revenue is expected to end the year below budget by $25+ million due to these COVID-19 impacts, with the largest impact to the Transient Occupancy Tax category. On March 9, 2021, the City Council approved budget actions that reduced the FY 2020/21 revenue estimates by $17.3 million, addressing the majority of the lower anticipated collections. Additional revenue adjustments may be brought forward at year end. These adjustments are expected to be offset by expenditure savings and, if necessary, the Budget Stabilization Reserve and/or Federal Stimulus funding.
As shown in Attachment 1, General Fund expenditures were at 60% of budget through February 28, 2021. Excluding transfers, this figure drops to 56.7% expended, which is below the par level of 66.7%. Several cost-control measures that were implemented last fiscal year 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. All departments are tracking at or below budget through February and year-end savings are expected to be generated. As part of the March 9, 2021 budget balancing actions, expenditure reductions were brought forward to offset $17.3 million of the lower revenue collections. Additional savings are expected by year end based on current trends.
Total revenues for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 58.4% of the budget. Total Enterprise Fund expenses were at 55.4% through February. Total revenue for Special Revenue Funds (Housing funds) were at 10.3% of the budget, while total expenditures were at 6.7% of budget.
In the month of February, the City received donations of $11,153, bringing the year-to-date total to $88,504. A summary of donations is included in Attachment 1.
With the shelter-in-place and other actions residents and businesses have been taking to reduce the spread of COVID-19, economic activity in this region and throughout the country experienced a significant decline. Economic conditions, however, have started to improve. According to the March 2021 UCLA Anderson Forecast, robust economic growth and recovery is expected in 2021, following the worst economic decline in the last 60 years.
On a national level, the unemployment rate remains high at 6.2% in February 2021. This rate, however, was well below the record setting high of 14.7% in April 2020 and below the peak reached during the last recession a decade ago, when unemployment briefly hit 10%. In the fourth quarter 2020 advance estimate, the Gross Domestic Product (GDP) increased by approximately 4.1%, following a 33.4% increase in the GDP in the third quarter 2020. While there was significant improvement in the last two quarters, real GDP for the fourth quarter 2020 remains 2.4% below the level experienced in the fourth quarter of 2019 (the last quarter prior to the onset of COVID-19).
The unemployment rate in this region continues to outperform the nation. The unadjusted unemployment rate in the San José-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) was 5.4% in February, down from a revised 5.8% in January 2021, but significantly higher than the February 2020 level of 2.6%.
While economic conditions have started to improve, Santa Clara’s General Fund revenues have been significantly impacted this fiscal year and this impact is expected to continue over the longer term as certain sectors take time to recover. In FY 2020/21, a General Fund shortfall of almost $23 million was addressed in the revised FY 2020/21 budget approved in June 2020. This budget was solved with the use of the Budget Stabilization Reserve. Additional downward revenue adjustments and budget balancing actions were approved on March 9, 2021, but further adjustments may be necessary at year-end. Discussion of the COVID-19 impacts and the General Fund performance is included in Attachment 1.
Monthly Investment Report (Attachment 2)
All securities held by the City of Santa Clara as of February 28, 2021 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 February 2021 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 earns a reasonable portfolio return of 1.41%.
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
Approval of the FY 2020/21 Budget Amendments included in Attachment 3 is recommended in this report. 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, an adjustment in the Housing Successor Agency Fund is recommended to correct a previous amendment recognizing developer contributions. These developer contributions should be recognized in the City Affordable Housing Fund, and an associated adjustment in that fund is also included in the attachment. An amendment recognizing a grant in the Library Grant Operating Trust Fund is recommended to provide funding for the Dia De Los Ninos program. There is also an amendment included to appropriate funds in the Special Liability Insurance Fund from the Reserve for Future Claims, to make a payment required by the City’s insurance contract, in satisfaction of the City’s self-insured retention obligation on claims matters. In the Electric Utility Fund and Electric Grant Operating Trust Fund, amendments are included to account for the Financial Rate Assistance Program discount, and in the Water and Sewer Utility funds, the transfers of funding to the Annual Maintenance and Rehabilitation project in the Streets and Highways Capital Fund are recommended.
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>.
RECOMMENDATION
Recommendation
Note and file the Monthly Financial Status and Investment Reports for February 2021 as Presented and Approve Related Budget Amendments in various funds requiring five affirmative votes and consistent with City Charter Section 1305, “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,” as noted for each individual item in Attachment 3.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Monthly Financial Status Report February 2021
2. Monthly Investment Report February 2021
3. FY 2020/21 Budget Amendments