REPORT TO COUNCIL
SUBJECT
Title
Action on FY 2020/21 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 2021/22 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 on a budgetary basis for the fiscal year ended June 30, 2021 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 2020/21 budget amendments to address expenditure overages at year-end and FY 2021/22 budget amendments necessary based on the final FY 2020/21 results and to allocate the modest General Fund fund balance of $3.3 million. Budget actions in the new American Rescue Plan Act Fund are also included to account for the federal stimulus funds that were budgeted in the General Fund in FY 2021/22.
In FY 2020/21, the City’s revenue collections continued to be impacted by COVID-19, with the largest impact to the Transient Occupancy Tax (TOT) revenue category. The City’s operations were also significantly impacted as various front-line services, such as library hours and recreation activities and events, were limited due to COVID-19 related restrictions, resulting in lower expenditures. Given these impacts, necessary budget rebalancing actions were approved by the City Council in March 2021. Expenditure reductions as well as COVID-19 related expenditure savings were used to offset the lower revenue collections as well as begin addressing the ongoing General Fund budget shortfall.
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 2020/21 (Attachment 1); and
2) FY 2021/22 budget actions, including reconciliations of carryover capital projects, grants, special revenue funds, and donation funds; revisions to the starting FY 2021/22 fund balances and reserves based on the actual FY 2020/21 year-end performance; and any other necessary adjustments (Attachment 2).
In addition to the budget actions, this report includes tables that summarize the performance of other funds (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 fund balance of $5.0 million in the long term. For the FY 2021/22 and FY 2022/23 budget, the City Council approved a Budget Stabilization Reserve level of approximately 19% in FY 2021/22 and 13% in FY 2022/23 due to impacts from COVID-19.
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 2020/21 performance on the General Fund Budget Stabilization Reserve, necessary ratifications to address 2020/21 expenditure overages, the recommended establishment of the new American Rescue Plan Act Fund, 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 ended the year at budget while expenditures ended the year below budget. After the required adjustments to close out FY 2020/21, the General Fund ended the year with a surplus of $3.3 million.
General Fund Revenues
In FY 2020/21, actual revenues of $240.7 million were approximately $0.4 million (0.2%) above the budgeted estimate of $240.3 million as shown in Table 1 below. Revenue came in lower primarily in the Transient Occupancy Taxes (TOT), Other Fees for Services, and Rent categories, with the largest impacts associated with COVID-19. These lower collections were offset by higher than estimated revenues in the Property Tax, Sales Tax, Licenses and Permits, Interest Earnings and Contribution in Lieu categories. It is important to note, however, that the higher development-related revenues will be allocated to the new Building Development Services Fund, the Advanced Planning Fee Reserve, and the Technology Fee Reserve. In addition, the additional interest earnings associated with the Pension Trust Fund will be allocated to the Pension Stabilization Reserve. Excluding those items, revenues ended the year $5.6 million below the budgeted estimate.
Table 1 - FY 2020/21 General Fund Revenues and Transfers In
Final Budget vs. Actual
• Property Tax - the property tax category includes both secured and unsecured taxes. Proceeds from property taxes of $68.8 million were $1.8 million (2.7%) above the budgeted estimate of $67.0 million. This collection level was 5.0% above the FY 2019/20 level of $65.5 million.
• Sales Tax - The sales tax category, which includes general sales tax and public safety sales tax proceeds, totaled $56.2 million. This collection level was $0.6 million (1.0%) above the budgeted estimate of $55.6 million and 1.6% above the FY 2019/20 level of $55.3 million.
• The Other Taxes category includes TOT, franchise tax, and documentary transfer tax. This revenue category ended the fiscal year at $8.8 million, which is $0.8 million (8.3%) below the revised budgeted estimate of $9.6 million primarily due to lower TOT and franchise tax collections. The TOT receipts totaled $2.9 million, which was below the revised estimate of $3.6 million. This category experienced the most immediate and largest drop from COVID-19, with a precipitous drop in both occupancy rates and room rates, with some hotels closing for months. This collection level was down 87% from the pre-COVID level of $22.5 million in FY 2018/19. Franchise Tax receipts of $4.3 million also ended the year below the budgeted estimate of $4.7 million. These lower collections were partially offset by higher documentary transfer tax receipts of $1.5 million that were $0.3 million above the budgeted estimate of $1.2 million, reflecting the strong real estate market in FY 2020/21.
• Licenses and Permits receipts totaled $12.1 million, which was $1.2 million above budgeted estimates due to higher building, electric, plumbing, and mechanical permit revenues. These building-related development revenues ended the year $2.5 million above the budgeted estimate, while other revenues (Fire Permits and Business Licenses) tracked below budget. The additional building-related development revenues, along with building development staff expenditure savings, must be used to support development activity and are recommended to be transferred to the new Building Development Services Fund as part of this document.
• Revenue from Other Agencies totaled $2.47 million, which was $0.03 million (1.4%) below the budgeted estimate of $2.50 million. The majority of this revenue was generated from mutual aid reimbursements for services provided by the Fire Department and the City’s portion of Successor Agency lease revenues, collected on behalf of the County of Santa Clara and distributed to the various taxing entities.
• The Other Fees for Services category encompasses various fees collected for plan check and zoning, engineering, fire prevention, as well as recreational activities. In FY 2020/21, revenue in this category totaled $35.2 million, or $4.3 million below the final budget of $39.5 million. This lower collection level can primarily be attributed to lower planning and zoning fees, fire construction permits, and Stadium-related reimbursements. The lower Stadium-related reimbursements of $2.0 million were offset by expenditure savings.
• Interest earnings ended the year $2.0 million higher than budget due to higher investment earnings accumulated through the Pension Trust Fund of $2.4 million. These earnings are required to be added to the Pension Stabilization Reserve.
• Rent collections of $9.2 million came in below the budgeted estimate of $10.1 million The budget in this category included estimated revenue of $750,000 from the Related project, which was not received due to the timing of this project.
• Contribution In-Lieu revenues are directly related to the revenues collected by the City’s Electric Utility Department, Silicon Valley Power (SVP). Per the City’s charter, SVP pays 5% of their gross cash revenues for services rendered. Based on SVP’s actual cash revenue collections through June 30, 2021, the City’s General Fund received $24.5 million, which was $0.8 million above the budgeted estimate of $23.7 million and $1.8 million (8.1%) above the FY 2019/20 receipts of $22.7 million.
• Transfers of $10.4 million came in above the budgeted estimate of $10.2 million due to the return of project savings, totaling $0.2 million, from the Parks and Recreation Capital Fund that was allocated to the Capital Projects Reserve.
General Fund Expenditures
In FY 2020/21, actual expenditures of $271.0 million were $11.3 million (4.0%) below the budget of $282.3 million as shown in Tables 2 and 3 below. Overall, departments ended the fiscal year within their final budget, reflecting the expenditure controls implemented due to COVID-19. For example, in response to the economic environment stemming from impacts of the COVID-19 pandemic, the City implemented various cost savings strategies at the end of March 2020 that continued in FY 2020/21. These actions included a hiring freeze in addition to more controls across overtime, as-needed staffing, marketing, travel, and technology and vehicle purchases. Budget rebalancing actions were also approved in March 2021 and are factored into the final budget figures presented in this report.
The detailed comparison of budget to actual expenditures are shown in Tables 2 and 3, with Table 2 showing the expenditures by department and Table 3 showing expenditures by category (e.g., salaries; materials, services and supplies; and transfers).
In evaluating the expenditures by department (Table 2), all departments remained within their General Fund budgets with the largest savings in the Non-Departmental (primarily managed by the City Manager’s Office), Community Development, Library, and Fire Departments. Non-Departmental savings include lower Stadium-related costs of $1.9 million due to COVID-19 impacts on events, offset by lower reimbursement revenue. Building-related savings of $1.4 million in the Community Development Department are recommended to be carried over to FY 2021/22 to fund consultant services to meet the high demand for development services. These funds, however, will now be reflected in the Building Development Services Fund. A portion of the Fire Department savings ($0.3 million) was carried over to FY 2021/22 to complete purchases for various supplies and equipment. The Fire Department also had expenditures of $0.9 million in the Other City Departments Operating Grant Trust Fund for COVID-19 related costs.
Table 2 - FY 2020/21 General Fund Expenditures and Transfers Out
Final Budget vs. Actual by Department
Note: Non-Departmental staff and initiatives are primarily managed by the City Manager’s Office.
When evaluating the expenditures by category as shown in Table 3, the personnel-related expenditures were $4.4 million below budget while the non-personnel expenditures were $6.9 million below budget.
Personnel expenditures totaled $184.1 million and ended the year $4.4 million, or 2.3%, below the budget of $188.5 million. This reflected benefits savings of $4.8 million that were partially offset by a salaries overage of $0.4 million. The salaries overage was due to higher other salary expenses (holiday pay, board member stipends, and separation payouts) of $2.2 million that were partially offset by savings in wages (full-time and as-needed) of $1.0 million and overtime of $0.8 million. The other salary expenses overage was due to separation payouts of $2.2 million. The budget for separation payouts of $1.8 million was reallocated to the Other City Departments Operating Grant Trust Fund to cover COVID-19 related costs as part of the April 2021 Monthly Financial Report. Based on projections, these costs were to be absorbed within the various departments.
Non-Personnel expenditures totaled $86.9 million and ended the year $6.9 million, or 7.4%, below the budget of $93.9 million. Almost all of the savings were generated in the Materials, Services and Supplies ($6.8 million) category. This includes Stadium-related savings of $1.9 million and savings of $1.4 million in the Building Division that are recommended to be carried over to FY 2021/22 for consultant services (to be reflected in the Building Development Services Fund). The FY 2021/22 and FY 2022/23 Adopted Operating Budget also included the carryover of $0.3 million in Fire Department non-personnel funding for various supplies and equipment (e.g., mattresses, iPad replacements, portable monitors, and the capital outlay for a future fire engine replacement) that were not purchased by the end of FY 2020/21. A carryover of $0.1 million is also recommended in this report for organizational analysis of Information Technology services.
Table 3 - FY 2020/21 General Fund Expenditures and Transfers Out
Final Budget vs. Actual by Category
General Fund Budget Adjustments
As detailed in Attachment 2, a series of General Fund budget adjustments are recommended to:
• reconcile the fund balance and reserves to the FY 2020/21 ending fund balances;
• reconcile the development fee programs to allocate excess revenues and expenditure savings to the new Building Development Services Fund ($4.3 million) and reconcile the Advanced Planning Fee Reserve to allocate the additional revenue to the reserve ($0.7 million);
• adjust the Capital Projects Reserve to account for the return of FY 2020/21 savings from capital funds for projects initially funded by the General Fund;
• actions necessary to close out FY 2020/21;
• shift the American Rescue Plan Act (ARPA) funding of $25.9 million from the General Fund to a new American Rescue Plan Act Fund to account for the federal stimulus funds; and
• recommended use of $3.3 million in available fund balance from FY 2020/21 to address higher project and program costs in FY 2021/22, to bring the Capital Projects Reserve to budget policy level of $5.0 million, and to fund Council-directed items (e.g., Vision Zero Plan and Homelessness Task Force).
These recommended budget adjustments will allocate the $8.8 million in additional General Fund fund balance at the end of FY 2020/21. These actions include required adjustments of $5.5 million to close out FY 2020/21 as well as additional recommended adjustments of $3.3 million.
Table 4 - Impact of FY 2020/21 General Fund Year-End Performance
on the Ending Fund Balance/Budget Stabilization Reserve (BSR)
As shown in the chart above, $0.4 million is available for Council directives. Generally, these funds would be placed in the Budget Stabilization Reserve and a portion in the Pension Trust. However, the City Council has expressed interest in funding several items that are reflected below, and prior to bringing budget actions, staff would like to bring to the Council’s attention that the initiatives far exceed the amount of funds available:
• El Camino Specific Plan land use plan approved by Council, but left unfunded
• Train noise mitigation and consultant resources in support of a Quiet Zone
• Homelessness Task Force and short-term support for homeless services (e.g., trash, hygiene services, etc.)
• Vision Zero Plan and resources for the study
• Transportation Demand Management and dedicated resources to monitor and conduct audits regarding compliance
• Civic Center parking
• Lawn bowl facility
It should be noted at the November 16, 2021 City Council meeting, direction was provided to identify a funding source for the Vision Zero plan at a cost of $315,000. If the Council were to prioritize this item, funds could be used from the recommended Council Directives allocation; however, that action alone results in spending about 80% of all of the discretionary funds available for the Council to use on its policy priorities. Prior to the Council action on a separate budget amendment for the Vision Zero initiative, staff wanted to bring this fiscal impact to the Council’s attention.
Alternatively, the Council could postpone that decision to the Priority Setting Session to evaluate that proposal in the broader context of all priorities, funded and unfunded, as well as the updated Ten-Year General Fund Forecast. Given that the Budget Stabilization Reserve has already been reduced to 13% of the total General Fund by FY 2022/23 and a General Fund shortfall of $17.6 million is currently projected for FY 2023/24, staff does not recommend drawing down from this Reserve at this time.
The Council can review requests when the full budget is before the Council to deliberate on service priorities. Currently, staff is working on the FY 2022/23 and FY 2023/24 biennial capital budget for Council deliberation in May/June. While the focus of this budget will be on capital projects, there is also on opportunity to amend the FY 2022/23 operating budget. This allows a “big picture” review of all of the funding needs and enables informed prioritization by Council.
Capital Projects, Grants, Donations and Other Carryover Reconciliation
Estimates were used to carryover unspent Capital Improvement Program (CIP) funds from FY 2020/21 to FY 2021/22 during the FY 2021/22 and FY 2022/23 adopted operating budget process. Attachment 2 includes the reconciliation of those project carryover true-up amounts based on actual year-end activity totaling a carryover reduction of $8.8 million. When combined with the capital project carryovers included in the FY 2021/22 budget adopted in June 2021, the capital project carryovers to FY 2021/22 total $184.5 million.
In addition to the year-end true-up amounts for capital projects, the appropriation carryover of donations and reimbursements of $2.1 million, grants of $1.8 million, and other unspent expenditures that are neither donations nor grants of $28.1 million are also included in Attachment 2.
Other Funds
Attachment 3 - Summary of Other Funds Performance summarizes budget to actual performance for the City’s 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 2021/22 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 2020/21 performance of other City funds.
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 select Special Revenue Funds.
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 2020/21, revenues and transfers totaled $2.7 million, which was $5.6 million below the budgeted estimate of $8.3 million. This negative variance primarily reflects $6.0 million in revenue that was not received from a developer contribution for an affordable housing project that will construct 150 affordable housing units at 2302 Calle Del Mundo. It is anticipated that these funds will be received in FY 2021/22 and it is recommended that the revenue and associated expense be carried over to the current fiscal year. Revenues received from developer in-lieu fees and principal repayments on housing loans were $0.3 million higher than anticipated, reflecting a slight uptick in development activity as well as loan repayments. The $1.5 million transfer from the General Fund occurred as budgeted and was from CARES Act funding the City received to mitigate the effects of the COVID-19 pandemic. Those funds support the Emergency Rental Assistance Program (ERAP), which provides lower-income households in arrears on rent to become current on their housing obligations.
FY 2020/21 expenditures and encumbrances of $2.2 million ended the year below the budget of $14.3 million by approximately $12.1 million. Of that unexpended amount, $6.0 million reflects a developer loan commitment in FY 2021/22 but not disbursed due to the timing of project. Those funds are recommended to be carried over and anticipated to be disbursed in FY 2021/22. In addition, on April 20, 2021, Council approved a budget amendment for $4.0 million for an affordable housing project located at 3333-3337 Kifer Road which will provide the City an additional 79 units of affordable senior housing. This is also recommended to be carried over to the current fiscal year.
Based on actual FY 2020/21 revenues and expenditures, the ending fund balance ended the year $2.5 million above the estimate used to develop the FY 2021/22 Adopted Budget. These funds, which are not yet programmed, will be used to fund future affordable housing initiatives. As those opportunities arise during the year, staff will come forward with budget amendments to appropriate those funds.
Housing and Urban Development Fund
This fund accounts for entitlement funding that the City receives annually from the U.S. Department of Housing and Urban Development (HUD) to administer and provide oversight of the Community Development Block Grant (CDBG) and HOME Investment Partnership (HOME) programs. In FY 2020/21, revenues of $3.1 million ended the year $2.2 million below the budgeted estimate of $5.3 million due primarily to the timing of expenditures and payments. A revenue carryover of $3.1 million is recommended to account for funding committed by HUD, but not yet spent.
Expenditures and encumbrances of $4.9 million ended the year $1.1 million below the budget of $6.0 million. Most of the reduction in expenditures were a result of the Neighborhood Conservation and Improvement Program operating in a limited capacity. The COVID-19 pandemic has restricted staff’s ability to conduct outreach due to social distancing protocols and county safety mandates. In addition, supply chain constraints and a shortage of qualified contractors has limited the ability for many housing rehabilitations to take place as scheduled. As these conditions are improving, staff expects FY 2021/22 to be more reflective of an average program year.
The other unspent funds are already committed to various non-profit organizations to conduct activities such as Tenant-Based Rental Assistance and an Emergency Rental Assistance Program. As those non-profits continue to provide financial support to lower-income households, the City will be reimbursing those non-profits organizations and ultimately be reimbursed by HUD for the cost of those services. Any funds not used in FY 2021/22 will be reprogramed in FY 2022/223 as a part of the Annual Action Plan process.
Housing Successor Agency Fund
This fund was established as Housing Successor to the former Redevelopment Agency (RDA) to retain all housing assets, rights, power, duties, obligations and functions previously performed by the RDA in administering its Low- and Moderate-Income Housing Fund. The primary revenue sources are from principal and interest repayments on housing loans and interest on pooled investments.
Overall revenues of $13.2 million were $1.0 million above the budgeted estimate of $12.2 million due to higher loan repayments. The City received $11.65 million in a land sale, which the City used to provide financing to the Agrihood project. The project is estimated to add 181 affordable housing units to City. The City also received loan repayments of $1.3 million, which was approximately $1.0 million greater than projected in FY 2020/21.
Expenditures and encumbrances of $12.6 million, fell $10.2 million below the budget of $22.8 million, primarily due to two loans to affordable housing developments which were not disbursed in FY 2020/21. Delays in the development of these projects have pushed back the disbursement of City funding. On February 2, 2019, the City Council approved a $5.0 million loan to the project located at 2904 Corvin Drive which is expected to provide 145 affordable housing units. On January 28, 2020 the City Council approved a $5.0 million loan to the project located at 2330 Monroe Street, which is expected to add 65 units of affordable housing to the City. The carryover of $10.0 million for these projects is recommended in this report as both projects are expected to require funding during the current fiscal year.
Other City Departments Operating Grant Trust Fund
This fund accounts for various, citywide donations received by the City. Effective FY 2019/20, all revenue and expenditures related to COVID-19 are charged in this fund. The final budget for revenue totaled $4.9 million, including a transfer from the General Fund of $3.3 million and CARES Act funding of $1.6 million. The revenue came in within the budgeted estimate. The final expenditure budget totaled approximately $4.6 million, with actual expenditures totaling $4.5 million, resulting in a carryover of $0.1 million for COVID-19 related expenditures being recommended in this year-end report. An additional $0.5 million is recommended to be transferred from the General Fund to address COVID-19 related costs in FY 2021/22.
Internal Service Funds
Internal Service Funds are used to finance and account for special activities and services performed by a designated department for other departments in the City on a cost reimbursement basis. Following is a discussion of select Internal Service Funds.
Special Liability Insurance Fund
This fund provides for the payment of insurance premiums on all City-owned property as well as property in the City’s care, custody or control, and property the City is contractually obligated to insure. The fund is also used to pay for insurance premiums for other lines of coverage, for litigation expenses, the City’s insurance deductible, and settlements or jury verdicts in litigation matters. The primary source of revenue for this fund is fees charged to citywide departments and contributions from City funds. In FY 2020/21, revenues totaled $7.4 million, which was slightly above the budgeted estimate of $7.3 million. Expenditures and encumbrances totaled $12.9 million, which was below the budget of $14.4 million. A recommended budget adjustment is included to increase the fund balance as a result of expenditure savings from the prior year.
Workers’ Compensation Fund
This fund accounts for the costs of premiums, claims administration, and claims expenses related to injuries or illnesses sustained by members of the City’s workforce. The source of revenue for this fund is fees charged to departments citywide. In FY 2020/21, revenues totaled $5.9 million, which was slightly above the budgeted estimate of $5.6 million due to third party insurance proceeds. Expenditures totaled $4.0 million, which was below budget by $1.6 million due to lower than budgeted claims expenditures. As a result of the fund activity, a budget adjustment is included to increase the fund balance to use for future claims.
Unemployment Insurance Fund
This fund accounts for the cost of unemployment insurance claims. Historically, the source of revenue for this fund is fees charged to the departments citywide; however, in FY 2020/21, the use of fund balance was assumed to cover projected costs. With COVID-19 impacts, the actual expenses were significantly higher than anticipated when the budget was developed. To address the higher costs, budget adjustments were brought forward to recognize funding from the State of California as part of COVID-19 relief measures ($0.4 million) and a transfer from the General Fund ($0.3 million). Actual expenses totaled $0.8 million, which was well above the prior year amount of $91,000 but below the year-end estimate of $1.0 million. As a result of the fund activity, a budget adjustment is included to increase the fund balance to use for future claims.
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 2020/21 final budget reflects the operating budget of the concessions vendor, the operations management vendor, as well as the City. As of June 30, 2021, revenues of $0.7 million came in approximately $21.2 million below the budgeted estimate of $21.9 million, while expenditures and encumbrances of $3.6 million ended the year $17.4 million below the budget of $21.0 million. The significantly lower performance of both the revenues and expenditures can be attributed to the COVID-19 pandemic, including restrictions on indoor events and mass gatherings. The FY 2020/21 operating surplus was budgeted at $3.3 million; however, due to the significant decrease in activity, was eliminated during the year. The FY 2020/21 unrestricted ending fund balance remained positive at $2.0 million but was below the estimated level of $2.4 million used to develop the FY 2021/22 budget.
Electric Utility Fund
The Electric Utility Fund accounts for the operation of the City’s electric utility service. This fund receives majority of its revenues from user service charges collected from residential, business, and industrial customers.
In FY 2020/21, total revenues of $485.6 million were above the budget of $480.8 million by $4.7 million, primarily as a result of higher than estimated Wholesale Revenue. Customer Service Charges totaled $449.2 million, reflecting an increase of 4.3% from the $430.7 million received in FY 2019/20; this revenue level was $2.4 million below the budget of $451.6 million that would have required year-over-year growth of 4.9%. Wholesale revenues totaled $19.1 million, which exceeded the budgeted estimate of $14.4 million and the FY 2019/20 collection level of $15.3 million. When compared to the prior year, total revenues of $485.6 million were up $20.5 million, or 4.4%, from the $465.1 million received in FY 2019/20.
Expenditures, including encumbrances, and transfers of $447.2 million were $34.9 million below the budget of $482.1 million. The largest expenditure savings were generated in the Resource/Production ($28.1 million) and Materials/Services/Supplies ($4.4 million) categories. FY 2020/21 was a drier year than normal which resulted in savings within purchased power agreements, which contain hydroelectric. To supplement this power, there were market purchases made at lower costs to meet the necessary energy demand for the utility customers. Savings in Materials/Services/Supplies were primarily due to contractual services savings.
The total unrestricted fund balance ended the year at $104.6 million, which was $36.7 million higher than estimated, resulting from expenditure savings and higher than estimated revenues.
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 $42.0 million, which was $3.5 million under the revenue estimate of $45.5 million. Transfers from other funds totaled $23.0 million as budgeted. Actual expenditures, including encumbrances, and transfers to other funds totaled $61.2 million, ending the year $1.6 million below the final budget of $62.8 million. This is primarily due to vacancy savings and lower expenditures in the resource and production category.
The unrestricted ending fund balance and reserves totaled $29.5 million, down $1.9 million from the budgeted estimate, but $2.8 million above the estimate used to develop the FY 2021/22 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. Total revenue of $26.6 million ended the year $4.7 million lower than the budgeted estimate of $31.2 million. This is attributable to lower collections in the Other Fees for Services and Charges for Services categories partially due to COVID-19 relief rate reductions in FY 2020/21. Transfers from other funds totaled $1.03 million, including $1.0 million from the General Fund to cover COVID-19 relief rate reductions. Total operating expenditures and encumbrances of $30.8 million were below the budget of $33.9 million by $3.1 million due to reduced resource and production and lower materials, supplies and services costs. Expenditure savings can be attributed to a decrease in solid waste subscriptions due to COVID-19, timing of payments, and a smaller than anticipated May 2021 Clean-Up Campaign. Transfers to other funds totaled $0.8 million as budgeted. As a result of the FY 2020/21 fund activity, a budget adjustment is included to decrease the Rate Stabilization Reserve fund balance by $0.5 million.
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.
As of June 30, 2021, actual revenue totaled $52.4 million, coming under the budgeted estimate of $57.2 million by $4.8 million. Actual expenditures, including encumbrances, and transfers to other funds were also lower than anticipated at $48.9 million, compared to the budget of $53.8 million. The expenditure savings is primarily due to vacancy savings, operating supplies and contractual services, as well as lower expenditures in the resources and production category.
The unrestricted ending fund balance and reserves totaled $13.1 million, which was close to the estimate used in the development of the FY 2021/22 Adopted Budget. A net downward adjustment of $0.2 million to the FY 2021/22 beginning fund balance is included in this report.
Required FY 2020/21 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 2020/21 Budget Amendments includes a list of 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 ten funds totaling $0.5 million. These overages were offset by available fund balance and revenues in all funds.
Establishment of an American Rescue Plan Act Fund
The FY 2021/22 Adopted Budget includes the use of federal stimulus funding of $25.9 million budgeted in the General Fund. However, it has been determined that these funds should be accounted for in a special fund to facilitate the monitoring and reporting of the funds. Budget actions are recommended to move these funds from the General Fund to a new American Rescue Plan Act Fund. This includes the shift of the revenues as well as public safety expenditures that will be funded by the stimulus funds.
Retirement Liability
As summarized in Table 5, the Pension Stabilization Reserves in the various funds totaled $33.2 million at the end of FY 2020/21, including the FY 2020/21 interest earnings attributed to the Pension Reserve. The goal is to increase the reserve levels by 1% of the unfunded pension liability each year with a targeted level of 7% by the end of FY 2021/22. A total contribution of $0.2 million to the pension trust fund is planned to meet the 7% target in all funds except the General Fund. In total, reserve levels are projected at $33.4 million, or approximately 5.6% of the City’s net pension liability amount, based on the figures to be reported in the Consolidated Annual Financial Report GASB 68 Report. Historically, the General Fund contribution for the Pension Stabilization Reserve occurred through surplus funds available at the end of the year. Because no additional funds are available, a General Fund contribution to the reserve is not recommended at this time. Additional funds may be available in the future to allow for contributions to the reserve and/or planned for as part of the General Fund Forecast if capacity allows.
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 2021/22. In the FY 2021/22 Adopted Budget, the net increase of $9.4 million was primarily the result of the increase in the Electric Utility Fund, partially offset by declines in the General Fund Budget Stabilization Reserve and the Capital Projects Reserve as budget balancing actions in the adopted budget.
The recommended actions in the Year-End Report adjust various reserves as part of the FY 2020/21 year-end reconciliation, resulting in a net increase of $3.5 million. This primarily reflects the increase of $3.1 million to the Pension Trust Reserve, which includes the allocation of FY 2020/21 investment earnings to these reserves as well as adjustments to meet the targeted reserve levels as discussed above. Budget actions are also recommended to increase the Capital Projects Reserve to $5.0 million.
Table 6 - Summary of Selected Reserves
($ in millions)
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
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 other funds 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 Attachment 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 2020/21 Budget Year-End Report;
2. 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,” approve the FY 2020/21 Budget Amendments to address necessary budget ratifications 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);
3. 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,” Approve the FY 2021/22 Budget Amendments as set forth in Attachment 2 of this report (five affirmative Council votes required for revenue actions and the use of unused balances as noted for each item in Attachment 2); and
4. Direction, if any, by the City Council regarding initiatives to be funded by the $400,000 allocation included in this report.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. FY 2020/21 Budget Amendments
2. FY 2021/22 Budget Amendments
3. Summary of Other Funds Performance
4. Summary of Fund Balance Adjustments