REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for December 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 December 2022 are submitted for your information. The financial review as of December 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 (Attachment 1)
The attached report summarizes the City’s financial performances as of December 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 at 40.7% of the budget through December 2022 and are tracking to end the year above budget.
General Fund departmental expenditures were at 45% of budget through December 2022. 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, total revenues for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 44.8% of the budget through December 2022, while total expenses were at 43% of the budget.
In the month of December, the City received $1,000 in donations, bringing total donations for FY 2022/23 to $33,647.
Concerns remain regarding the state of the economy, 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 U.S. Chamber of Commerce Chief Economists Committee projects a mild and short recession in mid-2023 due to a reduction in consumer and business spending resulting from rising interest rates. In addition, consumers are expected to exhaust the historic savings built up during the COVID-19 pandemic and would no longer have that source of money to keep spending at a pace with inflation. The Conference Board also forecasts a recession starting in early 2023, with projections for three quarters of negative GDP growth starting in the first quarter of 2023. Their projections call for a relatively brief and mild downturn with the expectation that growth should rebound in 2024 as inflation ebbs further and the Fed begins to loosen monetary policy.
On a national level, the unemployment rate remained fairly flat at 3.4% in January 2022, compared to 3.5% in December 2022. This rate was well below the record setting high of 14.7% in April 2020, and consistent with the pre-pandemic unemployment rate of 3.5%. In January, the number of unemployed persons remained unchanged at 5.7 million. This unemployment figure matched the pre-pandemic level of 5.7 million. In the fourth quarter 2022 advance estimate, the Gross Domestic Product (GDP) increased by 2.9% as a result of deceleration in nonresidential fixed investment, decreases in exports and consumer spending as well as downturns in State and local government spending.
At the State level, the UCLA December 2022 Forecast for California includes soft-landing and recession scenarios given the current economic uncertainly. In both scenarios, a milder impact is expected for the California economy.
After the State’s largest increase in the unemployment rate in April 2020, the California unemployment rate remained flat at 4.1% between November and December 2022. The December 2022 rate is lower compared to the 5.8% rate in December 2021. California has now regained all of the 2.76 million nonfarm jobs lost due to COVID-19 in March and April 2020. The State has also now outpaced the country as a whole in terms of job growth by 0.6%. The unadjusted unemployment rate in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) decreased slightly from 2.4% in November 2022 to 2.1% in December 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 (Attachment 2)
All securities held by the City of Santa Clara as of December 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 December 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 1.70% in December.
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, a transfer to the Public Buildings Capital Fund is recommended to fund a fence replacement for the Gianera property as well as improvements to the Berman building, including an electrical panel upgrade and the installation of a security gate at the lower parking level. A transfer from the General Fund’s Advanced Planning Fee Reserve to the Prefunded Plan Review Fund is recommended to cover eligible contractual services costs related to the formation of a Community Facilities District for the Patrick Henry Drive Specific Plan Area. In addition, a reduction to estimated General Fund revenues and the Parks and Recreation budget is recommended to reflect the impact of waiving fees for the Wilcox High School baseball fundraising tournaments as approved by the City Council on January 31, 2023 (RTC 23-89).
Attachment 3 also includes amendments recognizing and appropriating revenue for a new capital improvement program project in the Streets and Highways Capital Fund as well as adding funding in the Electric Utility Capital Fund to cover unanticipated costs associated with two major engine overhauls. A transfer from the Water Utility Fund to the Vehicle Replacement Fund is recommended to cover the higher than budgeted costs for planned vehicle replacements.
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 December 2022 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: Office of the City Manager
ATTACHMENTS
1. Monthly Financial Status Report December 2022
2. Monthly Investment Report December 2022
3. FY 2022/23 Budget Amendments