REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Reports for December 2020 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 December 2020 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 December 31, 2020. 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 43% through December 2020. Excluding transfers that occur at the beginning of the year, this figure drops to 32% of the General Fund revenues received through December. 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. While there is limited data available, revenue is expected to end the year below budget by $20 - $25 million due to these COVID-19 impacts, with the largest impact to the Transient Occupancy Tax category.
As shown in Attachment 1, General Fund expenditures were at 46.8% of budget through December 31, 2020. Excluding transfers, this figure drops to 43.2% expended through, which is below the par level of 50%. 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. With the exception of the Fire Department, all departments are tracking below budget through December and year-end savings are expected to be generated. The Fire Department is tracking slightly above par due primarily to mutual aid efforts, which are expected to be reimbursed. Budget actions will be brought forward in a future Monthly Financial Report to recognize the reimbursement revenue and increase the Fire Department budget.
Total revenues for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 42.9% of the budget. Total Enterprise Fund expenses were at 43.8% through December. Total revenue for Special Revenue Funds (Housing funds) were at 8.7% of the budget, while total expenditures were at 5.8% of budget.
In the month of December, the City received donations of $2,140, bringing the year-to-date total to $61,032. 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 has been impacted. This is evidenced in various economic indicators, some of which have improved in recent months. On a national level, the unemployment rate remains high at 6.7% in December 2020. 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 percent. In the third quarter 2020, the Gross Domestic Product (GDP) increased by approximately 33%, following a 31% decrease in the GDP in the second quarter 2020. While there was significant improvement, real GDP for the third quarter 2020 remains 3.5% 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 but remains high. The unadjusted unemployment rate in the San José-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) was 6.0% in December 2020, up from a revised 5.2% in November 2020 and significantly higher than the December 2019 level of 2.3%.
Santa Clara’s General Fund revenues have been significantly impacted by COVID-19 and this impact is expected to continue over the longer term based on the current economic situation. 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. Further discussion of the COVID-19 impacts and the General Fund deficit is included in Attachment 1. Additional downward revenue adjustments and budget balancing actions are expected to be brought forward during FY 2020/21.
Monthly Investment Report (Attachment 2)
All securities held by the City of Santa Clara as of December 31, 2020 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 2020 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 1.52%.
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. Included in Attachment 3 is a recommendation to reallocate anticipated savings from the Non-Departmental budget to the Mayor and City Council Offices budget to provide funding for the Task Force on Diversity, Equity and Inclusion. As detailed in Attachment 3, adjustments in the City’s various donations funds, grant trust funds, and capital improvement program funds are recommended as an additional reconciliation was done to the FY 2019/20 actuals. These adjustments correct amendments that were brought forward to Council as part of the Budgetary Year-End Report on January 12, 2021. An action to recognize and appropriate replacement tree in-lieu fees that are charged to developers is also included. Additional funding from the Convention Center Enterprise Fund is recommended to be transferred to the Convention Center Capital Fund’s Convention Center Repairs and Renovations project.
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 December 2020 as Presented and Approve Related Budget Amendments.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Monthly Financial Status Report December 2020
2. Monthly Investment Report December 2020
3. FY 2020/21 Budget Amendments