REPORT TO COUNCIL
SUBJECT
Title
Action on Monthly Financial Status and Investment Report for October 2021, Approve Related Budget Amendments, and Approve the Restoration of 1.0 Community Service Officer Position in the Police Department
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 October 2021 are submitted for your information. The financial review as of October 31, 2021 provides 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 established resource allocation plan 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 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 October 31, 2021. Financial analysis for the report is provided for the General Fund, select Special Revenue Funds, Enterprise Operating Funds, and Capital Improvement Funds.
Attachment 1 shows that General Fund revenues were trending below budget at 14.8% through October 2021, largely due to the timing of payments. In some categories, such as property tax, most payments are scheduled to occur later in the fiscal year. In other categories, a portion of the revenues received through October account for activity that occurred in FY 2020/21 and those revenues are accrued back to that year. While it is early in the fiscal year and limited data is available, General Fund revenues are currently tracking within estimated levels. However, concerns remain regarding continued impacts of COVID-19 as other variants and vaccine hesitancy may impact the speed of economic recovery and revenue collections.
As shown in Attachment 1, General Fund departmental expenditures were at 30% of budget through October 2021. Several cost-control measures that were implemented in FY 2019/20 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. Expenditure savings are expected by year-end.
As shown in Attachment 1, total revenues through October 2021 for Enterprise Funds (Electric, Water, Sewer, Cemetery, Solid Waste, and Water Recycling) were at 27% of the budget while total expenses were at 29.5% of the budget.
In the month of October, the City received $20 in donations, for total donations of $88,290.
Many economic indicators have improved significantly since the start of the pandemic, but some have not returned to pre-pandemic levels. On a national level, the unemployment rate decreased slightly from 4.8% in September 2021 to 4.6% in October 2021. This rate was well below the record setting high of 14.7% in April 2020, but above the pre-pandemic unemployment rate of 3.5%. In October, the number of unemployed persons fell to 7.4 million from 7.7 million in September. This unemployment figure remains well above the pre-pandemic level of 5.7 million. In the third quarter 2021 advance estimate, the Gross Domestic Product (GDP) increased by 2.0%. The resurgence of COVID-19 cases has resulted in new restrictions and delays in reopening businesses in some parts of the country. While GDP has now surpassed the pre-COVID peak in the second quarter 2021, it has not yet reached the pre-pandemic trend. Per the December 2021 UCLA Anderson Forecast, GDP is not expected to reach the pre-COVID trend until the third quarter 2022. The December 2021 UCLA Forecast also assumed continued strong economic growth and labor market recovery with a lessening of supply constraints and inflation. There is caution with the Omicron variant that may temporarily derail the forecast; however, it is too early to tell.
Improvement continues at the State and local level. After the State’s largest increase in the unemployment rate in April 2020, the California unemployment rate dropped slightly to 7.3% in October 2021. California has now regained 1.83 million jobs, or 67% of the 2.71 million jobs lost due to COVID-19 in March and April 2020. The unemployment rate in this region continues to outperform the State and the nation. The unadjusted unemployment rate in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) was 3.8% in October 2021, down from a revised 4.0% in September 2021 and 6.0% in October 2020 but above the February 2020 level of 2.6%.
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 October 31, 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 October 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 with a reasonable portfolio return of 1.26% in October.
Restoration of 1.0 Community Service Officer Position in the Police Department
As part of the June 2021 adoption of the FY 2021/22 and FY 2022/23 operating budget, the City Council approved the addition of $1.7 million to the Police Department’s budget. This action increased the projected ongoing deficit from $15.9 million to $17.6 million. This funding was to be used to cover costs associated with positions that were either eliminated or frozen during the General Fund rebalancing actions. The Department has elected to unfreeze/restore:
• 2.0 Police Officers,
• 2.0 Police Records Specialists,
• 1.0 Office Specialist, and
• 5.0 Community Service Officers.
Of the five Community Service Officer positions being restored, one position was eliminated as part of the budget adoption. This position is now recommended to be restored in the Police Department’s budget.
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. Attachment 3 details the recommended increase to the Non-Departmental budget for the Santa Clara/Santa Cruz Community Roundtable membership. There is also a recommendation to recognize and appropriate a grant to the Parks and Recreation Department for the Miscellaneous Park Improvements capital improvement program 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 October 2021 as Presented, Approve the Restoration of 1.0 Community Service Officer Position in the Police Department, 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 October 2021
2. Monthly Investment Report October 2021
3. FY 2021/22 Budget Amendments