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Home My WebLink AboutItem 11 - Fiscal Year 2022-2023: Third Quarter Budget Update Finance and Management Services www.santa-ana.org/finance Item # 11 City of Santa Ana 20 Civic Center Plaza, Santa Ana, CA 92701 Staff Report May 16, 2023 TOPIC: Fiscal Year 2022-2023: Third Quarter Budget Update AGENDA TITLE Fiscal Year 2022-2023: Third Quarter Budget Update and Appropriation Requests RECOMMENDED ACTION 1. Receive and file the fiscal year 2022-2023: Third Quarter Budget Update. 2. Approve the recommended appropriation adjustments with a net General Fund impact of $1,784,000 ($1,500,000 for Business Interruption Grant, $3,900,000 for Main Library Transformation and Newhope Library Tenant Improvement, and reduction of $3,616,000 transfer from General Fund to the Cannabis Public Benefit Fund) described in detail below for the fiscal year 2022-23 (requires five affirmative votes). EXECUTIVE SUMMARY The Third Quarter Budget Update provides a General Fund snapshot of the first nine months of the fiscal year. For the third quarter, we have nothing notable to report for restricted funds of the City. This report includes recommendations for one-time General Fund appropriation adjustments, updates to General Fund revenue estimates, a summary of General Fund revenues and expenditures, and a full-time staff vacancy report as of March 31, 2023. A summary of the General Fund is detailed below: Receive and file the FY 2022-2023 – Third Quarter Budget Update May 16, 2023 Page 2 3 4 4 4 DISCUSSION The Third Quarter Budget Update includes General Fund activity posted from July 2022 through March 2023 and the vacancy report for funded staff positions as of March 31, 2023. Recommended appropriation adjustments to General Fund expenditures follow. Business Interruption Fund Program Staff requests a one-time General Fund appropriation for the Santa Ana Business Interruption Fund program of $1.5 million to provide financial relief to businesses impacted by the OC Streetcar construction. The City expects to backfill this funding request with offsets from a State Grant for the Civic Center Modernization, but we understand assistance is needed now. To date, the City and the County have jointly provided $4.2 million ($3 million City and $1.2 million County) of assistance to eligible businesses. With the proposed appropriation of $1.5 million, the total assistance to downtown businesses will be $5.7 million. Library Capital Projects The Library has two major site renovations in process: the Main Library Transformation with a total estimated cost of $34.8 million and the New Hope Library Tenant Improvements with a total estimated cost of $5.1 million. The Library has accumulated various funding amounts for these projects over the last few years, as follows: Date Project Funding Source Amount 3/3/2020 Main Library Community Development Block Grant (windows)$700,000 6/1/2021 Main Library ARPA (1st Tranche)$7,000,000 8/2/2022 Main Library ARPA (2nd Tranche)$9,500,000 1/26/23 & 5/24/23 Main Library ARPA (Reallocation)$5,085,975 FY 22-23 B udget Updated w / Mid-Year on 4/4/23 & Additions on 4/18/23 Proposed Third Quarter Adjustments Updated Estimate Begi nning Balance at July 1, 2022, adjusted for non-cash acti vi ties $121,401,064 $0 $121,401,064 Revenue Estimate $399,302,940 $5,893,180 $405,196,120 Appropriated Spending ($411,459,384)(5,400,000)($416,859,384) Pension Trust Set-Aside ($7,748,811)$0 ($7,748,811) Estimated Ending Balance at June 30, 2023 $101,495,809 $493,180 $101,988,989 Less 18% Reserve*71,874,529 412,769 72,287,298 Estimated Spendable Balance 29,621,280 80,411 $29,701,691 *Excludes One-Time Revenues Receive and file the FY 2022-2023 – Third Quarter Budget Update May 16, 2023 Page 3 3 4 4 4 12/20/2022 Main Library CA State Library Grant – Building Forward Grant $9,329,973 5/2/2023 Main Library Community Development Block Grant (parking lot)$300,237 6/15/2021 Newhope Library Cannabis Public Benefit Fund $1,267,280 6/21/2022 Newhope Library Cannabis Public Benefit $1,082,501 5/3/2022 Newhope Library Community Development Block Grant (windows & roof)$531,250 3/21/2023 Newhope Library Cannabis Public Benefit $1,150,000 Based on the original cost estimates, an additional $2.9 million is needed for the Main Library and $1 million for Newhope. Therefore, staff recommends a General Fund appropriation to complete the funding requirements based upon the original project estimates. General Fund Revenues Through March 31, the City received approximately $254 million in General Fund revenues, which is 63.6 percent of the annual estimate. This is in line with expectations, especially considering the City will continue to accrue FY22-23 through August 2023. Business License Tax: During the Mid-Year Budget Update on March 21, the City did not have enough data to analyze the impact of the voter-approved Measure W. Now that we have reviewed the current data, we believe that the original revenue estimate of $15 million will be met. Property Tax + In-Lieu of VLF + Residual 94,235,000 56,036,512 59.5% Sales Tax (Measure X)88,102,000 50,901,073 57.8% Sales Tax (Bradley-Burns)64,550,000 36,575,910 56.7% Utility User's Tax 27,400,000 19,652,501 71.7% Cannabis Tax 22,200,000 12,087,154 54.4% Business License 15,000,000 11,296,372 75.3% Other Taxes 12,491,100 9,684,130 77.5% Charges f or Service, Licenses & Permits 23,319,580 21,256,747 91.2% Jail Facilit y Revenue 16,521,360 9,891,962 59.9% Franchise Fees 10,960,100 5,902,566 53.9% All Ot her 24,523,800 20,798,835 84.8% Tot al Gener al Fund Rev enues 3 9 9 ,3 0 2 ,9 4 0 2 5 4 ,0 8 3 ,7 6 4 6 3 .6 % Revenue Sour ce % Recei ved FY 2 2 -2 3 Est i m at e Updat ed w/ Mi d-Year Recei ved as of 0 3 /3 1 /2 0 2 3 Receive and file the FY 2022-2023 – Third Quarter Budget Update May 16, 2023 Page 4 3 4 4 4 Hotel Visitor Tax (HVT): While staff was preparing the budget for FY 22-23, we saw a return to normal levels of HVT. That has continued to be the case for the first 3 quarters of the current fiscal year. Staff originally estimated the revenue at $8.5 million. However, we expect to receive approximately $9.5 million, which aligns with actual pre-pandemic receipts. Fiscal Year Actual 2019 $9,414,661 2018 $9,245,942 2017 $9,767,741 Cannabis Tax: Staff originally estimated a total Cannabis tax revenue of $22.2 million. However, in response to requests from the Cannabis industry, the City Council took action to decrease Cannabis tax rates effective January 1, 2023. With limited data available, our best estimate of revenue follows: July through December 6 months actuals $9,592,952 January through February 2 months actuals $2,494,202 March through June 4 months expected $4,421,316 Total Revenue Expected $16,508,470 Therefore, we expect a revenue shortfall of $5.7 million ($22.2 million budget, less $16.5 million expected). The expected revenue shortfall includes $5.4 million subject to the two-thirds transfer to the Cannabis Public Benefit Fund, as medical-related tax revenue is exempt from the transfer. Therefore, the net General Fund impact is a $2.1 million loss, and the Cannabis Public Benefit Fund revenue loss is $3.6 million. The Cannabis Public Benefit Fund has an accumulated fund balance which can absorb the current year loss; however, the FY23-24 budget will need to be rebalanced. Property Tax in lieu of VLF: The City has received confirmation that the actual revenue will exceed the budget by $437,627. Franchise Fees: The City has received the actual annual franchise fee payments for gas and electricity utilities, as well as the final payment related to commercial refuse from the prior year. This actual revenue exceeds the budget by $1,331,077. Investment Earnings: With the Midyear report, staff adjusted the revenue estimate for investment earnings by $2.2 million based on actual amounts received to date. With additional information available, staff expects investment earnings to exceed the adjusted budget by another $1.1 million. Parking Fines: For the first 10 months of the year, the City has received more than $5 million of parking fine revenue. Staff expects to receive another $1 million of revenue for Receive and file the FY 2022-2023 – Third Quarter Budget Update May 16, 2023 Page 5 3 4 4 4 the final 2 months. Therefore, the revenue estimate will increase from the original budget of $4.9 million to $6 million. Ambulance Service Charges: On January 1, 2023, the City began receiving a higher reimbursement rate for state and federal-funded ambulance transports. This is due to a new federal program, partially funded by up-front contributions from cities providing ambulance service. Even though Santa Ana has not paid an up-front contribution, we are still benefitting from the program. We expect to return to the City Council in the future with recommendations for ambulance service, which may include a recommendation to pay the contribution. In the meantime, staff expects the actual revenue will exceed the budget by $0.5 million. Planning & Building Revenue: As noted in the Midyear budget report, permit counter activity has exceeded expectations. With only six months of data, staff conservatively increased the revenue estimate by $2 million for Building Plan Check. With additional information, staff will increase the revenue estimate by another $2.5 million. General Fund Summary Hotel Visitor Tax $1,000,000 Net Impact of Cannabis Tax Decrease (revenue shortfall of $5.7 million, less the reduced transfer to the Cannabis Public Benefit Fund of $3.6 million) $(2,075,528) Property Tax in lieu of VLF $437,627 Franchise Fees $1,331,077 Investment Earnings $1,100,000 Parking Fines $1,100,000 Ambulance Service Charges $500,000 Planning & Building Permit Counter Revenue $2,500,000 Expected Net Favorable Variance $5,893,176 General Fund Expenditures As of March 31, 2023, General Fund expenditures are at 62.9 percent of the budget. Each department is within the expected range of spending for the third quarter. It should be noted that the City pays a one-month advance for contracted fire services and the museum includes one-time capital reimbursements. Receive and file the FY 2022-2023 – Third Quarter Budget Update May 16, 2023 Page 6 3 4 4 4 Full-Time Employee Position Vacancy Report The staff vacancy report as of March 31, 2023 reflects all staffing changes authorized to date, including the Mid-Year Budget Report workforce changes approved on March 21, 2023. As of March 31, there is a total of 196 total vacancies, of which 188 are funded vacant positions and 8 are subject to the hiring freeze. Positions subject to the hiring freeze provided $762,410 in savings in the current year’s budget. FY 2 2 -2 3 Budget Updat ed w/ M i d-Year 1 Cit y Manager's Of f ice 3 ,229,040 1 ,941 ,550 60.1 % Cit y Council 1 ,129,860 513 ,335 45.4 % Clerk of t he Council 1 ,935,720 1 ,144 ,235 59.1 % Cit y At t orney's Of f ice 3 ,609,860 2 ,005 ,211 55.5 % Human Resources 3 ,884,170 2 ,661 ,481 68.5 % Finance & Management Services 13 ,138,413 8 ,282 ,547 63.0 % Library 7 ,651,873 4 ,467 ,293 58.4 % Cit y-Owned Museum Building2 2 ,567,320 2 ,185 ,558 85.1 % Parks, Rec & Communit y Services 16 ,575,621 9 ,091 ,124 54.8 % Police Depart ment 145 ,063,990 101 ,609 ,258 70.0 % Fire & Emergency Medical Services3 55 ,006,950 42 ,430 ,913 77.1 % Planning & Building 20 ,070,704 10 ,911 ,458 54.4 % Public Work s 66 ,827,421 24 ,512 ,978 36.7 % Communit y Development 9 ,420,090 4 ,155 ,706 44.1 % General Non-Depart ment al 48 ,170,160 33 ,711 ,355 70.0 % Transf ers t o Project s and Debt Service 35 ,890,490 23 ,585 ,052 65.7 % TOTAL GENERAL FUND 4 3 4 ,1 7 1 ,6 8 2$ 2 7 3 ,2 0 9 ,0 5 6$6 2 .9 % 1 Includes prior year carryovers approved on Septemb er 20, 2022 2 Includes one-time capital reimb ursements 3 Includes one-month advanced payment Depar t ment Spendi ng as of 0 3 /3 1 /2 0 2 3 % Expended Receive and file the FY 2022-2023 – Third Quarter Budget Update May 16, 2023 Page 7 3 4 4 4 FISCAL IMPACT The summary of General Fund fiscal impact appears at the beginning of this report and staff has listed the recommended appropriations adjustments below. Fiscal Year Accounting Unit - Account # Fund Description Accounting Unit, Account Description Amount FY 22-23 01118810-69152 General Fund Economic Development, Loans & Grants $1,500,000 FY 22-23 01111017-66200 General Fund Library – Service Enhancement, Buildings & Building Improvements $3,900,000 Total Expenditure Adjustments $5,400,000 Reduction in transfer to be netted against Cannabis tax revenue decrease: FY 22-23 01106019-68000-012 General Fund Inter-Fund Transfers Service Enhancement – Transfer to Fund 012 $(3,616,000) EXHIBIT(S) 1. Line Item Changes to Revenue Estimates and Recommended Adjustments 2. Vacancy Report as of March 31, 2023 Submitted By: Kathryn Downs, FMSA Executive Director Approved By: Kristine Ridge, City Manager Line Item Changes to Revenue Estimates and Recommended Appropriation Adjustments EXHIBIT 1 Description Account Revenue Spending Hotel Visitor's Tax 01102002‐50030 1,000,000$ Cannabis Medical 01102002‐50046 (267,530)$ Cannabis Cultivation 01102002‐50100 (125,380)$ Cannabis Distribution 01102002‐50101 (289,130)$ Cannabis Manufacturing 01102002‐50102 374,850$ Cannabis Testing 01102002‐50103 (16,570)$ Cannabis Adult Use 01102002‐50104 (5,367,790)$ Property Tax‐In Lieu VLF 01102002‐50016 437,630$ Franchise Fee Gas 01102002‐50050 261,060$ Franchise Fee Electricity 01102002‐50051 475,770$ Franchise Fee Refuse Commericial 01102002‐50057 594,260$ Investment Earnings 01102002‐58000 1,100,000$ Parking Fines 01114002‐55000 1,100,000$ Paramedic Service Charges 01115002‐53510 500,000$ Building Permits 01116002‐51601 634,050$ Plumbing Permits 01116002‐51602 150,810$ Electrical Permits 01116002‐51603 469,270$ Heating Permits 01116002‐51604 356,630$ Occupancy Permits 01116002‐51605 (193,550)$ Grading Permits 01116002‐51606 (59,110)$ Building Plan Check 01116002‐53600 200,000$ Electrical Plan Check 01116002‐53601 224,190$ Plumbing Plan Check 01116002‐53602 76,330$ Mechanical Plan Check 01116002‐53603 203,260$ Discretionary Application Fee 01116002‐53606 78,170$ Site Plan Review Charge 01116002‐53616 354,490$ Business Interruption Grant assistance to eligible Downtown businesses impacted by the OC Streetcar Project 01118810‐69152 1,500,000$ Main Library Transformation and Newhope Library Tenant Improvement Project 01111017‐66200 3,900,000$ Transfer to Fund 012 (Cannabis Public Benefit Fund)01106019‐68000‐012 (3,616,000)$ General Fund Totals 2,271,710$ 1,784,000$ Transfer From Fund 011 (General Fund)01102002‐59000‐011 (3,616,000)$ As of March 31, 2023 Department FY 22-23 Funded Positons GF Vacancies Non-GF Vacancies Total Vacancies Hiring Freeze Vacancies Total Funded Vacancies Vacancy Rate City Manager's Office 16 1 2 3 0 3 19% City Attorney's Office 17 3 0 3 0 3 18% Clerk of the Council 7 3 0 3 0 3 43% Community Development 62 0 3 3 0 3 5% Finance & Management Services 68 6 1 7 0 7 10% Information Technology 23 0 9 9 0 9 39% Human Resources 31 4 1 5 0 5 16% Planning & Building 99 10 5 15 0 15 15% Police Department 640 68 1 69 6 63 11% Parks, Recreation, & Community Services 60 10 4 14 0 14 23% Library 37 2 0 2 0 2 5% Public Works Agency 310 14 49 63 2 61 20% Total 1370 121 75 196 8 188 14% EXHIBIT 2