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Home My WebLink About13 - First Quarter Budget UpdateQ �EwPpRT CITY OF s NEWPORT BEACH `q44:09 City Council Staff Report December 10, 2024 Agenda Item No. 13 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Jason AI -Imam, Finance Director/Treasurer - 949-644-3126, jalimam@newportbeachca.gov PREPARED BY: Shelby Burguan, Deputy Finance Director - 949-644-3085, sburguan@newportbeachca.gov TITLE: First Quarter Budget Update ABSTRACT: The Finance Department prepares quarterly financial reports to review the status of revenues and expenditures for the City of Newport Beach's General Fund and to monitor budgetary trends in other City funds. This report contains information on revenues, expenditures and estimated fund balance for the first quarter of Fiscal Year 2024-25. The FY 2024-25 first quarter financial report provides an analysis of the City's financial activity from July through September 2024. A $5.0 million unrestricted General Fund operating surplus is projected for FY 2024-25 based on information currently available for the end of the first quarter. Recommended budget adjustments for revenues and expenditures are outlined in this report, which are reflected in the proposed first quarter budget amendment. RECOMMENDATIONS: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Approve Budget Amendment No. 25-024, adjusting revenue estimates and expenditure appropriations as further outlined in this report; and c) Receive and file the attached report of budget amendments for the first quarter. DISCUSSION: Economic Overview The city's assessed property values continue to increase providing a strong revenue base for the City. Recent reductions to sales tax revenue have caused concerns for the broader economy, however, staff estimates that in FY 2024-25, sales tax will begin to rebound. Revenue for hotels continues to grow as tourism remains a strong source of revenue for the City. The City is well positioned to withstand the impacts of a potential recession and is expected to maintain long-term fiscal sustainability. 13-1 First Quarter Budget Update December 10, 2024 Page 2 General Fund Revenues Most revenue categories performed at or higher than their budgeted levels last year due to more favorable economic conditions than what was originally anticipated in the adopted budget. Growth in many areas has led to a $1.4 million projected increase in General Fund revenues than what is estimated in the budget. Projections for property taxes, sales tax, service fees and charges, intergovernmental revenues, and donations and contributions have been increased. The following table summarizes the changes to projected General Fund revenues versus the revised budget for FY 2024-25. Details highlighting the reasons for the material variances follow. FY 2024-25 Proiected General Fund Revenues Property Taxes 149,296,403 150,434,533 1,138,130 0.8% Sales Tax 45,299,626 45,406,798 107,172 0.2% Transient Occupancy Tax* 32,625,873 32,625,873 - 0.0% Other Taxes 9,587,638 9,587,638 - 0.0% Service Fees & Charges 25,230,457 25,300,457 70,000 0.3% Parking Revenue 8,271,651 8,271,651 - 0.0% Licenses and Permits 5,952,271 5,952,271 - 0.0% Property Income 9,633,853 9,633,853 - 0.0% Fines & Penalties 3,996,299 3,996,299 - 0.0% Intergovernmental 4,964,764 4,989,240 24,476 0.5% Investment Earnings 1,904,925 1,904,925 - 0.0% Misc Revenues 425,125 455,125 30,000 7.1% Operating Transfers In 19,767,775 19,767,775 - 0.0% Total Revenues 316,956,660 318,326,438 1,369,778 0.4% *Gross TOT revenues amount to approximately $39.8 million. At the end of the first quarter, it was estimated that Visit Newport Beach (VNB) would receive 18% (or approximately $7.2 million) of TOT on a gross basis for the fiscal year, which brings projected TOT revenues to $32.6 million, net of amounts remitted to VNB. Property Tax - Property taxes are the City's single largest General Fund revenue and represent approximately 50% of all General Fund revenues. Property tax revenue was projected to increase approximately 4% from $143.6 million in FY 2023-24 to $149.3 million in FY 2024-25, largely due to the inflation adjustment indexed at the 2% cap allowed by Proposition 13 and due to changes in ownership. Property tax revenue for FY 2023-24 totaled $146.1 million, which is $2.6 million higher than previously projected. The higher -than -projected revenue in FY 2023-24 is largely due to supplemental property tax revenue, Redevelopment Agency (RDA) residual revenues, and property tax transfers. Therefore, property tax revenue for FY 2024-25 is projected to be $1.1 million higher than previously projected due to the increase in assessed values. Staff is recommending a budget amendment to align the revised budget with updated projections. 13-2 First Quarter Budget Update December 10, 2024 Page 3 Sales Tax - The second largest funding source for the General Fund is sales tax revenue, making up more than 15% of General Fund revenues. The City's sales tax base is largely generated from three industry groups — autos and transportation; general consumer goods; and restaurants/hotels. In FY 2023-24 the City saw a decline in sales tax revenue that was primarily attributed to an 18% decline in the autos and transportation category compared to FY 2022-23. Sales tax revenues are projected to increase by approximately 5% over the FY 2023-24 amounts, which will still be below the FY 2022-23 actuals. The projection for FY 2024-25 of $45.3 million is still reasonable, however, the City has a sales tax sharing agreement with an auto dealer that is set to expire after the third quarter whereas a full year of the tax sharing was incorporated into the budget. This increases revenue projections by $107,000. A budget amendment is recommended to align the revised budget with updated projections. Transient Occupancy Tax (TOT) — The third largest funding source for the General Fund is TOT, making up more than 10% of General Fund revenues. Staff's projection for Q1 is in line with the budgeted revenues, and no adjustment is recommended. Staff will continue to monitor TOT trends and will provide additional updates to projections as necessary in future quarterly financial reports. All Other Revenue — This category includes all other revenue sources other than the top three (property tax, sales tax and TOT). All other revenue is made up of other taxes, service fees and charges, parking revenue, licenses and permits, property income, fines and penalties, intergovernmental revenues, investment earnings, and miscellaneous revenues. Changes in projected amounts are proposed in the following categories: • Service Fees and Charges — plan check fees, recreation classes, emergency medical services fees and numerous other cost -of -service fees. The Police Department established multi -year agreements for Supplemental Law Enforcement Services between the City of Newport Beach and the City of Anaheim, and the City of Newport Beach and the City of Huntington Beach. The intent of the agreements is for law enforcement personnel to provide these agencies with support during special events. The cities are directly billed for expenses incurred and are billed at the Special Events Hourly Rate. A budget amendment for a $70,000 increase to revenue account 01035352-521175 and expense account 01035353-713002 is recommended to recognize the offset in expenditures by the additional revenues for the first -year expectation of the agreements. • Intergovernmental Revenues — federal, state and local grant revenues, which includes, but is not limited to, the City's portion of the half cent sales tax revenue paid to the County of Orange for public safety, state mandate reimbursements, reimbursement for strike teams sent to assist with fires, and revenue sharing with the County of Orange under the Waste Disposal Agreement (WDA). The Police Department participates in a State 911 program that is administered through the California Governor's Office of Emergency Services (OES) for the software maintenance phone contracts. The program is transitioning from direct billing towards a reimbursement model. A budget amendment is proposed to recognize the expected revenue reimbursement in Police Support Services Cal OES account 01035352-431245 and increase in expenditures in the Police IT Software License Renewal account 0103522-871017 by $24,476.49. 13-3 First Quarter Budget Update December 10, 2024 Page 4 • Miscellaneous Revenues — restricted revenue, damage to City property, bad debt, donations and contributions, non -operating revenues such as proceeds from the sale of materials and equipment, and other miscellaneous revenues. A project applicant donated $30,000 to the Library Services Department to support public amenities as part of their coastal development permit. A budget amendment will recognize $30,000 in additional revenue in the Private Donation and Contributions account 0106053-561005 and increase expenditures by $30,000 for programming - related expenditures in 0106053-841004. General Fund Expenditures The FY 2024-25 General Fund revised expenditure budget totals $325.8 million. Spending trends in FY 2024-25 are generally consistent with prior years and do not indicate any cause for concern. Total expenditure savings of $2.4 million are projected at this time due to year-to-date savings from vacancies, offset by expenses that are addressed in Budget Amendment No. 25-024 and are explained in detail below. The following table summarizes the changes to the adopted expenditure budget for FY 2024-25, as well as expenditure savings by budget category. Details highlighting the reasons for the material variances follow. FY 2024-25 Proiected General Fund Expenditures Salary & Benefits 188,194,601 185,732,949 2,461,652 1.3% Contract Services 32,899,719 32,899,719 - 0.0% Grant Operating 1,411,935 1,411,935 - 0.0% Utilities 4,446,732 4,446,732 - 0.0% Supplies & Materials 4,827,384 4,857,384 (30,000) -0.6% Maintenance & Repair 16,742,060 16,742,060 - 0.0% Travel & Training 925,308 905,308 20,000 2.2% General Expenses 4,301,266 4,325,743 (24,476) -0.6% Internal Svc Charge 31,245,497 31,245,497 - 0.0% Capital Expenditures 1,574,128 1,574,128 - 0.0% Operating Transfers Out 39,255,611 39,255,611 - 0.0% Total Expenditures 325,824,241 323,397,066 2,427,175 0.7% Significant expenditure budget variances are as follows: • The revised salary and benefits budget totals $188.2 million, an increase of $5.3 million over the adopted budget. An analysis of salary and benefit activity for quarter one indicates that $2.5 million in personnel savings has been captured to date. These savings are offset by the $70,000 proposed budget increase related to the Police Department's Supplemental Law Enforcement Services contracts, as explained in the General Fund's service fees and charges section of this report. • The supplies and materials budget will be increased by $30,000 for the Library's programming, as explained in the General Fund's miscellaneous revenues section of this report. 13-4 First Quarter Budget Update December 10, 2024 Page 5 • The travel and training budget will be decreased by $20,000 as the budget intended for staff to participate in Certified Access Specialist (CASp) training should be funded from Fund 180, the Restricted Programs Fund, and was erroneously included in the General Fund budget in FY 2024-25. A budget amendment is recommended to transfer $20,000 from the General Fund to the Restricted Programs Fund. • The general expenses category will be increased by $24,476 for the Police Department's software license, as explained in the General Fund's intergovernmental revenues section of this report. General Fund Sources, Uses and Projected Surplus The City continues to be in excellent financial health. Conservative budgeting and sound financial policies have resulted in a trend of General Fund operating surpluses and strong reserve levels for several years. The City is well positioned to continue delivering high levels of services to the community while targeting surplus resources to key priorities each year. It is currently projected that unrestricted General Fund resources will total $5.0 million at the end of FY 2024-25. As is the case each year, staff anticipates that additional budget savings will be realized, and the final year-end budget surplus will exceed this amount. The following table illustrates the prior year sources and uses of funds, current year activity, and the projected year-end results. FY 2024-25 Projected General Fund Sources. Uses and Budaet Surplus Beginning Fund Balance Reserves Operating Resources: Operating Revenues Prior Year Resources Carried Forward Transfers In from Other Funds Repayment of Advances Total Operating Resources Operating Uses: Operating Expenditures Transfers Out Total Operating Uses Net Operating Surplus Non -Operating Resources & Uses Transfers Out Total Non -Operating Resources & Uses Net Change in Fund Balance Endina Fund Balance Reserves Revised • Budget $ 15,752,275 15,752,275 - 0.0% 297,188,885 298,558,663 1,369,778 0.5% 6,786,845 6,786,845 - 0.0% 19,767,775 19,767,775 - 0.0% 1,250,000 1,250,000 - 0.0% 324,993,505 326,363,283 1,369,778 0.4% 286,568,630 284,141,455 (2,427,175) -0.8% 39,255,611 39,255,611 - 0.0% 325,824,241 323,397,066 (2,427,175) -0.7% (830,736) 2,966,217 3,796,953 -457.1% 13,680,159 13,685,648 5,489 0% (13,680,159) (13,685,648) (5,489) 0.0% 14,510,895 10,719,431 3,791,464 -26.1% $ 1,241,380 5,032,844 3,791,464 305.4% 13-5 First Quarter Budget Update December 10, 2024 Page 6 Facility Financing Plan Per the City's Municipal Code, park dedication and in -lieu fees provide for the dedication of land, the payment of fees in lieu thereof or a combination of both, for park or recreational purposes in conjunction with the approval of residential development. $976,701 of budgeted park zone fees in Park Zone 9 are not anticipated to be received in FY 2024-25. A budget amendment is recommended to align the budgeted revenues in this fund with current projections by reducing revenues in account 51303-422105. Additionally, park zone fees in Park Zone 4 are now estimated to be received this fiscal year, therefore, it is recommended to increase the revenue budget in 51303-422080 by $506,789. Fire Equipment Fund The FY 2024-25 Internal Service Fund (ISF) for fire equipment will be increased by $56,400. Planned additional expenses for FY 2024-25 were included in the ISF chargeback accounts in the General Fund but were not reflected in the expense account in the Fire Equipment fund; thus, the General Fund will not be impacted. Other Funds Staff has evaluated the fiscal condition of the City's other major operating funds (Tidelands and Water). An analysis of the budget performance for these funds indicates that no budget adjustments are necessary and variances between budgeted and actual amounts are within reason. Personnel Changes It is recommended that two equipment operator I (EOI) positions be adjusted to two equipment operator II (EOII) positions. The EOII is a highly skilled journeyman position. It is distinguishable from the EOI through performance of more skilled and complex tasks involving heavy equipment, possession of a California Class A commercial driver's license, and an additional year of experience is required. Those who hold that position are able to safely operate 14 pieces of complex heavy equipment such as loaders, beach cleaners, dump trucks, skid -loaders and backhoes, and 15 pieces of light duty equipment. E011s are responsible for training EOIs and maintenance workers in the operation of heavy and light equipment. There will be no change to the total fulltime position count, and no budget amendment is required as the cost to adjust these positions is $9,500, which can be covered by vacancy savings. FISCAL IMPACT: As a result of the Budget Amendment (Attachment A) included with this report, revenue estimates will be adjusted upward by $345,436 and $195,876 will be appropriated to the expenditure accounts listed in the Budget Amendment. Approval of these budget amendments is included in the projected Fiscal Year 2024-25 column of the General Fund Sources & Uses table on the previous page. 13-6 First Quarter Budget Update December 10, 2024 Page 7 ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Attachment A — Budget Amendment No. 25-024 Attachment B — Budget Amendments for the First Quarter 13-7 �EWPORT ATTACHMENT A I°k City of Newport Beach x BUDGET AMENDMENT Cq<<Fp RNp 2024-25 BA#: 25-024 Department: Finance ONETIME: ❑� Yes ❑No Requestor: Shelby Burguan Approvals ❑ CITY MANAGER'S APPROVAL ONLY Finance Director: Date j S 0 COUNCIL APPROVAL REQUIRED City Clerk: Date EXPLANATION FOR REQUEST: To adjust revenue estimates and expenditure appropriations relating to Fiscal Year 2024-25 Quarter 1 staff report. 0 from existing budget appropriations ❑� from additional estimated revenues ❑� from unappropriated fund balance REVENUES Fund # Org Object Project Description Increase or (Decrease) $ 010 0106053 561005 DESIGNATED GIFTS - PRVT DONATION/CONTRIBUTNS 30,000.00 010 01035352 521175 POLICE SUPPORTSERViCES - POLICE MISCELLANEOUS SVC 70,000.00 010 01035352 431245 POLICE SUPPORT SERVICES - CAL OES 24,476.49 513 51303 422105 FFP NON OP - PARK FEES ZONF 9 (976,701.00) 513 51303 422080 FFP NON OP - PARK FEES ZONE 4 506,789.00 Subtotal $ (345,435.51) EXPENDITURES Fund # Org Object Project Description Increase or (Decrease) $ 010 0106053 841004 DESIGNATED GIFTS- PROGRAMMING 30,000.00 010 01035353 713002 PATROL - OVERTIME SAFETY & 1/2 TIME 70,000.00 010 0103522 871017 POLICE IT - SOFTWARF LICENSE RENEWAL 24,476.49 010 01050504 861008 BUILDING - CASP CERTIFICATION & TRAINING [20,000.00) 180 1805042 861008 CASP TRAINING - CASP CERTIFICATION & TRAINING 35,000.00 756 75604 911024 FIRE EQUIPMENT NON OP - EQUIPMENT N.O.C. 56,400.00 Subtotal $ 195,876.49 FUND BALANCE Fund # Object Description Increase or (Decrease) $ 300000 GENERAL FUND FUND BALANCE CONTROL 20,000.00 300000 RESTRICTED PROGRAMS FUND - FUND BALANCE CONTROL (35,000.00) F 300000 FIRE EQUIPMENT FUND - FUND BALANCE CONTROL (56,400.00) 300000 FACILITIES FINANCING PLAN - FUND BALANCE CONTROL (469,912.00) Subtotal $ (541,312.00) Fund Balance Change Required 13-8 ATTACHMENT B Reporting Quarter: Q1 Amendment City of Newport Beach Fiscal Year 2024-25 Budget Amendments Quarter Ending September 30, 2024 Net Effect on Fund Balance BA # Date Type Fund Number Fund(s) Revenues Expenditures Increase/(Decrease) Department Explanation To appropriate structural surplus to increase expenditure 001 07/01/2024 City Council 010 GENERAL FUND $ - $ 5,000,000.00 $ (5,000,000.00) Finance appropriations. Funds will be allocated to CalPERS UAL Additional To recognize revenues from a donation from the Newport Beach 002 07/23/2024 City Council 010 GENERAL FUND $ 40,000.00 $ 40,000.00 $ - Library Public Library Foundation and increase expenditures for Library Materials, Office Furniture and Fixtures, and Hardware for the Newport Beach Public Library. To transfer budget from Police Traffic Services Professional to Public 003 07/01/2024 City Manager 010 GENERAL FUND $ - $ 15,000.00 $ - Police/PW Works Facility Maintenance - Maintenance and Repair Building for the PW is not planning another Sewer Lift Station project in FY2024-25, so PW requests to appropriate funds from the Sewer Lift Station Improvement project (23SO4) to the Sewer Main Lining Repairs project (25503). These funds will be used for the sewer force mains crossing the harbor from Little Balboa Island to CDM. Wastewater Funds had not yet been set aside for these crossings in the Bay Crossing CIP 004 07/04/2024 City Manager 712 WASTEWATER CAPITAL FUND $ - $ 1,000,000.00 $ - Public Works project, which will occur in 24-25. Originally, PW thought this project would occur in FY2025-26 and cost double what they are now estimating. The project will incorporate a new lining technology which will replace the previous full replacement of the lines. According to F-3 7b, the City Manager can approve project appropriations if the project utilize the same funding source and are for substantially the same project purpose and physical location. FACILITIES FINANCING PLAN & PARKS & To appropriate funds from the 513 FFP Fund to the 562 Parks and 005 07/23/2024 City Council 513 & 562 COMMUNITY CENTERS $ $ 805,874.00 $ (805,874.00) Public Works Community Center Fund for the Lower Sunset View Park project (15T09). To appropriate funds from the Environmental Liability unappropriated 006 07/23/2024 City Council 160 ENVIRONMENTAL LIABILITY FUND $ - $ 49,681.00 $ (49,681.00) Public Works fund balance due to increased expenditures as requested by contractor Bums & McDonnell Amendment No. 5 for the Newport Bay Water Wheel project. To recognize revenues from a donation from the Friends of Newport 007 08/27/2024 City Council 010 GENERAL FUND $ 200,000.00 $ 200,000.00 $ - Library Beach Library and increase expenditures for Library Materials and Proqramminq for the Newport Beach Public Library. GENERAL FUND & SPECIAL PURPOSE To increase revenue estimates and expenditure appropriations from 008 07/18/2024 City Manager 010 & 017 DEPOSIT FUND $ 4,000.00 $ 4,000.00 $ - Library the Literacy Services Special Deposit Account. Funds will be allocated to the orq-objects as highlighted below. To increase revenue estimates and expenditure appropriations from 009 08/27/2024 City Council 010 GENERAL FUND $ 56,860.00 $ 56,860.00 $ - Police the approval and acceptance of the Carrfomia Department of Alcoholic Beverage Control (ABC) 2024-25 Alcohol Policing Partnership Proqram (APP) Grant. To increase expenditures in the Newport Beach Arts Foundation 010 08/07/2024 City Manager 180 RESTRICTED PROGRAM FUND $ - $ 9,906.32 $ (9,906.32) Library Programming account from donations for the City Arts Commission Accept Department of Homeland Security Operation Stonegarden 011 09/10/2024 City Council 010 GENERAL FUND $ 125,000.00 $ 125,000.00 $ - Police Grant Funds - Grant supports enhanced cooperation and coordination among Customs and Border Protection, United States Border Patrol, and local law enforcement. 010 GENERAL FUND To reflect the additional city pickup of CaIPERS contribution rates 100 TIDE & SUBMERGED LANDS FUND through June 2025 for applicable bargaining units, increase 701 WATER ENTERPRISE FUND Human contributions to health coverage through June 2025 for safety 012 08/27/2024 City Council 711 WASTEWATER ENTERPRISE FUND $ 13,778.09 $ 1,931,800.00 $ (1,918,021.91) Resources bargaining groups, and to apply an agreed upon bonus that will be paid 752 EQUIPMENT FUND quarterly throughout FY25 for safety bargaining units and eligible K&M 764 IT ISF positions. Funds are appropriated from the fiscal year end FY 24 surplus endinq balance. To increase budget for the purchase of real property at 301 E Balboa 013 08/27/2024 City Council 010 & 012 GENERAL FUND $ 8,500.00 $ 2,832,000.00 $ (2,823,500.00) CDD Blvd. Estimated costs include the purchase, title/escrow closing costs, GENERAL FUND CAPITAL PROJECTS due diligence, and relocation costs. Additional revenue based on reported lease rates for three months are estimated. 13-9 Reporting Quarter: Q1 Amendment City of Newport Beach Fiscal Year 2024-25 Budget Amendments Quarter Ending September 30, 2024 Net Effect on Fund Balance BA# Date Type Fund Number Fund(s) Revenues Expenditures Increase/(Decrease) Department Explanation 014 09/10/2024 City Council 010 GENERAL FUND $1,110,112.00 $ 441,584.00 $ 668,528.00 Fire Accept Medi-Cal IGT Program revenue and appropriate expenditure account. To increase revenue estimates and expenditure appropriations from 015 09/09/2024 City Manager 010 & 017 GENERAL FUND $ 300.00 $ 300.00 $ - Librathe Literacy Services Special Deposit Account. Funds will be allocated Library SPECIAL PURPOSE DEPOSIT FUND to the org-objects as highlighted below. The money will be used to pay 017 09/24/2024 City Council 101 TIDELANDS HARBOR CAP FUND $ - $ 430,893.00 $ (430,893.00) Public Works To appropriate expenditures from the unappropriated Tidelands Capital Fund balance for the Citywide Public Dock Rehabilitation Project. 010 GENERAL FUND 100 TIDE & SUBMERGED LANDS FUND 701 WATER ENTERPRISE FUND Human To reflect the additional city pickup of CaIPERS contribution rates 018 09/24/2024 City Council 711 WASTEWATER ENTERPRISE FUND $ 20,668.00 $ 241,418.00 $ (220,750.00) Resources through June 2025 for applicable bargaining units. Funds are 752 EQUIPMENT FUND appropriated from the fiscal year end FY 24 surplus ending balance. 764 IT ISF GENERAL FUND To transfer budget from the Library Foundation New PC Purchases to 019 09/25/2024 City Manager 010 $ - $ 1,127.00 $ Library Software License Renewal for the annual renewal of the Wayfinding Kiosk software. To recognize revenues in the Library Admin SLS Grant Fund OC 020 09/25/2024 City Manager 010 GENERAL FUND $ 4,399.12 $ 4,399.12 $ - Library Library account and increase expenditures in the Library Materials 13-10