TO: ADAM PIRRIE, CITY MANAGER
FROM: JEREMY STARKEY, FINANCE DIRECTOR
DATE: OCTOBER 22, 2024
Reviewed by:
City Manager: AP
SUBJECT:
Title
2023-24 GENERAL FUND FINANCIAL UPDATE (UNAUDITED)
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SUMMARY
Staff provides a financial update for the General Fund after the end of each fiscal year. The information in this report represents unaudited information for the General Fund. The audited financial statements for all funds, including the General Fund for 2023-24, will be published at the end of this calendar year as part of the City’s Annual Comprehensive Financial Report (ACFR). In prior years, information provided in this report has generally not deviated materially from the final annual audited statements.
At the close of 2023-24, a projected General Fund surplus of $4,894,531 was realized from General Fund operations for the fiscal year. The following report details the staff recommendation for the allocation of the 2023-24 General Fund surplus.
RECOMMENDATION
Recommended Action
Staff recommends the City Council:
A. Allocate $1,775,341 of the 2023-24 General Fund surplus to the City’s Operating and Environmental Emergency Reserve, bringing the reserve balance to $11,113,060 or thirty percent of estimated 2026-27 General Fund operating expenditures and transfers out;
B. Allocate and appropriate $1,250,000 of the 2023-24 General Fund surplus for an additional discretionary payment to CalPERS to pay down the unfunded liability on the City’s employee pension plans;
C. Allocate and appropriate $1,000,000 of the 2023-24 General Fund surplus for a contribution to fund the City’s Section 115 Pension Trust;
D. Allocate $819,190 or any remaining 2023-24 General Fund surplus after completion of the annual audit to the City’s Equipment and Facility Revolving Reserve; and
E. Allocate and appropriate $50,000 to fund a local business grant program by which applicants can apply for up to $2,000 for the costs to install shatter-proof coatings.
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ALTERNATIVE TO RECOMMENDATION
In addition to the recommendation, there are the following alternatives:
• Request additional information
FINANCIAL REVIEW
General Fund revenues and transfers in for 2023-24 amounted to $38,907,128 compared with a full-year budget of $32,305,442.
Expenditures and transfers out in the General Fund were budgeted at $36,299,800. Actual current year expenditures amounted to $34,012,597. Additional transfers from the General Fund were made from prior years’ fund balances and reserves totaling $1,688,433 from the unassigned fund balance for the repurchase of the 2006 Pension Obligation Bonds and various capital projects using the Equipment and Facility Revolving Reserve.
Based on revenues of $38,907,128 and current year expenditures of $34,012,597, an excess of revenues over expenditures (surplus) exists at the close of 2023-24. The amount of this surplus is $4,894,531 and came about as a result of higher than estimated annual revenues in the General Fund.
In previous years, General Fund surpluses have allowed the City to allocate funds to various set asides such as adding to the City reserves and making additional payments to CalPERS and the Section 115 Pension Trust Fund.
The staff cost to conduct research and prepare this report is estimated at $1,500 and is included in the operating budget of the Financial Services Department.
ANALYSIS
General Fund Revenues
General Fund revenues and transfers in for 2023-24 totaled $38,907,128 against an adjusted full year budget of $32,305,442. Actual revenues represent an excess of revenues relative to the adjusted budget of $6,601,685. Explanations of the major sources of additional revenue are described below:
1. Property Tax: Revenues for 2023-24 were approximately $1,065,773 higher than the full-year budget of $11,992,000. Growth in Property Tax is based on increases in the assessed value of taxable real property in Claremont, driven by the cost-of-living increase of up to two percent pursuant to Proposition 13, as well as the reassessment of property when it is sold. The growth in assessed value exceeded the four percent increase budgeted from the prior year, resulting in additional revenues for 2023-24.
2. Sales Tax: Revenues for 2023-24 were budgeted at $7,569,000. Actual Sales Tax receipts for 2023-24 were $8,906,525, an excess of approximately $1,337,525 over the adopted budget. The increase in sales tax was a result of increases in auto sales, the addition of the new Claremont Mazda dealership, along with higher allocation of Sales Tax resulting from online sales via the County pool, increases in restaurant sales, and higher gas prices at fuel and service stations.
3. Utility User Tax (UUT): At $5,132,625 revenues for 2023-24 were approximately $538,625 higher than the budgeted figure of $4,594,000. The excess of revenues was the result of higher electricity costs and the resulting tax on these services.
4. Franchise Tax: Revenues for 2023-24 were approximately $134,992 higher than the budgeted amount of $745,000, primarily due to higher utility rates for electricity and gas service.
5. Transient Occupancy Tax (TOT): Revenues of $1,621,940 were approximately $196,940 higher than the budget of $1,425,000 due to a return to pre-pandemic hotel activity during the fiscal year.
6. Licenses and Permits: Revenues exceeded the budgeted amount of $945,500 by approximately $1,290,850 in 2023-24 due to increases in fees from building, grading and public works permits. Construction activities, related to residential, commercial and Colleges development remained strong during 2023-24, contributing to the excess of permit revenues.
7. Charges for Services: Revenues were higher than budgetary estimates by approximately $275,215 due to the collection of development review and plan check fees, again related to the development taking place throughout the City.
8. Use of Money and Property: This revenue category includes interest earnings on the City’s investment portfolio and the revenue associated with the rental of City Facilities. In 2023-24, revenues exceeded the budget of $591,400 by approximately $898,848. This was due in large part to interest earnings, which increased significantly as a result of higher interest earnings rates with the City’s investments in the State Controller’s Local Agency Investment Fund (LAIF), Certificates of Deposit (CDs) and US Treasuries. Higher than expected building and park rentals also contributed to the excess of revenues in this category.
Other revenues that exceeded budget included Business License Taxes by $247,531, Fines and Forfeitures by $133,505 for collections of traffic and code enforcement citations, Miscellaneous Revenue by $348,733 resulting from mandated cost reimbursements and settlements, and Other Taxes by $29,444 from document transfer taxes.
General Fund Surplus
Staff recommends the following actions relating to the General Fund surplus of $4.89 million for
2023-24:
1. Operating and Environmental Emergency Reserve: The City’s current Operating and Environmental Emergency Reserve balance stands at $9.34 million representing 27.5 percent of 2023-24 General Fund expenditures and transfers out. Staff recommends allocating $1,775,341 of the surplus to the Operating and Environmental Emergency Reserve. Doing so would increase this reserve balance to $11,113,060 million, equal to 30 percent of estimated 2026-27 General Fund expenditures and transfers out.
2. Pension Funding: The City Council allocated $2,000,000 million in additional funding towards its unfunded pension liabilities from the 2022-23 General Fund surplus. Staff recommends continuing this practice and proposes to direct $2,250,000 million of the General Fund surplus from 2023-24 to prefunding employee pensions. Staff recommends making a $1.25 million payment directly to CalPERS to reduce the unfunded accrued liabilities (UAL) on the City’s safety and miscellaneous employee pension plans and a $1.00 million contribution to the City’s Section 115 Trust. Funding in the Section 115 Trust allows local control over the investment of funds allocated for future pension payments; it offsets the Net Pension Liability reported in the City’s annual financial statements and allows higher investment returns than in the City’s investment portfolio.
3. Equipment and Facility Revolving Reserve: In 2012, the City Council established the Equipment and Facility Revolving Reserve to set aside funding for equipment and facility maintenance expenses above those included in the City’s operating budget. Eligible expenditure of these reserve funds include renovation projects, replacement and refurbishments of furniture and equipment, and facility enhancements. The current balance in this reserve is $479,551. Staff recommends allocating $819,190 or any remaining surplus after the completion of the 2023-24 audit to this reserve. The allocation of $819,190 would increase its balance to approximately $1,298,741. The reserve will be available to fund equipment replacements or facility improvements with City Council approval. Upcoming projects to be funded with this reserve will likely include seismic and safety improvements, and the construction of the women’s locker room at the Claremont Police Department.
4. Local Business Grants: Given the ongoing issues with commercial burglaries, and their impacts on our local business community, Mayor Sal Medina requested that staff consider recommending funding from the General Fund surplus to provide grants to local businesses to install shatterproof window coatings. Staff proposes to allocate $50,000 to provide grants of up to $2,000 per business for the installation of a protective shatterproof film on business storefronts. The cost of installing these shatterproof coatings ranges from $12 to $16 per square foot of window area, and the grants could pay for a significant portion of the cost of the installation, depending on the size of the storefront. If approved, staff would develop the grant program and publicize its availability to local businesses.
RELATIONSHIP TO CITY PLANNING DOCUMENTS
Staff has evaluated the agenda item in relationship to the City’s strategic and visioning documents and finds that it applies to the following City Planning Documents: Council Priorities, Economic Sustainability Plan, General Plan, and the 2024-26 Budget.
CEQA REVIEW
This item is not subject to environmental review under the California Environmental Quality Act (CEQA).
PUBLIC NOTICE PROCESS
The agenda and staff report for this item have been posted on the City website and distributed to interested parties. If you desire a copy, please contact the City Clerk’s Office.
Submitted by:
Jeremy Starkey
Finance Director