TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, City Manager
FROM:
Onyx Jones, Interim Finance Director
Julie Bondarchuk, Financial Controller
Libby Bretthauer, Financial Services Manager
Marcelo Serrano, Budget & Financial Analyst
SUBJECT:Title
Financial Report:
a) Schedule of Demands: December 2024
b) Investment Portfolio Report: November 2024
c) Month End Financial Reports: November 2024
(No Budget Impact) (Interim Finance Director Jones).
ACCEPT REPORT AND DEMANDS
Body
_________________________________________________________
RECOMMENDATION:
Staff recommends that the City Council accept the attached reports and demands.
FISCAL IMPLICATIONS:
The financial report included herein is designed to communicate fiscal activity based upon adopted and approved budget appropriations. No further action of a fiscal nature is requested as part of this report.
The total value of the warrant registers for December is $16,990,197.83.
BACKGROUND:
Finance staff prepares a variety of financial reports for the City Council and the Finance Subcommittee. A brief discussion of the attached report follows.
DISCUSSION:
Schedule of Demands:
Every month staff prepares a comprehensive listing of all disbursements with staff certification that the expenditure transactions listed have been reviewed and are within budgeted appropriations.
Investment Portfolio:
Detailed Investment reports are provided to the Finance Subcommittee with summary reporting to City Council. The month-end portfolio includes a certification by the Finance Director that all investments comply with established Investment Policies (or with Finance Subcommittee approved exceptions) and there is sufficient liquidity to support projected expenditures.
Month End Financial Reports:
The Finance Department has traditionally provided monthly summary-level financial reports without including narrative explanations on trends and variances. In an effort to increase transparency on financial matters, staff presented a FY 2025 First Quarter Budget Update at the November 19, 2024, City Council meeting that included a narrative report on the financial data presented and explanations of significant variances compared to the prior year quarter. The November 2024 Financial Report attachment provides a detailed overview of the current Budget performance. It includes a year-to-date revenue and expenditure report by fund as well as a General Fund revenue and expenditure report by category. Furthermore, the report also highlights the performance of key General Fund revenue sources.
When comparing the cumulative Year-to-Date performance through November of FY 2024 to that of November of FY 2025, General Fund revenues appear lower than those of the previous fiscal year. However, this difference is due to a recent change in accounting accrual methodologies. To align with best practices and ensure consistent reporting, revenues such as Property Tax, Sales Tax, Transient Occupancy Taxes (Hotel and Short-term Rental), and Leases/Rents received in July and August should be attributed to the prior fiscal year and reversed from the first quarter. Previously, when revenues received in July/August for Sales Tax, Transient Occupancy Tax, and some leases/rents were accrued, the amounts were not reversed until the end of the new fiscal year. Starting in FY 2025 and moving forward, all prior year revenues will be reversed during Quarter 1 (Q1), and future trends will normalize after this one-time adjustment in methodology.
Revenues
Primarily attributed to the recent change in accounting accrual methods, cumulative fiscal year to date revenues for FY 2025 are $2,898,287 (11.9%) lower than last year, excluding the net change of $448,420 for unrealized investment gains/losses. It is noteworthy that if the impact of the prior year’s revenue accrual is excluded, as depicted in the table below, total general fund revenues, excluding the unrealized investment gains/losses, increased by about $702,687. The next section will detail the General Fund revenues received from July through November 2024.
|
November 2024 |
FY 2024 Actual |
Rev Accrued to PY |
Adj FY 2024 Act |
FY 2025 Actual |
|
Sales Tax |
$5,010,572 |
$2,248,249 |
$2,762,323 |
$2,827,414 |
|
TOT |
3,404,925 |
567,511 |
2,837,414 |
2,785,344 |
|
Franchise Tax |
258,073 |
131,838 |
126,236 |
72,507 |
|
Hotel Rent |
933,247 |
459,137 |
933,247 |
534,899 |
Property Tax is an important source of the City's General Fund revenues. As of November, FY 2025, total cumulative receipts increased by $106,436 (7.1%) compared to last year. HdL, the City’s Property Tax consultant, confirmed a 5.2% ($1.3 billion) rise in net taxable assessed values for FY 2025. With this increase, the City’s estimated secured Property Tax revenues are projected to be $36.7 million, about $120,000 above budget. Increased home sales from January through July and higher assessed values from those recent parcel sales will contribute to this increase.
Sales & Use Tax received as of November FY 2025 amounted to about $2.82 million, which aligns with the sales tax projections provided by HdL. Furthermore, if the adjustment for accruals had been applied in FY 2024, revenues would have totaled $2.76 million. Consequently, the actual Sales & Use Tax receipts for November FY 2025 exceed those of November FY 2024 by $65,091 (2.4%). By the end of the fiscal year, Sales Tax revenues are expected to meet the budgeted amount of $11.3 million.
Transient Occupancy Tax (TOT) revenues as of November FY 2025 were $2.79 million. If the adjustments for accruals had been applied in FY 2024, revenues would have totaled $2.84 million. Despite actual TOT receipts for November FY 2025 coming in slightly lower than those of November FY 2024 by $52,070 (1.8%), revenues at fiscal year-end are still expected to meet or exceed the budget of $7.4 million.
Separately, TOT collected from Short-Term Rentals operating within the Coastal Zone shows that revenues as of November FY 2025 were $452,014. If the adjustments for accruals had been applied in FY 2024, revenues would have totaled $230,299. Consequently, actual receipts from Short-Term Rentals for November FY 2025 exceed those of November FY 2024 by $221,785 or 96.3%, indicating a consistent growth in operations. The City now has over 150 licensed short-term rentals, with about 85 highly active over the summer months.
Business License Taxes received amounted to $439,387, which represents a 41.2% decrease compared to the same cumulative period of the previous year. This decline was partly due to a one-time increase in the prior year from improved collection efforts for businesses that were delinquent after the Covid-19 pandemic. Additionally, there was a reduction in overall gross receipts reported by businesses this fiscal year, impacting the tax calculations and associated payments.
Building Permits. The volume of issued building permits and processed plan checks decreased from the same cumulative period last year. Building permit revenues decreased by $242,840 or 21.9%, whereas plan check fees increased by $197,370 or 25.1%. Such variations can occur when large projects boost revenues in a particular month. Overall trends don’t indicate significant deviations from the projected budget by fiscal year-end. Demolition permits were slightly below last year’s amount from the prior year, but once rebuilt, these properties generally have higher assessed values than before. Building record requests also increased by 8.3% year-over-year, suggesting higher home sales compared to the previous year. However, it is important to note that the number of building record requests remains approximately 19.5% lower than the historical five-year average, reflecting the impact of higher mortgage interest rates and continued low inventory.
Other Service Charges (excluding Plan Checks) decreased by $117,071 or 2.5% compared to the corresponding cumulative period last year. This category encompasses service charges related to Parks and Recreation registration fees, as well as other cost recovery fees for ambulance transports, planning and building services, and public safety reimbursements. Despite strong enrollments in recreation classes and activities with increases in Swimming Classes, Enrichment Classes, and Facilities & Parks reservations, a decline in ambulance fees impacted the overall category. In the previous year, the City’s new ambulance billing vendor significantly boosted revenues through enhanced efforts to collect delinquent accounts in 2023.
The Interest and Rents category shows a decrease of $459,492 (26.1%) compared to the previous year, due to adjustments for accruals and the timing of this fiscal year’s quarterly hotel rent payment. These payments are made after each quarter ends, necessitating an accounting entry to adjust the July 2024 payments to the prior fiscal year. In the current fiscal year, $459,137 was received in July, which was accrued to the prior year. If FY 2024 revenues had been adjusted for accruals similarly to FY 2025, the decrease over the prior fiscal year would be closer to $355.
The Unrealized Investment Gain/Loss has been identified separately from the Interest and Rents category due to big market swings in the last few years. At the end of every fiscal year, an accounting entry is required to “mark-to-market” the City’s investments. Governmental Accounting Standards Board (GASB) Statement No. 31 states that “all investment income, including changes in the fair value of investments, should be reported as revenue.” As such, on June 30, the City’s investments were “marked-to-market” and a loss on investments of $1,141,441 was posted in FY 2024. Then, since the City carries investments at cost (“book value”) throughout the year, the June 30 loss was reversed on July 1, which created the significant positive amount in Fiscal Year 2025. This amount will be adjusted at the end of this fiscal year, when investments are again marked to new market values on June 30, 2025.
Parking Citation revenues rose by $298,581 (52.9%) compared to the same quarter last year, due to hiring three Lead Community Services Officers in FY 2024 and increased parking enforcement.
Operating Service Transfers are reimbursements to the General Fund from other funds per the February 2020 Cost Allocation Plan. Engineering staff time on capital projects and grants decreased slightly, causing a relative drop of $79,819 (4.6%).
The From Other Governments category includes grants and other reimbursements to the General Fund related to the implementation of State mandates. The amount received up to November FY 2025 is $77,904 (25.5%) higher than the previous year. This increase can be tied to a higher number of reimbursements received in the current fiscal year for the implementation of mandates under the State’s Property Tax Relief Act of 1972 (Senate Bill 90) and a reimbursement payment received from the Federal Emergency Management Agency related to expenditures from the City’s Covid-19 response.
Miscellaneous There was a $433,319 or 219.9% increase in revenues, which was largely from Workers Compensation Salary Continuation revenues reimbursing the General Fund for Injury-On-Duty leave. Although this is an increase in General Fund revenues, this also reflects higher payouts and costs in the Insurance Fund.
Overall, the General Fund revenues and expenditures are aligned with the FY 2025 Budget projections. A more detailed analysis will be provided in the Mid-Year staff report, which is scheduled to be presented to the City Council during the second Council meeting in February 2025.
PUBLIC OUTREACH/INTEREST:
After analysis, staff determined that public outreach was not required for this issue.
ENVIRONMENTAL REVIEW:
Not applicable.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Schedule of Demands for November 2024
2. Investment Portfolio for the Month of November 2024
3. Month End Report for the Month of November 2024