HomeMy WebLinkAbout13 - Third Quarter Budget UpdateQ SEW Pp�T
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z NEWPORT BEACH
c�<,FORN'P City Council Staff Report
May 25, 2021
Agenda Item No. 13
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Scott Catlett, Finance Director/Treasurer - 949-644-3123,
scatlett@newportbeachca.gov
PREPARED BY: Scott Catlett, Finance Director/Treasurer,
scatlett@newportbeachca.gov
PHONE: 949-644-3123
TITLE: Third Quarter Budget Update
ABSTRACT:
The City of Newport Beach (City) Finance Department prepares quarterly financial reports
to review the status of revenues and expenditures for the City's funds. This report contains
information on resources through the third quarter of Fiscal Year 2020-21, which is the
period between January 1, 2021, and March 31, 2021. Also included is a Budget
Amendment to transfer unused CIP appropriations for the Homeless Shelter to the
General Fund to support ongoing homeless shelter operating costs and to transfer
residual unappropriated fund balance from two soon to be closed funds to the General
Fund. Lastly, summaries of the City's receipts and expenditures responding to the
COVID-19 pandemic and budget adjustments for the third quarter are attached for the
City Council's review.
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. 21-043, which will:
1. Transfer unused Homeless Shelter CIP project funds of $265,285.80 to the City
Manager Outreach Services account (0102041-811008) for ongoing homeless
shelter operating costs;
2. Transfer unappropriated fund balance from the 800 MHz Radio Fund to the
General Fund in the amount of $446,656; and
3. Transfer unappropriated fund balance from the Special Improvement District
No. 95-1 Fund to the General Fund in the amount of $281,611;
c) Receive and file the attached report of budget amendments for the third quarter; and
d) Receive and file the attached summary of pandemic -related costs and revenue.
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Third Quarter Budget Update
May 25, 2021
Page 2
DISCUSSION:
Economic Overview
California's unemployment rate decreased 0.2 percentage points to 8.3 percent in March
as the state's employers gained 119,600 jobs, according to data released by the
California Employment Development Department (EDD). Orange County's
unemployment rate stood at 6.4% at the end of March 2021 compared to 7.4% in
December 2020. The largest month -over -month employment increase across major
industry categories in California was attributable to leisure and hospitality (+42,400 jobs).
This sector also had the largest employment gains in Orange County (+9,800 jobs). Hotel
owners throughout the country are also reporting more advanced bookings. During most
of the pandemic, bookings have been with just a few days' notice, often by people who
needed a quick "staycation." The Baird/STR Hotel Stock Index, which tracks shares of
eight hotel brands and 12 hotel real estate investment trusts, jumped 22% in February,
compared with less than a 2% increase for the S&P 500.
The automobile and transportation sector continues to recover as consumers treat
themselves to new and often more expensive vehicles at a time when other spending
opportunities have been curtailed by the COVID-19 pandemic. The average price of a
new car increased 6% compared to last year as attractive financing rates sustained
demand while production stoppages early in the crisis limited supply. Sales are expected
to continue to grow as the economy recovers, with automotive executives hopeful the
industry will return to closer to normal this year. Recreational vehicle (RV) purchases
continue to be a bright spot as many feel they offer a safer way to travel. Receipts for this
category were up 27% in the most recent quarter; the RV Industry Association is
projecting industry volume may grow by as much as another 20% in 2021, boosted by
millennial buyers newly introduced to the land travel lifestyle during lockdowns.
Many economists, along with the Federal Reserve's policymakers, remain hopeful that
the economy will continue to improve markedly in the second half of the calendar year as
more people get vaccinated. Job growth is expected to pick up in the summer as vaccine
distribution continues, better weather allows for more outdoor activities, and the State of
California (State) continues to loosen restrictions. Chapman University's recent Orange
County third quarter (January -March 2021) Consumer Sentiment Index indicates a 42%
jump in confidence over the prior quarter. The survey suggests this is due to the
increasing number of vaccinations, fewer positivity rates, and the continued opening of
the economy.
General Fund Revenues
Most revenue categories have performed at or higher than their budgeted levels this year
due to more favorable economic conditions than anticipated when the budget was
developed in April 2020. This performance trend led to a $17.7 million budget amendment
during the third quarter that aligned the budget with the higher anticipated results. This
has significantly narrowed the budget -to -actual variance when compared to prior quarterly
reports. Actual revenues are $7.5 million higher than, and 67% of, the current
year-to-date revised budget, which is consistent with prior year's performance. Staff will
remain diligent in monitoring revenues to review if further amendments are necessary.
13-2
FY 2020-21 Actual General Fund Revenues Th
Third Quarter Budget Update
May 25, 2021
Page 3
P ro pe rty Taxe s $
71,054,562 $
74,242,007 $
74,242,007
$ 75,055,220
$ 813,213
1.1%
Sales Tax
24.202.559
17.903.62T
20.628.612
21.883.103
1.054.491
5.1%
Transient Occupancy Tax
18,235,366
2,883,582
T,271,103
10,370,476
3,099.373
42.6%
Other Taxes
7.685.657
6.137.471
6.651.572
7.721.544
869.972
12.7%
Service Fees & Charges
17,326.241
13.646,084
12,550,828
13.041,680
490.852
3.9%
Parking Revenue
3.910.384
3.535.307
3.989.626
4.653.571
663.945
16.6%
Licenses & Permits
3,841.819
3.156,945
3.558.505
3.802,819
244,314
6.9%
Property Income
3.616.822
2.950.699
3.198.539
3.465.462
266.923
8.3%
Fines & Penalties
2,697,321
2,785,389
2,576,502
2,737,805
161,303
6.3%
Intergovernmental Revenues
1.524.053
823.296
3.159.548
3.259.495
99.947
3.2%
Investment Earnings
1,807,487
892,649
892,649
317,282
(575.367)
-64.5%
Miscellaneous Revenues
2.072.738
388.398
1.113.539
1.465.727
352.188
31.6%
Total Revenues $
157,975,446 $
126,345,454 $
144,233,430
$ 141,774,184
$1,541,154
5.4%
Property Taxes - Property taxes are the single largest funding source and typically
represent just under 50% of all General Fund revenues. Property tax revenues for
FY 2020-21 were budgeted conservatively anticipating the potential for delayed payments
due to economic hardship and the Governor's Executive Order (N-61-20) suspending
penalties and interest of property taxes. For FY 2020-21, property taxes are $813,213
higher than projected through the third quarter. The City's first of three unsecured property
tax payments came in less than projected; however, the second payment, received in
January 2021, came in higher than projected and overall unsecured property taxes are
now back on track at 3.2% higher than the previous year. These are value -based taxes
not secured by property (e.g., business property, boats, and airplanes) and make up only
about 2.6% of property tax revenue. Supplemental taxes (levied after change in
ownership or completion of new construction) continued to be down through the third
quarter; however, the latest payment received in January 2021 was flat compared to the
prior year. With the recent surge of home sales, this category will likely continue to
improve, which bodes well for future secured property taxes. Secured property tax
payments continue to come in strong, which is an indication of timely property tax
payments.
Sales Tax - The second largest funding source for the General Fund is sales tax revenue,
typically making up more than 15% of General Fund revenues. The City's sales tax base
is largely generated from three main industry categories including Autos and
Transportation, General Consumer Goods, and Restaurants/Hotels. Most of these
industries are also heavily impacted by tourism. Sales Tax revenues through the third
quarter of FY 2020-21 are $1.1 million higher than anticipated. Businesses pivoted in
creative ways to reach their customers as they were able to open at some capacity sooner
than expected resulting in relatively strong consumer spending. For these reasons, all
three main industry categories performed better than expected. Although third quarter
revenues are higher than expected thus far, sales tax receipts are still less than the prior
year. The latest sales tax information shows that retail and restaurants have been hit
especially hard while transportation is showing quarter over quarter increases.
13-3
Third Quarter Budget Update
May 25, 2021
Page 4
Also, the California Department of Tax and Fee Administration (CDTFA) has extended
due dates and offered payment plans to small businesses. This has, and will continue to
create, timing issues related to when revenues are received. The City's sales tax
consultant has provided an updated sales tax estimate and the revised budget for sales
tax is now $34.5 million for FY 2020-21, $5.8 million or 20.4% higher than originally
budgeted, resulting from increased consumer spending, vaccination roll-out, and reduced
case counts. There is still room for additional positive improvement in sales tax revenues
by the end of the fiscal year; however, staff and the City's consultant remain conservative
in projecting sales tax revenues and will wait to evaluate additional receipts before making
additional adjustments to the sales tax revenue projection.
Transient Occupancy Tax — Transient occupancy tax (TOT) was the City's most
severely impacted revenue source as the pandemic unfolded, as most major hotels within
the city were temporarily closed toward the end of March 2020 and many did not start
reopening until late May or early June, with some hotels remaining closed in the third
quarter. Also, short term rentals were not allowed to operate in the city from early April
2020 until May 20, 2020. Although most hotels are operational, they remain well under
full capacity. The Renaissance Newport Beach hotel reopened February 1, 2021. Staff
had budgeted FY 2020-21 TOT revenues very conservatively expecting to realize 10%,
20%, and 25% of prior year revenue in the first, second, and third quarters respectively.
The positive improvement in this category has led to year-to-date revenue collections
reaching 56.7% of the prior year through the third quarter. Staff had anticipated that
residential TOT would be similarly impacted economically, and in fact, the negative impact
has been limited to hotel TOT, with residential TOT revenues through the first three
quarters of FY 2020-21 coming in 7.2% higher than prior years. The table below illustrates
a comparison of hotel TOT revenues by month this fiscal year versus the same month in
the prior fiscal year. It is notable that revenues continued to improve from July through
October and then had a dramatic fall in December 2020 when Governor Newsom enacted
a stay-at-home order that largely prohibited travel. A steady improvement in revenue and
occupancy rates has been seen since December, which is anticipated to continue given
the current easing of restrictions and the anticipated return of more significant numbers
of leisure, and ultimately business, travelers in the months ahead.
In spite of the changing restrictions, revenues through the third quarter of FY 2020-21
were approximately $3.1 million over the revised projected budget. Staff is projecting
revenues to reach 60%, a level comparable to what was seen in October, by the end of
the fiscal year. For these reasons, staff currently estimates TOT revenues of $15.2 million
for FY 2020-21, which is $8.8 million or 136.4% higher than originally budgeted.
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 the following:
• Other Taxes — real property transfer taxes, business license taxes, marine charter
taxes, and franchise fees.
• Service Fees & Charges —plan check fees, recreation classes, emergency medical
services fees, and numerous other cost -of -service fees.
13-4
Third Quarter Budget Update
May 25, 2021
Page 5
• Parking Revenue — all General Fund related metered parking fees that are
assessed throughout the various parking zones of the city.
• Licenses and Permits — fees charged to process building related permits, street
closure permits, dog licenses, and police tow franchise fees.
• Property Income — City -owned and managed income producing properties,
long-term ground leases to concessions, restaurants, hotels and other businesses
and organizations, and rental of City facilities to the public.
• Fines and Penalties — parking citation fines collected by the City, administrative
citation fines, fines remitted to the City from the County of Orange (County) for
vehicle code violations, and false alarm penalties.
• Intergovernmental Revenues — federal, state, and local grant revenues, which
includes, but is not limited to, the City's portion of the '/2 cent sales tax revenue
paid to the County for public safety, state mandate reimbursements,
reimbursement for strike teams sent to assist with fires, and revenue sharing with
the County under the Waste Disposal Agreement (WDA).
• Investment Earnings — revenue generated from the investment of City funds. This
category will likely finish the year under budget due the sustained lowering of
interest rates by the Federal Reserve in order to stimulate growth during this period
of economic decline and uncertainty.
• 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.
Revenue accounts other than the top three were reduced by 20% across the board in the
FY 2020-21 budget. This was based on historical reductions to revenues during prior
recessions and with the understanding that some accounts would come in higher than
projected and others would come in lower. All other revenue (excluding the top three)
through March 31, 2021, is $2.5 million higher than the revised budget. Parking revenue
through the third quarter came in strong at $664,000 over the revised budget. Property
Income through the third quarter is up $267,000 over budget due to rental property
revenue coming in strong. These numbers should continue to perform well due to
deferred revenues to be received in the fourth quarter along with the reopening of leased
City properties. Fines and Penalties are $161,000 over budget as parking fines are
coming in higher than projected. Other Taxes are $870,000 above budget, with business
license taxes and property transfer taxes coming in strong, while marine charter taxes are
below budget. Strong home sales in the city have led the property transfer taxes to
increase by 41 % from the prior year, an increase of $700,000. Licenses and Permits
revenues are almost $244,000 over budget primarily from building permits. Service Fees
& Charges were coming in lower than expected in prior periods and were adjusted
accordingly in the budget. This decrease is partially due to a decrease in fees from police
activity (jail booking and alarm permit) and the libraries being closed, but largely results
from recreation programs and contract classes being severely limited.
13-5
Third Quarter Budget Update
May 25, 2021
Page 6
These decreased revenues were also partially offset by Community Development
Department, Public Works, and the Fire Junior Lifeguard Services Fees & Charges
revenues coming in higher than projected. Also partially offsetting the decrease in
recreation revenue is expenditure savings resulting from reduced contract instructor
payments. The Investment Earnings category is currently below budget by $575,000 due
to the fair value adjustment required by governmental accounting standards. This
adjustment is offset by a release of restricted resources from positive fair value
adjustments in prior years.
The following table shows staff's projection for FY 2020-21 revenue through the end of
the fiscal year and how it compares to current year budgets and prior year actuals. If
revenues come in as projected below, staff estimates an additional $1.0 million beyond
the revised budget amounts and $1.6 million more than was estimated in the second
quarter
FY 2020-21 Proiected General Fund Revenues
Property Taxes
Sales Tax
Transient Occupancy Tax
Other Taxes
Service Fees & Charges
Parking Revenue
Licenses & Permits
Property Income
Fines & Penalties
Intergovernmental Revenues
Investment Earnings
Miscellaneous Revenues
$ 113, 313, 535 $
117, 508, 227
$ 117, 508, 227
$ 117, 508, 227
$
0.0%
36,232,969
28,690,831
34,540,800
34,540,800
$
0.0%
20,847,883
6,434,115
15,209,156
15,209,156
$
-
0.0%
11,846,082
9,652,973
11,081,175
11,501,162
$
419,987
3.8%
20,913,897
17,350,903
14,898,375
15,900,048
$
1,001,673
6.7%
5,503,053
4,599,800
5,503,097
5,619,263
$
116,166
2.1%
4,752,252
4,239,333
5,042,454
5,042,454
$
-
0.0%
4,619,106
3,892,635
4,341,939
4,341,939
$
-
0.0%
3,659,011
3,681,031
3,263,257
3,295,392
$
32,135
1.0%
3,910,305
1,646,716
5,105,269
5,105,269
$
-
0.0%
1,295,547
1,112,200
1,112,200
543,912
$
(568,288)
-51.1%
3,059,377
775,140
1,577,982
1,600,176
$
22,194
1.4%
Total Revenues $ 229,953,017 $ 199,583,904 $ 219,183,931 $ 220,207,798 $ 1,023,867 0.5%
It should also be noted that the City has received approximately $4.0 million of CARES
Act funding between fiscal years 2019-20 and 2020-21. Between March 2020 and
September 30, 2020, a total of $3.5 million of CARES Act funding was received, with
another $529,569 received in October of 2020. Of the total $4.0 million received to date,
$72,314 was from the U.S. Department of Health & Human Services as part of the
Provider Relief Fund to be used for healthcare related expenses or lost revenues;
$2.1 million was from the County of Orange to provide grants to small business impacted
by the pandemic; $769,758 from the County of Orange, and $1.0 million from the State
of California were both used to offset public safety activities during the pandemic. In
addition to the CARES Act Funding, the City also filed a $565,000 claim to the Federal
Emergency Management Agency (FEMA), which given recent actions by the Biden
Administration, will be revised to request reimbursement for additional eligible costs and
to increase the amount requested to 100% of the City's costs. However, the disposition
of this claim will not be known for some time.
13-6
Third Quarter Budget Update
May 25, 2021
Page 7
The City also received $290,000 from the County of Orange during the third quarter for
economic support initiatives for the community's small businesses. Depending on the
source and guidance associated with the different allocations of pandemic -related
funding, certain portions will ultimately be transferred to the General Fund and provide
additional resources to further offset pandemic -related costs.
General Fund Expenditures
With 75% of the year complete, FY 2020-21 General Fund expenditures total
$152.6 million and are at 67% of the revised budget, which is 2.3% lower than projected.
Some departments incur a greater or lower level of expenditures in the first half of the
year than in the second half due to the timing and seasonality of their operations or
programs, and the trends in the current fiscal year are generally consistent with prior
years. Existing appropriations are on target to fund all current operational expenditures
and likely generate year-end budget savings, with no further adjustments to the
expenditure budget needed as of the end of the third quarter.
Significant expenditure budget updates include the following (all currently expected to be
covered with existing revised budget appropriations):
• Many departments have seen an increase in operating costs for janitorial and
cleaning expenses related to COVID-19, including street sweeping, beach
clean-up and park maintenance, public facilities and restroom janitorial services,
day porter services at the Central Library, power washing for public spaces and
sidewalks including temporary outdoor dining, and additional weekly cleaning of
City vehicles (mainly Public Safety departments). The current budget can fund all
expenditures as of the end of Q3.
• The Fire Department continues to provide staffing for Strike Team deployments
and has incurred $775,000 in strike team and mutual aid costs through the end of
the third quarter. Reimbursement has been received from Cal OES and has offset
this cost with increased revenues.
• Public Safety has seen increased expenditures relating to COVID-19 for
disposable medicine/EMS supplies for personal protective equipment, emergency
cleaning services, and related supplies. These costs are expected to be fully
absorbed, with CARES Act and FEMA reimbursement expected to offset any
overages in department budgets at year-end.
• Departments have seen increased overtime costs relating to the pandemic for
emergency clean-up services such as beach and street clean-up relating to more
people enjoying the beach for outdoor recreational activities due to the shutdown
orders, and staffing COVID-19 testing sites and vaccination PODs.
13-7
Third Quarter Budget Update
May 25, 2021
Page 8
FY 2020-21 Projected General Fund Expenditures
Salary & Benefits
$149,193,631
$ 154,429,781
$ 154,135,447
$ (324,334)
-D.21%
Contract Services
24,088,461
25,372,748
24,978,360
(394,388)
-1.55°x6
Grant Operating
603,003
1,166,409
1,083,225
(83,184)
-7.13°x6
Utilities
2,961,757
2,932,409
3,411,455
479,046
16.34°x6
Supplies & Materials
3,740,696
4,435,375
4,279,810
(155,565)
-3.51°x6
Maintenance & Repair
8,822,276
8,987,338
8,952,305
(35,033)
-D.39%
Travel & Training
813,368
809,309
541,355
(267,954)
-33.11°x6
General Expenses
2,125,501
2,295,759
2,031,745
(264,014)
-11.50%
Internal Svc Charge
25,977,295
25,977,295
25,977,295
0.00%
Risk Management
750,915
750,915
695,480
(55,435)
-7.38%
Capital Expenditures
785,138
894,412
738,390
(156,022)
-17.44%
Total
$ 219,859,038
$ 228,D51,75D
$ 226,794,867
$ (1,256,883)
-0.55%
While the table reflects nearly $1.3 million of budget savings, which is $0.8 million more
than in the prior quarter. It is anticipated that year-end budget savings will exceed this
amount. However, it is important to note that the non -personnel budget was reduced by
$2.7 million prior to adoption and $2.0 million of salary savings is already assumed.
Savings are therefore likely to be less than what is seen in a typical fiscal year.
Proposed Budget Amendment
Staff is recommending City Council approval of a budget amendment that includes three
items.
First, $265,285.80 remains available in Capital Improvement Program Project No. 20F15,
which funded the City's contribution toward the construction of the Costa Mesa Homeless
Shelter via a Memorandum of Understanding with the City of Costa Mesa. With the
completion of the construction of the shelter, and the City's obligation to contribute to its
construction satisfied, staff recommends transferring these remaining funds to the
General Fund for use in covering operating costs associated with homeless shelter
services and outreach. The funds will be appropriated to the City Manager Outreach
Services account (0102041-811008).
Second, the City of Newport Beach Special Improvement District No. 95-1 (the District)
was formed by the City on June 12, 1995, for the purpose of financing certain facilities for
the benefit of the District. Between 1995 and 2001, the City issued bonds on behalf of the
District to finance facilities, which have since been repaid in full. The City has therefore
ceased levying the special taxes. Following the final payment on the bonds, the City had
$1.6 million of excess special tax funds remaining on hand. The City has since made a
good faith effort to refund these monies to the property owners within the district and has
returned all but $281,611. Because the City has exhausted all efforts to refund the
remaining funds and the statute of limitations has expired, staff proposes to sweep the
remaining funds into the General Fund at this time so that the District can be closed out.
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Third Quarter Budget Update
May 25, 2021
Page 9
Lastly, the City maintains an 800 MHz coordinated communications system (CCCS) and
an associated equipment replacement fund to support the City's share of the countywide
cost of this program. The CCCS is Orange County's analog/digital trunked public safety
radio communications system that provides radio communication services and
interoperability among City and County law enforcement, fire services, public works, and
lifeguard/marine safety departments in Orange County. Like the City's other equipment
internal service funds, the 800Mhz fund receives annual contributions from departments
to fund the regular replacement of equipment. The County recently updated its charging
methodology whereby the City is no longer required to save for and acquire its own
equipment. In the future, the County will assess the City for its share of the CCCS
replacement on an annual basis for its eventual replacement. The City's related internal
service fund is therefore no longer necessary. There is currently $446,656 in the fund that
can be returned to the General Fund at this time.
General Fund Reserves
We are fortunate that the City was in excellent financial health prior to the global
pandemic. Conservative budgeting and sound financial policies have resulted in a trend
of General Fund operating surpluses and strong reserve levels for several years. This is
still no less the case even amid the significant economic downturn the City is
experiencing. Conservative budgeting practices, coupled with better than expected
consumer demand, have resulted in higher revenues and lower expenditures than
budgeted. This has contributed toward the realization of projected unrestricted General
Fund resources of $30.6 million at the end of Fiscal Year 2020-21 as shown in the table
to follow, an improvement of $3.1 million versus the second quarter projection.
General Fund Sources and Uses
Sources
Beginning Unrestricted Fund Balance
23,119,513
14,425,558
24,081,225
24,081,225
9,655,667
66.9%
Operating Revenues
229,953,017
199,583,904
219,183,931
220,207,798
20,623,894
10.3%
Less: Restricted Revenues
(2,785,622)
(730,967)
(815,145)
(815,145)
(84,178)
11.5%
Prior Year Resources Carried Forward
1,744,227
-
2,075,632
2,075,632
2,075,632
-
Release of Restricted Funds
2,492,301
20,000
3,645,023
3,645,023
3,625,023
18125.1%
Transfers In from Other Funds
12,970,571
17,560,543
17,846,785
18,574,821
1,014,278
5.8%
Total Sources
$ 267,494,007
$ 230,859,038
$ 266,017,451
$ 267,769,354
$ 36,910,316
16.0%
Uses
Operating Expenditures
211,066,539
219,859,038
228,051,765
226,794,867
6,935,829
3.2%
Transfers Out
32,346,243
11,000,000
10,398,018
10,422,340
(577,660)
-5.3%
Total Uses
243,412,782
230,859,038
238,449,783
237,217,207
6,358,169
2.8%
Ending Unrestricted Fund Balance
$ 24,081,225
$
$ 27,567,668
$ 30,552,147
$ 30,552,147
Contingency Reserve
$ 52,618,059
$ 50,313,660
$ 52,618,059
$ 52,618,059
$ 2,304,399
4.6%
13-9
Third Quarter Budget Update
May 25, 2021
Page 10
As the data presented in this report reflects 75% of the fiscal year, there remain
opportunities for positive or negative variances. The risks associated with variances are
further amplified by the pandemic and related restrictions. The degree to which these
restrictions are lifted or reinstated for the balance of the fiscal year will have a material
impact on revenues and possibly expenditures. While this report reflects the best
information currently available to staff, variances will occur. Staff therefore recommends
caution when viewing the projected ending unrestricted fund balance (surplus) of
$30.6 million, which is still very much subject to revision as the year progresses.
The Tiered Budget Balancing Framework
The strategy employed to balance the budget for FY 2020-21 includes utilization of a
tiered budget balancing framework, which is illustrated below.
Professional and Contract Svcs.
Other Non -Personnel Budgets
Personnel Services
Transfers Out
Capital Budgets
Insurance
Equipment Replacement
Contingency Reserve Draw
$ 1,621,760 $ $ $ $ $
1,136,807
2,000,000 - -
- 18,477,137 500,000
2,500,000 -
- 2,000,000
2,500,000
2,304,399
$ 1,621,760
1,136,807
2,000,000
18,977,137
2,500,000
2,000,000
2,500,000
2,304,399
Cuts Restored in First Quarter (500,000) (2,304,399) - (2,804,399)
Tier 5 — Contingency Reserve
Per City Council Reserve Policy F-2, the Contingency Reserve shall have a target
balance of 25 percent of the General Fund operating budget as originally adopted,
excluding the amount allocated for additional discretionary pension payments. In order
to balance the budget and under the emergency provisions of Policy F-2, this current year
budget has a $2.3 million draw from the Contingency Reserve. Pursuant to policy, staff
must present a plan to City Council to replenish the reserve within five years after the
economy has stabilized. Based on the positive budget to actual variances realized in
FY 2019-20 that resulted in a surplus, the better than expected quarter one results, and
the positive revenue results projected for FY 2020-21, Council approved the
replenishment of the $2.3 million Contingency Reserve at the November 24, 2020,
Council meeting. The Contingency Reserve is now fully funded pursuant to Council Policy
F-2 for the FY 2020-21 fiscal year.
13-10
Third Quarter Budget Update
May 25, 2021
Page 11
Tier 4 — Internal Service Fund Charges
Funds in the amount of $4.5 million were transferred in from other funds to partially backfill
the anticipated General Fund revenue shortfall for FY 2020-21. These funds derived from
prior year internal service funds (ISF) charges that originated from the General Fund.
These charges are intended to reimburse ISF operations related to equipment
replacement charges, or centrally managed insurance reserves, and most were returned
without significantly impacting the replacement schedule or funding for liabilities. At the
November 24, 2020, City Council meeting, Council approved the replenishment of the
$500,000 taken from the Equipment Replacement Fund, which improves the percent of
that fund's reserve that is set aside to cover the accumulated depreciation. No further
changes to the Tier 4 reductions are recommended at this time. However, staff will be
making recommendations concurrently with the City Council's review of the proposed
FY 2021-22 budget regarding to what extent further restoration of Tier 4 cuts is required.
Tier 3 — Deferred Capital Funding
Staff recommends maintaining the reductions at this time. A review of the CIP program
is underway in the context of developing the FY 2021-22 budget. This will be discussed
in more detail as the FY 2021-22 budget is being presented to the City Council, at which
time certain deferred capital projects would be approved for funding.
Tier 2 — Temporary Hiring Freeze
Staff recommends the continuation of selected hiring with approval by City Manager, with
the City targeting an estimated $2 million in personnel savings. Current projections are
that this savings will be achieved.
Tier 1 — Operating Reductions
No changes are recommended at this time. Departments have indicated that they can
complete the fiscal year without restoration of any of these reductions.
Other Funds
Other funds that are subject to revenue volatility include Tidelands, Gas Tax, Measure M,
SB1 RMRA (Road Maintenance and Rehabilitation Account), and the Water and
Wastewater funds. An analysis of the budget performance for these funds through the
third quarter of this fiscal year indicates that no budget adjustments are currently
necessary. Staff will continue to monitor these and all funds on a monthly basis.
Quarterly Report of Budget Amendments
For some time, staff has provided the Finance Committee with a quarterly listing of
approved Budget Amendments (Attachment B). In an effort to enhance transparency,
this quarterly listing will now be provided to the full City Council as an attachment to the
quarterly budget update.
13-11
Third Quarter Budget Update
May 25, 2021
Page 12
Summary of Pandemic -Related Costs and Revenue
During the course of the COVID-19 pandemic, the City has received a variety of funds
from the federal, state, and county governments. These funds have supported the City's
response to the pandemic and augmented existing General Fund resources. Several
members of the City Council have previously requested additional information on the
extent of these expenses and to what degree the funds received by the City have offset
these costs. Staff have prepared a summary in Attachment C, which highlights the
pandemic -related costs and revenues to date. In summary, the City has received or
expects to receive $16.8 million. This includes the expected $10.1 million allocation from
the American Rescue Plan that will be received in two equal installments later this month
and one year later.
Of the $5.9 million spent to date, $2.6 million was spent on small business grants,
$2.5 million was spent on payroll costs related to the pandemic response, $583,000 was
spent on materials costs associated with the pandemic response, and the remaining
$211,000 reimbursed the City for unemployment insurance costs and lost EMS revenues
related to the pandemic. Uses for the remaining funds have not yet been determined by
the City Council. Staff will be returning to the Council soon to seek direction regarding
these funds.
FISCAL IMPACT:
As a result of approval of the Budget Amendment (Attachment A) included with this report,
a total of $728,267 will be transferred into the General Fund. This transfer will increase
the projected year-end surplus. The third component of the Budget Amendment transfers
an existing appropriation from one fund to another and will result in no net fiscal impact.
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. 21-043
Attachment B — Budget Amendments for the Third Quarter
Attachment C — Summary of Pandemic -Related Costs and Revenue
13-12
ATTACHMENT A
Budget Amendment No. 21-043
13-13
SEW PART
City of Newport Beach
z BUDGET AMENDMENT
Or,
2020-21 BA#: 21-043
Department: Finance
ONE TIME: M Yes ❑ No
Requestor: Scott Catlett
Approvals
❑ CITY MANAGER'S APPROVAL ONLY V I D4
Finance Director: Date
COUNCIL APPROVAL REQUIRED City Clerk: Date
To transfer existing unappropriated 800 MHz fund balance back to the General Fund. The City is no longer required to ❑� from existing budget appropriations
charge General Fund contributions to acquire replacement equipment since the County is now funding all future capital ❑ from additional estimated revenues
equipment purchases in its annual membership fee. ❑ from unappropriated fund balance
To transfer General Fund expenditure appropriations from unused Homeless Shelter CIP project funds to City Manager
Outreach Services for ongoing homeless outreach operating costs.
transfer existing unappropriated CIOSA Bond fund balance back to the General Fund. Following a good faith effort to
urn excess special tax funds and the expiration of the statute of limitations, remaining funds will be swept into the
neral Fund and the City of Newport Beach Special Improvement District No. 95-1 will be closed out.
REVENUES
Fund #
Org
Object Project
Description
Increase or Decrease) $
010
01099
1691754
GENERAL FUND INTERFUND TRANSFR - TRANSFER IN 800 MHZ RADIO
446,656.00
010
101099
1691012
GENERAL FUND INTERFUND TRANSFR - TRANSFER IN FUND 012
265,285.80
010
01099
1691851
GENERAL FUND INTERFUND TRANSFR - TRANSFER IN CIOSA BOND
281,611.00
Subtotal $ 993,552.80
EXPENDITURES
Fund #
Org
Object Project
Description
Increase or Decrease $
754
75499
991010
INTERFUND TRANSFERS - TRANSFER OUT GENERAL FUND
446,656.00
012
01201928 980000 20F15
MISC & STUDIES - CIP EXPENDITURES FOR GL
265,285.80
012_
01299
991010
INTERFUND TRANSFERS - TRANSFER OUT GENERAL FUND
265,285.80
010
0102041
811008
CITY MGR OUTREACH SERVICES - SERVICES PROFESSIONAL
265,285.80
851
85199
1991010
INTERFUND TRANSFERS - TRANSFER OUT GENERAL FUND
281,611.00
Subtotal
$ 993,552.80
FUND BALANCE
Fund #
Object
Description
Increase or (Decrease) $
010
1300000
GENERAL FUND - FUND BALANCE CONTROL
728,267.00
754
300000
800 MHZ RADIO FUND - FUND BALANCE CONTROL
(446,656.00
012
300000
GENERAL FUND CAPITAL PROJECTS - FUND BALANCE CONTROL
851
300000
CIOSA BONDS AGENCY FUND - FUND BALANCE CONTROL
(281,611.00)
Subtotal
$
No Change In Fund Balance
13-14
ATTACHMENT B
Budget Amendments for the Third Quarter
13-15
City of Newport Beach
Fiscal Year 2020-21 Budget Amendments
Quarter Ending March 31, 2021
031 2/23/2021 City Council Assessment District #124 135,000.00 135,000.00 Public Works To increase expenditure appropriations for the Underground
................................................................................................................................................................................................................................................................... Assessment District #124 with an advance from General Fund
General Fund - 135,000.00 (135,000.00) unappropriated fund balance for the engineering and design work.
033 3/11/2021 City Manager General Fund 11,369.00 10,000.00 1,369.00 Police To increase expenditure appropriations for an evidence packing
station and crime light. The County of Orange will reimburse the
City $11,369 through the County's Prop 69 - DNA Identification
Fund, as the crime scene light and packing station will enhance
the DNA Program. The $1,369 variance between the cost of the
supplies and requested expenditures increase will be covered by
the Department's existing budget appropriations.
13-16
Net Effect on Fund Balance
BA#
Date
Amendment Type
Fund
Revenues
Expenditures
Increase/(Decrease)
Department
Explanation
023
1/12/2021
City Council
General Fund
40,500.00
40,500.00
Library
To increase revenue estimates and expenditure appropriations
and accept funding from the California State Library for Literary
Services (CLLS) annual grant program.
024
1/26/2021
City Council
General Fund
11,038.00
11,038.00
Police
To increase expenditure appropriations and revenue estimates
from the acceptance of the Emergency Management
Performance Grant (EMPG); a pass through grant from the
Federal Emergency Management Agency (FEMA) to be used for
supplies and equipment for the City's Emergency Operations
Center.
025
1/7/2021
City Manager
General Fund
5,000.00
(5,000.00)
City Manager
To transfer reserve funds for the use of PEG Equipment.
026
1/26/2021
City Council
General Fund
-
18,030.93
(18,030.93)
Human Resources
To increase expenditure appropriations to provide funding for the
first six months of the Appointed Employees updated contracts.
027
1/26/2021
City Council
Small Business Grants
290,000.00
290,000.00
-
City Manager
To increase revenue estimates and expenditure appropriations by
accepting funds from the County of Orange for economic support
initiatives for the community's small businesses.
028
3/9/2021
City Council
General Fund
50,000.00
-
50,000.00
Recreation and Senior Services
To increase revenues from the approval and acceptance of grant
funding from the Hoag Memorial Hospital Presbyterian
Community Benefit Program to provide funding support for the
OASIS Senior Center Transportation Program.
029
2/9/2021
City Council
Asset Forfeiture Fund
336,964.43
(336,964.43)
Police
To increase expenditure appropriations out of existing Asset
Forfeiture fund balance for the purchase of locker room lockers
for the Police Station Locker Room Remodel project.
030
2/9/2021
City Council
Asset Forfeiture Fund
178,254.06
(178,254.06)
Police
To increase expenditure appropriations for the Police Station
...................................................................................................................................................................................................................................................................
Locker Room Remodel project. Remaining Asset Forfeiture funds
..................................................................................................................................................................................................................................................................
General Fund
-
366,254.06
(366,254.06)
will be used to fund PD overtime expenditures. The General Fund
Facilities Maintenance
366,254.06
366,254.06
will fund a transfer into the Facilities Maintenance Plan to fund the
remaining project expenditures not covered with existing Police
Station Locker Room Remodel CIP project funds.
031 2/23/2021 City Council Assessment District #124 135,000.00 135,000.00 Public Works To increase expenditure appropriations for the Underground
................................................................................................................................................................................................................................................................... Assessment District #124 with an advance from General Fund
General Fund - 135,000.00 (135,000.00) unappropriated fund balance for the engineering and design work.
033 3/11/2021 City Manager General Fund 11,369.00 10,000.00 1,369.00 Police To increase expenditure appropriations for an evidence packing
station and crime light. The County of Orange will reimburse the
City $11,369 through the County's Prop 69 - DNA Identification
Fund, as the crime scene light and packing station will enhance
the DNA Program. The $1,369 variance between the cost of the
supplies and requested expenditures increase will be covered by
the Department's existing budget appropriations.
13-16
ATTACHMENT C
Summary of Pandemic -Related Costs and Revenue
13-17
PANDEMIC -RELATED COSTS AND REVENUE SUMMARY
AS OF MAY 25, 2021
Expected Revenue $ 1,245,788 $ 10,141,272 $ 72,314 $ 960,403 $ 1,059,137 $ 138,235 $ 2,129,337 $ 769,758 $ 290,000 $ 16,806,243
Uses
Small Business Grants $ - $ $ $ 219,324 $ - $ $ 2,129,337 $ $ 290,000 $ 2,638,661
Pandemic Response Payroll Costs 662,511 - 1,059,137 - 769,758 - 2,491,406
Pandemic Response Materials Costs 583,277 - - - 583,277
Pandemic -Related Unemployment Insurance Costs - 138,235 138,235
Recovery of Lost EMS Revenues - 72,314 - - - - - - 72,314
Total Uses $ 1,245,788 $ $ 72,314 $ 219,324 $ 1,059,137 $ 138,235 $ 2,129,337 $ 769,758 $ 290,000 $ 5,923,892
13-18