HomeMy WebLinkAbout20 - Fiscal Year 2024-25 Third Quarter Financial ReportQ �EwPpRT
CITY OF
s NEWPORT BEACH
`q44:09 City Council Staff Report
June 24, 2025
Agenda Item No. 20
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Jason AI -Imam, Finance Director/Treasurer - 949-644-3126,
jalimam@newportbeachca.gov
PREPARED BY: Jessica Nguyen, Budget Manager - 949-644-3192,
jnguyen@newportbeachca.gov
TITLE: Fiscal Year 2024-25 Third Quarter Financial Report
ABSTRACT:
The Finance Department prepares quarterly financial reports to review the status of
General Fund revenues and expenditures, as well as to monitor budgetary trends in the
City of Newport Beach's other major funds. This report presents revenue, expenditure
and estimated fund balance information for the third quarter of Fiscal Year 2024-25.
The FY 2024-25 third-quarter financial report analyzes the City's financial activity from
July 2024 through March 2025. Based on data available through the end of the third
quarter, an unrestricted General Fund operating surplus of $19.2 million is projected —an
increase of $1.7 million compared to the second-quarter projection. Recommended
budget adjustments for revenues and expenditures are outlined in this report and will be
reflected in the proposed third quarter budget amendment, No. 25-071.
This report was reviewed and discussed with the Finance Committee on May 29, 2025.
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;
and
b) Receive and file this report, and approve Budget Amendment No. 25-071, adjusting
revenue estimates and expenditure appropriations for the Fiscal Year 2024-25 budget
as further outlined in this report.
DISCUSSION:
Economic Overview
Home sales for detached single-family residences in Newport Beach were lower during
the quarter ending March 31, 2025, due to elevated interest rates. However, the median
sales price increased by 11.6% during the same period, reaching $4.6 million, which is
$476,000 higher than the median price for the quarter ending December 31, 2024.
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Fiscal Year 2024-25 Third Quarter Financial Report
June 24, 2025
Page 2
Meanwhile, uncertainty in national public policy and ongoing tariff discussions —with
changing timelines and product details —continues to create challenges for capital
investment and may affect consumer spending patterns. The City is closely monitor
potential impacts on tax revenues and will modify revenue projections as needed in
response to data -driven analysis. Overall, the economic outlook for Newport Beach
remains strong, driven primarily by consistent and vigorous demand for coastal real
estate. This demand continues to push assessed property values higher, despite a
slowdown in home sales. This long-term trend is a key factor in Newport Beach's fiscal
stability.
General Fund Revenues
General Fund revenues are projected to end the year approximately 0.16%, or $0.5
million, lower than projected in the second quarter. This is primarily due to decreases in
other taxes, service fees and charges, parking revenues, and license and permit
revenues, which is partially offset by an increase in transient occupancy tax revenue.
The following table summarizes the changes to projected General Fund revenues versus
the quarter two projected amounts for FY 2024-25. Details explaining the reasons for
material variances follow.
FY 2024-25 Projected General Fund Revenues
Property Taxes
152,582,253
152,582,253
152,582,253
0.00%
Sales Tax
45,200,159
45,200,159
45,200,159
-
0.00°%
Transient Occupancy Tax*
32,670,435
32,670,435
33,045,274
374,839
1.15%
Other Taxes
9,587,638
10,171,883
10,041,804
(130,079)
-1.28%
Service Fees & Charges
25,743,157
25,856,609
25,527,646
(328,963)
-1.27%
Parking Revenue
8,271,651
8,271,651
8,127,414
(144,237)
-1.74%
Licenses and Permits
5,952,271
6,230,295
5,999,425
(230,870)
-3.71%
Property Income
9,633,853
9,661,159
9,499,220
(161,939)
-1.68%
Fines & Penalties
3,996,299
3,979,089
A,964,092
(13,997)
-0.35%
Intergovernmental
6,489,319
6,514,083
6,568,296
54,213
0.83%
Investment Earnings
1,904,925
1,904,925
1,904,925
-
0.00%
Misc Revenues
673,579
610,716
680,310
69,594
11.40%
0 pe rati n g Tra nsfe rs In
19,767,775
19,767,775
19,767,775
-
0.00%
Total Revenues
322,473,314
323,420,032
322,908,594
(511,438)
-0.16%
*Gross Transient Occupany Tax revenues total approximately $40.7 million. Through December 31, 2024,
Visit Newport Beach (VNB) received 18% of gross TOT. Starting January 1, 2025, VNB's share increased
to 23% of hotel TOT and 0% of residential TOT. VNB payments are projected at $7.7 million for the fiscal
year, leaving net TOT revenues of $33 million.
Property Tax - Property taxes are the City's largest single source of General Fund
revenue, accounting for approximately 50% of total General Fund revenues. As reported
in the second quarter update, property tax revenue for FY 2024-25 was projected at
$152.6 million, reflecting an increase of $6.4 million, or 4.4%, over the prior year. Third-
quarter projections remain consistent with the previous forecast, and no adjustment is
recommended. These figures remain steady due to stable cash receipts from
supplemental property taxes. The current projections align with the previous forecast.
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Fiscal Year 2024-25 Third Quarter Financial Report
June 24, 2025
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 four industry groups — autos and transportation, general consumer
goods, restaurants/hotels, and the State & County Pools. As reported in the second
quarter, sales tax revenue was projected at $45.2 million in FY 2024-25, which assumed
a 4% increase or $1.8 million over the prior year. Sales tax data from the California
Department of Tax and Fee Administration for the quarter ending on March 31, 2025, is
not yet available. Therefore, the projection for the third quarter remains at $45.2 million.
Transient Occupancy Tax (TOT) — The third largest funding source for the General Fund
is TOT, making up more than 10% of General Fund revenues. Approximately three -
fourths of TOT revenue is derived from hotels, with the balance coming from short-term
lodging. While TOT receipts from short-term lodging more than doubled over the four-
year period, from Fiscal Year 2018-19 through Fiscal Year 2022-23, short-term lodging
revenue for FY 2024-25 is projected to be 2.3% lower than the prior year actuals.
However, TOT revenue from hotels is projected to be 6% higher than the prior year
actuals. Therefore, the overall projection for the third quarter is 1.1 % higher than projected
in quarter two, or $0.4 million.
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. Material changes in projected amounts were made to other taxes and service
fees and charges:
• Other Taxes include utility, cable and solid waste franchise taxes, as well as
business license and marine charter taxes. Second-quarter projections for
business license tax revenue anticipated 3% growth over the prior year. However,
the third-quarter projection shows revenues leveling off compared to the prior year,
contributing to the overall decrease in other tax revenues.
• Service Fees and Charges include plan check fees, recreation class fees,
emergency medical service fees, and various other cost -of -service charges. These
revenues are projected to be $0.3 million (1.3%) lower than previously forecasted,
due to a slight decrease in activity. For example, planning permit fee revenues are
lower than expected, reflecting a slowdown in construction activity driven by higher
interest rates.
• Parking Revenue consists of all General Fund -related parking fees that are
assessed throughout the various parking zones of the city. Third quarter figures
are 1.7% lower than the revised budget, or $0.1 million.
• Licenses and Permits include fees for processing building -related permits, street
closure permits, dog licenses, and police tow franchise fees. The Police
Department is reporting lower -than -expected actual revenues for accounts such
as police tow franchise fees and dog licenses. Additionally, the Community
Development Department is seeing reduced permit revenues due to a decline in
discretionary construction activity, which has been affected by high interest rates.
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Fiscal Year 2024-25 Third Quarter Financial Report
June 24, 2025
Page 4
• Property Income is projected to come in $0.1 million lower than the budget
primarily due to the Dove Street property, which is experiencing increased vacancy
rates within the past year.
• Intergovernmental Revenues reflects an additional settlement payment of
$460,793 from a class action lawsuit between the City of Long Beach and
Monsanto regarding polychlorinated biphenyls (PCBs) contamination. A budget
amendment is requested to increase revenues within this category to reflect this
additional settlement payment. This increase in revenue offsets the Fire
Department's delayed payments from PP-GEMT-IGT due to the collection process
where there is a delay between the month that the transport occurred and the
receipt of the payment.
General Fund Expenditures
The FY 2024-25 General Fund expenditure budget totals $323 million. Spending trends
for the fiscal year are generally consistent with prior years and do not indicate any cause
for concern. General Fund expenditures are projected to total $313.6 million, which is
$2.2 million lower than previously forecasted, primarily due to additional savings from
vacant positions.
The following table summarizes budgeted expenditures compared to projected amounts,
along with expenditure savings by budget category. Details explaining the reasons for
material variances follow.
FY 2024-25 Projected General Fund Expenditures
Salary & Benefits
188,928,032
182,867,855
181,284,564
1,583,292.
0.87%
Contract Services*
41,854,877
41,195,777
39,765,473
1,430,304
3.47%
GrantOperating
1,925,125
1,951,104
1,863,141
87,963
4.51%
utilities
4,477,006
4,431,334
4,497,303
(65,969)
-1.49%
Supplies & Materials
5,226,844
4,877,085
5,196,657
(319,572)
-6.55%
Ma i nte na n ce & Re pa i r*
6,968,433
6,778,838
7,178,327
(399,489)
-5.89%
Travel &Training
964,272
890,040
887,178
2,862
032%
General Expenses
4,214,181
4,360,509
4,250,049
110,460
2.53%
nternal Svc Charge
27,630,594
27,630,594
27,627,177
3,417
0.01%
Capital Expenditures
1,996,698
1,587,270
1,800,339
(213,069)
-13.42%
0 p erati ng Tra n sf ers Out
39,255,62.1
39,255,611
39,255,611
-
0.00%
Total Expenditures
323,441,674
315,826,017
313,605,819
2,220,198
0.70%
* Refuse contract costs totaling $9.3 million were previously classified under maintenance and repair but
have been reclassified as contract services in the third quarter.
Significant expenditure budget variances are as follows:
• The revised salary and benefits budget totals $188.9 million. Based on the third-
quarter budget update, expenditures are projected to be $181.3 million, which
includes an additional $1.6 million in savings compared to the second-quarter
projection. The second-quarter forecast had already reflected $6 million in budget
savings. Therefore, total projected savings now amount to $7.6 million, or 4%,
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Fiscal Year 2024-25 Third Quarter Financial Report
June 24, 2025
Page 5
primarily due to unfilled vacant positions.
• Maintenance and repair accounts are anticipated to slightly exceed the budget due
to increased maintenance needs. These overages are expected to be offset by
savings in other categories and are not a cause for concern.
• Capital expenditures are trending higher than second-quarter projections due to
the reallocation of certain Dove Street property costs between operating and
capital accounts.
General Fund Sources, Uses, and Projected Surplus
The City remains in excellent financial health, supported by conservative budgeting and
sound financial policies that have produced consistent General Fund surpluses and
strong reserves. For FY 2024-25, unrestricted General Fund resources are projected to
total $19.2 million. After allocating an estimated $2.1 million to fully fund the contingency
reserve, $17.1 million is expected to remain available for City Council appropriation. As
in prior years, additional savings are anticipated, which could increase the final year-end
surplus.
The table below summarizes projected General Fund sources, uses and the budget
surplus based on the third-quarter forecast compared to the second-quarter forecast.
FY 2024-25 Projected General Fund Sources, Uses, and Budget Surplus
Beginning Fund Balance Reserves 15,752,275 15,752,275 - 0.0%
Operating Resources:
Operating Revenues
303,652.257
303,140,819
(511.438)
-0.2%
Prior Year Resources Carried Forward
6,786,845
6,786,845
-
0.D%
Transfers In from Other Funds
19.767.T75
19.767.T75
-
0.0%
Repayment of Advances
1.250.000
1.250.000
-
0.0%
Total operating Resources
331,456,877
330,945,439
(511,438)
-0.2%
Operating Uses:
Operating Expenditures
276.570.406
274.350.208
(2220.198)
-0.8%
Transfers Out
39.255.611
39.255.611
-
0.0%
Total Operating Uses
315,826,017
313,605,819
(2,220,198)
-0.7%
Net Operating Surplus
16,630,860
17,339,620
1,708,760
24,2%
Non -Operating Resources & Uses
Transfers Out
(13.924.578)
(13.924.578)
-
0%
Total Non -Operating Resources & Uses
(13,924}678j
(13,924,678)
-
0.0%
Net Change in Fund Balance
1.706.282
3.415.042
1.708.760
-24.9°!a
Ending Fund Balance Reserves
17,468,567
19,167,317
1,708,760
19.2%
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Fiscal Year 2024-25 Third Quarter Financial Report
June 24, 2025
Page 6
Other Major Funds
Tidelands Fund
State requirements and increased demand for oil well maintenance have caused
maintenance and repair costs, as well as other agency fees, to exceed the budget. An
additional $145,000 is anticipated to be needed in the current fiscal year. However, this
need is fully offset by higher -than -budgeted oil sale revenues, resulting in no net impact
to the fund. The attached budget amendment increases both revenues and expenditures
in the Tidelands Fund.
Staff has evaluated the fiscal condition of the City's other major operating funds (Water
and Wastewater). The budget performance analysis for these funds indicates that no
adjustments are necessary, and variances between budgeted and actual amounts are
reasonable.
FISCAL IMPACT:
As a result of the Budget Amendment (Attachment A) $606,000 in additional revenue and
$145,000 in expenditures will be appropriated to the accounts listed in the Budget
Amendment. Approval of the budget amendment is included in the "Q3 Projection" for
Fiscal Year 2024-25 column of the General Fund and Sources & Uses table above.
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).
ATTACHMENT:
Attachment A — Budget Amendment No. 25-071
20-6
ATTACHMENT A
� SEW PpRJ,
City of Newport Beach
r� r BUDGET AMENDMENT
°9trFawa 2024-25
Department: Finance
ONETIME: 0 ves ❑ No
Requestor: Jessica Nguyen
Approvals
❑ CITY MANAGER'S APPROVAL ONLY
Finance Director: Date
COUNCIL APPROVAL REQUIRED City Clerk: Date
EXPLANATION FOR REQUEST:
To adjust revenue and expenditure appropriations based on the Fiscal Year 2024-25 Quarter 3 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
01003
511053
GENERAL FUND MISC NON OP - SETTLEMENTS
460,793.06
100
10090907
551540
OIL & GAS - SALE OF OIL
145,000.00
Subtotal $ 605,793.06
EXPENDITURES
Fund #
Org
Object Project
Description
Increase or (Decrease) $
100
10090907
541060
OIL & GAS - OTHER AGENCY FEES
20,000.00
100
10090907
951037
OIL & GAS - MAINT & REPAIR NOC
125,000,00
Subtotal $ 145,000.00
FUND BALANCE
Fund #
Object
Description
Increase or (Decrease) $
010
300000
GENERAL FUND - FUND BALANCE CONTROL
460,793.06
100
300000
TIDE & SUBMERGED LANDS FUND - FUND BALANCE CONTROL
-
Subtotall $ 460,793.06
Fund Balance Change Required
20-7