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Item 4.1 - Fiscal Year 2018-19 General Fund Financial PerformanceDATE: TO: FROM: CONTACT: SUBJECT: Summary: City of Poway COUNCIL AGENDA REPORT December 17, 2019 Honorable Mayor and Members of the City Council Aaron Beanan, Director of Finance � Aaron Beanan, Director of Finance (858)668-4411 or abeanan@poway.org Fiscal Year 2018-19 General Fund Financial Performance This report for Fiscal Year (FY) 2018-19 only discusses the unaudited General Fund financial performance as of June 30, 2019. As such, the information contained in this report may differ from the audited Comprehensive Annual Financial Report (CAFR), which is still being finalized. This report does not include information related to enterprise funds, including the water and wastewater funds, or other non-General Fund accounts. Recommended Action: It is recommended that the City Council receive this report. Discussion: The FY 2018-19 budget was adopted anticipating there would be an $852k General Fund operating surplus. In March 2019 the FY 2018-19 mid-year budget update increased the anticipated General Fund operating surplus to $1.55M. Higher projected revenues were the primary driver for this increased projection. During the mid-year budget update, staff indicated the actual financial performance of the General Fund wouldn't be known until FY 2018-19 closed. For FY 2018-19, the General Fund had revenues of $50.0?M, expenses of $50.22M, and other financing sources of $1 .48M for a total surplus of $1.33M, as shown in the table below. General Fund Revenues Budget Actual Variance Taxes $38,216,120 $39,050,341 $834,221 CharQes for Services 4,059,854 3,635,111 (424,743) Developer Fees 2,890,025 2,897,874 7,849 Other 3,385,950 4,485,482 1,099,532 Total $48,551,949 $50,068,808 $1,516,859 General Fund Expenses Community Services $6,380 ,590 $5,839,704 $540,886 Development Services 5,790,318 4,977,001 813,317 General Government 6,909,522 6,145,232 764,290 Public Safety 25,756,202 25,092,171 664,031 Public Works 4,768,507 4,401,878 366,629 Capital Outlay 22,519 ,682 3,765,612 18 ,754,070 Total $72,124,821 $50,221,598 $21,903,223 Other Financing Sources/(Uses) $1,484,333 $1,484,333 $0 Total Surplus/(Deficit) $1,331,543 1 of 3 December 17, 2019, Item #4.1 Revenues came in $1.5M higher than anticipated. Taxes ended the year $834K higher than anticipated. Decreases in Redevelopment Property Tax revenues of $230k, due to lower administration related revenues, were offset by higher than anticipated Sales Tax revenues of $670K, due to unanticipated performance by two taxpayers, and Property Tax revenues of $350k, primarily related to new commercial development. Charges for Services ended the year $424k lower than anticipated. Decreases in Ambulance Fee revenue of $250k related to timing differences, decreases in Telecomm Leases of $104k due to timing differences, and decreases in Recreation related revenues of $69k due to the Poway Community Swim Center closure were the largest drivers of this variance. Other revenues came in $1.1 M higher than anticipated which was driven almost entirely by interest of $966k. Of this amount, however, $403k represents unrealized gains. Unrealized gains do not directly benefit the city until the underlying investments are liquidated. The practice of the investment committee is to hold investments to maturity maximizing interest earnings and potential price appreciation over the long term. Expenses came in $21.9M lower than anticipated. Much of this difference is $18.8M in capital outlay that has not yet been completed. Projects in progress at June 30 , 2019, such as the Mickey Cafagna Center and Espola Road, account for this difference. Approximately $3.1 M relates to operating departments coming in under budget. Of that amount, $1.2M relates to salary and benefit savings from 35 vacancies which occurred during various parts of the fiscal year. The remaining $1.9M in savings relates to maintenance and operations. The Poway Community Swim Center's closure was a leading contributor to budget savings in Community Services. Fewer development projects contributed to savings in the Development Services budget. Not all vehicles identified for replacement were replaced during the year leading to savings in General Government. A City of San Diego bill credit for previous overcharges in the Fire Dispatch Service contract was a contributor to the savings in the Public Safety budget. Several projects, such as park and playground refurbishments, were not completed prior to the end of the fiscal year which contributed to the savings in Public Works. Fund balance classifications changed with Governmental Account Standards Board Statement No. 54. The table below gives a brief definition for each type fund balance classification relevant to the General Fund along with an example of the classification for reference. Classification Definition Nons endable uired to be maintained Committed Extreme events reserve Use is narrower than the Encumbrances No restrictions General Fund balance for FY 2018-19 increased by $1.33M as shown in the table below. General Fund Balance FY 2017-18 FY 2018-19 Variance Nonspendable: $15,639,036 $15,550,648 ($88,388) Committed: Economic volatility: revenue 4,293,683 4,658,284 364,601 Economic volatility: expense 2,146,841 2,328,706 181,865 Extreme events 12,881,059 13,974,863 1,093,804 Assigned: 16,613,992 15,592,275 (1,021,717) Unassigned: 14,063,706 14,865,084 801,378 Total General Fund Balance $65,638,317 $66,969,860 $1,331,543 The City was able to maintain compliance with its General Fund Reserve Policy of 45 percent by adding $1.6M to its economic and extreme events reserves during FY 2018-19. Unassigned fund balance increased approximately $800k. However, as historically reported, unassigned fund balance includes ongoing capital project funds which have not yet been encumbered for contracts. Accounting for ongoing capital projects which have not yet been encumbered to contracts, the 2 of 3 December 17, 2019, Item #4.1 unassigned fund balance only increases $117k as shown in the table below. Unassigned Fund Balance FY 2017-18 FY 2018-19 Variance As reported in CAFR $14,063,706 $14,865,084 $801,378 Less: Ongoing capital projects {6,484,425) (7,168,445) (684,020) Total Available $7,579,281 $7,696,639 $117,358 Therefore, the General Fund has available unassigned fund balance of $7.7M. Government Finance Officers Association (GFOA) best practice suggests that unassigned fund balance be used for one-time expenditures, not ongoing recurring expenditures. For example, the City will be purchasing self-contained breathing apparatus (SCBAs) for the Fire Department using unassigned fund balance since the SCBA grant application was denied. Staff is in ongoing negotiations with the City of San Diego about the City of Poway's proportionate share of the Los Penasquitos Watershed Management Area Water Quality Improvement Plan and Comprehensive Load Reduction Plan project. Unassigned fund balance could pay for the City's proportionate share since it is not an ongoing expenditure. The potential future expenditures related to the Espola Road Safety Improvement Project, should funding be required in addition to what has already been programmed, would also be a good candidate for unassigned fund balance under GFOA's best practice recommendations. Depending on the outcome of discussions with Poway Unified School District and future Council direction, the extensive capital projects needed at the Poway Center for the Performing Arts (PCPA) would also be a good candidate for unassigned fund balance. The rising operational costs of PCPA would need to be addressed separately as they are ongoing expenditures, not one-time. Additionally, the City is also still in the process of appealing a recent decision by the State to redistribute sales tax dollars received in 2005 in a manner that would adversely impact the City. Because the issues involve a single taxpayer, most details are confidential. Should the City be required to reimburse the State, unassigned fund balance would be appropriate under GFOA's best practice recommendations. Further, at the September 18, 2018 City Council workshop on the California Public Employees' Retirement Systems (PERS) actuarial analysis, the Council expressed interest in identifying funds to pay down some of the City's unfunded pension liability. Funding this liability would also be appropriate from unassigned fund balance. Environmental Review: This action is not subject to review under the California Environmental Quality Act (CEQA). Fiscal Impact: There is no direct fiscal impact associated with this staff report because it only contains information related to the financial performance of the General Fund during FY 2018-19. Public Notification: None. Attachments: None. Reviewed/Approved By: Wendy aserman Assistant City Manager 3 of 3 Reviewed By: Alan Fenstermacher City Attorney Approved By: December 17, 2019, Item #4.1