Westminster City Council
SUBJECT
Title
Fiscal Year 2023-24 Midyear Budget Review.
End
From: Erin Backs, Finance Director
Requested by: Administration
Prepared by: Erin Backs, Finance Director
____________________________________________________________
RECOMMENDED ACTION
Recommendation
Receive and file the report.
BACKGROUND
The City Council approved the fiscal year (FY) 2023-24 budget on June 28, 2023. The FY 2023-24 Adopted Budget includes a number of special revenue, capital project, enterprise and internal service funds; however, this report will focus only on the General Fund which is the main operating fund of the city. The report contains information on General Fund resources and expenditures through the 2nd quarter of FY 2023-24, which is the period between July 1, 2023, and December 31, 2023.
Top Revenues
The top revenue sources for the City’s General Fund are sales tax, transaction use tax, property tax, utility users tax and charges for service which combined make up 77% of total General Fund revenue. Current projections for FY 2023-24 total revenues are in line with budgeted numbers. Sales tax/transaction use tax is projected to be lower than budgeted by $2.2 million while utility users tax and charges went up $1.9 million combined.
FY 2023-24 revenues are budgeted at $76 million and currently projected to be $77 million at year end. We have received $17.6 million in revenue in the General Fund or 36% as of December 31, 2023.
Sales Tax/Transaction Use Tax
The following charts from the City’s sales tax consultant HdL Companies, represent 3rd quarter calendar year sales, July 2023 through September 2023.
Year-over-year comparison shows Westminster’s receipts down 1% from the third quarter sales in the prior period.
The decrease reflects consumers continuing to look for ways to save, reducing overall receipts from general consumer goods by 9.8%. Receipts from fuel-service stations declined 7.5% as prices at the pump were significantly lower than in the 3rd quarter of 2022. The business-industry sector also saw slight reductions in the 3rd quarter of 2023, as new orders stalled after over-production in 2022. The auto-transportation sector reported increases of 7.6%, restaurants and hotels were up 0.6% and the building-construction industry remained flat.
The second chart shows the category year-over-year changes for the transaction use tax. There is no category for state and county pools because the transaction use tax generated from online sales is directly allocated to the city. Westminster’s voter-approved Measure Y transaction use tax generated $3,722,359, down $308,201 compared to 3rd quarter of 2022 Measure SS receipts. This was the first quarter of collections for Measure Y and collections of a new tax are typically lower as it takes a few quarters to make sure business are collecting the new rate.
Net of aberrations, taxable sales for all of Orange County declines 1.1% over the comparable time period; the Southern California region was down 1.5%.
Sales and Use Tax
Transaction Use Tax - Measure Y
Sales tax and transaction use tax receipts are remitted to the City in arrears, so the quarter totals shown in the table below represent four months of receipts from the California Department of Tax and Fee Administration (CDTFA). Projections from the City’s sales tax consultant, HdL Companies, anticipate FY 2023-24 receipts to be $2.3 million above the actual received in FY 2022-23. It is important to note that FY 2022-23 only included three quarters of transaction uses tax due to the expiration of Measure SS December 2022 and the start of Measure Y in April 2024. This is a still a very early estimate as we have only received the four months of receipts for FY 2023-24. However, this projection would result in sales tax and transaction use tax receipts $2.2 million below budget.
|
|
Budget 2023-24 |
YTD Q2 Actual 2023-24 |
% of Budget |
Prior Year Q2 Actual 2022-23 |
Increase/ (Decrease) from PY |
|
Sales and Use Tax |
$18,850,000 |
$5,894,051 |
31.3% |
$6,083,011 |
($188,961) |
|
Transaction Use Tax |
16,660,000 |
4,968,175 |
29.8% |
5,468,055 |
(499,880) |
|
Total |
$35,510,000 |
$10,862,225 |
30.6% |
$11,551,066 |
($688,841) |
Property Tax
Property tax revenue is lower than the prior fiscal year at the end of the 2nd quarter. This is due to a timing issue on the receipt of the residual property tax payment. Based on the estimates from the County of Orange tax ledger, this revenue source will come in about $545 thousand above budget. This is very early in the fiscal year as most of the revenue from property tax receipts is received in January and April.
|
|
Budget 2023-24 |
YTD Q2 Actual 2023-24 |
% of Budget |
Prior Year Q2 Actual 2022-23 |
Increase/ (Decrease) from PY |
|
Property Tax |
$19,921,500 |
$1,291,523 |
6.5% |
$3,966,817 |
($2,675,295) |
Utility Users Tax
Utility Users Tax is slightly lower than the prior year but is projected to come in higher than budget by $645 thousand. This estimate is consistent with the total received in the prior year. The actual received for FY 2022-23 was $5.7 million and the projection for FY 2023-24 is $5.6 million.
|
|
Budget 2023-24 |
YTD Q2 Actual 2023-24 |
% of Budget |
Prior Year Q2 Actual 2022-23 |
Increase/ (Decrease) from PY |
|
Utility Users Tax |
$4,980,000 |
$2,277,432 |
45.7% |
$2,320,729 |
($43,297) |
Charges for Service
Charges for services are looking positive for FY 2023-24. This is partly due to the Cost Recovery Study update adopted in June of 2023 and the development activity within the City. The other contributor to the increase in this category is ambulance services charges which are up $780 thousand compared to FY 2022-23. Charges for services receipts to date are 30% above this time last year and overall projections to year-end are favorable at $1.2 million higher than budget. The actual received for FY 2022-23 was $7 million and the projection for FY 2023-24 is $7.6 million. This revenue category is dependent on the economy and development within the city.
|
|
Budget 2023-24 |
YTD Q2 Actual 2023-24 |
% of Budget |
Prior Year Q2 Actual 2022-23 |
Increase/ (Decrease) from PY |
|
Charges for Service |
$6,342,405 |
$4,046,819 |
63.8% |
$2,839,492 |
$1,207,328 |
Expenditures
General Fund expenditures are tracking below budget. Expenditures for the 2nd quarter of FY 2023-24 are $854 thousand lower than the prior fiscal year at the same time. This is due to an accounting entry and the timing of payroll. Excluding this adjustment, expenditures are up $171 thousand when compared to last year.
|
|
Budget 2023-24 |
YTD Q2 Actual 2023-24 |
% of Budget |
Prior Year Q2 Actual 2022-23 |
Increase/ (Decrease) from PY |
|
Expenditures |
$81,476,296 |
$45,054,336 |
55.3% |
$45,908,647 |
($854,310) |
Midyear projections show general fund expenditures ending the year $2.3 million under budget. This is primarily due to the large number of vacancies in the city. At budget adoption there were 17 vacant positions, and as of March 2024 there were 27 vacant positions including 10 police officers. The savings realized from these vacancies are offset by the increase in overtime and part-time staffing to cover the shortages. Any increase in costs between now and the end of the year will reduce these savings.
FY 2023-24 expenditures are budgeted at $81.5 million and currently projected to be $79.2 million at year end. We have spent $45.1 million in the General Fund or 55.3% as of December 31, 2023.
The net anticipated reduction in fund balance or use of reserves for FY 2023-24 is $3.7 million, which is $3.3 million better than the budget amount. This is only a projection. The economy, increased costs to consumers for goods and services, unexpected expenditures, inflation and filled vacancies will impact how the fiscal year actually ends.
|
|
Actual 2022-23 |
Budget 2023-24 |
Estimated Actual 2023-24 |
Increase/ (Decrease) from Budget |
|
Beginning Balance |
$38,146,441 |
$37,943,269 |
$37,943,269 |
$0 |
|
Change |
(203,173) |
(6,956,563) |
(3,659,231) |
3,297,332 |
|
Ending Balance |
$37,943,269 |
$30,986,706 |
$34,284,038 |
$3,297,332 |
FISCAL IMPACT
There are no budget adjustments requested at this time. The next review will be provided as part of the budget process.
LEGAL REVIEW
The City Attorney’s Office has reviewed as to form.
CONCLUSION
FY 2023-24 projections are lower than budget numbers as of December 31, 2023, so no budget adjustments are requested at this time. The General Fund is projected to end the year with a decrease to fund balance of $3.7 million which is actually $3.3 million better than anticipated at the time of budget adoption. Revenue is projected to come in $1 million higher than budgeted and expenditures are projected at $2.3 million under budget. The savings of $2.3 million in expenditures is primarily due to vacancies and as we fill these positions, the savings will be eliminated. The next update will be part of the FY 2024-25 budget process. The FY 2024-25 budget process has already started, and study sessions are projected to begin in May 2024. The discussion will include updated projections for FY 2023-24, FY 2024-25 proposed budget numbers and capital project allocations for council consideration.
ATTACHMENTS
1. General Fund Revenue/Expenditure Summary
REVIEWED BY
Erin Backs, Finance Director
Christian Bettenhausen, City Attorney
Christine Cordon, City Manager