Receive the Fiscal Year 2023-2024 mid-year budget report and adopt Resolution 2024-022 approving amendments to the FY 2023-2024 adopted budget.

The purpose of this agenda item is to provide an update regarding the Fiscal Year 2023-2024 budget based upon the revenues received and expenses incurred through the second quarter (July 1 – December 31, 2023) of the fiscal year. Revenue and Expenditures align with budget projections at this time. In addition, staff recommends Council approve budget amendments.

Revenue

The City’s three major revenue sources are property taxes, sales and use taxes, and transient occupancy taxes.  The City received its first tranche of property taxes in December 2023.  Property taxes received to date total $4.9 million, which is 57% of the total budgeted property tax revenue.  The State remits sales and use taxes on a quarterly basis.  The State sales taxes received to date is for the July – September quarter plus an advance for the October – December quarter.  The remaining quarterly balance will be received in February 2024.  The $1.3 million received in State Sales Tax thus far aligns with budget projections.  Measure C, local sales tax, totals approximately $2.2 million.  This also aligns with budget projections, as receipts for November and December will be received January and February 2024 respectively.  Transient occupancy tax (TOT) revenue of approximately $3.6 million is currently outpacing it budget target as the revenue to date reflects remittance from the reporting period of July and October 2022.  Revenue from Charges for Services totals approximately $1.8 million (63% of the budget) while Other Revenue (which includes Business License Renewals) totals approximately $1.7 million, or 48% of budget.  Both of these revenues align with budget projections.

Expenditures

The City’s largest expenditure category is salaries and benefits, which account for 36% of the Fiscal Year 2023-2024 Adopted Budget.  For the period of July through December, the salaries and benefits expenditures, inclusive of the annual Worker’s Compensation insurance premium, total $6.3 million.  These expenditures represent 43% of the total budgeted salaries and benefits expense and align with the budget projections.  Services and supplies expenditures total $5.3 million, or 46% of the budget.  The City paid the annual unfunded pension liability (UAL) payment of approximately $2 million in July and will be making the $1 million payment to the Sec 115 trust in March 2024.  Debt service principal payments have all been executed for Fiscal Year 2023-2024.  Capital expenses currently reflect savings in spending due to timing.  The main expenditures thus far have been the purchase of the new Electric Sweeper and the Police Building Project. An additional $2.5 million is encumbered within Capital Outlay for adopted CIP projects. Worker Comp claims expenditures are far below budgeted expenditures.  This is an expenditure category for which it is beneficial to expend below budget.

Budget Adjustments

Services/Supplies ($594,320 total): As noted above, Services and Supplies expenditures are tracking on target. Some departments have identified additional Services and Supplies expenditures that were not captured in the original FY 2023-24 Adopted Budget and are detailed on the attached Exhibit A. The departments are also seeking to adjust budgets to reflect inflationary increases to the cost of services and goods originally budgeted.

City Council ($5,000): Administration recommends supporting the Monterey County Business Council (MCBC) in its efforts to host the Small Business Development Center for 2024 by making a $5,000 contribution.

City Clerk ($17,000): Costs for agenda packet reproduction are close to exceeding the annually budgeted amount and needs an additional $6,000 if printing needs remain steady.  The City Clerk is upgrading the City's agenda management system to a new platform, requiring approximately $11,000 in funds for the transition. The current software will no longer be supported after October 22, 2024. The new system must be implemented before then, leading to additional expenses during the current fiscal year due to overlap between the old and new systems.

IT ($104,000):  IT needs additional funds related to contract services, software subscriptions, and the City’s telephone expenditures.  This adjustment is necessary due costs associated with switching carriers from T-Mobile to Verizon, transitioning contract oversight of software systems (e.g.: iWorq) to the IT department, and additional licensing fees associated with unanticipated cloud migration and storage costs.

Public Works ($261,000): The Public Works department is seeking $200,000 for additional potentially hazardous tree removals resulting from recent storms, and to reduce the significant backlog of stump removals. Additional funding is requested to replace the potentially hazardous Garage roll up door. In addition, it was assumed in the current budget that design and reconstruction of the San Antonio Pathway, between Second and Fourth Avenues, would be reimbursed by FEMA; however, that funding is unlikely. This request is to cover a portion of the structural design fees, and the cost for reconstruction will be a potential new project in the Capital Improvement Plan. Finally, actual fees for monitoring the North Dunes Habitat Restoration site well exceeded the budgeted funds.

Non Departmental ($112,000): Fiscal Year 2023-24 Adopted Budget amounts for Liability Insurance, Property Taxes and Retiree Health Share were underbudgeted and are seeking administrative budget adjustments to bring amounts in line.  Additional amounts are also being requested for utilities.

Fire Services ($95,320): Increase of $60,320 Fiscal Year 2023-24 Final true-up costs per the Fire Services Agreement with Monterey, and increase of $35,000 for vehicle maintenance costs incurred on the Fire engine concurrent with increase to the City of Monterey's labor rate. 

Council adopted the Fiscal Year 2023-2024 Budget on June 6, 2023 (Resolution 2023-067) and approved budget adjustments on September 12, 2023 (Resolution 2023-087, Resolution 2023-088) and October 2, 2023 (Resolution 2023-093, Resolution 2023-094, Resolution 2023-097).