City of Rialto - File #: 21-0787

Date	Ver.	Action By	Action	Result	Action Details	Meeting Details	Video
11/9/2021	1	City Council			Not available	Meeting details	Not available

For City Council Meeting [November 9, 2021]

TO: Honorable City Council

APPROVED: Marcus Fuller, City Manager

FROM: Marcus Fuller, City Manager

Stephen Erlandson, Finance Director

Title

Request City Council to Receive a Presentation on General Fund Revenue and Expenditures for First Quarter of Fiscal Year 2021-22.

Body

BACKGROUND

On July 27, 2021, the City Council adopted the Fiscal Year 2021-22 (FY22) Annual Budget, which included reasonable estimates of revenues, expenses, transfers, and ending reserves. The FY22 Annual Budget for all Funds included $197.0 million in budgeted revenue with corresponding budgeted expenditures of $196.3 million.

The City’s FY22 General Fund included budgeted revenues of $104.2 million as shown in the following Table 1 and as compared to the prior three Fiscal Year period.

Table 1

As shown, the current FY22 General Fund revenue budget was conservatively estimated prior to Staff’s knowledge of the point-of-sale change for certain fulfillment centers located in Rialto that has generated more sales tax revenue for the City.

Staff notes the FY22 budget estimated $26.275 million in sales tax revenue, which is $13.153 million lower than the actual sales tax revenue of $39.428 million received in the prior Fiscal Year 2020-21. The change in operations of the fulfillment centers and increase in sales tax revenue directly to the City has now caused sales tax revenue to be the #1 revenue source for the City’s General Fund in the prior Fiscal Year, surpassing property tax revenue.

The sources of FY22 General Fund revenue as a percentage of overall General Fund revenue is shown in the following graph in Figure 1. Staff notes that the budgeted revenue for sales tax in the adopted FY22 budget will be adjusted at the Mid-Year Budget Review to correlate to increased sales tax revenue related to the change in operation of the fulfillment centers.

Figure 1

The City’s FY22 General Fund included budgeted expenditures of $104.2 million as shown in the following Table 2 and as compared to the prior three Fiscal Year period.

Table 2

The FY22 Budget was adopted as a balanced budget.

ANALYSIS/DISCUSSION

The purpose of this staff report is to present to City Council and “First Quarter” (July to September) FY22 General Fund budget review. As shown in Figure 1, the three largest sources of General Fund revenue as budgeted in the FY22 budget are:

• Property Tax at 29% of overall budget

• Sales Tax at 25.2% of overall budget

• Utility Users Tax at 13.1% of overall budget

Two-thirds of the General Fund budget is accounted for in these three revenue sources. A review of First Quarter receipts in these revenue sources is provided in this update.

Sales Taxes

Sales taxes are paid directly by customers to the vendor (restaurants, retail stores, etc.) at the time of payment for goods and services for which sales or use taxes apply. Sales tax is applied to retailers on tangible goods and is owed to the state, and is added to the price retailers charge customers. A “use” tax is also charged to certain purchases of goods if the retailer does not pay sales tax, and includes on-line purchases from out-of-state retailers. Use taxes are included in the overall sales tax revenue.

Sales tax payments are paid directly by retailers to the state, and the state then distributes those payments back to the Counties and Cities or other special taxing districts. Generally, the City receives sales tax payments for sales generated in the City (or for on-line sales for goods and products delivered to properties in the City) two months after the sale. Sales taxes paid by customers in July are not received by the City until September, sales taxes paid in August are not received until October, and sales taxes paid in September are not received until the end of November.

Therefore, in reviewing First Quarter sales tax revenue, there are no revenues received in July and August as those receipts are accrued back to the prior Fiscal Year 2020-21. Sales tax receipts for FY22 occur starting in September.

Table 3 below identifies the sales tax revenue for the 3-year period of FY 18-19, FY 19-20 and FY 20-21, and highlights the FY22 First Quarter period of July through September.

Table 3

As shown in Table 3, sales tax revenue increased 1% from FY19 to FY20, however, in FY21 sales tax revenue increased 78% from FY20 to FY21. In First Quarter FY22 is $4,128,081 and exceeds sales tax revenue in the prior FY21 by $2,660,868.

Property Taxes

The City of Rialto is one of 12 taxing entities in San Bernardino County that receives an overall portion of the property tax levy as shown below.

The City’s share of the overall property tax levy is 13.64%, or 13 cents per dollar.

Table 4 below identifies the property tax revenue for the 3-year period of FY 18-19, FY 19-20 and FY 20-21, and highlights the FY22 First Quarter period of July through September. The timing of San Bernardino County’s payment of property taxes to the City is staggered, with no payments received until November. Therefore, the First Quarter Update does not reflect any property tax revenue.

Table 4

As shown in Table 4, property tax revenue increased 1.7% from FY19 to FY20, and further increased 9.4% from FY20 to FY21. The FY22 Second Quarter Update will provide the first property tax revenue comparisons.

Utility Users Tax

The City of Rialto levies an 8% utility user tax on telephone, cellular, electricity, gas, sewer, water, and cable television. This revenue source has historically been the third largest source of General Fund revenue.

Table 5 below identifies the utility user tax revenue for the 3-year period of FY 18-19, FY 19-20 and FY 20-21, and highlights the FY22 First Quarter period of July through September. A negative value for the month of July is due to the City’s accounting of credits (or exemptions) of seniors to the utility user tax throughout the fiscal year.

Table 5

As shown in Table 5, utility user tax revenue increased 5.6% from FY19 to FY20, but decreased slightly (0.6%) from FY20 to FY21. As shown, FY22 First Quarter revenue is just slightly above revenue received in the prior months of August and September.

All Other Revenue

Table 6 below identifies all other General Fund revenue for the 3-year period of FY 18-19, FY 19-20 and FY 20-21, and highlights the FY22 First Quarter period of July through September.

Table 6

As shown in Table 6, FY22 First Quarter revenue is tracking above revenue received in the prior months of that period.

FY 2021-22 General Fund Expenditure Summary:

Expenses incurred for the first quarter of the year (September 30, 2021) are 26% of budgeted expenditures, or $27.3 million. Last year's expenses paid at the same time represented 26% of budgeted expenditures or $26.8 million. It is important to note that the City prepays its annual CalPERS unfunded actuarial liability (UAL) at the beginning of the fiscal year to take advantage of the prepayment discount. As such, actual expenditures for the first quarter of the fiscal year are higher due to this prepayment. For FY22, the City’s General Fund realized a discount of $378,511 based on a prepayment amount of $10.8 million; the non-prepayment cost to the City would have been $11.1 million. All General Fund Expenditures are projected to be on target by the end of the fiscal year.

ENVIRONMENTAL IMPACT

The request is not a Project as defined by Section 15378 of the California Environmental Quality Act (CEQA).

GENERAL PLAN CONSISTENCY

Complies with the following Rialto General Plan Guiding Principle:

Our government will lead by example, and will operate in an open, transparent, and responsive manner that meets the needs of the citizens and is a good place to do business.

LEGAL REVIEW

The City Attorney has reviewed and supports this staff report.

FINANCIAL IMPACT

Operating Budget Impact

This action does not affect the City’s Operating Budget.

Capital Improvement Budget Impact

This action does not affect the City’s Capital Improvement Budget.

Licensing

A Business License is not required as part of this action.

RECOMMENDATION

Staff recommends that the City Council receive a presentation containing an overview of the General Fund revenues and expenses for First Quarter of Fiscal Year 2021-2022.