TO: LINDA REICH, CITY MANAGER
FROM: KIM SAO, DIRECTOR OF FINANCE
SUBJECT
title
Fiscal Year 2024-25 Midyear Budget Review.
end
RECOMMENDATION
recommendation
Adopt Resolution No. 2025-012, authorizing the Midyear Budget adjustments for FY 2024-25 as detailed in the attached Exhibits A, B, and C.
body
FISCAL IMPACT
Following the City Council's approval of the FY 2024-25 Mid-Term Budget on January 21, 2025, staff conducted a midyear review. Based on this analysis, staff recommends additional adjustments to address updates in Revenues, Expenditures, and Transfers In/Out.
• Revenue Estimates (Exhibit A):
o Decrease the General Fund revenues estimate by $3,420,211 and all other funds by $12,839,480 for a total decrease of $16,259,691. (Exhibit A)
• Expenditure Appropriation (Exhibit B):
o Increase $811,256 to the General Fund budget
o Increase $250,000 to the Sewer Fund budget
o Transfer $2.5 million from the Employee Benefits Fund and $4.5 million from the Equipment Management Fund to the General Fund for a total of $7.0 million to cover one-time costs
• Decrease $3,280,949 to the current General Fund appropriation and other funds due to the elimination of allocated pension costs. (Exhibit C)
CITY OF CHINO MISSION / VISION / VALUES / STRATEGIC ISSUES
The recommendation detailed above further the City’s values and strategic issues that serve as key pillars on which identified priorities, goals, and action plans are built, by fostering:
• Financial Stability
• Responsible Long-Range Planning
|
Revenue: |
Expenditure: See Attached Schedule |
|
Transfer In: |
Transfer Out: |
BACKGROUND
The City Council adopted a biennial budget for FY 2023-24 and FY 2024-25 in June 2023, with a mid-term update for FY 2024-25 approved on January 21, 2025. This update reflected net revenues of $143 million, net expenditures of $142.8 million, and a surplus of $146,026.
In accordance with the City's budget policy, the adopted budget can be amended during the fiscal year to address unforeseen circumstances or changes in service costs. The midyear review evaluates progress relative to the original budget projections and recommends adjustments to ensure financial alignment through June 30, 2025.
During the midyear budget process, Finance staff adjusted estimated beginning fund balances for FY 2024-25 to align with the audited ending fund balances as of June 30, 2024. This ensures more accurate projections for the FY 2024-25 budget and reflects the most conservative spendable resources available.
ISSUES/ANALYSIS
The midyear review involved a thorough analysis by each department and Finance staff. Staff identified additional operational changes since the adoption of the FY 2024-25 Mid-Term Budget update, with recommended adjustments for each fund, attached as Exhibits A through C to Resolution No. 2025-012.
Adjustments to Estimated Revenue (Exhibit A)
Adopting a conservative approach to revenue estimates is essential to avoid overstating potential income, which could lead to overcommitting resources. By preparing for the worst and relying on prudent, conservative assumptions, the City can maintain fiscal responsibility, allocate resources effectively, and be better equipped to address unforeseen challenges. This approach ensures resources are allocated wisely and mitigates the risk of budget shortfalls during uncertain economic climate. As part of this strategy, the midyear review and analysis has guided the proposed revenue adjustments to reflect the most realistic and achievable financial outlook.
Revenue adjustments across all funds reflect a net decrease of $16,259,691, driven largely by a $15.8 million reduction in development impact fees caused by delays in multi-unit development projects that generate user fees for construction, permits, and inspections. Included in the total, the General Fund's estimated revenue is reduced by $3,420,211, limiting the availability of resources typically allocated to cover one-time costs, such as capital projects and other non-recurring expenditures.
Below is a summary of changes to the revenue estimates by fund. For a detailed description of the revenue adjustments within each fund, refer to Exhibit A.
|
Fund |
Description |
Revenue Inc/(Dec) |
|
100 |
General Fund |
(3,420,211) |
|
105 |
Traffic Safety Fund |
43,159 |
|
220-341 |
Development Impact Fee Fund |
(15,853,229) |
|
320 |
Transportation Fund |
120,000 |
|
322 |
Measure I 2010-2040 |
(87,156) |
|
324 |
Gas Tax |
(21,898) |
|
327 |
SB1 RMRA |
(74,505) |
|
330 |
Community Svc Fund |
118,067 |
|
520 |
Water Fund |
(1,875,737) |
|
530 |
Sewer Fund |
719,641 |
|
540 |
Storm Drain Fund |
100,716 |
|
550 |
Sanitation Fund |
752,791 |
|
703 |
RDA |
3,218,671 |
|
|
Total Revenue Adjustments |
($16,259,691) |
Adjustments to Expenditures (Exhibit B)
Staff requests $811,526 in General Fund appropriations as detailed below:
• $620,000 - Increased obligation to the Chino Valley Fire District due to higher property tax receipts.
• $150,000 - Contract adjustment for Inland Valley Humane Society, reflecting changes in revenue-sharing guarantees.
• $34,326 - Additional costs for the 2024 General Election with the San Bernardino County Registrar of Voters.
• $7,200 - Part-time special projects staff for Human Resources and Risk Management through December 2024.
Sewer Fund: An additional $250,000 is requested for sewage treatment services due to increased residential occupancy.
Appropriation Reduction for Pension Cost Allocation (Exhibit C)
During the recent annual City audit, corrections were identified that required revisions to the financial statements, leading to a restatement of the General Fund balance as of June 30, 2024. These findings highlight the importance of closely monitoring the General Fund this year to address the residual fiscal impact and ensure its health through June 30, 2025. As a result of this review, we recommend removing the appropriation for pension cost allocation, in the amount of $3,280,949. This reduction in costs results in a savings to the General Fund that will now be available for other uses.
Summary of the General Fund Operation for FY 2024-25
For FY 2024-25, the revised General Fund operating revenues and ongoing transfers in total $135,119,658. Total operating expenditures and ongoing transfers out total $124,028,793 million, resulting in an estimated net operating surplus of $11,090,865.
After incorporating previously approved capital improvement projects of $15.6 million (Attachment 2) and other anticipated one-time expenditures of $2.5 million that will be presented to the City Council in separate agendas, the General Fund results in a budget deficit of $6,324,758. To address the budget deficit, staff recommends transferring $7 million from the Internal Service Funds to the General Fund to address immediate financial needs. This transfer results in a projected General Fund surplus of $675,242 as of June 30, 2025.
Internal Service Funds
It is not unusual for cities to tap into these internal service funds to cover General Fund shortages as long as the fund continues to be replenished regularly. As shown in the table below, in June 2008, the City transferred $6,401,697 from various internal service funds to the General Fund to mitigate the fiscal impact of the recession. At that time, Council also approved the recommendation to maintain a minimum balance within each of the funds for future needs. Staff has diligently applied cost allocations to replenish and maintain internal service funds as part of the normal operating budget process to sustain them for future needs. The total available Internal Service available fund balances increased from $7.5 million in 2008 to $20.7 million in June 2024. The Employe Benefits Fund and the Equipment Management Fund have a high balance of $6.4 million and $9.7 million, respectively. Therefore, staff recommends a transfer out of $2.5 million from the Employee Benefits Fund and $4.5 million from the Equipment Management Fund, totaling $7.0 million to the General Fund.
Table 1. Internal Service Fund Balance since 2008
Although this $7 million transfer addresses an urgent need, the City remains committed to evaluating the Internal Service fund balances and maintaining sufficient reserves to ensure long-term sustainability. Staff will continue to review these funds and prepare for future discussions on establishing updated fund balance policies.
The following table provides a final overview of the General Fund Budget for the FY 2024-25. Since July 1, 2024, the City Council has approved appropriations totaling $3,033,956, which were not included in the Mid-Term analysis. This total mainly includes $2 million for the Ayala Park project, $705,400 for pavement rehabilitation, and $620,440 for a Co-Op agreement on the State Route 60 landscape maintenance, along with smaller appropriations.
The FY 2024-25 General Fund Budget begins with an audited fund balance of $30,151,505 as of July 1, 2024. After accounting for a net surplus of $675,242, the projected June 30, 2025 ending fund balance is $30,826,747.
Table 2. General Fund Summary
CONCLUSION
The Midyear Budget Review process is an essential part of managing the City’s evolving financial landscape. It represents a proactive effort to adapt to changing circumstances, using the best information available at the time of preparation. Recognizing that factors such as economic conditions, legislation, and local trends can rapidly alter planning assumptions, this review highlights the importance of flexibility and vigilance in fiscal management.
Approving the proposed midyear adjustments will provide staff with the budget authority to make needed adjustments and achieve a more accurate budget that align with current realities and provide a basis for developing the upcoming FY 2025-26 Budget.
Attachments: 1 - Resolution No. 2025-012, Exhibits A, B, C
2 - Measure V Funded and Other CIP Projects