FY 2016 Year-End Results and FY 2017 First Quarter Budget Update

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1 Page 1 of 21 Office of the City Manager INFORMATION ITEM November 29, 2016 To: From: Honorable Mayor and Members of the City Council Dee Williams-Ridley, City Manager Submitted by: Teresa Berkeley-Simmons, Budget Manager Subject: FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INTRODUCTION This report presents to the Council a year-end budget summary for FY 2016, the fiscal year ending on June 30, This report also provides preliminary revenue information for the first quarter of the current fiscal year CURRENT SITUATION AND ITS EFFECTS FY 2016 Year-End Summary General Fund On June 30, 2015, the City Council adopted the FY 2016 budget. The FY 2016 adopted General Fund revenues were $159.5 million, and the General Fund expenditures were $159.9 million. Included in the adopted budget was a $500,000 allocation to the Sugar Sweetened Beverage projects that would be paid from the General Fund Reserves (fund balance) and would be repaid to the General Fund as revenues from Measure D was collected. At FY 2016 year-end, actual General Fund revenues were $170.9 million. This was $11.5 million above the adopted budget of $ Revenues exceeded the budget amount primarily due to $7.0 million in excess Property Transfer Tax over the baseline operating budget 1. In addition, there was a $1.8 million increase in Business License Tax, a $1.3 million increase in the Transient Occupancy Tax (hotel tax), and other onetime revenues totaling $1.7 million. 1 Council has adopted a fiscal policy that Transfer Tax in excess of the $10.5 million baseline operating budget will be treated as one-time revenue to be used for the City s capital infrastructure needs. These funds are currently earmarked to fund the replacement of the City s core financial enterprise system with an estimated total cost of $15.1 million Milvia Street, Berkeley, CA Tel: (510) TDD: (510) Fax: (510) manager@cityofberkeley.info Website:

2 Page 2 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 Actual FY 2016 General Fund expenditures were $163.9 million. This was $4.0 million above the adopted budget of $159.9 million and $4.3 million below the adjusted budget of $168.1 million. 2 Expenditures came in under budget as a result of ongoing expenditure controls through salary savings, underspending of non-personnel funds, and ongoing capital projects. Overall the General Fund ended FY 2016 to the positive by $7 million. FY 2016 General Fund Budget Summary FY 2016 FY 2016 Adopted Adjusted FY 2016 Actual Year-End (dollars in millions) Revenues $159.5 $162.8 * $170.9 Expenditures ** Use of Fund Balance Increase/(Decrease) to General Fund Balance (Reserve) $0 $0 $7.0 *Increases in revenue estimates were reported to Council on February 23, 2016, in the FY 2016 Mid-Year Budget Update 3 **Additional appropriations were included in the Amendments to the Appropriation Ordinances that were approved by Council on November 17, and on May 10, Funding for Capital Improvements Property Transfer Tax One of Council s fiscal policies is that Property Transfer Tax in excess of $10.5 million will be treated as one-time revenue to be used for the City s capital infrastructure needs. Council wisely adopted this fiscal policy recognizing the volatility tied to Property Transfer Tax revenue. The chart below displays the historical trend of the City s Property Transfer Tax from FY 2004 through FY The FY 2016 Amendments to the Appropriation Ordinances on November 17, 2015 and May 10, 2016, increased General Fund appropriations by $11.4 million resulting in a revised General Fund adjusted budget of $171.2 million. However, the FY 2016 adjusted amount was reduced by $3.1 million in encumbrances (commitments) rolled into FY 2017 for payment and are included in the Amendment: FY 2017 Annual Appropriations Ordinance on tonight s agenda. Thus, the actual FY 2016 year-end adjusted expenditure balance was $168.1 million (Attachment 1) _- _Regular_Meeting_Annotated_Agenda.aspx (Item #39) _- _Regular_Meeting_Annotated_Agenda.aspx (Item #3) 5 (Item #4 Page 2

3 Page 3 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 Property Transfer Tax Millions $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $ In FY 2016 the Property Transfer Tax included in the Adopted Budget was $10.5 million. In the FY 2016 Mid-Year Budget Update 6 Property Transfer Tax was projected to be $14.3 million. By FY 2016 year-end the actual Property Transfer Tax was $17.5 million. This is $7.0 million over the $10.5 million baseline threshold established by Council. Of the $7.0 million in excess Property Transfer Tax, $600,000 was included as a transfer to the Capital Improvement Fund (610) and allocated to the Parks, Recreation and Waterfront Department for capital improvements to James Kenney Park. The remaining $6.4 million was included in the Amendment to the FY 2017 Appropriations Ordinance on tonight s agenda as a transfer from the General Fund (Fund 010) to a dedicated fund (Fund 609) established to pay for the replacement of the City s 23-year old core financial enterprise system, FUND$ (Financial Utility Network Data $ystem). The estimated total cost to replace the system is $15.1 million. FUND$ Replacement The $15.1 million estimate to replace the City s antiquated core financial system includes replacement of FUND$ with Enterprise Resource Planning (ERP) Software core financial and human resource components of City work. This estimate also includes systems for work orders, business licensing, facilities and fleet management, performance evaluation, and refuse billing software solutions. Additionally, staff determined that we need to implement performance evaluation software and there will be some current solutions that will no longer work with a new ERP and will also require replacement. The solutions for these services will either be through expansion of the ERP system or an additional technology based service for staff to maintain the service we deliver currently. The $15.1 million costs also includes 8.3 dedicated ERP _- _Regular_Meeting_Annotated_Agenda.aspx (Item #39) Page 3

4 Page 4 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 implementation staff for three years. The implementation of the new system provides the City with a suite of modern software that will work in harmony to support efficiency and transparency in our work and allow staff to dedicate more time addressing community priorities. FUND$ Replacement (ERP) (dollars in millions) Total Estimated ERP Cost $15.1 Available Balance Fund 609 $2.1 Property Transfer Tax (FY15) $1.1 Property Transfer Tax (FY16) $6.4* Property Transfer Tax (FY17) unknown Unfunded Need $5.5 *Available transfer amount reduced by $600,000 allocation to James Kenney Park In an effort to ensure adequate funding for the new ERP system, the Property Transfer Tax operating baseline included in the FY 2017 Adopted Budget remains at $10.5 million. In accordance with Council s fiscal policies the excess Property Transfer Tax generated in FY 2017 is earmarked for capital improvements, specifically FUND$ replacement. General Fund Reserve/Fund Balance The City s current policy is a reserve of 8 percent of adopted General Fund revenues. The reserve provides some flexibility to address one-time priority programs, smooth out economic swings, buffer the loss of state and federal revenues, and temporarily support City operations in the event of a catastrophic event (such as an earthquake or fire). An 8 percent reserve would fund City operations for about 30 days. It is essential that the City maintain adequate levels of fund balance to mitigate current and future risks (e.g., revenue shortfalls and unanticipated expenditures) and to ensure stable tax rates. Credit rating agencies monitor levels of fund balance and unrestricted fund balance in a government s General Fund to evaluate a government s continued creditworthiness. 7 The Government Finance Officers Association (GFOA) recommends, at a minimum, unrestricted budgetary fund balance in the General Fund of no less than two months or 16.7 percent. 7 Page 4

5 Page 5 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 The FY 2015 year-end General Fund balance was $38.2 million or 24.8 percent of FY 2015 General Fund revenues. However, after reconciling due to/due from, accruals, and adjustments the beginning FY 2016 General Fund balance was $34.9 million. FY 2015 General Fund Reconciliation (dollars in millions) FY 2015 Ending Available Cash June 30, Due to/due From/Adjustments 8 (3.4) Ending Available Balance 34.9 FY 2016 General Fund Available Balance (dollars in millions) Ending Available Cash Balance June 30, 2015 $ 34.9 Revenues Expenditures (163.9) June 30, (Due to/due From Other Funds) (3.2) Committed (Encumbered Rollover) (3.1)* Assigned (Carryover & Adjustments) (13.1)* Unassigned (Liquid Available Fund Balance) $ 22.6 * Additional appropriations are included in the First Amendment to the FY 2017 Appropriation Ordinances that is on tonight s Agenda. On February 23, 2016, the City Auditor issued a report titled Audit Report: General Fund Reserve Policy Fails to Convey that Maintaining the Reserve is a Priority. The purpose of the audit was to answer the question: Is the City s General Fund Reserve policy in line with best practices and what is needed to ensure the General Fund Reserve will allow the City to mitigate current and future financial risks? The City Auditor determined that Berkeley s General Fund Reserve policy lacks all of the core elements recommended by the GFOA. Included in the City Auditor s report were the following recommendations tied specifically to the General Fund Reserves. 8 Due to Account is a liability account that indicates the amount of funds currently payable to another fund. The due to is used in conjunction with a due from account to reconcile from which account the funds will be coming and to which account the funds will be going. The due to/due from accounting allows the City to use one fund to pay another fund s obligation by tracking which funds owes another fund and to which fund the money is due. Usually this is a result of a General Fund advance to a Special Fund that is subject to third party (state, federal, etc.) reimbursement. The funds are advanced by the General Fund to the Special Fund and when receipts from billing the third party are received in the Special Fund the money is paid back to the General Fund. Page 5

6 Page 6 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 Amend the general fund reserve policy to align it with best practices. This includes increasing the level to at least a minimum of 16.7 percent, designating specific portions of the reserve for contingency and stabilization purposes, and defining the use and replenishment of the funds. Perform a risk assessment to determine the appropriate general fund reserve balance. Staff agrees with the Auditor s assessment and has drafted an updated General Fund Reserve Policy that aligns with the Auditor s recommendations and is included on tonight s agenda. Included in the Auditor s report is a recommendation that the General Fund Reserve is distinctly separate from the General Fund Balance. As noted in the chart above, the FY 2016 unassigned (liquid) balance is $22.6 million (13.8 percent 9 ). This amount is available for allocation into the General Fund Reserve and General Fund Balance. The following graphic shows the relation between these funds as well as other restricted, committed, and assigned General Fund monies. The restricted fund balance category includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers, or through enabling legislation. The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government s highest level of decision-making authority. 9 Based on the FY 2017 Adopted General Fund Revenues of $163,656,214. Page 6

7 Page 7 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. Unassigned fund balance is the residual classification for the government s general fund and includes all spendable amounts not contained in the other classifications The General Fund Reserve Policy staff report on tonight s agenda recommends increasing the 8 percent reserve to 16.7 percent with a goal of reaching 30 percent over time. A General Fund Reserve of 16.7 percent would total $27.3 million 10, which is $4.7 million more than our unassigned available fund balance of $22.6 million. All Funds On an all funds basis (the General Fund plus all other funds) the City finished FY 2016, $56.1 million (11.6%) under the adjusted budget. These fund balances are largely dedicated to projects, capital improvements that have not yet been completed, and personnel cost savings. For example, of the $27.1 million in the Department of Public Works, $4.2 million is tied to Zero Waste, $4.6 million is tied to the Off Street Parking project for the Center Street Garage rebuild, and $3.9 million resulted from personnel and non-personal savings tied to the Sewer Fund. In addition, the Department of Health, Housing & Community Services had $8.6 million is savings of which over $5 million is tied to projects and programs that were not fully spend by the end of the fiscal year but will be spend in the next three years. The Department of Information Technology was under budget by $2.6 million as a result of capital improvement related funds and employee training funds not being fully spent in FY The Department of Parks Recreation and Waterfront had savings of $4.0 million due to personnel savings and unexpended project funds in the Parks Tax Fund, Measure WW Parks Bond Grant Fund, and the Marina Fund. Additional information on unspent FY 2016 funds can be found in Attachment 2. Funds that have been reserved for projects not completed in FY 2016 will be carried over to FY 2017 and are included in the Amendment to the FY 2017 Appropriations Ordinance on tonight s agenda Attachment 1 provides additional information on the FY 2016 Year-End General Fund Revenues and includes a variance analysis. Attachment 2 provides additional information on the FY 2016 Year-End Expenditures by department and also includes a variance analysis. 10 Based on the FY 2017 Adopted General Fund Revenues of $163,656,214. Page 7

8 Page 8 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 FY 2017 First Quarter Summary General Fund Revenues General Fund revenues are currently tracking within budget. Staff s first quarter review focuses on the major revenue fluctuations. Sales Tax revenue appears to be doing exceptionally well compared to last year due to a onetime payment from the State for the final true-up tied to the State mandated Triple Flip program. The overall rate of General Fund revenue the City received during the first quarter of FY 2017 is consistent with the prior year. However, several of the underlying revenue assumptions for FY 2017 are very sensitive to economic changes. Staff will continue to monitor these revenue streams and report on the impact of economic changes on revenue projections. Staff will present more refined revenue projections based on additional information during the mid-year update on February 28, For additional information please see Attachment 3. General Fund Expenditures General Fund expenditures are currently tracking within budget. FY 2017 Adopted General Fund personnel costs represent 76% of the City s total General Fund budget and are monitored by staff on a monthly basis. Similar to last year, Police overtime continues to be a concern due to vacancies and medical leave. However, with the adoption of the FY 2017 budget Council increased the FTE level of police officers by five, raising the authorized sworn from 176 FTEs to 181 FTEs. These additional positions will be funded as the City is able to fill them. Police staff is working diligently to fill all 181 sworn positions. Attachment 3 provides additional information on the FY 2017 First Quarter General Fund Revenues and also includes a variance analysis Attachment 4 provides additional information on the FY 2017 First Quarter Expenditures by department and includes a variance analysis FY 2017 and Beyond Fiscal Challenges - Health Care Costs We were recently notified that the heath care rates are increasing by 16.16% effective January 1, This is the largest increase since Health care rates are provided to the City on a calendar year basis. While we included a 5% estimated increase in the second half of the FY 2017 budget, the large rate increase of 16.16% will cost the City an additional $1.04 million on an all funds basis. We anticipate that the increased costs will be offset somewhat by salary savings. However, we will monitor these costs closely, and if it is determined that the additional cost are greater than realized savings we will include a proposed augmentation to the budget in the Second Amendment to the FY 2017 Appropriation Ordinance. The significant increase in health care cost will be considered as we develop the FY 2018 and FY 2019 Biennial Budget. Page 8

9 Page 9 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 Health Rates % 20.0% 15.0% 10.0% 5.0% 0.0% In addition, on March 8, 2016, Council adopted a Resolution authorizing the City Manager to execute and implement a Side Letter of Agreement with Service Employees International Union Local 1021 Maintenance and Clerical Chapters (Agreement) modifying the Memorandum Agreement by replacing Health Net with Sutter Health Plus as the City s health insurance 11. As a result of the Agreement $1.4 million is being used to reduce the unfunded liabilities associated with the SEIU Local 1021 Maintenance and Clerical Retiree Health Premium Assistance Plan. The appropriation is included in the First Amendment to the FY 2017 Appropriation Ordinance on tonight s agenda. Next Steps Staff will present second quarter revenue and expenditure projections at the FY 2017 mid-year update on February 28, (Item #9) Page 9

10 Page 10 of 21 FY 2016 Year-End Results and FY 2017 First Quarter Budget Update INFORMATION CALENDAR November 29, 2016 FY 2017 Budget Calendar Date Action/Topic November 29, 2016 Proposed General Fund Reserve Policy, First Amendment to the Annual Appropriations Ordinance, FY 2016 Year-end Results and the FY 2017 First Quarter Budget Update February 28, 2017 FY 2017 Mid-Year Update Projections of Future Liabilities Report May 2, 2017 FY 2018 & FY 2019 Proposed Biennial Budget Presentation May 2, 2017 Public Hearing #1: Budget May 16, 2017 Public Hearing #2: Budget Proposed Fee Increases May 30, 2017 Council recommendations on budget due to City Manager June 13, 2017 Council discussion on budget recommendations June 27, 2017 Adopt FY 2018 & FY 2019 Biennial Budget & Appropriation Ordinance ENVIRONMENTAL SUSTAINABILITY Actions included in the budget will be developed and implemented in a manner that is consistent with the City s environmental sustainability goals and requirements. CONTACT PERSON Teresa Berkeley-Simmons, Budget Manager, City Manager s Office, Henry Oyekanmi, Finance Director, Department of Finance, Rama Murty, Senior Management Analyst, City Manager s Office, Attachments: 1: FY 2016 Year End General Fund Revenues 2: FY 2016 Year End General Fund and All Funds Expenditures 3. FY st Quarter General Fund Revenues 4. FY st Quarter General Fund and All Funds Expenditures Page 10

11 Page 11 of 21 Attachment 1 FY 2016 GENERAL FUND REVENUE General Fund Revenue-Two Year Comparison FY16 & FY15 Adopted Revenue Categories Secured Property $ 46,351,907 Unsecured Property Tax 2,793,812 Supplemental Taxes 802,495 Property Transfer Tax 10,500,000 Sales Taxes 18,116,161 Soda Taxes (May 2015) Utility Users Taxes 14,477,392 Transient Occupancy Tax 6,561,872 Business License Tax 16,320,000 Vehicle In-Lieu Taxes 10,167,383 Parking Fines-Regular 7,070,000 Parking Fines-Booting 252,500 Moving Violations 234,600 Interest Income 2,470,000 Ambulance Fees 4,474,423 Franchise Fees 1,826,892 Other Revenue 8,896,646 Transfers 8,138,892 Total Revenue: $159,454,975 FY 2016 FY2016 Adopted Actual Difference % Received FY ,046,765 1,694, % $ 44,352,255 2,661,235 (132,577) 95.25% 2,498, ,178 (294,317) 63.32% 760,000 17,452,190 6,952, % 11,016,000 15,944,002 (2,172,159) 88.01% 16,365,826 1,712,892 1,712,892 N/A 14,211,318 (266,074) 98.16% 14,629,742 7,813,366 1,251, % 5,957,082 18,087,229 1,767, % 16,253,126 10,308, , % 9,671,582 5,952,477 (1,117,523) 84.19% 7,000, ,044 (69,456) 72.49% 200, ,752 18, % 230,000 2,419,803 (50,197) 97.97% 2,600,000 4,102,074 (372,349) 91.68% 4,386,689 1,916,975 90, % 1,841,403 10,548,177 1,651, % 8,588,970 8,814, , % 8,030, ,935,718 11,480, % $ 154,381,501 FY 2015 Comparison FY2015 Actual Difference % Received FY16 vs. FY15 FY16 vs. FY15 44,187,339 (164,916) 99.63% 3,859, % 2,602, , % 59, % 1,445, , % (937,231) % 15,178,243 4,162, % 2,273, % 16,708, , % (764,650) -4.58% 242, ,986 N/A 1,469,906 N//A 14,302,057 (327,685) 97.76% (90,739) -0.63% 7,038,640 1,081, % 774, % 16,102,327 (150,799) 99.07% 1,984, % 9,616,322 (55,260) 99.43% 692, % 6,057,878 (942,122) 86.54% (105,401) -1.74% 191,097 (8,903) 95.55% (8,053) -4.21% 673, , % (420,493) % 2,650,102 50, % (230,299) -8.69% 4,313,595 (73,094) 98.33% (211,521) -4.90% 1,864,892 23, % 52, % 12,574,200 3,985, % (2,026,023) % 8,170, , % 643, % 163,919,970 9,538, % 7,015, % In general, the revenues for the General Fund for FY2016 performed as expected. There were revenue streams that performed extremely well and some that lagged behind. In all, it was a positive performance in light of the anemic growth in the US economy. The US economy grew just 0.8 percent in the first quarter of 2016, after just 1.4 percent in the previous quarter. This growth rate seems to be the new normal and shows that the economy continues to resist returning to normal after close to 7 1/2 years of essentially zero interest rates. The economy is not responding to all the tools that the Federal Reserve has thrown at it and it seems this might be the new normal. The highlights of the FY 2016 General Fund revenue results are summarized below: Secured Property Tax (+$3,859,426 over FY 2015 Actual); (+$1,694,858 more than FY 2016 Adopted) During FY 2016, Secured Property Tax revenues totaled $48,046,765, which was $3,859,426 or 8.73% more than the $44,187,339 received in FY This revenue growth was 1.7% more than the FY 2016 preliminary assessed value growth of 5.6% reported by the County Assessor in April There was a strong increase in valuation of parcels that translated into increases in Assessed Valuation throughout the County.. Property Transfer Tax (+$2,273,947 over FY 2015 Actual); (+$6,952,190 over FY 2016 Adopted) During FY 2016, Property Transfer Tax revenue increased by $2,273,947 or 14.98% to $17,452,190 from $15,178,243 received in FY The increase was due to an increase in the dollar value of property sales for FY2016 by 14.98% than in FY Even though the numbers of properties that sold was the same in both fiscal years, the average property sales price

12 Page 12 of 21 Attachment 1 increased by 14.98% which is the exact amount of the increase in the revenues. Increase in the dollar value of property sales in FY 2016 are as follows: Description Total Dollar Value of Property Sales Average Property Sales Price Number of Property Sales Transactions FY 2016 FY 2015 $1,163,479,339 $1,011,882,867 Increase (Decrease) $ 151,596,472 $1,211,958 $1,054,045 $ 157, Sales Tax (-$764,650 less than FY 2015 Actual); (-$2,172,159 less than FY 2016 Adopted) During FY 2016, Sales Tax revenue totaled $15,944,002, which is $764,650 or 4.58% less than the $16,708,652 received in FY The original budgetary projection was overstated due to a calculation error. The top five economic segments that accounted for most of the revenues are Restaurants, Miscellaneous Retail, Auto Sales, food Markets and Furniture/Appliance. These economic segments are projected to continue to grow even if at a marginal rate. Sugar Tax (+$1,712,892 over FY 2015 Actual); there was no projection for this tax in the FY2016 adopted budget During FY 2016, Sugar tax revenue totaled $1,712,892. During the 2016 fiscal year, $500,000 of this revenue was advanced to the commission for projects from the General Fund. Utility Users Tax (-$90,739 less FY 2015 Actual); (-$266,074 less than FY 2016 Adopted) For FY 2016, Utility Users Tax revenue totaled $14,211,318 which is $90,739 or.63% less than the $14,302,057 received in FY The FY 2016 total of $14,211,318 was $266,074 less than the adopted budget amount of $14,477,392. This decrease was a result of a couple of factors which include a drop in energy usage throughout the fiscal year, better conservation and smart and efficient appliances. This revenue source will continue to see a decline as we continue to have smart and efficient appliances which translates into less energy usage. Transient Occupancy Tax (+$774,726 over FY 2015 Actual); (+$1,251,494 over FY 2016 Adopted) Transient Occupancy Tax (TOT) revenue increased by $774,726 or 11% in FY 2016 to $7,813,366 from $7,038,640 in FY This increase was due to double digit growth at half of the 12 major hotels tracked by City staff, as hotel operators reported high occupancy rates and increases in average room rates. There has been a consistent increase in this revenue source for the past few years and it is projected to continue this pattern at a more moderate pace. Business License Tax (+$1,984,902 over FY 2015 Actual); (+$1,767,229 over FY 2016 Adopted) Business License tax revenue for FY 2016 totaled $18,087,229 which is $1,984,902 or 12.33% more than the $16,102,327 received in FY Business License Tax increase was primarily due to Finance conducted an intensive collection efforts for businesses who have been delinquent from payment or have been underpaying their business license tax for multiple years. These accounts were pursue and audited.

13 Page 13 of 21 Attachment 1 Parking Fines (-$105,401 less than FY 2015 Actual) (-$1,117,523 less than FY 2016 Adopted) Parking fines revenue continued its multi-year decline in general. In the near term, during FY 2016, Parking Fines revenue (excluding booting collections) decreased by $105,401 or 1.74% to $5,952,477 from $6,057,878 in FY This decrease is partly attributable to a reduction in ticket writing from 145,393 in FY 2015 to 138,297 in FY 2016, a decrease of 7,096 tickets. After hitting a high of $11.9 million in revenue and 312,005 tickets written in FY 2007, Parking Fines revenue and ticket writing has declined nearly every year since then. The graph below shows the year-over-year declines in ticket writing from FY 2011 through FY 2015, as follows: Parking Tickets Issued for FY ,000 19,000 17,000 FY12 15,000 FY13 FY14 13,000 FY15 11,000 FY16 9,000 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Vehicle booting citations also declined during FY During FY 2016, booting collections totaled $183,044, a decline of 4.21% or $8,053 from the total of $191,097 received in FY Moving Violations (-$420,493 less than FY 2015 Actual); (+$18,152 over FY 2016 Adopted) During FY 2016, revenue from Moving Violations totaled $252,752, which is $18,152 over the adopted budget. $420,493 less than the $673,244 received in FY The increase in FY2015 was the result of a one-time five year audit conducted by both the State and County which was the reason for the adopted budget projection not inclusive of the onetime revenues received in FY There is a downward trend for this revenue source for the next few fiscal years. Interest Income (-$230,299 less than FY 2015 Actual); (-$50,197 less than FY 2016 Adopted) During FY 2016, Interest Income totaled $2,419,803 which is $230,299 or 8.69% less than the total of $2,650,102 received for FY This revenue source decreased marginally because the Federal Reserve Board (the Feds) continues to keep short-term rates at.5% and medium-term interest rates between 1-2%. As a result, as the high yielding securities held by the City continues to mature, the City will achieve a return on investments close to zero percent on the replacement securities that need to be held in short-term investment vehicles (for liquidity purposes) and 1-2% for replacement securities with longer maturity dates. This trend is expected to continue at least for a few quarters until the Federal Reserve Board increases interest rates.

14 Page 14 of 21 Attachment 1 Other Revenue (-$2,026,023 less than FY 2015 Actual); (+$1,651,531 over FY 2016 Adopted) Other Revenue totaled $10,548,177 which is $2,026,023 or 16.11% less than the total of $12,574,200 received in FY 2015.The decrease of this revenue source was due to the following: (a) a decrease in the pass through payment from the County of $392,430, which is primarily for Berkeley Redevelopment Agency (b) a decrease of $518,838 in grant revenues from the Ground Emergency Medical Transport program (GEMT) (c) a decrease of $507,513 in police service charge related to SB-90 and (d) a decrease of $540,298 due to re-classification to CDBG fund in FY 2016.

15 Page 15 of 21 Attachment 2 FY 2016 Year End Expenditures General Fund Department Mayor & Council Auditor City Manager Police Review Commission City Attorney City Clerk Information Technology Finance Human Resources Health, Housing & Community Services Public Works Parks, Recreation and Waterfront Fire Police Planning Economic Development Non-Departmental Total FY 2016 Adopted 1,792,456 2,116,882 4,833, ,803 2,225,084 1,982,311 5,251,456 5,559,396 1,847,317 12,377,323 2,667,233 5,545,284 28,315,624 57,160,009 1,683,361 2,039,208 23,902, ,862,009 FY 2016 Adjusted 1,832,228 2,256,451 5,100, ,883 2,222,773 2,071,447 6,434,261 5,890,870 1,978,117 12,717,822 3,193,496 5,963,286 28,817,143 57,419,104 1,681,837 2,387,538 27,618, ,148,263 Year-End Actuals 1,892,881 1,939,511 4,864, ,348 2,044,601 1,513,959 5,344,143 4,982,927 1,924,022 11,583,745 2,917,731 5,818,770 29,037,855 59,074,465 1,639,989 2,346,260 26,354, ,864,849 FY 2016 Adjusted 1,832,228 2,409,943 5,754, ,883 4,003,470 2,071,447 11,792,242 7,745,242 3,775,720 45,511, ,926,452 30,738,464 36,339,774 62,612,902 16,679,153 5,275,915 4,557,044 18,616,863 90,267, ,472,736 Year-End Actuals 1,892,881 2,076,413 5,435, ,348 3,048,482 1,513,959 9,206,331 6,871,471 3,496,149 36,891, ,791,688 24,439,308 36,850,998 63,115,430 15,881,505 4,849,433 4,576,866 16,321,146 84,549, ,392,080 Percent Balance Expended (60,653) 103% 316,940 86% 236,077 95% (21,465) 104% 178,172 92% 557,488 73% 1,090,118 83% 907,943 85% 54,095 97% 1,134,077 91% 275,765 91% 144,516 98% (220,712) 101% (1,655,361) 103% 41,848 98% 41,278 98% 1,263,288 95% 4,283,414 97% All Funds (including General Fund) Department Mayor & Council Auditor City Manager Police Review Commission City Attorney City Clerk Information Technology Finance Human Resources Health, Housing & Community Services Public Works Parks, Recreation and Waterfront Fire Police Planning Economic Development Rent Board Library Non-Departmental Total FY 2016 Adopted 1,792,456 2,270,374 5,324, ,803 4,001,225 1,982,311 8,752,909 7,446,289 3,248,181 41,350, ,380,540 25,110,844 35,843,030 62,146,931 14,629,541 4,340,946 4,550,000 18,854,308 52,033, ,620,938 Balance (60,653) 333, ,985 (21,465) 954, ,488 2,585, , ,571 8,620,059 27,134,764 6,299,156 (511,224) (502,528) 797, ,482 (19,822) 2,295,717 5,718,278 56,080,656 Percent Expended 103% 86% 94% 104% 76% 73% 78% 89% 93% 81% 80% 80% 101% 101% 95% 92% 100% 88% 94% 88%

16 Page 16 of 21 Attachment 2 FY 2016 Year End Expenditures Variance Analysis Significant General Fund Variances City Auditor (+$316,940) was due to salary savings in FY 2016 from vacant positions and underspending of non-personnel funds. Most of the savings will be transferred to the Fund 609, FUND$ Replacement Fund for the new payroll system. City Manager (+236,077), City Clerk (+$557,488), and Finance (+907,943) was due to salary savings from vacant positions and under spending of non-personnel funds. Information Technology (+$1,090,118) was primarily due to non-personnel savings for a number of projects that were not completed in FY Most of the unspent funds will be carried over to FY 2017 to pay for these ongoing projects. Health, Housing, & Community Services (+$1,134,077) was due to significant and long standing staff vacancies in the Office of the Director and the Mental Health Division. A portion of these funds are being carried to FY 2017 for special projects. Fire (-220,712) was due to a significant increase in overtime to support mutual aid requests and backfill for staff out on medical leaves. A portion of the mutual aid costs was reimbursed to the City. Police (-$1,655,361) was due to overtime expenditures being $2,358,657 over budget. The overage in overtime expenditures was due to sworn vacancies and medical leave in divisions which operate at minimum staffing levels therefore necessitating overtime backfill. Salary and benefit savings from the vacancies resulted in the total personnel budget being over budget ($2,192,718) and operating costs were controlled to further lower the expenditures to exceed budget by $1,655,361. Non-Departmental (+1,263,288) was due to funds being set aside for the General Fund cost of living adjustments for the labor contracts that were approved in FY Significant All Funds Variances Information Technology (+$2,585,911) was due to Employee Training Funds, Capital Improvement Funds, Permit Service Center Funds, and Computer Replacement Funds projects not being fully spent in FY These funds will be carried over to FY Health, Housing & Community Services (+$8,620,059) was the result of several vacancies throughout the department and dollars allocated to projects and programs that were not fully spent by the end of the fiscal year. $2.1 million were funds committed to programs in the Housing and Community Services division that will not be spent until FY17. In Mental Health, there was $2.5 million in unspent Mental Health Service Act Funds. These funds will be spent according the 3-year plan Council adopted in March 2015 and include over $1,000,000 for the renovation of

17 Page 17 of 21 Attachment 2 the Adult Mental Health Clinic and the creation of the Wellness Center in partnership with Alameda County. An additional $460,000 in Mental Health realignment funds were also allocated to support the renovation of the Adult Clinic, but work has not yet started on the project. $231,000 in reduced expenditures was from the State Health Grant fund which includes 16 unique grants from the state to support our public health efforts and reflect various vacancies and cost shifts throughout those programs. Finally, $216,000 was in our Public Health Realignment fund due to vacancies and cost shifts and can be carried forward for use in subsequent years. Public Works (+$27,134,762) were largely due to the following: Sewer Fund (+$3.9 million): $1.7 million in personnel savings due to vacancies, non-personnel savings of $1.0 million for sewer projects and $0.2 million in city facility projects scheduled for completion in FY Zero Waste (+$4.2 million): $1.7 million in personnel savings due to vacancies, non-personnel savings of $1.1 million for facilities improvements scheduled for completion in FY Equipment Replacement (+$0.7 million), Equipment Maintenance (+$0.9): $0.6 million in unexecuted vehicle purchases, $0.4 million in fuel and oil savings, and $0.2 million in personnel savings due to vacancies. State Transportation Tax (+$1.0 million) and Capital Improvement Fund (+$1.9 million): $1.7 million in unspent project funds and $0.9 million in personnel savings due to vacancies and allocating personnel costs to projects. Non-personnel funds from ongoing projects had funds carried over to FY MTC Fund (+2.4 million): $2.1 million in grant funds carried over to FY 2017 for the Hearst Complete Streets project CALTRANS Grant (+$0.7 million): Grant funds for the Ashby Corridor Improvement Project were not fully spent in FY 2016 and will be carried over to FY Off Street Parking (+4.6 million): $4.5 million project budget carryover to FY 2017 for the Center Street Garage and $1.8 million to fund balance for future appropriation to the Center Street Garage project. Parking Meter (+0.9 million): goberkeley Program restricted expenditures deferred to FY 2017 Parks Recreation and Waterfront (+$4,035,841) due to personnel savings and unexpended project funds in the Parks Tax Fund, Measure WW Parks Bond Grant Fund, and the Marina Fund. Only certain unspent project funds will be carried over to FY Library (+$2,785,213) due to personnel and non-personnel savings in the Library Fund. Non-Departmental (+$5,718,278) was due to the expenditures in the Workers Compensation Fund being lower than the budgeted amount by a little more than $1.1 million. The transfer from the Mental Health State Aid Realignment Trust Fund to the Health (Short/Doyle) Fund that was budgeted at $2.2 million was not needed to be done in FY 2016.

18 Page 18 of 21 Attachment 3 General Fund Revenue for FY17 1st Quarter Comparison FY16 VS FY17 FY 2017 FY 2016 Difference Difference % Revenue Categories Adopted 1st Qtr -Actual Difference % Received Adopted 1st Qtr- Actual Difference % Received FY17 vs. FY16 FY17 vs. FY16 Secured Property $ 48,715, ,741 48,352, % $ 46,351,907 $ 261,765 $ 46,090, % $ 101, % Unsecured Property Tax 2,936,296 2,308, , % 2,793,812 2,279, , % 29, % Supplemental Tax 843, , , % 802, , , % (8,650) -4.13% Property Transfer Tax 10,500,000 5,169,555 5,330, % 10,500,000 4,891,167 5,608, % 278, % Sales Taxes 17,801,700 6,979,883 10,821, % 18,116,161 3,330,641 14,785, % 3,649, % Soda Taxes (May 2015) 1,600, ,815 1,219, % 371,187 (371,187) 0.00% 9,628 N/A Utility Users Taxes 14,291,500 3,561,152 10,730, % 14,477,392 3,594,342 10,883, % (33,190) -0.92% Transient Occupancy Tax 7,152,440 1,931,307 5,221, % 6,561,872 2,167,253 4,394, % (235,946) % Business License Tax 16,483, ,794 16,141, % 16,320, ,462 15,595, % (382,668) % Vehicle In-Lieu Tax 10,269,057 10,269, % 10,167,383 10,167, % 0.00% Parking Fines-Regular 6,817,500 1,523,216 5,294, % 7,070,000 1,687,674 5,382, % (164,458) -9.74% Parking Fines-Booting 200,000 39, , % 252,500 55, , % (16,327) N/A Moving Violations 235,069 55, , % 234,600 52, , % 3, % Interest Income 2,200, ,510 1,755, % 2,470, ,896 2,363, % 337, % Ambulance Fees 4,386,000 1,089,988 3,296, % 4,474, ,418 3,481, % 96, % Franchise Fees 1,826, ,633 1,562, % 1,826, ,291 1,560, % (1,658) -0.62% Other Revenue 9,217,761 2,223,630 6,994, % 8,896,646 1,918,888 6,977, % 304, % Transfers 8,179,523 2,214,174 5,965, % 8,138,892 1,932,497 6,206, % 281, % Total Revenue: $ 163,656,214 $ 29,092,800 $ 134,563, % $ 159,454,975 $ 24,843,278 $ 134,611, % $ 4,249, % The first quarter review focuses on the major revenue fluctuation. Staff will present more refined revenue projections based on additional information during the mid-year update. Secured Property Tax (+$101,976 over FY 2016 Actual) During the first quarter of FY 2017, Secured Property Tax revenues totaled $363,741, which was $101,976 or 38.96% more than the $261,765 received for FY This first quarter number is typical and staff will monitor this revenue stream closely. Property Transfer Tax (+$278,388 over FY 2016 Actual) During the first quarter of FY 2017, Property Transfer Tax totaled $5,169,555, which was $278,388 or 5.69% more than the $4,891,167 received for the first quarter of FY The rate of increase is on par with the percentage of the increase that was utilized for the projection for the current Budget. Staff will closely monitor this revenue for another quarter for a possible increase in the projection. Sales Tax (+ $3,649,242 over FY 2016 Actual) For the first quarter of FY 2017, Sales Tax revenue totaled $6,979,883, which is $3,649,242 or % over the $3,330,641 received for the first quarter of FY The over 100% increase in the Sales Tax revenue was due to a onetime payment paid by the State for the final true-up mandated by the State in order to end the Triple flip. The true-up was for the last two quarters of the triple flip which ended the Triple Flip program. In 2004, voters approved Proposition 57, which authorized the State to issue up to $15 billion in deficit financing bonds (also known as economic recovery bonds, or ERBs). $11.3 billion of these bonds were issued in 2004 and an additional $3.3 Billion were issued in Proceeds from these bonds were used to address the state s budget shortfall. To repay the ERBs, the state pledged one-quarter cent of the local Bradley-Burns sales tax. In particular, it reduced by one-quarter cent the Bradley-Burns sales tax, which cities and counties use for general and transportation purposes, and replaced it with a one-quarter cent state special fund sales tax for repayment of the bonds. To hold local governments harmless, the state initiated a complex series of revenue exchanges commonly referred to as the triple flip. The most recent data for all other components of the Sales Tax Revenues shows a strong contributor from the restaurant segment of the economy.

19 Page 19 of 21 Attachment 3 Transient Occupancy Tax (-$235,946 less than FY 2016 Actual) Transient Occupancy Tax (TOT) revenue for the first quarter of FY 2017 totaled $1,931,307 which is $235,946 or 10.89% less than the $2,167,253 received for the first quarter of FY The decrease is attributable to a late payment received after the quarter end close which is not included in this numbers as the City utilizes cash basis for revenues. The first quarter filing by three (3) of the ten major hotels was strong with some showing an increase from the previous year first quarter results. This increase is in line with the strong performance that was witnessed during the last fiscal year and the adopted budget for FY 2017 reflected these assumptions. Parking Fines (-$164,458 less than FY 2016 Actual) Parking fines revenue for the first quarter of FY 2017 totaled $1,523,216 which is $164,458 or 9.74% less than the $1,687,674 received for the first quarter of FY This is attributable to a decrease in ticket issuance during the first quarter of FY There was a decrease of 2,685 tickets issued from the same period in FY 2016 of 37,528 to 34,843 for FY This revenue continues to trend lower than previous years and staff is monitoring it closely. Interest Income (+$337,614 over FY 2016 Actual) For the first quarter of FY 2017, interest income totaled $444,510 which is $337,614 more than the total of $106,896 received for the same period in FY This is attributable to the investments holding the city is currently holding that paid some interests in the first quarter. Staff will continue to monitor this revenue stream to make sure it is in par with the projections. Other Revenue (+$304,742 over FY 2016 Actual) Other Revenue increased by $304,742 or 15.88% in the first quarter of FY 2017 to $2,223,630 from $1,918,888 for the same period in FY 2016.This increase was primarily due to an increase in park rent revenue of $125,000 and a reclassification of the entry for ocean view garden lease of $201,124 from the General Fund to Fund 370 (CDBG).

20 Page 20 of 21 Attachment 4 FY 2017 First Quarter Expenditures (7/1/16 9/30/16) General Fund Year-To-Date FY 2017 FY 2017 Actuals + Department Adopted Adjusted* Encumbrances Balance Mayor & Council 1,918,324 1,909, ,739 1,472,052 Auditor 2,158,342 2,158, ,598 1,721,751 City Manager 5,541,765 5,610,319 1,505,914 4,104,405 Police Review Commission 595, , , ,006 City Attorney 2,251,858 2,253, ,647 1,771,554 City Clerk 1,999,005 2,138, ,160 1,622,258 Information Technology 4,905,540 6,142,793 2,116,784 4,026,009 Finance 5,792,713 6,149,334 1,523,717 4,625,617 Human Resources 2,190,985 2,308, ,765 1,704,428 Health, Housing & Community Services 13,166,206 13,347,052 3,739,828 9,607,224 Public Works 2,728,557 3,339,964 1,073,303 2,266,661 Parks, Recreation and Waterfront 5,350,515 5,590,903 2,200,204 3,390,699 Fire 29,454,571 29,536,568 7,701,691 21,834,877 Police 60,684,425 60,850,154 14,525,898 46,324,256 Planning 1,757,849 1,762, ,155 1,333,738 Economic Development 2,311,732 2,399,010 1,376,702 1,022,308 Non-Departmental 22,308,103 22,149,893 12,681,515 9,468,378 Total 165,116, ,245,682 51,491, ,754,221 *FY 2017 Adjusted includes FY 2016 Encumbrance Rollover Percent Expended 23% 20% 27% 24% 21% 24% 34% 25% 26% 28% 32% 39% 26% 24% 24% 57% 57% 31% All Funds (including General Fund) Department Mayor & Council Auditor City Manager Police Review Commission City Attorney City Clerk Information Technology Finance Human Resources Health, Housing & Community Services Public Works Parks, Recreation and Waterfront Fire Police Planning Economic Development Rent Board Library Non-Departmental Total FY 2017 Adopted 1,918,324 2,300,919 6,058, ,867 4,192,149 1,999,005 8,365,625 7,546,519 3,788,502 43,627, ,708,452 26,724,173 37,106,123 65,153,281 15,778,112 4,921,683 4,792,655 20,114,212 47,517, ,209,010 FY 2017 Adjusted* 1,909,791 2,300,926 6,147, ,847 4,514,918 2,138,418 10,248,641 7,987,465 3,952,057 46,912, ,706,067 29,699,043 37,275,553 65,419,530 17,105,168 5,186,498 4,812,464 20,569,601 47,582, ,067,795 *FY 2017 Adjusted includes FY 2016 Encumbrance Rollover Year-To-Date Actuals + Encumbrances 437, ,773 1,678, ,841 1,166, ,160 4,083,929 1,966,572 1,088,559 15,739,085 58,956,443 13,754,296 9,532,489 15,862,106 5,159,987 2,498,178 1,236,863 6,052,062 33,175, ,516,870 Percent Balance Expended 1,472,052 23% 1,830,153 20% 4,469,093 27% 458,006 24% 3,348,144 26% 1,622,258 24% 6,164,712 40% 6,020,893 25% 2,863,498 28% 31,173,847 34% 80,749,624 42% 15,944,747 46% 27,743,064 26% 49,557,424 24% 11,945,181 30% 2,688,320 48% 3,575,601 26% 14,517,539 29% 14,406,769 70% 280,550,925 38%

21 Page 21 of 21 Attachment 4 FY 2017 First Quarter Expenditures Variance Analysis First Quarter Assumptions Personnel year-to-date actuals are through 09/30/16 and represent 23.46% expended. All departments are tracking at or below 23.46% in personnel expenditures. General Fund personnel costs represent almost 74% of the total City s General Fund budget and are tracked on a monthly basis. As in prior years, Police overtime continues to be a concern and is being monitored by staff. Generally, on an all funds basis, expenditures over 23.46% are related to nonpersonnel costs, such as encumbrances for contracts, supplies, and materials. First Quarter Variances General Fund Information Technology: Funds were encumbered for professional services contracts, computer maintenance, and software licenses. Health, Housing & Community Services: First three months is when summer youth workers are hired. Public Works: Funds were encumbered for gas and electricity payments. Parks Recreation & Waterfront: 1st quarter was peak season for Recreation programs. Non-Departmental: Funds for community agency contracts (managed by the Health, Housing & Community Services Department and Parks Recreation & Waterfront) were encumbered in first quarter. All Funds Public Works: Funds were encumbered for capital improvement projects early in the fiscal year. Parks Recreation and Waterfront: Funds encumbered for food and supplies at Camps, utilities and supplies, and capital improvement projects. Non-Departmental: Expenditures for the 2015 Refunding of Outstanding Bond Measure I payoff was booked in the 1st Quarter of FY A transfer from the Off Street Parking Fund to Fund 836 (Off Street Parking Rate Stabilization Fund) per agreement for Berkeley Parking Revenue Bond Series Final Official Statement was booked in the 1st Quarter of FY Funds to cover these expenditures will be appropriated in an amendment to the FY 2017 Annual Appropriations Ordinance.