Each year, staff reports the results of the year-end unaudited financial operations and provides an analysis of the changes between last May's projected year-end position and the actual year-end status. Staff will report back to the Council if there are significant differences between what is in this report and the audited Comprehensive Annual Financial Report. The City ended the year with an overall improved fund balance position from that contained in the May estimate.

Each year, as part of the year-end closing process, it is necessary to adjust appropriations. Attachment A reflects these adjustments to Fiscal Year 1998/99 appropriations. Additionally, appropriations for projects currently lapse at year end and therefore need to be re-appropriated for the following fiscal year. Attachment A details the amounts to be carried over for all projects for Fiscal Year 1999/2000. Staff also recommends that the Council approve the proposed uses of uncommitted fund balances as well as those additional resources identified in Budget Modification # 12.

Action Statement 7.1D.1g of the Fiscal Sub-Element of the General Plan states that staff shall "prepare and provide the City Council with periodic summary financial reports by fund, comparing actual revenues and expenditures to budgeted amounts." This Year End Financial Report is in accordance with this action statement.

Staff has reviewed the results of the year-end unaudited financial operations and hereby provides an analysis of the changes between last May's projected year-end position and the actual year-end status.

The General Fund ended the year with a fund balance of $ 41,039,532 after providing for uncompleted projects of $ 8,784,138. This represents a11n improved position over May's forecast of $ 6,138,541 (see table on page 6).

Overall, revenues were higher than the May estimate used for budget projection purposes. The following table summarizes General Fund revenue accounts.

In general, revenues came in higher than estimated because of the continued strength in the current economic boom. Staff estimated that the current business cycle had reached its peak in late 1998 and forecasts for FY 1998/99 took this into account. In actuality, economic activity continued strong throughout the fiscal year. However, current revenue data and indicators reflect a cooling in the business cycle in FY 1999/2000, indicating that staff forecasts were early, but correct.

Property Tax revenues were 11.28% or $ 1,761,559 higher than forecast. The variance was primarily due to an increase in supplemental property tax revenue. Supplemental tax is paid by new property owners on the increased valuation that is assessed after a sale of property. The County was only recently able to turn its full attention on assessing the supplemental tax due to a high priority on the backlog of appeals filed with the County during the last recession. The focus on these supplemental assessments significantly increased the City’s revenue, but is one-time. Although the increase in assessed valuation is added to the City’s tax base, further increases are limited to 2% annually.

Sales Tax revenue was down 4.37%, or $1,200,014 below the May estimate. This negative variance was due to a slowing in business growth and a series of one-time adjustments by the State because taxes were misallocated for taxpayers in the electronic equipment and business service categories. Additionally, there was a one-time adjustment for misallocation of prior period sales tax receipts for Amdahl Corporation.

The Other Taxes category had a favorable variance of 11.93%, or $ 1,485,052 higher that the May projections. This was primarily due to higher than anticipated Transient Occupancy Tax (TOT) receipts. TOT revenue was $ 921,033 greater than the May estimate because of the continued high level of economic activity, resulting in high occupancy levels and high room rates. Construction Tax and Real Property Transfer Tax revenues contributed to the remaining positive variance of $ 564,019.

State Shared Revenues were $ 1,198,742 or 22.65% above forecast. Actual revenues for Motor Vehicle License Fees for Fiscal Year 1998/99 were $ 1,094,375 higher than the May estimate. The variance resulted because the estimate was based on average per capita revenue, which is provided by the State. Although this figure was conservative given increased car sales, it was used because the impact of the Motor Vehicle License Fee cut, imposed in January 1999 through State legislation, was uncertain at that time. Year end revenues indicate the State has supplemented funds to make up for the revenue loss. The remaining variance of $ 104,367 was due to higher than estimated revenues for POST Reimbursement and State Mandated Costs (SB90).

Permits and License were $ 536,969 greater than estimated due to Building and Fire Prevention Construction permit receipts coming in higher than anticipated, again reflecting the sustained economic cycle.

Fines and Forfeitures had a positive variance of $260,974, or 64.64% higher than the May estimate. This is primarily due to Traffic and Criminal Fine revenue coming in $220,240 higher than projected. New legislation increased cities’ portion of these revenues beginning January 1999, but the County was unable to provide estimates of the City’s new distribution under this legislation. Consequently, staff made a conservative estimate based on available data. The remaining positive variance of $ 40,734 was from Hazardous Materials Recovery revenue.

Service Fees were higher than anticipated by $ 328,870 or 24.73%. This revenue category accounts for service fees collected by the Departments of Finance, Libraries, Public Works, Public Safety and Community Development. Higher than anticipated Plan Check fees, Subdivision Map Filing fees and Public Safety fees for Abandoned Vehicles and Police Contracted Overtime accounted for the majority of this positive variance. High revenues for Plan Check and Subdivision Map Filing fees are a result of the sustained economic cycle.

Interest revenues for the General Fund were $ 132,909 higher than forecast, mainly as a result of higher than anticipated investment return on the City of Sunnyvale's portfolio.

Miscellaneous revenues, which include various sundry accounts not included in any of the major revenue categories, ended the year below forecast by $ 118,534. Because of the one-time nature of these revenues, it is difficult to estimate.

Much of the improvement of revenues over forecast is one time in nature and therefore does not necessarily alter the long range financial forecast. When the next budget and resource allocation plan are developed, the long term impact of the revenue changes will be reviewed. As indicated above, the continued strength of the economy was the primary factor for the increase in revenues. However, current data shows a slowing of the business cycle.

The following table summarizes General Fund expenditures for the year.

The schedule of appropriations by fund (Attachment A) provides detail by operating program and project for differences between budgeted and actual expenditures. Operating expenditures were $ 634,646 below the May estimate. Project expenditures were under the May estimate by $ 801,310. Total expenditures were lower by $ 1,378,310 or 1.38% below budget.

Appropriation for Projects (Capital, Special and Infrastructure) is based on each individual project budget. Attachment A contains the proposed schedule of project carryovers from FY 1998/99 to FY 1999/2000 for all funds, as well as a list of projects. Attachment B contains the proposed schedule of revenue carryovers for projects by fund.

Reserves at June 30, 1999 were as follows:

The restricted projects reserve represents project carryover that will not be utilized in the immediate fiscal year, but will be necessary in future fiscal years.

The net impact of all activity in the General Fund was an increase of $ 6,138,541 in the General Fund Reserve. Most of the improved position is revenue related and one-time in nature and therefore does not have a material effect on the City's long term financial position. As the Fiscal Year 2000/01 budget and 20 year plan is developed, a detailed review will be conducted as to the long-term financial position of the City.

Because the increase in the unrestricted reserve is a one-time occurrence resulting from the strong economy, it is recommended that the $ 6,138,541 be set aside for non-recurring events. As Council will recall, the Non-Recurring Events reserve was created last year to set aside increases in reserves that were one-time in nature and should therefore be used to fund one-time events instead of on-going operations. The Non-Recurring Events Reserve would increase to $ 11,378,839. $ 11,000,000 of this reserve would be used to fully fund the Older Adult Center Construction project.

The Housing/CDBG Funds ended the year with a combined fund balance of $ 4,639,174 after providing for uncompleted projects of $ 1,740,304. At year-end, the total reserves had $ 336,411 more than estimated in May.

The Park Dedication Fund ended the year with a fund balance of $ 2,051,117 for an increase from May estimate of $ 23,728. The fund balance reflects project funds unspent but programmed in the 20 Year RAP in future years. These funds have been transferred to a restricted reserve.

The Public Safety Forfeiture Fund ended the year with a fund balance of $ 1,863,236 compared to $ 1,781,443 as expected in May for an increase of $ 81,792. The difference is due to higher than anticipated asset forfeiture revenues.

The Police Services Augmentation Fund ended the year with a fund balance of $ 370,574, above the May estimate by $ 46,797 due to underspending in operations.

The Parking District Fund ended the year with a fund balance of $ 242,336, compared to the $ 228,163 expected in May. The majority of this $ 14,173 positive variance was the result of operations coming in under the May estimate.

The Gas Tax Fund ended the year with a fund balance of $ 3,140,866, which was $ 1,421,863 higher than was estimated in May. This variance is a result of two factors. First, operations came in under budget because certain street related projects, such as street reconstruction, were delayed until the following fiscal year. In addition, carryovers were reduced for projects with expenditures that were no longer anticipated.

The Youth and Neighborhood Service Fund was established in FY 1995/96. The Fund has maintained an endowment of $ 506,658, as the City has committed to do, ending the year with an uncommitted fund balance of $ 77,366 over the May estimate. This amount came from additional revenue from recreation fees and facilities rentals and operations that came in under budget.

Established in FY 1997/98, the Capital Projects Fund captures the full costs of multi-funded capital projects in one place as well as all new capital efforts. Accordingly, this fund receives revenues through transfers from the benefiting funds to reimburse for amounts expended. Uncompleted capital projects totaling $ 522,310 will be re-appropriated in FY 1999/2000.

The Utility Fund consists of the Water, Refuse and Sewer Sub-Funds.

At year-end the combined Utility Fund had a fund balance of $ 35,128,189 compared to $ 31,673,307 projected in May, for a difference of $ 3,454,882, or an increase of 10.91%.

The Water Sub-Fund had a fund balance of $ 7,444,269 compared to May estimates of $ 4,770,565. The favorable variance of $ 2,673,704 is primarily due to $ 2,000,000 in projects carried over in a restricted reserve, for a future fiscal year. The remaining positive variance of $ 673,704 is due to higher than anticipated service fee revenue. This remaining fund balance will mitigate potential future increases in water rates.

The Refuse Sub-Fund ended the fiscal year with a fund balance of $ 9,247,140, compared to $ 8,311,841 for May. This positive variance of $ 935,299 was due to higher than estimated revenues for service fees, distributions received and interest. Because Refuse Services does not have any major unfunded infrastructure requirements, the positive fund balance will mitigate potential future increases in refuse rates.

The Sewer Sub-Fund had a fund balance of $ 18,436,780 compared to the May estimate of $ 18,590,901 for a negative variance of $ 154,121 or (0.83%). This is due to operating expenditures coming in slightly higher than estimated in May.

The SMaRT® Station Fund consists of the Operating and Capital Equipment Sub-Funds.

The combined sub-funds ended the year with a fund balance of $ 2,748,820. This is slightly below the May estimate, by $ 63,490 or 2.26%.

The Operations Sub-Fund ended the year with both revenues and expenditures below May forecast. Revenues were $ 19,019 below forecast primarily due to a variance on the anticipated yard waste tonnage. Revenues consist primarily of fees to three cities, based on expenditure recovery. Therefore, expenditures were also $ 19,019 below forecast and there was no change to fund balance.

The Equipment Sub-Fund had a fund balance of $ 2,390,359 compared to $ 2,453,849 as estimated in May, for a negative difference of $ 63,490. The difference is due to earlier than anticipated equipment replacement and will not impact the 20 year plan.

As noted earlier, the SMaRT® Station Fund operates on a cost reimbursement basis from the three partner cities, and therefore any variances in recoveries are self-correcting in future periods.

The Community Recreation Fund ended the year with a fund balance of $ 605,771 compared to $ 419,976 as estimated in May, for a difference of $ 185,795. Although operations were higher than estimated by $ 296,354, revenues were also higher than forecast by $ 385,460 and carryover for projects were reduced due to expenditures that were no longer anticipated.

Sunnyvale Center for Information, Innovation and Ideas (SCI³) Fund

The SCI³ Fund ended the year with no change in fund balance. However, an additional transfer from the General Fund of $ 57,058 was required to maintain a positive fund balance. Lower than estimated revenues and higher than estimated operating expenditures resulted in the need for the additional transfer.

The General Services Fund ended the year with a fund balance of $ 2,679,910 compared to estimates of $ 2,611,340 in May, for a difference of $ 68,570. Total revenues were lower by $ 156,195, largely due to reduced utilization of services by internal customers, which in turn reduced collection of internal service charges. Expenditures were lower by $ 224,766 due to lower spending in equipment and projects. Current reserves adequately support the requirements of this fund to provide for the future replacement of equipment and provision for a wide range of support activities to direct service departments.

The fund ended the year with a fund balance of $ 7,160,421. This is $ 666,265 higher than the May estimate. This is primarily a result of project funds returned to fund balance because the expenditures were no longer anticipated. The improved fund balance will mitigate future requirements.

The Employee Benefits Fund ended the year with a fund balance of $ 25,829,420 compared to $ 25,492,080 as estimated in May, for a difference of $ 337,340. Higher than anticipated interfund and interest income revenues of $ 748,675 and higher than estimated operating expenditures of $411,335 combined to create the positive variance. This fund operates on a cost-reimbursement basis and any variances are incorporated in future year’s recovery cycles.

The combined balance for these funds at the end of the year showed no change from the $ 1,886,579 estimated in May. Revenues were higher than planned by $ 17,110 primarily due to higher than anticipated interest income. This additional revenue was used to increase the repayment to the City.

The City closed the 1998/99 fiscal year with a positive ending fund balance in all funds. Further, in aggregate, fund balances were well above the May estimate.

The following budget modifications are recommended due to events that were not anticipated at the time the Fiscal Year 1999/2000 budget was adopted by the City Council.

• Bicycle/Pedestrian Project (TDA). The Metropolitan Transportation Commission (MTC) has awarded the City of Sunnyvale an additional $ 276,498 in grant allocations to fund bicycle and pedestrian projects. These funds will be used in accordance with the guidelines established by the grant allocations.
• Civic Center - Remodeling Project. Ceiling work in the Council Chamber Lobby Area requires $ 21,730 for FY 1999/2000. Because funding for this work was budgeted for FY 2012/13, there will not be an impact to the 20 year plan.
• Provide for Cooperative Middle School Activities Program. In August 1998, the Sunnyvale School District requested and the City agreed to increase the rate paid to coaches. Under the agreement, the School District will reimburse the City an equivalent amount at the end of the year. Accordingly, the operating budget needs to be increased by $ 7,030 for FY 1999/2000 and all future years. Corresponding revenue projections will also be adjusted by the same amount.
• NEXT STEP Volunteer Project. The City of Sunnyvale has received a $ 5,000 grant from Advanced Micro Devices for the NEXT Step Project. These funds will be used in accordance with the guidelines established by the grant award.
• Transfer From General Fund Unrestricted Reserve to Designated Reserve for Non-Recurring Events. As noted earlier, it is recommended that $ 6,138,541 be set aside and added to the Non-Recurring Events Reserve.

The fiscal impact of the recommended action has been addressed in detail throughout this report. All cost and revenue figures contained in this report are based on preliminary information, which is being audited. Significant changes, if any, that may result from the audit will be resubmitted to Council. The City ended the year in excellent financial shape.

Public contact has been accomplished through publication and posting of the Council agenda. Reports to Council are also available in the Library and on the City’s web page.

Alternative 1: City Council approves Budget Modification # 12 as follows:

1. Approve adjustments to appropriations in FY 1998/99 as outlined in Attachment A.
2. Transfer an amount equal to project carryover from uncommitted fund balance in FY 1998/99 to reserve for project carryover for all funds.
3. Appropriate the carryovers as shown in Attachment A from FY 1998/99 to FY 1999/2000.
4. Approve the recommended FY 1999/2000 budget modification #12.
5. Approve proposed uses of fund balances as indicated in this report.

Alternative 2: Do not approve Budget Modification # 12.

It is recommended that City Council approve Budget Modification # 12.

Prepared by:

Grace H. Kim
Management Analyst - Budget

Reviewed by:

Royal E. Caswell
Administrative Services Manager

Reviewed by:

Mary J. Bradley
Director, Finance

Approved by:

Robert S. LaSala
City Manager