City of Sunnyvale

FY 2003/2004

FINANCIAL REPORT  FOR

Accounting Period 4, ended October 25, 2003

Overview

This financial report outlines the status of actual revenue receipts and expenditures as of Accounting Period 4 for Fiscal Year 2003/2004.  The conclusion of this accounting period represents 31.97% of the entire fiscal year. As a rule, this report discusses the City’s major funds: General and Enterprise Funds.  However, other funds will be included if attention is needed.  The review of expenditures is limited in this report to include operating only.  Project expenditures by their very nature do not happen on a recurring basis. In general, this report discusses only exception situations.

The economic downturn that began with the collapse of the information technology boom of the late 1990’s has impacted the Silicon Valley region in a manner not seen since the Great Depression.  The effect of this downturn has significantly impacted City revenues as both Sales Tax and Transient Occupancy Tax receipts have fallen 35% and 51% respectively since FY 2000/2001.   As these revenue sources have continued to decline from their boom-time highs we have projected FY 2003/2004 revenues with zero to minimal growth.  Based upon current economic trends it does not appear that the economy has completely bottomed out and further declines in key City revenues are likely.  Once the region does begin to rebound it is likely to be on a slow and measured scale with revenue receipts not returning to their previous highs for a number of years.   On a City-wide basis General Fund Expenditures as of Period 4 are within budget.

General Fund

Top Revenues.  The top revenues in the table below represent 94% of total General Fund revenues.  By focusing on these, we can get an excellent understanding of our revenue position.  Overall, these revenue streams are performing slightly below projections based on payment schedules and past trends. Any significant variances are discussed below.

Sales Tax:

Sales Tax revenues through October 14, 2003 are down approximately 10% as compared to the same period last year.  The continued decline in Sales Tax revenue is directly attributable to decreased levels of spending on technology goods and services, and to a lesser extent, reduced sales of automobiles.

Property Tax:

Property Tax is received in two large installments, in mid December and mid April.  The property tax received year to date reflects the County’s annual remittance for unsecured property and Supplemental Property Tax remittances. 

Motor Vehicle License Fees:

Receipts from this source are down due to the State’s withholding of the revenue associated with the backfill amount, or 67.5%, of VLF revenues.  Late in June of 2003 the State’s Finance Director pulled the “trigger” that raised the VLF fee back to its pre-1998 levels, effective October 1, 2003.  AB 1768, one of the budget trailer bills, specifies that the payment of the backfill money that is owed to local governments during the mandatory 90-day waiting period be deferred until August 2006.  The payment at that time will be without interest.  In addition, the State withheld the VLF payment for the period June 20 – June 30 (the last 10 days of the fiscal year after the VLF trigger was pulled).  Based upon last year’s receipts this will result in a reduction in City revenue of approximately $1.5 million.  Staff had anticipated this reduction as part of its State Budget analysis and will be preparing a budget amendment in conjunction with the fiscal year-end report.  Due to the amount of savings achieved in FY 2002/2003 staff anticipates that this reduction will only have a nominal fiscal impact to the City.

Transient Occupancy Tax:

The Transient Occupancy Tax category reflects payments through September. The City changed the reporting period for this revenue from quarterly to monthly starting in January 2002 so that we could better forecast and track TOT trends. TOT Revenues for the first fiscal quarter (July – September) are down approximately 23% from the same period last year.  Over the past year Sunnyvale hotels have seen a significant reduction in both the average vacancy rate and average room rate.  These decreases are directly related to the stagnant nature of the current economy.  Staff is continuing to monitor this revenue closely as it remains unclear whether actual receipts will meet estimated revenues.

Utility Users Tax/Franchise Fees:

Receipts in these categories reflect remittances through most of September.

Construction Tax:

This revenue relates to construction activity within the City.  The City’s Chief Building Official has noted that a handful of large construction projects have begun in the City thus representing the increased level of revenue as compared to the first three accounting periods of the prior fiscal year.

*Permits and Licenses:

The increase in revenues associated with Permits and Licenses correlates with the increase in construction activity.  The total figure in the Current Budget column has been adjusted to reflect the correct budget associated with Hazardous Material Permits.  Staff has discovered that the budgeted revenue for Hazardous Material Permits was reported at a reduced level for FY 2003/2004 only.  A correction to the budget for Hazardous Material Permitting will be brought before Council as part of the year-end report in December.  

Departmental Operating Expenditures  Overall operating costs for the General Fund are slightly under forecast for the first four accounting periods of the fiscal year as summarized by department.

Due to the timing of the calendar year the duration of the first accounting period was greater than that of the previous year by approximately two weeks.  This increase in duration accounts for the marked increase in actual expenditures when compared to the same period last year.  It is also important to note that the figures represented in the FY 2003/2004 Current Budget Column include estimated revisions to employee wages, while the figures in the YTD Actuals column do not.  The YTD figures will be increased when Council approves the FY 2003/2004 salary adjustments and retroactive payments are made to employees.

Utility Funds

The three major utility funds are the Water Supply and Distribution Fund, the Solid Waste Management Fund, and the Wastewater Management Fund.  Both the Water Supply and Distribution Fund and the Solid Waste Management Fund are experiencing positive net incomes through Accounting Period 4.  The Wastewater Management Fund is currently operating at a net loss due to an annual transfer that occurred at the beginning of the fiscal year.  The Wastewater Management Fund would currently show a positive net income if the transfer occurred on a periodic basis.  Included in this financial report are income statements for these three funds.

Prepared by the Department of Finance

November 5, 2003

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