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    9.    
City Council Regular
Meeting Date: 02/25/2020  

SUBJECT:
MONTHLY FINANCIAL REPORT AND SECOND QUARTER BUDGET REVIEW FOR FISCAL YEAR 2019-20
 
RECOMMENDATION:
  1. Receive and file the Monthly Financial Report for December 2019.
     
  2. Ratify the budget amendments approved by the City Manager in the second quarter of FY 2019-20 totaling $89,971.33.
     
  3. Adopt a Resolution entitled: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHINO HILLS, CALIFORNIA, ADOPTING A  BUDGET AMENDMENT FOR FISCAL YEAR 2019-20 INCREASING THE BUDGET IN VARIOUS FUNDS BY $627,117.00 FOR ADJUSTMENTS BASED ON THE SECOND QUARTER BUDGET REVIEW
BACKGROUND/ANALYSIS:
The Monthly Financial Report for December 2019 (see attached) is being presented to the City Council and the public to provide a status update of the City’s financials at December 31, 2019. The Financial Report includes the budgetary information for the City’s annual financial plan as well as the actual resources received and the use of these resources in fulfilling the financial plan.
 
Financial data is reported on a cash basis, meaning that revenue is reported when cash is received and expenditures are reported when cash payments are made. The majority of General Fund revenues come in sporadically throughout the year and most of it is received or accrued in the last six (6) months of the fiscal year. Meanwhile, expenditure transactions continue to be paid each month, regardless of when the revenues are received. This highlights the importance of maintaining a reserve that allows for cash flow needs during the lean months when there are no revenues. At the end of the fiscal year, the accrual basis of accounting is applied to all governmental accounts. As a result, many of the revenues received or expenditures paid in July and August are accrued to the month of June, to comply with the Generally Accepted Accounting Principles (GAAP), which matches the transaction to the period in which the revenue was earned or the expenditure occurred. The Enterprise Funds, or business type funds, use the “accrual” method of accounting. These business type funds charge customers a fee to cover the cost of services that are provided. This method applies to the Water Utility Fund and Sewer Utility Fund.
 

On a quarterly basis, staff reviews the status of the budget, prepares a summary of the Capital Improvement Program, and proposes budget amendments for City Council consideration. City staff is seeking approval for the following budget amendments:
 
Ratify City Manager Budget Amendments
Resolution No. 2019R-034 authorizes the City Manager to appropriate from reserves up to $25,000 per transaction, for each expenditure line item or capital improvement project. The total appropriations by the City Manager from the General Fund reserves may not exceed $100,000 in a fiscal year until ratified by the City Council. In the second quarter of FY 2019-20, the City Manager authorized $89,971.33 in budget amendments. These budget amendments have already been recorded in the City’s financial system, and are reflected in the ending budget balances in the Monthly Financial Report for December 2019 (see attached). It is recommended that the City Council ratify the following:
 
Department     Description Amount    Fund
Public Works
 
Adjust West Coast Arborist Contract
 
$ 20,805.00
 
General/L&L
 
City Manager
 
Police Services- Equipment purchase
 
    7,778.00
 
Public Safety Programs
 
City Manager
 
Contract change order for the Council Chambers Audio/Visual upgrade
 
  19,060.33
 
PEG
 
Finance/Public Works Developer payments / Lower Los Serranos Streetlight Improv. Project   13,523.00 Mitigation Fee/Gas Tax
 
City Manager
 
Police Services- Use of asset seizure monies for equipment purchase
 
  17,585.00
 
Public Safety Programs
 
Community Services Military (Veterans) Monument

 
  11,220.00 General
 
                                                                Total
$ 89,971.33  
  
Engineering - Pavement Management Software (Gas Tax/IT Funds - 2110/4100)
It is recommended that the City Council approve an increase in the Information Technology (IT) and the Engineering expenditure budgets in the amount of $3,000 to purchase the Pavement Management System (PMS) Software. PMS software tracks the roadway conditions within a City using the Pavement Condition Index (PCI). The State requires that Cities report the PCI periodically and this program will support that reporting. This budget amendment will decrease the projected ending fund balance in the Gas Tax Fund by $3,000.

Water Rate Stabilization and Depreciation Reserves (Water Utility Funds - 5100/5110)
It is recommended that the City Council approve an increase in the Water Utility operating budget by $255,900 to cover the FY 2019-20 transfers to the Water Rate Stabilization/Depreciation Fund. In 2018, City staff presented the 2018 Water Rate Study (The Study). The Study provided changes to the current rate structure and outlined a financial plan to cover ongoing water, debt service funding, operating and maintenance funding, and capital replacement and expansion costs. In the Study, it was recommended to transfer monies annually to the Water Rate Stabilization and Depreciation reserves. These reserves provide a basis for the City to cope with fiscal emergencies such as revenue shortfalls, asset failure, and natural disasters, among others. They also provide guidelines for sound financial management, with an overall long-range perspective to maintain financial solvency and mitigate financial risks associated with revenue instability, volatile capital costs, and emergencies.

The FY 2019-20 transfer amounts are $55,000 for Water Rate Stabilization (10% annual escalation) and $200,900 for Depreciation (3% annual escalation). As of June 30, 2019, the balances in the Water Rate Stabilization and Depreciation reserves were $550,000 and $6,695,000, respectively. This budget amendment will decrease the Water Utility unreserved fund balance by $255,900 and increase the Water Rate Stabilization and Depreciation reserves by $55,000 and $200,900, respectively.

Community Facilities District (CFD) 9 - Rincon Village- 1998- Annual Operating Surplus (CFD 9 Funds - 3109/6209)
It is recommended to approve an increase in the CFD 9 transfer budgets in the amount of $44,217 to cover the annual transfer of the operating surplus from the CFD 9 operating fund to the CFD 9 construction fund. The indenture of the 2011 CFD 9 Special Tax Refunding Bonds allows for an annual transfer of operating surplus to the CFD construction fund. These monies are to be used for capital improvement expenses within the CFD boundaries. In FY 2019-20, the surplus available to transfer exceeded the adopted budget amount by $44,217; therefore, a budget amendment is needed. This budget amendment will decrease the fund balance in the CFD 9 operating fund and increase the fund balance in the CFD 9 construction fund by $44,217.
 
 
Capital Improvement Program
 
The City currently has 54 projects designated in the Capital Improvement Program (CIP). As of December 31, 2019, 8 projects were completed, 27 projects were under construction, 14 projects were in the design process and 5 projects are pending. The completed projects are as follows:
 
Calle San Marcos/Eagle Canyon Rehab - S19006
English Springs Park Restroom - 800394
Military (Veterans) Monument - F19002
Rolling Ridge Drive Rehab - S19004
SR-71 Off-ramp at Soquel Canyon Pkwy - ST200012
Street Improvement Program - FY 18/19 - S19001
Twin Knolls Dr. Rehab - S19011
Yorba Ave/Los Serranos County Club Dr. Rehab - S19010
 
Capital Project Budget Modifications:
 
Gateway Monument on Chino Hills Parkway (Project No. PF200002)
Appropriation:   Increase CFD 5 (Fund # 6205) by $80,000
Reason:
It is recommended to add this project to the FY 19/20 Capital Improvement Program. The project includes demolition of an existing concrete median cover, removal of existing irrigation and landscape, construction of an entry monument, and new irrigation and landscaping. Total project cost is $80,000 
 
Woodview Road Pavement Rehabilitation - Phase 1 (Project No. ST200015)
Appropriation:  
 
Increase CFD 5 (Fund # 6205) by $75,000
Increase Gas Tax (Fund # 2110) by $75,000
Reason:
 
It is recommended to add this project to the FY 19/20 Capital Improvement Program. The project will grind and overlay existing deteriorated pavement and restriping on Woodview Road from Pipeline Avenue to 1,500 feet west of Pipeline Avenue. Total project cost is $150,000. 

Los Serranos Park (Project No. 800212)
Appropriation:   Increase Quimby In-Lieu (Fund # 2504) by $91,000
Reason: It is recommended to appropriate $91,000 to this project to cover the contractor's last change order and project close out costs. 
ENVIRONMENTAL (CEQA) REVIEW:
This proposed action is exempt from review under the California Environmental Quality Act (California Public Resources Code §§ 21000, et seq., "CEQA") and CEQA Guidelines (Title 14 California Code of Regulations §§ 15000, et seq.), because it does not involve any commitment to a specific project which could result in a potentially significant physical impact on the environment; and, constitutes an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. Accordingly, this action does not constitute a "project" that requires environmental review (see specifically 14 CCR § 15378(b)(4-5)).   
FISCAL IMPACT:
The effects on fund balance, as a result of the proposed FY 2019-20 budget amendments, are as follows:  
  Net Increase/
  (Decrease)
Gas Tax Fund - (2110)     (78,000.00)
Quimby In Lieu Fee Fund - (2504)     (91,000.00)
CFD 5 - Soquel Cyn, Rincon & Woodview Fund - (6205)   (155,000.00)
Water Utility Fund - (5100)   (255,900.00)
Water Rate Stabilization/Depreciation Fund - (5110)     255,900.00
CFD 9 Construction Fund- (3109)       44,217.00
CFD 9 - Rincon Village-1998 - (6209)      (44,217.00)

TOTAL

$ (324,000.00)
   

*This total does not include the City Manager approved budget amendments, which are reflected in the balances of the Monthly Financial Report for December 2019.
Attachments
December 2019 - Financial Report
Budget Resolution
Exhibit No. 1 - Budget Amendment

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