City staff were “overly optimistic” in budget projections for the fiscal year that ended in June, but Berkeley’s General Fund still ended up several hundred thousand dollars in the black for 2011-12, the city manager told council members Tuesday night.
City Manager Christine Daniel told the Berkeley City Council that “exceptional expenditure control” allowed the city to end the fiscal year without a General Fund shortfall that had been projected to hit $1.9 million.
“Everybody managed very carefully and that’s how we managed to end the year in that way,” she said Tuesday night during a special session on the Berkeley city budget that took place prior to the regular City Council meeting.
In a staff report to council, Daniel said General Fund revenues have continued to lag behind projections due to an economic recovery that “is moving at a much slower pace than has happened during recoveries from past recessions.” (See the report here.)
General Fund revenues ended the year at $147.9 million, with expenses at $147.5 million. The $427,000 left over was put back into the General Fund “to replenish prior years’ reserve expenditures.”
The General Fund ended up with a 12% reserve; the council’s policy calls for a reserve of 8%. According to the staff report, the current reserve could cover the city for a month in the event of a serious disaster.
The city ended the fiscal year about 11% under its adjusted budget for all of its funds, but this was largely due to salary savings from unfilled positions and money that had been dedicated toward specific projects and grant programs that went unspent. A lot of this money generally carries forward to allow the completion of projects that are under way.
(Money from the Housing Trust, Capital Improvement, MTC and Sewer funds made up a large portion of this pot. The staff report notes nearly $9 million under budget from the Health, Housing & Community Services Department, about $13.6 million from the Public Works Department, and about $4 million from Parks Recreation & Waterfront.)
The bad news
Projections related to property-based revenues, utility users taxes, parking fines, moving violations and interest income fell short of what was expected, according to the staff report.
Staff said that one reason for flawed projections related to supplemental taxes was that the city had expected the real estate rebound that began in 2010-11 to continue, but instead this revenue decreased from the prior year, from $627,188 to $570,310. Staff had projected a significant increase, to $1.6 million.
“We should have let the trend get established and then gradually make the projection based on those trends,” Finance Director Robert Hicks told the council.
The same issue affected property transfer taxes. Wrote staff: “Despite the Fed’s success in reducing mortgage rates to historic lows, Property Tax revenue decreased by 7.6%.” This shortfall was due to a decrease, by more than $70 million, in the dollar value of property sales. The number of transactions, added staff, “was flat,” with 837 in 2011 and 853 in 2012.
Parking fine revenue decreased, with a decline in ticket writing, and moving violation-related revenue came in significantly under budget.
The good news
Higher than expected revenues, 4.9% over the prior year, came in for sales taxes, with most of the increase reported in furniture and appliances, drug stores, restaurants, service stations, new auto sales and heavy industry.
The city also saw growth in its Transfer Occupancy Tax, with double-digit sales growth reported at 10 of the city’s 12 major hotels.
The city brought in 12.1% more money in business license taxes “primarily due to a significant increase in cannabis club operations” as well as “healthy growth” in other areas.
The city’s car booting program also proved financially successful, bringing in quite a bit more than its projected revenues. (Said Councilman Laurie Capitelli: “I’ve seen that truck driving around and it gives me the shivers.”)
Ambulance fees also were up, due to a cost of living increase and “better collections,” according to the staff report.
The Berkeley Fire, Police and Health, Housing & Community Services departments all reported salary savings due to vacant positions, some of which have been filled. The clerk’s office, too, reported salary savings from the vacant clerk’s position as well as unspent election funds.
Staff told the council that reductions in secured property taxes related to county reassessments, close to $1 million worth, have been one early warning sign of declining revenue for 2012-13. These reassessments have had an impact this year, and will continue to affect the property tax base going forward.
Staff said, despite this, the city has increased its projection for property transfer taxes “based on positive activity in the first quarter” of 2012-13. Property Transfer Tax revenues “increased sharply” from June through August due to an increase in the dollar value of property sales, as well as a jump in the number of sales, from 258 in the prior year during that period to 307 this year.
Staff also noted significant declines in parking fines and moving violations over last year’s first quarter revenue. City Manager Daniel told the council that these declines are regional, and could be related to higher vigilance from drivers in light of steeper fines and tight economic times. She also said clearer displays on parking meter print-outs may make it easier for drivers to get back to their vehicles on time.
Daniel also noted that the city’s projected revenue for moving violations was “not realistic,” adding: “We have never hit that $600,000 number. We need to own that.”
So far this year, cannabis club receipts have been lower than in the prior fiscal year. Staff said overall trends for this revenue stream will be clearer in early 2013, as the clubs begin to renew their licences.
Councilwoman Linda Maio said that would be an area to keep an eye on going forward.
“We’re experiencing some changes, you might say,” she said. “I guess we can assume it will take a while for things to stabilize.”
According to the staff report, “at this point during the year, we are projecting to end FY 2013 with approximately $1 million less in revenue than projected when the budget was adopted this past June.” The city plans to present a more detailed 2012-13 budget report in February.
Finance Director Hicks said the situation could have been “much worse” if not for several areas — property transfer, sales and transfer occupancy taxes — that have thus far “overperformed” this year relative to projections.
Daniel said staff have been “intentionally conservative” in their approach to projections.
“We don’t want to overestimate based on the first quarter,” she told the council. ”Our plan is to end this year balanced as well.”
Council members thanked budget staff for a job well done.
“There’s really no need to apologize,” said Maio, who ran Tuesday’s meeting in lieu of Mayor Tom Bates, who was absent. “You’ve done a great job on being quite realistic and conservative to the degree you could be.”
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Berkeley City Manager Phil Kamlarz: The exit interview [11.30.11]
City workers make sacrifices, help alleviate budget crisis [06.16.11]
Layoffs, fee increases proposed for 2012 budget [05.03.11]
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City budget faces $1.8 million mid-year shortfall [02.15.11]
Council faces tough decisions on unfunded liabilities [01.19.11]
Berkeley auditor report shows $310m benefit debt [01.10.11]
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Mayor Bates on tackling city’s worst deficit in years [06.17.10]
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