Santa Cruz County
CA

Agenda Item
DOC-2019-142
Accepted and filed
Feb 26, 2019 9:00 AM

Consider Mid-Year Financial Update for Fiscal Year 2018-19, as outlined in the memorandum of the Auditor-Controller-Treasurer-Tax Collector

Information

Department:Auditor-Controller-Treasurer-Tax CollectorSponsors:Auditor-Controller-Treasurer-Tax Collector Edith Driscoll
Category:ACTTC - Board LetterFunctions:General Government

Attachments

  1. Board Memo

Board Letter

Recommended Action(s):

Consider Mid-Year Financial Update for Fiscal Year 2018-19.

 

 

Executive Summary

The County Budgeting Principles outline that the County should regularly monitor budget conformity. The Mid-Year Financial Update Report provides key information on the status of the Budget and allows the Board to take a broader look at the County’s financial picture at the mid-point of the fiscal year. This report provides an analysis of revenue and expenditure trends since adoption of the 2018-19 Budget.

 

 

Background

This mid-year report will focus on the status of the General Fund Revenue budget of $533,8008,645 million. As of January 31, 2019, the budgeted General Fund amount has been adjusted to $538,994,124, due to additional revenue changes approved by your Board in the first seven months of this fiscal year.

 

 

Analysis

 

GENERAL FUND EXPENDITURES

 

Reflected below is the Summary of Expenditure Budget adopted by your Board for fiscal Year 2018-19. These amounts are presented in the 2018-19 County Adopted Budget, on page 1. The total budget or spending plan for the 2018-19 fiscal year can best be presented in three parts: 1) The general government fund, 2) special revenue funds and 3) special district funds governed by the Board of Supervisors. The table below summarizes these fund types.

 

 

 

 

 

 

GENERAL FUND REVENUES

For the first seven months of the fiscal year, the County has received 39.33% of the total updated budgeted General Fund revenues of $538,994,124. This reflects an increase in receipts received compared to the same period of the prior year, when 35.99% of budgeted revenues had been received. The chart below reflects these revenue receipts.

 

 

 

 

 

 

Tax Revenues

Tax Revenues are the second largest revenue source for the General Fund and are budgeted at $133,373,287. As of January 31, 2019, we have received 48.40% of the budgeted amount of total tax revenues which is similar to receipts received by this time last year at 48.72%.  During fiscal year 2017-18, the County received an unusual increase in property tax receipts received during the months of October-December 2017 compared to January-April 2018. This was due in large part to the changes in the IRS tax laws limiting the deductibility of property taxes on 2017 personal income tax returns. Detailed receipts of Tax Revenues are provided in the table below.

 

 

 

 

 

Property Tax

The County’s property tax delinquency rate is a key element to highlight when reviewing property tax revenues. For fiscal year 2017-18, the rate was 2.09% which is the lowest rate over the last 20 years.  The delinquency rate has been on the decline since the historically high rate of 5.61% in 2008-09. Higher delinquency rates create a cash flow issue for the County, however, the County eventually receives the taxes, penalties and interest when the property is sold or brought current. Santa Cruz County is on the Teeter Plan for apportionment of property taxes. The chart below reflects the County’s rates since 2005-06 to provide an overview of the rates prior to and after the Great Recession.

 

 

 

 

 

 

Property Tax Delinquency Rate - Santa Cruz County

Actual FYR 2005-06 to 2017-18

 

 

 

 

Transient Occupancy Tax (TOT)

An indicator of our local economy is the Transient Occupancy Tax (TOT) receipts collected by the County. This frequently requested information is available to the public on the Treasurer-Tax Collector’s website where receipt data is updated monthly. For this seven month period, the County collections are ahead compared to this time last year. The chart below reflects $5,495,624 has been collected in TOT through January 31, 2019, which is $654,282 higher than collections at this time last year.  These collections reflect only County TOT as the cities collect TOT for properties within their city limits.

 

 

Cannabis Business Tax

Santa Cruz County collects a Cannabis Business Tax (CBT) as outlined in Santa Cruz County Code Section 4.06.070(C). The tax is currently set at 7% on gross receipts of cannabis businesses in the unincorporated County.

Commencing on January 1, 2018 through December 31, 2019, the tax was set at a rate of 5% of gross receipts for cannabis cultivation or manufacturing businesses. This CBT rate will increase after that date.  

The information below reflects the funds received during the past three full years. This information is also available on the County Treasurer-Tax Collector website.

 

 

 

 

 

In fiscal year 2017-18, the County received $3,137,271 in CBT for the various types of Cannabis business which included any penalties and interest amounts paid. 

In the current fiscal year, 2018-19, as of January 31, 2019 the County received $1,888,028 in total CBT related payments. This includes $68,397 in payments received as a result of audit findings as determined by the County Auditor-Controller / Treasurer-Tax Collector, and $33,698 interest and penalty payments received. These payments are reflected in the chart above. The County is due an additional $41,754 due to a recently issued CBT audit report.

 

Intergovernmental Aid

Intergovernmental Aid from the state and federal government is the largest revenue source for the General Fund.  To date, 37.27% of budgeted intergovernmental revenues have been received which is ahead of the prior year comparable period with 26.8% received.  These revenues traditionally lag during the year because they are tied to expenditures and are paid on a reimbursement basis. The General Fund Intergovernmental Revenues received during these seven months consist of 21.84% Federal Funds, 77.67% State Funds, and 0.48% other.

 

Interest Apportionment Rate

The County’s interest rate that the County of Santa Cruz Investment Pool earns and apportions to its members has been increasing over the last two years. The rate increased from .882% at the end of January 2017, to 1.257% at the end of January 2018, to the most current apportionment rate of 2.145% for the month ending January 31, 2019 for a two year rate increase of 1.26% which is 143.2% higher than the January 2017 rate.

This increase has provided for higher interest earnings for all treasury pool members including the General Fund. The pool balance at December 31, 2018 was $880 million. At December 31, 2018 approximately 39% of the funds were County funds, 46% were School funds and the balance belonged to Cities, and Special districts who are required to maintain their funds in the Investment Pool.             

 

GENERAL FUND EXPENDITURES

For the first seven months of the fiscal year, the County has expended 51.45% of the total updated budgeted General Fund expenditures of $545,218,635. Salaries and Benefits are the county’s largest expense reflecting 56.38% of the budget has been spent as of the end of the first seven months of the fiscal year which is reasonable compared to the budget.

 

 

FUND BALANCE RESERVE

The County’s Annual Financial Report (CAFR) of June 30, 2017 and June 30, 2018, reflected the following fund balance reserves achieved. The County’s 2018-19 Budgeted General Fund Balance of $52,580,484 was used to calculate the Fund Balance Reserve Goal for 2018-19.

 

   General Fund Reserves
   FYR 2016-17 through Adopted Budget 2018-19

 

 

In June 2011, your Board adopted a Fund Balance Reserve Policy in compliance with Government Accounting Standards Board (GASB) Statement No. 54. A minimum balance in the committed and assigned categories for the County General Fund was established at 7% of the upcoming budget year’s estimated revenues. The policy was revised in November 2014 to increase the minimum fund balance of the General Fund from 7% to 10% over the next seven years.

This policy has helped the County maintain a stronger fiscal position to weather negative economic trends, while still preserving flexibility. The committed and assigned fund balance designations of the County’s General Fund of June 30, 2018 were at 10.74% and are budgeted at 9.85% for Fiscal Year 2018-19.

 

 

COUNTY BOND RATINGS

The County has an Aa3 rating from Moody’s Investors Services. In June 2018, Moody’s issued an affirmation of their Aa3 issuer rating which reflects their view of the county’s solid current and projected cash balances, modest borrowing amount, sound note structures and solid long-term credit quality. Moody’s ratings are opinions of the relative credit risk of the obligation and addresses the possibility that a financial obligation will not be honored as promised. They define Aa3 rating as an “Obligations rated Aa3 are judged to be of high quality and are subject to very low credit risk.”

 

In addition, in late 2017, S&P Global ratings raising our long-term rating to AA+. They stated, “The ratings reflect our view of the county’s very strong economy, liquidity, and debt and contingent liability position.”

 

 

 

TRANSPARENCY OF FINANCIAL DATA

The Auditor-Controller’s office continues to focus on transparency and makes an inquiry tool “EZGov” available for the public’s use to review financial information. EZGov is an online financial search tool located on the Auditor-Controller’s website. This tool allows for easy access to information on Santa Cruz County funds and how they are budgeted and spent. The current financial data is updated at the close of each fiscal quarter. Data is presented from fiscal year 2012-13 through current.

In addition, more than 10 years of County’s Annual Financial Reports and Budget documents are available online on the Auditor-Controller’s website for the public to access.

 

Summary

General Fund revenues are at 39.33% of budget and expenditures are at 51.45% of budget. Current year revenues and expenditures are as expected at this point in the fiscal year.  Both revenues and expenditures are similar to last year at this seven-month point. Property tax delinquencies have declined and interest rate earnings are still on the rise.

Body

Strategic Plan Element(s)

6a County Operational Excellence - Customer Experience

This Mid-Year Financial Update addresses the Strategic Plan Element goal by providing County financial information to the public for full transparency.

 

Meeting History

Feb 26, 2019 9:00 AM Video Board of Supervisors Regular Meeting
RESULT:ACCEPTED AND FILED [UNANIMOUS]
MOVER:John Leopold, First District Supervisor
SECONDER:Greg Caput, Vice Chair, Fourth District Supervisor
AYES:John Leopold, Zach Friend, Ryan Coonerty, Greg Caput, Bruce McPherson

Discussion