DISCUSSION
General Fund Fiscal Year 2021-22 Preliminary Operating Results
In June 2022, we increased our revenue estimates by $23.0 million from the originally adopted budget. The primary driver for the positive change was the strong performance in all three of the City’s major tax revenues. As we close our books for the year, preliminary total revenue reported for the General Fund is approximately $187.3 million, which exceeds our June estimate by $10.0 million.
Table 1 – General Fund Revenue Actual vs. Budget
Unaudited Data as of September 30, 2022
Sales tax has been realizing growth exceeding the pre-pandemic levels. While high inflation is causing the economy to show signs of slowing down, it does provide for additional tax collection related to higher prices. For fiscal year ended June 30, 2022, it is estimated that total sales tax would reach $58.8 million, a 19.2% increase from the previous year. Measure O transaction tax was approximately $29.0 million for the year.
Property tax has historically come in above budget due to prior year and supplemental payments that are challenging to forecast. As of June 30, 2022, it is estimated that property tax revenue will exceed current budget by $4.2 million.
Transient Occupancy Tax (TOT) continues to show improvement over the previous two years and is trending in line with our June forecast. Beginning March 2022, TOT revenue has shown strong recovery, overall TOT for last fiscal year was approximately $23.4 million, which was just about 11.0% lower than the peak level before the pandemic.
On the expenditure side, staff has worked diligently to stay within budget. One-time funds such as the State and Local Fiscal Recovery Fund were committed to one-time uses that have long-lasting positive impact to our community. As noted in prior financial updates, a total of $17.5 million was committed to the street pavement program, $25.5 million was slated for the civic center/public safety facility project, $7.0 million was budgeted for the Navigation Center, and $3.0 million was used to establish a Building and Structures internal service fund. Additionally, the City was able to increase our General Fund Stability Reserve by $3.2 million as of June 30, 2022.
A total of $43.8 million was unspent in the General Fund as of June 30, 2022, among which $39.5 million was carried over to complete budgeted projects in Fiscal Year 2022-23, including $17.5 million for street pavement projects, $12.6 million for the Public Safety Building project, as well as committed contractual obligations and other program spending. We also estimate about $3.1 million savings in personnel cost for Fiscal Year 2021-22. Additionally, some anticipated savings is attributed to less part-time staffing during the summer due to new protocols introduced in light of the pandemic. Some of the overall personnel savings were utilized in contractual services to backfill with consultants or temporary staffing.
Fiscal Year 2021-22 Preliminary Operating Results for Other Funds
Revenues from other governmental funds came in higher than budgeted while expenditures stayed on track. Development impact fees collected were $1.6 million higher than anticipated due to higher level of activities. During Fiscal Year 2021-22, the City received approximately $3.8 million in additional grant funding, including an increased CDBG allocation of $1.6 million, new emergency shelter grant of $1.2 million, and additional HOME funds for about $0.9 million. Much of these allocations are pandemic related relief funds. As of June 30, 2022, it is estimated that there would be $19.4 million unspent appropriations for all governmental funds other than the General Fund, and the majority of these funds have been carried over to Fiscal Year 2022-23 to continue the various programs and projects planned for in the corresponding funds.
The Water enterprise fund had a total budget of $54.4 million for Fiscal Year 2021-22. Preliminary operating results showed a slight favorable budget variance of $1.4 million, and $14.1 million in unspent appropriations. The unused funds are primarily capital improvement projects that were carried over to Fiscal Year 2022-23.
The Garden Grove Successor Agency’s total budget for Fiscal Year 2021-22 was $19.6 million, of which $16.6 million was unspent at the year end, to meet future Development and Disposition Agreement obligations.
Total budget for the Garden Grove Housing Authority was about $46.1 million for Fiscal Year 2021-22, expenditure for the year stayed on target with a slight savings of $2.7 million, besides some personnel savings, $1.6 million were HAP rent subsidy funds that were carried over to Fiscal Year 2022-23 and distributed to qualified residents.
The Sanitary District covers sewer and refuse services with a total budget of $25.4 million. At the end of year, $9.2 million unspent funds were carried over to Fiscal Year 2022-23 to continue with the capital improvement projects programmed for the year. Net savings of $1.3 million were realized in personnel cost category after offsetting with additional expenses on contractual services.
Tables below are summaries of budget to actual comparison for both revenues and expenses for all City funds.
Table 2 – Revenue Actual and Budget Comparison – All City Funds
Unaudited Data as of September 30, 2022
Table 3 – Expense Actual and Budget Comparison – All City Funds
Unaudited Data as of September 30, 2022
Update on Pension Obligation Bonds
In March 2022, the City Council has approved a resolution to authorize staff to proceed with the preparation of the issuance of pension obligation bonds (POB). At that time, it was estimated that net present value savings of up to 37.3% or $192.9 million savings in cash flow over next 23 years could have been achieved through the POB. In order to issue a POB, the City had to go through a judicial process to validate and confirm that the pension liability is an obligation imposed by law and the POB amount would be exempt from the Constitutional debt limit. This judicial process was completed in June 2022. The market had significantly changed during these three months, with rising interest rates and increased volatility, the potential savings from issuing POB had significantly reduced. In July, CalPERS announced the net investment return for fiscal year ended June 2022 at -6.1%. This had increased the City’s pension liability further for approximately $24.3 million. Although interest rate continued to increase between June and August 2022, when factoring in the financing of the additional pension liability caused by the investment loss, our underwriter estimated that net savings could increase slightly from the June projection. Table 4 below shows the estimated savings in March, June and August respectively.
Table 4 – Pension Obligation Bonds (POB) Savings Estimates
Due to the high volatility of the market, and federal reserves’ continued effort to control inflation by aggressively increasing federal funds rate, the projected savings from POB is significantly discounted. Staff has recommended to postpone the issuance of the POB to avoid substantial financing risks. The judicial validation completed in June 2022 has no expiration date, and the City can proceed with the bond issuance anytime in the future to maximize potential cost savings.