ITEM:

PUBLIC HEARINGS

 

14.

CONSIDER ADOPTION OF FISCAL YEAR 2005-06 MID-YEAR BUDGET ADJUSTMENT

 

Meeting Date:

February 23, 2006

Budgeted:

N/A

 

From:

David A. Berger,

Program/

N/A

 

General Manager

Line Item No.:

 

Prepared By:

Rick Dickhaut

Cost Estimate:

N/A

 

General Counsel Approval:N/A

Committee Recommendation: N/A

CEQA Compliance:N/A

 

SUMMARY:Annually, the District considers its financial position after the end of the second fiscal quarter.District management staff has reviewed income and spending patterns since July and determined that adjustment of the budget developed last spring and adopted June 20, 2005 is required.Included in the process was a review of staffing levels, supplies, outside services, current work assignments and other implications of cuts made to the 2005-06 expenditure budget, as required by the Districtís Strategic Plan for 2005-06.The tables below summarize the proposed budget changes:

 

Revenue

Adopted

Change

Amended

Property Tax

$1,144,500

($127,500)

$1,017,000

Permit Fees

350,000

(75,000)

275,000

Connection Charges

240,500

275,000

515,500

User Fees

2,370,900

0

2,370,900

Recording Fees

16,500

0

16,500

Interest

40,000

20,000

60,000

Project Reimbursements

219,600

15,000

234,600

Legal Fee Reimbursements

22,000

0

22,000

Grants

50,000

450,000

500,000

Other

10,000

0

10,000

†††††† Subtotal

$4,464,000

$557,500

$5,021,500

Capital Equip. Reserve

0

5,000

5,000

From Fund Balance

186,800

1,153,200

1,340,000

†††††† Total

$4,650,800

$1,715,700

$6,366,500

 

 

 

 

Expenditures

Adopted

Change

Amended

Personnel

$2,697,300

$3,000

$2,700,300

Supplies & Services

731,700

1,145,800

1,877,500

Program Expenses

1,083,200

418,300

1,501,500

Fixed Assets

33,600

35,000

68,600

Election Expense

30,000

88,600

118,600

Contingency

75,000

25,000

100,000

†††††† Total

$4,650,800

$1,715,700

$6,366,500

As the table indicates, net revenue increases total $557,500 while net expenditure increases are $1,715,700.After adjusting for the $5,000 to be used from the capital equipment reserve, the difference results in an increased use of general operating reserves of $1,153,200 during fiscal year 2005-06.This increase use of general operating reserves is largely offset by increased unanticipated carryovers from the 2003-04 and 2004-05 budgets.Detailed information regarding the proposed changes and general operating reserves is detailed in the background section of this staff note.

 

RECOMMENDATION: Following a presentation by District staff and the public hearing, staff recommends adoption of the proposed mid-year budget adjustment for Fiscal Year 2005-06.

 

BACKGROUND:The Board of Directors adopted the original 2005-06 budget on June 20, 2005.The paragraphs below summarize proposed mid-year adjustments to the budget and operating reserves.

 

Revenue

 

The 2005-06 adopted budget anticipated revenue collections in the amount of $4,464,000. In addition to the budgeted revenues, it was projected that $186,800 would be utilized from prior-year fund balances to pay the $4,650,800 in planned expenditures.As of December 31, 2005, actual revenue collections totaled $1,263,496 or about 28% of the budgeted amount.Revenues for the first half of each fiscal year are historically low because larger portions of the Districtís two major revenue sources, user fees and property taxes, are collected during the second half of each fiscal year.District staff has analyzed the revenue activity for the first six months of the fiscal year, as well as activities scheduled for the second half of the fiscal year and recommends various adjustments to the revenue portion of the budget as discussed below.

 

Based on the amount of the first installment of property taxes from Monterey County that was received in January 2006, the budget for property tax revenue has been decreased by $127,500.Revenues from permit fees have also been decreased by $75,000 based on amounts collected during the first six months of the fiscal year.Connection charges have been increased by $275,000 due to higher than anticipated collections during the first half of the fiscal year, mostly from the sale of water entitlements by the Pebble Beach Company.The increase of $20,000 to interest revenues is attributable to increased interest rates.It is now projected that project reimbursements from Cal-Am related to the ASR project will increase by $65,000, which is predicated on approval of the pending agreement between the District and Cal-Am for management and operation of the Seaside Basin aquifer storage and recovery facilities.Projected reimbursements have also been reduced by $50,000 for expected reimbursements for a river restoration project that will not be completed this fiscal year.These two adjustments result in a net increase of $15,000 for anticipated project reimbursements.Both of these amounts are offset by corresponding changes to the expenditure portion of the budget.Grant revenues have been increased by $450,000 for anticipated grant funds to be received this year for the Integrated Regional Groundwater Management Plan.These grant funds are also offset in the expenditure portion of the budget for District expenditures and payments to be made to sub-grantees.The cumulative effect of the above adjustments is a net increase of $557,500 in projected revenues for Fiscal Year 2005-06.The revenue portion of the budget also reflects the use of $5,000 from the capital equipment reserve to pay for replacement of five computers as reflected in the expenditure adjustments.

 

Expenditures

 

The original budget envisioned expenditures of $4,650,800 in the fiscal year ending June 30, 2006. As of December 31, 2005, actual expenditures totaled $2,154,506, or approximately 46%, of the budgeted amount.

 

A review of the personnel portion of the 2005-06 budget indicated that no changes to the budgeted amounts are required except for the addition of $3,000 for necessary travel expenses that were requested but not included in the proposed budget, pending this mid-year review of the Districtís financial position.The supplies and services portion of the budget was increased by $1,145,800 as shown on Exhibit 14-A.The majority of the increase is an addition of $1,125,500 to budgeted legal fees for the Seaside adjudication lawsuit. Also included is this adjustment isthe re-estimated level of legal support needed for the Districtís intervention in Cal-Amís 2006-8 General and Coastal Water Project rate cases presently being considered by the California Public Utilities Commission.This supplemental appropriation for legal expenditures does not include any significant post-trial general or special legal counsel services related to the adjudication lawsuit.

 

The meeting expenses category was increased by $13,000 to cover the cost of additional Board workshops to implement the September 2005 Strategic Plan that were not anticipated when the budget was adopted, as well as increased costs for Access Monterey Peninsula to televise additional Board workshops and regular Board meetings held in the Monterey Regional Water Pollution Control Agency Boardroom.Data processing costs and travel expenses were increased by $5,300 and $1,000, respectively, to partially offset significant cuts in the information technology portion of the budget when the original budget was prepared.Finally, the Board expense category was increased by $1,000 to cover the cost of ethics training for Board members that is now required by AB 1234, the ďLocal Government Sunshine Bill,Ē that took effect January 1, 2006.AB 1234 also clarifies the rules pertaining to compensation to members of a local government legislative body for attendance at authorized meetings and conferences, and sets guidelines for reimbursement for actual and necessary expenses incurred in the performance of official duties, such as travel, meals and lodging.More detailed information is presented on a AB 1234 Compliance Fact Sheet compiled by the California Special Districts Association, which is attached as Exhibit 14-B.District staff and legal counsel will be reviewing applicable District ordinances and reimbursement policies related to these items, and will present required changes at the March Board meeting.†††

 

Fixed asset expenditures have been increased by $5,000 to cover the necessary replacement of five personal computers earlier than previously planned, and $30,000 was added to reflect the latest projected costs of $50,000 to upgrade of the Districtís conference room to accommodate live televised broadcasts of District Board meetings.As mentioned in the revenue portion of this report, the $5,000 for computer replacements will be funded from the capital equipment reserve.

 

As shown on Exhibit 14-C, project expenditures increased by a net amount of $418,300.As previously mentioned, revenues and expenditures have been increased by $65,000 based on the pending agreement between the District and Cal-Am for management and operation of the Seaside Basin aquifer storage and recovery facilities.Also mentioned in the revenue section is the $450,000 increase in revenues and expenditures related to grant funding received and expended this fiscal year for the Integrated Regional Groundwater Management Plan.Project expenditures were also increased by $60,000 to cover the cost to hire a consultant to prepare a comparison of desalination project costs and timelines.The final increase was to add $13,300 for the preparation and distribution of the Districtís 2005 annual report.While the budget already included $13,200 for this purpose, most of those funds were used for the 2004 annual report which was not printed and distributed until after the start of this fiscal year.

Project expenditures reductions included $80,000 for a lower Carmel River restoration project that will not be completed this fiscal year.As previously noted in this report, there was also a corresponding reduction in the revenue budget for $50,000 of anticipated reimbursements for this project.Funds for the Water Demand Divisionís water permit database project were reduced by $90,000 to reflect actual anticipated expenditures for the project during this fiscal year.

The final two adjustments to the expenditure portion of the budget include an increase of $88,600 to election expense to cover the actual billed amount of $118,545 as the Districtís shareof the November 2005 consolidated election cost, and an increase of $25,000 to the contingency budget.In his just-received transmittal letter, County Registrar Anchundo explained that this substantial cost increase compared to previous elections was caused by 1) administration of the Direct Recording Electronics touch-screen voting system; and 2) an unanticipated increase in federally mandated bi-lingual voter outreach programs, hiring of additional bi-lingual precinct workers, and additional election materials printed in both English and Spanish.††††††††††

 

The cumulative effect of the adjustments to the expenditure side of the budget is an increase of $1,715,700 in projected expenditures for Fiscal Year 2005-06.††

 

General Operating Reserves

 

The net effect of the proposed mid-year budget adjustments discussed above increases the amount of general operating reserves to be used in 2005-06 by $1,153,200.However, while the budget for fiscal year 2004-05 anticipated the use of $930,000 of general operating reserves, the audited financial statements just completed for that fiscal year shows that actual use was only $331,001.The difference of $598,999 represents additional of reserves to be carried forward to the budget for fiscal year 2005-06, and that amount will also be adjusted accordingly in the amended budget document.The amended budget document will also include an additional carryover of $511,532 from fiscal year 2003-04.While that amount was known and incorporated into the mid-year budget review document for 2004-05, it was inadvertently not included in the projected reserve carryover to the 2005-06 budget.Therefore, carryovers from these two years will have a total unexpected positive effect of approximately $1,110,000 on the projected beginning reserve carryover to the 2006-07 budget.The total general operating reserve projected carryover to fiscal year 2006-07 is $878,200, or about 14%, of the new operating budget total of $6,366,500.This is well above the 5% to 10% minimum established during the 2005-06 budget process.

EXHIBITS

14-A††† Mid-Year Budget Adjustment Ė Services and Supplies

14-B††† AB 1234 Compliance Fact Sheet

14-C††† Mid-Year Budget Adjustment Ė Project Expenditures

 

 

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