(20)AR 022007 Mid-Year Budget 2006-07

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ITEM #20 CITY OF COLTON AGENDA REPORT FOR THE CITY COUNCIL MEETING OF FEBRUARY 20,2007 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL HONORABLE CHAIRPERSON AND MEMBERS OF THE REDEVELOPMENT AGENCY BOARD HONORABLE CHAIRPERSON AND UTILITY AUTHORITY MEMBERS FROM: DILU DE ALWIS, FINANCE DIRECTOR oUBJECT: ADOPT THE ATTACHED RESOLUTIONS AUTHORIZING CHANGES TO THE FICAL YEAR 2006-07 BUDGET. DATE: FEBRUARY 10, 2007 BACKGROUND The City of Colton operates under an annual budget cycle with the current budget being approved by the City Council on June 20, 2006. While the budget is both an authoritative document and an effective planning tool, it is subject to variations in actual fiscal results. Because of this, many local governments (including Colton) typically prepare a "mid -year" financial report along with recommended budget adjustments to be approved by the City Council. DISCUSSION/ANALYSIS The purpose of this report is to primarily focus upon the City of Colton's financial progress through December 31, 2006, and to discuss adjustments needed in various departments in the General Fund, Electric Utility, Water Utility and Redevelopment Agency. It is often difficult to assess a local government's fiscal performance related to revenues, because they are extremely cyclical and do not follow a straight-line pattern. Revenues during the last one- half of the fiscal year are proportionately much greater than those received during the first one-half. Expenses also tend to follow a similar pattern, but the variations are not as great. As a result, local governments need to have adequate cash on hand during the first one-half of each year to help cover expenses until the revenues "catch-up" in the last one-half of the year. In order to adequately assess fiscal performance at mid -year, staff analyzed various data. Most notably, a comparison to prior year results through December 31't is made to determine how we are "tracking" given historical cyclical norms. Another obvious analytical mechanism involves comparison of the current year (2006-07) projected revenue amounts per the budget to actual prior year (2005-06) results. Due to the slowing of the economy, staff is keeping a close watch on sales tax which is the General Funds largest single revenue source. During the current year budget process staff reduced the sales tax projections by $500,000 for "economic slow down" and based on this adjustment, our sales tax revenues are currently tracking as projected. Most revenues are tracking as projected and only minor adjustments are proposed at the present time as noted below. The 2006-07 budget has already been adjusted by various City Council actions since July 1, 2006. These adjustments primarily have been approved by the City Council for items such as grants and operating changes that were not anticipated prior to July 1, 2006. 1