City finance staff report midyear budget stress points; auditors report no uncorrected entries

City finance staff presented a midyear fiscal update and auditors delivered required communications to the City Council on Feb. 27.

Scope and audits: Frances Kuo, engagement partner with the POOM Group, presented the audit partner’s required communications for the fiscal year ended June 30, 2024. Kuo said auditors completed the city’s financial statement audit, audits for the public financing authority, compliance audits (including the passenger facility charge program and housing successor single audit), and issued opinions. The auditors reported no uncorrected misstatements and no disagreements with management; the financial statements were presented fairly in all material respects per generally accepted accounting principles.

General fund midyear forecast: Director of Finance Christopher Mooney told council that year‑to‑date transient occupancy tax (TOT) cash collections appeared down 21% on a cash basis but were down about 6% on an accrual basis after timing differences were considered. Sales and use tax was down about 5% year to date but December receipts were stronger than projected and could materially improve the year‑end position. Property tax was up about 5% and miscellaneous investment gains had helped non‑operating revenue in prior years.

Mooney presented a full‑year forecast showing an operating deficit (after steady operating revenues and expenditures) of approximately $3.25 million for FY25 and a projected total deficit including one‑time items of about $6.84 million. He said the city’s unassigned or “catastrophic” reserve would absorb projected shortfalls and reminded council that several set‑aside reserves (affordable housing, homelessness) will be drawn down within the two‑year planning period. Mooney stressed the need for careful two‑year budgeting and flagged potential contributors including CalPERS cost increases and salary and benefit growth.

Capital and airport: Capital spending across funds was forecast to roughly match revenues this fiscal year, with about $49 million in planned capital expense and $50 million in revenue across the city’s capital funds. Major capital projects cited for FY26 included street/bridge projects with significant Caltrans and CVAG funding, the Indian Canyon sewer work and a citywide sign inventory project, Demuth Park pickleball work and library and dog-park projects.

The airport team (airport executive director Harry Barrett, airport administration manager Victoria Carpenter) reported airport charges for services up 30% year to date and a FY25 forecast that showed a projected surplus of about $21.65 million driven by non‑aeronautical revenues and passenger service trends. Staff noted timing anomalies in federal grant reimbursements and that capital grant submissions to FAA were expected. Airport projects include pavement rehab, concessions upgrades, baggage‑handling and work to support international arrivals and passenger facilitation; restrooms and accessibility improvements are in design and would require airline consultation for projects over $1 million.

Council questions covered year‑to‑date seasonality (Mooney estimated roughly 60% of sales/TOT revenue comes in the second half of the fiscal year), the composition of TOT by hotel groups versus vacation rentals, the airport’s concession timing and grant reimbursement timing, and how the FY25 forecast interacts with the city’s minimum fund‑balance policy. Mooney recommended continued monitoring and possible cost reductions in the two‑year budget cycle.

No significant audit exceptions were reported; the city is in the process of transitioning audit firms under procurement rules to a different firm for upcoming years.