Preliminary analysis: Claremont’s financial position is rosy
by Steven Felschundneff | email@example.com
During last week’s city council meeting, Claremont’s new Finance Director Nishil Bali provided a financial update on the general fund with recommendations on how to allocate a substantial surplus.
“In previous years, General Fund surpluses have allowed the City to allocate funds to various set-asides such as adding to the City reserves and making additional payments to CalPERS and the Section 115 Pension Trust Fund. The 2021-22 fiscal year has come to a close and a General Fund surplus of $4.72 million exists, primarily due to higher than estimated annual revenues in the General Fund,” according to the staff report.
The numbers presented were “non audited,” meaning the actual surplus could be different once the city’s annual comprehensive financial report is published at the end of the year. However, city staff stated: “In prior years, information provided in this report has generally not deviated materially from the final annual audited statements.”
Staff recommended, and the council approved, allocating $1.5 million for an additional discretionary payment toward the city’s unfunded liability to its employee pension plans under CalPERS. An additional $1.5 million will be directed to the city’s section 115 pension trust which was opened last year as a way of diversifying how Claremont invests money for future pension payments. The section 115 trust gives the finance department more flexibility in how the funds are invested versus simply making payments directly to CalPERS.
The council also approved $1.55 million of the surplus be apportioned into the operating and environmental emergency reserve. The city’s current balance in the emergency reserve is $5.98, million representing 19.9% of the projected 2022-23 general fund expenditures and transfers out.
Earlier this year Claremonters found out in a big way the intended purpose of the emergency fund when the city received the bill for the devastating January 21 windstorm. In April the council appropriated $415,000 from the fund to pay for expenses accrued during the night of the storm and the monthslong cleanup that followed.
With the $1.55 million contribution, the city repays the money it borrowed and significantly increases the balance of the environmental emergency reserve to $7.35 million. This also means that, after years of falling short, the city will now be in compliance with its own policy to always have 25% of general fund expenditures in the emergency fund.
An additional $170,000 was allocated to the equipment and facility revolving reserve, which was established in 2012 to set aside monies for equipment and facility maintenance not accounted for in the annual operating budget. This contribution brings the balance to $840,000.
General fund revenues and transfers-in for 2021-22 totaled $32.88 million, representing significantly more than the projected budget due to better-than-expected performance in several revenue streams.
Sales taxes represented the lion’s share of the surplus, with an excess of $2.86 million over the adopted budget, for a total of $8.17 million. The increase in sales tax revenue was driven by a change in ownership at one of Claremont’s auto dealerships, the city’s portion of the county pool of taxes collected on items purchased online, and improved restaurant sales following the easing of Covid era closures and restrictions.
Property taxes came in $400,000 over the budgeted $11.01 million due to the increase of assessed value on real property in the city. That reflects both a 2% annual cost of living increase allowed under Proposition 13 and the reassessment up to market value when a property is sold.
Utility user and franchise taxes collected were about $750,000 higher than budgeted, primarily because of higher utility rates for electric and gas services. Transit occupancy taxes came in about $430,000 higher due to a return to pre-pandemic hotel activity during the fiscal year.
Only charges for services came in lower than expected, due in part to the human services department offering fewer programs and classes because of the pandemic. The net shortfall was $520,000.
During his comments Councilmember Sal Medina noted the sharp increase in sales taxes and thanked the many people, both shoppers and workers, who helped make that happen.
“I also want to make sure we thank our community who firmly believes in supporting local and try to spend as many dollars here supporting our Claremont businesses,” Medina said.
Councilmember Corey Calaycay requested the section 115 trust be separated from the other three recommendations, reiterating his objection to that savings vehicle. His main concern lies in not being able to control what future councils do with that money and his fears it might not ultimately be used to pay for pension debt. He prefers the idea increasing the amount paid directly to CalPERS.
Mayor Pro tem Ed Reece asked staff to review the city’s savings goals and evaluate whether adjusting the emergency reserve to 30% would be wise given the shaky economy and potential for more natural disasters.
“I don’t believe the federal government is going to jump in every time there is a crisis. So we need to make sure we can stand on our own two feet,” Reece said.
The council voted unanimously to approve the payment to CalPERS, as well as the allocations to the emergency and facility maintenance funds, but Calaycay voted against making the payment to the pension trust.