Calexico Announces $1 Million Shortfall During Mid-Year Budget Report

Calexico Announces $1 Million Shortfall During Mid-Year Budget Report


The Calexico City Council was presented with the 2016-2017 midyear budget report where it shows a projected budget shortfall by the end of this fiscal year.

The report presented a nine month 2016-17 midyear budget update to the city council. At this time, projections indicate budget reductions will be necessary over the next two and a half months, prior to June 30, 2017, for the General Fund to break event for the 2016-17 fiscal year.

The City Manager is discussing departmental line item budgets to identify and implement reductions to achieve this objective. After two years of dramatic spending in 2014-15 and 2015-16, the City made reductions to City services and employee compensation in its 2016-17 budget to balance expenditures within available revenues.

The 2016-17 General Fund budget was adopted with a placeholder of $3.9 million for anticipated reductions while departments and employee associations considered and implemented necessary solutions. In January 2017, a six month midyear budget report restored some revenue sources and identified expenditure reductions to close this gap.

At that time, City Council approved a 2016-17 budget amendment to reflect this progress and formally rebalanced the budget. In total, baseline revenues are projected to fall short of budget by $180,000.

The City’s sales tax consultant, HDL, has recently reduced its General Fund sales tax projections by $50,000. Other revenue budget lines have also proven too high and need adjustment to align with actual 2015 trends.

A land parcel sale by the Successor Agency prompts a one-time gain in residual tax increment distribution to taxing agencies, including the City’s General Fund, to partially offset other revenue reductions. A one-time $560,000 grant from the Heffernan Healthcare District to pay for Fire Service also adds to current year revenue.
The net projected increase to 2016-17 General Fund revenues is $380,000.

The net impact of projected 2016-17 General Fund revenues shortfall and projected expenditure overruns creates an annual budget shortfall of approximately $1 million. Because the General Fund lacks reserves, this shortfall requires immediate corrective action to identify and suspend or defer expenditures to avoid overspending General Fund resources that the City does not have.

To address this budget shortfall, the budget line items with unspent balances are under review and discussion. Budget reclassification between categories and between departments will be necessary to achieve budget compliance within the fiscal year. Departments will need to suspend major purchase and defer the costs where possible to avoid a 2016-17 General Fund annual deficit.

The City has made progress in reducing its General Fund annual expenditures from a high of $19 million in 2014-15 to the current annual projection of $16 million. Additional incremental General Fund expenditure adjustment to $15 million is now needed to right-size City programs in the short term within currently available revenues.

On March 15, 2017, City Council received an update on the June 2016 year-end results. At that time, the cumulative General Fund balance deficit at June 30, 2016 was reported at $3.7 million. A $3.5 million loan from the Wastewater Fund was previously approved on June 30, 2016 to finance this deficit.

Since then, additional 2016 transactions have been recorded to correct expenditures allocations between fiscal years and to close out Housing and Capital Grant funds for unreimbursed expenditures that need to backfill from General Fund. At this time, the cumulative General Fund deficit at June 30, 2016 deficit will be addressed as the City considers its 2017-18 budget and long-term plan to rebuild its reserves.

City Manager Armando Villa stated that staff will return to the City Council in the next 30 days with specific budget amendments to rebalance the 2016-17 General Fund budget.