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6.F. - Page 2 of 10 ANALYSIS The City's independent audit firm, Maze and Associates, has completed review of the City's FY 2018-19 year-end financials, and the General Fund has a year-end operating balance of $17.1 million. This is due in equal parts to increased revenues and lower spending: the City experienced stronger than projected revenue, including property tax, sales tax, charges in services, and transient occupancy tax (hotel tax), and also significant expenditure savings in every department, largely attributed to staffing vacancies. Throughout the first six months of FY 2018-19, staff intentionally held open vacant employee positions and spent allocated funds conservatively while awaiting results of the November 2018 sales tax revenue measure. This was to avoid potential layoffs and citywide service impacts beginning in January 2020 if the measure was unsuccessful. After the passage of this revenue measure, spending remained conservative and vacancy savings continued as recruitment efforts ramped up over the second half of the fiscal year. On February 25, 2019, during the FY 2018-19 mid -year budget study session, the City Council approved a strategy to utilize approximately 80 percent of any year-end operating balance towards the City's long- term liabilities, and to use approximately 20 percent of the operating balance as one-time funding towards the City Council's most urgent priorities, including housing, transportation, children and youth, as well as other City Council priorities and operational efficiencies. In keeping with the City Council's strategy to use one-time funds to pay down liabilities and support Council priorities through one-time expenditures, the following approach is recommended for use of the FY 2018-19 operating balance: Recommended Allocation of FY 2018-19 Operating Balance Long -Term Liabilities 80 percent $13,700,000 One -Time Expenditures to Support Council Priorities 20 percent $ 3,400,000 (split among the categories of Housing, Transportation, Children and Youth, Other Council Priorities, and Organizational Capacity and Efficiencies) TOTAL 100 percent $17,100,000 Recommended Use of FY 2018-19 General Fund Operating Balance The chart below shows each of the recommended uses of the FY 2018-19 General Fund operating balance. These are further described in the narrative that follows. Included are items recommended at budget adoption in June 2019, as well as new recommended items. Page 2 of 9 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 309