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HomeMy WebLinkAbout2008/02/19 Item 5 CITY COUNCIL AGENDA STATEMENT ~\'f::.. CllY OF '~CHULA VISTA 2/19/2008, Item 5 SUBMITTED BY: QUARTERLY FINANCIAL REPORT FOR THE QUARTER ENDED DECEMBER 31,2007 DIRECTOR OF FINANCEITREASURE~ ITEM TITLE: BACKGROUND Section 504 (f) of the City Charter requires quarterly financial reports to be filed by the Director of Finance through the City Manager. 4/5THS VOTE: YES D NO 0 REVIEWED BY: ENVIRONMENTAL REVIEW Not Applicable RECOMMENDATION That Council accepts the report. BOARDS/COMMISSION RECOMMENDATION Not Applicable DISCUSSION Attached for your consideration is the financial report for the second quarter of fiscal year 2007-08. The detailed financial report for the quarter ending December 31, 2007 discusses the financial outlook for the City's General Fund for the remainder of fiscal year 2007-08. DECISION MAKER CONFLICT Staff has reviewed the decision contemplated by accepting this report and has determined that it is not site specific and consequently the 500 foot rule found in the California Code of Regulations section 18704.2(a)(1) is not applicable. 5-1 February 19, 2008, Item :s FISCAL IMPACT For fiscal year 2007-08, due to the continued decline in the economy and housing market a General Fund deficit of $3.5 million is currently projected. A projected revenue shortfall of $15.5 million is partially offset by estimated expenditure savings of $12 million. The additional revenue shortfalls from the first quarter report can be divided into two categories: discretionary revenues and departmental programmatic revenues. ~-~c1R!"illYe$~t~~fPl~R'(.\' Reserves - July 1, 2007 Projected Revenues & Transfers In Expenditures & Transfers Out Projected Oeficit ,'~-""- :;tiFr".---ectidi $ 10.4 $ 10.4 164.9 149.4 164.9 152.9 o (3.5) Fund Balance as of June 30, 2008 $ 10.4 $ 6.9 Percenta e of 0 eratin Bud et 6.3% 4.3% Due to the continued projected gap, a citywide administrative freeze has been placed on all discretionary spending such as travel, conferences, vehicle purchases, reference materials, contractual services etc. At this time, the administrative freeze could potentially save an additional $1.0 million to $2.0 million in the current fiscal year that would reduce the $3.5 million deficit by the amount saved. ATTACHMENTS Attachment 1 - Quarterly Financial Report 5-2 ATTACHMENT 1 ~Ut- :::A" <<-c~ '"~~"'" CITY Of (HUlA VISTA OVERVIEW This financial report summarizes the City's General Fund financial position for the fiscal year through December 31, 2007. The purpose of this report is to provide the City Council, management and the citizens of Chula Vista an update on the City's fiscal status based on the most recent financial information available. ECONOMIC UPDATE In California, UCLA Anderson Forecast Economist foresee a slower and prolonged period of sluggishnes~ for the state's economy but continue to predict that California will not fall into a recession. They expect unemployment to peak at 6.1% in late 2008. Real growth in Gross State Product and Personal Income is expected to be in the 1 - 2% range over the same period. The weakness in the vast real estate sector continues to .contribute towards the sluggish economy. The collapse of the housing market coupled with the credit crunch will continue to weigh down economic activity throughout 2008. The University of San Diego's Index of Leading Economic Indicators for San Diego County fell 1.0 percent in December after falling 1.5 percent in November. December's decline was the fourth large drop (one percent or more) in the last five months, and the Index has now fallen in 20 of the last 21 months. Leading the way to the downside were sharp drops in consumer confidence and help wanted advertising. Also down to a lesser extent were initial claims for unemployment insurance, local stock prices, and the outlook for the national economy. The only positive component was building permits, which were up moderately during the month. Despite a gain in December, residential units authorized by building permits declined by 31 percent in 2007 compared to 2006. Both single-family units (down 26 percent) and multi-family units (down 35 percent) were hurt by the slump. Although the local economy is not in a recession in the sense that there has been a loss of jobs or a drop in Gross Regional Product, economic activity has slowed considerably. Initial data for 2007 shows an increase City of Chula Vista Quarterly Financial Report - General Fun Second Quarter Ending December 31,2007 February 19, 2008 of 10,700 jobs for the year, compared to a gain of 17,800 jobs in 2006, and the unemployment rate is approaching 5 percent. Combined with slow housing sales and a surge in foreclosures, we are probably in the San Diego equivalent of a recession at this point. That weakness is expected to continue for most of 2008. San Diego Index of Leading Economic Indicators 1150.0 145.0 140.0 135.0 130.0 125.0 120.0 Jan-03 Jan-04 Jan-OS Jan-06 Jan-07 Jan-08 GENERAL FUND SUMMARY City Council Policy No 220-03 recommends the City maintain at least an 8% reserve level. As of June 30, 2007, the General Fund reserve level was 6.3%. .-;-,-,""... -- ,~'f~J3J!d Reserves- July 1,2007 $ 10.4 $ Projected Revenues & Transfers In 164.9 Expenditures & Transfers Out 164.9 Projected Deficit 0 10.4 149.4 152.9 (3.5) Fund Balance as of June 30, 2008 Percenta e of 0 eratin Bud et $ 10.4 $ 6.3% 6.9 4.3% For fiscal year 2007-08, due to the continued decline in the economy and housing market a General Fund deficit of $3.5 million is currently projected. A projected revenue shortfall of $15.5 million is partially offset by estimated expenditure savings of $12 million. The additional revenue shortfalls from the first quarter report can be divided into two categories: discretionary revenues and departmental programmatic revenues. In the first quarter, several discretionary revenues were adjusted downward by $7.6 million however receipts for 5-3 QUARTERLY FINANCIAL REPORT SECOND QUARTER OF 2007-08 Page 2 of4 property and sales tax trends at this time indicate that an additional adjustment of $2.1 million is warranted. Sales Tax 29,836 29,096 ($740) Property Tax 30,250 29,085 (1,165) Motor Vehicle License Fee 19,651 19,651 0 Fran.chise Fees 8,813 8,813 0 Utility Users Tax 7,052 7,052 0 Transient Occupancy Tax 2,672 2,672 0 Real Property Transfer Tax 1,000 800 (200) Miscellaneous 1,800 1,800 0 Total $ 101,075 $ 98,969 $2,105 In the chart below it can be seen that departmental programmatic revenues are being affected by continued declines in development related revenues, grant reductions, capital improvement project revenues and other fees for city services. could potentially save an additional $1.0 million to $2.0 million in the current fiscal year that would reduce the $3.5 million deficit by the amount saved. An update on the budget gap will be provided in the Third Quarter Financial Report along with the updated Five Year Forecast Report. Revenues A brief discussion of each of the revised revenues will follow. Sales Tax. City staff met with the City's sales tax consultant, MuniServices, to review sales tax revenues though the third quarter of calendar year 2007. Per the most recent reports, jurisdictions across California experienced slow downs or even declines in sales tax revenue during the third quarter of 2007. .~ 10,567 (1,935) ,~ Development Revenue 12,602 Licenses and Permits 869 760 (109) .~ Fine, Forfeitures & Penalties 1,771 1,312 (460) .,~ Police Grants 1,575 1,777 202 .~ Other Agency Revenue 3,423 3,553 131 Charges for Services 6,928 6,824 (104) .~ Interfund Reimbursements 11,919 10,679 (1,240) Transfers From Other Funds 10,487 10,201 287 Total 49,472 45,672 3,801 Offsetting a significant portion of the revenue shortfalls are $12 million in savings because of the Budget Reduction Process ($6.3m), deferral of employee saiaries ($1.6m), the continuation of the hiring freeze for the remainder of the fiscal year ($12m), the refunding/restructuring of some outstanding debt ($1.2m), workers compensation savings ($0.5m) and additional savings identified by the departments ($1.2m). Taking all of these items into account we are projecting a current year budgetary shortfall of approximately $3.5 million. Due to the continued projected gap, a citywide administrative freeze has been placed on all discretionary spending such as travel, conferences, veh icle purchases, reference materials, contractual services etc. At this time, the administrative freeze . ~ , , ~ i I Regional sales tax growth was 0.2% statewide, 0.5% in Northern California, and 0.1 % in Southern California. After adjusting for inffation, California actually experienced a decline of -3.1 % statewide, -2.8% in Northern California and -3.2% in Southern California. The City of Chula Vista's sales tax revenues stayed relatively flat for the same quarter over quarter comparison. The above chart reffects Chula Vista's sales tax with that of other jurisdictions in the County during the third quarter of the calendar year. 5-4 . $35 20% c ~$30 15% iii $25 $20 10% $15 5% $10 0% $5 ~ ~ FY90 FY92 FY94 FY96 FY98 FYOO FY02 FY04 FY06 FYOS 1_ Sales Tax -+- % Growth ! Based on the most current report, the City's sales tax projections will be adjusted downward by an additional $740,000. At this time, sales tax is projected to be 1 % higher than the prior year. Property Taxes. Property tax is the City's second largest revenue source, representing 18.3% of the total General Fund revenue in fiscal year 2006-07. The City's assessed value has increased at historical rates over the past seven years with the largest percent increase of 20% occurring in fiscal year 2005-06. Based on the June 2007 County Assessor's annual valuation report, the assessed values in Chuia Vista grew by 14% resulting in a corresponding increase in the property tax roll for fiscal year 2007-08. Since the Assessor's report was issued, there has been a significant increase in the number of foreclosures in Chuia Vista from the prior year. Per DataQuick information Systems, notices of default (indicates the homeowner is 90 days iate on their mortgage payment) increased from 1,018 in 2006 to 2617 in 2007 an increase of 157%. Trustee sales (I~ss of home) went from 194 in 2006 to 1,060 in 2007 an increase of 446%. This is primarily due to the subprime mortgage issue that has resulted in the tightening of mortgage lending practices. Foreclosures are having an additional negative impact on property tax revenues in the city by depressing housing values. The drop in assessed values has triggered Proposition 8, a constitutional amendment passed in 1978 that allows a temporary reduction in assessed value when real property suffers a "decline- in-value". Therefore, as assessed values fall, homeowners can apply for a reassessment of their QUARTERLY FINANCIAL REPORT SECOND QUARTER OF 2007-08 Page 3 of 4 homes which would lead to a reduction of property taxes based on the lower assessment Anticipating some level of impact to the city, the fiscal year 2007-08 property tax projections will be adjusted from the reported 14% Increase in assessed value to 10%. This adjustment will resuit in a reduction in projected property tax revenues of $1.2 million. Property tax projections will continue to be conservative in fiscal year 2008-09 based on the assumption that the housing market will not recover during this period. Motor Vehicle License Fee (VLF). With the State Budget Act of 2004, the allocation of VLF revenues to cities and counties was substantially changed. For FY05-06 and beyond, the majority of VLF revenues for each city will grow essentially in proportion to the growth in the change in gross assessed valuation. Franchise Fees. An analysis of prior fiscal year Franchise Fees revealed that revenues were down by $1.2 million due to the reduced operation of the South Bay power plant As a result, revenues for the current fiscal year were revised downward by $1.6 million in the first quarter report. g $12.0 100"/0 80% :::i $10.0 ~ 60% ;; $5.0 40% $6.0 20% $4.0 0% -20% $2.0 -40% -60% -80% _ Trash/Cable - -- Energy. Consumer E:!:::!lI Energy. Power Plant -lr- % Change Utility Users Tax (UUT). Revenues are projected to come in higher than budget by $368,877 due to higher actual revenues realized in the prior fiscal year and were adjusted in the first quarter report. Real Property Transfer Tax. This tax is based on the sale of real property. A revision in the projected tax is warranted due to the current slowdown in the housing market. The tax is projected to be $0.8 million which is a significant reduction in revenue from the all time high of $2.4 million in fiscal year 2005. Plan Check Fees. The first quarter projection of $1.7 million refiects the change in the projected number of 5-5 QUARTERLY FINANCIAL REPORT SECOND QUARTER OF 2007-08 Page40f4 building permits to be issued from 1,200 to 600 for the current fiscal year. 4,000 3,500 ., !:: 3,000 Z :: 2,500 " ;::: 2.000 z ~ 1,500 f31,OOO ll: soo o 97-98 98-99 99-00 00-01 01..{)2 02-03 03-04 04-05 05-06 06-07 07..Q8 08-09 09-10 FISCAL YEAR Building Permits. The first quarter projection of $2.5 million refiects the revised projected number of building permits to be issued from 1,200 to 600 for the current fiscal year. Through the end of the second quarter 286 permits have been issued. Other Development Related Revenues. Development related revenues continue to fall as the housing market and construction industry continues to deteriorate. At this point, departments have reported an additional reduction in projected development revenues of $1.9 million. Interfund Transfers/Reimbursements. Interfund Transfers and reimbursements are being reduced due to revised gas tax projections, loss of library grant funds, and reduced staff time reimbursements. Miscellaneous Revenue. These revenues were adjusted downward by $400,000 in the first quarter report due to the anticipated delays in receiving the origination fee from a pending Community Facility District bond issuance. Expenditures The chart includes the General Fund's Council Adopted Budget, Adjusted Budget and year-to-date expenditures as of December 31, 2007. Both the Adopted and Adjusted budget amounts include council approved budget amendments of $380,914 and prior year encumbrances of $880,631. The Adjusted Budget includes reductions of $9.1 million from the Adopted Budget for the Budget Reduction Plan ($6.3m), Hiring Freeze ($1.2m) and Salary Deferrals ($1.6m). As refiected in the chart Departmental operating costs are at 48.48% of Adjusted Budget at the close of the second quarter. This is lower in comparison to the prior year second quarter expenditures of 49.6%. I. City Council 1.549 1,456 625 42.63% Boards and Commissions 15 15 7 44.43% City Clerk 1,211 1,123 503 44.78% City Attorney 2,670 2,440 1,152 47.20% Administration 3,419 3,180 1,554 48.88% Information Technology 4,178 3,979 1,977 49.69% Human Resources 4,663 4,363 2,364 54.18% Finance 3,184 2,932 1,489 50.77% Non Departmental 3,962 3,962 2,851 71.96% General Services 11,172 9,916 5,069 51.12% Community Development 1,932 1,794 906 50.49% Planning and Building 9,752 9,664 4,566 47.24% Engineering 6,698 5,753 2,851 49.56% Public Works 18,103 16,153 8,077 50.00% Police 50,794 49,892 23,238 46.58% Fire 24,932 23,822 11,399 47.85% Recreation 6,675 6,118 2,809 45.92% Library 9,963 9,203 4,152 45,12% Nature Center 1,260 1198 521 43.45% Total General Fund $166,132 $156974 $76,108 48.48% Mid-Year Budget Amendments Mid-year appropriations during the quarter totaled $380,914 with offsetting revenues of $449,409 for a net positive impact of $68,495. The majority of the appropriations were for grants or donations that had offsetting revenues. Additional revenues were budgeted for staff time reimbursements related to Community Facility District 12-M. The expenditures had already been included in the base budget. iiiiTft0-\~H":W~1~ ;- ~'1ib Animal Care microchipping program 10,000 10,000 - CFD 12-M funds for landscape maintenance 63,495 63,495 Donation to Animal Care FaciJityfrom TAVA 2,522 2,522 - Scripps Health Community benefit grant 39,800 39,800 - Stephen & Mary Birch donation to Fire Dept 28,515 28,515 - Califomia Division of Recycling grant 5,000 5,000 Office of Traffic Safetv DUI Enforcement arant 160,600 160,600 - First Quarter Bud et Amendments 309 932 241,437 68,495 Grant from Kaiser Foundation Hospitals for Kids 19,115 19,115 - Office of Traffic Safe~ DUI Enforcement arant 120,362 120,362 - Second Quarter Bud at Amendments 139,477 139477 Year-ta-Date Budaet Amendments 449,409 380,914 68,495 Budget Transfers There was one administrative budget transfer of $1,500 during the second quarter. The transfer from Community Development Services and Supplies budget category to the Utilities category transferred some cell phone budget to the land lines budget. 5-6