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Home My WebLink About2008/11/17 Item 4 CITY COUNCIL AGENDA STATEMENT ~(f? CITY OF ~ (HULA VISTA 11/17/2008, ItemL ITEM TITLE: QUARTERLY FINA..t'\)CIAL REPORT FOR THE QUARTER ENDED SEPTEMBER 30, 2008 SUBMITTED BY: DIRECTOR OF FINAJ,\)CE/TREAS,-JRER G~ INTERIM CITY MANAGER S"l DEPUTY CITY MANAGER W 4/STHS VOTE: YES D NO ~ REVIEWED BY: SUMMARY Section 504 (f) of the City Charter requires quarterly financial reports to be filed by the Director of Finance through the City Manager. ENVIRONMENT AL REVIEW The Environmental Review Coordinator has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that filing of the quarterly fmancial status report is not a "Project" as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change to the environment; therefore, pursuant to Section l5060(c)(3) of the State CEQA Guidelines the actions proposed are not subject to CEQA. RECOMMENDATION That Council accepts the report. BOARDS/COMMISSION RECOMMENDA nON Not Applicable DISCUSSION Attached for your consideration is the financial report for the first quarter of fiscal year 2008/09. The detailed financial report for the quarter ending September 30, 2008 discusses the financial outlook for the City's General Fund for the remainder of fiscal year 2008/09. 4-1 November 17, 2008, Item 4- DECISION MAKER CONFLICT Staff has reviewed the decision contemplated by accepting tbis'report and has determined that it is not site specific and consequently the 500 foot rule found in the California Code of Regulations section I 8704.2(a)(l) is not applicable. FISCAL IMPACT The City's General Fund ended the fiscal year 2007/08 with an available balance of $9.3 million or 6.1 percent of the operating budget. For fiscal year 2008/09, due to the significant slow down in tbe economy and tbe continued housing crisis as well as the credit crisis, several major revenues are being adjusted downward by a total of $5.5 million or 3.8 percent of total budgeted revenues. ~~:1;'~~;~~?'~~:J(t~O:O_8/0~3~$:~i~ e _u:ela, go. 1tm~ai:J,(fg:~f~?t#i~~P:ror~~Gte:a~ Discretionary Revenues Sales Tax $ 29,678 $ 26,890 ($2,788) Property Tax 30,232 29,932 (300) Motor Vehicle License Fee 20,216 20,134 (82) Franchise Fees 8,732 9,663 931 Utility Users Tax 7,122 7,122 0 Transient Occu anc Tax 2.753 2,753 0 Subtotal $ 98,733 $ 96,494 ($2,239) Programmatic Revenues Development Revenue $1,966 $1.265 ($701) Licenses and Permits $518 $561 $43 Fine, Forfeitures & Penalties $1,494 $1.722 $228 Use of Money and Property $2,421 $2,053 ($368) Other Local Taxes $2,164 $2,148 (516) Police Grants $1,823 $1.775 ($48) Other Agency Revenue $3,520 $3,206 ($314) Charges for Services $6,335 $6,248 ($87) Interfund Reimbursements $8.916 $8,062 ($854) Other Revenues $2,701 $2,747 $46 Transfers From Other Funds $12,272 $11,048 $1,224) Subtotal $ 44,130 $ 40,835 ($3,295) Total Revenue Shortfall $ 142,863 $ 137,329 $ (5,534) Offsetting some of the revenue shortfalls are anticipated savings of approximately $1.6 million due to tbe administrative freeze imposed in the second quarter of the current fiscal year. Taking this into account the current year projected budgetary gap is approximately $4.0 million as reflected in the table below. ra Reserves - July 1, 2008 Projected Revenues & Transfers In Expenditures & Transfers Out Projected Deficit Projected Fund Balance as of June 30, 2009 Percentage of Operating Budget -'~'\"""'-"J'-"a',':-"':~T;:t' ,;J;qJ~~,.,g".,;_~J~~1~ riltiI(\1'H:sl~~'!ili1 9.3 137.3 141.3) $ 4.0) $ 5.3 3.5% 4-2 November 17, 2008, Item ~ ATTACHMENTS Attachment I - Quarterly Financial Report Prepared by: Phillip Davis, Assistant Director of Finance, Finance Department 4-3 ~(~ -...- ..._-~- ~ ...".,..- - - - - -- CllY OF CHUlA VISTA OVERVIEW This financial report summarizes the City'S General Fund financial position for the fiscal year for July 1, 2008 through September 30, 2008. 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 National News The Treasury and Federal Reserve enacted several programs in order to promote more liquidity and confidence in the battered financial system. These actions are beginning to have an impact and there are some signs of improvement in the credit markets, most notably a drop in the London Interbank Offered Rate (L1BOR). Yet, amid a global slowdown and reduced spending, the U.S. economy contracted 0.3% in the third quarter. Continued weakness is expected through 2009 as the job market weakens and consumer confidence deteriorates. Increasingly worried about the labor market, consumers were reportedly more pessimistic in October as unemployment swelled to 6.5 percent in October from 6.1 Cans:Jmer CDnfidenc~ lnd9:x1.... percent in the previous month, the highest level in 14 years. This surge in unemployment has prompted economists to forecast continued deterioration in the labor market. For that reason, the Conference Board Index of Consumer Confidence scored a new record low of 38, down from 61.4 in September. Economists believe this decline in confidence will result in a steep drop in consumer spending in the fourth quarter. so 65 50 :J.5 F t.~ ~ ';.1 J' J' A S 0 Retail sales declined 1.2% in September, the largest decline in three years. Much of this decrease occurred in the automobile sector due largely to the poor credit environment and low consumer confidence. U.S. automakers posted the iowest ievel of auto sales in 17 years. Quarterly Financial Report - General Fund First Quarter Ending September 30, 2008 November 17, 2008 The malaise in the housing market also continues to be a significant drag on the economy. Home sales for both new and existing homes staged a modest increase of 2.7% and 5.5% respectively in September. These increases are mostly attributed to distressed home sales. Lower home prices may make homes more affordable and attractive to potential buyers, but enthusiasm for the housing market remains tempered because of elevated inventories, a dire employment situation and tight credit markets. Local News The University of San Diego's Index of Leading Economic Indicators for San Diego County fell 0.8 percent in September. Leading the way to the downside was a surge in initial claims for unemployment insurance and down considerably were building permits, local stock prices, and consumer confidence, while there was a more modest loss in help wanted advertising. September's drop marked the 29th time in 30 months that the USD Index has dropped. San Diego Index of Leading Economic Indicators 150.0 145.0 140.0 135.0 130.0 125.0 120.0 115.0 110.0 105.0 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 There is no change in the previously reported negative outlook for the local economy through the first half of 2009. What is needed to turn the economy around both locally and nationally is stability in the housing market. . Falling prices and a jump in foreclosures have hurt both. the labor market and the financial markets and institutions. The recent increase in home resales is a positive sign, but a bottom in the housing market is not likely to be reached until the latter part of 2009, and home prices are not expected to increase until 2010 at the earliest. 4-4 QUARTERLY FINANCIAL REPORT FIRST QUARTER OF 2008-09 Page 2 of 4 GENERAL FUND SUMMARY City Council Policy No 220-03 recommends the City maintain at least an 8 percent reserve level. As of June 30, 2008, the General Fund reserve level was at 6.1 percent (unaudited). ~1't~~t~ffl!~~!i.~!l.!~~i'%t~b\\i~t~ii,f~1m~~~~' Reserves - July 1, 2008 (unaudited) S 9.3 $ 9.3 Revenues & Transfers In 142.9 137.3 Expenditures & Transfers Out (1429) (1413) Projected Deficit $ S 4.0 Fund Balance as of June 30, 2009 $ 9.3 $ 5.3 Percenta e of 0 eratin Bud et 6.1% 3.5% For fiscal year 2008/09, because of the credit crisis and housing market meltdown, the economy continues to worsen and a General Fund deficit of $4.0 million is currently projected. A projected revenue shortfall composed of discretionary revenues ($2.2 million) and programmatic revenues ($3.3 million) totaling $5.5 million is partially offset by projected expenditure savings of $1.6 million. The projected savings are reiated to a citywide administrative freeze on all discretionary spending such as travel, conferences, memberships and vehicle purchases. These projections will continue to be revised as updated financial information becomes available. Revenues For the first quarter, several discretionary revenues are being adjusted downward by $2.2 million. A brief discussion of the revised revenue projections will follow. %;>k*lft~+;,E,Y;2008/09ii1~I~.i,t~;~ ';g:~Bi.i"d"-'ef~ ,!;,GPr.o~eCted';~ $ 29,678 $ 26,890 30,232 29,932 20,216 20,134 8,732 9,663 7,122 7,122 2,753 2,753 $ 98,733 5 96,494 Sales Tax Property Tax Motor Vehicle License Fee Franchise Fees Utility Users Tax Transient Occuoanc Tax Total ($2,788) (300) (82) 931 o o (52,239) Reflected in the chart below are departmental programmatic revenue adjustments of $3.3 million. These adjustments are necessary due to continued declines in development related revenues, grant reductions, capital improvement project revenues and other fees for city services. ~.ti'i{:(,J5';@IWFY;:2008/0g-t;~1,t1;~~ ~;Bfi"i:fee!j; $1,966 $518 $1,494 $2,421 $2,164 $1,823 $3,520 $6,335 $8,916 $2,701 $12,272 $ 44,130 $ Development Revenue Licenses and Permits Fine, Forfeitures & Penalties Use of Money and Property Other Local Taxes Police Grants Other Agency Revenue Charges for Services Interfund Reimbursements Other Revenues Transfers From Other Funds Total $1,265 $561 $1,722 $2,053 $2,148 $1,775 $3,206 $6,248 58,062 $2,747 $11,048 40,835 ($701) $43 $228 ($368) ($16) ($48) ($314) (587) ($854) $46 $1.2241 $3,2951 Property Taxes. The City of Chula Vista receives property tax revenue based upon a 1.0 percent levy on the assessed value of all real property. Property tax is the City's largest revenue source, representing 19.1 percent of the General Fund revenue in fiscal year 2007/08. The City's assessed value grew at historical rates until recently with the largest percentage increase of 20 percent occurring in fiscal year 2005/06. Based on the June 2008 County Assessor's Annual Valuation Report for fiscal year 2008/09, the assessed value in Chula Vista grew by only 2.21 percent due to a combination of increased commercial values, addition of the SR125 toll road to the tax roll and the drop in residential assessed values. ~ 0 I < f ~ 0 < < . f The fiscal year 2008/09 Property Tax budget anticipated a 3.9 percent increase. The current projections for Property Tax are being adjusted downwards by $300,000 to reflect the final Assessors value of 2.21 percent. 4-5 QUARTERLY FINANCIAL REPORT FIRST QUARTER OF 2008-09 Page 3 of4 Property Tax Delinquency Rate 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0,0% FY98/99 FY01l02 FY04I05 FY071D8 Having more of an immediate impact on property tax revenues are the property tax delinquency rates that continue to climb as the sub-prime mortgage crisis is leaving many homeowners with mortgages that are greater than the current value of their homes. As seen in the chart, the delinquency rate has more than doubled from an average of 1.7 percent for fiscal years 1998/99 to 2004/05 to 3.96 percent for fiscal, year 2007/08. The median home price in the City has dropped significantly from September 2007. Recent sales data indicates that the median price drops range as high as 37.8 percent in the City. For example, the southeast part of the City has seen a decrease of (20.7) percent while the northeastern part of the City has suffered a (37.8) percent drop in median price. North South Eastlake NE SE ;\~~I~~:~~'Mea i;in~p,ric'eHt~i!k1)'S~ ;Et~~~1~-~:r.J11 sirt;2007W/Se'f'200a:f ?"tCnai'!,'el? $400,000 $310,000 -22.5% $ 376,000 $ 250,000 -33.5% $435,250 $340,000 -21.9% $812,500 $505,000 -37.8% $512,000 $370,000 -20.7% Source: San Diego Union 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 homes which would lead to a reduction of property taxes based on the lower assessment. Many of these downward reassessments may not appear on property tax bills until next fiscal year requiring further adjustments to the fiscal outlook. 4-6 Sales Tax. Sales tax is the City's second largest revenue source, representing 18.5 percent of fiscal year 2007/08 actual revenues. City staff met with the City's sales tax consultant, MuniServices, to review the most recent sales tax revenues. They report that the change in sales tax receipts between second quarter 2007 and the second quarter 2008 decreased by 3.1 percent Statewide, by 4.0 percent in Southern California and 2.9 percent in Chula Vista. 15.00% 10.00% ;00% 0.00'% 500% _1000% ",1500'% .20.OC% 1 ~ ~ :& " " " < ~ , - . , i ~ " ., ~ , , l , , < , , The above chart compares Chula Vista's sales tax with that of other jurisdictions in the County during the second quarter of the calendar year. The chart below depicts the City's sales tax history from fiscal year 1999/2000 to the end of the current fiscal year. For (;1 . = Sales T~)( History PI" l'"9ICQt~FYlOOll/(l' m Pl0;.e1.d ,"",' ] '" " " i'Y':1iHOO FYQ0I01 FYQ,102 ...,,02103 FY03ia4 FYC<IC5 FY~OIl FY06JW rYorlC1l FY=9 current fiscal year 2008/09, the projection reflects a QUARTERLY FINANCIAL REPORT FIRST QUARTER OF 2008-09 Page 4 of 4 decrease of 5 percent from the prior year actual amount received. 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 FY 2005/06 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. Due to the new formula that relies on assessed valuations and the decline in automotive sales this revenue source has been adjusted downward by approximately $82,000. Franchise Fees. The revenue projection is being revised upward by $900,000 based on actual amounts received in fiscal year 2007/08. Utility Users Tax (UUT). Revenues are budgeted at $7.1 million, which is $250,000 less than actuals for fiscal year 2007/08. No change in the projection is anticipated pending the outcome of the lawsuits that are currently moving through the courts. Development Related Revenues. Development related revenues are being adjusted downwards by $700,000 due to the continued deterioration of the housing market. Interfund Transfers & Reimbursements. Interfund Transfers and reimbursements are being reduced by $1.2 million due to revised gas tax projections, loss of library grant funds, and reduced staff time reimbursements from the sewer and development impact fee funds. Expenditures City Clerk City Attorney Administration Information Technology Human Resources Finance Non-Departmental Planning and Building Engineering Public Works Police Fire Recreation Library Total General Fund 1,311,626 14,736 971,934 2,431,634 4,252.892 3,824,199 4,776,085 2,737,944 5.364.967 2,479,239 4,704,653 24,717,673 47,990,954 22.800,987 6.387,961 8.083.924 $142,851,408 18.8% 25.7% 17,9% 13.8% 20.1% 23.7% 30.2% 19.9% 67.8% 19.6% 20.5% 19.8% 20.1% 22.0% 20.7% 21.5% 22.5% 246,241 3,780 174.148 334.729 856,370 904,782 1,441,505 545.660 3,639,183 487,127 966,698 4,882.601 9,645,533 5.006.601 1,322,996 1,738,187 $32,196.141 The General Fund's Amended Budget refiects the Council adopted budget of $142.3 million and all mid- year appropriations (5507,999) approved by City Council. Actual expenditures to date are reflected in the chart above. It indicates that Departments have expended 22.5 percent of the General Fund bud~et after 25 percent of the fiscal year has elapsed. The following table shows the General Fund departments with their amended budgets and the projected expenditures for the fiscal year. The projected expenditures anticipate savings of approximately $1.6 million. City Council 1,311,626 Boards/Commissions 14,736 City Clerk 971,934 City Attorney 2,431,634 Administration 4,252,892 Information Technology 3,824,199 Human Resources 4,776,085 Finance 2,737,944 Non-Departmental"" 5,364,967 Planning and Building 2,479,239 Engineering 4,704,653 Public Works 24,717,673 Police, 47,990,954 Fire 22,800,987 Recreation 6,387,961 Libra 8,083,924 Total General Fund $142,851,408 ..... Reflects Budgeted Salary Savings 1,311,626 14,736 869.682 2,083.091 3,934,157 3.588,493 5.592.564 2.652.963 7.826.304 2,470,597 4.608,090 23,298,202 46,986.017 22.304,547 6,177.302 7.568,179 $141,286,550 o 102.252 348,543 318,735 235,706 -816,479 84.981 -2.461,337 8,642 96,563 1,419,471 1.004,937 496,440 210,659 515,745 $1,564,858 Mid-Year Budget Amendments Mid-year appropriations during the quarter totaled $507,999 with offsetting revenues of $520,284 for a net positive impact of $12,285. The appropriations were for the In-Custody Drug Treatment Program at the jail, CORR Racing overtime reimbursement for fire and police personnel, a donation to the Animal Care Facility, the addition of two code enforcement officers and a police grant to reduce street racing. In Custody Drug Treatment Program CaRR Racing Overtime Reimbursement _ Police CaRR Hacing Overtime Reimbursement- Fire Donation to Animal Care Facility Addition of Two Code Enforcement Officer II Positions Street Racin Crackdown Grant Total of 1 st Quarter Bud et Amendments '0 $5,572 $6,713 '0 '0 '0 $12,285 Budget Transfers There were no administrative budget transfers during the first quarter. 4-7