The URL can be used to link to this page

Home My WebLink About2009/03/03 Item 5 CITY COUNCIL AGENDA STATEMENT ~Vf:. CITY OF ~ (HULA VISTA MARCH 3, 2009, Item ':5 ITEM TITLE: QUARTERLY FINANCIAL REPORT FOR THE QUARTER ENDED DECE:rvrBER 31,2008 SUBlVllTTED BY: DIRECTOR OF FINANCE/TREASURER~ CITY MANAGER # ASSISTAJ.'IT CITY ~AGER ~ 4/STHS VOTE: YES D NO ~ REVIEWED BY: SUMMARY Section 504 (f) of the City Charter requires quarterly fmancial reports to. be filed by the Director of Finance through the City Manager. . . ENVIRONMENTAL 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 financial 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 15060(c)(3) of the State CEQA Guidelines the actions proposed are not subject to CEQA. 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 2008/09. The detailed financial report for the quarter ending December 31, 2008 discusses the financial outlook for the City's General Fund for the remainder of fiscal year 2008/09. 5-1 March 3, 2009, Item 5 Fiscal Year 2008/09 General Fund . The first quarter report identified a budgetary gap of $4.0 million for the General Fund. As part of the City Manager's budget reduction plan, savings have been identified in the current fiscal year that are mitigating the current fiscal year gap. The General Fund gap is now projected to be $2.8 million before the layoffs currently scheduled for April 10, 2009. The City's financial outlook has continued to deteriorate as the entire nation has entered what has become a global recession. General Fund revenues are currently projected to come in $5.5 million dollars below budget (4.0%) in fiscal year 2008109. The anticipated shortfalls are primarily due to significant decreases in discretionary revenues ($2.2 million) and programmatic revenues ($3.3 million). Estimated expenditure savings of $2.8 million partially mitigates the revenue shortfall and are a result of COLA savings, early retirements, 401a suspensionS and street light energy savings. Fiscal Year 2008/09 Development Services Fund With the approval of the Fiscal Year 2008/2009 budget, the City Council authorized the creation of a stand-alone Development Services Fund (DSF) comprised of staff from the Departments of Planning & Building, Public Works and Engineering responsible for the planning, permitting, plan review, and inspection of development projects. As the fiscal year has progressed it has become apparent that despite cuts made to the Development Services Fund as part of Council actions taken on September 9, 2008 development related revenues are insufficient to support expenditure levels. The Development Services Fund gap has increased from the reported $1.3 million at the November 17 budget workshop and is now projected to be at $1.7 million and it does not appear it will be mitigated in the current fiscal year. Current DSF projections are displayed in the table below. ",. Planning Building Engineering Public Works DSFTOTAL ,Ii!.. 2,419,911 1,870,166 1,627,861 1,509,970 7,427,908 2,981,593 2,552,643 1,897,055 1,741,516 9,172,807 DECISION MAKER CONFLICT Staff has determined that the action contemplated bY this item is ministerial, secretarial, manual, or clerical in nature and does not require the City Council members to make or participate in making a governmental decision, pursuant to California Code of Regulations section 18702.4(a). Consequently, this item does not present a conflict under the Political Reform Act (Cal. Gov't Code S 87100, et seq.). FISCAL IMPACT 5-2 March 3, 2009, Item .5 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 the economy and the continued housing crisis as well as the credit crisis, several major revenues are being adjusted downward by a total of $5.7 million or 4.0 percent of total budgeted revenues. Offsetting some of the revenue shortfalls are anticipated savings of approximately $2.8 million. The current year combined General Fund and Development Services fund projected budgetary gap is approximately $3.5 million after the scheduled April layoffs. General Fund and Development Services Fund.Projections as of December 31,2008 . enera Reserves - July 1, 2008 Projected Revenues & Transfers In Expenditures & Transfers Out General Fund Deficit Development Services Fund Deficit'" GF and DSF Layoffs/Early Retirements Projected Total Deficit $ $ (5.3) $ 4.0 $ 2.6% 5.8 3.8% Additional public liability expenditures are estimated to exceed the current year budget by $1.2 million. This figure has been included in the General Fund's projected deficit and will be brought forward with an appropriation request when additional information has been received. There may be additional impacts that. occur due to decreased business license renewals, state impacts to the vehicle license fees and miscellaneous revenue. We are working with all City departments to identify additional savings, which could assist in mitigating the $3.5 million deficit in the current year. A TT ACHlVIENTS Attachment 1 - Quarterly Financial Report Prepared by: Phillip Davis, Assistant Director of Finance, Finance Department 5-3 ~!f? ~.-: 01Y Of CHUIA VISTA OVERVIEW This financial report summarizes the City's General Fund financial position for the fiscal year July 1, 2008 through December 31, 2008. The purpose of this report is to provide the City Council, Management .a~d 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 . In its fourth quarterly report of 2008, the UCLA Anderson Forecast predicts that the current recession infiicting the national economy will feature four quarters of negative growth (followed by very tepid growth rates) and rising unemployment rates that last through 2010. The California forecast will share the national recession, with negative growth through the middle of next year and high unemployment until 2010 as well. The UCLA Anderson Forecast now expects .that real Growth Domestic Product (GDP) will decline 4.1 percent in the current quarter, followed by respective declines of 3.4 percent and 0.8 percent in the first two quarters of 2009. Nationally, unemployment swelled to 7.6 percent in January from 7.2 percent in the previous month. Employment has declined by 3.6 million jobs since the start of the recession in December 2007 with about half of this decline occurring in the past three months. Consumer Confidence Index ~ u OJ u ~D""""""'a""", . . ~.",.-c ~ ~ ~ OJ .c E " Z , 2008106 -a- Previous Year Quarterly Financial Report - General Fund Second Quarter Ending December 31,2008 March 3, 2009 The Conference Board Consumer Confidence Index™, which had decreased in December, inched lower in January and continues to beat a historic low. The Index fell 12 points and now stands at 25.0 down from 37.4 in January. The U.S. Census Bureau estimates U.S. retail sales for January increased by 1.0 percent from the previous month, but were 9.7 percent below January 2008. Total sales for the November 2008 through January 2009 period were down 9.5 percent from the same period a year ago. Gasoline stations sales were down 35.5 percent from January 2008 and motor vehicle sales were down 22.2 percent from last year. Local News The University of San Diego's Index of Leading Economic Indicators for San Diego County fell 2.1 percent in December. Huge drops in building permits, initial claims for unemployment insurance, consumer confidence, and help wanted advertising pushed the Index to its second worst monthly drop ever. The USD Index has now fallen in 32 of the last 33 months, with the three largest drops ever in the last three months. 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-oe Jan-07 Jan-oa Jan-09 The local economy is expected to be weak fo~ at least the first half of 2009, with job losses in particular' expected to mount. While job losses had previb~sly been confined to real estate-related areas (construction, . credit, real estate), the damage is now spreading into other sectors of the local economy. Retailing has been heavily impacted, with a weak Christmas buying .seas~n causing retail employment to fall by 8,500 Jobs In December compared to the same month a year ago. The numbers are expected to worsen with the post- 5-4 QUARTERLY FINANCIAL REPORT SECOND QUARTER OF 2008-09 Page 2 of 5 holiday closing of stores such as Mervyn's, Circuit City, and Linens 'n Things. . 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 (audited). ReseNes. July 1, 2008 Projected Revenues & Transfers In Expenditures & Transfers Out General Fund Deficit Development SeNices Fund Deficit" GF and DSF Layoffs/Early Retirementsri Projected Total Deficit $ (5.3) $ $ 4.0 $ 5.8 2.6% 3.8% For fiscal year 2008/09, because of the credit crisis and housing market meltdown, the economy continues to worsen and a combined General Fund and Development Services Fund deficit of $3.5 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 $2.8 million. The projected savings are a result of the COLA savings, early retirement program and a citywide 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 were adjusted downward by $2.2 million. A brief discussion of the revised revenue projections will follow. .~~I~~ :~~O'elti~ Sales Tax Property Tax Motor Vehicle License Fee Franchise Fees Utility Users Tax Transient Occu anc Tax Total $ 29,678 30,232 20,216 8,732 7,122 2,753 $ 98,733 $ Reflected in the chart below are departmental programmatic revenue adjustments of $3.3 million. These adjustments were made in the first quarter report and are necessary due to continued declines in development related revenues, grant reductions, capital improvement project revenues and other fees for city services. No further revenue adjustments are necessary at this time. Deveiopment Revenue Licenses and Permits Fine, Forfeitures & Penalties Use of Money and Property Other Local Taxes Police Grants Other Agency Revenue Charges for SeNices Interfund Reimbursements Other Revenues Transfers From Other Funds Total ($701) $43 $228 ($368) ($16) ($48) ($314) ($87) ($854) $46 $1,224 $3,295 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 .bistorical 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 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. 5-5 QUARTERLY FINANCIAL REPORT SECOND QUARTER OF 2008-09 Page 3 of 5 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 retlect the final Assessor's value of 2.21 percent. Also impacting 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. Property Tax Delinquency Rate 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% . FY9Sl99 FY01/02 FY04IOS FY07/08 The calendar. year 2008 median home price in the City has dropped significantly from 2007 levels. Recent sales data indicates that the median price drops range as high as 30.3 percent in the City. Ie 91910 91911 91913 91914 91915 North South Eastlake NE SE $ 305,000 $ 250,000 $ 360,000 $ 480,000 $ 331 ,000 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 requiring further adjustments to the fiscal outlook. beyond fiscal year 2009/10. Safes 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 third quarter 2007 and . the third quarter 2008 decreased by 3.2 percent Statewide, by 3.9 percent in Southern California and 2.7 percent in Chula Vista. J~Jijr 3 ~ . f J ~ : . f ! ~ir~l. J ~ . . ~ ~ J I The above chart compares Chula Vista's sales tax with that of other jurisdictions in the County during the third 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 current fiscal year .'" i i Sales Tax History fl'f1S_'-""~ ", on ~o i>'f'JlIICQ F\'OlWl f"l'O'l.az ~ NlDIQ4 f'VOolIO!I FYQS<<lII i'YOII07 ~1101 5-6 QUARTERLY FINANCIAL REPORT SECOND QUARTER OF 2008-09 Page 4 of 5 2008/09, the projection reflects a decrease of 5 percent from the prior year actual amount received. Motor Vehicle License Fee (VLF). The State Budget Act of 2004 deleted the VlF backfill, which had compensated cities and counties for the State's reduction of "the VlF rate from 2 to 0.65 percent. Under the swap, 90 percent of City VLF revenue was exchanged for property tax which means the majority of VLF revenues for each city will grow essentially in proportion to the growth of real property assessed values. Under this formula, the remaining 10 percent of revenues are based on vehicle registrations and the revenues are distributed in the following order: the State (for administrative charges), Orange County, cities incorporated after August 5, 2004 and finally the remaining funds are allocated among all other cities based on the proportionate population of all cities. Motor Vehicle License Fee Revenue. Millions FY04l05 FY05/06 FY06l07 FY07/08 FY08/09 Est IIiil State Charges III Orange County Q Special City III Cities I State charges for the DMV and other functions are based on a forecast of VLF revenues, VLF revenues have fallen well short of the forecast but the State budget has not been adjusted to reflect actual collections. This has caused a decline in the remainin'g revenues available for allocation to cities (illustrated in the chart above). This revenue shortfall has resulted in insufficient funds to pay the cities. Chula Vista did not receive their November or December allocation. Due t6 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 in the first quarter but further adjustments may be required depending on collections for the remainder of the fiscal year. Franchise Fees. The revenue projection was revised upward in the first quarter by $900,000 to increase the fiscal year 2008/09 base budget amount to equal 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 actual for fiscal year 2007/08. This revenue stream continues to be at risk as several legal challenges make their way through the courts. Development Related Revenues. Development related revenues in the General Fund 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 ~fp~tlJtfl'i~~~ij~~~~il&*;it~:B~mta~~~ij~~ City Council 1,311,626 576,065 735,541 43.9% Boards/Commissions 14,736 3,662 10,674 26.2% City Cieri< 971,934 463,514 506,420 47,7% City Attomey 2,431,634 604,273 1,627,361 33.1% Administration 4,253.392 1,943,605 2,309,767 45.7% Information Technology 3,624,199 1,774,070 2.050,129 46.4% Human Resources 4,776,065 2,645,699 1,929,366 59.6% Finance 2,737,944 1,242,549 1,495,395 45.4% No""Oepartmental 5,364,967 4,775,636 5569,329 89,0% Planning and Building 2,479,239 1,071,036 1,406,201 43.2% Engineering 4,756,301 2,229,530 2,526,771 46,9% Public Works 24,717,673 10,867,075 13,630,596 44,0% Polles 47,990,954 22,095,614 25,695,140 46,0% Fire 22,600,967 10,994,751 11.606,236 46.2% Recreation 6,416,254 2.650,634 3.567,420 44,4% Librarv 6,063,924 3.689,755 4.394,169 45.6% Total General Fund 5142.933,649 568,249,092 574,.a4,757 47.1'1. The General Fund's Amended Budget reflects the Council adopted budget of $142.9 million and all mid- year appropriations ($590,440) approved by City Council. Actual expenditures to date are reflected in the chart above, It indicates that. Departments have expended 47.7 percent of the General Fund budget after 50 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 $2.8. million. Three of the departments, City Clerk, Human Resources and Non-Departmental are projected to be over budget due to various reasons, The City Clerk is over due to 5-7 QUARTERLY FINANCIAL REPORT SECOND QUARTER OF 2008-09 Page 5 of 5 unanticipated election costs. Human Resources is over due to. higher than anticipated public liability expenditures and the Non-Departmental is projected to be over due to budgeted salary savings that is realized at the department level but budgeted as a Non- Departmental expenditure. City Council Boards/Commissions City Cieri< City Attomey Administration Information Technology Human Resources Finance Non-Departmental . Planning and Building Engineertng Public Works Police Fire Recreation Libra Total General Fund 1,311,626 14,736 971,934 2.431,634 4,253,392 3,824,199 4,776,085 2,737,944 5,364,967 2,479,239 4,756,301 24,717,673 47,990.954 22,800,987 6,418,254 8,083.924 $142,933,849 1,311,626 14,736 1,150,945' 1,929,905 4,120,967 3,589,344 5,600,720 2,614,642 7,826,304 2,431,166 4,603,781 23,171,251 46,006,822 22,750,430 5,867,562 7.096.112 140,086,313 Mid-Year Budget Amendments (179,011) 501,729 132,425 234,855 (824,635) 123,302 (2,461,337) 48,073 152,520 1,546,422 1,984,132 50.557 550,692 987.812 2,847,536 Mid-year appropriations during the quarter totaled $75,341 with offsetting revenues of $92,048 for a net positive impact of $16,707. The appropriations were for reimbursements from National City for the use of Chula Vista staff on capital improvement project related tasks, additional youth sports camps and donations for youth recreation and environmental programs. In ustody atment Program CORR Racing Overtime Reimbursement. PoUce CORR Racing Overtime Reimbursement. FiI'9 R~aticn donation for Fun, Fit. and Free Days Donation to Animal Can! Facinty Addition of Two Code Enforcement Qtficer II Positions Street Rscin Crackdown Grant Total of 1st Quarter Bud 8t Amendments Relmb from National City for ell' related tasks Oonatlons for youth recreational programming Additional youth sports camps Donation (rom Kohrs to su rt environmental ore ram $51,648 $3.900 $19,293 S500 $75,341 $590,440 $0 $0 S16,707 SO $16,707 $28,992 Budget Transfers There were three administrative budget transfers during the second quarter for wirel~ss access cards and the recruitment for Fire Chief. t~ D:f,l!~,::' From:"f:!:;'~;:1 ~':;SQ.:j-,: ,;"':~":t,,,t.:i'.:?:,~~;< DesCrfan=,!.'ct:':.~!*,..:-~":::eq':i'/ ,A-mount -,,~~~o:;::'~,::::''.;,"fJ~'P..!i H>.i:i.::::;::t TotaL"at:fstQuarter Bud elTl'1Iiisfel/"sj,,',ji ~';.:;r:;;'?"lSa. ., Planning & 3ldg S & 5 UtiHtlas W1releu aecau cards $4,870 Planning <3. Bldg Ottler Expen$es Uli1ltle$ Wireless access cards $5,570 Fire per.;cnnel 5 <3. 5 i=1re Chief recruitment $15.000 :iJ:-'"fi~~';r:!.ii:'::~~~:W:G '~:,~'$~i':'t;'::'?'ll;:t::'?>":. ">,~;'~}.j.;i;'j\ .Tatatraf.2ndQuillrtai:.aud' Qt,rr<lnsfers.~~ ~S2S:440' 5-8 Development Services Fund With the approval of the Fiscal Year 2008/2009 budget, the City Council authorized the creation of a stand-alone Development Services Fund (DSF) comprised of staff from the Departments of Planning & Building, Public Works and Engineering responsible for the planning, permitting, plan review, and inspection of development applications. As the fiscal year has progressed it has become apparent that despite cuts made to the Development Services Fund as part of Council actions taken on September 9, 2008, development related revenues are insufficient to support expenditure levels. The Development Services Fund gap has increased from the reported $1.3 million at the November 17 budget workshop and is now projected to be at $1.7 million and does not appear it will be mitigated in the current fiscal year. Consequently the combined hit to the General Fund reserves will be $3.5 million. Current DSF projections are displayed in the table below. Planning Building Engineering Public Worl<s OSF TOTAL