HomeMy WebLinkAboutSS03 - Revenue & Expenditure ComparisonStudy Session #3
February 8, 2000
CITY OF NEWPORT BEACH
ADMINISTRATIVE SERVICES DEPARTMENT
Resource Management • Fiscal Services • M.I.S. • Revenue • Accounting
February 8, 2000
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Dennis Danner, Administrative Services Director Z. 14�.
RE: ORANGE COUNTY CITIES — REVENUE/EXPENDITURE COMPARISON
BACKGROUND:
During the City Council Meeting of November 8, 1999, staff was directed to prepare a report
comparing the major revenues and expenditures of Newport Beach with the other Orange County
cities. This proved to be a more challenging assignment than we anticipated. Staff rediscovered
what we have learned on similar projects in the past. Collecting numerous fields of data from
each of the thirty-three Orange County cities ends up being a time consuming, labor- intensive
• process no matter how it is undertaken. In addition, problems of inconsistent data are pervasive.
For example, not all cities have the same kinds of revenues and expenditures, either in reality or
in the way they are categorized. Some major revenue sources are not universal, and the split
between functional revenues and general revenues, which is very significant, varies widely
around the County. Similarly, all cities do not provide the same services, and those that they do
provide are accomplished by either city employees, outside contract (either with another
government entity or a commercial enterprise), or combinations thereof.
For more than twenty -five years, the State has required cities to compile and report their revenue
and expenditure data to the State Controller on an annual basis. The State Controller's Report,
which is the report of this data that is distributed back to cities, offered the most efficient and
accurate way to satisfy Council's request. However, the Controller's Report has its own
shortcomings. For example, it rarely compiles the data in the format we need for any given
purpose; and the data is fairly old. More information about our use of the State Controller's
information, and its shortcomings, is listed in the "Notes to This Report" section below.
SUMMARY TABLES:
The tables below summarize Revenue and Expenditure ranking information. During the year
studied (1996- 1997), Newport Beach ranked 13th in population among the 31 Orange
County cities surveyed.
•
•
Orange County Cities — Revenue/Expenditure Comparison Report
Page 2
CITY OF NEWPORT BEACH
Comparison of Selected Revenues
Among 31 Orange County Cities -- Fiscal Year 1996 -97
Per Capita
Amount Rank
Rank
Total Revenue $101,761,579 6
3
General Revenue $51,546,084 7
2
Functional Revenue $50,214,771 5
3
Property Tax $18,389,466 4
4
Sales Tax $13,655,616 8
6
Transient Occupancy Tax $7,053,397 2
4
CITY OF NEWPORT BEACH
Comparison of Selected Expenditures
Among 31 Orange County Cities -- Fiscal Year 1996 -97
Per Capita
Amount Rank
Rank
Total Expenditures $108,864,323 4
2
Public Safety $37,988,843 4
1
Culture and Leisure $13,208,848 6
3
General Government $6,442,703 7
3
Community Development $6,432,650 6
8
NOTES TO THIS REPORT:
Data provided in the attached tables is based primarily on submissions to the California State
Controller by cities for fiscal year 1996 -97, the most recent year available. Data for the 1997 -98
fiscal year will not be available until March, 2000. Significant residential developments in and
around Newport Beach, such as Bonita Canyon, One Ford Road, Newport North, Castaways and
Newport Coast, have been occupied since this data was provided. These new residential
developments have had a significant impact on revenues and expenditures for the City, and are
not reflected in this report. Only the thirty -one Orange County cities incorporated in 1996 -97
were included in the Controller's abstract. Two cities have incorporated since, and are not
included. The interpretation by cities of the classifications of revenues and expenditures required
• for the Controller's report may not be consistent. As a result, data may lack uniformity.
Orange County Cities — Revenue /Expenditure Comparison Report
Page 3
• There are a number of minor revenue sources in which the cities surveyed do not universally
participate. However, they all share in the major revenue categories, with two notable
exceptions. A Utility Users Tax (UUT) is imposed by one -third of the cities surveyed, and it
represents a substantial revenue source for several of those. Newport Beach does not have a
UUT. To the best of our knowledge, a general fee is charged for residential trash collection,
either directly or indirectly, by all Orange County cities except Newport Beach.
Another thing pointed out by the study is the wide variation among Orange County cities with
regard to how much of their revenue base is made up of general (primarily various taxes) as
opposed to functional (primarily fees and charges for services) revenues. For some, functional
revenues comprise over 65% (in one special case over 85 %) of overall revenue. For several
others, functional revenues make up only 18% to 25% of the total. For Newport Beach, the total
is almost an exact 50150 split between the two. Among other things, the balance between these
two types of revenues has stability implications, with functional revenues being more closely
linked to the demand for services, and less subject to tampering by the State or other agencies.
For purposes of this analysis, we concentrated on the City's three largest revenue sources:
Property Taxes, Sales Taxes, and Transient Occupancy Taxes (TOT). On the spreadsheets,
"Total Revenue" is the sum of General and Functional Revenues as categorized by the State
Controller. The State Controller considers General Revenues as those revenues available to fund
• any General Fund activity, i.e., property taxes. Functional Revenues are those revenues normally
associated with a specific function, for example charges for services such as building inspection
fees. For comparison purposes, the Tax Increment Property Tax revenues generated by
Redevelopment Agencies (RDAs) has been included in the Property Tax totals for the cities with
RDAs. Cities with RDAs have been noted in the spreadsheets. We found it necessary to include
RDA property tax information in the comparison since it has a profound effect on the outcome.
For instance, the City of Newport Beach moved from number one per capita in property tax
receipts to number four per capita when RDA property tax was factored in to the other cities.
The State Controller's report does not collect information to distinguish Sales Tax generated by
visitors (tourist and otherwise) vs. residents, and no attempt to evaluate the sales and use tax
contribution from tourism has been made in this report. As stated above, the third major revenue
source compared with other Orange County cities was Transient Occupancy Taxes - which is
primarily generated by tourism.
General Government expenditures includes the sum of the Legislative and Management and
Support categories. Public Safety expenditures are categorized as Police, Fire, Emergency
Medical, Animal Control, Weed Abatement, Street Lighting, Disaster Preparedness and Other
(which includes Marine Safety). Public Safety, Community Development, and Culture and
Leisure categories are shown within Total Expenditures only. The expenditure data abstracted
from the Controller's report excludes Transportation, Public Utilities and Health expenditure
categories.
Orange County Cities — Revenue/Expenditure Comparison Report
Page 4
• OBSERVATIONS AND CONCLUSIONS:
A variety of conclusions and implications can probably be drawn from this data. Based on our
analysis, we offer the following three for the City Council's consideration.
• Despite our best efforts (and those of the State Controller's office), the data collected and
analyzed for this report is not exact. For all the reasons specified, general trend and large -
scale conclusions can be safely made, but the assumptions necessarily used preclude analyses
on a detailed level.
• Newport Beach has the second highest per capita expenditures and third highest per capita
revenue of all Orange County cities. Public Safety expenditures on a per capita basis are the
highest in the County. To at least some degree, this reflects the attractiveness of the City's
location and amenities to tourists and daily visitors. Yet the weakest of our major revenue
sources is Sales Tax (ranking number eight County- wide), which is more directly captured
from non - residents than any other except Transient Occupancy Tax. The City does generate
revenue from parking and other minor sources as well, but the relative value of Sales Tax
among the major revenue sources is probably less than ideal.
• To the extent that the City relies on general, as opposed to functional revenues, we are more
• susceptible to tampering by the State, such as the ERAF Property Tax diversion of a few
years ago. There are currently proposals circulating in Sacramento to shift a portion of local
government's sales tax to the State and replace it with property tax, thus increasing the City's
reliance on the State to fund local government. Newport Beach's dependence on general
revenues is about average for Orange County cities. Remedies open to the City to deal with
this situation are limited. Although passive in nature, maintaining a strong system of
financial reserves is one effective way to temper the volatility that is on the horizon in this
environment, as is maintaining a broad, diverse system of local revenues.
PREPARATION:
Dennis Danner, Dick Kurth, Glen Everroad, Craig Bluell, and Tammie Frederickson participated
in the preparation of this report.
ATTACHMENTS:
1. Comparison of Total Revenues
2. Comparison of Selected Revenues
3. Comparison of Total Expenditures
4. Comparison of Selected Expenditures
RECOMMENDED ACTION:
Receive and file report.
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