HomeMy WebLinkAbout12 - Budget Priority UpdateCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No.IJ
March 24, 2009
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Administrative Services Department
Dennis C. Danner, Administrative Services Director
(949) 644 -3123 or ddanner( city newport-beach ca us
Dan Matusiewicz, Finance Officer
(949) 644 -3126 or dmatusie city newport- beach. ca us
SUBJECT: Budget Priority Update
RECOMMENDATION:
Receive and file report.
DISCUSSION:
Background:
The City Council held its third annual goal setting session on January 10`h, 2009 at the
Friends Room of the Central Library. During that session the City Council came up with
thirteen (13) goals it hopes to accomplish during 2009. One of the goals established by
the Council at that meeting was to "Focus on the development and adoption of a
FY 2009 -10 budget which is balanced and which allocates the City's resources where
they are most needed without adversely affecting services to the public ".
This goal would normally be part of the City Council's routine business — in a normal year.
But, because of the unprecedented financial turmoil in the national, state and local
economies, the City Council thought it prudent to adopt this goal for this year and to have
staff report on the City financial condition on a regular basis. This is the first reporting on
this goal. Subsequent reports will be issued in May, July, September and November of
this calendar year. Regardless of the reporting frequency, City staff will be monitoring this
year's and next year's budget more closely than ever before.
Reporting Guidelines:
The City's three (3) largest General Fund revenue sources are: Property Taxes, Sales
Taxes, and Transient Occupancy Taxes. Coincidently these three revenue sources are
Budget Priority Update
March 24, 2009
Page 2
the best indicators of how the local economy is weathering the financial uncertainty facing
the nation's economy. Each of these revenue sources will be examined in detail as well
as additional revenue sources important to the City's General Fund. Expenditures will
also be monitored for any aberrations from budgeted norms.
Property Taxes — The City receives eight (8) secured property tax apportionments each
year from the County Auditor - Controller, beginning in mid - November and continuing to
mid -July. To date we have received four of the eight apportionments Over the past
several years these four apportionments amount to 55% - 56% of the total secured taxes
that will be received for the fiscal year. To date we have received $30,986,584 in secured
taxes. Extending that figure by the trend established over the past several years would
equate to total secured tax receipts for this year in a range from $55,333,668 to
$56,339,244. We are currently projecting secured tax receipts for this budget year of
$55,800,000 as compared to our original budget estimate of $54,080,000. In addition to
tracking secured tax receipts we have also been monitoring assessment appeals,
delinquencies, and specific transactions. We have not seen a substantial increase in
assessment appeals or delinquencies from prior fiscal years. The next substantive
apportionment, number seven (7), will be received on April 24th after the second
delinquency date of April 10th.
$60,000,000
$50,000,000
$40.000,000
$30,000,000
$20,000,000
$10,000,000
$0
Secured Property Tax Collections
(2008 -09 Revised Forecast based on collections through February 2009)
Sep Oct Nov Dec Jan Feb Mar Apr May Jun
In addition to secured property tax receipts the City receives numerous other property tax
related revenues including: Property Tax In Lieu of Sales Tax, Property Tax In Lieu of
Vehicle License Fees; Unsecured Property Tax; Redemptions, Penalties and Interest,
Supplemental Property Tax, Homeowners Exemption, and Property Transfer Tax. The
Budget Priority Update
March 24, 2009
Page 3
total original budget figure for all property taxes combined was $77,092,919. We have
revised that total estimate to $77,330,470, which is $237,551 above our original estimate
for all property taxes combined.
Sales Taxes - The City receives a total of twelve (12) sales tax apportionments each
year from the State Board of Equalization - one each month. The first apportionment
recorded for the fiscal year is the apportionment received in September since July's and
August's apportionments are for the prior period and are accrued to the prior fiscal year.
Thus, through the current month, the City has received six (6) sales tax apportionments
(March's apportionment is scheduled to be received on March 30th) The first two sales
tax apportionments for a quarter are estimates based upon prior year sales tax collections
with the third apportionment making up any difference between the estimates and actual
receipts. The apportionment scheduled for March 30th is one of these quarterly "clean -up"
apportionments and will be very indicative of how sales taxes are performing for this fiscal
year. Until we get that information we are dealing mostly with sales tax estimates.
Our original sales tax estimate for this fiscal year was $23,334,670, which was a 2%
increase from what we estimated collections would be for FY 2007 -08. We have since
revised that estimate downward to $19,769,208 which is a 12.5% decrease from what
was actually collected for the prior fiscal year. This equates to a budgeted loss of over
$3.5 million in sales tax receipts for the current fiscal year. The sales tax apportionment
scheduled for March 301h (being a clean -up payment) will be very important to see if our
revised estimate is accurate or whether we will be required to further decrease our
estimate for the current fiscal year.
Sales Tax Collections (Excludes Sales Tax In Lieu)
(2008 -09 Revised Forecast based on collections through February 2009)
$25,000,000
+2007 -08 Actual
$20,000,000
— 12008 -09 Original Budget
$15,000,000
—+� 2008 -09 Revised Forecast
$10,000,000
$5,000,000
$o - -- -- -, - -- - -- —, — �,_�
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Final
June
Budget Priority Update
March 24, 2009
Page 4
Transient Occupancy Taxes — The City's third largest General Fund revenue source is
Transient Occupancy Tax (TOT). Our original budget estimate for this revenue source
was $1,294,939 for sumrner /vacation housing rentals and $11,684,140 for the hotels, or a
total of $12,979,079. Like sales tax, we accrue Transient Occupancy Taxes, but only for
one month, thus the payment we receive in July is accrued to the prior fiscal year.
Therefore, through February, we have received seven (7) monthly transient occupancy
tax payments for the fiscal year (August — February), including the crucial summer
months. TOT collections through a certain month from year to year are much more
volatile and less predictable than other revenue sources. This, coupled with the recent
opening of the Resort at Pelican Hill makes this revenue source hard to predict. But, we
do have indications. So far, even though we saw a small decline in January and February
hotel collections, we don't have sufficient trend data to revise our total TOT estimate
downward. With the data we have collected thus far we believe we will achieve our
original transient occupancy tax budget estimates. However, hotel tax collections for the
remainder of the fiscal year are critical and we will monitor these collections closely. We
may have to revise this estimate downward based on future reports.
$14.000,000
$12,000.000
$10.000.000
$8,000,000
$6.000.000
$4,000,000
$2.000,000
$0
UTOT Collections
(2008 -09 Forecast based on collections through February 2009)
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Final
June
Other Revenue Sources — There are many other major revenue sources for the General
Fund including: Business License Tax, Building Permits, Plan Check Fees, Recreation
Fees, Parking Revenue, Interest Earnings, Use of Money and Property, and Other
Revenues. All in all, these revenues seem to be tracking close to budgeted estimates as
depicted in the table on the following page.
Budget Priority Update
March 24, 2009
Page 5
Revenue Category
Ori inal Estimate
Revised Estimate
ce
Other Taxes
$8,018,51 4
$7,865,725
789)
ZVa
Licenses & Permits
$3,044,553
$3,025,464
089
Inter overnmental Revenue
$2,359,060
$2,148,392
668
Char es for Services
$14,480,555
$14,554,651
096
Fines & Forfeitures
$3,559,756
$3,635,656
$75,900
Use of Money & Property
$8,495,802
$8,725,166
$229,364
Other Revenue
$670,715
$547,767
$122,948
Total
$40,628,955
$40,502,821
1 ($126,134
The total Original Budgeted Revenue for the General Fund when the budget was
prepared approximately one year ago, and as approved by the City Council last June,
was $153,371,608. We have since revised that estimate downward to $150,012,677 for a
decrease of $3,358,931, which closely relates to our projected decrease in Sales Tax of
$3,565,462.
Steps Taken to Ensure a Balanced Budget:
To deal with this decrease in revenue the City has taken a number of steps as previously
reported to the City Council-
• A hiring freeze has been imposed. In order to replace a vacant position,
approval from the City Manager is required. Each vacant position is evaluated
separately and only those positions necessary to fulfill an essential public
service are approved for replacement.
• Each department has been asked to reduce its current year budget by one
percent. Since the year is over half completed already, that essentially
amounts to 2% of expenditures for the remainder of the fiscal year. This will
result in savings of $1,677,253. These reductions have been posted to the
Appropriation Ledger.
• Non - essential General Fund capital improvements in the amount of $1,945,900
have been deferred and will compete for funding as part of the proposed
budget for the new fiscal year.
In addition to the above steps, we anticipate significant General Fund salary savings due
to the normal attrition of the City's workforce (in conjunction with the hiring freeze). We will
continue to monitor both General Fund revenues and expenditures closely between now
and when we close the books on the 2008 -09 fiscal year. At this point we believe
expenditures are under control and that our major revenue sources, with the exception of
Sales Tax, are close to our original budget estimates The next important milestone for
Budget Priority Update
March 24, 2009
Page 6
sales tax estimates will be with the payment to be received on March 30`h, 2009. We
should have the information from the State Board of Equalization on that payment by
March 201h.
Environmental Review:
The City Council's approval of this Agenda Item does not require environmental review.
Public Notice:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
Funding Availability:
N/A
Alternatives:
N/A
Prepared by: Submitted by:
Dan Matusiewicz Dennis C. Danner
Finance Officer Administrative Services Director