HomeMy WebLinkAbout1991-12-10; City Council; 11477; UPDATE OF FISCAL CONDITION FIRST QUARTER 1991-92I
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MTG, 12/10/91 UPDATE OF FISCAL CONDITION
DEPT. FIN FIRST QUARTER 1991-92
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RECOMMENDED ACTION:
No Action Required
LTEM FXPLANATION:
Staff has taken a close look at the status of Carlsbad's revenues and expenditures
as of September 30, 1991, the end of the first quarter. As might be expected,
Carlsbad's economy is not an island, and is experiencing the effects of the
economic trends exhibited nationally and within the state. In addition, factors
exclusive to the State of California have taken their toll. These events include
the winter freeze and drought in 1991, and the budget balancing tax increases
and diversion of City and County funds to the State. As a result, statewide
revenues have been declining. Carlsbad's revenues as well have exhibited signs
of economic weaknesses.
, l Consumer spending is weak and is not expected to change in the near future. As
a result, sales tax revenues have declined to 1988-89 levels during the first
quarter of 1991-92, coming in at approximately $250,000 lower than expected.
Spending on travel is also weak, as reflected in the transient occupancy tax
revenues which are equal to those of the first quarter of 1990-91, resulting in flat
income.
Development related fee revenues show no signs of weakness in the first quarter,
with strong income surfacing in the engineering plan check and inspection fees.
Building inspection fees, however are below those received for the same time in
1990-91, and offset the gains made in the engineering fees. It is not anticipated
that this level of revenue will be sustained, as the economy and the policies of
lending institutions continue to impact development. Property tax revenues are
insignificant at this time, as most receipts are received in December and April of
each fiscal year. Property taxes received to date indicate that the 1991-92 levels
are matching those of the previous year.
Expenditures to date are considerably under budget. Although the adopted
General Fund budget totaled $44.4 million, additions of prior year purchase
orders, contracts and continuing appropriations increased the budget to its
current total or $45.0 million. Estimates indicate that the City is currently $1.3
million under budget, with budgetary savings occurring in both salary and
maintenance and operation accounts. It is anticipated that the maintenance and
operation expenses will climb as the year progresses as one time contracts and
projects will be upcoming.
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Page Two of Agenda Bill No. I/, $'? 3
Staff recommends reducing the annual General Fund revenue estimate for sales
tax by $1,850,000 and transient occupancy tax by $150,000 for a total reduction of $2 million. Projected General Fund revenues then total $41.6 million. It is
estimated that expenditures will end the year at $41.3 million, resulting in a
balanced budget at year end.
EXHIBITS
1. Memo to Financial Management Director dated October 24, 1991
outlining the Citfs fiscal condition.
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October 24, 1991
TO: FINANCIAL, MANAGEMENT DIRECI'OR
FROM: Assistant Finance Director +E-.
-:t - Senior Management Analys
REVIEW OF FISCAL CONDITION - FlRST QUARTER 1991-92
Following the completion of the first quarter of 1991-92, staff has analyzed the fiscal status
of the General Fund. Both General Fund revenues and expenditures as well as the local
economic climate for the period were scrutinized. Throughout the country the chorus of
a recession is reflected in Carlsbad's revenues. The City's major revenue sources are not
showing any signs of growth, nor are they keeping pace with inflation. The rate of
under budget. The Southern California area is feeling the effects of greater unemployment
with the employee layoffs occurring among State employees as well as those in financial
institutions. Federal spending on defense is waning as reflected in staff reductions among
defense technology firms. The portions of the population which is employed are more
cautious in their spending, as they too may be next to receive pink slips.
REVENUES
First quarter revenues total $6 million, up approximately $440,000 or 8% over the same
period in 1990-91. The increase is the result of an earlier recording to the accounting
documents of the interdepartmental charges in the current year. As of September 30,
approximately 14% of the budgeted revenue has been received which compares well with
the history of first quarter revenues for the past three years.
Carlsbad's expenditures are mirroring and participating in the recession as well; they are
It is important to look more closely at the broad revenue patterns that occur throughout
the year, as well as the economy in general. This will result in an understanding of the
present economy within Carlsbad. The first quarter is a difficult time to forecast the
ultimate year end revenues for the City, as two major General Fund resources have yet to
show their true colors. First, sales taxes are greatly impacted by the December holiday
season which is the largest single month for sales tax revenue. Second, property tax
revenues peak in December and April of each fiscal year. Staff will be closely monitoring
these revenues as these months pass. Following the first quarter review of the revenues,
several trends within Carlsbad appear to be reflecting the economy in general. Four major
revenue sources will be discussed in detail below.
Sales Tax
Sales tax collections to date total $1.9 million, resulting in revenues that are
$250,000 lower than for the same period in 1990-91. In fact, revenue received
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from sales tax is just below the total received in September 1988. This is of
particular concern, as generally September is a catch-up month, the period where
the prior two month’s estimated payments are adjusted to reflect actual receipts.
In the past, Carlsbad has generally experienced revenue peaks during the catch-up
months. In contrast, September 1991 fell below the revenues received in September
1987. Clearly the weakness in sales tax revenues reflects a lack of consumer
spending. Nationally major American automobile manufacturers are reporting
losses. Locally, the October 22,1991, San Diego Union reported that throughout the
County, taxable sales have fallen below 1990-91 levels.
Historically, the past two years show that approximately 21% of total sales tax revenues are received by September 30. Applying this ratio to the 91-92 budgeted
amount of $10.5 million, we would expect to collect $2.5 million at this point.
Notably, during 1991-92, 18% of total estimated sales taxes have been received
during the first quarter. The $1.9 million received does not contain any financial
growth nor do the collections include an increase equivalent to inflation. To date,
the 1991-92 sales tax is nearly matching the history of the 1987-88 and 1988-89
years. Should the current trend continue, 1991-92 revenues from sales tax are
estimated at approximately $8.0 million, falling short of the budget estimate of
$10.5. At this time, Finance staff recommend revising the annual revenue estimate
down by $2 million. The total anticipated revenues for the City become $41.6
million.
Development Revenue
Development revenue for the quarter is higher than that received for the same
period of the previous two years. First quarter revenues show an increase of
$250,000 over 1990-91 development related revenues. A closer look at the monthly
trend which appears to be evolving is not as positive. July alone brought in 72%
of the first quarter revenues, while August and September fell below 1990-91 levels.
The development revenues which have performed well are related to Engineering
plan checks and inspections. Conversely, Building plan checks and inspections are
below 1990-91 levels. The Engineering Department reports that work is being done
in the preparatory stages of development, while scant amounts of construction are
actually being accomplished. It is not anticipated that this same level of preliminary
work will continue since many builders will wait until the economy recovers before
beginning their work. The changing standards within the banking and loan industry
have also tightened the amount of development occurring.
The City can hope that preliminary development work will continue. It does not
appear that the near future will see much change in the construction rates. Should
this trend continue, the budgeted level of development related revenues can be
attained.
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Transient Occu~anw Tax
July and August TOT receipts have been received by the City. Monthly and
cumulative comparisons of this revenue show that it is equivalent to that received
in 1990-91. As the national economy continues to be weak, so too is the travel
industry as reflected in the TOT revenues. Should the TOT at some time in the
future exceed 1990-91 levels, the City will meet the estimated budget of $3.35
million.
Property Tax
The two months for which property tax revenues have been received show that the
City has matched the performance level of 1990-91. Contacts at the County indicate
that they expect delinquencies to rise slightly in 91-92, resulting in a leveling off in
receipts. Property tax receipts to date do not contain any significant trends however
will become more concrete in December and April of the fiscal year. Property Tax
revenues to date are in line with the 1991-92 budget of $14,560,000.
EXPENDITURES
The good news is that General Fund expenditures are considerably under budget. Although
the adopted General Fund budget totaled $44.4 million, additions of prior year purchase orders, contracts and continuing appropriations increased the budget to its current total of
$45.9 million. First quarter 1991-92 actual expenditures total $8.7 million, up $400,000
from 1990-91. Outstanding encumbrances total $1.9 million, down $500,000 from last
year.
Historically, by the end of the first quarter of a fiscal year about 22% of year end General
Fund expenditures have occurred. Past experience also indicates that throughout the year
the General Fund spends 90% of its appropriated funds. Extrapolating these statistics
shows that the city is currently $1.3 million under its legal budget. Looking to the future,
we can also expect to have year end expenditures of approximately $41.3 million, $4.6
million under the current operating budget. See the attached exhibit graphing anticipated
year end totals.
An analysis of General Fund expenditures shows that both salary and maintenance and
operations (M&O) budgetary savings have occurred. Currently, salaries make up 70%, or
$28.3 million, of the General Fund operating budget. About 35 staff vacancies exist city-
wide resulting in General Fund salary savings of approximately $300,000 at the end of the
first quarter. All vacancies have been reviewed and prioritized by the City Manager and
Human Resources, and are scheduled to be filled by year end; however, substantial salary
savings will continue to build.
Maintenance and operations expenditures in Community Development and Utilities and
Maintenance are significantly under budget. The GIS program is just beginning to come
on line with the planned computer purchase scheduled for next quarter. Although Planning
is under budget at the end of the first quarter, major consulting commitments for the
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General Plan update occurred in October. In Utilities and Maintenance, major building
maintenance expenses are expected to climb as the year progresses, and the street chip seal
and overlay program should begin second quarter.
SUMMARY
Although revenues remain flat, General Fund expenditures have correspondingly declined,
resulting in a positive financial position at first quarter's end. The city can expect to
continue to accrue salary savings due to its vacancy rate. As in past years, maintenance
and operating costs should increase as the year progresses. At end of the first quarter
1991-92, staff recommends caution in new budget commitments and a continuation of
current hold-the-line budget. With current fiscal policies and budgets, a balanced budget for fiscal year 1991-92 is anticipated.
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0 0 CITY OF CARLSBAD
SALES TAX HISTORY BY MONTH
Thousands
*O0 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
Month
H 1988-89 El I 989-90 1990-91 = 1991 -92
CITY OF CARLSBAD
SALES TAX HISTORY - CUMULATIVE
Millions
JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
Month
IZ 1988-89 1989-90 1990-91 W 1991 -92
H 1988-89 E 1989-90 1990-91 B 1991 -92
1988-89 E 1989-90 III I 990-91 H 1991 -92
H 1989-90 E I 990-91 1991 -92
-BUDGETED REVENUE ~ACTUAL REV + FORECAST
+e BUDGETED EXPENDITURES NACTUAL EXP + FORECAST
DUE TO CHANGE OF FINANCIAL SUPERVISORS
THERE WAS NO 2nd QUARTER UPDATE OF
FISCAL CONDITION.