Loading...
HomeMy WebLinkAbout1991-12-10; City Council; 11477; UPDATE OF FISCAL CONDITION FIRST QUARTER 1991-92I AB#.-- TITLE: MTG, 12/10/91 UPDATE OF FISCAL CONDITION DEPT. FIN FIRST QUARTER 1991-92 CITY Ad -? CITY MGR: 44 Q 2 I! II 2 0 - 6 6 z 3 0 0 a 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. I' e 0 ., 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. e 0 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 1 * 0 0 1- 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. 2 0 e .. 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 3 0 0 .. 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. 4 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.