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HomeMy WebLinkAbout2021-11-02; City Council; ; Economic and Financial Update for the First Quarter of Fiscal Year 2021-22CA Review CKM Meeting Date: Nov. 2, 2021 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Laura Rocha, Deputy City Manager, Administrative Services laura.rocha@carlsbadca.gov, 760-602-2415 Subject: Economic and Financial Update for the First Quarter of Fiscal Year 2021-22 Districts: All Recommended Action Receive a report on the economic and financial update for the first quarter of fiscal year 2021- 22 and provide direction as appropriate. Executive Summary The City Manager committed to providing quarterly updates to the City Council on the economic outlook and an update on the city’s finances during the COVID-19 emergency. For these updates, staff will provide a presentation on the: •National, state, regional and Carlsbad-specific economic data •The city’s most recent financial data •General progress and execution of the annual budget This report details positive economic trends in the recovery from the most severe period of the pandemic as well as the residual economic impact of the Delta surge and other recent economic events. In line with regional trends, Carlsbad saw increases in revenues in almost all categories when compared to same quarter in the previous fiscal year, and expenditures are in line with the prior year’s rate of spending. Discussion Economic update The Carlsbad economy is diverse, has strong industry clusters and is a leader in innovation. The city’s gross regional product was worth $15.3 billion in 2020, second only to the largest city in the county, San Diego. Key industries driving this output are professional, scientific and technical services, computer and electronic product manufacturing and other manufacturing. The city also has a strong tourism industry that generates the second highest amount of transient occupancy tax among the county’s 18 cities. The COVID-19 pandemic led to fluctuating public health orders that at times required people to stay at home, limited or suspended business operations and reduced tourism and travel. These restrictions had disruptive effects on the economy, across the nation and the state and in Nov. 2, 2021 Item #10 Page 1 of 25 Carlsbad. Hotels and resorts and other hospitality businesses, an important segment of Carlsbad’s economy, have been particularly hard hit. Before the COVID-19 pandemic, the economic outlook for the United States, California, the County of San Diego and the City of Carlsbad was positive. The local gross regional product continued to expand along with most of the rest of the nation. From 2018 to 2019, Carlsbad’s gross regional product grew by $800 million. From 2019 to 2020, Carlsbad’s gross regional product remained the same. The National Bureau of Economic Research determined that a peak in monthly economic activity occurred in the U.S. economy in February 2020, marking the end of the longest recorded U.S. expansion, which began in June 2009. The pandemic brought on a global economic crisis and the impact on the U.S. economy was swift. Compared to the other recessions that the U.S. experienced since 1980, the economic drop caused by COVID-19 was extreme. As businesses were shuttered due to public health orders, unemployment numbers rose, with an estimated 20.5 million people in the U.S. out of work at the peak of the pandemic, according to a September 2020 Hamilton Project report. In Carlsbad, unemployment rose to a peak of 13.8% in April 2020. Government stimulus from federal, state and county programs played a major role in reversing the downward trend in the economy even as case rates began to surge again. In June 2021, when case rates fell to their lowest point since the onset of the pandemic, the state discontinued its Blueprint for a Safer Economy framework for economic recovery. With that action, the majority of health order restrictions imposed on businesses by the state and counties were lifted. This meant that businesses could generally resume normal service. However, the July through October surge in COVID-19 cases caused by the Delta variant hampered some businesses’ return to normal operations, and had a noticeable impact on economic recovery. Many workplaces extended remote work policies through the fall, a sign of continued uncertainty in the commercial real estate space, and tourism saw a larger than average drop from the summer peak. The economic impact of the Delta surge in San Diego County was blunted, in part, by high vaccination rates and continued capacity in the region’s healthcare systems. The Delta surge did contribute to a modest increase to unemployment rates in the city and county for a few months; those rates are once again decreasing. In September, the latest month available, unemployment was at 5.6% for the county, and 4.7% for the city. Perhaps of more concern, many economists are warning that there is substantial inflation risk because the Delta surge has hampered supply chains across the country and around the world. According to the Bureau of Labor Statistics, U.S. prices have increased 5.4% since last year. This trend could have an impact on both businesses and residents through the fall and winter. To ensure the city remains responsive to the changing situation and is prepared to meet new challenges head-on, staff have leveraged greater in-house economic data capabilities and analytics developed over the past year to publish a quarterly economic scan, offered as Exhibit 2. Staff also maintain a new economic development website, Doing Business in Carlsbad, that is dynamically updated with important economic development data for those wanting to do business or find employment in Carlsbad or to gain a better understanding of the city’s economy. In conjunction with the existing Life in Action campaign, the city continues to develop Nov. 2, 2021 Item #10 Page 2 of 25 tools to understand the economy, attract businesses, cultivate talent and support data-driven economic development decision-making. Financial update During the prior fiscal year, the City of Carlsbad saw significantly lower revenues in transient occupancy tax, the tax assessed on each hotel and motel rooms rented in Carlsbad. This tax is the city’s third-largest revenue source. Revenue from sales tax, the second-largest revenue source, appears to have been bolstered by Carlsbad’s strong economy, economic stimulus payments, paycheck protection program, and other economic measures such as the federal CARES Act and American Rescue Plan Act, which were intended to offset the impacts of COVID- 19. Revenue from the city’s largest revenue source, the city’s share of property taxes, was not substantially impacted by COVID-19. However, many of the city’s other revenue sources, such as recreational service revenues, were significantly impacted by the pandemic. During this very uncertain time, the city adopted its fiscal year 2021-22 budget based on conservative revenue projections. The ongoing economic disruption caused by COVID-19 was one of staff’s primary considerations when projecting city revenues, and the demands of the pandemic, along with the City Council’s approved goals, were the main factors when budgeting for expenditures. Revenues The majority of health order restrictions on businesses have been lifted since the fiscal year 2021-22 budget was adopted on June 8, 2021, and the impacts have been positive across most of the city’s revenue streams. The table below shows the differences in revenue when comparing quarter 1 of fiscal year 2021-22 with the same period in the prior fiscal year. Fiscal year 2021-22 revenues for Quarter 1 compared to fiscal year 2020-21 Q1 revenues Nov. 2, 2021 Item #10 Page 3 of 25 As noted above, the city’s three major revenue sources are property tax, sales tax and transient occupancy tax. • The majority of property tax revenue is collected in December and April each year. Fluctuations through the first quarter are due primarily to timing. • The majority of sales tax revenues represent funds collected for the second calendar quarter of 2021 and also include a portion of the sales tax revenue from October 2020 through March 2021 as well as the first advance of the city’s third calendar quarter sales tax revenues of 2021. The economic rebound from the pandemic related shutdowns was largely seen in receipts for transactions in the second calendar quarter of 2020, which was received in the first quarter of the current fiscal year. • The city has collected significantly more transient occupancy taxes in the first quarter of the fiscal year than in the same period in the prior year because many of the city’s hotels were fully or partially closed during that part of the previous fiscal year, and because occupancy rates overall were greatly reduced by the pandemic. Additionally, pent-up consumer demand allowed local hotels to command higher-than-expected average daily room rates. Expenditures and encumbrances Total General Fund expenditures and encumbrances through the month of Sept. 2021 are $79.1 million, compared to $58.2 million at the same time last year. The significant increase is largely due to an increase in transfers, particularly the $10.7 million related to the new Technology Investment Program in support of the Strategic Digital Transformation Investment Program and $7.8 million transferred to the General Capital Construction Fund using from the fiscal year 2020-21 General Fund surplus. This leaves $136.8 million, or 63.3%, available to be spent on city programs through the fiscal year ending June 30, 2022. If funds were spent in the same proportion as the previous year, the General Fund would have 68.7% available. Excluding the transfers out, contingencies and non-departmental charges, the percentage of available budget at Sept. 30, 2021 is 68.6%, slightly less than the 68.8% available at Sept. 30, 2020. If current trends continue with personnel vacancies, and in the city’s efforts to establish a hotel voucher program to combat homelessness, staff forecast that the General Fund will finish the fiscal year with a surplus. The city is experiencing turnover at a higher than normal rate which is not an issue only at the City of Carlsbad, but a nationwide issue.1 In response, the city has expanded our diversity recruitment outreach to advertise all of our openings on several diversity websites, and for certain recruitments we have worked on a digital marketing campaign, including social media. The city will continue monitoring spending and intends to return to the City Council in early 2022 with midyear review of the General Fund’s budget. Staff expects to propose adjustments to current year revenue forecasts and may propose expenditure adjustments in line with the city’s evolving economic situation. 1 The US Bureau of Labor Statistics reported that about 2.9% of the workforce quit their jobs in Aug., the highest quit rate since 2000 when the report began. Nov. 2, 2021 Item #10 Page 4 of 25 Enterprise funds The city’s water and wastewater enterprise funds continue to operate in line with budgeted expectations. The city’s municipal golf course, The Crossings at Carlsbad, continues to exceed budgeted estimates due to higher than expected demand for golf. Fiscal Analysis This is an informational item with no fiscal impact. Next Steps Staff will continue to provide quarterly updates through the COVID-19 emergency. Environmental Evaluation This informational report does not constitute a “project” within the meaning of the California Environmental Quality Act under California Public Resources Code Section 21065 in that it has no potential to cause either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment. Public Notification Public notice of this item was posted in keeping with the Ralph M. Brown Act and it was available for public viewing and review at least 72 hours before the scheduled meeting date. Exhibits 1. September 2021 Financial Status Report 2. September 2021 Economic Scan Nov. 2, 2021 Item #10 Page 5 of 25 This report summarizes the City of Carlsbad’s General Fund revenues and expenditures through Sept. 30,  2021. It compares revenues and expenditures for the first quarter of fiscal year 2021‐22 and fiscal year 2020‐ 21. In addition, the financial status of the Water and Wastewater Enterprises are included. This report is for internal use only. The figures presented here are unaudited and have not been prepared in accordance with Generally Accepted Accounting Principles. General Fund Revenues  Property Taxes ($2.5 million) – The majority of property tax revenue is collected  in December and April each year. According to the County of San Diego Assessor’s  Office, assessed values in Carlsbad have increased by 3.14% for fiscal year 2021‐ 22.This is the ninth year in a row that Carlsbad’s assessed values have increased from year to year, and in line with assessed value increases with other cities in San Diego County for the year. This reflects continued strength in the regional housing market. The increase in this year’s assessed values is due to a large increase in the assessed values of  residential properties in the city; the city saw smaller increases in commercial and industrial property values for  the year. This is the seventh year in a row since the Great Recession ended that the city saw increases in assessed  values in all three property components (residential, commercial and industrial).   The property taxes for the first quarter of the fiscal year have decreased by 27% as compared to the prior fiscal  year. The primary reasons for the decrease are:  Current taxes are down by $528,000 or 35% due to a difference in the timing of the apportionment of the taxes.  Last year’s apportionment was later in the month and captured more collections Aircraft taxes are down by $351,000 or 22% due to a decrease in aircraft being housed at the airport. Payments for previous years’ taxes are down by $68,000 due to less collections of previous year’s property taxes because in the previous fiscal year property owners were given an extension to pay their property taxes due to the COVID‐19 pandemic Supplemental and surplus property taxes are $27,000 higher when compared with the prior year Sales Taxes ($12.7 million) – For the first three months of the new fiscal year,  sales tax revenues are $3.0 million (or 31%) higher than the same period in the  previous fiscal year. Sales tax revenues for the year represent the city’s first advance for the third calendar quarter of 2021, the second calendar quarter of  2021 sales tax revenues, a portion of the city’s first calendar quarter of 2021 sales  tax revenues, and a portion of the city’s 2020 fourth calendar quarter sales tax  revenues. In the prior fiscal year, the city saw the impacts the COVID‐19 pandemic  including the shelter‐in‐place orders, which essentially shut down all non‐essential businesses, and where small  businesses in the State of California were allowed to defer sales tax payments.  For sales occurring in the second calendar quarter of 2021 (the most recent data available), key gains were seen  in amusement parks, automobile dealers, clothing stores, restaurants, and traveler accommodations. During the  Sept. 30, 2021  27%  31%  EXHIBIT 1 Nov. 2, 2021 Item #10 Page 6 of 25   Monthly Financial Report   ______________________________________________________     2 same period, key declines were seen in shoe stores, machinery, equipment and supplies merchant wholesalers,  professional and commercial equipment and supplies merchant wholesalers, promoters of performing arts,  sports and similar events, and beer, wine and distilled alcoholic beverage merchant wholesalers. The largest  economic segments in the city are automobile dealers, general merchandise stores, restaurants, clothing stores,  jewelry, luggage and leather goods stores, gasoline stations and motor vehicle manufacturing. Together, they  generate 68% of the city’s sales tax revenues.    Transient Occupancy Tax ($10.1 million) – The city’s third highest General Fund  revenue source on an annual basis is Transient Occupancy Tax (TOT or hotel tax),  estimated at $18.4 million for the current fiscal year. A tax of 10% of the rent  amount is collected on all occupancies less than 30 days (transient) in duration.  Year‐to‐date TOT figures represent taxes collected on hotel receipts through the  month of Aug. 2021. TOT collected for the first three months of the new fiscal  year reflects an increase of $7 million, 224% more than the previous year. Due to the reopening of the economy  in June 2021 after a prolonged COVID‐19 pandemic related tier system, all local hotels are now open; a stark  contrast to the prior fiscal year where many hotels were partially or fully closed, including three of the largest  hotels – the Omni La Costa, the Park Hyatt Aviara, and the LEGOLAND Hotels.      Currently, there are 4,680 hotel rooms in service (of 5,059 total rooms built in the city), 668 timeshares and 326  registered short‐term vacation rentals. The average occupancy of hotel rooms over the most recent 12 months  has been 59% which is up from 51% at this time last year.     Business License Tax ($2.0 million) – All entities doing business in the City of  Carlsbad are required to have a valid business license. Business license revenue is  estimated at $5.7 million for the current fiscal year. Business license revenues are  up $551,000, or 39% higher, than the previous fiscal year. The increase is due to  significant  payments received  for overdue business license renewals and  penalties, partially offset by a small decrease in new business licenses.     There are currently 9,505 licensed businesses operating within the city, 114 less than the prior year. The majority  of taxed businesses (6,402 businesses) are located in Carlsbad, with 2,473 of these businesses home‐based.     Interdepartmental Charges ($1.3 million) – Interdepartmental charges are up  by $18,000 when compared with the same period last year. These charges are  generated through engineering  services charged to  capital projects (down  $39,000 due to less staff charging to capital projects); reimbursed work from  other funds (flat at $0 charged to date); and miscellaneous interdepartmental  expenses charged to funds outside the General Fund for services performed by  departments within the General Fund (up 6%, or $57,000), the result of increased personnel, and maintenance  and operations costs.     Income from Investments and Property ($1.2 million) – For the first three  months of the new fiscal year, income from investments and property is up  $57,000 compared to the previous fiscal year.     Interest income is down $240,000 for the year due to the combination of a  25.1% decrease in the average yield on the portfolio for the year (a decrease in  the yield from 1.5494% last fiscal year to 1.1603% in the current fiscal year) and a 4.2% increase in the monthly  average cash balance. The Federal Reserve has maintained an effective benchmark rate between 0 and 0.25%  since March 2020. The city has since seen many of its higher rate bonds and notes being called, causing the city  to have to invest in lower yield securities. This has and will continue to drive the yield on the portfolio lower.    1%  39%  224%  5%  Nov. 2, 2021 Item #10 Page 7 of 25   Monthly Financial Report   ______________________________________________________     3 Income from property sales and rentals is up by $297,000 for the year, primarily due to facilities and pool lane  rentals as the prior year was severely impacted by the COVID‐19 pandemic and increased cell site lease revenues.     Recreation  Fees  ($1.1  million) – Recreation fees are generated through  instructional  classes, camps,  youth  and adult sports,  special events, parent  participation  preschool,  senior programs, and  various aquatic programs.  Recreation revenues are up by 94% compared to last year at this time. This large  increase is due to the reopening of programs as compared to the prior fiscal year  when there were cancellations across all programs due to COVID‐19 restrictions.    Development Related Revenues ($961,000) – Development related revenues,  which include building permits, planning fees, building department fees, and  engineering fees, reflect a significant increase for the first quarter of the new  fiscal year.     Development related fees are paid by developers to cover a portion of the cost  of reviewing and monitoring development activities, such as plan checks and inspections. Engineering plan check  fees are one of the first fees paid during the initial stages of development. Some of the activity in the third month  of the fiscal year included permits associated with: 17 condominium units, a Garfield Homes development and  a Juniper Beach Homes development.    One source of development related revenue is building permits, which are down 3% compared to last fiscal year.  The decrease in building permit revenue is derived from a decrease in projects offset by a combination of a  decrease in the valuation and square footage of new construction, a small decrease in residential permitting  activity, and a decrease in commercial/industrial permitting activity to date. The year‐to‐date valuation of new  construction in the current fiscal year is $45.9 million, while it was $63.3 million in the previous fiscal year, a 28%  decrease. In Sept. Carlsbad issued building permits for 17 residential units, eight more units than were permitted  in Aug. In the northwest quadrant, building permits were issued for six residential dwelling units: five permits  were issued for second dwelling units; and one permit was issued for a single‐family home. In the northeast  quadrant, two residential second dwelling unit permits were issued. In the southeast quadrant, one building  permit was issued for a single‐family home. In the southwest quadrant, building permits were issued for eight  residential dwelling units for single‐family homes as part of Phase 20 at Poinsettia 61 Treviso. For the current  fiscal year, 35 residential permits have been issued, as compared to 47 residential permits issued during the  same period last year.    During the month of Sept., no permits were issued for commercial or industrial space permits compared to 392  square feet of commercial and/or industrial permits issued during the same period last year.    Franchise  Tax  ($748,000) – Franchise  taxes are generated from public utility  sources, such as San Diego Gas & Electric (SDG&E), trash collection franchises, and  cable franchises conducting business within city limits. Franchise tax revenue is  estimated at $5.7 million for the current fiscal year. Year‐to‐date franchise taxes  are $9,000 higher than the same period last year.     Cable television franchise revenues (Spectrum and AT&T) are down by $15,000 due to a decrease in the number  of paid subscription services (premium video, equipment rental, on‐demand, and programming services). An  increase in trash collection revenue of $24,000 is due to an increase in trash rates combined with additional trash  customers.     Approximately 47% of the total franchise tax revenue anticipated for the year will be collected from SDG&E in  April 2022.     1%  94%  36%  Nov. 2, 2021 Item #10 Page 8 of 25   Monthly Financial Report   ______________________________________________________     4   Ambulance Fees ($668,000) – The city bills any individual who is transported in  one of the city’s ambulances. Through Sept. 2021, receipts from ambulance fees  are down $53,000, or 7%, compared to last fiscal year. The decrease in revenue  for the first three months of the fiscal year is caused by a decrease in the number  of billable transports, offset partially by an increase in ambulance fee rates which  increased in Sept. 2020: 1,362 in the first three months of fiscal year 2021‐22  versus 1,401 in the prior fiscal year.    Other Revenue Sources ($351,000) – Other revenue sources have decreased by  $215,000 and include revenues received by the city to offset the costs of special  studies or projects for developers; reimbursements  for damage done to city  streets, rights‐of‐way, and other city‐owned property; donations; reimbursement  from the Gas Tax Fund for traffic signal maintenance; and miscellaneous  reimbursed expenses and refunds of prior year fees. The decrease to date is  primarily driven by lower receipts as the City of Oceanside took over lead on the Innovate 78 contract.     Other Licenses and Permits ($244,000) – Other licenses and permits consist of  fire protection services, right‐of‐way, lagoon, grading, hazardous uses, and other  miscellaneous permit revenues. These permits usually increase/decrease along  with increases/decreases in development activity. Other licenses  and  permit  revenues can  vary  throughout the year. The increase  to date  of $24,000  is  primarily a result of increases in coastal development permits.     Fines and Forfeitures ($94,000) – Fines and forfeitures represent fees collected  for code violations, parking citations, overdue fines, and returned checks. The  city recognizes revenues when the citizen pays the fine or forfeiture, as opposed  to when the fine is imposed. The increase to date of $18,000 is mostly due to  increases in parking citation revenues and overdue fines, partially offset by a  decrease in code violation revenue.   Intergovernmental Revenues ($104,000) – Intergovernmental revenues include  homeowners property tax exemption revenue and miscellaneous receipts  received from the state or federal governments, as well as local school districts.  Various miscellaneous receipts, mostly for senior nutrition programs, comprise  the $18,000 received this year. In the prior year, the city received Coronavirus  Aid, Relief and Economic Security Act or CARES Act funding as well as a homeless    grant which did not recur in the current fiscal year.    Transfer Taxes ($247,000) When real property is sold, the County Assessor’s  Office charges a transfer tax. The transfer tax rate in San Diego County is $0.0011  multiplied by the selling price of the property. The city receives 50% of the transfer  tax charged for sales within the City of Carlsbad. Revenues have decreased due to  timing of receipts, because the city has received two payments in the new fiscal  year versus three at this point in the prior year.    11%  7%  38%  24%  90%  21%  Nov. 2, 2021 Item #10 Page 9 of 25   Monthly Financial Report   ______________________________________________________     5 Other Charges or Fees ($97,000) – Other charges or fees are generated through  the sale of city documents, such as staff reports, blueprints and copies; general  fees collected for false alarms, easements and agreements, weed abatement and  kiosk signs; audio/visual rental fees; and general services, such as mutual aid  response, mall police services, emergency response services, reports, etc.       A detailed schedule of General Fund revenues is provided on the following page.  0.4%  Nov. 2, 2021 Item #10 Page 10 of 25   Monthly Financial Report   ______________________________________________________     6 REVENUE REVENUE EXPECTED ACTUAL  ACTUAL  CHANGE FROM BUDGETED THROUGH FY 2021 FY 2022 YTD 2021 TO PERCENT FOR FY 2021‐22 09/30/21 AS OF 09/30/20 AS OF 09/30/21 YTD 2022 CHANGE TAXES PROPERTY TAX $76,590,000 $3,452,304 $3,462,786 $2,542,833 ($919,953)‐27% SALES TAX 44,015,000 10,398,972 9,620,962              12,651,416 3,030,454 31% TRANSIENT OCCUPANCY TAX 18,441,000 3,710,003 3,135,162              10,147,069 7,011,907 224% FRANCHISE TAX 5,666,000 723,176 738,744                 747,949 9,205 1% BUSINESS LICENSE TAX 5,817,000 1,447,746 1,421,365              1,972,622 551,257 39% TRANSFER TAX 1,285,000 224,326 311,818 246,777 (65,041)‐21% TOTAL TAXES 151,814,000 19,956,527 18,690,837 28,308,666 9,617,829 51% INTERGOVERNMENTAL VEHICLE LICENSE FEES 50,000 0 0 0 0 0% HOMEOWNERS EXEMPTIONS 350,000 0 0 0 0 0% OTHER REIMBURSEMENT 7,518,763 777,781 990,187 103,597 (886,590)‐90% TOTAL INTERGOVERNMENTAL 7,918,763 777,781 990,187 103,597 (886,590) ‐90% LICENSES AND PERMITS BUILDING PERMITS 521,000 139,648 367,475                 356,975 (10,500)‐3% OTHER LICENSES & PERMITS 944,000 197,819 219,589                 243,784 24,195 11% TOTAL LICENSES & PERMITS 1,465,000 337,467 587,064                 600,759 13,695 2% CHARGES FOR SERVICES PLANNING FEES 274,000 23,535 31,427                    195,634 164,207 523% BUILDING DEPARTMENT FEES 617,000 141,724 186,394                 202,045 15,651 8% ENGINEERING FEES 441,000 113,807 123,202                 206,323 83,121 67% AMBULANCE FEES 2,584,000 669,590 720,755                 668,244 (52,511)‐7% RECREATION FEES 1,760,000 603,322 550,002                 1,065,913 515,911 94% OTHER CHARGES OR FEES 550,000 36,275 96,678                    97,045 367 0% TOTAL CHARGES FOR SERVICES 6,226,000 1,588,252 1,708,458             2,435,204 726,746 43% FINES AND FORFEITURES 406,000 72,935 76,057                   94,020 17,963 24% INCOME FROM INVESTMENTS & PROPERTY 4,879,925 723,186 1,145,608             1,202,682 57,074 5% INTERDEPARTMENTAL CHARGES 5,181,349 1,240,763 1,233,865             1,252,016 18,151 1% OTHER REVENUE SOURCES 964,429 290,983 556,309                 341,425 (214,884) ‐39% TRANSFERS IN 10,000 10,000 10,000 10,000 0 0% TOTAL GENERAL FUND $178,865,466 $24,997,894 $24,998,385 $34,348,369 $9,349,984 37% (1) (1) Calculated General Fund revenues are 37 percent above estimates as of Sept. 30, 2021. GENERAL FUND REVENUE COMPARISON Nov. 2, 2021 Item #10 Page 11 of 25   Monthly Financial Report   ______________________________________________________     7 Expenditures    Total General Fund expenditures and encumbrances through the month of Sept.  2021  are  $79.2 million,  compared to $58.2 million at the same time last year. The significant increase is largely due to an increase in  transfers, particularly the $10.7 million related to the new Technology Investment Program in support of the  Strategic Digital  Transformation Investment  Program  and $7.8 million  transferred  to the General Capital  Construction Fund using from the fiscal year 2020‐21 General Fund surplus. This leaves $136.8 million, or 63.3%,  available through the fiscal year ending June 30, 2022. If funds were spent in the same proportion as the previous  year, the General Fund would have 68.7% available.     Excluding the transfers out, contingencies, and non‐departmental charges, the percentage available at Sept. 30,  2021 is 68.6%, slightly less than the 68.8% available at Sept. 30, 2020.     The adopted General Fund budget for fiscal year 2021‐22 increased by 12.8% or $20.9 million due to:   Increased personnel costs (increase of $11.3 million):  o $6.1 million in additional salary costs associated with 23.5 new full‐time positions and 6.2 part‐time  positions and previously negotiated and anticipated wage increases  o $2.3 million in health insurance and retirement benefits costs  o $2.9 million increase in other personnel costs (Medicare, unemployment and disability benefits)   Increased maintenance and operations costs (increase of $9.6 million):  o Implementation of the City Council’s goals  o Reinstatement of services after many programs were stalled or halted due to COVID‐19 restrictions  o Increased legal services costs   Decreased City Council contingency from $1.5 million to $500,000.    A detailed schedule of General Fund expenditures is provided on the following page.    Nov. 2, 2021 Item #10 Page 12 of 25   Monthly Financial Report   ______________________________________________________     8 ADOPTED WORKING BUDGET BUDGET AMOUNT AVAILABLE % DEPARTMENT DESCRIPTION FY 2021‐22 FY 2021‐22 (a) COMMITTED (b) BALANCE AVAILABLE (c) POLICY AND LEADERSHIP GROUP CITY ATTORNEY $2,037,136 $2,037,136 $553,289 $1,483,847 72.8% CITY CLERK SERVICES 1,300,469 1,412,097 394,357 1,017,740 72.1% CITY COUNCIL 649,975 649,975 136,440 513,535 79.0% CITY MANAGER 2,112,097 2,248,604 596,129 1,652,475 73.5%CITY TREASURER 250,752 250,752 66,742 184,010 73.4% COMMUNICATIONS & ENGAGEMENT 1,771,173 2,421,160 1,187,592 1,233,568 50.9% TOTAL POLICY AND LEADERSHIP GROUP 8,121,602 9,019,724 2,934,549 6,085,175 67.5% ADMINISTRATIVE SERVICES ADMINISTRATION 568,883 568,883 157,685 411,198 72.3% FINANCE 5,632,387 6,326,949 1,966,026 4,360,923 68.9% HUMAN RESOURCES 4,959,011 5,315,665 1,471,488 3,844,177 72.3% INNOVATION & ECONOMIC DEVELOPMENT 1,264,626 1,414,133 444,678 969,455 68.6% TOTAL ADMINISTRATIVE SERVICES 12,424,907 13,625,630 4,039,877 9,585,753 70.4% PUBLIC SAFETY POLICE 48,756,017 50,402,797 15,075,961 35,326,836 70.1% FIRE 33,521,412 33,996,618 10,283,917 23,712,701 69.8% TOTAL PUBLIC SAFETY 82,277,429 84,399,415 25,359,878 59,039,537 70.0% COMMUNITY SERVICES COMMUNITY SERVICES ADMINISTRATION 656,221 816,221 329,536 486,685 59.6% COMMUNITY DEVELOPMENT 10,502,061 13,332,443 4,193,129 9,139,314 68.5% HOUSING & HOMELESS SERVICES 5,901,431 5,012,786 48,481 4,964,305 99.0% LIBRARY & CULTURAL ARTS 13,780,555 14,565,428 3,536,487 11,028,941 75.7% PARKS & RECREATION 19,159,380 21,116,273 9,052,482 12,063,791 57.1% TOTAL COMMUNITY SERVICES 49,999,648 54,843,151 17,160,115 37,683,036 68.7% PUBLIC WORKS PUBLIC WORKS ADMINISTRATION 1,941,613 2,094,319 580,738 1,513,581 72.3% CONSTRUCTION MANAGEMENT & INSPECTIONS 2,990,665 3,176,948 865,962 2,310,986 72.7% ENVIRONMENTAL MANAGEMENT 1,282,225 1,607,706 838,488 769,218 47.8% FACILITIES 6,555,934 8,676,759 3,654,282 5,022,477 57.9% TRANSPORTATION 8,405,466 8,902,807 3,059,582 5,843,225 65.6% TOTAL PUBLIC WORKS 21,175,903 24,458,539 8,999,052 15,459,487 63.2% NON‐DEPARTMENTAL & CONTINGENCY (d) OTHER NON‐DEPARTMENTAL 2,922,000 3,468,923 450,996 3,017,927 87.0% OPERATING TRANSFERS OUT 7,148,000 25,784,056 20,272,056 5,512,000 21.4% CONTINGENCY 500,000 452,975 0 452,975 100.0% TOTAL NON‐DEPT & CONTINGENCY 10,570,000 29,705,954 20,723,052 8,982,902 30.2% TOTAL GENERAL FUND $184,569,489 $216,052,413 $79,216,523 $136,835,890 63.3% (a) Working budget includes the adopted budget, open encumbrances from the end of the prior fiscal year, and any carry forwards. (b) Actual expenditures on a budgetary basis include encumbrances and exclude non‐budgeted items. (c) Amount available would be 68.7% if funds were spent in the same proportion as the previous year. (d) Other non‐departmental includes property tax administration fees, assessment district administration, citywide litigation expenses,        and other items not attributed to a specific department. AS OF 09/30/21 EXPENDITURE STATUS BY DEPARTMENT GENERAL FUND Nov. 2, 2021 Item #10 Page 13 of 25   Monthly Financial Report   ______________________________________________________     9 Council Contingency    The City Council has allocated $500,000 out of the General Fund budget for unanticipated emergencies or  unforeseen program needs. Below is a listing of the City Council’s contingency:         Donations    Carlsbad Municipal Code 2.08.100 authorizes the city manager to accept donations on behalf of the city in an  amount or of value of up to $5,000 per donation. These donations shall be used in accordance with the donor’s  intent or added to the city’s contingency account. Below is a listing of all donations, excluding minor food  donations such as donuts, that have been accepted during fiscal year 2021‐22:       CONTINGENCY ACCOUNT USE OF FUNDS RESOLUTION EXPLANATION AMOUNT DATE NUMBER ADOPTED BUDGET $500,000 USES: For the cost of producing and installing no parking signs on Avenida Encinas (17,200) 7/20/2021 2021‐174 To shelter pets belonging to people experiencing homelessness (29,825) 9/28/2021 2021‐219 TOTAL USES (47,025) AVAILABLE BALANCE $452,975 Department Intention July Aug. Sept. Qtr. 1 Parks & Recreation Congregate Meals/Guest Donation $1,590 $1,071 $950 $3,611 Parks & Recreation Home Meals Donation 1,697 1,050 1,185 3,932 Parks & Recreation Leo Carrillo Ranch Contribution Revenue Fund 420 159 256 835 Parks & Recreation Opportunity Grant Donations 932 1,590 445 2,966 Parks & Recreation Senior Center Contribution Revenue Fund 24 104 271 399 Parks & Recreation Parks Maintenance Contribution Revenue Fund 0 0 825 825 Subtotal ‐ Parks & Recreation $4,663 $3,973 $3,931 $12,567 Library & Cultural Arts Book purchases $0 $85 $50 $135 Library & Cultural Arts Support Library Programs and Services 0 10 515 Subtotal ‐ Library & Cultural Arts $0 $95 $55 $150 Fire Toys for sick or scared children 0 0 350 350 Subtotal ‐ Fire $0 $0 $350 $350 Total Donations $4,663 $4,068 $4,336 $13,067 Donations Nov. 2, 2021 Item #10 Page 14 of 25   Monthly Financial Report   ______________________________________________________     10 Water Enterprise      Revenues   A 0.2% increase in water volume sales coupled with a 2% increase in water rates (beginning in  January 2021) have led to higher water delivery revenues.   Interest earnings have decreased year‐over‐year due to a 25.1% decrease in the yield of the  Treasurer’s portfolio offset partially by a 7.5% increase in the average cash balance.   The decrease in property taxes is primarily due abnormally high property taxes received in the  prior fiscal year resulting from allowable COVID‐19 extensions.    The decrease in other revenues is due to higher loss recoveries in prior year.    Expenses   The increase in staffing expenses is due to salary increases, offset by vacancies experienced thus  far in the fiscal year.   Higher interdepartmental expenses resulted from  increased personnel related  costs, and  maintenance and operations costs for shared services.   Purchased water expenses have increased from the prior year due to a 4% rate increase in the  variable cost of water purchased from the San Diego County Water Authority (SDCWA) offset by  a decrease in the amount of water purchased.   The largest factors driving the decrease in outside services and maintenance are services for  software, pipeline maintenance and water sampling services.    The largest factors driving the decrease  in miscellaneous expenses  are meters and fittings  purchases.      CHANGE FROM BUDGET YTD (*) YTD (*) YTD 2020‐21 TO PERCENT FY 2021‐22 9/30/2020 9/30/2021 YTD 2021‐22 CHANGE REVENUES:                WATER DELIVERY 40,583,097$    11,591,676$   11,736,959$   145,283$             1.3%                INTEREST 374,897 117,329 78,085 (39,244)‐33.4%                MISC. SERVICE CHARGES 281,081 84,097 77,839 (6,258)‐7.4%                PROPERTY TAXES 3,687,900 129,410 89,197 (40,213)‐31.1%                FINES, FORFEITURES & PENALTIES 104,651 771 1,422 651 84.4%                OTHER REVENUES 434,829 126,653 102,196 (24,457)‐19.3%                TOTAL OPERATING REVENUE 45,466,455 12,049,936 12,085,698 35,762 0.3% EXPENSES:                STAFFING 4,347,140 1,054,735 1,082,080 27,345 2.6%                INTERDEPARTMENTAL SERVICES 2,969,197 678,868 735,291 56,423 8.3%                PURCHASED WATER 26,700,000 7,211,177 7,230,458 19,281 0.3%                MWD/CWA FIXED CHARGES 6,860,000 1,675,166 1,671,418 (3,748)‐0.2%                OUTSIDE SERVICES/MAINTENANCE 2,603,249 189,252 116,077 (73,175)‐38.7%                DEPRECIATION/REPLACEMENT 4,500,000 1,050,000 1,125,000 75,000 7.1%                MISCELLANEOUS EXPENSES 992,104 156,617 101,965 (54,652)‐34.9%                CAPITAL OUTLAY 0 0 0 0 100.0%                TOTAL OPERATING EXPENSES  48,971,690 12,015,815 12,062,289 46,474 0.4% OPERATING INCOME/(LOSS) (3,505,235)$      34,121$           23,409$           (10,712)$              ‐31.4% (*) Adjusted to reflect timing differences for water purchases and depreciation. Sept. 30, 2021 WATER OPERATIONS FUND   1%  1.9%    0.4%    0.3%  Nov. 2, 2021 Item #10 Page 15 of 25   Monthly Financial Report   ______________________________________________________     11 Wastewater Enterprise      Revenues    Charges for current services are higher than in the prior year due primarily to a 3% rate increase  that began in  January 2021 coupled  with development throughout the city. Commercial  customer water usage is also higher in the current year because commercial/industrial  wastewater rates in Carlsbad are based on water usage, and commercial customers had  significantly decreased during the height of the COVID‐19 pandemic related shutdown.    Interest earnings decreased due to a 25.1% decrease in the yield of the Treasurer’s portfolio  offset partially by a 3.0% increase in the monthly average cash balance.    The decrease in other revenues is due to a nonrecurring reimbursement from the City of  Oceanside for a wastewater bypass 2020 storm events.  Expenses    The increase in staffing expenses is due primarily to an increase  in the annual required  contribution to the city’s unfunded pension liability balance with CalPERS.     Encina plant services to date are a combination of actuals and an estimate of the annual Encina  expense prorated monthly.     The decrease in miscellaneous expenses primarily due to timing of invoices for chemicals and  parts for equipment.   The capital outlay in fiscal year 2021‐22 was for the procurement of a utility truck.     CHANGE FROM BUDGET YTD* YTD* YTD 2020‐21 TO PERCENT FY 2021‐22 9/30/2020 9/30/2021 YTD 2021‐22 CHANGE REVENUES:                 CHARGES FOR CURRENT SERVICES 13,773,859 3,482,621 3,971,433 488,812 14.0%                 INTEREST 75,000 36,543 21,878 (14,665)‐40.1%                 OTHER REVENUES 115,002 196,527 24,962 (171,565)‐87.3%                 TOTAL OPERATING REVENUE 13,963,861 3,715,691 4,018,273 302,582 8.1% EXPENSES:                STAFFING 2,891,648 637,291 681,551 44,260 6.9%                INTERDEPARTMENTAL SERVICES 1,357,384 349,335 337,343 (11,992)‐3.4%                ENCINA PLANT SERVICES 4,665,000 1,075,000 1,166,250 91,250 8.5%                OUTSIDE SERVICES/MAINTENANCE 1,359,394 82,149 86,839 4,690 5.7%                DEPRECIATION/REPLACEMENT 5,300,000 1,250,000 1,325,000 75,000 6.0%                MISCELLANEOUS EXPENSES 776,802 112,793 77,590 (35,203)‐31.2%                CAPITAL OUTLAY 35,135 0 28,719 28,719 100.0%                TOTAL OPERATING EXPENSES  16,385,363 3,506,568 3,703,292 196,724 5.6% OPERATING INCOME/LOSS (2,421,502) 209,123 314,981 105,858 50.6% (*) Adjusted to reflect timing differences for Encina quarterly invoices and depreciation. Sept. 30, 2021 WASTEWATER OPERATIONS FUND   12.9%    6%    8%  Nov. 2, 2021 Item #10 Page 16 of 25 1 First Quarter, Fiscal Year 2021-2022 The following scan provides an overview of key economic indicators for July, August, and September 2021 for the City of Carlsbad. This economic scan is updated quarterly to provide information that is relevant to the health of Carlsbad’s economy. For regularly updated information regarding the Carlsbad economy and economic development visit carlsbadca.gov/doingbusiness. GENERAL Carlsbad GRP (Source: EMSI, 2020) $15.3B As of 2020, Carlsbad had the second largest gross regional product in San Diego County at $15.3B, only trailing the City of San Diego. From 2019, GRP remained unchanged, signaling the pandemic yielded no economic growth. Key industries driving this output are professional, scientific and technical services, computer and electronic product manufacturing and other manufacturing. These industries are generally more resilient in recessions. Another major industry, accommodation and food services, was severely impacted by the pandemic, but is recovering. JOBS Unemployment Rate (Source: California Employment Development Department, September Report) Prior to the pandemic, Carlsbad boasted a low unemployment rate of 2.9%. At the onset of the pandemic, unemployment spiked quickly to 13.8% before steadily falling. Through the past 18 months, the unemployment rate has had some correlation to the prevalence of COVID-19 in the region, with increases during the Holiday 2020 season, and through the surge caused by the Delta- variant. Carlsbad continues to fare better than other North County cities, the County of San Diego, and the State of California. In September the unemployment rate was 4.7% in Carlsbad, a full percentage point lower than in August. 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Carlsbad Unemployment Rate 2020 vs 2021 2020 2021 0 2 4 6 8 10 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Unemployment Rate 2021 Carlsbad San Diego County California North County Avg w/o Carlsbad Innovation + Economic Development Department Exhibit 2 Nov. 2, 2021 Item #10 Page 17 of 25 2 Job Postings (Source: EMSI, July - September 2021) 13,246 There were 13,246 unique job postings in Carlsbad between July and September, an increase of 800 postings from the previous quarter. This continues a trend of increased postings quarter over quarter for the past six quarters. The median posting duration was 34 days, which is a 13% increase in time to fill jobs over the last quarter. The median advertised salary for these postings was $45,700. The top-hiring industries were manufacturing, administrative services, and professional, scientific and technical services. Continued feedback from hospitality and restaurant businesses indicate rehiring in those industries remains a challenge. TALENT + WORKFORCE Education (Source: U.S. Bureau of Labor Statistics - 2019) Carlsbad has established itself as having the right workforce to fuel innovation in tech and life sciences fields. Carlsbad businesses can access talent from San Diego, Orange County, and even southwest Riverside County. Nearly 60% of working-age residents hold a bachelor’s degree, with more than 25% attaining an advanced degree. Outside of some communities in central San Diego, Carlsbad has the heaviest concentration of households with degrees in science, technology, engineering, and mathematics (STEM degrees). This local talent mix is among the leading reasons that firms choose Carlsbad. Nearby public and private universities offer top-notch programs. Within a 30-mile radius, more than a half-dozen universities and colleges confer more than 35,000 degrees annually. The Carlsbad business community works closely with higher education partners to align various education tracks with local workforce needs. Talent Pipeline Degrees conferred by university, displayed as distance from Carlsbad Nov. 2, 2021 Item #10 Page 18 of 25 3 CAPITAL Interest Rates (Source: U.S. Department of the Treasury, September 2021) National interest rates remain lower than pre-pandemic levels, with one-year rates now at 0.09%. Ten-year rates have fluctuated over the past two quarters and are now at 1.52%. Due to several local, state, and federal grant programs, including new and reauthorized programs, traditional debt-financing may still be less appealing for businesses. Assuming the recovery remains consistent, emergency relief programs are less likely to be reauthorized in the future. Further, with some speculation of inflation, interest rates may begin to rise. September 2020 One-year interest rate 0.12% 10-year interest rate 0.72% 30-year interest rate 1.49% September 2021 One-year interest rate 0.09% 10-year interest rate 1.52% 30-year interest rate 2.08% COMMERCIAL REAL ESTATE Market Vacancy Rates and Rent per Square Foot (Source: CoStar, September 2021) Commercial vacancy rates have generally improved since the onset of the pandemic. The industrial vacancy rate is now at 5.8%, compared to 14.8% a year ago. The office vacancy rate is currently 14.7%, compared to 21.5% a year ago. However, in retail, which was disproportionately impacted by the pandemic, vacancies have continued to climb, now at 8.2%, compared to 7.4% a year ago. Market rent per square foot has also been relatively steady in office and industrial properties. Retail rents have begun recovering in 2021 after declining by -1.5% in 2020. 5.8% Industrial vacancy rate 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 Carlsbad Commercial Vacancy Rates Carlsbad Retail Carlsbad Office Carlsbad Industrial 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Retail Office Industrial Retail Office Industrial Carlsbad North County w/o Carlsbad Vacancy Rate Comparison 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 Nov. 2, 2021 Item #10 Page 19 of 25 4 INCOME + HOUSING Median Household Income (Source: 2019 ACS 5-Year Estimates, the latest year available) Median household income in Carlsbad continues to exceed county income levels. The median income for a household in Carlsbad in 2019 was $123,409, which was $44,085 higher than the County median income. The delta between Carlsbad median income and the County median income grew by $11,768 between 2018 and 2019, meaning Carlsbad is outpacing the region in terms of household income growth. Median Home Price (Source: Zillow Home Value Index - September Report) Home values in Carlsbad, along with the San Diego region continue to rise significantly, with median home prices in the city at $1.23 million in September, a gain of $100,000 over the previous quarter. This value is seasonally adjusted and only includes the middle price tier of homes. Carlsbad home values have risen 32% over the past year. The continued rise in home values can be partially attributed to constrained supply and strong demand in the region. $800,000 $900,000 $1,000,000 $1,100,000 $1,200,000 $1,300,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Median Home Price 2019 2020 2021 $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 $1,200,000 $1,300,000 Jan Feb Mar Apr May Jun Jul Aug Sep Median Home Price Comparison North County Avg w/o Carlsbad Carlsbad Nov. 2, 2021 Item #10 Page 20 of 25 5 TOURISM Hospitality and tourism was one of the hardest hit sectors among Carlsbad businesses, with health order restrictions and consumer confidence impacting travel. Hotel occupancy surged over the summer months, peaking in July, at 79.7%. This can be attributed to consumer confidence rising when the COVID-19 case rate was at a minimum in May and June, as well as pent up demand from individual and family travelers. Hoteliers speculate the surge in cases caused by the Delta variant caused a drop off from the summer peak sooner than expected (August instead of September). Despite the drop, September occupancy was 64.2%, only lagging September 2019 by five percentage points. Baseline comparison is 2019, as it represents normal conditions. 42 With 42 hotels in Carlsbad, tourism is a major industry in terms of employment and economic impact. Below are several indicators reflecting the health of the city’s tourism economy. Hotel Occupancy (Source: Smith Travel Reports, September 2021) Carlsbad’s average daily room rates also rebounded over the summer months, surpassing 2019 rates from June through September and corresponding to increased demand. Average daily rates in September were $196.49, which was $36 above 2019 levels for the same month. Baseline comparison is 2019, as it represents normal conditions. Hotel Average Daily Room Rate (Source: Smith Travel Reports, March 2021) 0.0 20.0 40.0 60.0 80.0 100.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Hotel Occupancy 2019 City of Carlsbad+San Diego County, CA City of Oceanside, CA+City of Newport Beach, CA+ 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 Jan Fen Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average Daily Rate 2020 City of Carlsbad+San Diego County, CA City of Oceanside, CA+City of Newport Beach, CA+ 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 Jan Fen Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg. Daily Rate 2019 City of Carlsbad+San Diego County, CA City of Oceanside, CA+City of Newport Beach, CA+ 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average Daily Rate 2021 City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA 0 20 40 60 80 100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Hotel Occupancy 2021 City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA Nov. 2, 2021 Item #10 Page 21 of 25 6 BUSINESS ACTIVITY Business Licenses (Source: City of Carlsbad) Compared to Q1 2020, business license activity has dropped - an indicator worth monitoring. There are a number of factors that could be impacting this, like timing of renewal, increased COVID-19 case rate, discontinuation of federal and state benefits, etc. Looking at the number of business licenses that were discontinued - those that were once active but not renewed - Carlsbad actually lost fewer businesses during the pandemic than the 18 months prior to the pandemic. The number of licenses issued does not reflect the number of businesses in Carlsbad as a business may carry multiple licenses, short-term vacation rentals are required to get a license, and businesses outside of Carlsbad that do business in the city or with the city are required to get a license. It is estimated that there are approximately 6,327 businesses in Carlsbad. Permits (Source: City of Carlsbad) Between July and September, permit activity mirrored the same quarter last year for commercial activity, with an uptick in residential permits (+60). The number of residential permits pulled has grown each quarter for the past four quarters. According to the National Association of Home Builders, across the country, builder sentiment has increased as a result of continued strong demand, but labor shortages have hampered new housing starts. Nationally, new starts are down in September, but still up 19.5% from one year ago. 0 200 400 600 800 1000 1200 Commercial Residential Commercial Residential 2020 2021 Building Permits Issued Q1 Q2 Q3 Q4 0 500 1000 1500 2000 2500 3000 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Business Licenses Issued by Quarter Non-Residential Residential Outside City Total Nov. 2, 2021 Item #10 Page 22 of 25 7 INDUSTRIES Largest Industries (Source: EMSI, September 2021) Carlsbad’s economy significantly exceeds the national average in manufacturing, accommodation and food services, and professional, scientific and technical services jobs. These sectors, which would include tech, life sciences, and other innovation industries are generally more resilient to recessions, also represent significant job growth in the economy. GRP by Industry Industry size by employment Nov. 2, 2021 Item #10 Page 23 of 25 8 INDUSTRY CLUSTERS Life Sciences (Source: 2019 Biennial Business Report and 2020 Carlsbad Industry Cluster Update) Life Sciences includes the research, design, and production of medical devices. It also covers biotechnology & pharmaceuticals which includes research and development related to biological technologies as well as the manufacturing of medicinal and diagnostic substances. As of 2019, Carlsbad’s life sciences industry consisted of nearly 128 companies employing more than 6,531 people. Companies like GenMark Diagnostics, COPAN, Thermo Fisher Scientific, IntelliGuard, and Active Motif have been on the front lines addressing COVID-19. The high concentration of life sciences companies in Carlsbad represents a strength in the economy that has been resilient and thriving through the pandemic. Technology (Source: 2019 Biennial Business Report and 2020 Carlsbad Industry Cluster Update) The technology cluster includes communications, computer and electronics, and software industries. Common areas of business are cybersecurity, software and video game design, satellite communication, electronic device development, radio and wireless communication, and robotics. As of 2019 Carlsbad’s tech industry consisted of nearly 302 companies employing more than 9,157 people. Companies like Viasat, Walmart Global Tech, Rockstar Games and Airspace Technologies are benefiting from a highly educated and connected workforce to build products and services that change the way we live as well as keeping us increasingly connected during a time of social distancing and remote work. Clean Technology (Source: 2019 Biennial Business Report and 2020 Carlsbad Industry Cluster Update) This cluster includes firms that are engaged in advanced technologies including renewable energy, energy efficiency, and energy storage. As of 2019, the clean tech industry consisted of nearly 32 companies employing more than 1,129 people. This cluster in Carlsbad is 70% more concentrated than the national average. Companies like Calsense, OPTEC and Poseidon Water are leading the way on new technologies that improve sustainability and promote environmental stewardship. Sports Innovation & Design (Source: 2019 Biennial Business Report and 2020 Carlsbad Industry Cluster Update) This cluster includes firms that are engaged in the design and production of recreational equipment, from golf clubs to surfboards, as well as the apparel and accessories as part of the growing athletic apparel and “athleisure” industry. As of 2019 Carlsbad’s sports innovation & design industry consisted of nearly 77 companies employing more than 2,381 people. Companies like TaylorMade Golf, Callaway Golf and Canyon Bicycles are blending tech and creativity with cutting edge sports science to create some of the world’s most advanced athletic equipment and apparel. Small Businesses (Source: 2019 Biennial Business Report and 2020 Carlsbad Industry Cluster Update) Small businesses are the backbone of Carlsbad’s economy. From craft food to specialty retail to well-known franchises and everything in between, business owners will find a home in a community that values and invests the city’s economic success. And while Carlsbad hosts impressive internationally known names, more than 93% of Carlsbad establishments are small businesses. With a diverse consumer base and plenty of business partners awaiting, Carlsbad has the right dynamic for growth opportunities. All of the considered combined with a business support ecosystem, Carlsbad is the perfect home for any venture. Nov. 2, 2021 Item #10 Page 24 of 25 9 INNOVATION Patents (Source: 2020 Carlsbad Industry Cluster Patent Update) The key industry clusters mentioned above drive innovation activity in Carlsbad. The figure below shows that while the life sciences cluster has been a long-term driver of the city’s innovation economy, information & communications technology patents have seen dramatic growth over the past ten years and was responsible for virtually the same number of new patents as life sciences in 2019. It is also worth noting that clean technology, which is the industry cluster with the lowest number of patents, has grown by more than 800% since 2009. All told, these four industry clusters accounted for 96% of all patents awarded to Carlsbad firms in 2019. Patents per Capita 2019 Patents per 1,000 Workers in the Labor Force Carlsbad has a notably higher proportion of patents per 1,000 workers—over 60% more than the next-closest competitor city. This figure shows that Carlsbad has a greater concentration of patent activity than even the technology hubs of San Jose, Seattle, San Francisco, and Boston. In 2019, Carlsbad had 1.6 patents for every 1 patent per 1,000 workers in San Jose. That ratio was 2.5 and 2.8 for Seattle and San Francisco. Released November 2, 2021 The quarterly economic scan is developed by the City of Carlsbad Innovation & Economic Development Department. For more information, visit carlsbadca.gov/doingbusiness, or email contact the team at business@carlsbadca.gov. Nov. 2, 2021 Item #10 Page 25 of 25