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HomeMy WebLinkAbout2022-05-17; City Council; ; Economic and Financial Update for the Third Quarter of Fiscal Year 2021-22CA Review CKM Meeting Date: May 17, 2022 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 Third Quarter of Fiscal Year 2021- 22 Districts: All Recommended Action Receive a report on the economic and financial update for the third quarter of fiscal year 2021- 22 Executive Summary The City Manager committed to provide quarterly updates to the City Council on the economic outlook and an update on the city’s finances during the COVID-19 emergency. In these updates, staff provides 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 current economic trends that may impact Carlsbad industries and businesses. In line with regional trends, Carlsbad saw increases in revenues in almost all categories when compared to the 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. According to the most recent biennial business survey of Carlsbad businesses, released in January 2022, five key industry clusters are driving growth: •Life sciences •Information, communications and technologies •Cleantech •Sports innovation and design •Hospitality and tourism The gross regional product for Carlsbad is $14.6 billion, indicating that Carlsbad is the largest economy in the county behind the City of San Diego. Companies that call Carlsbad home are at May 17, 2022 Item #6 Page 1 of 25 the forefront in areas of technology and innovation, and the city’s hospitality and tourism industry generates the second highest amount of transient occupancy tax among the county’s 18 cities. The COVID-19 pandemic took a toll on the city’s economy, with unemployment spiking in April 2020 to 13.8%. Many businesses were forced to reduce or suspend operations temporarily at various times throughout the pandemic and corresponding public health orders. However, because of the diversity of industries, strategic engagement by the City of Carlsbad to attract and grow innovation businesses, and rapid allocation of financial resources to respond to the pandemic, the economic impact on Carlsbad was less than surrounding cities, with many businesses recovering rapidly and resuming growth. In January, the Omicron variant caused a brief uptick in unemployment. Unemployment continued its downward trend in February and March. The unemployment rate in March was 4.2% at the state level, 3.4% at the county level, and 3.1% in Carlsbad. This is 0.2% above pre- pandemic lows. This quarter, the COVID-19 pandemic did impact supply chains and manufacturing capacity abroad. Some manufacturing operations – as well as entire cities – have been locked down to combat an Omicron variant surge in China, causing supply shortages on a wide range of products from construction material to technology products. There also continues to be a significant semiconductor shortage, with the global backlog on semiconductor orders extending beyond eight months, and up to two years for certain types of chips. Domestically, most pandemic-related regulations have been suspended, allowing the economy to continue its resurgence. Employers now cite talent, supply chain issues and rising costs as the biggest challenges to doing business. 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. The Economic Scan for Fiscal Year 2021-2022 Q3 is presented as Exhibit 1. Staff also publish relevant data on the city’s economic development site, carlsbadca.gov/doingbusiness. The city will continue to develop 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 from its transient occupancy tax, the tax assessed on each hotel and motel room rented in Carlsbad. This tax is the city’s third-largest revenue source. With the reopening of the economy in June 2021 after a prolonged COVID-19 pandemic related tier system, all local hotels are now open. This is in stark contrast to the prior fiscal year, where many hotels were partially or fully closed. Revenue from sales tax, the second-largest revenue source, appears to have been bolstered by Carlsbad’s strong economy, economic stimulus payments, the 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. May 17, 2022 Item #6 Page 2 of 25 Revenue from the city’s largest revenue source, the city’s share of property taxes, was not substantially changed by COVID-19. However, many of the city’s other revenue sources, such as recreational service revenues, were significantly impacted by the pandemic, which reduced their contributions to the city’s budget. 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 vast majority of health order restrictions on businesses have now been lifted since the fiscal year 2021-22 budget was adopted on June 8, 2021, and the results have been positive across most of the city’s revenue streams. The table below shows the differences in revenue when comparing the second quarter of fiscal year 2021-22 with the same period in the prior fiscal year. Increased Decreased Transient occupancy tax Intergovernmental revenue $13,685,500 161% -$1,517,000 -58% Sales tax Investments, property income $8,770,600 29% -$435,700 -10% Property tax Other revenue sources $1,605,500 3% -$365,500 -28% Other taxes Fines and forfeitures $1,109,000 15% -$40,000 -14% Licenses, permits, service charges $2,322,000 34% Interdepartmental charges $92,000 2% 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. Assessed values have increased 3.14% for fiscal year 2021-22. • The majority of sales tax revenues represent funds collected for the second, third and fourth calendar quarters of 2021. For sales occurring in the fourth calendar quarter of 2021, the most recent data available, key gains were seen in automobile dealerships, jewelry and luggage stores, clothing stores, general merchandise stores and department stores. May 17, 2022 Item #6 Page 3 of 25 • The city has collected significantly more transient occupancy taxes to date this 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. The average occupancy of hotel rooms over the most recent 12 months has been 63%, an increase from 43% at this time last year. Expenditures and encumbrances Total General Fund expenditures and encumbrances for the current fiscal year through the month of March 2022 are $163.1 million, compared to $126.3 million at the same time last year. The significant increase is largely due to an increase in transfers, particularly: • $10.7 million transferred to the new Technology Investment Program in support of the Strategic Digital Transformation Investment Program • $7.8 million transferred to the General Capital Construction Fund using funds from the fiscal year 2020-21 General Fund surplus • a $5.5 million additional discretionary payment made to CalPERS, the state pension system, to reduce the city’s unfunded pension liability. This leaves $59.4 million, or 26.7% of the budget, 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 $66.1 million, or 34.4% of the budget, available. Excluding the transfers out, contingencies and non-departmental charges, the percentage of available budget on March 31, 2022, is 28.4%, slightly less than the 28.5% available on March 31, 2021. 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 and food and beverage services. Fiscal Analysis This is an informational item with no fiscal impact. Next Steps Staff will continue to provide quarterly economic and financial 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 This item was noticed 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. May 17, 2022 Item #6 Page 4 of 25 Exhibits 1. Economic Scan Fiscal Year 2021-2022, third quarter 2. March 2022 Financial Status Report May 17, 2022 Item #6 Page 5 of 25 1 Third Quarter, Fiscal Year 2021-2022 The following scan provides an overview of key economic indicators for January, February, and March 2022 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. GROSS REGIONAL PRODUCT Carlsbad GRP (Source: EMSI, 2021) $14.6B As of 2021, Carlsbad had the second largest gross regional product in San Diego County at nearly $14.6B, only trailing the City of San Diego. In 2019, Carlsbad’s economy grew by $800 million to nearly $13.6 billion. In 2020, as a result of the pandemic, the city’s GRP remained flat. In 2021, Carlsbad’s economy grew by approximately $1 billion, to nearly $14.6 billion. This growth was seen across all industry categories, and was led by manufacturing, wholesale trade, and professional, scientific, & technical services. JOBS Unemployment Rate (Source: California Employment Development Department, March 2022 Report) Unemployment has continued to steadily improve since an initial spike to 13.8% at the onset of the COVID-19 pandemic. The March unemployment rate of 3.1% in Carlsbad only lags pre-pandemic unemployment levels by .2 percentage points. The unemployment rate for the County of San Diego was 3.4% in March and the State of California was 4.2%. Currently, many employers are citing difficulty in finding and retaining workers. In March, nationally, there were 1.9 open jobs for every unemployed worker. This is one underlying cause to increased wage pressures and difficulty retaining employees. 0 1 2 3 4 5 6 7 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Carlsbad Unemployment Rate 2021 vs 2022 2021 2022 0 1 2 3 4 5 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Unemployment Rate Comparrison 2022 Carlsbad San Diego County North County Avg w/o Carlsbad California Innovation + Economic Development Department Exhibit 1 May 17, 2022 Item #6 Page 6 of 25 2 Job Postings (Source: EMSI, January - March 2022) 15,628 There were 15,628 unique job postings in Carlsbad between January and March, a slight increase from the previous quarter. This continues a trend of increased postings quarter over quarter for the past eight quarters. The median advertised salary for these postings was $44,200, which is on average $2,600 more than jobs posted in the previous quarter. Of jobs posted, 45% did not indicate any experience was required and 68% indicated an education requirement of High School/GED or less. Continued feedback from hospitality and restaurant businesses indicate hiring in those industries remains a challenge. TALENT + WORKFORCE Education (Source: 2019 ACS 5-Year Estimates, the latest year available) 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 County, 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 San Diego State University9,671 May 17, 2022 Item #6 Page 7 of 25 3 CAPITAL Interest Rates (Source: U.S. Department of the Treasury, March 2022) National interest rates, which dropped significantly during the pandemic have now eclipsed pre-pandemic rates (measured as February 2020) for all categories. One-year rates are currently at 1.63%. Ten-year rates are currently at 2.32%. 30-year rates are at 2.44%. With current inflation concerns, the Federal Reserve has begun to raise interest rates. They have also indicated they plan for further rate-hikes of up to .5% over the next several quarters. March 2021 One-year interest rate 0.06% 10-year interest rate 1.73% 30-year interest rate 2.38% March 2022 One-year interest rate 1.63% 10-year interest rate 2.32% 30-year interest rate 2.44% COMMERCIAL REAL ESTATE Market Vacancy Rates and Rent per Square Foot (Source: CoStar, March 2022) Commercial vacancy rates improved in all segments this quarter. The industrial vacancy rate is now at 2.9%, compared to 10.8% pre-pandemic. The office vacancy rate is currently 13%, compared to 15.25% pre-pandemic. Retail, which was disproportionately impacted by the pandemic continues to see elevated vacancy rates, although they have improved slightly since last quarter. Retail vacancy is now at 8.3%, compared to 5.27% pre-pandemic. Average market rents per square foot, per year have also risen across all categories this quarter. Retail rates are now $43.55. Office rates are now $36.95. Industrial rates are now at $19.24. 2.9% Industrial vacancy rate 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 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% Retail Office Industrial Retail Office Industrial Carlsbad North County w/o Carlsbad Vacancy Rate Comparison 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 May 17, 2022 Item #6 Page 8 of 25 4 TOURISM Hospitality and tourism businesses have been hard-hit over the past two years with fluctuating health order restrictions and consumer confidence impacting travel. Hotel occupancy in January was significantly lower than January 2019 levels. However, occupancy rose sharply over the quarter, with March occupancy (75.5%) nearly matching March 2019 occupancy levels (76.5%). With the Omicron surge behind us, tourism leaders are optimistic that individual and family travel could continue to rise. 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, March 2022 Report) Carlsbad’s average daily room rate (ADR) remains higher than pre-pandemic levels. Despite beginning the quarter with lower occupancy numbers, ADR quickly rose as occupancy rates recovered. ADR was $209.40 in March, compared to $174.54 in March 2019. Baseline comparison is 2019, as it represents normal conditions. Hotel Average Daily Room Rate (Source: Smith Travel Reports, March 2022 Report) 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 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average Daily Rate 2019 City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA 50 100 150 200 250 300 350 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avgerage Daily Rate 2022 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 2022 City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA May 17, 2022 Item #6 Page 9 of 25 5 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 - March 2022) Home values in Carlsbad, along with San Diego County, continue to rise significantly, with median home prices in the city at $1.44 million in March, a gain of 3.7% over the previous quarter. This value is seasonally adjusted and only includes the middle price tier of homes. Carlsbad home values have risen 28.5% over the past year. The continued rise in home values can be partially attributed to constrained supply and strong demand in the region. $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Carlsbad Median Home Price 2020 2021 2022 $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 $1,200,000 $1,300,000 $1,400,000 $1,500,000 Jan Feb Mar Median Home Price Comparison Carlsbad North County Avg May 17, 2022 Item #6 Page 10 of 25 6 BUSINESS ACTIVITY Business Licenses (Source: City of Carlsbad, March 2022) There were a total of 2,810 business licenses issued last quarter, including 1,156 non-residential, 757 residential, and 897 outside- the-city licenses. This represents the strongest quarter for business licenses issued since 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. Upon evaluation of 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 24 months prior to the pandemic. Building Permits (Source: City of Carlsbad, March 2022) Between January and March, permit activity remained the same for commercial building permits and increased for residential building permits. The number of residential permits issued (1,139) was an increase of 148 over the last quarter. Commercial permits issued (117), was consistent with last quarter. The number of residential building permits issued has been generally increasing over the past two years. While permit activity is improving YOY, residential builders continue to cite labor shortages and increased building costs as challenges to new housing starts. 0 200 400 600 800 1000 1200 Commercial Residential Commercial Residential Commercial Residential 2020 2021 2022 Building Permits Issued Q1 Q2 Q3 Q4 0 500 1000 1500 2000 2500 3000 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Business Licenses Issued by Quarter Non-Residential Residential Outside City Total May 17, 2022 Item #6 Page 11 of 25 7 INDUSTRY CLUSTERS Life Sciences (Source: 2022 Business Report and Industry Cluster Update) The Life Sciences industry cluster employs 6,657 workers across 134 firms and experienced a 2.6% increase in employment between 2018 and 2020. The cluster is 5.51 times more concentrated in Carlsbad than the national average and annual wages per worker average $123,702. San Diego County and California have experienced parallel employment growth in the Life Sciences cluster between 2010 and 2020. In the same ten-year period, employment in Carlsbad grew by 75%. Between 2016 and 2018, Carlsbad experienced over 40% growth. Over the past two years (2018-2020), however, employment growth tapered off compared to years prior. Technology (Source: 2022 Business Report and Industry Cluster Update) The Information and Communications Technologies (ICT) cluster employs 9,008 workers across 343 firms in Carlsbad and is 2.75 times more concentrated in Carlsbad than the national average. Annual wages per worker average $136,254, and the ICT industry cluster experienced a 3.3% increase in the number of jobs between 2018 and 2020. San Diego County and California experienced steady parallel growth in the ICT cluster between 2010 and 2020. In the same ten-year period, Carlsbad experienced an initial decline in employment between 2012 and 2015; between 2015 and 2020, employment in the ICT cluster has steadily trended upwards. Clean Technology (Source: 2022 Business Report and Industry Cluster Update) Between 2018 and 2020, the number of workers employed at Cleantech firms increased by 22.2%. By 2019, the 48 Cleantech firms in Carlsbad employed more than 872 people. The average annual wage per worker is $109,779, and the Cleantech industry cluster in Carlsbad is 4.66 times more concentrated than the national average. Between 2010 and 2012, Carlsbad experienced an initial employment drop for the Cleantech industry followed by steady growth between 2012 and 2020. Employment growth in California peaked in 2013 and has been on a steady decline since. Growth in San Diego County also peaked in 2013, dropping by over 25% between 2013 and 2017. Since 2017, employment in the Cleantech cluster for San Diego County has been on a steady increase. Sports Innovation & Design (Source: 2022 Business Report and Industry Cluster Update) The Sports Innovation & Design industry cluster employs 1,804 workers across 116 firms and experienced a 16.3% decrease in employment between 2018 and 2020. The cluster is 5.06 times more concentrated in Carlsbad than the national average and annual wages per worker average $75,652. Employment in the Sports Innovation & Design cluster has steadily declined since 2013 in Carlsbad. Both San Diego County and California have declined steadily since 2015 and experienced sharp declines between 2019 and 2020, likely due to the COVID-19 pandemic. Hospitality & Tourism (Source: 2022 Business Report and Industry Cluster Update) Carlsbad’s Hospitality & Tourism cluster is about 1.35 times more concentrated in Carlsbad than the national average and employs 9,179 people across 467 businesses. Hospitality & Tourism experienced a sharp 34% decrease in employment between 2018 and 2020, driven by the effects of the COVID-19 pandemic between 2019 and 2020. Average annual wages per worker remain low relative to other key industry clusters, with workers earning $31,315 on average. Carlsbad, San Diego County, and California experienced sharp declines between 2019 and 2020, during which sub-clusters like Theater Companies and Dinner Theaters, Amusement and Theme Parks, and Amusement Arcades were shut down to mitigate the effects of the COVID-19 pandemic.May 17, 2022 Item #6 Page 12 of 25 8 INDUSTRY IMPACT Largest Industries (Source: EMSI, March 2022) 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 May 17, 2022 Item #6 Page 13 of 25 9 INNOVATION Patents (Source: 2020 Carlsbad Industry Cluster Patent Update) Four of 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 have been 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 May 17, 2022 The quarterly economic scan is developed by the City of Carlsbad Innovation & Economic Development Department. For more information, visit carlsbadca.gov/doingbusiness, or contact the team at business@carlsbadca.gov. May 17, 2022 Item #6 Page 14 of 25 This report summarizes the City of Carlsbad’s General Fund revenues and expenditures through March 31, 2022. It compares revenues and expenditures for the first nine months 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 ($48.6 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 nine months of the fiscal year have increased by 3% as compared to the prior fiscal year. The primary reasons for the increase are: •Current taxes are up by $1.4 million or 3.8% mainly due to increased assessed values. •Supplemental and surplus property taxes are $485,000 higher when compared with the prior year. These increases are offset slightly by the following decrease: •Aircraft taxes are down by $303,000 or 18% due to a decrease in aircraft being housed at the airport. Sales Taxes ($38.8 million) – For the first nine months of the fiscal year, sales tax revenues are $8.8 million higher than the same period in the previous fiscal year. Sales tax revenues for the year represent a portion of the city’s first quarter 2022, the second, third, and fourth 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 fourth calendar quarter of 2021 (the most recent data available), key gains were seen in automobile dealers, jewelry and luggage stores, clothing stores, general merchandise stores, and department stores. During the same period, key declines were seen in amusement parks, restaurants, motor vehicle manufacturing, equipment and supplies merchant wholesalers, and petroleum and coal products March 31, 2022 3% 29% Exhibit 2 May 17, 2022 Item #6 Page 15 of 25 Monthly Financial Report _________________________________________________________________ 2 manufacturing. The largest economic segments in the city are automobile dealers, general merchandise stores, and restaurants. Together, they generate 80% of the city’s sales tax revenues. Transient Occupancy Tax ($22.2 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 March 2022. TOT collected for the first nine months of the fiscal year reflects an increase of $13.7 million, or 161%, more than the previous year. With the reopening of the economy in June 2021 after a prolonged COVID-19 pandemic related tier system, all local hotels are now open. This is in stark contrast to the prior fiscal year where many hotels were partially or fully closed, including three of Carlsbad’s largest hotels – the Omni La Costa, the Park Hyatt Aviara, and the LEGOLAND Hotels. Currently, there are 4,778 hotel rooms in service (of 5,018 total rooms built in the city), 668 timeshares and 349 registered short-term vacation rentals. The average occupancy of hotel rooms over the most recent 12 months has been 63% which is up from 43% at this time last year. Business License Tax ($4.9 million) – All entities doing business in the City of Carlsbad are required to have a valid business license. Business license revenue is estimated at $5.8 million for the current fiscal year. Business license revenues are up $814,000 or 20% higher, than the previous fiscal year. The increase is due to significant payments received for overdue business license renewals and penalties, as well as a small increase in new business licenses. There are currently 9,519 licensed businesses operating within the city, 5 more than the prior year. The majority of taxed businesses (6,349 businesses) are located in Carlsbad, with 2,416 of these businesses home-based. Interdepartmental Charges ($3.9 million) – Interdepartmental charges are up by $92,000 when compared with the same period last year. These charges are generated through engineering services charged to capital projects (down $73,000 due to less staff charging to capital projects); reimbursed work from other funds (down $7,000 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 $173,000). Income from Investments and Property ($3.9 million) – For the first nine months of the fiscal year, income from investments and property is down $436,000 compared to the previous fiscal year. Interest income is down $1.1 million for the year due to the combination of a 17.8% decrease in the average yield on the portfolio for the year (a decrease in the yield from 1.391% last fiscal year to 1.143% in the current fiscal year) and interest income of $750,000 received last fiscal year on the advance between the city and the city’s former Redevelopment Agency. There was no interest income received on this advance during the current fiscal year as this loan was fully paid down in fiscal year 2020-21. The current year decrease in interest income is offset partially by the interest income earned on the 8% 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. In March 2022, the 2% 20% 161% 10% May 17, 2022 Item #6 Page 16 of 25 Monthly Financial Report _________________________________________________________________ 3 Federal Reserve announced that it would raise the benchmark rate by 0.25%, shifting the target range to 0.25% to 0.50%. Income from property sales and rentals is up by $698,000 for the year, or 48% as compared to the prior fiscal year, primarily due to significant increases in 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 ($1.8 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 $766,000 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 ($2.9 million) – Development related revenues, which include building permits, planning fees, building department fees, and engineering fees, reflect a 30% increase for the first nine months of the 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. Activity during March 2022 included permits associated with residential second dwelling units, various minor home improvement permits, a car wash and commercial additions at two car dealerships. Another source of development related revenue is building permits, which are up 1% compared to last fiscal year. The year-to-date valuation of new construction in the current fiscal year is $132.4 million. This represents a $30.6 million, or 18.7%, decrease over the previous fiscal year. In March Carlsbad issued building permits for nine residential second dwelling units (seven in the northwest quadrant and two in the southeast quadrant). For the current fiscal year, 71 residential permits have been issued, as compared to 251 residential permits issued during the same period last year. During the month of March, three permits were issued for a total of 94,000 square feet of commercial and/or industrial space. This included 5,000 square feet for a car wash and 89,000 square feet for two car dealership expansions. For the current fiscal year, 108,000 square feet of commercial and/or industrial permits have been issued, as compared to 216,800 square feet for permits issued during the same period last year. While development activity fiscal year to date is lower than last fiscal year at this same period, revenues are slightly higher due to a change in the fee structure for building permits that was approved with a fee study in 2021. Permit fees that were previously calculated based on project valuation are now calculated using square footage. Other development related service fees were also included in the fee study and some fees were increased as a result of the study. These fee changes became effective in September 2021. Franchise Tax ($2.3 million) – 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 $46,000 lower than the same period last year. Cable television franchise revenues (Spectrum and AT&T) are down by $42,500 due to a decrease in the number of paid subscription services (premium video, equipment rental, on-demand, 76% 30% 2% May 17, 2022 Item #6 Page 17 of 25 Monthly Financial Report _________________________________________________________________ 4 and programming services). An increase in trash collection revenue of $29,000 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. Ambulance Fees ($2.3 million) – The city bills any individual who is transported in one of the city’s ambulances. Through March 2022, receipts from ambulance fees are up $399,000, or 21%, compared to last fiscal year. The increase in revenue for the first nine months of the fiscal year is mainly due to an increase in the number of billable transports, 4,421 in the first nine months of fiscal year 2021-22 versus 3,961 in the prior fiscal year. Other Revenue Sources ($947,000) – Other revenue sources have decreased by $365,000 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 this fiscal year as the City of Oceanside took over as the lead agency on the joint city Innovate 78 joint city contract. Other Licenses and Permits ($816,000) – 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. To date, the increase of $62,000 is primarily a result of increased activity in coastal development permits, Habitat Management Plan permits and hazardous uses permits, offset by a decrease in right-of-way permits and lagoon permits. Fines and Forfeitures ($253,000) – 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 decrease to date of $40,000 is mostly due to increases in parking citation revenues and overdue fines, offset by a decrease in code violation revenue. Intergovernmental Revenues ($1.1 million) – 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 comprise the $1.1 million received this year. Some larger receipts include senior nutrition program revenues, $201,000 reimbursement from the school district for their share of the school resource officers, $78,000 received from the state for mandated cost reimbursements, $54,000 received from the state for the library’s adult learning program, $88,000 for a state coastal grant and $80,000 for a federal grant provided to the Police Department. 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. 8% 21% 28% 14% 58% May 17, 2022 Item #6 Page 18 of 25 Monthly Financial Report _________________________________________________________________ 5 Transfer Taxes ($1.5 million) – 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 increased due to an increase in property transfers. Other Charges or Fees ($1.3 million) – 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. These fees are up by $433,000 or 52% mainly due to the addition of an annual fire inspection fee which has generated $317,000 fiscal year to date. A detailed schedule of General Fund revenues is provided on the following page. 52% 30% May 17, 2022 Item #6 Page 19 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 03/31/22 AS OF 03/31/21 AS OF 03/31/22 YTD 2022 CHANGE TAXES PROPERTY TAX $76,590,000 $46,827,531 $46,969,704 $48,575,209 $1,605,505 3% SALES TAX 44,015,000 32,496,133 30,064,901 38,835,524 8,770,623 29% TRANSIENT OCCUPANCY TAX 18,441,000 10,083,500 8,521,128 22,206,584 13,685,456 161% FRANCHISE TAX 5,666,000 2,278,363 2,327,411 2,281,602 (45,809)-2% BUSINESS LICENSE TAX 5,817,000 4,199,855 4,123,326 4,937,517 814,191 20% TRANSFER TAX 1,285,000 815,605 1,133,707 1,474,559 340,852 30% TOTAL TAXES 151,814,000 96,700,988 93,140,177 118,310,995 25,170,818 27% INTERGOVERNMENTAL VEHICLE LICENSE FEES 50,000 50,000 83,951 133,433 49,482 59% HOMEOWNERS EXEMPTIONS 350,000 174,999 173,248 169,133 (4,115)-2% OTHER REIMBURSEMENT 7,737,091 1,917,201 2,371,900 809,413 (1,562,487)-66% TOTAL INTERGOVERNMENTAL 8,137,091 2,142,200 2,629,099 1,111,979 (1,517,120)-58% LICENSES AND PERMITS BUILDING PERMITS 521,000 391,895 1,031,246 1,102,455 71,209 7% OTHER LICENSES & PERMITS 944,000 679,188 753,932 815,914 61,982 8% TOTAL LICENSES & PERMITS 1,465,000 1,071,083 1,785,178 1,918,369 133,191 7% CHARGES FOR SERVICES PLANNING FEES 274,000 190,665 254,604 476,136 221,532 87% BUILDING DEPARTMENT FEES 617,000 471,532 620,155 604,745 (15,410)-2% ENGINEERING FEES 441,000 312,826 338,652 723,953 385,301 114% AMBULANCE FEES 2,584,000 1,775,572 1,911,247 2,309,838 398,591 21% RECREATION FEES 1,760,000 1,109,138 1,011,116 1,777,654 766,538 76% OTHER CHARGES OR FEES 550,000 312,758 833,542 1,266,192 432,650 52% TOTAL CHARGES FOR SERVICES 6,226,000 4,172,491 4,969,316 7,158,518 2,189,202 44% FINES AND FORFEITURES 406,000 281,357 293,400 253,389 (40,011)-14% INCOME FROM INVESTMENTS & PROPERTY 4,879,925 2,753,303 4,361,539 3,925,857 (435,682)-10% INTERDEPARTMENTAL CHARGES 5,181,349 3,845,363 3,823,986 3,916,308 92,322 2% OTHER REVENUE SOURCES 964,429 686,595 1,312,651 947,163 (365,488)-28% TRANSFERS IN 10,000 10,000 10,000 10,000 0 0% TOTAL GENERAL FUND $179,083,794 $111,663,379 $112,325,346 $137,552,578 $25,227,232 22% (1) (1) Calculated General Fund revenues are 23% above estimates as of March 31, 2022. GENERAL FUND REVENUE COMPARISON May 17, 2022 Item #6 Page 20 of 25 Monthly Financial Report _________________________________________________________________ 7 Expenditures Total General Fund expenditures and encumbrances through the month of March 2022 are $163.2 million, compared to $126.3 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, a $7.8 million transfer to the General Capital Construction Fund from prior fiscal year 2020-21 General Fund surplus, and a $5.5 million additional discretionary payment to CalPERS. The remaining budget available through the fiscal year ending June 30, 2022 is $59.4 million, or 26.7%. If funds were spent in the same proportion as the previous year, the General Fund would have 34.4% or $66.1 million available. Excluding the transfers out, contingencies, and non-departmental charges, the percentage available on March 31, 2022, is 28.4%, slightly less than the 28.5% available on March 31, 2021. 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, 20 of which are directly related to City Council goals, 6.2 new 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. May 17, 2022 Item #6 Page 21 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 $2,169,185 $1,555,810 $613,375 28.3% CITY CLERK SERVICES 1,300,469 1,436,264 931,995 504,269 35.1% CITY COUNCIL 649,975 667,690 400,314 267,376 40.0% CITY MANAGER 2,112,097 2,370,197 1,624,588 745,609 31.5% CITY TREASURER 250,752 258,589 181,719 76,870 29.7% COMMUNICATIONS & ENGAGEMENT 1,771,173 2,479,665 1,999,920 479,745 19.3% TOTAL POLICY AND LEADERSHIP GROUP 8,121,602 9,381,590 6,694,346 2,687,244 28.6% ADMINISTRATIVE SERVICES ADMINISTRATION 568,883 714,415 520,475 193,940 27.1% FINANCE 5,632,387 6,335,681 4,519,377 1,816,304 28.7% HUMAN RESOURCES 4,959,011 5,461,482 3,828,528 1,632,954 29.9% INNOVATION & ECONOMIC DEVELOPMENT 1,264,626 1,480,933 994,556 486,377 32.8% TOTAL ADMINISTRATIVE SERVICES 12,424,907 13,992,511 9,862,936 4,129,575 29.5% PUBLIC SAFETY POLICE 48,756,017 52,851,249 38,589,144 14,262,105 27.0% FIRE 33,521,412 35,274,422 25,998,441 9,275,981 26.3% TOTAL PUBLIC SAFETY 82,277,429 88,125,671 64,587,585 23,538,086 26.7% COMMUNITY SERVICES COMMUNITY SERVICES ADMINISTRATION 656,221 862,511 643,488 219,023 25.4% COMMUNITY DEVELOPMENT 10,502,061 12,592,920 9,752,586 2,840,334 22.6% HOUSING & HOMELESS SERVICES 5,901,431 6,087,311 1,992,693 4,094,618 67.3% LIBRARY & CULTURAL ARTS 13,780,555 14,581,524 9,584,483 4,997,041 34.3% PARKS & RECREATION 19,159,380 20,965,518 16,168,041 4,797,477 22.9% TOTAL COMMUNITY SERVICES 49,999,648 55,089,784 38,141,291 16,948,493 30.8% PUBLIC WORKS PUBLIC WORKS ADMINISTRATION 1,941,613 2,171,541 1,457,360 714,181 32.9% CONSTRUCTION MANAGEMENT & INSPECTIONS 2,990,665 3,285,409 2,488,298 797,111 24.3% ENVIRONMENTAL MANAGEMENT 1,282,225 1,719,435 1,252,249 467,186 27.2% FACILITIES 6,555,934 8,744,326 6,188,956 2,555,370 29.2% TRANSPORTATION 8,405,466 9,113,411 6,526,831 2,586,580 28.4% TOTAL PUBLIC WORKS 21,175,903 25,034,122 17,913,694 7,120,428 28.4% NON-DEPARTMENTAL & CONTINGENCY (d)OTHER NON-DEPARTMENTAL 2,922,000 3,845,896 1,031,290 2,814,606 73.2% OPERATING TRANSFERS OUT 7,148,000 26,777,804 24,937,804 1,840,000 6.9% CONTINGENCY 500,000 354,910 0 354,910 100.0% TOTAL NON-DEPT & CONTINGENCY 10,570,000 30,978,610 25,969,094 5,009,516 16.2% TOTAL GENERAL FUND $184,569,489 $222,602,288 $163,168,946 $59,433,342 26.7% (a) Working budget includes the adopted budget, open encumbrances from the end of the prior fiscal year, and any approved carry forwards. (b) Actual expenditures on a budgetary basis include encumbrances and exclude non-budgeted items. (c) Amount available would be 34.4% 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 03/31/22 EXPENDITURE STATUS BY DEPARTMENT GENERAL FUND May 17, 2022 Item #6 Page 22 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 (17,100) 7/20/2021 2021-174 To shelter pets belonging to people experiencing homelessness (29,825) 9/28/2021 2021-219 Community spirit grant for Carlsbad High School (996) 10/20/2021 NA - See Note 1 Consultant for alternative housing sites (Housing Element Program)(97,169) 2/15/2022 2022-044 TOTAL USES (145,090) AVAILABLE BALANCE $354,910 Note 1 - City Council Policy 51 gives authorization to the City Manager to approve Community Spirit Grants less than $5,000. Department Intention Qtr. 1 Qtr. 2 Jan.Feb Mar Qtr. 3 Total Parks & Recreation Congregate Meals/Guest Cash Donations $3,611 $2,513 $687 $634 $1,037 $2,358 $8,482 Parks & Recreation Home Meals Cash Donations 3,932 3,338 717 700 264 1,681 8,951 Parks & Recreation Senior Transportation Cash Donations 0 5 20 8 43 71 76 Parks & Recreation Leo Carrillo Ranch Cash Donations 835 2,418 440 282 2,425 3,147 6,400 Parks & Recreation Opportunity Grant Donations 2,966 2,258 700 937 2,314 3,951 9,175 Parks & Recreation Senior Center Cash Donations 399 1,380 39 124 594 757 2,536 Parks & Recreation Teens Program Cash Donations 0 1 3 0 0 3 4 Parks & Recreation Parks Maintenance Cash Donations 825 0 0 0 0 0 825 Subtotal - Parks & Recreation $12,567 $11,913 $2,606 $2,685 $6,677 $11,968 $36,448 Library & Cultural Arts Book purchases $135 $275 $50 $50 $50 $150 $560 Library & Cultural Arts Support Library Programs and Services 15 2,600 1,172 0 35 1,207 3,822 Subtotal - Library & Cultural Arts $150 $2,875 $1,222 $50 $85 $1,357 $4,382 Fire Food and small gifts for crews $0 $2,320 $0 $0 $125 $125 $2,445 Fire Sunglasses for lifeguard program 0 400 0 0 0 0 400 Fire Toys for sick or scared children 350 0 0 0 0 0 350 Subtotal - Fire $350 $2,720 $0 $0 $125 $125 $3,195 Total Donations $13,067 $17,508 $3,828 $2,735 $6,887 $13,450 $44,025 Donations Fiscal Year 2021-22 May 17, 2022 Item #6 Page 23 of 25 Monthly Financial Report _________________________________________________________________ 10 Water Enterprise Revenues • A 3.0% decrease in water volume sales led to lower water delivery revenues, offset by an increase in water rates (beginning in Mar 2022). • Interest earnings have decreased year-over-year due to a 18% decrease in the yield of the Treasurer’s portfolio offset partially by a 5.8% increase in the average cash balance. • The increase in property taxes is primarily due to increase in assesed property values • The increase in other revenues was due to $1 million from consolidation of city and district CalPERS plans offset by $0.4 million higher refund in prior year for the Carlsbad Municipal Water District’s share of damages awarded for rates that were unlawfully assessed to the city between 2011 and 2014, total refunded is $3.1 million. Expenses • The increase in staffing expenses includes an annual required contribution to the city’s unfunded pension liability balance with CalPERS and salary increases, offset by vacancies experienced thus far in the fiscal year. • Higher interdepartmental expenses resulted from increased personnel related costs, and maintenance and operations costs for shared services. • Purchased water expenses have increased from the prior year due to a 5.0% rate increase in the variable cost of water purchased from the San Diego County Water Authority (SDCWA) offset by a 2.5% decrease in the amount of water purchased. • A decrease in captial outlay was from fiscal year 2020-21 purchase of industrial vacuum truck. CHANGE FROM BUDGET YTD (*) YTD (*) YTD 2020-21 TO PERCENT FY 2021-22 3/31/2021 3/31/2022 YTD 2021-22 CHANGE REVENUES: WATER DELIVERY 40,583,097$ 30,796,226$ 30,322,078$ (474,148)$ -1.5% INTEREST 374,897 322,615 259,028 (63,587) -19.7% MISC. SERVICE CHARGES 281,081 231,957 210,981 (20,976) -9.0% PROPERTY TAXES 3,687,900 2,793,273 2,916,091 122,818 4.4% FINES, FORFEITURES & PENALTIES 104,651 4,415 93,895 89,480 2026.7% OTHER REVENUES 434,829 2,018,304 2,680,209 661,905 32.8% TOTAL OPERATING REVENUE 45,466,455 36,166,790 36,482,282 315,492 0.9% EXPENSES: STAFFING 4,347,140 2,691,952 2,987,396 295,444 11.0% INTERDEPARTMENTAL SERVICES 2,969,197 2,036,122 2,207,606 171,484 8.4% PURCHASED WATER 26,700,000 18,012,390 18,754,280 741,890 4.1% MWD/CWA FIXED CHARGES 6,860,000 5,035,472 5,042,759 7,287 0.1% OUTSIDE SERVICES/MAINTENANCE 2,603,249 616,696 625,643 8,947 1.5% DEPRECIATION/REPLACEMENT 4,500,000 3,150,000 3,375,000 225,000 7.1% MISCELLANEOUS EXPENSES 992,104 478,956 493,862 14,906 3.1% CAPITAL OUTLAY 0 413,198 16,958 (396,240) -95.9% TOTAL OPERATING EXPENSES 48,971,690 32,434,786 33,503,504 1,068,719 3.3% OPERATING INCOME/(LOSS)(3,505,235)$ 3,732,004$ 2,978,778$ (753,227)$ -20.2% (*) Adjusted to reflect timing differences for water purchases and depreciation. WATER OPERATIONS FUND March 31, 2022 1% 1.9% 3.3% 1% May 17, 2022 Item #6 Page 24 of 25 Monthly Financial Report _________________________________________________________________ 11 Wastewater Enterprise Revenues • Charges for current services are higher than in the prior year due primarily to a 20% rate increase that began in March 2022 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 peak of the COVID-19 pandemic related shutdown. • Interest earnings decreased due to a 18% decrease in the yield of the Treasurer’s portfolio offset partially by a 3% 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 mostly from 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 outside services is primarily due heating and lighting costs. • 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 3/31/2021 3/31/2022 YTD 2021-22 CHANGE REVENUES: CHARGES FOR CURRENT SERVICES 13,773,859 10,223,262 11,330,025 1,106,763 10.8% INTEREST 75,000 96,559 74,094 (22,465) -23.3% OTHER REVENUES 115,002 243,311 106,914 (136,397) -56.1% TOTAL OPERATING REVENUE 13,963,861 10,563,132 11,511,033 947,901 9.0% EXPENSES: STAFFING 2,891,648 1,628,425 1,926,466 298,041 18.3% INTERDEPARTMENTAL SERVICES 1,357,384 1,046,497 1,007,995 (38,502) -3.7% ENCINA PLANT SERVICES 4,665,000 5,149,913 5,700,951 551,038 10.7% OUTSIDE SERVICES/MAINTENANCE 1,359,394 273,972 256,096 (17,876) -6.5% DEPRECIATION/REPLACEMENT 5,300,000 3,750,000 3,975,000 225,000 6.0% MISCELLANEOUS EXPENSES 776,802 386,614 427,250 40,636 10.5% CAPITAL OUTLAY 35,135 28,987 46,811 17,824 61.5% TOTAL OPERATING EXPENSES 16,385,363 12,264,408 13,340,569 1,076,161 8.8% OPERATING INCOME/LOSS (2,421,502) (1,701,276) (1,829,536) (128,260) 7.5% (*) Adjusted to reflect timing differences for Encina quarterly invoices and depreciation. WASTEWATER OPERATIONS FUND March 31, 2022 12.9% 9% 9% May 17, 2022 Item #6 Page 25 of 25 Matt Sanford, Economic Development Manager Roxanne Muhlmeister, Assistant Finance Director May 17, 2022 Economic and Financial Update: Q3 FY 2021-22 TODAY’S PRESENTATION •Economic update •Financial update ECONOMIC AND FINANCIAL UPDATE ECONOMIC UPDATE 3 •Timeframe analyzed o Third quarter FY2021-2022 (Jan. –Mar. 2022) •Macro Trends •Local Impact ECONOMIC AND FINANCIAL UPDATE EVOLVING ECONOMIC CONDITIONS •Despite waning COVID-19 impact, macro-disruptions continue to affect Carlsbad businesses, some of which have a nexus to COVID-19 o Supply chain issues o Inflation o Rising fuel prices o Russian invasion of Ukraine o Worker/talent shortage •Disruptions create a degree of operational uncertainty •With the Economic Insights and Intelligence (Ei2) capability,Carlsbad has thus far been well positioned to anticipate and address oncoming challenges quickly and robustly ECONOMIC AND FINANCIAL UPDATE GLOBAL PRESSURES Several macro-economic disruptions are impacting operations, locally. •Russian invasion of Ukraine has led to increasing fuel prices •Manufacturing and supply chain issues related to COVID-19 outbreaks and lockdowns in China •Global semiconductor shortage is delaying tech products ECONOMIC AND FINANCIAL UPDATE INFLATION CONCERNS •Sustained cost increases are driving concern for businesses •San Diego area prices are up 2.1% over the past two months •Over-the-year prices are up 7.9% (5.6% less food and energy) ECONOMIC AND FINANCIAL UPDATE WORKER/TALENT SHORTAGE •EDD March unemployment data o California unemployment rate: 4.2%, (1.6% improvement) o County unemployment rate: 3.4%, (1.3% improvement) o Carlsbad unemployment rate: 3.1%, (.8% improvement) 0 1 2 3 4 5 6 7 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Carlsbad Unemployment Rate 2021 vs 2022 2021 2022 ECONOMIC AND FINANCIAL UPDATE 8 ECONOMIC AND FINANCIAL UPDATE ECONOMIC RECOVERY •Most sectors are continuing to or have fully recovered •Cases in the county have started to rise, following a sharp decline in February as Omicron subsided •High vaccine rates and continued mitigations have kept hospitalizations and deaths very low •Innovation economy sectors, like life-sciences, tech, and manufacturing are continuing to expand ECONOMIC AND FINANCIAL UPDATE CARLSBAD ECONOMY •Carlsbad’s GRP was $14.6 billion in 2021 •Carlsbad’s GRP was $13.6 billion in 2020 & 2019 •Carlsbad’s economy grew by approximately $1 billion in the last year ECONOMIC AND FINANCIAL UPDATE CARLSBAD ECONOMY ECONOMIC AND FINANCIAL UPDATE Top Five Industry Expansions - 2021 Top Five Industries Contractions - 2021 Machinery Manufacturing $170,356,513 $166,897,336 -$3,459,177 Electrical Equipment, Appliance, & Component Mfg.$41,709,816 $39,306,251 -$2,403,565 Broadcasting (except Internet)$30,930,544 $28,703,260 -$2,227,284 Telecommunications $67,502,217 $66,522,186 -$980,030 Pipeline Transportation $8,267,344 $7,567,474 -$699,870 Management of Companies and Enterprises $1,387,807,048 $1,562,456,261 $174,649,212 Professional, Scientific, and Technical Services $1,863,945,969 $2,020,184,103 $156,238,134 Chemical Manufacturing $643,685,714 $798,069,390 $154,383,676 Merchant Wholesalers, Nondurable Goods $529,860,193 $628,281,781 $98,421,588 Administrative and Support Services $309,018,816 $374,945,699 $65,926,883 Industry 2020 Earnings 2021 Earnings Change Industry 2020 Earnings 2021 Earnings Change CARLSBAD JOBS •June through September saw 15,628 unique job postings •Slight increase from previous quarter •Eight consecutive quarters of increased hiring demand o Manufacturing o Administrative Services o Professional, Scientific & Technical •Average salary for posted jobs was $44,200 •Employers in Accommodation and Food Services continue noting trouble filling jobs ECONOMIC AND FINANCIAL UPDATE COMMERCIAL REAL ESTATE •Vacancy rates for industrial properties are 2.9% •Vacancy rates for office properties are 13% •Vacancy rates for retail properties are up to 8.3% ECONOMIC AND FINANCIAL UPDATE 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 Carlsbad Commercial Vacancy Rates Carlsbad Retail Carlsbad Office Carlsbad Industrial RESIDENTIAL REAL ESTATE •Median home values ended the quarter at $1.44 million •Median home values have risen 28.5% over the past year •The continued rise in home values is partially attributed to constrained supply, low interest rates, and a strong demand in the region ECONOMIC AND FINANCIAL UPDATE $600,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 $1,200,000 $1,300,000 $1,400,000 $1,500,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Carlsbad Median Home Price 2020 2021 2022 CARLSBAD TOURISM •Normalizing activity •Steeper than usual decline in the fall •Room rates have kept above 2019 levels ECONOMIC AND FINANCIAL UPDATE 50 100 150 200 250 300 350 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avgerage Daily Rate 2022 City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA City of Carlsbad, 2019 0 20 40 60 80 100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Hotel Occupancy 2022 City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA City of Carlsbad, 2019 NEW DEVELOPMENT & BUSINESS ACTIVITY •Business licenses issued was strongest in two years •Home builder optimism is rising, but costs are a challenge ECONOMIC AND FINANCIAL UPDATE 0 500 1000 1500 2000 2500 3000 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Business Licenses Issued by Quarter Non-Residential Residential Outside City Total 0 200 400 600 800 1000 1200 Commercial Residential Commercial Residential Commercial Residential 2020 2021 2022 Building Permits Issued Q1 Q2 Q3 Q4 KEY TAKEAWAYS •Global disruptions are impacting Carlsbad business operations •Increased prices are becoming a top concern for businesses •So far, Carlsbad’s economy has remained resilient and continues to grow •Hospitality & Tourism industry is projecting a robust recovery but staffing issues could hamper progress ECONOMIC AND FINANCIAL UPDATE FINANCIAL UPDATE ECONOMIC AND FINANCIAL UPDATE •Fiscal Year 2021-22 to date through March 31, 2022 GENERAL FUND REVENUES (third quarter of fy 2021-22) GENERAL FUND REVENUES Revenue category Actual FY 2020-21 Actual FY 2021-22 $ difference % difference Property tax $47.0 $48.6 $1.6 3% Sales tax 30.1 38.8 8.7 29% Transient occupancy tax 8.5 22.2 13.7 161% Other taxes 7.6 8.7 1.1 15% Income from inv. and property 4.4 3.9 -0.5 -10% Development related revenue 2.2 2.9 0.7 30% Other revenues 12.5 12.4 -0.1 -1% Total $112.3 $137.5 $25.2 22% (in millions) data through third quarter of each fiscal year Revenue category Expected FY 2021-22 Actual FY 2021-22 $ difference % difference Property tax $46.8 $48.6 $1.8 4% Sales tax 32.5 38.8 6.3 20% Transient occupancy tax 10.1 22.2 12.1 120% Other taxes 7.3 8.7 1.4 19% Income from inv. and property 2.8 3.9 1.1 43% Development related revenue 1.4 2.9 1.5 113% Other revenues 10.8 12.4 1.6 14% Total $111.7 $137.5 $25.8 23% GENERAL FUND REVENUES (in millions) data through third quarter of each fiscal year PROPERTY TAX •Majority of property taxes collected in Dec. and April •Assessed values in Carlsbad increased by 3.14% •Increase in property tax revenue due to: •Increased assessed values •Increased supplemental property taxes ECONOMIC AND FINANCIAL UPDATE SALES TAX •Majority of receipts are from Q2-Q4 2021 and a portion of Q1 2022 •Key gains seen in automobile dealers, jewelry and luggage stores, clothing and department stores ECONOMIC AND FINANCIAL UPDATE TRANSIENT OCCUPANCY TAX ECONOMIC AND FINANCIAL UPDATE •Revenues to date represent June through Feb. stays •Increase of $13.7 million or 161% compared to prior year •Average occupancy during the last 12 months has been 63% compared to 43% for the same period in the prior year •The majority of TOT collected to date is from tourists versus group events OTHER TAXES •Business license tax revenues are up due to one-time payments of overdue renewals and penalties combined with a small increase in new business licenses •Franchise taxes are down slightly and the majority comes in April from SDG&E •Transfer taxes on property sales have increased due to an increase in property transfers ECONOMIC AND FINANCIAL UPDATE INCOME FROM INVESTMENTS AND PROPERTY •Revenue decreased by 10% compared to prior year •Investment income continues decline •Yield of city’s portfolio is 1.14% versus 1.39% in the prior year •Income from property rentals increased by 48% compared to prior year ECONOMIC AND FINANCIAL UPDATE OTHER REVENUES •Ambulance fees, fines and forfeitures, interdepartmental charges, recreation fees, development fees, reimbursements, and a variety of other revenues are included in other revenues •Other reimbursements decreased •Recreation fees continue to increase ECONOMIC AND FINANCIAL UPDATE GENERAL FUND EXPENDITURES & ENCUMBRANCES (third quarter of fy 2021-22) GENERAL FUND EXPENDITURES & ENCUMBRANCES (in millions) Category FY 2021-22 Appropriation Quarter 3 FY 2020-21 Quarter 3 FY 2021-22 % of Budget Spent/Committed to Date Personnel $121.4 $75.4 $85.7 71% Maintenance & operations 72.0 42.2 50.7 70% Transfers out 26.8 5.2 24.9 93% Capital outlay 1.5 1.2 1.5 99% COVID-19 & Innovation 0.5 2.3 0.3 65% Contingency 0.4 0.0 0.0 0% Total $222.6 $126.3 $163.1 73% GENERAL FUND EXPENDITURES & ENCUMBRANCES (in millions) Category FY 2021-22 Appropriation QTR 3 EXP FY 2021-22 % of Budget Spent to Date OPEN POs at 3/31/21 % of Budget Spent/Committed to Date Personnel $121.4 $85.7 71%$0.0 71% Maintenance & operations 72.0 35.1 49%15.6 70% Transfers out 26.8 24.9 93%0.0 93% Capital outlay 1.5 1.1 75%0.4 99% COVID-19 & Innovation 0.5 0.1 15%0.2 65% Contingency 0.4 0.0 0%0.0 0% Total $222.6 $146.9 66%$16.2 73% GENERAL FUND BUDGET ECONOMIC AND FINANCIAL UPDATE •Adopted budget of $184.6 million •Working budget of $222.6 million •Available budget remaining of $59.4 million, or 27% •Includes actual expenditures through March 2022 •Includes open purchase order commitments WATER AND WASTEWATER ECONOMIC AND FINANCIAL UPDATE Compared to prior year through third quarter: •Water revenues are up 0.9% and expenses are up 3.3% •Wastewater revenues are up 9.0% and expenses are up 8.8% GOLF COURSE ECONOMIC AND FINANCIAL UPDATE •Net income $830,000 higher than last year •Driven by continued demand for golf and an increase in food & beverage sales NEXT STEPS •Monitor revenues and expenditures •Publish economic and financial status reports: carlsbadca.gov/doingbusiness carlsbadca.gov/departments/finance/financial-reports •Return with fiscal year end update ECONOMIC AND FINANCIAL UPDATE