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HomeMy WebLinkAbout2024-02-27; City Council; ; Economic and Financial Update for the Second Quarter of Fiscal Year 2023-24CA Review AZ Meeting Date: Feb. 27, 2024 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Zach Korach, Finance Director zach.korach@carlsbadca.gov, 442-339-2127 Matt Sanford, Economic Development Manager matt.sanford@carlsbadca.gov, 442-339-5987 Subject: Economic and Financial Update for the Second Quarter of Fiscal Year 2023- 24 Districts: All Recommended Actions 1.Receive a report on the economic and financial update for the second quarter of fiscal year 2023-24 and provide direction as appropriate. 2.Receive a report on the results of the fiscal year 2023-24 mid-year budget review. 3.Adopt a resolution authorizing the City Manager or designee to appropriate $245,000 from the Fleet Maintenance Fund for citywide fuel costs and $80,000 from the Stormwater Enterprise Fund for a funding study to the Fiscal Year 2023-24 Operating Budget. Executive Summary The City Manager has committed to providing quarterly updates to the City Council on the city’s economic outlook and finances. The update reviews the city’s economic and fiscal health and serves as a measure of budgetary performance. In this report, staff will provide a presentation on: •National, state, regional and Carlsbad-specific economic data •The city’s most recent financial data This report also details recent economic trends and information on current impacts on our local economy. In line with regional trends, Carlsbad experienced 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. Feb. 27, 2024 Item #8 Page 1 of 33 Explanation & Analysis Economic update Carlsbad’s 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 and communications technologies • Cleantech • Sports innovation and design • Hospitality and tourism Revised data shows that Carlsbad ended 2022 with a gross regional product of $17.1 billion, indicating that Carlsbad has the largest economy in the county behind the City of San Diego. Companies that call Carlsbad home are at the forefront in areas of technology and innovation. Among the county's 18 cities, Carlsbad’s hospitality and tourism industry generates the second- highest amount of transient occupancy tax, the tax on local hospitality stays. Carlsbad’s economy demonstrated resilience and potential for growth, with unemployment rates holding steady at a relatively low 4.2%. The labor market remains exceptionally tight, with a current ratio of approximately 1.5 open jobs for every available worker. This imbalance shows a demand for labor that outweighs supply, which likely means a continued low unemployment rate for our local economy. Layoffs in the tech sector, which occurred primarily in companies that expanded their workforce during the pandemic and are now adjusting to post-pandemic levels, are showing signs of tapering off. These adjustments are positioning companies for more sustainable growth. Overall, economic indicators suggest a healthy economy with a positive outlook for the coming year, underpinned by strong labor demand and strategic adjustments within key industries. There has been a decrease in commercial real estate vacancies across the industrial, retail and office sectors – a good sign. The shift toward remote and hybrid work models continues to influence the office market, which is likely to mean ongoing fluctuations in vacancy and lease rates for the foreseeable future. However, if capital markets become more accessible, it could mean an opportunity to redevelop older office properties, making them more competitive by adapting to current workforce needs. This strategy could revitalize these spaces, bolstering our city's economic vitality in the long run. Nationally, the economy has remained stronger than most forecasts had predicted. Steady consumer demand has resulted in inflation (3.1% nationally) remaining elevated above the Federal Reserve’s target level of 2%, although inflation has remained under 4% for most of last year. As such, most economists expect interest rates to remain at their current level for at least a few months until inflation decreases further. A recent poll by the National Association for Business Economics showed that three-quarters of economists surveyed now predict that the U.S. will avoid a recession in 2024. An even larger number of those economists surveyed predicted growth in 2025. The majority thought interest rates were likely to hold at their current rate for some time, but a growing contingent thought there should be interest rate reductions this year. Should interest rates drop, it could create a surge in capital markets, possibly yielding more development of both commercial and Feb. 27, 2024 Item #8 Page 2 of 33 residential properties. Such a shift in demand, against the backdrop of already robust market conditions in Carlsbad, could further escalate home values. Despite elevated interest rates, home values in Carlsbad continue to rise. The current median home price is $1.45 million. To ensure the city remains responsive to the changing landscape, staff have capitalized on greater in-house economic data capabilities and analytics developed over the past year to publish a quarterly economic scan. The complete economic scan for the second quarter of fiscal year 2023-24 is provided as Exhibit 2. Staff are working to update the industry cluster analysis, which is included in the economic scan, to include 2023 business information and will have updates completed ahead of the third quarter report. In addition, staff are developing an economic data dashboard that will include updates to indicators as they are released to provide the City Council and the public with a timely and interactive tool to help them understand Carlsbad’s economy in real time. Staff also publish relevant data on the city’s economic development site, carlsbadca.gov/doingbusiness. Financial update The COVID-19 pandemic created immense uncertainty in the city’s revenues, most notably in sales tax and transient occupancy tax, the tax assessed on local hotel, motel and short-term vacation rental stays. The fiscal year 2021-22 adopted budget anticipated continued adverse impacts from the pandemic with moderate recovery. However, General Fund revenues, specifically property, sales and transient occupancy tax revenues, reached historically high levels in fiscal years 2021-22 and 2022-23. This was mainly due to the staggered removal of COVID-19 restrictions, coupled with pent-up demand and inflationary increases. During the development of the fiscal year 2022-23 adopted budget, unprecedented inflationary increases and its anticipated impacts on disposable income, personal savings, tourism and the housing market drove the need for conservative revenue estimating and budget tightening. As fiscal year 2022-23 came to a close, the General Fund’s primary revenue sources continued to persevere through the high inflationary period, sustained by strong consumer demand. As we continue through fiscal year 2023-24, and despite the recent positive historical revenue performance, monitoring the city’s revenues and expenditures and taking necessary proactive steps toward mitigating economic uncertainty is as critical as ever. The December 2023 Financial Status Report is provided as Exhibit 2. Feb. 27, 2024 Item #8 Page 3 of 33 Revenues The General Fund’s top three revenue sources – property, sales and transient occupancy tax – reached historic highs in fiscal year 2022-23. The fiscal year 2023-24 adopted budget took a conservative approach at estimating these revenue sources since revenue growth appears to be leveling off. However, year-over-year increases for property and sales taxes through the first half of the year are notably positive, given the amount of uncertainty in the economy. The table below shows the differences in revenue when comparing the first half of fiscal year 2023-24 with the same period in the prior fiscal year. Fiscal year 2023-24 year-to-date revenues as of December 2023 compared to fiscal year 2022-23 as of December 2022 Revenue category Change ($) Change (%) Transient occupancy tax -$1,118,585 -5.5% Property tax $2,909,502 10% Sales tax $3,734,081 14% Charges for services $1,370,766 24% Investments, property income $576,726 19% Interdepartmental charges $172,102 6% Licenses and permits $88,877 6% Other revenue sources -$513,989 -60% Fines and forfeitures -$39,626 -17% Intergovernmental $437,421 79% Other taxes $154,387 3% Total revenues $7,771,662 8% Major revenue sources Property tax The majority of property tax revenue is collected in December and April each year. Increases of $2.9 million for the first half of the fiscal year are due to a 6.7% increase in assessed property values when compared to last year. Revenue from aircraft taxes has also increased due to an increase in aircraft assessed values combined with an increase in the number of aircraft housed at the county’s Palomar-McCellan Airport. Sales tax For the first half of the fiscal year, sales tax revenue is $3.7 million higher than the same period in the previous fiscal year. To date, sales tax revenue represents receipts that were collected for the third quarter of calendar year 2023 as well as the first advance of the city’s sales tax revenue from the fourth calendar quarter of 2023. In fiscal year 2021-22, the city experienced accelerated recovery after the impacts of the COVID-19 pandemic. Fiscal year 2022-23 saw historically high levels of sales tax revenue driven by inflation and sustained by unwavering consumer demand. The city is anticipating that this growth in sales will level off and slow down this fiscal year. Feb. 27, 2024 Item #8 Page 4 of 33 For sales occurring in the third calendar quarter of 2023, the most recent data available shows key year-over-year gains in new auto sales. The largest economic segments in the city are automobile dealers, general retail stores and restaurants. Together, they generate approximately 70% of the city’s sales tax revenue. A significant portion of the year-over-year increase is attributed to the auto sales sector and a correction in methodology for how respective sales were being assigned and reported. It has not yet been determined whether this will be a one-time or ongoing experience. Transient occupancy tax Year-to-date transient occupancy tax figures represent taxes collected on hotel overnight stays through the month of November 2023. The revenue received in the first half represents a decrease of $1.1 million, or -5.5% when compared to the same year-to-date period last year. Occupancy rates in October, November and December of 2023 were 72.2%, 71.2% and 70.4%, respectively, and represented nominal change over the previous year. However, average daily room rates declined moderately. Average daily room rates in October, November and December of 2023 were 3.5% lower than the previous year on average. While occupancy rates remain stable, it will be important to monitor the impact of average daily room rate fluctuations on occupancy rates moving forward. Expenditures and encumbrances Overview Total General Fund expenditures and encumbrances – those funds either spent or committed for specific expenses – through the month of December 2023 are $129.5 million, compared to $124.5 million at the same time last year. The remaining budget available through the fiscal year ending June 30, 2024, is $112.0 million, or 46%. Excluding transfers out, contingencies, and non-departmental charges, the percentage available on Dec. 31, 2023, is 45.7%, slightly less than the 46.9% available on Dec. 31, 2022. Pension funding CalPERS, the state pension system for government employees and pension funding, has been and will continue to be a challenge for participating agencies like the City of Carlsbad. CalPERS administers the city’s defined benefit pension plan, and costs have been increasing in past years as CalPERS addresses a structural shortfall in the plan’s assets to cover unfunded liabilities. In support of CalPERS strategies for plan sustainability and as part of the city’s strategic, long- term approach to financial management, the city actively manages its unfunded pension liability. Since fiscal year 2016-17, the City Council has approved additional discretionary payments of $56.4 million to decrease future costs related to the city’s unfunded actuarial liability and strive to achieve a funded status of 80% in accordance with City Council Policy No. 86. CalPERS’ latest actuarial valuation report (as of June 30, 2022) indicated the city had a combined pension funded status of 74.6%, reduced from the prior year’s status of 86%. This reduction was predominantly driven by CalPERS’ fiscal year 2021-22 investment loss of -6.1%. This negative return will not impact the city’s required contributions until fiscal year 2024-25. Feb. 27, 2024 Item #8 Page 5 of 33 The City Council approved the establishment of a public agencies post-employment benefits trust (known as a Section 115 Trust) on Sept. 12, 2023. This trust allows the city to stabilize pension cost volatility, maintain local control over the city’s assets, and earn a potentially higher rate of return than if the assets were kept within the General Fund. The City Council approved an initial trust contribution of $10 million on Sept. 26, 2023. As of Dec. 31, 2023, the city’s Section 115 Trust had a balance of $10,294,070, including the initial $10 million contribution. Considering the assets held by CalPERS as well as the assets held in the city’s trust, the combined pension funded status as of December 2023 is 75.7%. Staff will continue to monitor the activities in the trust and report the city’s pension-funded status to the City Council quarterly. Enterprise funds The city’s water and wastewater enterprise funds1 continue to operate in line with budgeted expectations. Operations at the city’s municipal golf course, The Crossings at Carlsbad, have remained relatively consistent year-over-year. Mid-year budget update The city initiated a mid-year budget review of the Fiscal Year 2023-24 Operating Budget in November 2023. The Finance Department led this effort in collaboration with city departments to forecast changes to revenues and expenditures compared to their current budgets. The mid- year budget review was based on the first five months of actual activity in fiscal year 2023-24. Departments were directed to update their revenue and expenditure projections for the rest of the fiscal year based on the observed trends. A key component of the mid-year review was the analysis of spending within departments’ personnel budgets. In fiscal year 2022-23, the adopted budget for the city’s General Fund included a new item of $2 million for “vacancy savings.” This represents the estimated amount of budgeted personnel savings that will be realized by the end of the fiscal year. Vacancy savings are realized when vacant or new positions take longer than expected to fill or when they are filled at a lower cost than budgeted. As of mid-year, the city anticipates being able to meet the budgeted vacancy savings figure by the end of the fiscal year. However, it’s unclear at this point whether overtime costs will run exceedingly high compared to budget. If they do, then there is a chance that actual vacancy savings may be less than budgeted. The city will determine whether the General Fund is able to fully meet its budgeted vacancy savings figure of $2 million by the fiscal year's end. There were no substantial updates to departments’ revenue budgets that would require changes to previously budgeted figures. While some of the General Fund’s major revenue sources have come in higher than originally estimated, given the level of economic uncertainty, staff do not recommend changes to the original estimates. Several departments identified modest savings anticipated at fiscal year-end; at this point, no budget transfers are being proposed as a result of this review. 1 Enterprise funds are government funds usually used to account for operations that are financed and operated in a manner similar to private business enterprises, with the services provided paid for primarily through user charges. Feb. 27, 2024 Item #8 Page 6 of 33 Funding for increased fuel costs The city’s vehicle fuel costs have been steadily increasing year over year. Current budget levels are not sufficient to meet the city’s current needs. The Fleet Maintenance Fund is requesting an additional appropriation of $245,000 to meet fiscal year 2023-24 budget needs. Fiscal year Adopted budget Mid-year additions Notes 2020 $850,000 $- No additional budget needed. 2021 $850,000 $- No additional budget needed. 2022 $891,947 $100,000 Budget of $100,000 added toward fiscal year-end for sharp increase in fuel costs during the second half of fiscal year. 2023 $933,947 $378,443 Budget of $250,000 added at year-end for increasing fuel costs, with a General Fund transfer of $1.4 million. Budget of $115,000 added during the year related to the addition of Police take-home vehicles. The entirety of the fuel budget was spent for existing fuel needs because take-home vehicles were not in service by fiscal year-end. 2024 $933,947 $245,000 (requested) Spending is still trending high, and this requested increase should cover the increased fuel costs. This does not take into consideration the anticipated increase in Police take-home vehicle fuel costs (estimated at $115,000 in fiscal year 2023). Given the information presented above, the city should expect the citywide fuel budget request for fiscal year 2024-25 to be near $1.3 million. According to U.S. Energy Information Administration data, California’s average gas prices have increased by about 40% since fiscal year 2019-20. The existing budget also does not account for the additional fuel budget that will be needed for additional Police take-home vehicles, which are being outfitted for use in the near future. Stormwater funding cost of service study The Stormwater Enterprise Fund pays for the services of the Watershed Protection Division in the Environmental Sustainability Department and the Storm Drain Maintenance Division in the Transportation Department, collectively known as the stormwater program. The current fee structure is as follows: • From 2003 to 2022, the Stormwater Fund received revenue from a stormwater fee paid by residents as part of their trash bill. • With the transition to a new waste hauler on July 1, 20222, the City Council approved a franchise agreement that requires the waste hauler to charge customers the fee, instead of the city charging residents for the fee, and the city receives quarterly 2 The agreement was awarded to Republic Services on April 6, 2021, with Resolution No. 2021-075. Feb. 27, 2024 Item #8 Page 7 of 33 reimbursement payments directly from Republic Services to compensate for trash reduction related stormwater program expenses. • In preparation for the updated fee structure, HF&H Consultants completed a study of trash-reduction stormwater cost allocations, which determined the maximum allowable funding that can be collected based on the average annual projected trash reduction related costs. • The study determined that a total of $1,347,056 in annual trash reduction stormwater costs can be collected as reimbursement from the city’s waste hauler. • The city began receiving annual payments of $1.3 million from Republic Services as of July 1, 2022. These funds cover existing needs to address trash in storm drains and local waterways, However, funds for costs to comply with future requirements imposed by the state and regional water quality boards were not addressed in the study because details of the future requirements are currently unknown. With only $1.3 million allowable in fees collected by the waste hauler, but an adopted budget totaling $4.4 million, approximately $3.1 million in annual expenses do not have a dedicated funding source. Staff are temporarily spending down the Stormwater Fund balance, which totaled $8.1 million in 2022, to provide the annual $3.1 million needed to fund the deficit in the stormwater program budget. However, beginning in FY 2025-26, the fund will have a projected deficit and will require an alternative revenue source. Given expected cost increases and regulatory requirements, there are limited opportunities to reduce expenditures either in operations or personnel budgets. The city can pursue a combination of potential funding opportunities to fully fund the stormwater program moving forward. Staff recommend that the city develop a long-term funding strategy for the stormwater program. The proposed budget appropriation of $80,000 will fund the costs to contract with a firm to assist with completing a funding strategy study. Fiscal Analysis The request to appropriate $245,000 from the Fleet Maintenance Fund to accommodate increasing fuel costs will not result in any citywide fiscal impact in the current year other than using the existing fund balance. Future budget increases for rising fuel costs will likely increase the associated Fleet Maintenance Fund’s internal service fund chargeback – the fee charged to city departments for fleet services – to affected funds citywide. The request to appropriate $80,000 to the Stormwater Enterprise Fund will have an impact on this fund alone. The fund is partially operated by using its fund balance, and this additional appropriation will further utilize these funds. Once the funding strategy study is complete, based on identified funding strategies, staff intend to recommend options to the City Council on how to ensure the Stormwater Enterprise Fund’s revenue is sufficient to cover its operations on an annual basis. Next Steps Staff will continue to develop tools to understand the economy, attract businesses and cultivate talent, and provide quarterly updates to the City Council on the economic outlook and the city’s Feb. 27, 2024 Item #8 Page 8 of 33 finances. Staff will return to the City Council in May 2024 with a third-quarter financial and economic review. Vacancy savings will be re-evaluated at the fiscal year’s end to determine if the city will meet the $2 million target in the adopted fiscal year 2023-24 budget. With the City Council’s approval, funds for the increase in fuel costs will be appropriated from the Fleet Maintenance Fund and funds for the funding strategy study will be appropriated from the Stormwater Enterprise Fund. Environmental Evaluation This action does not require environmental review because it 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 or a reasonably foreseeable indirect physical change in the environment. Exhibits 1. City Council resolution 2. Carlsbad Economic Scan - FY 2023-24 - Second Quarter 3. December 2023 Financial Status Report Feb. 27, 2024 Item #8 Page 9 of 33 RESOLUTION NO. 2024-041 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, AUTHORIZING THE CITY MANAGER OR DESIGNEE TO APPROPRIATE $245,000 FROM THE FLEET MAINTENANCE FUND FOR CITYWIDE FUEL COSTS AND $80,000 FROM THE STORMWATER ENTERPRISE FUND FOR A FUNDING STUDY TO THE FISCAL YEAR 2023-24 OPERATING BUDGET WHEREAS, the City Council of the City of Carlsbad, California, has determined that citywide fuel costs for the city's fleet have been increasing year over year in recent history; and WHEREAS, the Fleet Maintenance lnternal Service Fund requires additional budget funds for the rest of fiscal year 2023-24 in the amount of $245,000 to account for these increasing fuel costs; and WHEREAS, the city's Stormwater Enterprise Fund has annual expenses that exceed the current available funding sources, resulting in an annua! fund deficit; and WHEREAS, the Stormwater Enterprise Fund requires an additional budget of $80,000 to hire a consultant to perform a funding study; and WHEREAS, the intent of the study is to identify a combination of potential funding opportunities to fully fund the stormwater program moving forward. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California, as follows: 1.That the above recitations are true and correct. 2.That the City Manager or designee shall be authorized to appropriate $245,000 to the Fleet Maintenance Fund's 2023-24 operating budget to fund fuel costs. 3.That the City Manager or designee shall be authorized to appropriate $80,000 to the Stormwater Enterprise Fund's 2023-24 operating budget to perform a funding study. Exhibit 1 Feb. 27, 2024 Item #8 Page 10 of 33 PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carls bad on the 27th day of February, 2024, by the foliowing vote, to wit: AYES: NAYS: ABSTAIN: ABSENT: BLACKBURN, BHAT-PATEL, ACOSTA, BURKHOLDER, LUNA NONE. NONE. NONE. KEITH BLACKBURN, Mayor SHERRY FREISINGER, City Clerk (SEAL) Feb. 27, 2024 Item #8 Page 11 of 33 1 Second Quarter, Fiscal Year 2023-2024 The following scan provides an overview of key economic indicators for October, November and December 2023 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: Lightcast, 2022. Data revised November 2023) $17.1B In 2022, Carlsbad had the second largest gross regional product in San Diego County at more than $17.1B (revised), only trailing the City of San Diego. From 2021 to 2022, Carlsbad’s GRP grew by $1.5B. This growth was seen across almost all industry categories, and was led by manufacturing, wholesale trade, hospitality, and professional, scientific, and technical services. JOBS Unemployment Rate (Source: California Employment Development Department, Dec. 2023 Report) Carlsbad’s labor market hovered around 4% for the quarter (4.2% in December). Nationally and locally, unemployment has remained low. Despite layoffs in the tech sector, overall, unemployment remains low and employers continue to hire. Job opportunities continue to outnumber available workers, keeping overall unemployment in Carlsbad and the San Diego region, low. The unemployment rate in December was 5.1% at the state level and 4.3% at the county level. 0 1 2 3 4 5 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Carlsbad Unemployment Rate 2022 vs 2023 2022 2023 0 1 2 3 4 5 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Unemployment Rate Comparison 2023 Carlsbad San Diego County North County Avg w/o Carlsbad California Innovation + Economic Development Department Gross Regional Product Exhibit 2 Feb. 27, 2024 Item #8 Page 12 of 33 2 Job Postings (Source: Lightcast, Oct. - Dec. 2023) 7,752 There were 7,752 unique job postings in Carlsbad between October and December, a significant decrease from the previous quarter. Over the quarter, 1,424 unique employers posted open positions. The median advertised salary for these postings was $49,500, continuing a trend of decreasing advertised wages. Of jobs posted, 70% indicated an education requirement of High School/GED or no requirement listed. 68% of postings indicated less than a year of experience or no experience was required, indicating there are a number of entry-level jobs being posted. TALENT + WORKFORCE Education (Source: 2022 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. More than 60% of working-age residents hold a bachelor’s degree, with nearly 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 math (STEM degrees). This local talent mix is among the leading reasons that firms choose Carlsbad. 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% Less than High School High School Diploma Some College, no Degree Associate's Degree Bachelor's Degree Graduate or Professional Degree Educational Attainment Comparison of Population Over 25 Years Old National California San Diego County 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 40,100 degrees annually, a number which continues to rise on every campus in the region. The Carlsbad business community works closely with higher education partners to align various education tracks with local workforce needs. Talent Pipeline Job Postings This Quarter Feb. 27, 2024 Item #8 Page 13 of 33 3 CAPITAL Interest Rates (Source: U.S. Department of the Treasury, Dec. 2023) The Federal Reserve maintained interest rates over the quarter, as the economy demonstrated stability and inflation moved toward the target rate of 2%. They have signaled that rate reductions may be possible in 2024 should the economy stay on track and inflation be kept in check. In December, one-year rates were 4.79%. Ten-year rates were 3.88%. 30-year rates were 4.03%. As of November, inflation figures for the San Diego area increased slightly to 5.2% over the past year, but were down 0.2% over the past two months. December 2022 One-year interest rate 4.73% 10-year interest rate 3.88% 30-year interest rate 3.97% December 2023 One-year interest rate 4.79% 10-year interest rate 3.88% 30-year interest rate 4.03% COMMERCIAL REAL ESTATE Market Vacancy Rates and Rent per Square Foot (Source: CoStar, Dec. 2023) Commercial vacancy rates dropped across all three categories this quarter. The industrial vacancy rate in December was 7.3%. The office vacancy rate in December was 11.8%. Retail vacancy in December was 5.3%. Rental rates were relatively steady across all categories. Average market rents per square foot, per year for office rates in December were $37.87. Industrial rates in December were $22.32. Retail rates in December were $45.63. While Carlsbad office markets have remained relatively stable, remote and hybrid work are predicted to continue impacting office leases. With uncertain workforce dynamics and tight capital markets, commercial developers are still largely holding off on new office developments. This trend is predicted to continue. 7.3% Industrial vacancy rate 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2021 2022 2023 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 2022 Q2 2022 Q3 2022 Q4 2023 Q1 2023 Q2 2023 Q3 2023 Q4 Feb. 27, 2024 Item #8 Page 14 of 33 4 TOURISM Occupancy averaged 64.53% in the second quarter, which is an increase over the same quarter for 2022 (63.8%). Over the course of 2023, data indicates a gradual stabilization in the hospitality sector, aligning with global travel industry recovery efforts and changing consumer travel behaviors. 42 With 42 hotels in Carlsbad, tourism is a major industry in terms of employment and economic impact. It is also a major contributor to city revenue, through TOT and sales tax generation. Below are several indicators reflecting the health of the city’s tourism economy. Hotel Occupancy (Source: Smith Travel Research, Dec. 2023 Report) Carlsbad’s average daily room rate (ADR) remains higher than pre-pandemic levels, but is lower than the same quarter of 2022. ADR averaged $195.79 in the fourth quarter, compared to $201.50 for the same quarter in 2022. Overall, the ADR trends in 2023 indicate a strategic pricing approach by hotels in Carlsbad to navigate the evolving travel landscape, balancing between maximizing revenue during high demand periods and attracting guests during slower months. Hotel Average Daily Room Rate (Source: Smith Travel Research, Dec. 2023 Report) 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 Ju l Se p No v Ja n Ma r Ma y Ju l Se p No v Ja n Ma r Ma y Ju l Se p No v Ja n Ma r Ma y Ju l Se p No v Ja n Ma r Ma y Ju l Se p No v 2019 2020 2021 2022 2023 Hotel Average Daily Rate Trend 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 Ju l Se p No v Ja n Ma r Ma y Ju l Se p No v Ja n Ma r Ma y Ju l Se p No v Ja n Ma r Ma y Ju l Se p No v Ja n Ma r Ma y Ju l Se p No v 2019 2020 2021 2022 2023 Hotel Occupancy Trend 0 20 40 60 80 100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Hotel Occupancy 2023 City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA 50 100 150 200 250 300 350 400 450 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average Daily Rate 2023 City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA Hotels in Carlsbad Feb. 27, 2024 Item #8 Page 15 of 33 5 INCOME + HOUSING Median Household Income (Source: 2022 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 2022 was $146,596, (adjusted for inflation), which was $21,927 higher than the previous year, and $47,668 more than the county median household income. Carlsbad has generally outpaced the region in terms of household income growth. Median Home Price (Source: Zillow Home Value Index - Dec. 2023) There was a moderate rise in home values this quarter despite elevated interest rates. Steady consumer demand kept values on an upward trajectory for most of the year. The current median home price is $1.45 million, an increase of about $22,000 over the last quarter. A recent poll showed that three-quarters of economists now predict that the U.S. will avoid a recession in 2024, and a growing contingent among them anticipates interest rate reductions this year. Should interest rates drop, it could create a surge in demand for homes. Such a shift in demand, against the backdrop of already robust market conditions in Carlsbad, could further escalate home values. $600,000.00 $700,000.00 $800,000.00 $900,000.00 $1,000,000.00 $1,100,000.00 $1,200,000.00 $1,300,000.00 $1,400,000.00 $1,500,000.00 $1,600,000.00 2019 2020 2021 2022 2023 Carlsbad Median Home Price $600,000.00 $700,000.00 $800,000.00 $900,000.00 $1,000,000.00 $1,100,000.00 $1,200,000.00 $1,300,000.00 $1,400,000.00 $1,500,000.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Median Home Price Comparison -2023 Carlsbad Escondidio Oceanside San Marcos Vista Feb. 27, 2024 Item #8 Page 16 of 33 6 BUSINESS ACTIVITY Business Licenses (Source: City of Carlsbad, Dec. 2023) There were a total of 2,219 business licenses issued last quarter, including 978 non-residential, 531 residential, and 710 outside-the-city licenses. This is a decrease of 81 total businesses over the same quarter of 2022. 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 6,667 businesses in Carlsbad, a slight increase over the previous year. Building Permits (Source: City of Carlsbad, Dec. 2023) Between October and December, permit activity continued to decrease for residential building permits (838). The surge in residential permits issued in the first half of the year, followed by the subsequent drop off is largely attributable to fluctuation in demand for new photo-voltaic systems as a result of the State of California’s changes to net-metering rules. Commercial permits issued (98), mirrored the same quarter of 2022. 0 200 400 600 800 1000 1200 1400 1600 Co m m e r c i a l Re s i d e n t i a l Co m m e r c i a l Re s i d e n t i a l Co m m e r c i a l Re s i d e n t i a l Co m m e r c i a l Re s i d e n t i a l 2020 2021 2022 2023 Building Permits Issued Q1 Q2 Q3 Q4 0 500 1000 1500 2000 2500 3000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2021 2022 2023 Business Licenses Issued by Quarter Non-Residential Residential Outside City Total Carlsbad Businesses by City Council District Feb. 27, 2024 Item #8 Page 17 of 33 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. From 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. Cleantech (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 Feb. 27, 2024 Item #8 Page 18 of 33 8 INDUSTRY IMPACT Largest Industries (Source: Lightcast, Dec. 2023) 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 mitigate the effects of the COVID-19 pandemic. Feb. 27, 2024 Item #8 Page 19 of 33 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 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. Feb. 27, 2024 Item #8 Page 20 of 33 9 Patents per Capita 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. 2019 Patents per 1,000 Workers in the Labor Force Released Feb. 27, 2024 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. Feb. 27, 2024 Item #8 Page 21 of 33 Exhibit 3 This report summarizes the City of Carlsbad’s General Fund revenues and expenditures through December 31, 2023. It compares revenues and expenditures for the first six months of fiscal year 2023-24 and fiscal year 2022-23. In addition, the financial status of the Water, Wastewater and Golf Course Enterprise Funds 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 ($32.7 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 6.26% for fiscal year 2023-24. This is the 11th 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. The increase in this year’s assessed values is due to increases in the assessed values of residential and commercial properties in the city; the city saw a smaller increase in industrial property values for the year. This is the ninth 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). Although increases in residential assessed values were recorded for fiscal year 2023-24, the county is now experiencing historically low for-sale housing inventory with housing prices remaining steady. The property taxes for the first half of the fiscal year have increased by 10% as compared to the prior fiscal year. The primary reasons for the increase are: • Current taxes are up by $1.8 million or 6.7% mainly due to increased assessed property values. • Aircraft taxes are also up $910,000 or 47% due to an increase in aircraft assessed values (32%) combined with an increase in the number of aircrafts being housed at the airport. Sales Taxes ($30.4 million) – For the first half of the fiscal year, sales tax revenues are $3.7 million higher than the same period in the previous fiscal year. Sales tax revenues to date for the current fiscal year represent the city’s sales tax revenues for the third calendar quarter of 2023 and the first advance for the fourth calendar quarter of 2023. In fiscal year 2021-22, the city experienced accelerated recovery after the impacts of the COVID-19 pandemic. Fiscal year 2022-23 saw historically high levels of sales tax revenues driven by inflation and sustained by consumer demand. The city is anticipating that this growth in sales will level off and slowdown this fiscal year. For sales occurring in the third calendar quarter of 2023 (the most recent data available), key year-over-year gains were seen in new auto sales. The largest economic segments in the city are automobile dealers, general retail stores, and restaurants. Together, they generate approximately 70% of the city’s sales tax revenues. December 31, 2023 10% 14% Feb. 27, 2024 Item #8 Page 22 of 33 Quarterly Financial Report _______________________________________________________________ 2 A significant portion of the year-over-year increase is attributed to the auto sales sector and a correction in methodology for how respective sales were being assigned and reported. It is not yet determined whether this will be a one-time or ongoing experience. Transient Occupancy Tax ($19.1 million) – The city’s third highest General Fund revenue source on an annual basis is Transient Occupancy Tax (TOT or hotel tax), estimated at $32.8 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 November 2023. TOT collected for the first half of the fiscal year reflects a decrease of $1.1 million or 5.5%, when compared to the previous year. Currently, there are 4,768 hotel rooms in service (of 5,059 total rooms built in the city and 426 registered short- term vacation rentals. The average occupancy of hotel rooms over the most recent 12 months has been 70.4% which is the same percentage when compared to this time last year. Average daily room rates in October, November and December of 2023 were 3.5% lower than the previous year on average. While occupancy rates remain stable, it will be important to monitor the impact of average daily room rate fluctuations on occupancy rates moving forward. Business License Tax ($3.1 million) – All entities doing business in the City of Carlsbad are required to have a valid business license. Business license revenue is estimated at $6.4 million for the current fiscal year. Business license revenues are up $212,700, or 7%, from the previous fiscal year. The increase is due to an increase in license renewal revenue offset by a slight reduction in penalty revenue from overdue business license renewals when compared to the prior year. There are currently 9,490 licensed businesses operating within the city, 12 less than the prior year. The majority of taxed businesses (6,373 businesses) are located in Carlsbad, with 2,368 of these businesses home-based. Interdepartmental Charges ($3.1 million) – Interdepartmental charges are up by $172,100 when compared with the same period last year. These charges are generated through engineering services charged to capital projects (up $107,000 due to more staff time charged to capital projects); reimbursed work from other funds; and miscellaneous interdepartmental expenses charged to funds outside the General Fund for services performed by departments within the General Fund (up $65,000). Income from Investments and Property ($3.6 million) – For the first half of the fiscal year, income from investments and property is up $576,700 compared to the previous fiscal year. This increase is largely due to a 42% rise in yield from 2.01% as of December 2022 to 2.49% as of December 2023 along with a 5.1% increase in the average cash balance held in the General Fund. Throughout the pandemic, the Federal Reserve had maintained an effective benchmark interest rate between 0 and 0.25%. However, inflation which had been on a historic rise for much 2022 and into 2023 resulted in the Federal Reserve increasing benchmark rates all the way to a target range of 5.25%-5.5% as of July 2023. While 2022 saw repeated interest rate hikes, 2023 experienced smaller interest rate hikes at a slower and more deliberate pace. Recent indicators suggest that economic activity has been expanding at a solid pace, and although inflation has eased over the past year and prices have started to come down, the Federal Reserve continues to hold interest rates steady at the target range of 5.25 to 5.5%, the highest it has been in more than 20 years. It is expected that rates will hold steady with the intent to reduce as inflation decreases. 6% 19% 7% 5.5% Feb. 27, 2024 Item #8 Page 23 of 33 Quarterly Financial Report _______________________________________________________________ 3 Recreation Fees ($1.9 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 $133,400 compared to last year at this time. Half of this increase is attributable to an increase in aquatic lesson revenue and the other half is related to an increase in instructional class revenue. Development Related Revenues ($2.1 million) – Development related revenues, which include building permits, planning fees, building department fees, and engineering fees, reflect a 12% decrease for the first three 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 the second quarter fiscal year 2023-24 included permits associated with the new residential construction of 17 second dwelling units, 51 condominiums (44 units for Chinquapin Coastal and 7 units at Marja Acres), 7 single family homes, 47 apartments (Marja Acres senior affordable units) and various homeowner improvements. Commercial and Industrial permit activity included permits associated with an industrial building for Ionis (164,833 sq. ft.) and 3,427 commercial sq. ft. for a Chik-Fil-A restaurant. One source of development related revenue is building permits, which are at the same level of $1 million in revenues when compared to last fiscal year. The year-to-date valuation of new construction in the current fiscal year is $181 million. This represents a $66 million, or 58%, increase in valuation over the previous fiscal year. Franchise Tax ($1.7 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 to be at $7.1 million for the current fiscal year. Year-to- date franchise taxes are $30,000 higher when compared to the same period last year. Cable television franchise revenues (Spectrum and AT&T) are down $119,000 representing a decrease in the number of subscription service subscribers (premium video, equipment rental, on-demand, and programming services). An increase in trash collection revenue of $149,000 resulted from the city’s most recent contract with Republic Services, the city’s waste services provider. SDG&E pays franchise taxes for the use of public land over which they transport gas and electric services. In addition, SDG&E pays an “in-lieu” franchise tax based on the value of gas and electricity transported through SDG&E lines but purchased from another source. The “in-lieu” tax was put in place to capture the franchise taxes on gas and electricity that is transported using public lands, but which would not otherwise be included in the calculations for franchise taxes. Approximately 46% of the city’s franchise taxes are anticipated to be received from SDG&E in April 2024. Ambulance Fees ($3.3 million) – The city bills any individual who is transported in one of the city’s ambulances. Through December 2023, receipts from ambulance fees are up $1.2 million, or 60%, compared to last fiscal year. The increase in revenue for the first half of the fiscal year is mainly due to changes to the ambulance fee schedule that the City Council approved in June 2023 along with an increase in the number of billable transports, 3,875 in the first half of fiscal year 2023-24 versus 3,720 at the same time in the prior fiscal year. 7% 12% 60% 2% Feb. 27, 2024 Item #8 Page 24 of 33 Quarterly Financial Report _______________________________________________________________ 4 Other Revenue Sources ($341,000) – Other revenue sources have decreased by $514,000 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; and miscellaneous reimbursed expenses and refunds of prior year fees. The decrease to date is related to higher amounts received for developer funded studies in the prior fiscal year when compared to the current fiscal year. Other Licenses and Permits ($528,000) – 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 $88,400 over the prior year is primarily a result of increased right of way and coastal development permits when compared to the same period last year. Fines and Forfeitures ($191,100) – 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 $39,600 is mainly due to decreases in code violation assessments ($42,000) when compared to the previous fiscal year as well as the elimination of overdue fines ($8,000) for library materials offset by a small increase in parking and vehicle citations and fees. Intergovernmental Revenues ($989,200) – Intergovernmental revenues include homeowners property tax exemption revenue and miscellaneous receipts and grants received from the state or federal governments, as well as local school districts. Various miscellaneous receipts comprise the $989,200 received this year which represents an increase of 79% over the same period last year. This increase is mainly due to state reimbursements received for two planning related state grant awards. Transfer Taxes ($518,500) – 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 over the same period last year due to a decrease in property transfers. Other Charges or Fees ($796,800) – 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; and general services, such as mutual aid response, mall police services, emergency response services, reports, etc. These fees are up by $264,400, or 50% mainly due to an increase in annual fire inspection fees, false alarm response fees and mutual aid response reimbursements when compared to the prior fiscal year. A detailed schedule of General Fund revenues is provided on the following page. 20% 17% 15% 60% 79% 50% Feb. 27, 2024 Item #8 Page 25 of 33 Quarterly Financial Report _______________________________________________________________ 5 REVENUE REVENUE EXPECTED ACTUAL ACTUAL CHANGE FROM BUDGETED THROUGH FY 2023 FY 2024 YTD 2023 TO PERCENT FOR FY 2023-24 12/31/23 AS OF 12/31/22 AS OF 12/31/23 YTD 2024 CHANGE TAXES PROPERTY TAX $84,246,868 $28,779,607 $29,791,843 $32,701,345 $2,909,502 10% SALES TAX 51,064,943 24,216,800 26,645,722 30,379,803 3,734,081 14% TRANSIENT OCCUPANCY TAX 32,861,193 19,401,010 20,238,806 19,120,221 (1,118,585) -5.5% FRANCHISE TAX 7,084,717 1,545,385 1,708,792 1,738,561 29,769 2% BUSINESS LICENSE TAX 6,435,502 2,923,621 2,887,870 3,100,617 212,747 7% TRANSFER TAX 1,624,950 720,846 606,629 518,500 (88,129) -15% TOTAL TAXES 183,318,173 77,587,269 81,879,662 87,559,047 5,679,385 7% INTERGOVERNMENTAL VEHICLE LICENSE FEES 83,951 0 0 0 0 0% HOMEOWNERS EXEMPTIONS 353,000 52,686 50,768 49,142 (1,626)-3% OTHER REIMBURSEMENT 599,000 148,302 500,998 940,045 439,047 88% TOTAL INTERGOVERNMENTAL 1,035,951 200,987 551,766 989,187 437,421 79% LICENSES AND PERMITS BUILDING PERMITS 1,250,000 573,472 1,009,970 1,010,424 454 0% OTHER LICENSES & PERMITS 850,500 379,367 439,391 527,814 88,423 20% TOTAL LICENSES & PERMITS 2,100,500 952,839 1,449,361 1,538,238 88,877 6% CHARGES FOR SERVICES PLANNING FEES 442,000 184,654 246,652 383,902 137,250 56% BUILDING DEPARTMENT FEES 861,000 526,727 583,169 360,211 (222,958) -38% ENGINEERING FEES 774,000 408,087 522,387 333,014 (189,373) -36% AMBULANCE FEES 6,798,000 3,231,942 2,077,050 3,325,165 1,248,115 60% RECREATION FEES 2,598,600 1,495,368 1,799,550 1,932,912 133,362 7% OTHER CHARGES OR FEES 1,584,245 635,448 532,431 796,801 264,370 50% TOTAL CHARGES FOR SERVICES 13,057,845 6,482,226 5,761,239 7,132,005 1,370,766 24% FINES AND FORFEITURES 276,200 158,178 230,765 191,139 (39,626) -17% INCOME FROM INVESTMENTS & PROPERTY 5,948,225 2,624,278 3,047,278 3,624,004 576,726 19% INTERDEPARTMENTAL CHARGES 5,746,232 2,782,555 2,901,367 3,073,469 172,102 6% OTHER REVENUE SOURCES 987,000 397,580 854,589 340,600 (513,989) -60% TRANSFERS IN 10,000 0 0 0 0 0% TOTAL GENERAL FUND $212,480,126 $91,185,911 96,676,027 $104,447,689 $7,771,662 8.0% (1) (1) Calculated General Fund revenues are 15% above estimates as of December 31, 2023. GENERAL FUNDREVENUE COMPARISON Feb. 27, 2024 Item #8 Page 26 of 33 Quarterly Financial Report _______________________________________________________________ 6 Expenditures Total General Fund expenditures and encumbrances-those funds either spent or committed for specific expenses- through the month of December 2023 are $129.5 million, compared to $124.5 million at the same time last year. The remaining budget available through the fiscal year ending June 30, 2024, is $112.0 million, or 46.4%. If funds were spent in the same proportion as the previous year, the General Fund would have 45.7% or $104.6 million available. Excluding transfers out, contingencies, and non-departmental charges, the percentage available on December 31, 2023, is 45.7%, slightly less than the 46.9% available on December 31, 2022. The fiscal year 2023-24 budget was developed with a focus on resiliency over the long-term and reflects a call for departments to increase efficiency and find new ways to reduce ongoing spending. In addition to lowering base spending in the General Fund by $2.3 million at a time when inflation is 6%, the adopted budget reduced city staffing by the equivalent of 12 positions. With the development and adoption of the city’s fiscal year 2023-24 budget, the city forecasted that ongoing spending would exceed ongoing revenues as soon as fiscal year 2025-26. Since the adoption of this year’s budget and the close of fiscal year 2022-23, staff presented an updated forecast at the City Council meeting on October 24, 2023, that showed this shortfall is now projected to occur in fiscal year 2028-29, which was primarily driven by stronger-than-expected revenue performance. This year’s budget scales back custodial services, nonessential park maintenance, printing and other administrative expenses, travel and training for city staff, and city cell phone use, among other areas expected to have a minimal impact on the community. The adopted General Fund budget for fiscal year 2023-24 increased by 9.3% or $18.5 million when compared to last fiscal year due to: • Increased personnel costs (increase of $6 million or 4.8%): o $5.2 million in salaries and wages due to negotiated salary increases offset by a reduction in total full- time equivalent positions of 12.06. o $0.2 million in health insurance and retirement benefits costs. o $0.6 million increase in other personnel costs (Medicare, unemployment and disability benefits). • Increased maintenance and operations costs (increase of $5.6 million): o Overall, total maintenance and operations costs are projecting an increase, however, this category includes a one-time appropriation of $5.22 million from General Fund reserves toward regional efforts to lower the railroad tracks in Carlsbad. Excluding this one-time use of reserves, the maintenance and operations costs are projected to increase just 0.7% for fiscal year 2023-24 when compared to fiscal year 2022-23. With year-over-year increases in inflation of 8.2% and 6.4%, respectively, this relatively minor increase in maintenance and operations is a tremendous achievement that was accomplished through a strategic analysis of budget reductions. • Increase in transfers to other city funds (increase of $8.3 million): o The city annually budgets 6% of General Fund revenues as a transfer to the Infrastructure Replacement Fund, General Capital Construction Fund and The Technology Investment Capital Fund to help fund major new construction, maintenance and replacement of city infrastructure and facilities and the city’s future technology needs. o $7.4 million in additional transfers was budgeted for the General Capital Construction Fund and funded by the General Fund’s budgeted operating surplus. The General Capital Construction Fund is funded by the General Fund and includes many capital projects programmed in the future. The level of funding necessary to fully fund these projects is an increasing concern. This one-time transfer amount will assist with funding the city’s general capital construction into the future. CalPERS and pension funding has been and will continue to be a challenge for participating agencies. CalPERS administers the city’s defined benefit pension plan and costs have been increasing in past years as CalPERS Feb. 27, 2024 Item #8 Page 27 of 33 Quarterly Financial Report _______________________________________________________________ 7 addresses a structural shortfall in plan assets to cover unfunded liabilities. In support of CalPERS strategies for plan sustainability and as part of the city’s strategic, long-term approach to financial management, the city actively manages its unfunded pension liability. Since fiscal year 2016-17, the City Council has approved additional discretionary payments of $56.4 million to decrease future costs of the city’s unfunded actuarial liability and strive to achieve a funded status of 80% in accordance with City Council Policy Statement No. 86. CalPERS latest actuarial valuation report (as of June 30, 2022), the city had a combined pension funded status of 74.6%, reduced from the prior year’s status of 86%. This reduction was predominantly driven by CalPERS’ fiscal year 2021-22 investment loss of -6.1%. This negative return will not impact the city’s required contributions until fiscal year 2024-25. The City Council approved the establishment of a Public Agencies Post-Employment Benefits Trust (Section 115 Trust) on September 12, 2023. This trust allows the city to stabilize pension cost volatility, maintain local control over the city’s assets and earn a potentially higher rate of return than if the assets were kept within the General Fund. The City Council approved an initial trust contribution of $10 million on September 26, 2023. City staff will continue to provide regular financial updates to the City Council throughout fiscal year 2023-24. Identifying a potential structural deficit early has allowed the city to take a thoughtful approach to solutions, exploring new ways to reduce spending and increase revenue. A detailed schedule of General Fund expenditures is provided on the next page. Feb. 27, 2024 Item #8 Page 28 of 33 Quarterly Financial Report _______________________________________________________________ 8 ADOPTED WORKING BUDGET BUDGET AMOUNT AVAILABLE % DEPARTMENT DESCRIPTION FY 2023-24 FY 2023-24 (a)COMMITTED (b)BALANCE AVAILABLE (c) POLICY AND LEADERSHIP GROUP CITY ATTORNEY $2,115,596 $2,115,596 $1,076,803 $1,038,793 49.1% CITY CLERK 1,274,455 1,298,267 629,782 668,485 51.5% CITY COUNCIL 607,078 612,881 264,352 348,529 56.9% CITY MANAGER 2,184,823 2,298,394 1,282,253 1,016,141 44.2% CITY TREASURER 279,149 279,149 101,867 177,282 63.5% COMMUNICATIONS & ENGAGEMENT 1,953,098 2,227,156 1,242,782 984,374 44.2% TOTAL POLICY AND LEADERSHIP GROUP 8,414,199 8,831,443 4,597,839 4,233,604 47.9% ADMINISTRATIVE SERVICES ADMINISTRATION 784,107 807,692 412,180 395,512 49.0% FINANCE 5,323,368 5,726,992 2,817,345 2,909,647 50.8% HUMAN RESOURCES 5,029,995 5,238,274 2,384,555 2,853,719 54.5% INNOVATION & ECONOMIC DEVELOPMENT 2,608,489 2,812,757 1,460,231 1,352,526 48.1% TOTAL ADMINISTRATIVE SERVICES 13,745,959 14,585,715 7,074,311 7,511,404 51.5% PUBLIC SAFETY POLICE 55,615,155 60,559,650 32,960,048 27,599,602 45.6% FIRE 37,882,886 41,689,777 23,797,948 17,891,829 42.9% TOTAL PUBLIC SAFETY 93,498,041 102,249,427 56,757,996 45,491,431 44.5% COMMUNITY SERVICES COMMUNITY SERVICES ADMINISTRATION 585,411 733,802 455,329 278,473 37.9% COMMUNITY DEVELOPMENT 11,012,958 13,516,576 7,151,213 6,365,363 47.1% HOUSING & HOMELESS SERVICES 2,765,195 3,219,743 1,928,073 1,291,670 40.1% LIBRARY & CULTURAL ARTS 13,637,285 14,157,554 6,952,716 7,204,838 50.9% PARKS & RECREATION 21,055,565 22,052,001 12,698,871 9,353,130 42.4% TOTAL COMMUNITY SERVICES 49,056,414 53,679,676 29,186,202 24,493,474 45.6% PUBLIC WORKS PUBLIC WORKS ADMINISTRATION 1,562,272 1,595,344 753,640 841,704 52.8% CONSTRUCTION MANAGEMENT & INSPECTIONS 3,257,906 3,341,081 1,642,648 1,698,433 50.8% ENVIRONMENTAL SUSTAINABILITY 1,178,783 1,580,542 882,041 698,501 44.2% FACILITIES 7,497,115 8,752,270 5,133,531 3,618,739 41.3% TRANSPORTATION 9,732,215 10,876,588 5,652,461 5,224,127 48.0% TOTAL PUBLIC WORKS 23,228,291 26,145,825 14,064,321 12,081,504 46.2% NON-DEPARTMENTAL & CONTINGENCY (d)OTHER NON-DEPARTMENTAL 1,356,700 2,062,990 564,389 1,498,601 72.6% VILLAGE TRENCHING 5,220,000 5,220,000 0 5,220,000 100.0% OPERATING TRANSFERS OUT 21,910,000 28,210,000 17,254,998 10,955,002 38.8% CONTINGENCY 500,000 497,000 0 497,000 100.0% TOTAL NON-DEPT & CONTINGENCY 28,986,700 35,989,990 17,819,387 18,170,603 50.5% TOTAL GENERAL FUND $216,929,604 $241,482,076 $129,500,056 $111,982,020 46.4% (a) Working budget includes the adopted budget, open encumbrances from the end of the prior fiscal year, approved carry forwards of the prior fiscal year and all other mid-yearcouncil approvals. (b) Actual expenditures on a budgetary basis include encumbrances and exclude non-budgeted items. (c) Amount available would be 45.7% 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 12/31/23 EXPENDITURE STATUS BY DEPARTMENTGENERAL FUND Feb. 27, 2024 Item #8 Page 29 of 33 Quarterly 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, that have been accepted during fiscal year 2023-24: CONTINGENCY ACCOUNT USE OF FUNDS EXPLANATION AMOUNT ADOPTED BUDGET $500,000 USES: Transfer to City Council travel budget (Resolution 2023-279)(3,000) TOTAL USES (3,000) AVAILABLE BALANCE $497,000 Department Intention Qtr. 1 Oct.Nov.Dec.Qtr. 2 Total Parks & Recreation Leo Carrillo Ranch Cash Donations $3,500 $3,364 $209 $768 $4,341 $7,841 Parks & Recreation Opportunity Grant Donations 2,011 800 857 239 1,896 3,907 Parks & Recreation Senior Center Cash Donations 629 157 1,176 75 1,408 2,037 Parks & Recreation Senior Meals Cash Donations 6,399 1,987 3,069 2,110 7,166 13,565 Parks & Recreation Senior Transportation Cash Donations 403 147 181 133 461 864 Parks & Recreation Special Events Cash Donations 1,000 0 0 0 0 1,000 Parks & Recreation Teen Program Cash Donations 1 2 0 0 2 3 Parks & Recreation Parks Maintenance Cash Donations 1,850 0 0 0 0 1,850 Subtotal - Parks & Recreation $15,793 $6,457 $5,492 $3,325 $15,274 $31,067 Library & Cultural Arts Book Purchases $0 $0 $0 $100 $100 $100 Library & Cultural Arts Support Library Programs and Services 102 121 3,002 1,264 4,387 4,489 Subtotal - Library & Cultural Arts $102 $121 $3,002 $1,364 $4,487 $4,589 Fire Food gifts for crews $24 $0 $80 $800 $880 $904 Fire Stuffed animals for ambulances 0 90 0 0 90 90 Subtotal - Fire $24 $90 $80 $800 $970 $994 Total Donations $15,919 $6,668 $8,574 $5,489 $20,731 $36,650 Donations Fiscal Year 2023 - 24 Feb. 27, 2024 Item #8 Page 30 of 33 Quarterly Financial Report _______________________________________________________________ 10 Water Enterprise Revenues • Decrease in water operating revenues due to 3.7% decrease in water volume sales, offset by increase in user rates effective January 2023. • Interest earnings increased due to a 42.4% increase in the yield of the Treasurer’s portfolio offset by a 6.1% decrease in the monthly average cash balance. • The increase in misc. service charges is due to reimbursement for interdepartmental labor charges. • The decrease in other revenues is from higher revenue in prior year due to a loss recovery. • The decrease in property taxes is primarily due to an allocation to recycled water starting July 2023 offset by an increase in assesed property values. Expenses • The increase in staffing expenses due to negotiated increases in salary. • Higher interdepartmental expenses resulted from increased personnel related costs, and general liability insurance. • Purchased water expenses have increased from the prior year due to a 7.8% rate increase in the variable cost of water purchased from the San Diego County Water Authority (SDCWA) offset by a 2.5% decrease in the amount of water purchased. • Outside services decreased from asphalt repairs in prior year. • Miscellanous expense decreased due to reduction in association dues. • Captial outlay decrease due to additional fleet vehicle purchase in prior year. CHANGE FROM BUDGET YTD*YTD*YTD 2022-23 TO PERCENT FY 2023-24 12/31/2022 12/31/2023 YTD 2023-24 CHANGE REVENUES: WATER DELIVERY 41,688,000$ 22,032,282$ 21,789,600$ (242,682)$ -1.1% INTEREST 389,000 242,381 352,792 110,411 45.6% MISC. SERVICE CHARGES 441,000 160,054 207,295 47,241 29.5% PROPERTY TAXES 4,729,000 1,975,123 1,288,966 (686,157) -34.7% FINES, FORFEITURES & PENALTIES 411,000 195,763 197,671 1,908 1.0% OTHER REVENUES 491,000 266,560 221,075 (45,485) -17.1% TOTAL OPERATING REVENUE 48,149,000 24,872,163 24,057,399 (814,764) -3.3% EXPENSES: STAFFING 4,782,779 2,254,553 2,303,806 49,253 2.2% INTERDEPARTMENTAL SERVICES 3,765,584 1,581,586 1,883,304 301,718 19.1% PURCHASED WATER 30,805,000 13,684,365 15,130,334 1,445,969 10.6% MWD/CWA FIXED CHARGES 7,550,000 3,395,390 3,398,802 3,413 0.1% OUTSIDE SERVICES/MAINTENANCE 3,141,059 321,107 275,943 (45,164) -14.1% DEPRECIATION/REPLACEMENT 5,000,000 2,499,998 2,489,459 (10,539) -0.4% MISCELLANEOUS EXPENSES 986,543 355,556 307,283 (48,273) -13.6% CAPITAL OUTLAY 194,302 32,776 60,936 28,160 85.9% TOTAL OPERATING EXPENSES 56,225,267 24,125,331 25,849,867 1,724,536 7.1% OPERATING INCOME/(LOSS)(8,076,267)$ 746,832$ (1,792,468)$ (2,539,300)$ -340.0% *Adjusted to reflect timing differences for water purchases and depreciation. WATER OPERATIONS FUND December 31, 2023 7.1% 3.3% Feb. 27, 2024 Item #8 Page 31 of 33 Quarterly 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 went into effect in January 2023. • Interest earnings increased due to a 42.4% increase in the yield of the Treasurer’s portfolio combined with a 32.9% increase in the monthly average cash balance. • The increase in other revenues reimbursement for interdepartmental labor charges. Expenses • The increase in staffing expenses is driven by negotiated salary increases. • Higher interdepartmental expenses resulted from increased personnel related costs, and general liability insurance. • Lower miscellaneous expenses from purchase of parts. CHANGE FROM BUDGET YTD*YTD*YTD 2022-23 TO PERCENTFY 2023-24 12/31/2022 12/31/2023 YTD 2023-24 CHANGE REVENUES: CHARGES FOR CURRENT SERVICES 21,939,000 9,172,435 10,791,754 1,619,319 17.7% INTEREST 110,000 63,011 132,883 69,872 110.9% OTHER REVENUES 307,000 153,627 208,495 54,868 35.7% TOTAL OPERATING REVENUE 22,356,000 9,389,073 11,133,132 1,744,059 18.6% EXPENSES: STAFFING 3,322,088 1,433,599 1,603,116 169,517 11.8% INTERDEPARTMENTAL SERVICES 1,929,134 756,091 963,710 207,619 27.5% ENCINA PLANT SERVICES 6,000,000 3,013,640 3,207,535 193,895 6.4% OUTSIDE SERVICES/MAINTENANCE 1,993,412 190,978 215,609 24,631 12.9% DEPRECIATION/REPLACEMENT 5,300,000 2,649,998 2,637,480 (12,518) -0.5% MISCELLANEOUS EXPENSES 827,614 347,678 308,652 (39,026) -11.2% CAPITAL OUTLAY 24,651 0 572 572 100.0% TOTAL OPERATING EXPENSES 19,396,899 8,391,984 8,936,674 544,690 6.5% OPERATING INCOME/LOSS 2,959,101 997,089 2,196,458 1,199,369 120.3% * Adjusted to reflect timing differences for Encina quarterly invoices and depreciation. WASTEWATER OPERATIONS FUND December 31, 2023 18.6% 6.5% Feb. 27, 2024 Item #8 Page 32 of 33 Quarterly Financial Report _______________________________________________________________ 12 Golf Course Enterprise Revenues • Primary operating revenues at the golf course have remained relatively consistent year over year. Slight decrease in demand offset by increase in rates. • Other revenues increased notably over the prior period due to timing adjustments related to interest earnings on cash and investments on hand. Expenses • General & Administrative costs increased over the prior period as a result of cost of living increases and lingering inflation. • This increase was absorbed by prudent operational spend over grounds maintenance and the pro shop. • Depreciation has decresed by 78% when compared to the prior year. This is due to the fact that the original course land improvements are now fully depreciated. • Miscellaneous expenses appears to have increased; however, the prior period experienced a one-time accounting adjustment for legal expenses that reduced the bottom line expense total. • Captial outlay higher from additional replacements of mower and carts. CHANGE FROM BUDGET YTD YTD YTD 2022-23 TO PERCENTFY 2023-24 12/31/2022 12/31/2023 YTD 2023-24 CHANGE REVENUES: GOLF COURSE 5,271,000 2,919,491 2,912,020 (7,471) -0.3% FOOD & BEVERAGE 4,025,000 197,309 228,971 31,662 16.0% PRO SHOP 434,000 145,463 248,515 103,052 70.8% PRACTICE CENTER 355,000 2,602,290 2,527,147 (75,143) -2.9% OTHER REVENUES 164,500 212,594 385,575 172,982 81.4% TOTAL OPERATING REVENUE 10,249,500 6,077,147 6,302,228 225,082 3.7% EXPENSES: GENERAL & ADMINISTRATIVE 5,801,000 2,661,986 2,985,422 323,436 12.2% COURSE & GROUNDS 1,311,000 690,750 640,035 (50,715) -7.3% FOOD & BEVERAGE 348,000 181,701 187,125 5,424 3.0% PRO SHOP 97,000 50,984 37,881 (13,103) -25.7% COST OF SALES 1,207,000 672,363 687,424 15,061 2.2% DEPRECIATION/REPLACEMENT 750,000 1,700,002 375,000 (1,325,002) -77.9% MISCELLANEOUS EXPENSES 347,040 27,181 90,130 62,950 231.6% CAPITAL OUTLAY 1,092,226 329,452 554,418 224,966 68.3% TOTAL OPERATING EXPENSES 10,953,266 6,314,419 5,557,435 (756,983) -12.0% OPERATING INCOME/(LOSS)(703,766) (237,272) 744,793 982,065 -413.9% GOLF COURSE FUNDDecember 31, 2023 3.7% 12% Feb. 27, 2024 Item #8 Page 33 of 33 Matt Sanford, Economic Development Manager Zach Korach, Finance Director February 27, 2024 Economic and Financial Update: Q2 FY 2023-24 TODAY’S PRESENTATION •Today’s report will cover Fiscal Year 2023 –2024, Second Quarter o October through December 2023 •Economic update •Financial update ECONOMIC AND FINANCIAL UPDATE 2 CARLSBAD ECONOMY •Carlsbad’s GRP was $17.1 billion in 2022 •Carlsbad’s economy grew by approximately $1.5 billion from 2021 to 2022. ECONOMIC AND FINANCIAL UPDATE 3 EVOLVING ECONOMIC CONDITIONS • Macro disruptions continue to affect Carlsbad’s economy and businesses o Ability to hire and retain workers o Lingering Inflation o Elevated interest rates o Higher cost of capital o Uncertainty due to global turmoil •Disruptions create a degree of operational uncertainty ECONOMIC AND FINANCIAL UPDATE 4 INFLATION CONCERNS •Inflation continues to moderate but has been stubborn •San Diego area prices are up .4% over the past two months •Over-the-year prices are up 3.8% (5% less food and energy) ECONOMIC AND FINANCIAL UPDATE Consumer Price Index for All Urban Consumers for San Diego-Carlsbad MSA – January 2024 5 WORKER/TALENT SHORTAGE •EDD September unemployment data o California unemployment rate: 5.1%, (.2% increase) o County unemployment rate: 4.3%, (.3% increase) o Carlsbad unemployment rate: 4.2%, (.3% increase) ECONOMIC AND FINANCIAL UPDATE 6 0 1 2 3 4 5 6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Carlsbad Unemployment Rate 2022 vs 2023 2022 2023 CARLSBAD JOBS •October through December saw 7,752 unique job postings •This is a drop of 1,424 jobs from the previous quarter •Continues a slide in new job postings •Average salary for posted jobs was $49,500 •Entry Level jobs account for about 66% of available jobs ECONOMIC AND FINANCIAL UPDATE 7 COMMERCIAL REAL ESTATE •Vacancy rates for industrial properties are 7.3% •Vacancy rates for office properties are 11.8% •Vacancy rates for retail properties are up to 5.3% ECONOMIC AND FINANCIAL UPDATE 8 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00% 18.00% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2021 2022 2023 Carlsbad Commercial Vacancy Rates Carlsbad Retail Carlsbad Office Carlsbad Industrial RESIDENTIAL REAL ESTATE •Median home values are currently at $1.45 million •Despite higher interest rates, housing demand has kept values elevated ECONOMIC AND FINANCIAL UPDATE 9 $600,000.00 $700,000.00 $800,000.00 $900,000.00 $1,000,000.00 $1,100,000.00 $1,200,000.00 $1,300,000.00 $1,400,000.00 $1,500,000.00 $1,600,000.00 2019 2020 2021 2022 2023 Carlsbad Median Home Price CARLSBAD TOURISM •Total occupancy in 2023 was slightly lower than 2022 •Average Daily Rate in 2023 ended slightly lower than 2022 •2023 is likely to represent a “new normal” in visitor trends ECONOMIC AND FINANCIAL UPDATE 10 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 Ju l Oc t Ja n Ap r Ju l Oc t Ja n Ap r Ju l Oc t Ja n Ap r Ju l Oc t Ja n Ap r Ju l Oc t 2019 2020 2021 2022 2023 Hotel Occupancy Trend 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 Ju l Oc t Ja n Ap r Ju l Oc t Ja n Ap r Ju l Oc t Ja n Ap r Ju l Oc t Ja n Ap r Ju l Oc t 2019 2020 2021 2022 2023 Hotel Average Daily Rate Trend NEW DEVELOPMENT & BUSINESS ACTIVITY •There are an estimated 6,667 current businesses in Carlsbad •Residential building permit drop likely caused by the statewide change in net metering rules ECONOMIC AND FINANCIAL UPDATE 11 0 500 1000 1500 2000 2500 3000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2021 2022 2023 Business Licenses Issued by Quarter Non-Residential Residential Outside City Total 0 200 400 600 800 1000 1200 1400 1600 Co m m e r c i a l Re s i d e n t i a l Co m m e r c i a l Re s i d e n t i a l Co m m e r c i a l Re s i d e n t i a l Co m m e r c i a l Re s i d e n t i a l 2020 2021 2022 2023 Building Permits Issued Q1 Q2 Q3 Q4 KEY TAKEAWAYS •Despite disruptions, Carlsbad’s diverse economy continues to be resilient and is poised for growth •Challenges around cost and access to capital are impacting businesses today •The labor market, while loosening, still presents challenges ECONOMIC AND FINANCIAL UPDATE 12 GENERAL FUND REVENUES fiscal year to date through second quarter 13 $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 Property tax Sales tax Transient occupancy tax Other taxes Income from inv. and prop. Development related revenue Other revenues FY 2022-23 Actual FY 2023-24 Expected FY 2023-24 Actual GENERAL FUND REVENUES Revenue category Actual FY 2022-23 Actual FY 2023-24 $ difference % difference Property tax $29.8 $32.7 $2.9 10% Sales tax 26.7 30.4 3.7 14% Transient occupancy tax 20.2 19.1 -1.1 -6% Other taxes 5.2 5.4 0.2 3% Income from inv. and property 3.0 3.6 0.6 19% Development related revenue 2.4 2.1 -0.3 -12% Other revenues 9.4 11.2 1.8 19% Total $96.7 $104.5 $7.8 8% fiscal year to date through second quarter (in millions) 14 GENERAL FUND BUDGET ECONOMIC AND FINANCIAL UPDATE •Adopted budget of $216.9 million •Working budget of $241.5 million •Available budget remaining of $112.0 million, or 46% •Includes actual expenditures through Dec. 2023 •Includes open purchase order commitments 15 GENERAL FUND EXPENDITURES & ENCUMBRANCES fiscal year to date through second quarter 16 GENERAL FUND EXPENDITURES fiscal year to date through second quarter (in millions) Category FY 2023-24 Appropriation As of Qtr. 2 FY 2023-24 % of Budget Spent to Date OPEN POs at 12/31/23 Personnel $130.1 $65.1 50%$0.0 Maintenance & operations 70.9 27.1 38%13.6 Transfers out 28.2 17.3 61%0.0 Capital outlay 6.6 3.5 54%2.9 Village Trenching 5.2 0.0 0%0.0 Contingency 0.5 0.0 0%0.0 Total $241.5 $113.0 47%$16.5 17 $9.4 M $5.8 M 20 $8.5 M $13.2 M -$4.2 M FY 25-26 FY 26-27FY 24-25FY 23-24 FY 27-28 $1.9 M FY 28-29 GENERAL FUND FORECAST 18 WATER AND WASTEWATER ECONOMIC AND FINANCIAL UPDATE Compared to prior year through Quarter 2: •Water revenues are down 3% and expenses are up 7% •Wastewater revenues are up 19% and expenses are up 7% 19 GOLF COURSE ECONOMIC AND FINANCIAL UPDATE Compared to prior year through Quarter 2: •Net income $982,000 higher than last year •Golf Course revenues are up 4% and expenses are down 12% 20 MIDYEAR BUDGET REVIEW •Citywide review •Departments’ analysis of whether revenues and expenditures to date are in line with targets adopted in the FY 2023-24 operating budget •Personnel vacancy savings analysis ECONOMIC AND FINANCIAL UPDATE 21 MIDYEAR BUDGET REVIEW Fleet Maintenance: $245,000 fuel cost increase •$933,947 adopted budget •$115,000 for take-home vehicles not included •40% increase statewide since FY 2019-20 ECONOMIC AND FINANCIAL UPDATE 22 MIDYEAR BUDGET REVIEW Storm Water: $80,000 funding study •Revenues from waste hauler reimbursement and General Fund •Projected deficit beginning in FY 2025-26 •Findings and recommendations will be presented to the City Council for consideration ECONOMIC AND FINANCIAL UPDATE 23 NEXT STEPS •Monitor revenues and expenditures •Publish economic and financial status reports: carlsbadca.gov/doingbusiness carlsbadca.gov/departments/finance/financial-reports •Return in May 2024 with third quarter update •FY 2024-25 Preliminary operating and capital budget presented in May 2024 ECONOMIC AND FINANCIAL UPDATE 24 RECOMMENDED ACTION •Receive report on economic and financial update •Receive report on mid-year budget review •Adopt resolution authorizing appropriations for fuel costs and funding study ECONOMIC AND FINANCIAL UPDATE 25