HomeMy WebLinkAboutItem 8.2 Budget Impact Analysis Gen Fndo~'DU~~~ CITY. CLE~R~K
X11 File # ^^~~~'I ~tvl
~- ~ -~• s~
,C~i~
_~~.
AGENDA STATEMENT
CITY COUNCIL MEETING DATE: March 31, 2009
SUBJECT: Fiscal Year 2009 / 2010 Budget Study Session -Informational
Report: Analysis of Impacts on the General Fund
Report Prepared by Paul S. Rankin, Administrative Services Dir.
ATTACHMENTS: l . Analysis of Anticipated Impacts on City's General Fund in
Fiscal Year 2009/2010
RECOMMENDATION: 1. Receive the Staff Report.
FINANCIAL STA MENT: See attached.
DESCRIPTION: The City's Annual Budget Study Session provides the City Council .with an
opportunity to:
• Identify those programs and services the City Council would like Staff to analyze as part of the
development of the City's Annual Operating Budget.
• Identify those Projects that the City Council would like to see presented as part of the development
of a new Five Year Capital Improvement Program, which will be presented with the Budget.
• Receive early information regarding those items that may have a significant impact (positive or
negative) on the City's expenditures and revenues in Fiscal Year 2009/2010.
• Have early input on the budget process reducing the potential for last minute budget issues for
which there would be insufficient time to evaluate.
The focus of this report is primarily informational and will serve as background for the discussion by the
City Council, in advance of the preparation of the Fiscal Year 2009/2010 Budget and Financial Plan.
Anticipated Impacts To General Fund in Fiscal Year 2009 /2010 (Historical Financial /Trends)
In order to prepare the upcoming budget, it is relevant to consider financial trends. Staff will. provide an
overview of key trends associated with the General Fund Revenues and Expenditures. The City has
benefited from the economic growth in the region. However, current trends identify that Revenues and
Expenditures in the General Fund are approaching a point where the general operating costs must be
reduced in order to align with revenue sources. As a result, this will also mean that there is little
likelihood of excess General Fund revenue being available for new capital projects.
COPY TO:
Page 1 of 2 ,~
ITEM NO. g •
H:\Budget\Goals &Objectives\agenda stmnt_1_3_31_09_Bkckgrnd_GF_Trends.doc
Staff has prepared a preliminary Analysis of Anticipated Impacts on the City's General Fund Revenues
and Expenditures (See Attachment 1). It should be noted that this analysis has been prepared based on
information available today, which is subject to change. As the preliminary budget and financial plan is
developed, Staff will continue to incorporate the impact of any significant change(s).
Staff will provide an overview of Attachment 1 in order to prepare the City Council for consideration of
key budget decisions in order to provide Staff with direction.
Recommendation
It is recommended that the City Council receive the Staff Report.
Page 2 of 2
ANALYSIS OF HISTORICAL TRENDS AND
ANTICIPATED FUTURE IMPACTS
ON THE FISCAL YEAR 2009-2010 BUDGET
Staff has identified historical trends, which will have an impact on the General Fund. In addition a number
of items were identified that could potentially impact the City's Budget for Fiscal Year 2009-20010. It is
appropriate to consider that the information available remains preliminary and is based upon the data
available at this time.
HISTORICAL TRENDS OF MAJOR REVENUES
The General Fund is the largest source of discretionary funds made available to fund City Operations.
Rather than examine all of the Revenue Sources, a core group of five revenues represent over 83% of the
General Fund Revenue. (The precise percentage represented has fluctuated over the 5 years examined.) The
following Chart shows the performance of these major revenues over the past five years. With the
exception of property tax the trends for four of these revenues are either flat or trending downward.
2s.o
20.0
15.0
10.0
5.0
0.0
TABLE 1: FlVE YEAR TRENDS FOR MAJOR GENERAL FUND REVENUES (In Million $)
2004/05 2005/06 2006/07 2007/08 2008/09
Property Taxes ~ Sales Tax ~ Charges For Services -Licenses and Permits -Intergovernmental
Actual Actual Actual Actual Rev. Budget
REVENUES 2004-OS 2005/06 2006/07 2007/08 2008/09
Property Taxes $ 14,054,547 $ 16,775,906 $20,146,741 $22,098,429 $ 22,579,237
General Fund Total 32.3% 36.2% 37.1 % 40.4 % 44.5%
Sales Tax $ 14,152,987 $ 14,363,863 $14,025,869 $14,225,662 $ 11,008,800
General Fund Total 32.5% 31.0% 25.8% 26.0% 21.7
Charges For Services $ 5,548,124 $ 5,774,669 $8,015,063 $6,482,093 $ 5,751,709
General Fund Total 12.7% 12.4'% 14.8% 11.9% 11.3%
Licenses and Permits $ 3,520,141 $ 3,142,223 $2,572,069 $1,784,644 $ 1,903,875
%GeneralFundTotal 8.1% 6.8% 4.7% 3.3% 3.8%
Intergovernmental $ 568,598 $ 1,020,574 $1,149,759 $1,079,088 $ 956,173
%General Fund Total 1.3% 2.2% 2.1% 2.0 % 1.9%
% Total Major 86.9% 88.6% 84.6% 83.5% 83.1%
Categories
ANALYSIS:
This chart analyzes four major General Fund Revenues which account for over 83% of the total General Fund Revenues collecte
ATTACHMENT 1
Page 1 of 9 ~ , ~~ ~~~ ~ ~,
H:\Budget\Goals & Objectives\ATTACH 1_Future Impacts 09-10.doc i v
The two largest revenue sources to the General Fund are Property Tax and Sales Tax, which when combined
represent approximately 66 percent of the General Fund Revenue.
Property Tax Trends
As shown in the previous Chart the City has experienced significant growth in Property Taxes. However,
starting with the Fiscal Year 2008/2009 Tax Roll the County Assessor reduced assessed values on some
properties based upon market value trends on January 1, 2008.
The Fiscal Year 2009/10 Assessed Values will be established based on market values as of January 1, 2009.
The County Assessor has informed agencies that they expect assessed values countywide to be negative.
The County Assessor, prior to submitting the tax roll on July 1, 2009, will be reviewing all residential
parcels that had a transfer of ownership between 2002 and 2009. This review could potentially represent
one-third of the residential parcels in the City. Currently approximately 71 % of the Assessed Value city-
wide is related to residential land uses. Therefore declines to residential values will be magnified as they
represent the majority of the secured valuation. In preparing the current year tax roll (Fiscal Year
2008/2009) the Assessor only went back to 2004 and assessed values city-wide have been reduced over
$307 million. It is expected that market values continued to decrease between January 2008 and January
2009, and this reduction will be reflected in the Fiscal Year 2009/10 Tax Roll.
Over the past 10 year period the percentage increase in Assessed Values were double digit and this helped
fuel increased property tax revenue. However, for the most recent year the Assessed Value increase was
just slightly above 5 % and well trending downward. The following Chart displays the percentage growth in
the Assessed Valuation over the past 10 Years.
TABLE 2
DUBLIN PERCENTAGE YEAR TO YEAR
INCREASE IN SECURED ASSESSED VALUE
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
~~~~\oo ~ooo~o~ ~oo~~oti ~oo~~o~ ~oo~~ork ~oo~~oh ti~~~\o~ ti~~~\o^ ti~~^\o~ ti~~~\o~
4~ 4~ 4~ 4~ 4~ 4~ 4~ 4~ 4~ 4~
ATTACHMENT 1
Page 2 of 9
H:\Budget\Goals & Objectives\ATTACH 1_Future Impacts 09-10.doc
Assessed Values are a significant factor in determining Property Tax Revenue. As the Assessed value
increases additional taxes are collected from the property owners. The Table which follows shows the
change in Property Tax Revenue over a 10 year period. On the far right you will observe that for the last
two years the amount of revenue has not been increasing as significantly as it did earlier in this 10 year
span.
Table 3 : Dublin lOYear Property Tax Revenue
(1999/2000 -Revised Budget 2008/2009)
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 Rev
Budget
2009
The following Chart displays the total Building Permit Valuation over a ten year period. The Building
Permit Valuation is used to determine the amount of permit fees to be collected for the construction. It does
not reflect the cost or market value of construction, although it is a useful factor in determining the potential
growth in revenue as a result of new construction.
Table 4: City of Dublin 10 Year Building Permit Valuation
(FY 1999/00 -Estimated 2008/09 In Millions $)
aoo.o
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
Actual Ac[ual Actual Actual Actual Actual Actual Actual Actual Est
1999-00 2000-01 2001-02 2002-03 2003-04 2004-OS 2005/06 2006/07 2007/08 2008/2009
ATTACHMENT 1
Page 3 of 9
H:\Budget\Goals & Objectives\ATTACH 1_Future Impacts 09-10.doc
As noted in Table 4 the amount of new construction has dramatically declined over the past two years. The
average Building permit valuation over the 10 year period was approximately $230 million per year.
Although an increase is projected in Fiscal Year 2009/2010 it is still expected to be over 25% below the 10
year average.
During the 10 year period approximately 7,026 new residential units had a final inspection, which is an
average of approximately 700 units per year. In Fiscal Year 2008/2009 only 388 units are expected to have
a final inspection, which represents 45% fewer than the annual average. The number of residential units
expected to be completed in Fiscal Year 2009/2010 is expected to be fewer than in the current year.
These trends will have implications for not only Building Permit Revenue and Property Taxes which are
based on valuation. It will also ultimately impact those revenue sources based on population, as there is a
significant slow-down in the number of housing units added.
Sales Tax Trends
As previously reported to the City Council nearly one-third of the sales tax derived from local sales is
related to Auto Dealers. The following Table shows four years of actual results along with a projection for
the current year. The information for the Fiscal Year 2008/2009 has been prepared based on only one
quarter of data. Staff expects to have a second quarter of data available that will allow for an updated
presentation at the City Council meeting.
Table 5- Dublin Sales Tax Derived From Auto Dealers
(FY 2004/05 -Estimated 2008/09)
Note: First full year Saturn /Saab / Hummer was Fiscal Year 2007/08
Fiscal Year 2008/09 -Includes estimated impacts from closure of Ford & Tri-Valley GMC
5,000,000
4,500,000
Without the new
Hummer,
4,000,000 Saturn, Saab
Dealers,
3,500,000 reven uewou Id
have shown a
3,000,000 larger decrease.
2,500,000
2,000,000
],500,000
1,000,000
500,000 ~- ~ ~ - ~ ° ~ ~
Actual FY 2004/05 Actual FY 2005/06 Actual FY 2006/07 Actual FY 2007/08 Est FY 2008/09
Page 4 of 9
ATTACHMENT 1
H:\Budget\Goals & Objectives\ATTACH 1_Future Impacts 09-IO.doc
The second largest category after Autos and Transportation is General Consumer Goods. In addition to the
general recessionary trends and lower sales, City revenue will suffer the effect from store closings that have
occurred in Fiscal Year 2008/09 within this category including: Mervyns, Circuit City, Shoe Pavilion, Oak
Warehouse, and Anderson's Television.
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Table 6: Dublin Sales Tax From General Consumer Category
(FY 2004/05 -Estimated 2008/2009)
Actual FY 2004/05 Actual FY 2005/06 Achtal FY 2006/07 Actual FY 2007/08 Est FY 2008/09
Another significant trend when you examine the total sales tax revenue received by the City is that the
City's sales tax revenues have not kept pace with inflation. The following Table provides a comparison of
total sales tax revenue (Blue Bars) compared to a trend line if beginning in Fiscal Year 2004/2005 the
revenue was adjusted by the change in the Consumer Price Index (CPI).
TABLE 8: Total Dublin Sales Tax Compared To Expected
If Adjusted By Change In Consume Price Index (CPI)
Six Years FY 2003104- Estimated FY 2008/09
Page 5 of 9
$18,000,000
$16,000,000
$14,000,000
$12,000,000
$10,000,000
$8,000,000
$6,000,000
$4,000,000
$2,000,000
$0
Actual FY 2003!04 Actual FY 2004/05 Actual FY 2005/06 Actual FY 2006107 Actual FY 2007/08 Est FY 2008109
ATTACHMENT 1
H:\Budget\Goals & Objectives\ATTACH 1_Future Impacts 09-10.doc
FISCAL YEAR 2009/2010 OUTLOOK FOR MAJOR REVENUES
Based on the historical trends and some very preliminary data, Staff anticipates the following conditions as
part of the Fiscal Year 2009/2010 Budget.
Property Tax - At this time, Staff anticipates a decrease in Assessed Valuations which will have a negative
impact on the City's property tax revenue. The Assessor must await sales data for the month of March and
will then examine the potential for downward adjustments based on recent changes in market values. The
amount of decrease incurred by any agency can vary based on the age and type of properties as well as the
general market conditions. Given that the City of Dublin experienced such a high rate of growth in recent
years and has a high percentage of parcels that residential, the impact is expected to be greater than in other
communities.
In Fiscal 2008/2009 the Assessor reduced assessed values by approximately $3 billion countywide.
Although Dublin only represented 4.4% of the Assessed Values Countywide, approximately 10% of the
total reductions were on parcels in the City of Dublin. Countywide the Assessor is projecting that the
2009/2010 secured tax roll may decrease by as much as $10 billion (3 times the reductions made last year)
and that overall this would be a negative 2% decrease countywide.
The County has also reported that thus far delinquent tax payments are close to last year at approximately
4.5 %. This will result in a short-term reduction in these revenues. Ultimately the City will receive the
amount due as a prior year collection, along with a share of any penalties and interest.
It is currently estimated that the decrease in property tax revenue could be between $1 million - $2 million.
Sales Tax - In Fiscal Year 2009/2010 the City Sales Tax revenue will reflect the full year loss of businesses
that closed during the current year. At this time there are relatively few new retail developments, unless the
owners of retail spaces recently vacated are able to obtain replacement tenants. With the general decline in
consumer retail sales, even a replacement tenant may not perform at the same level as the properties
produced in the past.
As previously noted sales tax collections overall have been declining from year to year. In the Mid-Year
Report based on only one quarter of retail sales data, the City Council adopted a reduction in Sales Tax
Revenue of $2,854,828.
Building Permit Fees - In Fiscal Year 2009-2010, the City expects a continuation of the limited large scale
development. The current projections show the following trend between Residential and Non-Residential
permits:
TABLE 9: PRELIMINARY PROJECTIONS OF BUILDING PERMIT ACTIVITIES
2008/2009
Estimate 2009/2010
Pro'ection
Non-Residential Sq. Ft Permitted None 126,765 sq. feet
Residential Units
Multi-family ~ 20 342
Single Family 136 100
TOTAL 156 442
Page 6 of 9
ATTACHMENT 1
H:\Budget\Goals & Objectives\P.TTACH 1_Future Impacts 09-IO.doc
Construction of the following private development projects are expected to have permits issued in
2009/2010:
• Continuation of Residential Units in
• Sorrento - 5 Neighborhoods
• Lennar
• Positano
• Schaefer Ranch
• Windstar Condominiums at West Dublin BART Station
• Springfield Montessori
• Phase 1 -Promenade (Mercantile Building /Club Sport)
• School of Imagination Building
Interest Revenue -The City of Dublin is fortunate to have General Fund reserves which can be invested
and generate operating income in the form of interest revenue. This revenue source is a completely local
revenue source, which is not controlled by the State. However, recently interest rates earned on the City
investments have declined, which will result in less interest revenue. To the extent that General Fund
Reserves are used for one-time projects this will reduce the balance available for investment. The Fiscal
Year 2008/09 amount budgeted in the General Fund as Interest revenue, as modified as part of the Mid-Year
Adjustments, is $1,906,521. Based on current balances each 1% change in interest earnings represents
approximately $462,000. In the next year rates are not expected to increase and may continue to decrease.
GENERAL FUND EXPENDITURE TRENDS
As a growing community the City of Dublin's General Fund Operating Expenditures (excludes Capital
Projects) have increased steadily over the past five years. The Chart below provides the Actual General
Fund Operating Expenditures for each of the past five years plus the Revised Budget for Fiscal Year
2008/2009.
TABLE 10: GENERAL FUND ACTUAL OPERATING EXPENDITURES
50,000,000
45,000,000
40,000,000
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
FY 2003/2004 FY 2004/2005 FY 2005/2006 FY 2006/2007 FY 2007/2008
Rev Budget
2008/09
ATTACHMENT 1
Page 7 of 9
H:\Budget\Goals & Objectives\ATTACH 1_Future Impacts 09-10.doc
The cost of services with the General Fund can also be correlated with the growth in population as well as
inflationary increases. In the following Table the General Fund Operating Expenditure per 100 population
is compared to a "Trend Line" which was calculated by starting with the Fiscal Year 2003/04 per capita
amount and adjusting it by the change in the Consumer Price Index. This expected expenditure level if
Fiscal Year 2003/04 expenditures had been consistently adjusted by CPI is represented by the line.
TABLE 11: General Fund Operating Expenditures Per 100 Population
Compared to FY 2003104 Adjusted By CPI
150, 000
125,000
100, 000
75,000
50,000
25, 000
FY 2003/2004 FY 2004/2005 FY 2005/2006 FY 2006/2007 FY 2007/2008 Rev Budget 2008/09
FISCAL YEAR 2009/2010 OUTLOOK FOR GENERAL FUND EXPENDITURES
State Budget -The state budget is supposed to be resolved with the Statewide Special Election on May 19,
2009. However, this will be impacted by the election outcome particularly as it relates to the revenue
measures on the ballot. Also, in recent accounts from the Legislative Analyst Office (LAO) there is a
concern that the revenue projections used in the proposed State two year budget resolution may not
materialize. If this occurs and the State is once again facing a deficit, the State may seek solutions that have
a more direct impact on Dublin. Perhaps the greatest impact from the State Budget is the indirect pressures
resulting from decreased State funding in other areas. Schools, as well as other public service entities, are
seeking replacement funding for activities that would be impacted by State Budget reductions.
General Inflationary Increases -The City can expect to incur inflationary increases associated with
materials, supplies, and equipment. Given the economic trends efforts are being explored to limit contract
rate adjustments as well as cost increases associated with salaries and benefits for City employees. The City
Manager will be directing efforts as the Budget is prepared to address these conditions.
ATTACHMENT 1
Page 8 of 9
H:\Budget\Goals & Objectives\ATTACH 1_Future Impacts 09-10.doc
Demand for Services -The City Manager is currently working with Department Directors to evaluate the
staffing resources and workload indicators throughout the organization. This may result in reorganizing
functional assignments in order to assure that the service needs are met as well as the high priority City
Council goals and objectives.
Maintenance - In Fiscal Year 2009-2010, the City will incur a full year of maintenance and operating cost
increases due to added parks and facilities. This will include the Devany Square and Shannon Center as
well as partial year maintenance of the expanded Heritage Park. In addition there will be signal and street
maintenance costs, associated with new infrastructure that is being completed in Fiscal Year 2009-2010.
Police and Fire Contract Costs -Staff anticipates increases in police and fire contract service costs for
Fiscal Year 2009-2010. Most of the increase is attributable to salary and benefit and insurance costs. The
City will be working with the County to review its projections and the results of changes to their collective
bargaining agreements in more depth. Alameda County Fire Department is also assessing the impact of its
Retiree Medical liability.
ATTACHMENT 1
Page 9 of 9
H:\Budget\Goals & Objectives\ATTACH 1_Future Impacts 09-10.doc