HomeMy WebLinkAboutItem 7.2 - 3202 Update on COVID-19 and Impact on City Finan
Page 1 of 4
STAFF REPORT
CITY COUNCIL
DATE: May 5, 2020
TO: Honorable Mayor and City Councilmembers
FROM:
Linda Smith, City Manager
SUBJECT:
Update from City Manager on Impact of COVID-19 including City Finances
Prepared by: Colleen Tribby, Assistant City Manager
EXECUTIVE SUMMARY:
The City Council will receive a verbal update from the City Manager on the City's
response to COVID-19 and will review an update of the currently anticipated impacts of
the COVID-19 pandemic on the City's finances.
STAFF RECOMMENDATION:
Receive the report.
FINANCIAL IMPACT:
The refined numbers reflect a total estimated loss in the net General Fund revenue
budget of $16.7 million over Fiscal Years 2019-20, 2020-21, and 2021-22. The General
Fund budget is now projected to generate surpluses of $7.6 million in the current year,
$8.7 million in Fiscal Year 2020-21, and $6.5 million in Fiscal Year 2021-22; those
figures are significantly lower than those reported to the City Council in early March.
The 10-year General Fund Forecast now reflects an operating deficit beginning in Fiscal
Year 2026-27, one year sooner than previously anticipated.
In addition, with the decrease in General Fund surpluses, revisions will need to be made
to the Capital Improvement Program (CIP), specifically to the projects that the City
Council had agreed to advance in the five -year timeline with the planned use of such
surpluses. Staff is reviewing the impacts that decreased fuel tax collection will have on
the City’s ability to complete streets improvement projects as previously planned. The
budget adoption in June will likely reflect revisions to the CIP for these considerations.
DESCRIPTION:
General Fund Update
At the meeting of April 7, 2020, the City Council received a preliminary ana lysis on the
impact of COVID-19, and potential subsequent recession, on the City’s General Fund.
Page 2 of 4
Those estimates reflected a budgetary loss of $14.0 million over the current year and
next two fiscal years, with the largest impact to Sales Tax ($8.7 million over three
years), as shown in the table below.
Table 1: Financial Impact - April 7
Revenue Type
Change to
FY 19-20
Change to
FY 20-21 Budget
Change to
FY 21-22 Budget Total Loss
Property Taxes (1,394,000)(1,394,000)
Sales Taxes (1,845,000) (3,457,950) (3,355,099)(8,658,049)
Interest (250,000) (1,095,985) (1,490,985)(2,836,970)
Net Recreation Revenue (587,498) (567,146)(1,154,644)
Total (2,682,498) (6,515,081) (4,846,084)(14,043,663)
Since then Staff has refined the projections to include the following revenue changes
that are typically experienced with a downturn in the economy:
A reduction in Property Tax of $1,690,000 in Fiscal Year 2021-22 to adjust
the moderate growth that had been previously projected. Property Taxes are
not as immediately reactive to a recession as Sales Taxes and TOT; as such,
Staff believes it is prudent to prepare for a flattening of assessed valuations in
the second year of the budget.
• A reduction in Development Revenue of $500,000 in the current fiscal year to
reflect a decrease in building permit revenue.
• A reduction in Transient Occupancy Tax (TOT) of $500,000 in Fi scal Year
2020-21 to account for a decline in travel and tourism.
Table 2: Updated Financial Impact - May 5
Change to
FY 19-20
Change to
FY 20-21
Change to
FY 21-22 Total Loss
Property Taxes (1,394,000) (1,690,000)(3,084,000)
Sales Taxes (1,845,000) (3,457,950) (3,355,099)(8,658,049)
Development Revenues (500,000)(500,000)
TOT (500,000)(500,000)
Interest (250,000) (1,095,985) (1,490,985)(2,836,970)
Net Recreation Revenue (587,498) (567,146)(1,154,644)
Total $ (3,182,498) $ (7,015,081) $ (6,536,084) $ (16,733,663)
The preliminary budget that the City Council reviewed in early March reflected
estimated General Fund surpluses of $12.4 million, $17.2 million and $16.5 million in
Fiscal Years 2019-20, 2020-21, and 2021-22, respectively. Due to the impacts of
COVID-19, those surpluses are now estimated at $7.6 million, $8.7 million, and $6.5
million. Table 3 illustrates the total surplus reductions over three years.
Page 3 of 4
Table 3: Surplus Changes
FY 19-20*FY 20-21 FY 21-22 Total
Original Surplus 10,768,789 15,348,399 11,902,036 38,019,224
New Surplus Estimate 7,586,291 8,691,463 6,469,897 22,747,651
Difference $ (3,182,498) $ (6,656,936) $ (5,432,139) $ (15,271,573)
* FY 2019-20 includes carryovers from the prior year
Capital Improvement Program Update
At the March 4, 2020 Strategic Planning meeting, Staff presented the preliminary Five -
Year CIP, which included a discussion of the short-term cash flow deficiencies in the
Public Facilities Fees (PFF) Funds, impacting the City’s ability to complete all of the
parks and facilities improvements listed in the CIP. The City Council agreed to use
some anticipated General Fund surpluses to advance the funding needed for these
projects, specifically Wallis Ranch Community Park ($6.7 million), Jordan Ranch
Neighborhood Square ($1.5 million), and the Library Tenant Improvements Project ($1.8
million).
With the anticipated decrease in General Fund surpluses of approximately $15.3 million
in the next three years, Staff would recommend that the City Council adjust its approach
and consider a prioritization of the above listed parks and facilities projects for the CIP
until the City’s financial picture improves. As a reminder, the CIP also contains budgets
for Fallon Sports Park Phase 3 and the Cultural Arts Center, both of which are funded
with PFF Funds. Should these projects require any additional funding over their current
budgeted amount, it will be necessary to tap these surpluses or other reserves to cover
the costs. Should the City Council agree, Staff will prepare a prioritization for these
projects in the upcoming CIP for City Council approval.
The City Council also discussed the set aside of surplus revenues to fund future
improvements needed to Village Parkway, which falls outside of the current five -year
timeframe (shown in the upcoming future projects) but will be necessary at a point in
time where the City’s financial forecast is closer to break-even budgeting or even in
deficit spending.
Finally, COVID-19 and related shelter-in-place orders will have a significant impact on
fuel consumption as most road transportation continues to be suppressed. This will
negatively affect the City’s allocation of certain fuel taxes, such as Gas Tax and SB -1
funds (the Road Maintenance and Rehabilitation Account), that support streets
improvement projects. New estimates will likely be released by the State in May; in the
meantime, Staff is preparing to present a revision to the five-year plan for streets
projects with the CIP budget presentation in June.
STRATEGIC PLAN INITIATIVE:
None.
Page 4 of 4
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
None.
ATTACHMENTS:
None.