The URL can be used to link to this page

Home My WebLink About7.2 - 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.