CA Review CKM
Meeting Date: Nov. 15, 2022
To: Mayor and City Council
From: Scott Chadwick, City Manager
Staff Contact: Zach Korach, Finance Director
[email protected], 442-339-2127
Subject: Economic and Financial Update for the First Quarter of Fiscal Year 2022-23
Districts: All
Recommended Action
Receive a report on the economic and financial update for the first quarter of fiscal year 2022- 23 and provide direction as appropriate.
Executive Summary
The City Manager has committed to providing quarterly updates to the City Council on the economic outlook and the city’s finances. The update reviews the city’s economic and fiscal health and serves as a measure of budgetary performance. While substantial recovery from the COVID-19 has occurred, economic uncertainty has increased fueled by, among other factors, geopolitical conflict and rising inflation. In this report, staff will provide a presentation on:
• National, state, regional and Carlsbad-specific economic data • The city’s most recent financial data
• General progress and execution of the annual budget
This report details positive economic trends in the recovery from the most severe period of the pandemic as well as information pertaining to the economic uncertainty driven by continued increases in inflation. In line with regional trends, Carlsbad saw increases in revenues in almost all categories when compared to same quarter in the previous fiscal year, and expenditures are in line with the prior year’s rate of spending.
Discussion
Economic update
The Carlsbad economy is diverse, has strong industry clusters and is a leader in innovation.
According to the most recent biennial business survey of Carlsbad businesses, released in January 2022, five key industry clusters are driving growth:
• Life sciences
• Information, communications and technologies
• Cleantech
• Sports innovation and design
• Hospitality and tourism
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The gross regional product for Carlsbad is $14.6 billion, indicating that Carlsbad is the largest economy in the county behind the City of San Diego. Companies that call Carlsbad home are at the forefront in areas of technology and innovation, and the city’s hospitality and tourism industry generate the second-highest amount of transient occupancy tax among the county’s 18 cities.
The COVID-19 pandemic took a toll on the city’s businesses, with unemployment spiking to
13.8% in April 2020. Many businesses were forced to reduce or suspend operations temporarily at various times throughout the pandemic and corresponding public health orders.
However, because of the diversity of industries, strategic engagement by the city of Carlsbad to attract and grow innovation businesses and rapid allocation of financial resources to respond to the pandemic, the economic impact on Carlsbad was less than surrounding cities. Many businesses recovered rapidly and resumed growth.
Unemployment continued its downward trend reaching a low of 2.4% in May, before rising slightly to 3% in August. In September Carlsbad unemployment dipped back down to 2.7%. The unemployment rate in September was 3.9% at the state level and 3.1% at the county level.
Ongoing inflation and concerns of a recession are impacting the labor market. While it remains tight for now, some employers have noted a slight easing in their ability to find workers. Going into the holidays, many national retailers have projected slower seasonal hiring than previous years. This may affect unemployment rates in the second quarter.
Global disruptions also continue to impact our local, state, and national economy due to supply chains, oil supplies, energy costs, and inflation. Employers cite worker shortages, supply chain issues and rising costs as the biggest challenges to doing business today.
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 Economic Scan FY2022-2023 Q1 is presented as Exhibit
2. Staff also publish relevant data on the city’s economic development site, carlsbadca.gov/doingbusiness. The city will continue to develop tools to understand the economy, attract businesses and cultivate talent.
Financial update
The COVID-19 pandemic created immense uncertainty in the city’s revenues, most notably in sales tax and transient occupancy tax. The fiscal year 2021-22 adopted budget had anticipated continued adverse impacts from the pandemic with moderate recovery. However, based on unaudited actuals for fiscal year 2021-22, General Fund revenues in total, specifically property, sales and transient occupancy tax revenues reached historically high levels. This was mainly due to the staggered lessening of COVID-19 restrictions, coupled with pent-up demand and inflationary increases.
While recovery from the pandemic was accelerated compared to original estimations, new uncertainty surrounding the economy is rising. Significant inflation and its impacts on disposable income, personal savings, tourism and the housing market indicate that maintaining a conservative outlook for the city’s revenues is prudent.
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Revenues
The majority of health order restrictions on businesses have been lifted since the fiscal year 2021-22 budget was adopted in June 2021, and the results have been positive across most of the city’s revenue streams. The General Fund’s top three revenue sources – property, sales and transient occupancy tax – reached historic highs in fiscal year 2021-22. The fiscal year 2022-23 adopted budget took a conservative approach at estimating these revenue sources. However, year-over-year increases through the first quarter are notably positive given the amount of uncertainty in the economy. The table below shows the differences in revenue when comparing quarter 1 of fiscal year 2022-23 with the same period in the prior fiscal year.
Fiscal year 2022-23 revenues for the first quarter compared to fiscal year 2021-22 Q1 revenues
Revenue category Change ($) Change (%)
Transient occupancy tax $1,566,737 16%
Property tax $816,293 32%
Licenses and permits $775,866 26%
Sales tax $673,105 5%
Investments, property income $160,119 13%
Interdepartmental charges $141,568 11%
Fines and forfeitures $35,813 38%
Intergovernmental $7,415 7%
Other revenues sources ($36,504) -11%
Other taxes ($610,880) -21%
As noted above, the city’s three major revenue sources are property tax, sales tax and transient occupancy tax.
• The majority of property tax revenue is collected in December and April each year.
Fluctuations through the first quarter are due to an increase in assessed property values and aircraft taxes as a result of additional aircrafts being housed at the airport. • Most of these sales tax revenues represent receipts that were collected for the second calendar quarter of 2022, but they also include a portion of the city’s sales tax receipts from October 2021 through March 2022, as well as the first advance of the city’s sales tax revenues from the third calendar quarter of 2022. The prior fiscal year saw accelerated recovery from the impacts of COVID-19 and ended the year reaching historical levels of revenues. The first quarter of fiscal year 2022-23 experienced gains over the same period last year, primarily in general retail, food products, and transportation. While much uncertainty remains surrounding inflation and its impacts to disposable income and savings, increased inflation appears to be boosting the level of sales tax revenues through the first quarter.
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• Year-to-date transient occupancy tax figures represent taxes collected on hotel receipts through the month of August 2022. The revenues received during the first quarter represent an increase of $1.6 million or 16% compared to the same period last year. This increase is largely due to an increase in hotel stays as well as an increase in average daily room rate.
Expenditures and encumbrances
Total General Fund expenditures and encumbrances through the month of September 2022 are $79.6 million, compared to $79.2 million at the same time last year. While the year-over-year change is only $400,000, or 0.5%, there are varying factors in how each of the respective years’ expenditure totals are derived.
During the first quarter of fiscal year 2021-22, City Council authorized:
• $10.7 million transfer related to the Technology Investment Program in support of the Strategic Digital Transformation Investment Program
• $7.8 million transfer to the General Capital Construction Fund from fiscal year 2020-21 General Fund surplus
• $5.5 million additional discretionary payment to CalPERS During the first quarter of fiscal year 2022-23, City Council authorized:
• $10.2 million transfer to the city’s Workers’ Compensation Internal Service Fund • $1 million transfer to the city’s Risk Management Internal Service Fund • $1.4 million transfer to the city’s Fleet Maintenance Internal Service Fund While surplus authorizations in accordance with City Council Policy Statement No. 87 were higher in fiscal year 2021-22 and resulted in additional expenditures through the first three quarters, the fiscal year 2022-23 adopted budget was $13.8 million, or 7.5%, greater than the previous year, which contributed to comparable expenditure totals in both years.
Excluding the transfers out, contingencies, and non-departmental charges, the percentage available on Sept. 30, 2022, is 67%, slightly less than the 68% available on Sept. 30, 2021.
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 addresses a structural shortfall in plan assets to cover unfunded liabilities.
In support of CalPERS’s 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 totaling $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, the city’s pension funding policy.
In CalPERS’s latest actuarial valuation report (as of June 30, 2021), the city had a combined pension funded status of 86% which was predominantly driven by CalPERS’s fiscal year 2020-21 investment return of 21.3%. This positive return will not impact the city’s required contributions until fiscal year 2023-24. CalPERS recently announced preliminary net investment Nov. 15, 2022
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return of -6.1% for fiscal year 2021-22, which will significantly reduce the city’s total funded status and have a tremendous impact on the city’s future costs. This negative return will not impact the city’s required contributions until fiscal year 2024-25. Staff will continue to monitor CalPERS’s strategies and performance and report to City Council as necessary and appropriate.
Staff will continue to monitor spending and intends to return to the City Council in early 2023 with a midyear review of the General Fund’s budget. Staff plans to propose adjustments to current year revenue forecasts and may propose expenditure adjustments in line with the city’s evolving economic situation.
Enterprise funds
The city’s water and wastewater enterprise funds1 continue to operate in line with budgeted expectations. The city’s municipal golf course, The Crossings at Carlsbad, continues to exceed budgeted estimates due to higher-than-expected demand for golf.
Fiscal An alysis
This is an informational item with no fiscal impact.
Next Steps
Staff will continue to provide quarterly updates to the City Council on the economic outlook and the city’s finances.
Environmental Evaluation
This informational report does not constitute a project within the meaning of the California Environmental Quality Act under California Public Resources Code Section 21065. It has no potential to cause either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment.
Public Notification
This item was noticed in keeping with the Ralph M. Brown Act and it was available for public viewing and review at least 72 hours before the scheduled meeting date.
Exhibits
1. September 2022 Financial Status Report
2. September 2022 Economic Scan
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.
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This repor
t summarizes the City of Carlsbad’s General Fund revenues and expenditures through September 30, 2022. It compares revenues and expenditures for the first three months of fiscal year 2022‐23 and fiscal year 2021‐22. In addition, the financial status of the Water and Wastewater Enterprises are included. This report is for inter nal 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 ($3.3 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 8.13% for fiscal year 2022‐
23. This is the tenth year in a row that Carlsbad’s assessed values have increased from year to year, and in line with assessed value increases with other ci ties in San Diego County for the year. This reflects continued strength in the regional housing market. The increase in this year’s assessed values is due to a large increase in the assessed values of residential properties in the city; the city saw smaller increases in commercial and in dustrial property values for the year. This is the eighth year in a row since the Great Recession ended that the city saw increases in assessed values in all three property components (residential, commercial and industrial).
The property taxes for the first three m onths of the fiscal year have increased by 32% as compared to the prior fiscal year. The primary reasons for the increase are:
Current taxes are up by $192,000 or 20% mainly due to increased assessed values. Supplemental and surplus property taxes are $111,000 higher when com pared with the prior year. Aircraft taxes are also up $501,000 or 39% due to an increase in aircrafts being housed at the airport.
Sales Taxes ($13.3 million) – For the firs t three months of the fiscal year, sales tax revenues are $673,000 higher than the same period in the previous fiscal year.
Sales tax revenues for the current fiscal year represent the city’s first advance for the third calendar quarter of 2022, the second calendar quarter of 2022 sales tax revenues and a portion of the city’s first calendar quarter of 2022 sales tax revenues.
In the prior fiscal year, the city saw a
ccelerated recovery from the impacts of the COVID‐19 pandemic including the shelter‐in‐place orders, which essentially shut down all non‐essential businesses, and where small businesses in the State of California were allowed to defer sales tax paymen ts. FY 2021‐22 experienced historically high levels of sales tax revenues.
For sales occurring in the second calend ar quarter of 2022 (the most recent data available), key year‐over‐year gains were seen in general retail, food products, transportation, and business‐to‐business During the same period, key declines were seen in construction. The largest economic segments in the city are automobile dealers, gene
ral merchandise stores, and restaurants. Together, they generate 82% of the city’s sales tax revenues.
September 30, 2022
32%
5%
Exhibit 1
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Monthly Financial Report _________________________________________________________________ 2
Transient Occupancy Tax ($11.6 million) – The city’s third highest General Fund revenue source on an annual basis is Transient Occupancy Tax (TOT or hotel tax), estimated at $28.8 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 throu gh the month of August 2022. TOT collected for the three months of the fiscal year reflects an increase of $1.6 million, or 16%, more than the previous year.
Currently, there are 4,775 hotel rooms in service (of 5,056 total rooms built in the city), 668 timeshares and 382 registered short‐term vacation rentals. The average occupancy of hotel rooms over the most recent 12 months has been 73% which is up from 59% at this time last year.
Business License Tax ($1.5 million) – All entities doing business in the City of Carlsbad are required to have a valid business license. Business license revenue is estimated at $6.2 million for the current fiscal year. Business license revenues are down $466,000 or 24%, from the previous fiscal year. The decrease is due to a reduction in payments received for overdue business license renewals and penalties tha
t were received last year and as a result of COVID‐19.
There are currently 9,562 licensed businesses operating within the city, 57 more than the prior year. The majority of taxed businesses (6,359 businesses) are located in Carlsbad, with 2,391 of these businesses home‐based.
Interdepartmental Charges ($1.4 million) – Interdepartmental charges are up by $141,000 when compared with the same period last year. These charges are generated through engineering services charged to capital projects (up $89,000 due to more staff time charged to capital projects); reimbursed work from other funds (no change); and miscellaneous interdepartmental expenses charged to funds outside the General Fund for services perfor med by departments within the General Fund (up $52,000).
Income from Investments and Property ($1.4 million) – For the first three months of the fiscal year, income from investments and property is up $160,000 compared to the previous fiscal year. This increase is largely due to a rise in yield from 1.15% as of September 2021 to 1.51% as of September 2022.
Throughout the pandemic, the Federal Reserve had maintained an effective benchmark rate between 0 and 0.25%. However, inflation has been on a historic rise for much of the last year and resulted in the Federal Reserve increasing benchmark rates all the way to 3%‐
3.25%. With future rate hikes anticipated, the portfol io’s yield will continue on an upward trend.
Recreation Fees ($1.3 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 $290,000 compared to last year at this time.
While programs began to reopen more in the summer of 2021, this increase can also be attributed to recovery growth since the onset of the pan demic.
11%
16%
27%
24%
13%
24%
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Monthly Financial Report _________________________________________________________________ 3 Development Related Revenues ($1.1 million) – Development related revenues, which include building permits, planning fees, building department fees, and engineering fees, reflect a 20% increase 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 September 2022 included permits associated with com mercial permit revisions, reroofing, second dwelling units, single family detached, and tenant improvements.
One source of development related revenue is building permits, which are up 30% compared to last fiscal year.
The year‐to‐date valuation of new construction in the current fiscal year is $54.4 million. This represents a $8.5 million, or 18.5%, increase over the previous fiscal year.
Franchise Tax ($734,000) – 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 $6.9 million for the current fiscal year. Year‐to‐date franchise taxes are $14,000 lower when compared to the same period last year.
Cable television franchise revenues (Spectrum and AT&T) are up $9,000 representing a relatively nominal amount of change for subscription services (premium video, equipment rental, on‐demand, and programming services). A decrease in trash collection revenue of $23,000 resulted from the city’s new contract with Republic and represents a relatively nominal amount of chan ge when considering applied rates and the number of trash customers.
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 cap ture 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 2023.
Ambulance Fees ($976,000) – The city bills any i ndividual who is transported in one of the city’s ambulances. Through September 2022, receipts from ambulance fees are up $308,000, or 46%, compared to last fiscal year. The increase in revenue for the first three months of the fiscal year is mainly due to an increase in the number of billable transports, 1,802 in the first three months of fiscal year 2022‐ 23 versus 1,419 in the prior fiscal year.
Other Revenue Sources ($305,000) – Other revenue sources have decreased by $36,500 and include revenues received by the city to offset the costs of special studies or projects for developers; reimbursements for damage done to city streets, rights‐of‐way, and other city‐owned property; donations; reimbursement from the Gas Tax Fund for traffic signal maintenance; and miscellaneous reimbursed expenses and refunds of prior year fees. Th e decrease to date is primarily driven by a reduction in miscellaneous reimbursements related to the regional Innovate 78 initiative.
Carlsbad was the lead agency in the prior fiscal year and was reimbursed from neighboring cities for this shared agency cost.
20%
46%
11%
2%
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Monthly Financial Report _________________________________________________________________ 4 Other Licenses and Permits ($224,000) – 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 decrease of $19,000 is primarily a result of decreased coastal development permits compared to the same period last year.
Fines an
d Forfeitures ($129,000) – Fines and forfeitures represent fees collected for code violations, parking citations, overdue fines, and returned checks. The city recognizes revenues when the citizen pays the fine or forfeiture, as opposed to when the fine is imposed. The increase to date of $36,000 is mainly due to increases in code violations.
Intergovernmental Revenues ($111,000) – Intergovernmental revenues include homeowners property tax exemption revenue and miscellaneous receipts received from the state or federal governments, as well as local school districts.
Various miscellaneous receipts comprise the $111,000 received this year which represents a nominal increase over the same period last year.
Transfer Taxes ($115,000) – 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 prop erty transfers.
Other Charges or Fees ($97,000) – 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 $500 or 1% and have remained relatively flat over th e same period last year.
A detailed schedule of General Fund revenues is provided on the following page. 1%
8%
38%
7%
53%
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Monthly Financial Report _________________________________________________________________ 5
REVENUE
REVENUE EXPECTED ACTUAL ACTUAL CHANGE FROM
BUDGETED THROUGH FY 2022 FY 2023 YTD 2022 TO PERCENT FOR FY 2022 ‐23 09/30/22 AS OF 09/30/21 AS OF 09/30/22 YTD 2023 CHANGE TAXES
PROPERTY TAX $81,508,000 $2,590,268 $2,542,833 $3,359,126 $816,293 32% SALES TAX 49,123,000 12,144,023 12,651,416 13,324,521 673,105 5% TRANSIENT OCCUPANCY TAX 28,803,000 8,934,001 10,050,564 11,617,301 1,566,737 16% FRANCHISE TAX 6,958,000 816,870 747,949 734,049 (13,900) ‐2% BUSINESS LI CENSE TAX 6,242,000 1,837,641 1,948,716 1,482,976 (465,740) ‐24% TRANSFER TAX 1,570,000 177,829 246,777 115,537 (131,240) ‐53% TOTAL TAXES 174,204,000 26,500,631 28,188,255 30,633,510 2,445,255 9%
INTERGOVERNMENTAL
VEHICLE LI CENSE FEES 50,000 0 0 0 0 0%
HOMEOWNERS EXEMPTIONS 353,000 0 0 0 0 0%
OTHER REIMBURSEMENT 737,809 10,303 103,597 111,012 7,415 7% TOTAL INTERGOVERNMENTAL 1,140,809 10,303 103,597 111,012 7,415 7% LICENSES AND PERMITS
BUILDING PERMITS 900,000 189,937 356,975 464,022 107,047 30% OTHER LICENSES & PE RMITS 963,000 222,545 243,600 224,176 (19,424) ‐8% TOTAL LICENSES & PERMITS 1,863,000 412,482 600,575 688,198 87,623 15% CHARGES FOR SERVICES
PLANNING FEES 456,000 128,068 195,634 159,061 (36,573) ‐19% BUILDING DEPARTMENT FEES 895,317 209,449 202,045 333,599 131,554 65% ENGINEERING FEES 608,900 134,319 206,323 201,082 (5,241) ‐3% AMBULANCE FEES 3,850,000 751,102 668,244 976,342 308,098 46% RECREATION FEES 2,315,500 910,707 1,062,368 1,352,274 289,906 27% OTHER CHARGES OR FEES 1,504,300 85,289 96,896 97,395 499 1% TOTAL CHARGES FOR SERVICES 9,630,017 2,218,934 2,431,510 3,119,753 688,243 28% FINES AND FORFEITURES 210,750 57,516 93,594 129,407 35,813 38% INCOME FROM INVESTMENTS & PROPERTY 5,481,000 1,178,132 1,200,225 1,360,344 160,119 13% INTERDEPARTMENTAL CHARGES 5,236,449 1,233,601 1,252,016 1,393,584 141,568 11% OTHER REVENUE SOURCES 996,029 287,483 341,243 304,739 (36,504) ‐11 % TRANSFERS IN 10,000 10,000 10,000 0 (10,000) ‐100%
TOTAL GENERAL FUND $198,772,054 $31,909,082 $34,221,015 $37,740,547 $3,519,532 10.3% (1)
(1) Ca l cul a te d General Fund re ve nue s ar e 18% abov e estimates as of September 30, 2022.
GENERAL FUND
REVENUE COMPARISON
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Monthly Financial Report _________________________________________________________________ 6 Expenditures
Total General Fund expenditures and encumbrances through the month of September 2022 are $79.6 million, compared to $79.2 million at the same time last year. While the year‐over‐year change is only $400,000 or 0.5%, there are varying factors in how each of the respective years’ expenditure totals are derived. During the first quarter of fiscal year 20
21‐22, City Council authorized a $10.7 million transfer related to the Technology Investment Program in support of the Strategic Digital Transformation Investment Program, a $7.8 million transfer to the General Capital Construction Fund from fiscal year 2020‐21 General Fund surplus, and a $5.5 million additional discretionary payme
nt to CalPERS. During the first quarter of fiscal year 2022‐23, City Council authorized a $10.2 million transfer to the city’s Workers’ Compensation Internal Service Fund, $1 million transfer to the city’s Risk Management Internal Service Fund, and $1.4 million to the city’s Fleet Maintenance In ternal Service Fund. While surplus authorizations in accordance with City Council Policy Statement No. 87 were higher in fiscal year 2021‐22 and resulted in additional expenditures through the first three quarters, the fiscal year 2022‐23 adopted budget was $13.8 million or 7.5% greater than the previous year which contributed to comparable e
xpenditure totals in both years.
The remaining budget available through the fiscal year ending September 30, 2022 is $144.1 million, or 64.4%.
If funds were spent in the same proportion as the previous year, the General Fund would have 63.3% or $136.8 million available.
Excluding the transfers out, contingencies, and non‐departmental charges, the percentage available on September 30, 2022, is 67%, slightly less than the 68% available on September 30, 2021.
The adopted General Fund budget for fiscal year 2022‐23 increased by 7.5% or $13.8 million due to:
Increased personnel costs (increase of $9.8 million):
o $5.5 million in salaries and wages due to the addition of 24 new full‐time positions and 3.4 full‐time equivalent part‐time positions.
o $3.5 million in heal
th insurance and retirement benefits costs
o $0.8 million increase in other personnel costs (Medicare, unemployment and disability benefits) o ($2.0) million in vacancy savings. The fiscal year 2022‐23 budget introduced a mechanism for accounting for vacancy savings at the beginning of the budget cycle rather than at th e end. This mechanism (1) reduces the amount of budget in the General Fund, (2) closer alignment between budgeted and actual personnel costs, (3) increased alignment with the city’s 10‐year forecast Decreased maintenance and operations costs (decrease of $1.1 million):
o Under the direction of the City Manager , departments were instructed to identify budgetary savings for fiscal year 2022‐23 which resulted in a $1.5 million reduction in base operating costs. $6.5 million increase in transfers. This increase was a result of a temporary reduction in capital project transfers in fiscal year 2021‐22 as a result of COVID‐19 and it s anticipated adverse fiscal impacts.
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 addresses a structural shortfall in plan assets to cover unfu nded 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 de crease 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, 2021), the city had a combined pension funded status of 86% which was predominantly driven by CalPERS’ fis cal year 2020‐21 investment return of 21.3%. This positive return will not impact the city’s required contributions until fiscal year 2023‐24. CalPERS recently announced preliminary net investment return of ‐6.1% for fiscal year 2021‐22 which will significantly reduce the city’s total funded status and have a treme ndous impact on the city’s future costs. This negative return will not impact the Nov. 15, 2022
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Monthly Financial Report _________________________________________________________________ 7 city’s required contributions until fiscal year 2024‐25. Staff will continue to monitor CalPERS’ strategies and performance and report to City Council as necessary and appropriate.
The city will continue monitoring spending and intends to return to the City Council in early 2023 with a midyear review of th e General Fund’s budget. Staff plans to propose adjustments to current year revenue forecasts and may propose expenditure adjustments in line with the city’s evolving economic situation.
A detailed schedule of General Fund expenditures is provided below.
ADOPTED WORKING
BUDGET BUDGET AMOUNT AVAILABLE %
DEPARTMENT DESCRIPTION FY 2022‐23 FY 2022‐23 (a) COMMITTED (b) BALANCE AVAILABLE (c) POLICY AND LEADERSHIP GROUP
CI TY ATTORNEY $2,033,508 $2,029,455 $587,800 $1,441,655 71.0% CI TY CLERK SERVICES 1,394,162 1,450,310 246,304 1,204,006 83.0% CI TY COUNCIL 652,220 652,049 136,972 515,077 79.0%
CI TY MANAGER 2,156,145 2,328,593 682,634 1,645,959 70.7% CI TY TREASURER 249,945 249,664 38,444 211,220 84.6%
COMMUNI CATI ONS & ENGAGEMENT 1,979,186 2,407,081 999,186 1,407,895 58.5% TOTAL POLICY AND LEADERSHIP GROUP 8,465,166 9,117,152 2,691,340 6,425,812 70.5% ADMINISTRATIVE SERVICES
ADMINISTRATION 747,797 754,170 206,965 547,205 72.6%
FINANCE 5,472,176 6,064,795 1,797,561 4,267,234 70.4%
HUMAN RESOURCES 5,264,775 5,530,229 1,435,411 4,094,818 74.0% INNOVATION & ECONOMIC DEVELOPMENT 2,585,951 2,700,033 698,721 2,001,312 74.1% TOTAL ADMINISTRATIVE SERVICES 14,070,699 15,049,227 4,138,658 10,910,569 72.5% PUBLIC SAFETY
POLICE 51,240,884 54,047,488 16,942,963 37,104,525 68.7% FIRE 37,756,943 39,367,248 11,434,502 27,932,746 71.0%
TOTAL PUBLIC SAFETY 88,997,827 93,414,736 28,377,465 65,037,271 69.6% COMMUNITY SERVICES
COMMUNI TY SERVICES ADMINISTRATION 675,917 833,892 343,248 490,644 58.8% COMMUNI TY DEVELOPMENT 10,384,700 12,701,501 4,927,788 7,773,713 61.2% HOUSING & HOMELESS SERVICES 3,134,115 3,928,349 1,737,647 2,190,702 55.8% LIBRARY & CU LTURAL ARTS 14,088,425 14,681,425 3,759,521 10,921,904 74.4% PARKS & RECREATION 21,167,014 22,499,540 9,091,559 13,407,981 59.6% TOTAL COMMUNITY SERVICES 49,450,171 54,644,707 19,859,763 34,784,944 63.7% PUBLIC WORKS
PUBLIC WORKS ADMINISTRATION 1,440,649 1,458,318 447,671 1,010,647 69.3% CONSTRUCTI ON MANAGEMENT & INSPECTIONS 3,262,768 3,524,909 1,075,858 2,449,051 69.5% ENVIRONMENTAL SUSTAINABILITY 1,159,789 1,644,685 775,237 869,448 52.9% FACILITIES 6,768,736 8,415,460 3,450,743 4,964,717 59.0% TRANSPORTATION 9,707,559 10,503,750 4,373,078 6,130,672 58.4% TOTAL PUBLIC WORKS 22,339,501 25,547,122 10,122,587 15,424,535 60.4% NON‐DEPARTMENTAL & CONTINGENCY
(d) OTHER NON‐DEPARTMENTAL 1,021,658 1,212,249 368,457 843,792 69.6% OPERATING TRANSFERS OUT 13,600,000 24,208,252 14,008,257 10,199,995 42.1% CONTINGENCY 500,000 493,085 0 493,085 100.0%
TOTAL NON‐DEPT & CONTINGENCY 15,121,658 25,913,586 14,376,714 11,536,872 44.5% TOTAL GENERAL FUND $198,445,022 $223,686,530 $79,566,527 $144,120,003 64.4% (a) Working budget includes the adopted budget, open encumbrances from the end of the prior fis ca l year, approved carry forwa rds of the prior fisca l year and all other council approvals. (b) Actua l expenditures on a budgetary basis include encumbrances and exclude non‐budgeted items. (c) Amount available would be 63.3% if funds we re 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 09/30/22
EXPENDITURE STATUS BY DEPARTMENT
GENERAL FUND
Nov. 15, 2022
Item #15 Page 12 of 25
Monthly Financial Report _________________________________________________________________ 8
Nov. 15, 2022
Item #15 Page 13 of 25
Monthly Financial Report _________________________________________________________________ 9 Council Contingency
The City Council has allocated $500,000 out of the General Fund budget for unanticipated emergencies or unforeseen program needs. Below is a listing of the City Council’s contingency:
Donations
Carlsbad Municipal Code 2.08.100 authorizes the city manager to accept donations on behalf of the city in an amount or of value of up to $5,000 per donation. These donations shall be used in accordance with the donor’s intent or added to the city’s contingency account. Below is a listing of all don ations, excluding minor food donations such as donuts, that have been accepted during fiscal year 2022‐23:
CONTINGENCY ACCOUNT
USE OF FUNDS
RESOLUTION
EXPLANATION AMOUNT DATE NUMBER
ADOPTED BUDGET $500,000
USES:
Community Spirit Grant ‐ Carlsbad Educational Foundation‐Razorback Invitational (1,915) 8/8/2022 NA ‐ See Note 1 Community Spirit Grant ‐ Carlsbad Chamber of Commerce ‐ Older & Bolder Expo (5,000) 8/8/2022 NA ‐ See Note 1 TOTAL USES (6,915)
AVAILABLE BALANCE $493,085
Note 1 ‐ City Council Policy 51 gives aut horizat ion to the City Manager to approve Community Spirit Grants le ss than $5,000.
Department Intention July Aug. Sept. Qtr. 1
Parks & Recreation Leo Carrillo Ranch Cash Donations $4,970 $711 $485 $6,166 Parks & Recreation Opportunity Grant Donations 1,127 1,552 574 3,253 Parks & Recreation Senior Center Cash Donations 728 334 832 1,894 Parks & Recreation Senior Meals Cash Donations 1,063 1,284 $1,045 3,392 Parks & Recreation Senior Trans portati on Cash Donations 41 250 84 375 Parks & Recrea ti on Speci a l Events Cash Donations 1,000 0 0 1,000 Subtotal ‐ Parks & Recreation $8,929 $4,131 $3,020 $16,080 Li brary & Cultural Arts Book purchases $50 $50 $5,050 $5,150 Li brary & Cultural Arts Support Li bra ry Programs and Services 3 55 90 148 Subtotal ‐ Li bra ry & Cultural Arts $53 $105 $5,140 $5,298 Total Donations $8,982 $4,236 $8,160 $21,378
Donations Fiscal Year 2022 ‐ 23
Nov. 15, 2022
Item #15 Page 14 of 25
Monthly Financial Report _________________________________________________________________ 10 Water Enterprise
Revenues
Increase in water due to rate increases in March 2022 and January 2023 offset by a 1.6% decrease in water volume sales.
Interest earnings increased due to a 22.6% increase in the yield of the Treasurer’s portfolio combined with a 14.3% increase in the monthly average cash balance. The in crease in property taxes is primarily due to increase in assesed property values. The increase in fines is due to reinstatement of late charges starting in January 2022.
Expenses
The increase in staffing expenses includes an annual required contribution to the city’s unfunded pension liability balance with CalPERS and salary increases, and vacancies experienced in prior fiscal year.
Higher interdepartmental expenses resulted from increased personnel related costs, and general liability insurance.
Purchased water expenses have increased from the prior year du e to a 7.7% rate increase in the variable cost of water purchased from the San Diego County Water Authority (SDCWA) offset by a 2.4% decrease in the amount of water purchased.
Miscellaneous expenses increased from timing of purchase of replacement meters.
CHANGE FROM
BUDGET YTD (*) YTD (*) YTD 2021‐22 TO PERCENT
FY 2022‐23 9/30/2021 9/30/2022 YTD 2022‐23 CHANGE
REVENUES:
WATER DELIVERY 41,300,000 $ 11,736,959$ 11,769,181$ 32,222$ 0.3% INTEREST 354,500 78,085 114,962 36,877 47.2%
MISC. SERVICE CHARGES 321,000 77,839 78,409 570 0.7%
PROPERTY TAXES 4,441,344 89,197 110,943 21,746 24.4%
FINES, FORFEITURES & PENALTIES 161,750 1,422 91,455 90,033 6331.4% OTHER REVENUES 411,544 102,196 136,366 34,170 33.4%
TOTAL OPERATING REVENUE 46,990,138 12,085,698 12,301,316 215,618 1.8% EXPENSES:
STAFFING 4,301,517 1,082,080 1,197,411 115,331 10.7%
INTERDEPARTMENTAL SERVICES 3,161,356 735,291 790,563 55,272 7.5% PURCHASED WATER 27,300,000 7,230,458 7,519,662 289,204 4.0% MWD/CWA FIXED CHARGES 6,885,000 1,671,418 1,697,695 26,277 1.6% OUTSIDE SERVICES/MAINTENANCE 2,411,554 116,077 131,952 15,875 13.7% DEPRECIATION/REPLACEMENT 5,000,000 1,125,000 1,249,997 124,997 11.1% MISCELLANEOUS EXPENSES 1,106,939 101,965 176,361 74,396 73.0% CAPITAL OUTLAY 77,088 0 0 0 100.0%
TO TAL OPERATING EXPENSES 50,243,454 12,062,289 12,763,640 701,351 5.8% OPERATING INCOME/(LOSS) (3,253,316) $ 23,409$ (462,324)$ (485,733)$ ‐ 2075.0% (*) Adjusted to reflect timing differences for water purchases and depreciation.
WATER OPERATIONS FUND
September 30, 2022
1%
1.9%
5.8%
1.8%
Nov. 15, 2022
Item #15 Page 15 of 25
Monthly Financial Report _________________________________________________________________ 11 Wastewater Enterprise
Revenues
Charges for current services are higher than in the prior year due primarily to a 20% rate increase that went into effect Janaury 2023, the last rate increase was 20% in March 2022. Interest earnings increased due to a 22.6% increase in the yield of the Treasurer’s portfolio combined with a 14.3% increase in the monthly average cash bala nce. The increase in other revenues is due to late charges starting in January 2022 and reimbursement for interdepartmental labor charges.
Expenses
The increase in staffing expenses is mostly from an increase in the annual required contribution to the city’s unfunded pension liability balance with CalPERS. Higher interdepartmental expenses resulted from increased personnel related costs, and general liability insurance.
The capital outlay in fiscal year 2021‐22 was for the proc urement of a utility truck.
CHANGE FROM
BUDGET YTD* YTD* YTD 2021‐22 TO PERCENT
FY 2022‐23 9/30/2021 9/30/2022 YTD 2022‐23 CHANGE
REVENUES:
CHARGES FOR CURRENT SERVICES 19,000,000 3,971,433 4,683,343 711,910 17.9% INTEREST 95,000 21,878 27,870 5,992 27.4%
OTHER REVENUES 181,500 24,962 83,126 58,164 233.0%
TOTAL OPERATING REVENUE 19,276,500 4,018,273 4,794,339 776,066 19.3% EXPENSES:
STAFFING 2,971,244 681,551 780,076 98,525 14.5%
INTERDEPARTMENTAL SERVICES 1,519,845 337,343 378,947 41,604 12.3% ENCINA PLANT SERVICES 4,665,000 979,258 968,397 (10,861) ‐1.1% OUTSIDE SERVICES/MAINTENANCE 1,825,185 86,839 73,919 (12,920) ‐14.9% DEPRECIATION/REPLACEMENT 5,300,000 1,325,000 1,324,997 (3) 0.0% MISCELLANEOUS EXPENSES 1,158,133 77,590 73,300 (4,290) ‐5.5% CAPITAL OUTLAY 9,750 28,719 0 (28,719) ‐100.0%
TOTAL OPERATING EXPENSES 17,449,157 3,516,300 3,599,636 83,336 2.4% OPERATING INCOME/LOSS 1,827,343 501,973 1,194,703 692,730 138.0% (*) Adjusted to reflect timing differences for Encina quarterly invoices and depreciation.
WASTEWATER OPERATIONS FUND
September 30, 2022
12.9%
2.4%
19.3%
2.4%
2.4%
Nov. 15, 2022
Item #15 Page 16 of 25
1 First Quarter, Fiscal Year 2022-2023
The following scan provides an overview of key economic indicators for July, August, and September 2022 for the City of Carlsbad. This economic scan is updated quarterly to provide information that is relevant to the health of Carlsbad’s economy. For regularly updated information regarding the Carlsbad economy and economic development visit carlsbadca.gov/doingbusiness.
GROSS REGIONAL PRODUCT
Carlsbad GRP (Source: Lightcast, 2021)
$14.6B
As of 2021, Carlsbad had the second largest gross regional product in San Diego County at nearly $14.6B, only trailing the City of San Diego. In 2019, Carlsbad’s economy grew by $800 million to nearly $13.6 billion. In 2020, as a result of the pandemic, the city’s GRP remained flat. In 2021, Carlsbad’s economy grew by approximately $1 billion, to nearly $14.6 billion. This growth was seen across all industry categories, and was led by manufacturing, wholesale trade, and professional, scientific, & technical services.
JOBS
Unemployment Rate (Source: California Employment Development Department, Sept. 2022 Report) Unemployment ticked up slightly to 3% in August before falling to 2.7% in September. The unemployment rate for the County of San Diego was 3.1% in September and the State of California was 3.9%. The labor market remains tight, but some employers have noted a slight easing in their ability to find workers. Going into the holidays, many national retailers have projected slower seasonal hiring than previous years, which may impact unemployment rates in the second quarter. 0 1
2 3
4 5
6 7
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Carlsbad Unemployment Rate 2021 vs 2022
2021 2022
0 1
2 3
4 5
6 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Unemployment Rate Comparison 2022
Carlsbad San Diego County
North County Avg w/o Carlsbad California
Innovation + Economic Development Department
Exhibit 2
Nov. 15, 2022
Item #15 Page 17 of 25
2 Job Postings (Source: Lightcast, July - September 2022) 15,217
There were 15,217 unique job postings in Carlsbad between July and September, a slight decrease from the previous quarter, and the first quarterly decrease in the past ten quarters. The median advertised salary for these postings was $45,700, which is on average $1,000 more than jobs posted in the previous quarter. Of jobs posted, 66% indicated an education requirement of High School/GED or less.
Carlsbad employers have cited noted challenges in finding and hiring entry-level workers, especially front-line service workers. This has limited some industries growth.
TALENT + WORKFORCE
Education (Source: 2019 ACS 5-Year Estimates, the latest year available) Carlsbad has established itself as having
the right workforce to fuel innovation
in tech and life sciences fields. Carlsbad
businesses can access talent from San
Diego County, Orange County, and even
southwest Riverside County. Nearly
60% of working-age residents hold a
bachelor’s degree, with more than 25%
attaining an advanced degree. Outside of
some communities in central San Diego,
Carlsbad has the heaviest concentration
of households with degrees in
science, technology, engineering, and
mathematics (STEM degrees). This local
talent mix is among the leading reasons
that firms choose Carlsbad.
Nearby public and private universities
offer top-notch programs. Within a 30-
mile radius, more than a half-dozen
universities and colleges confer more
than 35,000 degrees annually. The
Carlsbad business community works
closely with higher education partners
to align various education tracks
with local workforce needs.
Talent Pipeline
Degrees Conferred by University,
Displayed as Distance from Carlsbad
San Diego State
University
9,671
Nov. 15, 2022
Item #15 Page 18 of 25
3 CAPITAL
Interest Rates (Source: U.S. Department of the Treasury, September 2022) National interest rates, which dropped significantly during the pandemic have surged as the Federal Reserve has steadily increased rates to fight inflation. One-year rates are currently at 4.05%. Ten-year rates are currently at 2.83%. 30-year rates are currently at 3.79%. They have also indicated they plan for further rate-hikes of up to .75% over the next several quarters. Most economists agree that these moves are likely to push the economy into a recession as a means to cool inflation.
September 2021
One-year interest rate
0.09%
10-
year interest rate
1.52%
30-
year interest rate
2.08%
Sep tember 2022
One-year interest rate
4.05%
10-
year interest rate
3.83%
30-
year interest rate
3.79%
COMMERCIAL REAL ESTATE
Market Vacancy Rates and Rent per Square Foot (Source: CoStar, September 2022) Commercial vacancy rates improved in the office and retail segments this quarter, but ticked up in industrial. The industrial vacancy rate is now at 5.7%, compared to 10.8% pre-pandemic.
The office vacancy rate is currently 10.8%, compared to 15.3% pre-pandemic. Retail, which was disproportionately impacted throughout the pandemic continues to see elevated vacancy rates, although they have improved the past two quarters. Retail vacancy is now at 6.3%, compared to 5.3% pre-pandemic.
Average market rents per square foot, per year have risen in office and industrial categories this quarter. Office rates are now $38.06. Industrial rates are now at $21. Retail rates have decreased slightly to $42.51.
5.7%
Industrial vacancy rate
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 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 Nov. 15, 2022
Item #15 Page 19 of 25
4 TOURISM
Throughout 2022, hotel occupancy more closely matched 2019 levels. However, 2022’s summer peak lagged 2019 levels slightly.
Occupancy caught up in September (72%), which eclipsed September 2019 levels (70%). The impacts of inflation and a potential recession could hamper tourism globally, but Carlsbad is well-positioned as a destination that will could see strong tourism through a recession. Baseline comparison is 2019, as it represents normal conditions. 42 With 42 hotels in Carlsbad, tourism is a major industry in terms of employment and economic impact. Below are several indicators reflecting the health of the city’s tourism economy.
Hotel Occupancy (Source: Smith Travel Reports, September 2022 Report) Carlsbad’s average daily room rate (ADR) remains higher than pre-pandemic levels. Despite lower summer occupancy numbers, ADR remained consistently higher than 2019 levels. ADR was $303.68 in July, $264.30 in August, and $220.87 in September, compared to $239.64, $213.68, and $160.22 in 2019, respectively. Baseline comparison is 2019, as it represents normal conditions.
Hotel Average Daily Room Rate (Source: Smith Travel Reports, September 2022 Report)
0.0 20.0
40.0 60.0
80.0 100.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Hotel Occupancy 2019
City of Carlsbad+ San Diego County, CA
City of Oceanside, CA+ City of Newport Beach, CA+
50.00 100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Avg. Daily Rate 2019
City of Carlsbad+ San Diego County, CA
City of Oceanside, CA+ City of Newport Beach, CA+
50 100
150
200
250
300
350
400
450
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Avgerage Daily Rate 2022
City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA City of Carlsbad, 2019
0 20
40 60
80 100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Hotel Occupancy 2022
City of Carlsbad San Diego County, CA City of Oceanside, CA City of Newport Beach, CA City of Carlsbad, 2019
Nov. 15, 2022
Item #15 Page 20 of 25
5 INCOME + HOUSING
Median Household Income (Source: 2021 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 2021 was $124,669 , (adjusted for inflation), which was $33,666 higher than the county median income.
Carlsbad has generally outpaced the region in terms of household income growth.
Median Home Price (Source: Zillow Home Value Index - September 2022) Home values in Carlsbad, along with San Diego County, rose significantly the past two years. This quarter, median home prices dipped in the city for the first time since the first quarter of 2019. The median home price in Carlsbad was $1.45 million in September, a decrease of $63,000 since the June peak of $1.51 million. This value is seasonally adjusted and only includes the middle price tier of homes. Carlsbad home values have risen 18% over the past year. The continued rise in home values can be partially attributed to constrained supply and strong demand in the region. $600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
$1,300,000
$1,400,000
$1,500,000
$1,600,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Carlsbad Median Home Price
2020 2021 2022
$600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
$1,300,000
$1,400,000
$1,500,000
$1,600,000
Jan Feb Mar Apr May Jun Jul Aug Sep
Median Home Price Comparison
Carlsbad North County Avg
Nov. 15, 2022
Item #15 Page 21 of 25
6 BUSINESS ACTIVITY
Business Licenses (Source: City of Carlsbad, September 2022) There were a total of 2,308 business licenses issued last quarter, including 1,019 non-residential, 559 residential, and 730 outside- the-city licenses. This is an increase of 239 over the same quarter of 2021.
The number of licenses issued does not reflect the number of businesses in Carlsbad as a business may carry multiple licenses, short-term vacation rentals are required to get a license, and businesses outside of Carlsbad that do business in the city or with the city are required to get a license. It is estimated that there are approximately 6,327 businesses in Carlsbad.
Building Permits (Source: City of Carlsbad, September 2022) Between July and September, permit activity increased for residential building permits (1,220), and represented the largest number of residential permits in the past three years. Commercial permits issued (99), was down slightly from last quarter.
The number of residential building permits issued has been generally increasing over the past several years.
While permit activity is improving YOY , residential builders continue to cite labor shortages and increased building costs as challenges to new housing starts.
0 200
400
600
800
1000
1200
1400
Commercial Residential Commercial Residential Commercial Residential 2020 2021 2022
Building Permits Issued
Q1 Q2 Q3 Q4
0 500
1000
1500
2000
2500
3000
Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Business Licenses Issued by Quarter
Non-Residential Residential Outside City Total
Nov. 15, 2022
Item #15 Page 22 of 25
7 INDUSTRY CLUSTERS
Life Sciences (Source: 2022 Business Report and Industry Cluster Update) The Life Sciences industry cluster employs 6,657 workers across 134 firms and experienced a 2.6% increase in employment between 2018 and 2020. The cluster is 5.51 times more concentrated in Carlsbad than the national average and annual wages per worker average $123,702.
San Diego County and California have experienced parallel employment growth in the Life Sciences cluster between 2010 and 2020. In the same ten-year period, employment in Carlsbad grew by 75%. Between 2016 and 2018, Carlsbad experienced over 40% growth. Over the past two years (2018-2020), however, employment growth tapered off compared to years prior.
Technology (Source: 2022 Business Report and Industry Cluster Update) The Information and Communications Technologies (ICT) cluster employs 9,008 workers across 343 firms in Carlsbad and is
2.75 times more concentrated in Carlsbad than the national average. Annual wages per worker average $136,254, and the ICT industry cluster experienced a 3.3% increase in the number of jobs between 2018 and 2020.
San Diego County and California experienced steady parallel growth in the ICT cluster between 2010 and 2020. In the same ten-year period, Carlsbad experienced an initial decline in employment between 2012 and 2015; between 2015 and 2020, employment in the ICT cluster has steadily trended upwards.
Clean Technology (Source: 2022 Business Report and Industry Cluster Update) Between 2018 and 2020, the number of workers employed at Cleantech firms increased by 22.2%. By 2019, the 48 Cleantech firms in Carlsbad employed more than 872 people. The average annual wage per worker is $109,779, and the Cleantech industry cluster in Carlsbad is 4.66 times more concentrated than the national average.
Between 2010 and 2012, Carlsbad experienced an initial employment drop for the Cleantech industry followed by steady growth between 2012 and 2020. Employment growth in California peaked in 2013 and has been on a steady decline since.
Growth in San Diego County also peaked in 2013, dropping by over 25% between 2013 and 2017. Since 2017, employment in the Cleantech cluster for San Diego County has been on a steady increase.
Sports Innovation & Design (Source: 2022 Business Report and Industry Cluster Update) The Sports Innovation & Design industry cluster employs 1,804 workers across 116 firms and experienced a 16.3% decrease in employment between 2018 and 2020. The cluster is 5.06 times more concentrated in Carlsbad than the national average and annual wages per worker average $75,652.
Employment in the Sports Innovation & Design cluster has steadily declined since 2013 in Carlsbad. Both San Diego County and California have declined steadily since 2015 and experienced sharp declines between 2019 and 2020, likely due to the COVID-19 pandemic.
Hospitality & Tourism (Source: 2022 Business Report and Industry Cluster Update) Carlsbad’s Hospitality & Tourism cluster is about 1.35 times more concentrated in Carlsbad than the national average and employs 9,179 people across 467 businesses. Hospitality & Tourism experienced a sharp 34% decrease in employment between 2018 and 2020, driven by the effects of the COVID-19 pandemic between 2019 and 2020. Average annual wages per worker remain low relative to other key industry clusters, with workers earning $31,315 on average.
Carlsbad, San Diego County, and California experienced sharp declines between 2019 and 2020, during which sub-clusters like Theater Companies and Dinner Theaters, Amusement and Theme Parks, and Amusement Arcades were shut down to mitigate the effects of the COVID-19 pandemic.
Nov. 15, 2022
Item #15 Page 23 of 25
8 INDUSTRY IMPACT
Largest Industries (Source: Lightcast, September 2022)
Carlsbad’s economy significantly exceeds the national average in manufacturing, accommodation and food services, and professional, scientific and technical services jobs. These sectors, which would include tech, life sciences, and other innovation industries are generally more resilient to recessions, also represent significant job growth in the economy.
GRP by Industry
Industry size by employment
Nov. 15, 2022
Item #15 Page 24 of 25
9 INNOVATION
Patents (Source: 2020 Carlsbad Industry Cluster Patent Update) Four of the key industry clusters mentioned above drive innovation activity in Carlsbad. The figure below shows that while the life sciences cluster has been a long-term driver of the city’s innovation economy, information & communications technology patents have seen dramatic growth over the past ten years and 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.
Patents per Capita
2019 Patents per 1,000 Workers in the Labor Force
Carlsbad has a notably higher proportion
of patents per 1,000 workers—over 60%
more than the next-closest competitor
city. This figure shows that Carlsbad has
a greater concentration of patent activity
than even the technology hubs of San
Jose, Seattle, San Francisco, and Boston. In
2019, Carlsbad had 1.6 patents for every
1 patent per 1,000 workers in San Jose.
That ratio was 2.5 and 2.8 for Seattle and
San Francisco.
Released November 15, 2022
The quarterly economic scan is developed by the City of Carlsbad Innovation & Economic Development Department.
For more information, visit carlsbadca.gov/doingbusiness, or contact the team at [email protected].
Nov. 15, 2022
Item #15 Page 25 of 25
Matt Sanford, Economic Development Manager
Zach Korach, Finance Director
November 15, 2022
Economic and Financial
Update: Q1 FY 2022-23
TODAY’S PRESENTATION
• Economic update
• Financial update
ECONOMIC AND FINANCIAL UPDATE
ECONOMIC UPDATE
3 • Timeframe analyzed
o First quarter FY2022-2023 (July – September 2022)
• Macro Trends
• Local Impact
ECONOMIC AND FINANCIAL UPDATE
EVOLVING ECONOMIC CONDITIONS
• Macro-disruptions continue to affect Carlsbad businesses o Inflation
o Higher cost of capital
o Supply chain issues
o Uncertainty due to global turmoil
o Tight labor market
o Lingering COVID-19 impact
• Disruptions create a degree of operational uncertainty
ECONOMIC AND FINANCIAL UPDATE
INFLATION CONCERNS
• Cost increases are driving concern
for businesses and consumers
• San Diego area prices are up .9%
over the past two months
• Over-the-year prices are up 8.2%
(5.6% less food and energy)
ECONOMIC AND FINANCIAL UPDATE
WORKER/TALENT SHORTAGE
• EDD September unemployment data
o California unemployment rate:
3.9%, (.2% improvement)
o County unemployment rate:
3.1%, (3% improvement)
o Carlsbad unemployment rate:
2.7%, (.3% improvement)
ECONOMIC AND FINANCIAL UPDATE
0 1
2 3
4 5
6 7
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Carlsbad Unemployment Rate 2021 vs 2022
2021 2022
7 ECONOMIC AND FINANCIAL UPDATE
CARLSBAD ECONOMY
• Carlsbad’s GRP was $14.6 billion in 2021
• Carlsbad’s GRP was $13.6 billion in 2020 & 2019
• Carlsbad’s economy grew by approximately
$1 billion in the last year
ECONOMIC AND FINANCIAL UPDATE
CARLSBAD JOBS
• June through September saw 15,217 unique job postings • Slight decrease from the previous quarter
• First quarter with a decline in job-postings in the past ten quarters
• Average salary for posted jobs was $45,700
• Employers in Accommodation and Food Services continue noting trouble filling jobs
ECONOMIC AND FINANCIAL UPDATE
COMMERCIAL REAL ESTATE
• Vacancy rates for industrial properties are 5.7%
• Vacancy rates for office properties are 10.8%
• Vacancy rates for retail properties are up to 6.3%
ECONOMIC AND FINANCIAL UPDATE
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 2022 Q3 Carlsbad Commercial Vacancy Rates
Carlsbad Retail Carlsbad Office Carlsbad Industrial
RESIDENTIAL REAL ESTATE
• Median home values ended the quarter at $1.45 million • Median home values have risen 18% over the past year
ECONOMIC AND FINANCIAL UPDATE
$600,000
$700,000
$800,000
$900,000
$1,000,000
$1,100,000
$1,200,000
$1,300,000
$1,400,000
$1,500,000
$1,600,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Carlsbad Median Home Price
2020 2021 2022
CARLSBAD TOURISM
• Normalizing activity
• Steeper than usual decline in the fall
• Room rates have kept above 2019 levels
ECONOMIC AND FINANCIAL UPDATE
50 100
150
200
250
300
350
400
450
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Avgerage Daily Rate 2022
City of Carlsbad San Diego County, CA
City of Oceanside, CA City of Newport Beach, CA
City of Carlsbad, 2019
0 20
40 60
80 100
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Hotel Occupancy 2022
City of Carlsbad San Diego County, CA
City of Oceanside, CA City of Newport Beach, CA
City of Carlsbad, 2019
NEW DEVELOPMENT
& BUSINESS ACTIVITY
• Business licenses issued was strongest in two years
• Home builder optimism is rising, but costs are a challenge
ECONOMIC AND FINANCIAL UPDATE
0 500
1000
1500
2000
2500
3000
Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Business Licenses Issued by Quarter
Non-Residential Residential Outside City Total
0 200
400
600
800
1000
1200
1400
Commercial Residential Commercial Residential Commercial Residential 2020 2021 2022
Building Permits Issued
Q1 Q2 Q3 Q4
KEY TAKEAWAYS
• Global disruptions continue to impact Carlsbad business operations
• Increased prices and inability to fill jobs are top concern for businesses
• Carlsbad’s economy has continued to grow, but some
indicators are projecting a slight slowdown
ECONOMIC AND FINANCIAL UPDATE
GENERAL FUND REVENUES
(first quarter of fy 2022-23)
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
Property tax Sales tax Transient
occupancy tax
Other taxes Income from
inv. and prop.
Development
related revenue
Other revenues
FY 2021-22
FY 2022-23 Expected
FY 2022-23 Actual
GENERAL FUND REVENUES
Revenue category
Actual
FY 2021-22
Actual
FY 2022-23
$
difference
%
difference
Property tax $2.5 $3.4 $0.8 32%
Sales tax 12.7 13.3 0.7 5%
Transient occupancy tax 10.1 11.6 1.6 16%
Other taxes 2.9 2.3 -0.6 -21%
Income from inv. and property 1.2 1.4 0.2 13%
Development related revenue 1.0 1.2 0.2 20%
Other revenues 3.9 4.6 0.7 19%
Total $34.2 $37.7 $3.5 10%
(in millions)
GENERAL FUND BUDGET
ECONOMIC AND FINANCIAL UPDATE
• Adopted budget of $198.4 million
• Working budget of $223.7 million
• Available budget remaining of $144.1 million, or 63%
• Includes actual expenditures through Sep. 2022
• Includes open purchase order commitments
GENERAL FUND EXPENDITURES & ENCUMBRANCES
20 (first quarter of fy 2022-23)
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
Personnel Maintenance & operations Transfers out Other
FY 2022-23 Budget
Q1 FY 2021-22 Actual
Q1 FY 2022-23 Actual
GENERAL FUND EXPENDITURES
(in millions)
Category
FY 2022-23
Appropriation
QTR 1 EXP
FY 2022-23
% of Budget
Spent to Date
OPEN POs
at 9/30/22
Personnel $124.1 $34.2 28% $0.0
Maintenance & operations 69.9 10.4 15% 18.1
Transfers out 24.2 14.0 58% 0.0
Capital outlay 4.9 1.8 37% 0.9
COVID-19 & Innovation 0.2 0.0 5% 0.2
Contingency 0.5 0.0 0% 0.0
Total $223.7 $60.4 27% $19.2
WATER AND WASTEWATER
ECONOMIC AND FINANCIAL UPDATE
Compared to prior year through Q1:
• Water revenues are up 1.8% and expenses are
up 5.8%
• Wastewater revenues are up 19.3% and
expenses are up 2.4%
GOLF COURSE
ECONOMIC AND FINANCIAL UPDATE
• Net income $60,000 higher than last year
• Driven by continued demand for golf and an
increase in food & beverage sales
NEXT STEPS
• Monitor revenues and expenditures
• Publish economic and financial status reports:
carlsbadca.gov/doingbusiness
carlsbadca.gov/departments/finance/financial-reports
• Return in February 2023 with mid-year update
ECONOMIC AND FINANCIAL UPDATE