FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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EXECUTIVE SUMMARY
The City of Chula Vista Fiscal Year s 2025 – 2034 General Fund Long -Term Financial Plan (LTFP) serves as a long-range fiscal planning tool to identify financial trends, project budgetary surpluses or shortfalls, and encourage discussion to proactively address the City’s long-range needs. The LTFP will also serve as a guideline for the development of the Fiscal Year (FY) 2025 General Fund budget.
The goal of the LTFP is to assess the City’s ability over the term of the plan to:
• Maintain current or expand service levels;
• Preserve the City’s long-term fiscal health; and
• Strategically maintain the City’s reserve funds to meet the City’s reserve policies thresholds.
The LTFP only addresses the City’s General Fund. The General Fund serves as the principal source of revenues and expenditures that finance the City’s core, day-to-day operating expenses.
Information related to the City’s non-General Fund funds can be found on the City’s website within the FY 2024 Adopted Budget: https://www.chulavistaca.gov/departments/finance/budget- information
The LTFP focuses on baseline General Fund revenues and expenditures that are essential for the City to achieve the City’s strategic goals
1 over the next ten years. These goals include:
• Providing the highest level of municipal services based upon available resources; • Maintaining safe and appealing neighborhoods;
• Providing funding for City infrastructure; and
• Continuing to expand the City’s economic development and financial base.
It is important to emphasize that the LTFP is not a budget . The LTFP does not make expenditure decisions or assume revisions to current service levels but rather highlights the need to prioritize the allocation of City resources to ensure the continuation of core City services. The purpose of the plan is to provide the City Council, key stakeholders, and the public an overview of the City’s fiscal health based on various financial and service level assumptions over the next ten years, and to allow for the discussion of necessary steps to be initiated during the development and implementation of future budgets. The LTFP is intended to look beyond the annual budget cycle, serving as a planning tool to bring a long-term perspective to the budget process. Should projected expenditures exceed projected revenues in any given year, the City Manager will identify steps to mitigate the shortfalls prior to presenting a balanced budget to the City Council for consideration during the annual budget development process.
1 See the Strategic Plan on the City’s Budget webpage: https://www.chulavistaca.gov/departments/finance/budget- information
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REPORT OUTLINE
The LTFP report includes a brief overview of the current economic environment and information on potential factors that could impact the City’s fiscal position in the near -term and long -term.
Following the economic updates, information will be provided on the major revenue and expenditure categories shown within the LTFP. This information will provide brief descriptions of the revenues and expenditures, assumptions, and highlights of certain factors that could impact the revenues and expenditure projections.
Financial projections for the term of the LTFP will be presented following the highlighted revenues and expenditures. Significant results of the financial projections will be noted following the financial table. Next, the LTFP presents potential budget mitigation actions for discussion. No single, specific action is identified as a solution to resolving the City’s projected shortfalls. Based upon discussion and input from the City Council and the public, City staff can provide additional information and develop recommendations related to addressing future budget shortfalls.
GENERAL FINANCIAL POLICY
The LFTP report follows guidance from the City’s Finance Department’s 100- 01 General Financial Policy in the following areas:
Budget Development
• Identify the resources required to fund identified programs and activities and enable accomplishment of program objectives.
• Maintain a balanced operating budget. Operating revenues will fully cover operating expenditures, including debt service, each fiscal year. • Track revenues and expenditures on an on- going basis and attempt to anticipate future trends beyond the current budget cycle in order to maintain a balanced budget. • Utilize a ten-year financial plan and a long -term financial forecast model to promote orderly spending patterns, engage in long -range planning, and reduce the time and resources spent preparing annual budgets.
Revenue Management
• Endeavor to maintain a diversified and stable revenue base. • Revenue projections will be maintained for the current year and for future fiscal years, and estimates will be based on a conservative, analytical, and objective process.
Financial Constraints and Expenditure Management
• Track expenditures to evaluate trends and identify potential issues that will affect the budget.
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SUMMARY OF FINANCIAL PROJECTIONS
The LTFP forecasts General Fund revenues and expenditures based on current and known conditions, historical performance, and consultation from subject matter experts. Based on projections from the LTFP, overall General Fund revenues are anticipated to increase from FY 2023 to FY 2027 . However, General Fund revenues are anticipated to decrease in FY 202 8 from prior years due to the scheduled conclusion of the voter approved Measure P Sales Tax.2 FY 2027 includes a partial year of Measure P revenues and FY 202 8 is the first full year of excluding Measure P revenues from the General Fund revenue totals. The projected revenues also include revenues from the Measure A Sales tax approved by Chula Vista voters in FY 2019. Revenues from Measure A are continued throughout the term of the LTFP as this sales tax does not have a sunset date. General Fund revenues resume the trend of moderate increases from prior years in FY 2029.
General Fund expenditures are anticipated to increase through FY 2027 and decrease slightly in FY 2028 due to the scheduled conclusion of Measure P Sales Tax and the elimination of the related transfers out from the General Fund to the Measure P Sales Tax Fund. In FY 2029, General Fund expenditures are anticipated to resume increasing through the term of the LTFP.
Based on baseline projections required to maintain current service levels in the General Fund , growth in expenditures is anticipated to outpace the growth in revenues from Fiscal Year 20 25 to Fiscal Year 2027
3. This structural shortfall is projected for the first three years of the ten-year LTFP period. As shown on the following summary table, the overall General Fund shortfall is projected to fluctuate beginning in FY 2025 at approximately $2.1 million and ending in FY 2027 at approximately $0.7 million. General Fund surpluses are projected for FY 2028 at $1.1 million through 2034 at $7.5 million.
In development of the LTFP projections, staff reviewed historical budgeted and actual figures, reviewed current data, and researched current financial trends. City staff also worked closely with the economic consulting firm Beacon Economics to develop the economic assumptions and growth rates for Property Tax, Sales Tax, Measure P Sales Tax, and Measure A Sales Tax revenues , as well general economic conditions.
Based on the information collected, continued growth in revenues and expenditures is anticipated throughout the LTFP period; however, staff employed a conservative yet reasonable approach in developing the projections based on City policy . Uncertainty related to several key factors impacting the economy (discussed in detail later in this report) has led staff to moderate revenue and expenditure growth expectations. It should be noted that these projections do not incorporate any economic downturn during the LTFP period , which would likely negatively impact the LT FP projections. Projections within the LTFP will be monitored by staff and re-evaluated based upon future economic activity and available data.
2 Annual revenues generated from the voter -approved Measure P Sales Tax are reflected in the overall General Fund revenue totals (Ordinance No. 3371, Chula Vista Municipal Code Chapter 3.33). R evenues generated from Measure P are transferred from the General Fund into a separate Measure P Sales Tax Fund for monitoring and accountability. 3 Transfers and expenditures/encumbrances (obligations) related to the Measure P and Measure A Sales tax measures equal the projected revenues each year resulting in a net zero impact to the General Fund for these items.
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The following table presents the summary financial forecast for the General Fund for FY 2025 through FY 2034. A detailed table is provided in the Ten-Year Projections section of this document.
Adopted
(In
Millions) Forecasted (In Millions)
FY FY FY FY FY FY FY FY FY FY FY
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Revenues
Major Discretionary
Revenues (1)
$207.3
$221.1
$231.7
$234.2
$219.2
$226.4
$233.9
$241.6
$249.6
$257.8
$266.4
Other Revenues (2) 50.9 50.3 52.0 51.8 52.5 52.8 52.9 53.7 54.5 55.3 56.2 New Development
Revenues (3)
-
2.0 2.7
3.5 3.8
4.0 4.1
4.2 4.4
4.5 4.7
Total General Fund
Revenues $258.2 $273.4 $286.4 $289.4 $275.6 $283.2 $290.9 $299.5 $308.4 $317.7 $327.2 Year-over-Year Change 5.9% 4.7% 1.1% -4.8% 2.8% 2.7% 3.0% 3.0% 3.0% 3.0% Expenditures
Personnel Services
Expenditures
$132.9
$144.8
$153.1
$161.7
$168.6
$175.4
$180.8
$185.6
$190.8
$196.2
$201.5
Other Expenditures (4) 125.3 126.6 127.7 122.0 98.8 99.4 101.4 103.9 106.4 109.6 109.7 New Development
Expenditures (3)
-
4.1 5.7
6.5 7.1
7.4 7.7
7.9 8.1
8.3 8.5
Total General Fund
Expenditures
$258.2 $275.5 $286.6
$290.2
$274.4
$282.3
$289.9
$297.4
$305.2
$314.0
$319.7
Year-over-Year Change 6.7% 4.0% 1.3% -5.4% 2.9% 2.7% 2.6% 2.6% 2.9% 1.8%
General Fund Surplus /
(Deficit)
$0.0
$(2.1)
$(0.2)
$(0.7)
$1.1
$1.0
$1.0
$2.1
$3.2
$3.6
$7.5
Surplus/(Deficit) as a %
of Budget
-0.8% -0.1% -0.3% 0.4% 0.3% 0.3% 0.7% 1.0% 1.2% 2.3%
(1) Major Discretionary Revenues is the total of the following budget revenue categories:
Property Tax, Sales Tax, Measure P Sales Tax, Measure A Sales Tax, Property Tax in lieu of Vehicle License Fees (VLF), Franchise Fees, Transient Occupancy Tax (TOT), and Utility Users’ Tax (UUT).
(2) Other Revenues is the total of the following budget revenue categories: Development Revenue, Licenses and Permits, Fines, Forfeitures & Penalties, Use of Money and Property, Other Local Taxes, Police Grants, Other Agency Revenue, Charges for Services, Interfund Reimbursements, Other Revenues - Miscellaneous, and Transfers from Other Funds. (3) New Development Revenues & New Development Expenditures include revenues and expenditures projected for the Otay Ranch Village 8 West Development, Millenia Library and Bayfront Fire Station anticipated to come online during the LTFP term (4) Other Expenditures is the total of the following expenditure categories: Supplies and Services, Utilities, Other Expenses, Equipment, Internal Services, and Transfers/Debt Service.
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ECONOMIC OVERVIEW
City staff worked closely with an economic consulting firm, Beacon Economics, to develop the economic assumptions and growth rates included in this forecast report. The following economic outlook information for the nation and California was prepared by Beacon Economics.
Highlights – National
U.S. Economy Far From a Downturn – 2023 data shows that the U.S. economy is stronger today than it was a year ago. Gross domestic product ( GDP) growth is solid, job growth is ongoing, industrial production remains near record -highs, profits and wages are rising, and U.S. debt markets are showing little sign of stress.
Still, there are Headwinds – Despite these strengths, Beacon Economics 4 is less optimistic today than
a year ago. The Federal Reserve’s (Fed) excessive $5 trillion in quantitative easing, and the resulting 40% jump in the money supply, created massive government deficits and a large asset bubble. The U.S. economy has weathered rising interest rates over the last year largely because of these imbalances, but increasing rates also imply that inflationary pressures are not behind us, and more Fed tightening is ahead.
Limited Interest Rate Stresses – The sharp rise in the cost of capital is causing signs of stress, particularly in the real estate industry. But that stress has not spread to the debt markets as lending institutions continue to have record-low delinquencies.
National Outlook
A little over twelve months ago, the forecast community began predicting that the U.S. economy would fall into a recession “within a year.” Of the 60 commentators who contributed to the October 2022 Wall Street Journal Economic Forecasting Survey, almost a third said there was a 75% or greater chance of a recession occurring by October 2023. Four out of five said there was a greater than even chance of a recession, while some put the probability as high as 100%, a level of certainty that is, frankly, inappr opriate in economic forecasting. Overall, the average probability in the Journal’s survey has been above 50% for a year. By the beginning of 2023, the media had begun to discuss the expected downturn as if it was a fait accompli. It was not a case of ‘if’ but of ‘when’, and ‘how bad’.
Beacon Economics rejected the hyperbole, never rating the probability of a recession above 20% in the Journal’s survey – one of only two contributing forecasters to be so optimistic over the past year.
That optimism has been largely born out. Even a cursor y glance at 2023 data shows that the U.S. economy is not only far from a downturn but is actually stronger today than it was a year ago. GDP
4 Beacon Economics, LLC is an independent research and consulting firm dedicated to delivering accurate, insightful, and objectively based economic analysis that enables its clients to make informed decisions about investment, growth, revenue, and policy. Established in 2006, Beacon Economics has 15+ years of experience providing economic, revenue, and demographic forecasting services. Beacon Economics is a leader in delivering accurate, rigorously constructed economic outlooks for geographic regions, public revenue, and occupations and industries. Employing proprietary econometric models, Beacon's forecasts are in high demand and have b een used by the California State Controller's Office, Cities and Counties across the Western United States, banks and hedge funds, real estate firms, and major health care organizations.
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growth over the last year has averaged 2.5% seasonally adjusted annual rate ( SAAR), buoyed by solid growth in consumer spending. The nation has seen continued job growth, industrial production remains near record highs, profits and wages are rising, and U.S. debt markets are showing little signs of stress. This picture carries over into the second half of the year. According to the Gross Domestic Product (GDP)Now estimate from the Atlanta Fed, growth in the third quarter of this year could reach between 5% and 6%.
Perhaps more telling is that Beacon’s best leading indicators suggest little change in the current trajectory. Manufacturing orders remain high even while inventories for key goods like autos remain low. Housing permits and starts have stabilized at non-recession levels, and the job openings rate remains well above normal. Moreover, despite the occasional news story about rising credit card debt, overall household finances look healthy and net worth has recovered from last year’s decline. While overall levels of household debt are growing slowly, debt burdens remain low, and the consumer savings rate has started to rise despite a steady growth in spending. Amusingly, the headlines are now trumpeting the economy’s ‘near miss’. The reality is that there was ve ry little to hit in the first place. Beacon can comfortably predict that the Wall Street Journal’s recession probability estimate will begin to fall over the next twelve months. We are out of the woods.
Real Gross Domestic Product
The chart below from the US Bureau of Economic Analysis displays recent quarterly results of gross domestic product (GDP), an economic indicator of growth. Advance r esults for the third quarter (Q3) of 2023 were a four and nine- tenths percent (4.9%) annual rate from the preceding quarter, up from the second quarter (Q2) results of two and one -tenths percent (2.1%) , and two percent (2.0%) for the first quarter (Q1 ). Continued positive growth each quarter generally allays economists’ concerns that a recession is forthcoming. T he Federal Reserve will be closely monitoring this strong economic growth in its policy decisions to reduce inflation. An economic slowdown may be incoming.
GDP: Percent Change from Preceding Quarter5
5 Bureau of Economic Analysis. Gross Domestic Product, Third Quarter 2023 (Advance Estimate). Accessed 26 Oct 2023 at:
https://www.bea.gov/news/2023/gross-domestic-product-third-quarter-2023-advance-estimate
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Highlights – California
California Adds Jobs – California has added more than 440,000 jobs since the trough of the pandemic, but that translates to just 2.5% growth. In other words, California’s job gains are largely a function of its size.
Labor Force Still Below Pre- Pandemic Peak – There are still roughly 168,000 fewer workers in California’s labor force than there were before the pandemic, a 0.9% decline. In contrast, the national labor force has grown by about 2.7 million workers.
New Household Formation Exacerbating Housing Crisis – Confoundingly, from 2020 to 2023, California lost about 600,000 people but added about 263,000 new households. The number of people per household also declined from 2.86 to 2.77.
California Outlook
California continues to be a national leader in jobs creation. In the period of economic expansion following the pandemic -induced recession, the Golden State has added more than 440,000 jobs, according to the latest employment figures from the Bureau of La bor Statistics (BLS). In fact, California ranks third overall in terms of jobs added since the pandemic, behind only Florida and Texas. Nonetheless, the 440,000 jobs added translates to just 2.5% growth since the start of the pandemic, which reflects the fact that California’s job gains are largely a function of its size. Which is to say, relatively modest employment growth translates to a large number of new jobs.
The major underlying factor constraining jobs growth in California is the state’s chronic housing shortage. Between 2013 and 2023, the Golden State is on track to add around three million jobs, but only authorize about 1.2 million residential building perm its. The huge discrepancy between housing supply and jobs added has made California one of the most expensive housing markets in the country. Beacon Economics believes that these soaring housing costs are part of the reason why the state’s labor force has yet to rebound to pre- pandemic levels despite the national labor force returning to growth over a year ago.
Rapidly rising interest rates have further exacerbated California’s housing shortage, as existing homeowners locked into historically low mortgage rates are either unwilling or financially unable to sell. Beacon Economics expects this ‘lock-in’ effect and increasing cost of a mortgage to weigh on home sales in the near future. Seasonally adjusted existing home sales declined 5.9% and 5.7% in June and July, respectively. On a year-over-year basis, home sales have declined for 23 consecutive months stretching back to August 2021. Most recently, home sales fell 22.6% and 9% year -over- year in June and July, respectively, and are still about 33% below their pre- pandemic peak of February 2020.
Meanwhile, median home prices have come down from their pandemic surge, falling 10.6% from their peak in April 2022 to February 2023. However, home prices appear to have bottomed out, returning to growth on a monthly basis in March 2023, and registering year -over-year growth for the first time since September 2022 in July 2023. As of July, prices are about 33% above the pre- pandemic peak, and only 6.4% below the pandemic peak. At the pace of growth seen during the past five months, California home prices will surpass their pandemic peak in the first quarter of 2024.
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KEY ASSUMPTIONS
The LTFP prepares revenue and expenditure forecasts based on:
• Current expenditure spending
• Revenue collection trends
• Historical budgetary performance
• Prevailing general economic conditions
• External experts in economic forecasting
• Department input
The LTFP revenues and expenditure forecasts include the following key assumptions:
Baseline Revenues and Expenditure
• The LTFP utilizes the FY 2024 Adopted Budget as the basis for future year forecasted revenues and expenditure growth.
• Future year forecasted figures are adjusted with anticipated growth rates and other inputs based on the FY 2024 Adopted Budget, economic conditions, local development activity, one - time revenues and expenditures, and other factors.
Staffing
• The LTFP maintains current staffing and service levels throughout the term of the plan. No new staffing was included in the projections except for necessary staffing for new facilities becoming operational within the Plan period. The projected expenditures for the additional staff for the new Otay Ranch Village 8 West and Bayfront Fire Stations are included in the New Development Expenditures category as these positions will be necessary to operate the new facilities accommodating City growth.
New Revenues
• No projections or assumptions are included related to future ballot measures.
Healthcare Costs
• The City participates in ongoing discussions with the City’s labor groups to manage affordability, while maximizing options for City employe es. Due to a constantly changing healthcare environment at the local, state, and national levels , monitoring costs, and exploring alternative cafeteria benefit designs is recommended.
Debt Issuances for Capital Projects
• The LTFP does not include any future debt issuances for capital projects , including beyond the sunset of the Measure P Sales Tax, the ten- year, voter-approved half-cent sales tax to fund high priority infrastructure needs.
Retirement
• Projected normal costs for the California Public Employees’ Retirement System (CalPERS) for the annual cost of service accrual are included in Retirement expenditures . The LTFP also FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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includes the projected Unfunded Actuarial Liability (UAL) expense for the period of the LTFP based on updated personnel services expenditures under current labor agreements as well as assumptions from the City’s actuary. As discussed later in the report, the Section 115 Trust Fund is available to pay current and future UAL costs that may arise in subsequent fiscal years.
Pension Obligation Bonds & Pension Reserve Fund
• Debt service for the 2021 Pension Obligations Bonds during the LTFP period is included in the Transfers/Debt Service expenditure category.
• Consistent with goals of the Pension Reserve, City Council Policy (220-09), contributions to the Pension Reserve Fund’s IRS Section 115 Trust are scheduled th roughout the ten-year period of the LTFP. Under the current Pension Reserve Policy , the contribution to the Section 115 is scheduled to end in FY 2031.
New Development
The City generally expects to collect additional revenues and expend additional resources as the City grows and develops new residences and businesses. The General Fund benefits from the additional revenues which fund a portion of the costs associated with new development based on available resources, policy goals, development agreements and other factors. Staff included several key new development factors in the LTFP based on planned commitments, project status, contractual obligations/terms and General Fund impac t. The LTFP was developed based on information available and known at the time of the preparation of the report.
• Otay Ranch Village 8 West SPA (Sectional Planning
Area) is currently being developed by HomeFed and
will include over 2,300 new residential units at
completion. A new fire station and expanded City
services are anticipated in the next fiscal year. Costs for operating the project’s neighborhood parks will be
borne solely by the developer. The LTFP includes
projected City revenues as well as expenditures for Otay Ranch Village 8 West starting in FY 2024 and through
the term of the LTFP as projected by a fiscal impact
analysis from the City’s Finance and Development
Services Departments. These figures are estimates; staff will update the LTFP when additional information is
made available.
Figure 1 Otay Ranch Village 8 West
FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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• Otay Ranch Village 8 West Fire Station & Bayfront
Fire Station: In accordance with the City’s Master Fire Facility Master Plan to address City growth and Fire
Department facilities and service needs, operating costs for two additional fire stations are included in the Plan.
The Otay Ranch Village 8 West Fire Station is assumed
to be operational in Summer 2024, consisting of one
engine company and a temporary facility . Permanent
facility costs are anticipated to be financed from the
Public Facilities Development Impact Fees (“PFDIF”)
Fund. The Bayfront Fire Station is assumed to be
operational in late 2024, with two engine companies. A portion of operating costs (73.6%) will be funded by Bayfront Project revenues. Facilities costs will be jointly funded by the PFDIF and one-time other non-General Fund monies.
• Millenia Library: The City of Chula Vista broke ground on an $89 million, 168,000-square-foot Library project on September 25, 2023, adding the City’s first new library built since 1995. The library will be located in the underserved area of east Chula Vista, which has experienced significant population growth in recent years, and aims to meet resident, industry and academic needs. Project plans include expanded library space, office space for lease, a passport office, a small business resource center, and space for community gatherings. This project facility is funded partially by a $30 million grant from the
California State Library Targeted State Grant Program.
The Plan currently includes an estimate f or operating costs for the Millenia Library in East Chula Vista
starting in FY 2025. Staff will update the Plan with
additional information on revenue and expenditures
for this facility as it becomes available.
Figure 3 Millenia Library rendering
Figure 2 Gaylord Bayfront Convention Center
rendering
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MAJOR REVENUES AND EXPENDITURES
The following contexts and assumptions were used in the preparation of the ten-year projections of General Fund revenues and expenditures.
REVENUES
The City’s major revenue sources include: Property Tax, Sales Tax, Measure P Sales Tax, Measure A Sales Tax, Property Tax in lieu of VLF , Franchise Fees, Transient Occupancy Tax (TOT), and Utility Users’ Tax (UUT). The listed revenues account for approximately $207 million, or 80.3%, of the City’s General Fund projected revenues for the FY 2024 Adopted Budget. These revenues are categorized as general revenues, or “major discretionary revenues,” broadly defined as revenues that are generated not by any given government activity, but by general or specific taxing authority, such as a local sales tax measure (Measure A and Measure P) or state law (Property Tax). Discretionary funds are generally not restricted as to use, and fund the majority of the City’s core, day -to-day and long -term operating expenses . The following are brief descriptions of the major General Fund revenue sources.
Property Tax
Property tax revenue is generated from a 1% ad valorem tax on “real property” (land, buildings, and other permanent structures/improvements), based upon the assessed value of the property within the City as certified by the County of San Diego Assessor . Property tax revenue is the City’s most stable revenue source and is generated from both residential and commercial property . The chart below shows the distribution of property tax dollars by the County amongst various jurisdictions.
Property Tax Dollar Distribution by Jurisdiction
Figure 3 Tax Allocation Chart – San Diego County Treasurer-Tax Collector For FY 2025 , property tax revenue is projected to total $ 52.0 million, a $ 3.7 million increase, or seven and eight-tenths (7.8%) from the FY 2024 Adopted Budget, based on updates from the County property tax roll and forecasts from Beacon Economics.
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Beacon Economics Analysis and Forecast
The underlying market dynamics and broader economic trends driving Chula Vista’s housing sector in 2023 have been volatile and, at times, contradictory – waning inflation; climbing mortgage rates; uncertainty over future Federal Reserve policy; a rebounding stock market; credit tightening; low but modestly rising unemployment; and a ho using shortage that continues to plague both the city, region, and overall state.
The median sale price for existing single-family homes in Chula Vista dropped 2.5% and 2.0% year- over-year in the first and second quarters of 2023, respectively. While higher mortgage rates and plummeting sales have caused price declines, home prices have not collapsed, and Beacon Economics does not expect a housing market rout. House price depreciation will be limited due to the region’s chronic housing shortage (sales have declined, but inventory is extremely low, keeping the balance of supply and demand relatively intact). For 2023, Beacon Economics projects home price growth of 1.4% in Chula Vista.
While home prices have declined in recent quarters, the median sale price in Chula Vista is still significantly higher than the pre-pandemic peak and is not expected to fall below that peak. In other words, the interest rate-driven decline in sales and prices is partially a deflating pandemic housing bubble, with home prices reverting to pre-pandemic trends.
As shown in the chart below, the City’s assessed value has increased steadily since FY 2014, and this positive trend is anticipated to continue into FY 2025. The latest assessment for Chula Vista has AV rising 6.6% for FY 2023-24. While this growth is by no means weak, it is a marked slowdown from the 8.3% surge in AV during the prior fiscal year. The hot post- pandemic housing market that spurred rapid growth in FY 2022-23 has since cooled significantly due to higher mortgage rates and falling home sales. Although 2024 will see the beginnings of a thaw in the housing market, overall conditions will remain mostly weak. As such, Beacon Economics expects 5.0% growth in AV for FY 2024-25, the slowest growth in AV since FY 2013-14.
Historical Change in Assessed Value
City of Chula Vista and Countywide Comparison
-2%
0%
2%
4%
6%
8%
10%Percent Change
Chula Vista County Overall
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Property Tax Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 7.8% 6.4% 5.9% 5.7% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Projection 48.3
52.0 55.4
58.7 62.0
64.5 67.1
69.7 72.5
75.4 78.4
The LTFP includes a seven and eight-tenths percent (7.8%) increase in property tax revenues in FY 2025 and a terminal growth rate in Fiscal Years 2029 through 2034 of four percent ( 4.0%) throughout the remaining term of the LTFP based on expected moderate growth in property values.
Although property tax growth is limited by Propositions 13 and 15 (tax rate of 1% of assessed property value with a 2% annual increase cap), an increase in property sales will grow property tax revenues as property values are re-assessed to market rate. In addition to the increase in property tax base from property sales, the City is continuing to see new residential and commercial development resulting in additional property tax.
Property Tax in lieu of Vehicle License Fee (VLF)
VLF revenues are generated from vehicle license fees paid with vehicle registrations to the State of California Department of Motor Vehicles; fees are then allocated back to cities and counties. With the State Budget Act of 2004, the allocation of VLF revenues to cities and counties were substantially changed, permanently reducing the VLF tax and increasing transfers of property tax funds from the State in lieu of VLF. Since 2006, the majority of VLF revenues for each city grew essentially in proportion to the growth in the change in gross property assessed valuation. Due to the new formula by the State, ninety-six percent (96%) of the City’s VLF revenues fluctuated with changes in assessed property values within the City. As such, this revenue category reflects $31.2 million Property Tax in lieu of Vehicle License Fee revenues for FY 2025, a five and five-tenths percent (5.5%) increase in comparison to the FY 2024 Adopted Budget, and a terminal growth rate in Fiscal Years 2029 through 2034 of four percent (4.0%) throughout the remaining term of the LTFP based on expected moderate growth in property values, similar to the Property Tax Revenue category.
Property Tax in lieu of Motor Vehicle License Fees (MVLF) Ten-Year Forecast ($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 5.5% 6.4% 5.9% 5.7% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Projection 29.5
31.2 33.2
35.1 37.1
38.6 40.2
41.8 43.4
45.2 47.0
Sales and Use Tax (Sales Tax)
The Bradley-Burns Uniform Local Sales and Use Tax (Sales Tax) tax revenue is generated from a percentage tax imposed on the sale of retail goods and services that occur within the City of Chula Vista. Sales tax revenue is highly sensitive to economic conditions, and reflects the factors that drive taxable sales, including levels of unemployment, consumer confidence, per -capita income, and business investment. The total citywide sales tax rate is 8. 75%, of which the City’s General Fund FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
Page | 14
receives 1.0% of all the sales transactions within the City , not including the City transaction taxes for Measure P and A. The table below shows the distribution of sales tax for the City of Chula Vista.
City of Chula Vista Sales Tax Rate Breakdown
The General Fund sales tax revenue is anticipated to be approximately $48.0 million in FY 2025, a six and eight- tenths percent (6.8%) increase in comparison to the FY 2024 Adopted Budget. The Sales Tax revenues category represents the second largest revenue source for the City ’s General Fund.
Beacon Economics Analysis and Forecast
On a regional level, San Diego County’s major industries include military/government, research/professional services, manufacturing, and tourism. Since the start of the pandemic, employment trends in these essential industries have been mixed. For example, while professional and technical services employment has grown 10.7% since February 2020, government employment is flat, and manufacturing employment is down 1%. What’s more, pay rolls in leisure and hospitality and retail are down 0.1% and 4.2%, respectively. In the tight post- pandemic labor market, employers, especially in retail, may have over -hired to prepare for potential further rapid growth. As such, Beacon Economics believe s some of these declines reflect an easing of the labor market, combined with uncertainty about future demand.
After surging more than 20% in fiscal year (FY) 2021-22, taxable sales growth in Chula Vista slowed to 3.4% in FY 2022- 23. Further weakening in taxable sales growth is expected in the short run as the labor market cools, unemployment ticks up, pandemic sav ings dry up, and overall economic headwinds spur consumers to dial back spending. However, Beacon Economics expects a correction and softening in consumer spending, not a collapse. Indeed, while part of the projected slowdown in the near term is due to economic headwinds, slower near-term growth is also a function of coming off of skyrocketing gains in FY 2021-22. Accordingly, Beacon Economics expects sales tax revenues to accelerate modestly through the latter half of the forecast period as the economy moves through State General Fund (includes K-12/Community Colleges) 3.94% Public Safety (Prop 172) 0.50%
County Realignment (Mental Health/Welfare/Public Safety) 1.56% Countywide Transportation Fund 0.25%
San Diego County Regional Transportation Commission
(TransNet) 0.50%
State and County Subtotal 6.75%
Local Jurisdiction (City or County of place sale/use) (City Share) 1.00%
City Transaction Tax (Measure P) 0.50%
City Transaction Tax (Measure A) 0.50%
City Subtotal 2.00%
Total Sales Tax Rate – Chula Vista 1 8.75%
1 Total sales tax rates w ill vary by City due to local sales tax initiatives.
FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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the current business cycle and the labor market and consumer spending revert to long-run trends.
Sales Tax Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 6.8% 3.8% 4.2% 4.3% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Projection 45.8
48.9 50.8
52.9 55.2
56.8 58.5
60.3 62.1
64.0 65.9
Based on information provided by Beacon Economics, t he LTFP assumes a six and eight- tenths percent ( 6.8%) growth factor for FY 2025 as compared to the FY 2024 Adopted Budget, and a terminal growth rate in Fiscal Years 2029 through 2034 of three percent (3.0%) throughout the remaining term of the LTFP. Inflation may impact this revenue source further as rising prices would generate additional revenue; however, increased prices may also decrease sales of goods and services in the long -term. Staff engages an outside consultant HdL to assist in the current year monitoring and projections for all sales tax related revenues and will monitor this revenue source for updates to the Plan.
Measure P Sales Tax
In 2016, voters approved the Measure P Sales Tax Measure which established a temporary ten-year ½ percent sales tax rate upon sales within the City (which is included in the total 8.75% tax rate) .
The Measure P Sales Tax revenue is restricted for supporting repair and replacement of City infrastructure. While the revenue generated from the Measure P Sales tax is collected in the General Fund, the General Fund transfers this revenue to the Measure P Sales Tax Fund for accountability and transparency in the usage of these funds. These actions result in an overall net zero impact to the General Fund. For FY 2025, Measure P Sales Tax revenue is projected to total $ 30.1 million, a $2.3 million increase, or eight and three-tenths percent increase from the FY 2024 Adopted Budget.
Measure P Sales Tax Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 8.3% 3.8% (21.9)% - - - - - - -
Projection 27.8
30.1 31.3
24.4 - - - - - - -
Based on information provided by Beacon Economics, the LTFP assumes an eight and three-tenths percent (8.3%) growth factor for FY 2025 as compared to the FY 2024 Adopted Budget. Collection of Measure P sales tax revenues is scheduled to end on March 31, 2027 based on the ballot measure approved by the voters.
Measure A Sales Tax
In 2018, voters approved the Measure A Sales Tax Measure which established a ½ percent sales tax on goods and services sold within the c ity to support local public safety needs. This increase d the overall sales tax rate to 8.75% as of October 1, 2018, and the ½ percent sales tax will continue until repealed by voters. The Measure A Sales Tax revenue is restricted for supporting the public safety FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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needs of the City. While revenue is collected and tracked within the General Fund, the General Fund transfers this revenue to the Measure A Sales Tax Fund for accountability and transparency in the usage of these funds. Separate accounts (one for the Fir e department and one for the Police department) were established to support the monitoring and allocation of these funds. These actions result in an overall net zero impact to the General Fund. For FY 2025, Measure A Sales Tax revenue is projected to total $30.1 million, a $2.3 million increase, or eight and two-tenths percent (8.2%), from the FY 2024 Adopted Budget.
Measure A Sales Tax Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 8.2% 3.8% 4.2% 4.3% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Projection 27.9
30.1 31.3
32.6 34.0
35.0 36.0
37.1 38.2
39.4 40.6
Based on information provided by Beacon Economics, the LTFP assumes a eight and two-tenths of a percent (8.2%) growth factor for FY 2025, and a terminal growth rate in Fiscal Years 2029 through 2034 of three percent (3.0%) throughout the remaining term of the LTFP.
Franchise Fees
Franchise fees are revenue generated from agreements with private utility companies in exchange for use of the City’s rights -of-way. Franchise fees are collected from three primary sources: San Diego Gas & Electric (2% on gas and 1.25% on electricity), Republic Services trash collection franchises (20% fee), and AT&T and Cox Communications cable franchises (5% fee).
For FY 20 25, total franchise fee revenue is projected to be $ 15.1 million, a $0.3 increase, or two percent (2.0%) from the FY 2024 Adopted Budget . The LTFP anticipates these revenues, in the aggregate, to grow slightly over the term of the plan, at a rate of two percent (2.0%).
Franchise Fees Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Projection 14.8
15.1 15.4
15.7 16.0
16.3 16.7
17.0 17.3
17.7 18.1
Transient Occupancy Tax (TOT)
TOT is a tax imposed on occupants of hotel and motel rooms and short-term rentals within the City.
The current TOT tax rate in the City is 10%. Major economic drivers for TOT revenue include room rates, average occupancy rates, and seasonal and non-seasonal tourism. The City of Chula Vista has experienced strong growth in TOT in recent years with a string of new hotel developments on both the west and eastern portions of the City as well as an expansion of the short-term rental compliance program. Additionally, it is important to note that the TOT revenue generated from the RV Park in the Bayfront area is transferred out from the General Fund to the Bayfront Lease Revenue Fund.
FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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During the height of the COVID-19 pandemic, TOT revenues dropped 3.6% in FY 2021 from FY 2020 TOT revenues. In FY 2022, TOT revenues rebounded, increasing by nearly 42% from FY 2021, and 50% from pre-pandemic levels (FY 2019). In FY 2023, TOT revenues again significantly increased, by 19%, from FY 2022. Staff will monitor this revenue category closely for updates to the LTFP, particularly if a recession were to occur as travel would likely be impacted by declines in consumer confidence and spending.
Transient Occupancy Tax
Fiscal Year 2019 to Fiscal Year 2024
It is anticipated that TOT revenues will continue to increase as a result of new hotels being developed within the City over the next several years. Staff expects the Gaylord Pacific Resort & Convention Center project to bring renewed interest in business, recreation and other activity to the Chula Vista Bayfront and surrounding areas. As additional projects advance through the development process, staff will update the LTFP to include additional General Fund impacts.
For FY 2025, TOT revenue is projected at $9.8 million, a $ 0.5 million increase, or four and seven - tenths percent (4.7%), from the FY 2024 Adopted Budget.
Transient Occupancy Tax Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 4.7% 7.8% 2.6% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Projection 9.3
9.8 10.5
10.8 11.0
11.3 11.5
11.7 11.9
12.2 12.4
The LTFP projects a four and seven-tenths percent (4.7%) growth rate for all TOT revenues in FY $4.3 $4.1 $4.6
$6.4 $7.2 $7.5 $0.1 $0.1
$0.2
$0.9 $0.8
$0.2 $0.3 $0.6
$0.8
$0.7 $0.8
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Adopted
Millions
TOT Short-Term Rentals TOT RV Park TOT
FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
Page | 18
2025, and seven and eight -tenths percent growth (7. 8%) growth in FY 2026 based on confirmed hotel developments within the development pipeline . From FY 2028 through FY 2034, growth is moderate, projected at two percent (2.0%) growth . Projections will be updated as planning and development processes advance, and new hotels begin operations.
Utility User Tax (UUT)
The City adopted its Utility Users Tax (UUT) in 1970. The City of Chula Vista imposes a UUT on the use of telecommunications (cable, telephone) at the rate of 4.75 % of gross receipts. The UUT on natural gas services is $0.00919 per therm and $0.00250 per kilowatt on electricity services, which equates to approximately a 1% tax. City staff recently conducted an analysis to project revenues for each utility type; technology, consumer behavior and legislative changes have positioned this revenue category as less secure over the long -term with nearly flat growth. For FY 2025, revenues are projected to total $ 3.9 million, one-half percent (0.5%) increase over the FY 2024 Adopted Budget. The LTFP assumes a one-half (0.5%) percent annual increase throughout the term of the plan.
Utility Users’ Tax Ten Year-Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% Projection 3.8
3.9 3.9
3.9 3.9
3.9 4.0
4.0 4.0
4.0 4.0
FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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EXPENDITURES
The City’s major expenditure categories include: Personnel Services, Retirement Benefits, and Health Insurance. These expense categories account for approximately $ 132.9 million or 51.5% of the City’s General Fund projected expenditures for FY 2024. The following are brief descriptions of the listed expenditure categories.
Personnel Services (Salaries/Wages)
Since the last economic recession, the City has focused on recovering its staffing levels to support City services. For FY 202 4, the total A dopted Budget General Fund staffing is 895.75 Full Time Equivalents ( FTEs). For FY 202 4, personnel costs, including salary/wages but not including retirement benefits or health insurance, were adopted at $108.9 million. This staffing level is assumed to be ongoing and extrapolated out through the remainder of the Plan as the new Personnel Services baseline budget. The projected Personnel Services costs for FY 2025 are $113.7 million, a n increase of $5.3 million, or four and nine-tenths percent (4. 9%), over the FY 202 4 Adopted Budget.
Adopted Budget General Fund Staffing
Fiscal Year 2019 to Fiscal Year 2024 (in FTEs)
Personnel Services Expenditures Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth Rate - 4.8% 4.9% 4.9% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% Projection 108.9
114.1
119.7
125.5
129.1
132.7
136.5
140.3
144.3
148.4
152.6
844.25
826.25
846.75 850.25
867.75
895.75
780
800
820
840
860
880
900
920
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Adopted
Full-Time Equivalent (FTE)
FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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The LTFP includes the annualized costs of negotiated salary increase approved per the current Memorandum of Understanding (MOU) with each of the City’s employee groups. The MOUs vary in negotiated salary annual increases and vary in duration until they expire. Beyond the expiration of the current MOUs, the LTFP assumes wage inflation for each bargaining group.
Health Insurance
The City currently offers qualified benefitted employees four medical plan options: Aetna Sharp Accountable Care Organization (ACO), Aetna Full Network HMO, the Aetna PPO, and Kaiser Health Maintenance Organization (HMO). For FY 202 5, health insurance expenses are projected to total approximately $15.0 million. This represents an increase of $0.8 million or five percent (5.0%) from the Fiscal Year 2024 Adopted Budget. The expected growth rate for health care insurance costs is five percent (5.0%) through the term of the LTFP.
Health Insurance Expenditures Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth
Rate - 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Projection 14.2
15.0 15.7
16.5 17.3
18.2 19.1
20.0 21.0
22.1 23.2
Retirement Benefits
California Public Employees’ Retirement System (CalPERS) The City contracts with CalPERS retirement benefits for all full-time benefitted employees. The City has two employee retirement plans ( Miscellaneous and Safety), each with three tiers of employees based upon their start date within the CalPERS system and the City of Chula Vista. The Miscellaneous plan covers all qualified City employees except those which are considered public safety employees (sworn Fire and Police personnel ). The Public Safety plan covers all qualified public safety employees.
Normal Costs & Unfunded Accrued Liability
The Normal Costs and unfunded accrued liability (UAL) and payment amounts are used to calculate the City’s fiscal year pension contribution amounts. The City’s Normal Cost to CalPERS is the required employer contribution for the annual cost of service accrual for the upcoming fiscal year for active employees. This is the amount of funds the City will need to contribute for the current fiscal year towards pension costs. For FY 2025 , the required estimated employer Normal Cost contributions for the Miscellaneous [Employees] and Public Safety [Employees] plans total $16.1 million. For FY 2025 the UAL is $2.6 million based on assumptions from CalPERS and current labor agreements.
Pension Obligation Bonds
In February 2021, the City issued $350 million in pension obligation bonds (POBs) at historically low interest rates of 2.54% to refund the UAL based on the CalPERS Actuarial Valuation as of June 30, 2019. The issuance of the POBs provides the City several benefits, including: (1) generating cash FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
Page | 21
flow savings to the City through historically low interest rates relative to the CalPERS discount rate assumption; (2) creating a repayment shape for the City’s pension liabilities that increases more gradually than currently mandated by CalPERS; (3) enhancing budget predictability and long-term fiscal sustainability by creating a smoother repayment shape at a lower level; (4) leveraging the projected savings to adequately fund various reserves; and, (5) setting aside a portion of the future savings into a Section 115 Trust a Fund established in 2021 to mitigate future pension and OPEB cost increases.
Currently these pension cost savings are being set aside in an Internal Revenue Code Section 115 pension trust fund which will help mitigate future increases from pension and other post- employment benefits costs, such as a new UAL. , Notably, the POBs were issued with a Standard and Poor’s Global Ratings extremely strong ‘AA’ credit rating.
The City’s pension actuary consultant Gov Invest recently prepared an analysis for the City that compares the funding status of the City’s CalPERS plans before and after the issuance of the POBs.
The funded status is based on the market value of assets relative to the funding target produced by the entry age actuarial cost method and actuarial assumptions adopted by the CalPERS board. For the year ended June 30, 2021, the City’s plans were 109.5% funded after the issuance of the POB.
Prior to the POB the estimated plan funded status would have been at 78.0%. F or the year ended June 30, 2022, the City’s plans are 93.4% funded, a decrease from the year prior due to poorer than expected investment performance and other factors.
The following table shows the City’s General Fund total retirement costs and Section 115 Trust contributions since FY 2019.
Total General Fund Retirement Costs & Section 115 Trust Contributions
CalPERS valuation reports also provide the City with a five-year projection of future employer contribution amounts that the City utilizes in making long-term projections. Based on the projections within the valuation reports, the City’s General Fund retirement contributions toward its normal costs are projected to increase significantly in FY 2025 followed by increases through the remainder of the LTFP period, shown in the table below.
$27.1 $29.9 $31.8
$11.7 $12.7 $14.9
$10.8 $11.7 $9.1
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024
Adopted
Millions
Retirement Costs Section 115 Trust Contributions
FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
Page | 22
Retirement Expenditures Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth
Rate - 8.0% 2.3% 2.6% 2.3% 0.4% -0.2% 0.4% 2.1% 2.0% 0.7%
Projection 14.9
16.1 16.5
16.9 17.3
17.3 17.3
17.4 17.8
18.1 18.3
As a result of CalPERS recent investment performance and policy changes, new unfunded pension liabilities (UAL) as well as increasing normal pension costs are projected. The following table shows the City’s estimated pension (normal cost) and UAL costs, as well as the estimated Section 115 trust contributions and use of funds to cover the UAL costs.
Estimated Pension and UAL Costs
(In Millions)
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Normal Cost (Estimated) 16.1 16.5 16.9 17.3 17.3 17.3 17.4 17.8 18.1 18.3 UAL Cost (Estimated) 2.6 4.4 6.1 8.3 10.6 11.5 11.5 11.5 11.5 11.5 Total Est. Pension Cost 18.7 20.8 22.9 25.6 27.9 28.8 28.9 29.2 29.6 29.7
Section 115 Contribution 1 12.0 11.9 12.5 13.1 13.6 14.2 14.4 14.4 14.4 14.4 Section 115 Est. Usage (2.6) (4.4) (6.1) (8.3) (10.6) (11.5) (11.5) (11.5) (11.5) (11.5) Transfer Out to
Section115 9.4 7.6 6.5 4.8 3.0 2.7 2.9 2.9 2.9 2.9
1 The table assumes that the contributions will continue for the duration of the LTFP. Under the current Pension Reserve Policy, the contribution to the Section 115 is scheduled to end in FY 2031.
Part-Time Employees Retirement Benefits
Part-time employees receive retirement benefits through Public Agency Retirement System (PARS).
PARS is an alternative to Social Security for Part- Time, Seasonal, and Temporary employees. The City and employees both currently contribute 3.75 % of salary towards the PARS contribution amount of 7.5%, which is a defined benefits plan.
Supplies and Services
The Supplies and Services category includes expenditures for contracted (professional) services, software, equipment, and other materials. For FY 2025, the projected Supplies and Services costs are $24.6 million, a two and four-tenths percent (2.4%) decrease over the FY 2024 Adopted Budget.
The significant increase in FY 2024 is related to several one-time expenditures , including $2.0 million for a special election, interim City Attorney Office services costs of $0.88 million, as well as a $1.1 million increase in insurance costs . These costs and any other expenditures designated as one-time are removed from the baseline budget and are not extrapolated to future years of the FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
Page | 23
forecast.
The LTFP assumes a terminal growth rate in Fiscal Years 2030 through 2034 of one and nine-tenths percent (1.9%) throughout the remaining term of the LTFP. This rate is consistent with the assumed annual rate of inflation per the Federal Reserve policy goal of two percent (2.0%) inflation, for most supplies and contracted services in this category.
Supplies & Services Expenditures Ten-Year Forecast
($ In Millions)
FY 2024
Adopted
FY
2025
FY
2026
FY
2027
FY
2028
FY
2029
FY
2030
FY
2031
FY
2032
FY
2033
FY
2034
Growth
Rate - -2.4% 2.2% 2.6% 2.6% 2.7% 1.9% 1.9% 1.9% 1.9% 1.9%
Projection 25.2
24.6 25.2
25.8 26.5
27.2 27.7
28.3 28.8
29.4 29.9
FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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CAPITAL EXPENDITURES
To identify the City’s infrastructure and capital needs, the City developed an asset management plan. The asset management plan inventoried all City infrastructure and property assets, conducted condition assessments on each asset, prioritized the assets by risk level and importance, and performed a life cycle cost assessment. This information allowed the City to develop a cost estimate for the capital improvement program. The asset management plan sorted the City assets into three categories: red (high risk), yellow (medium risk ), and green (low risk). This allows for the City to make necessary decisions on each asset (repair, replace, renovate, liquidate, shut down, relocate, etc.), and to budget available resources towards the repair and replacement of these assets.
In light of the projected costs to repair and replace the City’s capital assets, the City Council placed a temporary ten- year ½ percent sales tax measure (Measure P) on the November 2016 ballot to address the high priority capital needs. In November 2016, Chula Vista voters approved Measure P.
The sales tax was projected to generate $178 million in additional revenue over the ten-year period.
To guide the expenditure of these revenues, the City developed the Intended Infrastructure, Facilities and Equipment Expenditure Plan (IFEEP) based on information from the City’s asset management plan. As the Measure P Sales Tax has a limited term, the IFEEP focuses on critical one- time items to address deferred maintenance and improve the safety of the City’s infrastructure. As the IFEEP focuses on one- time allocations, any additional operating costs for new or improved facilities, such as fire stations, will need to have an alternative funding source. Examples of ongoing operational costs include additional staff or increased utility costs.
The LTFP includes the Measure P revenues as General Fund revenues . These revenues are paired with a corresponding transfer out of the General Fund to the Measure P fund. The transfer of the funds provides for accurate monitoring of the allocation and expenditure of these funds to ensure compliance with the original intent of the sales tax measure. The corresponding transfer results in a net zero impact to the General Fund. The LTFP includes minimal capital expenditures beyond those anticipated to be funded through Measure P funding. Information on Measure P allocations and projects can be found on the City’s website:
https://www.chulavistaca.gov/departments/engineering.
General Fund alternative funding sources, such as grants and transportation funds, support the City’s capital program. However, as the LTFP only addresses the General Fund, these resources and expenditures are not included in this report. Additional information related to the City’s capital program and funding sources can be found on the City’ website:
https://www.chulavistaca.gov/departments/public-works/projects.
OUTSTANDING CITY DEBT
The City has three outstanding Certificates of Participation (COP) that are funded with General Fund contributions, Public Facilities Development Improvement Funds (PFDIF), and/or the Residential Construction Tax Funds (RCT). The Chula Vista Public Financing Authority (CVPFA) outstanding COPs consist of the 2014 Refunding COP, the 2015 Refunding COP, and the 2016 Refunding COP.
These COPs have refunded the outstanding principal of various earlier COPs which were used to fund the construction of the City’s Police Facility, Civic Center improvements, Corporation Yard, FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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Western Chula Vista Infrastructure projects, and Nature Center Improvements.
In addition to the outstanding COPs, the City has four outstanding lease revenue bond issuances (LRBs), including lease revenue refunding bonds (LRRBs), previously refunded (refinanced). These include: the Chula Vista Municipal Financing Authority ( CVMFA) 2016 Lease Revenue Refunding Bonds (2016 LRRBs); the 2017 Lease Revenue Bonds (2017 LRBs ); and the New Clean Renewable Energy Bonds Series 2017A and Series 2017B LRBs . The 2016 LRRBs refunded earlier COPs that were used to fund Civic Center and Corporation Yard improvements. The 2017 LRBs (Measure P) were issued to finance infrastructure, facilities, and equipment; and t he 2017A and 201 7B LRBs were issued to finance photovoltaic (solar) energy systems at various City facilities. Funding from the Measure P sales Tax will address the annual debt service for the 2017 LRBs.
In 2021, the City issued approximately $350 million in Pension Obligation Bonds (POBs) to finance the UAL balance based on the CalPERS Actuarial Valuation as of June 30, 2019 . More discussion on POBs is provided in the Expenditures section of this document.
While the City has several outstanding bond issuances, the General Fund’s portion of the annual debt service payments is approximately $ 17.3 million for FY 2024. This represents approximately
6.7% of the General Fund revenues for FY 202 5. Minimizing the annual General Fund debt service payments supports maintaining flexibility within the General Fund , as a low percentage of the General Fund revenue is dedicated to long -term ongoing obligations . The City complies with the City’s Debt Policy goal to limit the total amount of annual debt payments payable by no more than 10% of estimated total General Fund revenues.
Additional information related to the City’s outstanding debt can be found on the City’s website:
https://www.chulavistaca.gov/departments/finance/financial-reports.
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FACTORS NOT INCLUDED IN THE PLAN
Development Impacts
As new major developments are proposed in the City, each developer is required to submit a fiscal impact analysis to ensure that the City’s revenues generated from the project will meet or exceed the anticipated expenditures. However, the actual timing of the impact from new development in revenues and expenditures is difficult to predict. As the development projects vary, such as new hotels or new housing, various factors influence the impact of the projects. The timing of the revenues related to new development can vary greatly depending on how fast the market can absorb the new inventory and the economic condition throughout the development process.
Economic Downturn(s)
As previously discussed, the potential for an economic downturn is plausible. However, the LTFP does not attempt to incorporate the impact of a downturn as the timing and duration of a downturn is difficult to project. While the growth projections incorporated into the LTFP are conservative, the growth factors will be re -evaluated as needed based upon future economic indicators and as data becomes available.
GENERAL FUND RESERVES
City Council Policy No. 220-03 establishes a General Fund Operating Reserve Fund for the City. The General Fund Operating Reserve (Operating Reserve) represents unrestricted resources or unassigned balance available for appropriations by the City Council to address extraordinary needs.
The policy sets the long-term goal of building a General Fund Operating Reserve of no less than 15% of the City’s operating expenditures. Per the policy, the Oper ating Reserve is to be used to provide temporary financing for unanticipated extraordinary needs of an emergency nature, such as major storm drain repairs, litigation, or settlement costs or an unexpected liability created by Federal or State legislative action. Authorized use of this Operating Reserve requires approval by four/fifths vote of the City Council.
In addition to the Operating Reserve, Policy No. 220 -03 established the Economic Contingency Reserve (Contingency Reserve) and the Catastrophic Event Reserve (Catastrophic Reserve). The funding goal for these reserves is 5 % and 3 % of the annual operating budget, respectively . The Contingency Reserve is funding set aside to mitigate a significant downturn in the economy; while the Catastrophic Reserve is to be used to address unexpected expenses related to a major natural disaster in the City. Usage of either of these funds requires authorization by four/fifths of the City Council. It is anticipated that the funding of these reserves would be a long-term goal and would be funded from unanticipated revenues or expenditure savings.
The City Council specifically amended this policy on November 3, 2020 with the adoption of Pension & OPEB Reserve Fund Policy No. 220-09, which provides, in relevant part, that:
i. Allocations for the Section 115 Trust, referred to as the Pension Reserve Fund (“PRF”), will only occur after the full funding of the 15% General Fund Operating Reserves; and ii. Upon meeting the 15% General Fund Operating Reserves, 75% of all future surplus funds will be transferred to the PRF, and the remaining 25% will be allocated to the Economic FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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Contingency Reserves and Catastrophic Event Reserves in accordance with this Policy; and iii. In the event all three General fund reserve accounts are fully funded at the stated policy percentage, 100% of surplus funds will be transferred to the PRF until it reaches 15% of General Fund Expenses (excluding Measure A & P, identical dollar amount to the General Fund Operating Reserves).
The annual budget does not include a line-item to build reserves; all anticipated revenues have been budgeted in order to balance the budget. Higher reserve levels will help mitigate the negative impact on revenues from economic fluctuations, support debt service coverage ratios, and provide a resource to fund unforeseen expenditure requirements.
The following chart depicts the General Fund operating reserves since F iscal Year 2019 as a percentage of the respective adopted budgets. As the reserve is intended to be a gauge of the General Fund, Measure P, and Measure A funding are not included in the calculation of the General Fund Reserve.
General Fund Operating Reserve
Fiscal Year 2019 to Fiscal Year 2023
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POTENTIAL SOLUTIONS FOR ADDRESSING PROJECTED DEFICITS
The LTFP projects future deficits throughout the Plan period , with i ncreases in expenditures projected to outpace revenue growth. Below are possible actions that could be further explored in order to develop potential actions to mitigate future deficits.
• Technology – Identify and purchase technology that provides a positive return on its public investment. Technology can increase service levels to the constituents without raising costs to the City (e.g., Third Party Mobile Applications); create new revenues to the City that exceed its costs; or reduce costs overall through the replacement of manual processes (e.g., provide more services with the same number of staff).
• Efficiency – Evaluate current City processes for potential efficiencies in delivering City services.
Efficiencies could allow for the delivery of City services for less cost or provide greater benefits to the public.
• Policies for use of One-Time Funds – Many cities establish policies to guide the usage of one- time funds so that as grants, donations, and unexpected revenues are received, the funds are allocated to the highest priority in the City automatically. A typical one-time funds policy would first allocate additional revenues to a reserve fund until the minimum required reserve is met, a vehicle and equipment replacement fund, and finally a comprehensive asset management program (capital projects). Other potential uses of one-time funds include projects and services that create ongoing revenue streams (e.g., solar projects, business attraction incentives, etc.).
• Use of Public Private Partnerships – Public private partnerships are cooperative agreements between a government agency (City), and the private sector to deliver a service or a project and can take a variety of forms. One great example of this type of partnership currently taking place in the City of Chula Vista is within the City’s library system. Several non- profit organizations partnered with the City to provide services to the public at local libraries at low or no cost. Other creative public-private partnerships that have been used by other cities include adopt- a-park programs where residents or local organizations volunteer to maintain or rehabilitate an existing park (e.g., Living Coast Discovery Center, Olympic Training Center).
• Internship/Volunteer Programs – Utilize volunteers and internships to support City staff with one-time projects, special events, research, and analy sis. While these individuals will not perform day- to-day duties of current City employees, they are able to add value without significant cost. A robust internship/volunteer program can create significant financial benefits to the City while providing the individuals volunteering valuable experience and skills that can make them more attractive when seeking full-time employment.
• Contract Services – Cities commonly contract out for a variety of services including but not limited to: legal; engineering; financial; and specialty services , typically in cases where the City does not possess the in-house expertise to perform the function most efficiently.
• Service Levels – Service level can be defined simply as the quantity and quality of the services FY 2025-2034 City of Chula Vista - General Fund Long-Term Financial Plan
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provided by a City. As economic cycles occur and City revenues rise and fall, the most difficult job for a City is to maintain service levels. The structural deficit d etailed in the LTFP demonstrates the severity of the projected fiscal condition of the City and the importance of balancing service levels with financial resources. The City should undertake a comprehensive review of all the services provided by the City. By defining these services and setting a minimum standard for the delivery of those services , a model could be developed that prioritizes where potential reductions in service level could take place with the least overall impact to the residents of Chula Vista.
• Fees/Cost Recovery – In general, local governments provide many services to the general population at no charge (e.g ., Police, Fire, Road Maintenance, Park Maintenance, etc.). These services are paid for with general revenues that the City receives including sales tax, property tax, and a variety of other general revenue sources. Cities also provide many services that are a specific benefit to the party requesting the service. The parties benefiting from these special services are charged a fee. Reviewing development plans, inspecting buildings, and renting a park space are all examples of services the City provides that are paid directly by a resident or developer. The City’s current M aster Fee Schedule was adopted to set the fees f or all services the City provides directly to individuals, and businesses. In practice, fees should be set to recover all costs. Some services are subsidized by the City in order to encourage participation in a program or event. It is important to review all subsidized fees periodically to assess the feasibility of continuing to subsidize these services in the future.
POTENTIAL SOLUTIONS TO RESOLVE STRUCTURAL INFRASTRUCTURE DEFICIT
The City’s assets continue to age and will require additional repair and rehabilitation in the coming decade and beyond. Measure P, passed in November 2016 , continues to provide much needed funding for a significant portion of the City’s Asset Management Program , but only two fiscal years of Measure P Sales Tax collection remain, expiring in April 2027.
The City's Infrastructure, Facilities and Equipment Expenditure Plan has guided implementation of Measure P sales tax funds and has been successfully used to upgrade police, fire, paramedic and 9- 1-1 equipment, vehicles and facilities; fund streets and sidewalks; replace storm drains to prevent sinkholes; improve parks; repair recreation facilities; and repair and replace other city infrastructure.
While Measure P does address a significant amount of deferred maintenance items, the infrastructure needs of the City identified in the asset management exceed the funding anticipated to be generated from Measure P. The City will need to continue to pursue additional funding sources to address the City’s capital needs. Many of the solutions mentioned in the operating section overlap into the infrastructure section. These include Public/Private Partnerships, Competitive Purchasing, Use of One-Time Funds, and Service Levels.
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CONCLUSION
The LTFP presents a baseline scenario for City General Fund resources over a ten-year period based on currently available information.
Based on projections within the LTFP, the City will be facing modest General Fund structural deficits in the first three years of the 10-year LTFP period. In order to preserve and maintain the valuable resources, current service levels, and quality of life the community has enjoyed over the years, the City will need to make a concerted effort to monitor the growth of revenues in comparison to expenditures. Proactive planning and a commitment to a fiscally sustainable service delivery model will be required.
TEN-YEAR PROJECTIONS
Summary
The LTFP projects structural deficits over the next three fiscal years absent further action by the City to bridge the funding gaps. T he overall General Fund shortfall is projected to fluctuate beginning in FY 2025 at approximately $2.1 million and ending in FY 2027 at approximately $0.7 million. General Fund surpluses are projected for FY 2028 at $1.1 million through 2034 at $7.5 million.
The following table projects revenue and expenditure categories for the City’s General Fund for Fiscal Years 2025 – 2034.
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(1) Major Discretionary Revenues is the total of the following budget revenue categories: Property Tax, Sales Tax, Measure P Sales Tax, Measure A Sales Tax, Property Tax in lieu of VLF (VLF), Franchise Fees, Transient Occupancy Tax (TOT), and Utility Users’ Tax (UUT).
(2) Other Revenues is the total of the following budget revenue categories:
Development Revenue, Licenses and Permits, Fines, Forfeitures & Penalties, Use of Money and Property, Other Local Taxes, Police Grants, Other Agency Revenue, Charges for Services, Interfund Reimbursements, Other Revenues - Miscellaneous, and Transfers from Other Funds.
(3) New Development Revenues & New Development Expenditures are for revenues and expenditures projected for the Otay Ranch Village 8 West Development, Millenia Library and Bayfront Fire Station anticipated to come online during LTFP term.
(4) Other Expenditures is the total of the following expenditure categories:
Supplies and Services, Utilities, Other Expenses, Equipment, Internal Services, and Transfers/Debt Service.