Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: PRESENTATION OF THE 2023-2033 GENERAL FUND LONG
RANGE FINANCIAL FORECAST
Date: January 23, 2024
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended that the City Council review, discuss and accept the Fiscal Year 2024 to 2034 General Fund Long Range Financial Forecast.
Background
The City’s Long Range Financial Forecast (LRFF) was added to the City’s strategic objectives to help the City set out a path to revenue stability. Future updates to the LFRR are to be considered when new financial conditions arise, and plans are to be evaluated.
Analysis/Discussion
The Long-Range Financial Forecast (LRFF) provides a current and long-range financial assessment of revenues, expenditures, fund balance, and emergency reserves. The primary objective is to provide the City Council and the community with an early financial assessment and identify any significant issues that may need to be addressed in the budget development process. It is important to keep in mind that a forecast is not a budget.
The LRFF is a vehicle that allows us to peer into the future and make projections about what is likely to happen given certain assumptions. If future deficits are projected, then the forecast allows time to take corrective action to ensure finances remain stable. This analysis is centered on the City's General Fund because it is the primary operating budget for tax supported municipal services.
This document presents a potential range of financial outcomes based on available data and conditions and represents a review of the long-term financial future of the City of Cotati General Fund using a set of three revenue projections and a single expense forecast for a total of three scenarios. The LRFF presents three scenarios illustrating trends of the City’s expenditures and revenues over the next 10 years. The FY (Fiscal Year) 2023-24 adjusted Operating Budget is used as the base for all scenarios.
1. Baseline - The baseline revenue/expense growth estimate is based on a continuation of current economic performance. This forecast is like the actual revenue growth and expenditure change for the City over the last five years plus the adopted budget for the current fiscal year. If identifiable, Staff removed on-time large expenditures from projected expenditures and revenues.
2. Baseline with new hotel breaking ground in FY 2023-24 and opening in 2024-25. This development would then create increases in property tax, sales tax, and a new Transient Occupancy Tax (TOT). TOT is currently approved at 10% per City Code 3.12.030. To remain conservative, for the first year of operations we assumed a 50% occupancy rate with a minimal hotel rate at $200 for the 153-room proposed hotel. Subsequent years are expected to increase to 60% occupancy and then just increase 5% in revenues for each year thereafter.
3. Baseline with a Recession in 2026-27 - This scenario starts from the base assumptions in scenario 1 then estimates what an impact of an event like the great recession of 2008 would be on the City’s General Fund. Initial major impacts would hit the Sales Tax and Rents due to consumers' reduction in spending. For the fiscal year 2026/27 we projected a 35% decline followed by a 5% decrease in the subsequent year as consumers are slow to rebound their spending. After 2027/28 the projection forecasts regular growth of 2% thereafter. Secondary impacts would be shown on Property Tax, which has a lagging recession point. Other revenues including Other Tax Licenses and Franchises, Investment Earnings. And Other Revenue would follow Sales tax with immediate decline in some industries with shrinkage and closures of some businesses.
Financial Considerations
This action is to inform future financial considerations made by the City.
Environmental Issues
This action is exempt from the California Environmental Quality Act (CEQA) because it is not a project which has a potential for resulting in either a direct physical change in the environment, or a foreseeable indirect physical change in the environment, pursuant to CEQA Guideline section 15378.