At this point, the estimate is that rates will need to be increased by FY 2025 in order to avoid technical default. Due to the debt service agreements with USDA and the State, the City must maintain a ratio of 110% of revenue compared to the debt service. This means that the sewer fund must turn a profit of at least 10% each year to meet this requirement for the next 40 years.
Therefore, keeping rates appropriate and current are absolutely essential.
Sewer Fund - FY 2022 Expenses Revenues Gain / (Loss)
Budget 1,782,518 2,005,186 222,668
Actual 1,965,116 3,708,791 1,743,675,
With the new residential rate increases going into effect each July 1, starting in FY 2021, the Refuse fund has been performing better than expected and keeping up to speed with the contracted cost increases from the provider. However, more unfunded mandates from the State will continue to push expenses higher and strain this fund potentially in the near future. The City is working closely with Mid Valley Disposal to be prepared for the new legal and operational mandates while trying to keep costs reasonable for residents and businesses.
Refuse Fund - FY 2022 Expenses Revenues Gain / (Loss)
Budget 883,759 890,269 6,510
Actual 889,447 876,253 (13,194),
CAPITAL PROJECT UPDATE
The third official year with a separate Capital Fund went well and progress has been made to improve this process again for FY 2022. Here is a summary of the spending from the Capital Budget for FY 2022:
Significant progress was made through the Capital Budget with many projects completed in FY 2021 like the completion of the Wastewater Treatment Plant Project, the purchase of many new pieces of equipment and start of several park projects. Various vehicle purchases, and other equipment purchases were impacted by the pandemic still, and so many purchases planned in FY 2022 will not actually happen until FY 2023. The appropriate changes to the budget will be made to reflect these delays.
FUND BALANCE UPDATE
This update of the cash balances of each of the funds is independent of what is budgeted in each fund and is only reflective of the cash on hand at the moment the report is generated.
ENDING CASH POSITIONS OF CITY OF FARMERSVILLE FUNDS FY 2020 TO FY 2022 9/29/2022 ACCOUNT 6/30/2020 6/30/2021 6/30/2022 KEY:
01 GENERAL FUND 463,212.90 1,347,524.58 641,284.08 UNOBLIGATED 08 SELF INSURED RESERVES 401,000.00 551,000.00 801,000.00 WATER ENTERPRISE ONLY 60 AMERICAN RESCUE PLAN (ARPA) 1,176,000.79 SEWER ENTERPRISE ONLY 102 GENERAL FUND RESERVE 1,439,868.82 1,439,868.82 1,439,868.82 REFUSE ENTERPRISE ONLY 103 GENERAL FUND CAPITAL 44,081.31 RESTRICTED (VARIOUS
104 MEASURE Q (CANNABIS) 383,619.12 1,065,025.91 1,462,839.03 THOSE AND T
General Government Total 2,731,782.15 4,403,419.31 5,520,992.72 02 WATER UTILITY 831,911.33 1,070,986.34 1,171,847.36
04 SEWER UTILITY 2,662,446.54 5,568,637.98 5,752,974.77 06 REFUSE UTILITY 360,391.26 372,826.47 379,402.93
09 CUSTOMER DEPOSITS 13,948.70
Utilities Total 3,933,683.79 7,320,626.69
12 FEDERAL AND STATE GRANTS (96,734.92) (426,346.07) (257,554.87) 50 CHILDCARE FUND
Pass Through Grants Total (96,734.92) (426,346.07) (257,554.87) 10 POLICE DEPT SLESF
11 DRUG ENFORCEMENT 16,962.82 17,044.00 17,155.46
14 POLICE DEPT SLESF 239,232.43 230,772.30 186,768.58
15 POLICE DEPT AB109
80 EVIDENCE HOLDING 11,364.85 17,779.85 17,779.85
82 ASSET FORFEITURES 2,767.19 2,297.03 2,312.05
83 LIVE SCAN (3,765.00) (4,319.00) (4,493.00)
Law Enforcement Total 266,562.29 263,574.18 219,522.94
72 FIRE ASSET REPLACEMENT
Fire Department Total
03 WATER DEVELOPMENT 380,419.72 387,002.19 292,154.94
05 SEWER DEVELOPMENT 1,004,457.45 1,025,088.79 806,463.75 23 STORM DRAIN DEVELOPMENT 152,931.22 154,642.98 8,317.38 30 PARK DEVELOPMENT 18,718.68 18,991.55 21,050.61
61 CIRCULATION DEVELOPMENT
62 GOV FACILITIES DEVELOPMENT
63 LIBRARY DEVELOPMENT
64 COMM FACILITIES DEVELOPMENT
162,774.50 157,505.52 160,799.41(
81 POLICE DEVELOPMENT 151,768.42 14,191.96 25,671.38
Developer Impact Fees Total 1,871,069.99 1,757,422.99 1,314,457.47 20 STP 1,048,578.10 90,021.87 845,348.62
21 GAS TAX 409,523.80 373,625.71 263,225.80
22 TDA / LTF 1,138,543.28 1,612,361.48 1,750,797.81
25 STREET MITIGATION 32,090.60
26 MEASURE R 1,399,930.99 1,338,077.96 (516,605.77)
27 RMRA (SB1) 256,830.88 226,402.86
Streets & Transportation Total 4,285,497.65 3,414,087.02 2,569,169.32 31 PARK IMPROVEMENTS (11,515.72) (100,010.56) 198,671.19 35 MAINTENCE DISTRICTS (3,602.40) (5,270.14) (7,250.92) 39 CITY PROPERTIES 21,944.80 59,992.15 82,101.49
Maintenance Total 6,826.68 (45,288.55) 273,521.76
40 CDBG PROGRAM INCOME 3,527.14 56,606.86 328,730.77
41 HOME PROGRAM INCOME 36,383.73 66,758.58 22,802.70
42 CAL HOME PROGRAM INCOME 123,300.11 259,211.14 215,378.99 Housing Total 163,210.98 382,576.58 566,912.46
TOTAL 13,161,898.61 16,775,844.95 17,527,648.49
ECONOMIC UPDATE
The headline news lately is all about
what the Federal Open Market The Fed Is Hiking Further & Faster Committee (FOMC) will do next to Than Any Time In Modern History combat inflation and keep the economy
4.5%
Change In Federal Funds Rate Since Hiking Began
balanced. The FOMC has two main -
[Effective Federal Funds Rate, US]
targets to keep in line - inflation (target: 4.0% 04-06 low) and employment (target: high).
3.5%
Because of all the recent economic 87-89
2022*
impacts, the FOMC had been focused on 3.0% 94:95
employment through the pandemic
2.5%
shutdown but has turned to focus on Change In Effective Federal Funds Rate In Cycle 15-18
inflation. 2.0%
99.00 1.5%
The FOMC has raised rates at an historic
rate (3.00% to 3.25% target range as of 1.0%
September 2022) displaying the
0.5%
commitment and level of concern that
Months since hiking cycle began
the FOMC is showing for inflation. This 0.0%
has created enormous amounts of 10 15 20 25 30 35
*The 2022 line reflects the new September
volatility for markets across the world. Source: Federal Reserve chart hike, with 0.75% added to the August reading Borrowing cash for projects and homes
has become expensive, and the US dollar is increasing in value dramatically compared to the world, and yet the economy continues to surge ahead.
Despite FOMC action to slow the economy, the Personal Consumption Expenditures (PCE), which is the key inflation measurement used by the FOMC, still shows a healthy increase in August (about
4.9% annual rate). This means that despite increasing prices, consumers are still buying goods and services and therefore increasing inflation even more.
Some of the effects of the FOMC actions are felt firsthand in Farmersville with 30-year fixed rate mortgages at 6.8% and rising while home values leveled off or fell for the first time since 2012.
Making housing less affordable will have an impact on demand and supply of homes, and therefore also the economy and inflationary factors as well.
The efforts by the FOMC are beginning to work on a broader scale as evidenced by a -0.6% change in the final Gross Domestic Product (GDP) figure for the 2nd quarter (economic slowing). The FOMC needs to slow the economy to bring inflation down but risks creating a recession as a result.
A recession is typically measured by two quarters of consecutive negative changes in GDP.
Not all news is grim though which is part of the reason for volatility. Job growth was favorable and remains high currently. As of August 2022, unemployment rates were 3.8% nationally, 4.1% in California, and 7.9% in Tulare County compared to 7.8% nationally, 7.5% in California, and 10.5% in Tulare County in August 2021.
Gas Prices are pushing up to record high levels in part due to the reopening after the COVID pandemic shutdown and other production shortages. The massive increase in prices has hit everyone but especially in California with the Fresno area average up $2.00 per gallon even from just a year ago (about 50%). Prices are far beyond the highest peaks even looking back as far as 10 years ago!
60 Month Average Retail Price Chart
Regular Gas Regular Gas
Price (US S/G) Price (US S/G)
USA Average
6.32 6.32
5.86 5.86
5.40 5.40
4.94 4.94
4.49 4.49
4.03 4.03
3.57 3.57
3.11 3.11
2.66 2.66
2.20 2.20
1.74 1.74
10/1 12/20 11/12 1/14 3/18 5/20 9/23 11/25 1/27 3/31
2018 2019 2020 2021 2022
Date (Month/Day) ©2022 GasBuddy.com
So what does this mean for the City?
High inflation, expensive lending rates, and high gas prices are all potentially difficult impacts on residents of Farmersville as well as the City. However, the economic factors at large are still positive although expectation for a recession are now high. This could translate to reduced revenue for the City in the future, or at least much slower growth. The City also benefits from increased revenue due to high gas prices but not enough to offset other recessionary impacts.
Recent reports regarding revenue related to the cannabis industry show that the market is entering the business cycle phase typically referred to as "saturation". This means that revenue will likely decline as more and more businesses enter the industry, but the demand for the industry does not rise proportionately. This means that future cannabis business tax is likely to be lower, but it is not known by how much.
As the current health crisis wanes, normal economic factors typical for the fourth quarter holiday shopping season will likely resume but it is uncertain how that will unfold. The City ended FY 2022 in a good revenue position, and barring any direct impacts to the cannabis and gasoline retail sectors it is expected to continue growing but at much reduced rate than prior years.
KEY POINT: Farmersville will have to navigate a difficult near-term with future revenues likely to slow down or decline while prices will remain elevated or continue to increase. The City would be wise to reduce spending on new work and anticipate price increases on existing work and avoid unnecessary financial risks when possible.
NOTEWORTHY NEWS & FUTURE OUTLOOK
Finance staff anticipates uncertainty to dominate the year which will force the City into a conservative position at the time of the mid-year review (sometime in January 2023) until more is known about inflationary and recessionary impacts on Farmersville and the economy as a whole.
As with the key point listed above, prudently monitoring spending and being patient will help the City avoid dangerous financial pitfalls.
City staff are currently working on introducing a Hotel Tax (TOT) measure on the 2022 ballot and a Utility Users Tax (UUT) measure on the 2024 ballot. Both of these sources would be massively beneficial to the health and stability of the City in the future.
Currently, audit work is underway for Fiscal Year 2021-22. So far, the process is going well and we anticipate that the process will be completed on time by December 31, 2022 with the Final Audited Financial Statements delivered to Council for review in January or February 2023.