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0 DATE: August 14, 2024
TO:
Mayor and Members of the City Council
President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
FROM: Stefan Chatwin, City/District Manager
Marlene Subhashini, Assistant City/District Manager
Waqas Hassan, Assistant Finance Director
DEPARTMENT: City Manager, Finance
SUBJECT: DISCUSSION REGARDING THE CITY’S FINANCIAL HEALTH
AND UPDATED FUTURE FINANCIAL OUTLOOK
RECOMMENDATION
It is recommended that the City Council/EMID Board, after a comprehensive discussion regarding the City’s budget and financial outlook, by Minute Order, provide general direction to staff regarding future opportunities, policies, or programs the governing body may deem prudent.
BACKGROUND/ANALYSIS
During its June 17, 2024 meeting, the City Council approved the Fiscal Year (FY) 2024- 25 Budget. The approved budget included a projected 5-year financial outlook (the Five-Year Financial Plan) ending June 30, 2029. This 5-year forecast of the General Fund is a financial planning tool designed to provide the City Council with understanding of multi-year budgetary impacts in context of economic conditions, planned and potential development, revenue changes, compensation adjustments, and Capital Improvement Program (CIP) funding. Revenue projections from property tax, real property transfer tax, sales tax, transient occupancy tax, building and planning permit fees, and other charges for services are included in the 5-year forecast.
Because trying to predict how the economy will perform over a 5-year period, including the proactive and reactive actions of local and state legislators, is challenging at best, the 5-year budget forecast is created using certain very conservative assumptions.
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0 Some of these conservative assumptions are: excluding any revenues from Vehicle License Fee (VLF) shortfalls, lower than trending estimates on property tax and other tax and fee revenue increases, and excluding budget impacts due to unfilled vacancies within budgeted staffing positions. These conservative assumptions typically result in an outlook that will lean more “negative” than “favorable” in both the short term and long term.
A study of the City’s budgets over the last 5 years shows the City performing significantly better than what was budgeted and forecasted, both year-over-year and in each year’s 5-year financial outlook. For example, the FY 2022-23 five-year forecast showed a structural deficit resulting in a reserve balance projected at 41.3% of General Fund by FY 2026-27. Although the following fiscal year’s (FY 2023-24) 5-year forecast showed that reserve balance for FY 2026-27 dropping further to 30.9%, this current FY adopted budget shows that forecasted reserve balance for FY 2026-27 greatly improved at 51.2% of General Fund. With the latest updates to the FY 2023-24 actuals, the forecast for reserves for FY 2026-27 improves even more to approximately 65% of General Fund’s operating expenditures.
In this Study Session, staff will present an updated outlook of the budget and 5-year outlook with the changes that have occurred since the adoption of the FY 2024-25 Budget on June 17th. The updated financial outlook will allow the Council to have a current and more holistic discussion about Foster City’s financial health and future.
Staff has also included links to resources towards the end of this report.
California Environmental Quality Act
Not Applicable
FISCAL IMPACT
There is no fiscal impact on the City Council's receipt and acceptance of this report.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Staff Empowerment and Operational Excellence
RESOURCES
Institute for Local Government: Basics of Municipal Revenue: Link Foster City FY 24-25 Final Budget: Link