Agenda Item No. 7
CITY COUNCIL STAFF REPORT
TO: Honorable Mayor and City Council DATE: February 28, 2022 FROM: Matthew Bronson, City Manager
PREPARED BY: Deanne Purcell, Administrative Services Director SUBJECT: FY 2021-22 Mid-Year Budget Review and General Fund Forecast
RECOMMENDATION
Receive information on the FY 2021-22 Mid-Year Budget Review including the City’s American Rescue Plan Act allocation and the updated General Fund Financial Forecast and provide input and direction to staff.
BACKGROUND
Consistent with the Council’s adopted financial policies, this report provides an update on the City’s current financial condition this fiscal year and financial projections for revenues and expenditures over the next five years. The report begins with the City’s mid-year financial status for the General Fund and two Enterprise Funds (Water and Wastewater) and requested consideration of mid-year budget appropriation changes. This report will also update the Council on the City’s American Rescue Plan Act (ARPA) funding allocation and recommended changes from staff. Following the mid-year information, staff will provide the results of an updated five-year General Fund financial forecast that builds on previous forecasts. As an overall summary, the City continues to be in a favorable position despite economic uncertainty with revenue projections that continue to allow the City to make substantial progress on addressing community needs.
FY 2021-22 Mid-Year Financial Report
The General Fund is the City’s primary fund with taxes and major user fees funding basic public services such as Police, Fire, Public Works, Community Development, Administration, and Parks and Recreation. The Council adopted a FY 2021-22 General Fund budget of $19.18 million and included below is a summary of the projected year-end totals based on mid-year actuals that shows an estimated $590,600 General Fund surplus or $547,200 more than budgeted:
Table 1
GF Summary Budget Projected
Beginning Reserves $ 5,344,745 $ 5,344,745
Revenues/Transfers In 19,228,267 18,998,030
Expenditures/Transfers Out 19,184,872 18,407,428
Annual Surplus 43,395 590,602
Ending Reserves $ 5,388,140 $ 5,935,347
% of Operating Expenditures 36% 39%
FY 2021-22
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 2 February 28, 2022
General Fund Revenues
For FY 2021-22, the City’s top five revenues (sales tax, property tax, cannabis tax, franchise fees, and transient occupancy tax) comprise 86% of total revenue, excluding transfers in and one-time grant funds. Total General Fund revenues are projected to end the fiscal year at approximately $19.0 million compared to $19.2 million budgeted. Projections are determined by various factors that include historical trends, revenue received, anticipated business growth, or consulting with tax revenue experts and could change based on the remainder of the fiscal year.
Due to the diversity of the City’s revenue make-up, the City was not impacted as much as other agencies during the COVID pandemic in FY 2019-20 and FY 2020-21. In FY 2019-20, cannabis tax revenues reported a 25% increase from the prior year and sales tax reported a 16% increase from the prior year, mainly due to the significant increase in cannabis sales activity along with an increase in online shopping. As further explained below, in FY 2021-22 cannabis tax revenues are projected to compare more closely to pre-pandemic levels given a number of factors.
Table 2 below highlights the General Fund revenue for the FY 2021-22 budget compared to projected revenue at year-end. As shown in the table below, total revenues are anticipated to be lower than budget by approximately $230,000 with additional information about these five main revenue sources:
Table 2
Top 5 GF Revenue Budget Projected
Over/
(Under)
% of
Budget
1. Sales Tax $ 5,364,000 $ 5,364,000 $ - 100.0%
2. Property Tax 5,176,000 5,248,000 72,000 101.4%
3. Cannabis Tax 2,448,000 1,800,000 (648,000) 73.5%
4. Franchise Fees 709,000 609,000 (100,000) 85.9%
5. TOT 480,000 800,000 320,000 166.7%
Total Top 5 $14,177,000 $ 13,821,000 $ (356,000) 97.5%
All Other & Transfers In 5,051,267 5,177,600 126,333 102.5% Total GF Revenues $19,228,267 $ 18,998,600 $ (229,667) 98.8% • Sales Tax is estimated to be received as budgeted and is now the City’s largest revenue source. The new 1% sales tax measure (Measure F-20) that passed in November 2020 is projected to bring an additional $2,230,000 in revenue in the current year. The latest sales tax report shows business activity is up in the transportation area by 25% from the same period last year mainly due to an increase in fuel prices and travel. In addition, more people are eating out and sales tax reported by restaurants is up by 6% and food markets are in line with pre-COVID sales with only a 2.5% increase from the same period in the previous year. Sales tax revenue in the cannabis industry is down from the same period in the prior year by approximately 7% which is related to the decrease in cannabis tax revenue highlighted below. • Property Tax is estimated to be on track with budget, showing a small variance of $72,000.
The County of San Luis Obispo has estimated a 4% increase in property tax revenue from the prior year, which falls in line with the City’s budgeted numbers and continues to reflect the strong housing market in the county.
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 3 February 28, 2022
• Cannabis Tax is estimated to be $648,000 lower than budgeted. This number is based on revenues received through the second quarter ending December 31, 2021, along with expectations for activity in the second half of the fiscal year. There are continued challenges facing the industry including the strength of the illicit market, degree of State taxation and regulations, and competition from businesses in other cities. The City is hopeful that sales will increase over the remainder of the year, but economic reports have shown that the increase in cannabis demand during the initial period of the pandemic has plateaued or decreased recently. However, the fourth retailer business is expected to open in April along with a testing laboratory business which could increase tax revenue this year. • Franchise Fees are projected to be $100,000 lower than budget due to a delay in the operation of the trans-oceanic fiber optic cable given international boundary disputes affecting the cable.
These revenues are now projected to start in FY 2022-23. • Transient Occupancy Tax (TOT) is estimated to be $320,000 higher than budget. The increase is due to revenue from permitted short-term rentals coming in higher than anticipated along with an increase in travel/tourism to the Central Coast over the course of the pandemic. • Other Revenue includes other taxes, utility users’ tax, licenses and permits, service charges and other miscellaneous revenues. The estimated increase of $126,000 in these other revenues is mainly due to a budget adjustment for a grant award and a projected increase in construction permits and plan check fees that were impacted during the pandemic but showing positive increases in activity during FY 2021-22. City services including special events, recreation classes and recreation rentals that had little to no activity during the pandemic are coming in as projected as activity has picked up again to pre-pandemic levels.
General Fund Expenditures
Table 3 below shows that overall General Fund expenditures are projected to end the year under the revised budget by $864,000. The revised budget includes budget adjustments that were previously approved by Council and include an additional appropriation of $15,000 for the Deputy City Manager position and $71,000 for a portable generator connection. The projected budget is based on best estimates using the most current data and historical trends and could change with six months remaining in the fiscal year:
Table 3
GF Expenditures Budget Revised Projected Variance
% of
Budget
Salaries and Benefits $ 8,418,643 $ 8,433,643 $ 8,433,643 $ - 100.00% Supplies and Services 8,258,651 8,330,357 8,330,357 - 100.00% Debt Service 205,828 205,828 205,828 - 100.00%
CIP/Transfers Out 2,301,750 2,301,750 1,437,600 (864,150) 62.46% Total GF Expenditures $ 19,184,872 $ 19,271,578 $18,407,428 $(864,150) 95.95% The $864,150 in Capital Improvement Program (CIP) savings is due to $634,000 in lower costs for several capital projects including South Oak Park Boulevard street repair and Skate Park renovations along with $230,000 in savings for capital projects that will be delayed this year including property acquisition for the Corporation Yard renovation project and installation of new Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 4 February 28, 2022
streetlights given PG&E processing time. Staff will provide further information on the current status of the CIP and proposed upcoming projects at the March 28th Council meeting.
Water Fund
Water Fund revenues in charges for service are down $207,000 from this time last year which staff believes is due to a decrease in water consumption with customers trying to conserve water along with the tiered rate structure where customers are charged more for using higher amounts of water. Since water consumption is down, customers save by having a lower rate when using less water. The Water Fund revenues will be monitored closely over the remainder of this fiscal year to see if that trend continues and identify potential funding impacts. Transfers in of $1.3 million come from the Community Development Block Grant (CDBG) Fund for the 2” and 4” water main project that was funded by the CDBG grant.
Table 4
Water Fund
Revenue
Q2
Actual
Actual
7/1-6/30
Q2
Actual
Budget
7/1-6/30
Use of Money and Property $ - $ 32,759 $ 5,027 $ 35,500 Revenue from Other Agencies 72,410 26,269
Charges for Services 1,717,897 4,311,419 1,511,042 4,162,000 Transfers In 391,878 1,326,304 74,493
Grand Total $ 1,717,897 $ 4,808,466 $2,868,642 $ 4,271,993 FY 2020-21 FY 2021-22
With Water Fund expenditures, supplies and services are 81% expended to date due to the annual payment at the beginning of the fiscal year for liability insurance and the semi-annual payment made to the County in July and December for the Lopez Water Contract for debt service and routine operations and maintenance. Overall, Water Fund expenditures are above budget for the second quarter with 72% expended to date. This is mainly due to the above mentioned in addition to the capital projects that are near completion including the upgrade of 2” and 4” water mains funded by CDBG grant funding. Below in Table 5 is further information on Water Fund expenditures:
Table 5
Expenditures
Q2
Actual
Actual
7/1-6/30
Q2
Actual
Budget
7/1-6/30
Salaries and Benefits $ 352,327 $ 1,024,022 $ 417,671 $ 799,633 Supplies and Services 1,616,244 2,051,494 1,656,453 2,047,819 Major Capital 312,721 1,212,267 1,297,443
Debt Service 240,548 105,854 242,930 292,780
Transfers Out 388,210 494,000
Grand Total $ 2,209,119 $ 3,882,301 $3,529,321 $ 4,931,675 Water Fund FY 2020-21 FY 2021-22
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 5 February 28, 2022
Wastewater Fund
Wastewater Fund revenues are up 4% from this time last year which is mainly due to the rate increase implemented on July 1, 2021, with the adopted budget for FY 2021-22. The City is on track to meet the budgeted revenue amounts for this year as shown in Table 6 on the next page which compares to actual amounts from last year:
Table 6
In terms of expenditures, Wastewater Fund expenditures are below budget for the second quarter with 26% expended to date. The main reason is due to anticipated capital projects that have not yet started and transfers-out that are reconciled and accounted for annually as a year-end adjustment as shown below in Table 7:
Table 7
Carry-Over of Capital Project Funding and Authorized Appropriations Per Council’s adopted financial policies, any unused appropriations at the end of fiscal year 2020- 21 in active capital improvement projects and multi-year programs are re-appropriated for continued use in fiscal year 2021-22. These carry-overs include $1,148,504 in the Capital Projects Fund, $1,152,947 in the Street Rehabilitation and Repair Fund, $3,511,915 in the Water Fund, and $983,001 in the Wastewater Fund. A detailed listing is included in Attachment 1.
The financial policies also authorize any remaining balance of one-time authorized appropriations to be carried forward with the approval of the City Manager and Administrative Services Director.
Council previously approved FY 2020-21 appropriations for costs that were not expended until FY 2021-22. The list of authorized one-time appropriations that will be carried over to FY 2021- 22 for implementation this fiscal year using General Fund reserves include new street signs ($90,000), tree planting at parks, Oak Park median and West Grand Ave ($19,347), two City pool Wastewater Fund
Revenue
Q2
Actual
Actual
7/1-6/30
Q2
Actual
Budget
7/1-6/30
Use of Money and Property $ - $ 14,975 $ 15,579 $ 16,000 Revenue from Other Agencies 61,859
Charges for Services 336,610 1,272,571 351,522 1,301,400 Transfers In 391,878 85,000
Grand Total $ 336,610 $ 1,741,283 $ 367,101 $ 1,402,400 FY 2020-21 FY 2021-22
Wastewater Fund
Expenditures
Q2
Actual
Actual
7/1-6/30
Q2
Actual
Budget
7/1-6/30
Salaries and Benefits $ 276,346 $ 722,503 $ 349,034 $ 672,253 Supplies and Services 200,603 550,748 209,462 559,538
Major Capital 224 444,416 26,757 776,000
Debt Service 21,808 1,192 21,808 21,828
Transfers Out 209,600 284,000
Grand Total $ 498,981 $ 1,928,459 $ 607,060 $ 2,313,619 FY 2020-21 FY 2021-22
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 6 February 28, 2022
vehicle replacements ($40,000), replacement of 2 storage sheds ($16,688), phone system update ($7,000), building fee study ($9,000) and emergency back-up power ($15,227).
Requested Mid-Year Budget Appropriations and General Fund Impact With the current fiscal year half-way completed, departments have had the opportunity to reevaluate their current operations and identify any unforeseen needs that have become known.
Staff is requesting the Council’s consideration of mid-year budget appropriation changes for the General Fund totaling $144,938 along with appropriations requested for other funds including Water ($104,550), Wastewater ($15,000), COPs ($39,932), and K-14 ($660,500) are shown in the detail in Attachment 2 and in Table 8 below:
Table 8
Department Funding Source
FY 22
Mid-Year
Appropriation
Request Description
Public Works General Fund $ 2,620
City pool vehicles replacement-additional appropriation needed to cover balance
Police General Fund 82,750
Replacement Community Video Cameras and
upgraded software
Police General Fund 34,568
50% Replacement Body Worn Cameras and softwareongoing
Non-Department General Fund 25,000
To cover California Central Coast Cities Self-Insurance Fund negative balance
Total General Fund $ 144,938
Public Works Water Fund $ 91,050
Project 4004 - Increase construction cost for waterline upgrades
Public Works Water Fund 10,000
Project 2284 - S. Oak Park rehab change order for
water service upgrade
Public Works Water Fund 3,500
Additional funding due to annual water permit fee
increase
Total Water Fund $ 104,550
Public works Wastewater Fund $ 15,000
City sewer inspection - Allocation to fund change order contingency account
Police COPs $ 5,365 Over budget for 2 plastic storage sheds Police COPs 34,567
50% Replacement Body Worn Cameras and softwareongoing
Total COPs Fund $ 39,932
Public works Measure K-14 $ 400,000 2295-10 - Additional funding to finish project Public works Measure K-14 40,500 2295-11 - Funding for unexpected change orders Public works Measure K-14 150,000
2295-14 - Move $150,000 from FY 23 approved due to
expedited schedule
Public works Measure K-14 70,000
2295-14 - Additional design costs for Nacimiento area
streets added to scope
Total Measure K-14 Fund $ 660,500
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 7 February 28, 2022
Table 9 below shows the General Fund impact of these recommended mid-year budget appropriations for the current FY 2021-22 along with the related changes in General Fund reserves from the carry-over of authorized appropriations. There is projected to be a net surplus of $445,664 for this fiscal year with ending reserves of $5.5 million or 36% of operating expenditures.
Table 9
American Rescue Plan Act Allocation
On September 13, 2021, Council provided direction on the allocation of one-time American Rescue Plan Act (ARPA) funds in which the City was allocated $3.2 million over a two-year period.
The first disbursement of $1.6 million was received in July 2021 to be spent primarily in FY 2021- 22 and the second disbursement of $1.6 million will be disbursed one year later in FY 2022-23.
As part of the FY 2021-23 budget hearing on June 14, Council provided direction to use ARPA funding for programs and activities in the following general categories:
• Homeless services and facilities
• Nonprofit assistance
• Rental and utility assistance
• Business assistance/economic development
• Unfunded water or sewer projects
The ARPA funding is reflected in the FY 2021-23 budget adopted by Council as non-department funding in both FY 2021-22 and FY 2022-23. Total ARPA funding spent through the second quarter (December 31, 2021) totals $174,510 with $1,435,330 remaining from the first allocation received in July. Table 10 on the next page shows the funding allocation, year to date expenditures, and projected year-end funding along with notes about these expenditures including additional items to implement based on funding within each category as described on the following page. The City is on track at this point for full expenditure of the initial $1.6 million allocation with an additional update on these expenditures provided to the Council as part of the FY 2022-23 budget development process.
GF Summary
FY 2021-22
Projected
Revenues/Transfers In $ 18,998,030
Expenditures/Transfers Out 18,407,428
Annual Surplus $ 590,602
Less: Mid-Year Requests 144,938
Revised Annual Surplus $ 445,664
Beginning Reserves 5,344,745
Less: Carryover Authorized Appropriations 200,637
Less: FY 21 CIP Carryover 69,551
Ending Reserves $ 5,520,221
% of Operating Expenditures 36%
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 8 February 28, 2022
Table 10
• Homeless Services and Facilities. The City has currently expended $75,000 of the proposed $800,000 in this category for FY 2021-22 on homeless encampment cleanups and outreach services to connect unhoused individuals with available services. The remaining funding is planned for additional cleaning and outreach, housing assistance, potential property acquisition for a homeless facility, or other support to the Five Cities Homeless Coalition or City departments to provide shelter, services, or outreach for unhoused individuals. • Nonprofit Assistance and Child Care. The City has committed $100,000 in nonprofit assistance grants for providers who serve residents in Grover Beach. The Council approved a nonprofit grant policy on February 15 and this grant program will begin in March. The City also committed $50,000 to provide assistance for operating school-age childcare programs at the Boys and Girls Club (BGC) and San Luis Obispo YMCA (YMCA). Each organization received an allocation of $25,000 in two installments of $12,500 in FY 2021-22. Staff is also intending to use $50,000 in funding for a childcare grant program for at-home providers and families in need of assistance. These direct grants would be distributed based on need in partnership with the South County Chambers of Commerce which recently coordinated a similar grant program in Pismo Beach.
• Rent & Utility Assistance. The City provides discounts to low-income customers that qualify for the PG&E CAREs program and are enrolled in the City’s utility assistance program. This program has provided a total of $13,026 for thus far in FY 2021-22 and is projected to have lower usage than anticipated.
• Business Assistance. The City has expended $9,819 thus far in this category towards a second iteration of the Buy Local program which began in February. Approximately $50,000 will be spent on this program in partnership with the South County Chambers of Commerce.
Staff also intends to allocate $75,000 for additional business assistance that is proposed to Category Allocated YTD Actual Projected Notes
Homeless Services and Facilities
Temporary or permanent shelter spaces $500,000 $0 $500,000 Funding for potential homeless facility Homeless outreach and services $300,000 $75,000 $300,000 Encampment cleaning and outreach and related services and equipment Subtotal $800,000 $75,000 $800,000
Nonprofit Assistance
Nonprofit assistance grants $100,000 $0 $100,000 Nonprofit grant process to begin in March Child care assistance $50,000 $25,000 $100,000 Child care grants ($50K) along with BGC and YMCA funding subsidies ($50K) Subtotal $150,000 $25,000 $200,000
Rent/Utility Assistance
Low-income utility payment subsidy $50,000 $13,026 $25,000 Lower usage than anticipated Subtotal $50,000 $13,026 $25,000
Business Assistance/Economic Development
Business assistance $200,000 $9,819 $125,000 $50K for Buy Local program and $75K for additional business assistance Chamber Econ Dev contract $100,000 $51,665 $150,000 Additional $30K for cowork space and $20K for Visit Grover Beach marketing Subtotal $300,000 $61,484 $275,000
Water and Sewer Projects
Front Street Lift Station sewer upgrades $100,000 $0 $100,000 Anticipated spending by end of fiscal year Upgrading sewer capacity $200,000 $0 $200,000 Funding for sewer video analysis to determine future needs Subtotal $300,000 $0 $300,000
Totals $1,600,000 $174,510 $1,600,000
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 9 February 28, 2022
be focused on exterior improvements such as façade and signage enhancements along with $30,000 to match a contribution from the County to help fund a cowork space on Front Street to support local businesses in partnership with the South County Chambers of Commerce and the Cal Poly Center for Innovation and Entrepreneurship (CIE). Staff also plans to increase the funding for the Visit Grover Beach program by $20,000 from the current level of $20,000 to expand tourism marketing with this program recently recognized as a finalist for the 2022 Best Overall Destination Brand Poppy Award by Visit California. The remainder of the funding in this category ($100,000) provides funding for the City’s economic development services agreement with the Chamber.
• Water and Sewer Projects. This funding will fund a portion of the Front Street lift station sewer upgrade project ($100,000) and the next phase of the sewer system video evaluation ($200,000) used to determine future sewer infrastructure needs.
General Fund Financial Forecast
Economic Trends
The General Fund financial forecast is intended to be a valuable tool to help the Council and staff make prudent financial decisions and provide information for future budgets to come. Staff annually updates a five-year General Fund financial forecast to evaluate the City’s financial condition and help develop the City’s budget.
According to the UCLA Anderson’s latest forecast in December 2021, the big story was what will happen with the continued spread of COVID-19 particularly with the omicron variant. Cases surged in January 2022 though the surge is waning and California’s indoor mask mandate expired on February 15, 2022, and the County’s local order lifted on February 16, 2022. The December 2021 forecast predicted that the growth in first quarter of 2022 would be slower because of continued effects of the omicron variant. Growth has also been slower due to labor shortages and supply constraints for certain goods. The good news is that there is still plenty of room for the economy to grow with labor supply and supply constraints issues projected to ease up throughout 2022 and corresponding GDP growth back to normal by the end of 2023. Overall, confidence is higher with long-term trends and the economic forecast assumes that successive waves of the pandemic are going to have less and less effect on the economy as time goes on.
The forecast anticipates high but slowing inflation, especially as oil prices come down, which is one of the big drivers of inflation. Inflation hit a 40-year high as it rose to 7.5% in January 2022 as price hikes continue to persist, but the UCLA Anderson’s latest forecast expects inflation will come down to 3.4 % by the end of 2022 and 2.8% by the end of 2023. One factor that is encouraging for inflation is that consumers are delaying purchases of cars and furniture due to low supply and higher prices. This delay in spending will help drive the inflation rate down as the supply constraints are lifted and the higher prices of these goods, due to shortages, come down.
Statewide, tourism is picking up again, but it is mainly domestic tourism where people are taking shorter trips and closer to home versus international tourism. Imports are up but supply issues remain. In the last half of 2021, some of the ports in Southern California were backlogged due to record-breaking imports which made it extremely difficult to move the containers fast enough to the retailers. Industrial space has become a hot sector due to the need for more warehouses to store these goods, which also contributes to the source of demand for construction workers. The surge in imports combined with labor shortages has put a big strain on moving the goods and driving prices up, although the backlog has been shrinking in recent months. The lack of supply Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 10 February 28, 2022
is also driving housing prices to record highs, but new laws are being passed to help with the housing shortage. Statewide, the unemployment rate was 7.7% in December 2021, compared to 9% in December 2020. Economists expect the state’s unemployment rate to be 5.6% in 2022 and
4.4% in 2023.
Lastly, based on the latest sales tax forecast ending September 30, 2021, statewide revenues are up 18% overall compared with the previous year with the Central Coast up 17% overall. Three major industry groups showing a rebound include 1) Autos & Transportation (+16%), where new car prices are up 10% and used car prices are up 26%; 2) Fuel & Service Stations (+54%) where the average price per gallon of gas is $4.75 and more people are on the road going to work, school, shopping and traveling; and 3) Restaurants & Hotels (+48%) where people are eating out more and traveling. The Food & Drug group has flattened (+.8%) and includes cannabis and grocery stores. Cannabis businesses did well during the initial period of the pandemic with robust growth but after years of substantial growth, sales in this sector are starting to plateau. Grocery stores are also seeing flat sales mainly due to people wanting to get out of their houses and eat out more since being restricted to stay at home during the pandemic. Consequently, the projection in the Food and Drug sector is continued modest growth at a rate of 2%.
City’s Five-Year Forecast
Fortunately, the City went through the pandemic with little impact to City finances in large part to the diversified economy in Grover Beach. In the current FY 2021-22, the City is seeing more sluggish activity in the cannabis area although this is being offset by the TOT increases that is showing more activity than projected. The City is also facing additional short-term impacts from the uncertainty of the pandemic, higher than normal fuel costs, low supply, both in labor and goods, which is driving up the inflation rate and creating higher prices. Recent geopolitical and military actions in Europe could further increase prices in the short term. However, the long-term forecast is that these trends will be temporary and the inflation rate will come down by the end of 2022 and normalize by the end of 2023. Table 11 below shows a summary of this updated fiveyear forecast with a more detailed version shown in Attachment 3:
Table 11
Overall, the forecast indicates the General Fund is in a positive position over the five-year period given projected revenue increases described below while acknowledging the degree of forecast uncertainty particularly in the later years of the forecast:
• Sales Tax. Using the estimates provided by the City’s sales tax consultant, this year’s forecast assumes that sales tax revenues will also increase by 4% from the current FY 2021-22. The City saw a significant increase of 15.9% in sales tax in FY 2020-21 due to the strong sales in General Fund
FY 2022-23
REVISED FY 2023-24 FY 2024-25 FY 2025-26 FY 2025-26
Revenues $ 18,924,600 $ 17,805,000 $ 18,390,000 $ 18,980,000 $ 19,577,000 Expenditures 18,831,759 17,280,000 17,672,700 18,005,500 18,541,100 Annual Surplus 92,841 525,000 717,300 974,500 1,035,900 *Beginning Reserves 5,519,700 5,470,541 5,853,541 6,428,841 7,261,341 Less: Wastewater Fund Repay (142,000) (142,000) (142,000) (142,000) (178,000) Ending Reserves $ 5,470,541 $ 5,853,541 $ 6,428,841 $ 7,261,341 $ 8,119,241 Percent of Operating
Expenditures 38% 40% 43% 47% 52%
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 11 February 28, 2022
the cannabis industry and an increase in online sales, although the decrease in cannabis sales in FY 2021-22 as conveyed previously is projected to have some impact on future sales tax revenues in the forecast. The forecast includes an additional $2.3 million from Measure F20 approved in November 2020. • Property Tax. Using the County’s revenue estimates, this year’s forecast assumes that the City’s property tax revenues will increase by 4% next year from the current fiscal year FY 2021-22 given the continued strong real estate market. Low inventory and steady demand from home buyers have boosted home values across California and in the County as home prices rose sharply in 2021.
• Cannabis Tax. The forecast assumes that the City will receive $1.9 million for FY 2022-23, or a 5% increase over what was estimated for FY 2021-22. For FY 2021-22, cannabis sales have been sluggish when compared to the prior year and are estimated to be almost $650,000 lower than what was budgeted to establish a new baseline revenue amount given the industry challenges conveyed previously. This forecast assumes that sales will stay steady with new businesses coming online and possible cannabis lounges, but the forecast takes a conservative approach of not estimating additional revenues as the City has seen in the last three years. Staff continues to recommend caution with these relatively new general revenues and continues to recommend additional general revenues in general for one-time uses such as capital projects.
• Transient Occupancy Tax (TOT). TOT revenues were the most impacted tax revenue during the pandemic, due to a significant decrease in travel for business or pleasure. However current year projections are estimating that TOT will be around $800,000 or $320,000 over the budgeted $480,000. This is partly due to the rebound from the pandemic but also due to the collection of TOT revenue for permitted short-term rentals (STRs). A portion of the TOT collected from the STRs was the result of a collection attempt made for prior years where some STRs were not paying required revenues in a timely manner. Staff has worked with these individuals to make sure they are staying current. TOT is estimated to be $750,000 for FY 2022-23, or $250,000 than originally budgeted. The forecast does not include TOT for future hotel projects until construction begins.
FISCAL IMPACT
The General Fund appropriations requested for the current FY 2020-21 budget total $144,938 while the Water, Wastewater and COPs and Measure K-14 Fund appropriations requested total $104,550, $15,000, $39,932, and $660,500 respectively. These appropriations will be brought to the Council for approval on March 14 pending Council direction. Total FY 2020-21 carryover of special one-time authorized General Fund appropriations total $200,637 and will come out of General Fund reserves.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Receive information on the FY 2021-22 Mid-Year Budget Review including the City’s American Rescue Plan Act allocation and the updated General Fund Financial Forecast and provide input and direction to staff; or
2. Provide staff with alternate direction.
Staff Report: FY 2021-22 Mid-Year Budget Review and General Fund Forecast Page 12 February 28, 2022
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.
Attachments
1. FY 2020-21 CIP Carryover to FY 2021-22
2. Mid-Year Appropriation Requests
3. General Fund Five Year Financial Forecast
City of Grover Beach
FY 2020-21 CIP Budget Carried Forward to FY 2021-22
CAPITAL PROJECTS FUND (11) Expenditure
Revenue/
Transfers
from Other
Funds
1004-16th St Park Rehab $ 286,050 $ 286,050
2283-Local Street Rehabilitation Program 147,071 147,071 2284-Local Street Rehabilitation Program 476,299 476,299 3002-Citi Corp Yard Improvements 75,000 75,000
3003-Citywide Disability Access Improvements 82,533 82,533 3263-Facility Improvements 31,552 31,552
3393-Ramona Square Lot 50,000 50,000
Total Capital Projects Fund $ 1,148,504 $ 1,148,504 See recon below STREET REHABILITATION and REPAIR FUND (20)
2295-10-Street Rehabilitation and Repair $ 785,411
2295-11-Street Rehabilitation and Repair 367,536
Total Street Rehabilitation and Repair Fund $ 1,152,947 WATER FUND (81)
4001 - Regional Groundwater Sustainability Project $ 1,067,361 4004 - Water Main Upgrades 162,951
4265 - Water Delivery Upgrades 74,826
4267-2 - Upgrade of 2" and 4" Water Mains 2,206,777 2,206,777 CDBG Total Water Fund $ 3,511,915 $ 2,206,777
WASTEWATER FUND (80)
5001 - Sewer System Upgrades $ 901,380 $ 511,122 Fund 55 5003 - Front Street Lift Station Upgrades 81,621
Total Wastewater Fund $ 983,001 $ 511,122
Attachment 1
Department Funding Source
FY 22
Mid-Year
Appropriation
Request Description
Public Works General Fund $ 2,620
City pool vehicles replacement-additional appropriation needed to cover balance
Police General Fund 82,750
Replacement Community Video Cameras and upgraded
software
Police General Fund 34,568
50% Replacement Body Worn Cameras and softwareongoing
Non-Department General Fund 25,000
To cover California Central Coast Cities Self-Insurance Fund negative balance
Total General Fund $ 144,938
Public Works Water Fund $ 91,050
Project 4004 - Increase construction cost for waterline upgrades
Public Works Water Fund 10,000
Project 2284 - S. Oak Park rehab change order for water service upgrade
Public Works Water Fund 3,500 Additional funding due to annual water permit fee increase Total Water Fund $ 104,550
Public works Wastewater Fund $ 15,000
City sewer inspection - Allocation to fund change order contingency account
Police COPs $ 5,365 Over budget for 2 plastic storage sheds Police COPs 34,567
50% Replacement Body Worn Cameras and softwareongoing
Total COPs Fund $ 39,932
Public works Measure K-14 $ 400,000 2295-10 - Additional funding to finish project Public works Measure K-14 40,500 2295-11 - Funding for unexpected change orders Public works Measure K-14 150,000
2295-14 - Move $150,000 from FY 23 approved due to
expedited schedule
Public works Measure K-14 70,000
2295-14 - Additional design costs for Nacimiento area
streets added to scope
Total Measure K-14 Fund $ 660,500
Attachment 2
Attachment 3
GENERAL FUND FIVE YEAR FISCAL FORECAST: 2022-2027
2019-20 2020-21
Actual Actual Budget Revised
2022-23
Budget
2022-23
Revised 2023-24 2024-25 2025-26 2026-27
REVENUES
Taxes and Franchise Fees
Property Tax 4,725,500 4,881,500 5,176,000 5,248,000 5,331,000 5,458,000 5,676,000 5,846,000 6,021,000 6,202,000 Sales Tax
General: 1% 1,802,100 2,089,100 2,019,000 2,019,000 2,109,000 2,109,000 2,210,000 2,309,000 2,406,000 2,502,000 Measure X: 1/2% 1,017,800 1,185,100 1,115,000 1,115,000 1,151,000 1,151,000 1,206,000 1,260,000 1,313,000 1,366,000 Measure F-20: 1% 572,800 2,230,000 2,230,000 2,302,000 2,302,000 2,412,000 2,521,000 2,627,000 2,732,000 Franchise Fees 585,000 600,200 609,000 609,000 623,000 623,000 635,000 648,000 661,000 674,000 Fiber Optic Cable (4 @ $100K) 100,000 - 100,000 100,000 102,000 104,000 106,000 108,000 Transient Occupancy Tax 433,500 580,400 480,000 800,000 500,000 750,000 773,000 796,000 820,000 845,000 Utility Users Tax 172,600 184,900 183,000 189,000 186,000 193,000 197,000 201,000 205,000 209,000 Cannabis Tax 1,936,700 2,424,900 2,448,000 1,800,000 2,448,000 1,900,000 1,938,000 1,977,000 2,017,000 2,057,000 Business Tax 165,500 154,600 172,000 172,000 175,000 175,000 179,000 183,000 187,000 191,000 Other Taxes 146,300 189,600 165,000 193,000 168,000 200,000 206,000 212,000 218,000 225,000 Total Taxes and Franchises 10,985,000 12,863,100 14,697,000 14,375,000 15,093,000 14,961,000 15,534,000 16,057,000 16,581,000 17,111,000 From Other Governments 616,800 340,400 2,053,000 2,114,000 1,795,000 1,795,000 31,000 32,000 33,000 34,000 Licenses and Permits 241,000 181,100 175,000 235,000 225,000 240,000 245,000 250,000 258,000 266,000 Service Charges 719,200 624,200 879,000 879,000 937,000 937,000 965,000 994,000 1,024,000 1,055,000 Use of Money and Property 207,800 72,400 216,000 186,000 227,000 186,000 192,000 198,000 204,000 210,000 Other Revenues 57,200 40,800 53,000 53,000 54,000 54,000 64,000 69,000 74,000 79,000 Total Revenues 12,827,000 14,122,000 18,073,000 17,842,000 18,331,000 18,173,000 17,031,000 17,600,000 18,174,000 18,755,000
EXPENDITURES
Operating Programs 12,131,200 13,534,500 16,679,000 16,764,000 15,958,000 16,195,159 14,695,000 15,057,000 15,386,000 15,717,700 Debt Service 155,400 154,600 206,000 206,000 181,000 181,000 99,000 26,000 26,000 26,000 CIP (Tr Out Fund 11 start in FY 21) 54,700 229,000 2,071,000 1,207,000 2,275,000 2,275,000 2,300,000 2,400,000 2,400,000 2,600,000 Total Expenditures 12,341,300 13,918,100 18,956,000 18,177,000 18,414,000 18,651,159 17,094,000 17,483,000 17,812,000 18,343,700
OTHER SOURCES (USES)
Transfers In
Cost Allocation Transfers 470,000 486,000 500,000 500,000 515,000 515,000 530,000 541,000 552,000 563,000 Other Transfers In 101,600 92,000 326,600 326,600 236,600 236,600 244,000 249,000 254,000 259,000 Transfers Out (230,600) (230,600) (180,600) (180,600) (186,000) (189,700) (193,500) (197,400) Long-Term Debt Issued 330,000 330,000 - - - - -
Total Other Sources (Uses) 571,600 578,000 926,000 926,000 571,000 571,000 588,000 600,300 612,500 624,600 Sources Over (Under) Uses 1,057,300 781,900 43,000 591,000 488,000 92,841 525,000 717,300 974,500 1,035,900 Less: Mid-Yr Requests (See Attachment 2) (145,000)
Revised Sources Over Uses 446,000
Reserves, Start of Year * 3,647,500 4,704,800 5,486,700 5,486,700 5,519,700 5,519,700 5,470,541 5,853,541 6,428,841 7,261,341 Wastewater Fund Repayment (142,000) (142,000) (142,000) (142,000) (142,000) (142,000) (142,000) (178,000) (201,000)
(70,000)
Reserves, End of Year 4,704,800 5,486,700 5,387,700 5,519,700 5,865,700 5,470,541 5,853,541 6,428,841 7,261,341 8,119,241 Reserve % Operating Costs 39% 41% 36% 36% 41% 38% 40% 43% 47% 52% Minimum reserve policy is 15% of operating costs, with a goal of 25%. 2021-22 FIVE YEAR-FORECAST
* 2019-20 reserves at start of the year is net of the advance payable to Wastewater Fund of $1,435,700, each year starting with FY 22 reflects deduction for WW fund repayment with end of yr reserves.
excludes ARPA for reserve calculation