Overview of Financial Forecast Model and Fiscal Outlook February 4, 2025
Presentation – Table of Contents
UFI – Financial Advisors & Consultants
UNDERSTANDING CITY’S FORECAST MODEL
Developing a Forecast Model
Standardized Revenue & Expense Categories. Model uses standardized revenue and expense categories that correlate with available economic data, projections, and variables appropriate for driving municipal forecasts.
Integration of City’s Historical Financial Data. Model integrates 10 years of annual financial data from the City’s general ledger.
Baseline Forecast with Fund Balance Allocation. Model produces a 10-year baseline forecast of revenues, expenses, cash flows and fund balance for purposes of analysis and comparison with “what-if” scenario forecasts. “What-if” Scenario Forecasts, Including Built-in Modules. Model enables the City to create “what-if” scenario forecasts to compare against the baseline, allowing the City to make more informed and fiscally sustainable financial decisions.
Tailored Forecasting Algorithms
UFI uses econometric data from Moody’s Analytics, U.S. Précis® Metro forecast service, combined with a variety of city, regional and state financial projections and indicators to create forecasting algorithms that drive each revenue and expense category in the City’s baseline forecast.
The econometric data is statistically correlated with outputs from the City’s historical financial data to create four custom forecast trendlines (aggressive, average, conservative and pessimistic).
Huntington Beach Forecast – General Assumptions
City’s baseline forecast built around FY 2025 General Fund budget adopted by the City Council.
Base Salaries. Includes current MOUs with long-term assumption that average annual growth aligns with CalPERS growth assumption (2.85% per annum).
CalPERS UAL. Incorporates amortized loss basis from FY22 (-6.2% return) and gain basis from FY23 (+9.5%).
Homeless Program. Assumes General Fund will pickup program costs beginning FY26.
ROPS Waterfront Revenues. Treated as one-time revenues used for one-time expenses.
What is a “Baseline” Forecast?
Neutral, fiscal assessment and decision-making tool that establishes a common understanding of the City’s status quo fiscal outlook:
“If the City makes no changes to its organization, operations or service levels, and there are no significant external economic impacts to the City (other than what’s known today), what is the predicted condition of the City’s finances over the next ten years?”
Huntington Beach Forecast – Fiscal Issues Not In Model
Underfunding of Equip. Replacement. City’s projected schedule for equipment replacement is currently underfunded by approximately $____ annually.
Underfunding of Critical Infrastructure. City’s recent Infrastructure Report Card identified critical infrastructure projects requiring at least $______ annually.
Restoration of Departmental Cuts. In prior years, operating cuts have been made to various departments affecting service delivery and/or quality.
EMS Revenue Risks. Revenues from the Voluntary Rate Range Intergovt. Transfer Program (VRRP IGT) that helps offset EMS service costs to Medi-Cal patients is vulnerable to changes in federal appropriations and addtl. participants.
What-If Forecasting Enhances Prioritization & Accountability California cities operate within a highly-constrained revenue environment. With no rate-making authority and no taxing authority without voter approval, cities must largely operate within an existing revenue structure. This makes revenue forecasting essential for good fiscal management.
However, revenue forecasting alone is insufficient. Forecast modeling with “what-if” scenario capacity enables cities to evaluate and align competing community priorities with constrained revenue capacity, enhancing accountability based on transparent and deliverable outcomes.
Huntington Beach Forecast - Major Drivers & Indexes
Key Categories & % of Total
Historical
AAGR
Forecast Trendline
Forecast
AAGR
Revenues
4.18%
3.03%
Property Taxes (35%)
5.41%
average
3.96%
Sales & Use Tax (17%)
3.72%
average
3.10%
Cost Recovery & Earnings (12%)
2.74%
average
2.62%
Permits, Fees & Charges (11%)
2.84%
average/consv.
1.26%
Utility User Tax (7%)
1.76%
average
1.74%
Expenses
4.34%
2.70%
Salaries & Wages (40%)
2.83%
MOU or 2.85%
2.95%
Transfers Out* (17%)
27.77%
--
2.43%
Pension (Normal & UAL) (12%)
0.87%
average
3.26%
Benefits (excl. pension) (11%)
4.71%
2 x CPI
4.11%
Supplies & Equipment (8%)
2.00%
average
2.61%
* Transfers Out include Equipment Fund, Infrastructure Fund, Self-Insurance Fund and Homeless Program
10-YEAR BASELINE FORECAST
Baseline Forecast – 10-Year Projections (2025-35)
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
$450,000,000
Total Revenues & Expenses
10 -
Year Prior and Baseline Forecast
Surplus/Deficit
Baseline Revenues
1-Time Revenues
Baseline Expenses
1-Time Expenses
Baseline Forecast – Revenue & Expenses Trends
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
Annual Operating Surplus/(Deficit)
10 -
Year Prior and Baseline Forecast
Baseline Forecast – Annual Surplus/(Deficit)
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
(60,000,000)
(50,000,000)
(40,000,000)
(30,000,000)
(20,000,000)
(10,000,000)
-
10,000,000
Cumulative Operating Surplus/(Deficit)
Baseline Forecast
Baseline Forecast – Cumulative Surplus/(Deficit)
Annual Operating Deficits Until FY 2033
Debt Obligations Expire ($4.5m/yr.)
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
Year End Fund Balance & Allocation
10 -
Year Prior and Baseline Forecast
Non-spendable
Restricted
Committed
Assigned
Undesignated
Baseline Forecast – Fund Balance Impact
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
SCENARIO FORECAST
Scenario Forecast – Changed Assumptions
ROPS Waterfront Revenues. Assumes remaining one-time ROPS Waterfront Revenues of $18 million are used to pay ongoing General Fund operating expenses between FY 2026 and FY 2031 (instead of being used for one-time expenses).
Pension (UAL) Management. Assumes two additional payments to CalPERS to prepay/reduce City’s increased UAL. $5 million at end of FY 2025 and $5 million at end of FY 2026. Saves General Fund $15 million over the forecast period.
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
$450,000,000
Total Revenues & Expenses
10 -
Year Prior and Baseline Forecast
Surplus/Deficit
Baseline Revenues
1-Time Revenues
Baseline Expenses
1-Time Expenses
Baseline Forecast – Revenue & Expenses Trends
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
$400,000,000
$450,000,000
Total Revenues & Expenses
10 -
Year Prior and Scenario Forecast
Surplus/Deficit
Baseline Revenues
1-Time Revenues
Baseline Expenses
1-Time Expenses
Scenario Forecast – Fund Balance Impact
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
Annual Operating Surplus/(Deficit)
10 -
Year Prior and Baseline Forecast
Baseline Forecast – Annual Surplus/(Deficit)
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
$(15,000,000)
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
Annual Operating Surplus/(Deficit)
10 -
Year Prior with Scenario vs. Baseline Forecast
Scenarios Forecast
Baseline Forecast
Scenario Forecast – Annual Surplus/(Deficit)
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
(60,000,000)
(50,000,000)
(40,000,000)
(30,000,000)
(20,000,000)
(10,000,000)
-
10,000,000
Cumulative Operating Surplus/(Deficit)
Baseline Forecast
Baseline Forecast – Cumulative Surplus/(Deficit)
Annual Operating Deficits Until FY 2033
Debt Obligations Expire ($4.5m/yr.)
(60,000,000)
(50,000,000)
(40,000,000)
(30,000,000)
(20,000,000)
(10,000,000)
-
10,000,000
Cumulative Operating Surplus/(Deficit)
Scenario vs. Baseline Forecast
Scenarios - Cumulative Surplus/(Deficit)
Baseline - Cumulative Surplus/(Deficit)
Scenario Forecast – Cumulative Surplus/(Deficit)
Annual Operating Deficits Until FY 2033
Debt Obligations Expire ($4.5m/yr.)
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
Year End Fund Balance & Allocation
10 -
Year Prior and Baseline Forecast
Non-spendable
Restricted
Committed
Assigned
Undesignated
Baseline Forecast – Fund Balance Impact
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
$-
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
Year End Fund Balance & Allocation
10 -
Year Prior with Scenario vs. Baseline Forecast
Non-spendable
Restricted
Committed
Assigned
Undesignated
Baseline Forecast
Scenario Forecast – Fund Balance Impact
Covid-19 Pandemic & Recovery
ARPA Local Fiscal Recovery Funds
Annual Operating Deficits Until FY 2033
Growth in Transfers Out (infra., equip., liability)
Debt Obligations Expire ($4.5m/yr.)
FISCAL OUTLOOK
Fiscal Outlook – Strengths & Opportunities
Revenue Diversity
Good diversity of tax base and not overly reliant on any single-source of revenue.
Still unused local sales tax capacity.
Baseline revenues projected to grow slightly faster than baseline expenses. Fitch rated City is 72nd percentile for economic metrics.
Debt Service
Current debt service primarily for equipment and facility related leases (except for POB).
Expiring annual debt service creates fiscal capacity in later years of forecast for strategic investment. Fitch put City mid-range for long-term liability burden.
Reserves
Total General Fund reserves at 37% of baseline expenses. Contributed to “AAA” financial resiliency rating by Fitch.
Baseline forecast projects dip to 20%.
Mitigation of annual deficits during first half of forecast is important to reserve maintenance.
Fiscal Outlook – Challenges & Concerns
Annual Operating Deficits/Fund Balance
Annual operating deficits through FY33 caused by current gap between revenues/expenses + new UAL.
Opportunities to reduce annual transfer for equip. & infra.; spread costs through financing.
Pension Management
Rising UAL converted to level debt service with POB in FY21.
CalPERS -6.2% FY22 returns created significant new unfunded liability.
Use of City’s pension reserves to proactively manage UAL is opportunity for solid savings.
Labor Costs
City’s historical labor cost growth has been moderate.
Salaries & Wages 2.83% prior and forecasted at 2.95%.
Continued good management of labor/benefit costs critical to sustain fiscal health (over 50% of expenses).
QUESTIONS?