Long-Term
Financi
al
Forecast
Februa
ry 1, 2022
ATTACHMENT 2
Roadmap
• Introduction
•
Big Picture
• Historical
Comparison
• Preliminary Long-
Term Findings
– Key Assumptions
–
Results
2 ATTACHMENT 2
The Big Picture
• Pandemic caused larg
e operating
revenue drops in FY20 and FY21
• Revenues projected to rebound to pre-
pandemic levels in the current year, faster
than anticipated
• Expenditures have continued to increase
and are projected to be higher than
revenues in future years
3 ATTACHMENT 2
General Fund
Financial Status
4 Operat
ing Revenue only shown; does not include one-time revenues used to balance the General Fund in FY20, FY21, and FY22 80 85
9 0
95 100
105
FY19 Actual FY20 Actual FY21 Actual FY22 Budget
Millio
ns
Operating Reve
nue Expenditures
FY22 Project
ed Revenue: $101.98 M
ATTACHMENT 2
Financial Status
: FY 2021/22
• Sales Tax
and Transient Occupancy Tax
recovering
– Is current
level sustainable?
– How will continued COVID variants impact
economic recovery?
• Charges
for Services revenue will lag as
long as City is unable to fund all services
• Revenue is recovering to pre-pandemic
levels, but costs have continued to rise
over the last two years
5 ATTACHMENT 2
Financial Status
• One-Time dollars
have been used in
FY20, FY21, and FY22 to balance the
General Fund
• General Fund Reserves are still fully
funded
• ARPA Revenue was included in FY22
budget as one-time dollars to balance the
General Fund; now looking at using for
one-time projects
6 ATTACHMENT 2
Long-Term Financi
al Forecast
• Components
– Financial Tre
nd Analysis – 6 Year History
• Rapid growth ou
t of last recession can skew
analysis of current trends
• For many categories, FY21 amounts were outliers
that had to be disregarded in the analysis
– Financial Fo
recast – 5 Years Forward
• Economic Assumption
s
• Anticipated Development
• Three Revenue Scenarios
– Most Likely
, Optimistic, Pessimistic
7 ATTACHMENT 2
Historic
al Revenue
• Proper
ty Tax: average annual increase of 6.1% from FY12 – FY21 • Sales Tax: average annual increase of 5.9% from FY12 – FY19 • FY21 revenues rebounded to 97% of FY19 actuals
• TOT: average annual increase of 10.1% from FY12 – FY19 • Timeframe includes 3 new hotels and 1 hotel expansion • FY21 revenues were 52% of FY19 actuals 8
0 5
10 15
20 25
30 35
40 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Millions
Primary
Revenue Sources
Propert
y Tax Sales Tax
Transient Occ
upancy Tax
ATTACHMENT 2
The Forecast….
ATTACHMENT 2
The Forecast….
ATTACHMENT 2
The Forecast….
• Is a mod
el that shows us what
MIGHT happen in the future
• Revenue estimates based on our
current best guesses at the
economic recovery timeline
• Expenditure estimates based on
historical growth rates what
happens if we keep doing what we’ve
been doing
ATTACHMENT 2
What is the forecas
t?
• A set of rea
sonable, most likely assumptions
about future revenues and expenditures based
on current budget/trends
• Changes to assumptions Changes in the
forecast
• GFOA best practice for fiscal management
• Planning Tool
– Allows us to
model future impacts of current budget
decisions
– Allows us to see surplus / deficit trends over time
– Assists us with making changes needed to avoid future deficits
ATTACHMENT 2
The Forecast….
• Is not a bu
dget – Council has final authority to
establish the
budget and amend it as needed
• Is not a labor relations plan – Collective
bargainin
g is a separate process from
forecasting; assumptions in the forecast are for
modeling purposes only
• Is not a set of promises – COLA increase
assumptions,
operating budget growth
assumptions, etc. are for modeling purposes only
• Is not set in stone – Assumptions are changed
over time
in response to a variety of factors and
trends
ATTACHMENT 2
Forecast
• What’s
Included
– Economic Assumption
s
– Major Development Currently Underway plus
Anticipated Growth
– Transfers Based on Current Fiscal Policy
• What’s
Not Included
– ARPA Fu
nding
– New Positions
– Funding for Current Unfunded Needs
– New or Enhanced Programs / Services
14 ATTACHMENT 2
Forecast
Assumptions
Annual
Revenue Growth Rates
• Property T
ax: 4.0% throughout forecast
• Sales Tax: 3.3% average annual growth
• Transient Occupancy Tax
– 1.5% ave
rage annual growth for existing
development; same as pre-pandemic growth
– Estimated projected new development
15 ATTACHMENT 2
Property, Sales
& TOT Revenue
Most Likely
Scenario
16 0
10 20
30 4
0 50
60 FY19
Actual
FY20
Actual
FY21
Actual
FY22
Proj
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Primary R
evenue Sources
Property Tax Sales Tax Transient Occupancy Tax
ATTACHMENT 2
Most Likely
Revenue Forecast
17 98.4
90.6 88.3
10 2.0 106.9 110.8 115.9 119.6 123.1
0 20
40 60
80 100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Proj
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Property
Tax Transient Occupan
cy Tax (TOT)
Sales Tax Other Revenues
Transfers In
ATTACHMENT 2
Revenue Scenarios
• Optimistic
– Assumes ongo
ing economic activity at higher
levels than pre-pandemic; more hotel
development opening during forecast period
• Pessimistic
– Not a recession
scenario – assumes slower
growth rates as we emerge from pandemic
lows
– Includes potential loss of VLF revenue for
FY23 and FY24
18 ATTACHMENT 2
Revenue Uncertainty
19 80
90 100
110
120
13 0
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Proj
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Most Lik
ely
ATTACHMENT 2
Revenue Uncertainty
20 80
90 100
110
120
13 0
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Proj
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Most Lik
ely
ATTACHMENT 2
Forecast As
sumptions
Annual
Expenditure Growth Rates
• Based on
historical trends, core City services
• Staffing: No new positions
• Salaries & Wages: 3.63% combined rate for
COLA and step increases, based on current ratio
of employees at top step and 5-year average
Bay Area CPI
• Frozen Positions: 17 full-time positions were
frozen by Council for FY22 and removed from
the budget; these positions are included in the
“COVID Addbacks” category
21 ATTACHMENT 2
Forecast As
sumptions
Annual
Expenditure Growth Rates
• Benefit Costs Incr
easing
• 3.5% annual increase in healthcare/dental costs
• 2.6% average annual increase in CalPERS
normal costs (payroll)
• 4.4% average annual increase in CalPERS UAL
payments
• CalPERS rates based on updated forecast from
the agency; includes effects of recent high
investment return and subsequent discount rate
reduction
22 ATTACHMENT 2
Projected CalPERS
Costs
General Fund Only
23 11.5
13.4 14.1
16 .1
17.5 19.1 19.1 19.5 19.7
0 5
10 15
20 25
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Normal Cost UAL
ATTACHMENT 2
Projected CalPERS
UAL
24 0
5 10
15 20
25 2021-22
20 22-23
2023-24
2024-25
2025-26
2026-27
2027-28
2028-29
2029-30
2030-31
2031-32
2032-33
2033-34
2034-35
2035-36
2036-37
2037-38
2038-39
2039-40
2040-41
2041-42
2042-43
2043-44
2044-45
Millions
CalPERS UAL P
rojection; all City Funds
Miscellan
eous Safety
ATTACHMENT 2
Forecast As
sumptions
Annual
Expenditure Growth Rates
– Semi-Discretionary
• Services & Supplies:
10.6%
– Utilities, Property
Tax Administration Fees, Software
Licenses, Payments to Other Agencies, etc.
• Internal
Services: 9.5%
• Discretionary
– Services & Supplies:
2.0%
• Professional Services,
General Supplies,
Travel/Training, etc.
– Transfer
to Sidewalks Program: $0.9
million/year
25 ATTACHMENT 2
Forecast As
sumptions
Annual
Expenditure Growth Rates
• Transfers
Out per Fiscal Policy
– CIP Facilities Reser
ve: 2% of Operating
Budget
– CIP General Fund Reserve: 1% of Operating
Budget, plus $0.10 million for the General Plan
– Equipment Replacement Reserve: $0.15
million/year
– General Fund Reserves: bring balances up to
equal 14% (Emergency), 5% (Operating), or
1% (Contingency) of Operating Budget
26 ATTACHMENT 2
Expenditure Forecas
t
27 59.3 60.3 57.4 61
.5 65.0 68.5 70.7 73.0 75.4
-
20 40
60 80
100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Salaries & Be
nefits
ATTACHMENT 2
Expenditure Forecas
t
28 8.2 9.3 10.2 11.7 13.1 13
.6 13.6 14.1 14.4
-
20 40
60 80
100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Salaries & Be
nefits PERS UAL
ATTACHMENT 2
Expenditure Forecas
t
29 5.8 6.8 6.9
7.7 8.5 9.4 10.4 11.5 12.7
-
2 0
40 60
80 100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Salaries & Be
nefits PERS UAL Semi-Di
scretionary Exp
ATTACHMENT 2
Expenditure Forecas
t
30 7.7 7.4 5.8
8.3 8.4 8.6 8.8 8.9 9.1
-
20 40
60 8
0 100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Salaries & Be
nefits PERS UAL Semi-Di
scretionary Exp Discretionary Exp
ATTACHMENT 2
Expenditure Forecas
t
31 5.6 6.6 6.8
7.2 7.9 8.6 9.3 10.1 11.0
-
20 4
0 60
80 100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Salaries & Be
nefits PERS UAL Semi-Di
scretionary Exp
Discretionary Exp Internal Se
rvices
ATTACHMENT 2
Expenditure Forecas
t
32 3.0 3.0 3.2
3.5 4.0 3.9 4.1 4.8 4.9
-
20 40
60 8
0 100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Salaries & Be
nefits PERS UAL Semi-Di
scretionary Exp
Discretionary Exp Internal Se
rvices Non-Fis
cal Policy Transfers
Fiscal Pol
icy Transfers
ATTACHMENT 2
Expenditure Forecas
t
33 5.0 5.2 5.5 5.2 5.4
-
20 40
60 8
0 100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Salaries & Be
nefits PERS UAL Semi-Di
scretionary Exp
Discretionary Exp Internal Se
rvices Non-Fis
cal Policy Transfers
Fiscal Pol
icy Transfers COVID Addbacks
ATTACHMENT 2
Expenditure Forecas
t
34 93.8 95.4
92.6 100.8
112.8 118.7 123.3 128.6 133.9
-
20 40
60 80
100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22
Budget
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
Salaries & Be
nefits PERS UAL Semi-Di
scretionary Exp
Discretionary Exp Internal Se
rvices Non-Fis
cal Policy Transfers
Fiscal Pol
icy Transfers COVID Addbacks
ATTACHMENT 2
Revenues & Ex
penditures
35 -
20 40
60 8
0 100
120
140
FY19
Actual
FY20
Actual
FY21
Actual
FY22 Proj
Rev /
Budget
Exp
FY23
Proj
FY24
Proj
FY25
Proj
FY26
Proj
FY27
Proj
Millions
ATTACHMENT 2
Usage of General
Fund Reserves
(with COVID cuts restored
in FY 2022/23)
36 (80)
(60)
(40)
(2
0)
-
20 40
60 80
FY23 FY24 FY25 FY26 FY27
Millions
General Fund
Reserves - with COVID Addbacks
General Fu
nd Reserves Reserves w/O
ptimistic Revenue
Reserves w/P
essimistic Revenue
ATTACHMENT 2
37 Usage of General
Fund Reserves
(equivalent
level of COVID budget cuts maintained)
(80)
(60)
(40)
(2
0)
-
20 40
60 80
FY23 FY24 FY25 FY26 FY27
Millions
General Fund
Reserves - without COVID Addbacks
General Fu
nd Reserves Reserves w/O
ptimistic Revenue
Reserves w/P
essimistic Revenue
ATTACHMENT 2
• Revenues ar
e recovering but current growth may
be unsustainable
• Potential future impacts from continued variants
and surges
• Expenditures have grown at a rapid pace; if
growth continues at this rate City will experience
operating deficits
• If expenditures are allowed to grow at historic
levels, the City will face annual deficits
• Reserves are not sufficient to cover projected
deficits
38 Summary
ATTACHMENT 2
What’s
Next?
• February
15: FY22 Mid-Year Report; will update
revenue budgets
• February 18: City Council will be asked to set
budget priorities at their workshop
• City Staff will then compile recommendations
based on Council priorities for a conservative FY
2022/23 budget. Going forward will continue to
use the Forecast and Mid-Year Report to
evaluate revenue and adjust budgets as needed
if growth differs expectations
39 ATTACHMENT 2
Comments / Questi
ons?
40 ATTACHMENT 2
End of Presentation
41 ATTACHMENT 2