General Fund Five Year Forecast
Fiscal Year 2024-25 through Fiscal Year 2028-29
City of Richmond, California
1 GENERAL FUND FIVE YEAR FORECAST
As part of the Fiscal Year 2024-25 Budget development process the City staff provided an update to the General Fund Five Years Forecast to the City Council on May 7, 2024.
The text below discusses the revenue and expenditures assumptions that were used to develop the forecast.
Revenue Scenarios & Assumptions
The General Fund Revenue Forecast Scenarios stem from a detailed review of all the General Fund Revenue categories and streams. Even within each category, many of the main revenue streams change year to year based on different criteria. A great example is the Utility Users Tax where the amounts are increasing for some of the items and decreasing for the others. Generally, staff examined historical trends, actual year to date amounts for FY2023-24, and where we expect to land for the current fiscal year which, in some cases is higher or lower than the Mid-Year Budget amounts, budgeted amounts for FY2024-25, and merged that with any known variables. The detailed description below of the revenue assumptions focuses on the middle of the road scenario revenue forecast. Generally, the pessimistic scenario assumes some of the more volatile revenue streams will grow at a much lower pace while in the optimistic scenario, those same revenue streams will grow at a higher pace.
Property Tax – Increase of 7 percent in FY2024-25 and increases averaging 2.3 percent in the subsequent years. The last five years, Property Taxes have increased by
4.1 percent. The valuation changes in this category can have significant impacts year to year caused by items such as the valuation changes of the Chevron Refinery or significant increase in large sales. Additionally, a significant component is the Successor Agency Surplus funds that roll into the General Fund if there are any excess funds after the corresponding expenditures have been processed. This revenue stream is based on incremental growth.
S
ales Tax – Average increase of 2.0 percent for the forecasted years. Forecast for the regular Sales Tax and the two voter approved sales tax measures is provided by the City’s sales tax consultant. The consultants assume there will be no significant slowdown in the economy in the next couple of years and conservatively use a slower growth model for the outer years. Within this category we also have the Vehicle License Fee Backfill Swap (VLF) which is directly tied to the City’s yearly AV growth. For the VLF, staff used the same assumptions as that for the Secured Property Taxes.
U
tility Users Tax (UUT) – Average increase of 2.4 percent. As mentioned above, this revenue category has individual revenue streams going in very distinct directions. For all years on the forecast UUT on cable, telecommunications, and prepaid wireless is forecasted to decrease while that on Gas & Electricity and the Cap Amount are both forecasted to increase. This revenue category also includes the Chevron Tax Settlement amount. This agreement between the City of Richmond and the Chevron Refinery was reached in 2010 and stemmed from a couple of issues including Measure T approved by voters in 2008 which imposed a manufacturer’s tax as part of the Attachment 8 - General Fund Financial Forecast
General Fund Five Year Forecast
Fiscal Year 2024-25 through Fiscal Year 2028-29
City of Richmond, California
2 Business License Tax, subsequent judgment and appeal, and competing Utility User Tax (UUT) initiatives that would have either increased or decreased the UUT assessed and collected. As part of the Settlement, Chevron agreed to pay $114 million in new revenue to the City of Richmond over the next 15 years. The last payment of $4 million by Chevron to Richmond is scheduled to be paid in FY2024-25. With that an agreed upon provision in the Tax Settlement Agreement called Revenue Neutrality goes away.
This provision means Chevron didn’t have to pay any new taxes during the term of the settlement agreement. After June 30, 2025, Chevron will be required to pay new taxes such as Measure U approved by voters in 2020. This tax changed the business tax methodology from what was previously based on number of employees to gross receipts.
Other Taxes – Average increase of 1.5 percent. Like other revenue streams, this one also includes items that change very independently from each other. This category includes revenues such as the Hotel Tax, Transfer Tax and Franchise Fees. The largest item within this category is Transfer Tax and for that the forecast, although the budget is based on a specific formula tied to the average amount collected since passage by the voters, the forecast incorporates modest growth. One item in this category that will see a significant bump is the Electricity Franchise Fee which was updated earlier this fiscal year and will double in FY2024-25 and modest growth thereafter. For the category as whole, because of this change to the Electricity Franchise Fee, an increase of nearly 15 percent is expected in FY2024-25 while the subsequent years, the yearly growth is a more modest 1.5 percent.
Licenses, Permits & Fees – Average increase of 7.6 percent. With the passage of Measure U, the Business Tax using gross receipts is still a relatively new revenue stream that staff is analyzing closely to better understand year-over-year changes.
Business Tax amounts are a status quo forecast meaning they do not include any changes to the current rates. More normal and predictable amounts are expected moving forward at an average rate of four percent per year for the category.
Additionally, the City has contracted with BRI Consulting Group, Inc. to conduct audits of Richmond businesses. The goal of these services is to ensure businesses are paying what is required per Measure U.
Other Revenues (Includes Fines & Forfeitures, Use of Money and Property, Charges for Services, Other Revenues, Rental Income, Intergovernmental State Taxes & Grants, Proceeds from Sale of Property, and Loan & Bond Proceeds) – These various revenues are expected to remain relatively flat. For these revenue categories, City staff only budget what is known that the City will receive. For FY2024-25, there is a reduction of 40 percent in this revenue stream creating a new base that going forward is expected to stay flat. thereafter.
Operating Transfers In – Nearly all the revenue that gets transferred into the General Fund comes from the Override Pension Tax Fund. This revenue stream is increasing Attachment 8 - General Fund Financial Forecast
General Fund Five Year Forecast
Fiscal Year 2024-25 through Fiscal Year 2028-29
City of Richmond, California
3 due to a combination of increased Assessed Valuation and steady expenditure tied to the Bond and decreasing through the forecast. The revenue that flows into the Pension Tax Override fund is expected to increase at the same rate as Property Taxes, the expenditures are lower in FY2024-25 and thus a higher excess amount available to be transferred to the General Fund. In FY2025-26 there is significantly higher payment out of this fund, reducing the excess amount and thus less revenue available to transfer inti the General Fund. Subsequent years we see the revenue stream becoming more consistent.
Proposed General Fund revenue assumptions for FY2024-25 through FY2027-28 are found in the table below.
Figure 1: Five-Year Revenue Forecast Scenario Assumptions Category
FY2024-
25 FY2025-
26 FY2026-
27 FY2027-
28 FY2028-
29 30 - PROPERTY TAXES 7.06% 2.23% 2.25% 2.26% 2.28%
31 - SALES & USE TAXES 5.99% 2.94% 2.81% 2.67% 2.55%
32 - UTILITY USERS TAXES 7.17% -3.55% 3.42% 3.58% 3.64% 33 - OTHER TAXES 15.14% 1.58% 0.89% 1.63% 1.65%
34 - LICENSES, PRMITS & FEES 3.00% 40.80% -6.16% 2.82% 2.83% 35 - FINES & FORFEITURES 16.51% 2.02% 0.00% 0.00% 0.00% 36 - USE OF MONEY&PROPRTY 0.00% 0.00% 0.00% 0.00% 0.00% 37 - CHARGES FOR SERVICES 28.33% 2.00% 2.00% 2.00% 2.00% 38 - OTHER REVENUE -40.11% 0.00% 0.00% 0.00% 0.00%
39 - RENTAL INCOME 0.06% 3.00% 3.00% 3.00% 3.00%
3A - INTERGOV STATE TAXES 0.00% 0.00% 0.00% 0.00% 0.00% 3B - INTERGOV FED GRANT 0.00% 0.00% 0.00% 0.00% 0.00%
3C - INTERGOV STATE GRANT -29.31% 0.00% 0.00% 0.00% 0.00% 3D - INTERGOV OTHER GRANT -10.71% 0.00% 0.00% 0.00% 0.00% 60 - PROC FR SLE PROP 0.00% 0.00% 0.00% 0.00% 0.00%
61 - LOAN/BOND PROCEEDS 0.00% 0.00% 0.00% 0.00% 0.00%
90 - OPER XFERS IN 10.39% -7.80% 2.83% 2.88% 2.87%
TOTALS 7.73% 2.48% 1.79% 2.68% 2.67%
Expenditure Scenarios & Assumptions
Salaries and Benefits -- all three scenarios three different cost of living increases Pessimistic -3 percent, Middle of the Road – 4 percent, and Optimistic 5 percent, there is estimated 3 percent annual step increase for all bargaining units in each of the scenarios.
Retirement Costs – the forecast uses assumptions provided in the mocst recent valuation report published by CalPERS in July 2023. Per the most valuation report, Attachment 8 - General Fund Financial Forecast
General Fund Five Year Forecast
Fiscal Year 2024-25 through Fiscal Year 2028-29
City of Richmond, California
4 the City’s Normal cost is expected to continue to decline over time as new employees are hired into lower cost benefit tiers. However, the City’s Unfunded Accrued Liability (UAL) with PERS will increase over the next few years mainly due to lower-than-expected return on investment in recent years.
“The determination of both components requires complex actuarial calculations.
The calculations are based on a set of actuarial assumptions which can be divided into two categories:
• Demographic assumptions (e.g., mortality rates, retirement rates, employment termination rates, disability rates)
• Economic assumptions (e.g., future investment earnings, inflation, salary growth rates)
These assumptions reflect CalPERS’ best estimate of future experience of the plan and are long term in nature. We recognize that all assumptions will not be realized in any given year. For example, the investment earnings at CalPERS have averaged 6.9% over the 20 years ending June 30, 2022, yet individual fiscal year returns have ranged from -23.6% to +21.3%. In addition, CalPERS reviews all actuarial assumptions by conducting in-depth experience studies every four years, with the most recent experience study completed in 2021. The chart below shows the estimated UAL annual payments for the coming years.” (Miscellaneous Plan of the City of Richmond (CalPERS ID: 2751275565)
Annual Valuation Report as of June 30, 2022).
Figure 2: Miscellaneous Plan, Projected Employer Contributions Per CalPERS Actuarial Valuation - June 30, 2022 Required
Contribution (Assumes 6.80% Return)
Fiscal Year FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 FY2029-30 Normal Cost % 13.27% 12 .8% 12.4% 12.0% 11.6% 11.3%
UAL Payment $10,460,916 $1 1,535,000 $12,569,000 $13,387,000 $15,354,000 $15,756,000
Figure 3: Safety Plan, Projected Employer Contributions Per CalPERS Actuarial Valuation - June 30, 2022 Required
Contribution (Assumes 6.80% Return)
Fiscal Year FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 FY2029-30 Normal Cost % 22.34% 21.7% 21.1% 20.5% 19.9% 19.3%
UAL Payment $18,906,301 $2 0,421,000 $21,887,000 $23,080,000 $25,654,000 $26,255,000
The UAL is the present value of future employer contributions for service that has already been earned (retirees) and is in addition to future normal cost contributions for active members.
Headcount – the forecast assumes no change in the number of headcounts in future years, as of May 7, 2024, the proposed draft budget Attachment 8 - General Fund Financial Forecast
General Fund Five Year Forecast
Fiscal Year 2024-25 through Fiscal Year 2028-29
City of Richmond, California
5 for FY2024-25 includes 769 Full Time Equivalent (FTE) positions in all funds. General fund budget includes ~639 FTE.
Non-Personnel Costs: for the Pessimistic and Middle of the Road Scenarios all non- personnel categories use a zero percent growth rate for FY2025-26 and a three percent (3%) annual growth rate for the years thereafter.
For the Optimistic scenario, there is a two percent (2%) growth rate for FY2025-26 and a four percent (4%) annual growth rate for the years thereafter. The table below summarizes the growth rates in a table format.
Investment in Paving Program: The Five-Year Forecast assumes enhanced investment in the paving program in the coming years as follows with the growth rates applied as the Other Costs discussed in Table 6.
Figure 5: Investment in Paving
Scenario FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Pessimistic 6,604,223 6,604,223 6,802,350 7,006,420 7,216,613 Middle of the Road 6,604,223 6,604,223 6,802,350 7,006,420 7,216,613 Optimistic 6,604,223 6,802,350 6,989,414 7,164,150 7,343,253
Figure 6: Five-Year Forecast Scenario Assumptions
Scenario
FY24-25 FY25-26 FY26-27 FY27-28 FY28-29
Pessimistic Personnel Costs Proposed Budget 3% 3% 3% 3% Other Costs Proposed Budget 0% 3% 3% 3%
Middle of the Road Personnel Costs Proposed Budget 4% 4% 4% 4% Other Costs Proposed Budget 0% 3% 3% 3%
Optimistic Personnel Costs Proposed Budget 5% 5% 5% 5%
Other Costs Proposed Budget 2% 4% 4% 5%
Attachment 8 - General Fund Financial Forecast
General Fund Five Year Forecast
Fiscal Year 2024-25 through Fiscal Year 2028-29
City of Richmond, California
6 Figure 7: Five-Year Forecast, Pessimistic Scenario
FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Revenues 234,380,287 252,509,054 249,863,065 253,051,098 257,912,401 262,534,677 Expenditures 246,295,113 252,509,054 267,897,794 280,533,076 293,252,760 305,022,340 Surplus/(Deficit) (11,914,826) - (18,034,729) (27,481,978) (35,481,978) (42,487,662)
Figure 8: Five-Year Forecast, Pessimistic Scenario
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350,000,000
2024 2025 2026 2027 2028 2029
Millions
Fiscal Years
Revenues Vs. Expenditures
Revenues Expenditures
Attachment 8 - General Fund Financial Forecast
General Fund Five Year Forecast
Fiscal Year 2024-25 through Fiscal Year 2028-29
City of Richmond, California
7 Figure 9: Five-Year Forecast, Middle of the Road Scenario FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Revenues 234,380,287 252,509,054 258,768,166 263,390,666 270,439,947 277,655,295 Expenditures 246,295,113 252,509,054 268,890,495 282,679,629 296,698,997 308,571,964 Surplus/(Deficit) (11,914,826) - (10,122,329) (19,288,963) (26,259,050) (30,916,669)
Figure 10: Five-Year Forecast, Middle of the Road Scenario
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100,000,000
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250,000,000
300,000,000
350,000,000
2024 2025 2026 2027 2028 2029
Millions
Fiscal Years
Revenues Vs. Expenditures
Revenues Expenditures
Attachment 8 - General Fund Financial Forecast
General Fund Five Year Forecast
Fiscal Year 2024-25 through Fiscal Year 2028-29
City of Richmond, California
8 Figure 11: Five-Year Forecast, Optimistic Scenario
FY2023-24 FY2024-25 FY2025-26 FY2026-27 FY2027-28 FY2028-29 Revenues 234,380,287 252,509,054 264,111,519 272,551,295 280,864,176 289,059,148 Expenditures 246,295,113 252,509,054 271,944,120 287,833,350 304,186,496 318,110,455 Surplus/(Deficit) (11,914,826) - (7,832,601) (15,282,055) (23,322,320) (29,051,307)
Figure 12: Five-Year Forecast, Optimistic Scenario
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350,000,000
2024 2025 2026 2027 2028 2029
Million
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Revenues Vs. Expenditures
Revenues Expenditures
Attachment 8 - General Fund Financial Forecast