1 QUARTER ENDING SEPTEMBER 30, 2021
FISCAL UPDATE
CITY OF RIVERSIDE
TABLE OF CONTENTS
Economic Indicators - 2
General Fund – 4
Enterprise Funds - 6
Other Funds – 7
Other Financial News - 8
EXECUTIVE SUMMARY
.
Chief Financial Officer/City Treasurer
Edward Enriquez
Assistant Chief Financial Officer
Kristie Thomas
The closure of Fiscal Year (FY) 2020/21 presented surprisingly good news in the form of extraordinary gains in sales tax revenue. The strong revenue performance resulted in surplus reserves in the General Fund which will help the City to employ some long -term fiscal strategies, such as increasing funding in the Section 115 Pension Trust for the long - term management of rising retirement costs and creating a Capital Replacement Reserve to address critical infrastructure needs. The strong revenue performance a lso resulted in revised projections for FY 2021/22 which may allow the City to rescind the adopted $10 million vacancy savings balancing measure. However, the City is currently addressing a legal challenge to the certification of the General Fund Transfer (Measure C) ballot measure results. If the City does not prevail in that challenge, significant adjustments will need to be made to the General Fund budget. A decision on this challenge is expected in January 2022.
For most funds, City finances reflect a gradual recovery from the effects of the COVID-19 pandemic. However, those funds dependent upon travel and entertainment, including the Convention Center, Entertainment Fund, and Public Parking Fund continue to experience significant impacts from the pandem ic. Shortfalls in these funds will require new or increased subsidies from the General Fund to provide needed capital for ongoing operations. A prolonged need for fund subsidies reduces available funding for other General Fund services and may compromise l ong-term fiscal strategies for critical unfunded needs.
As the City enters the next budget development cycle, strong revenue performance in the prior year and current fiscal year to date has resulted in a projected elimination of the General Fund structura l deficit under current spending guidelines, including existing Memorandums of Understanding. Prudent management of City resources will be required to ensure lasting fiscal sustainability for the General Fund. 2 ECONOMIC INDICATORS
Jobs Recovery
-14.7%
-9.6%
-6.5%
-6.1%
-4.3%
-2.6%
-0.9%
-2.6%
-3.7%
-6.0%
-6.3%
-5.6%
-5.3%
-4.6%
-4.0%
-3.0%
-1.5%
-0.6%
0.1%
-15.0%
-13.0%
-11.0%
-9.0%
-7.0%
-5.0%
-3.0%
-1.0%
1.0%
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 Percent off Peak Employment
Months from Peak Employment
Jobs Recovery After Peak Employment
2020 - COVID Recession
2008 - Great Recession
After 21 months from peak
employment, the COVID
Recession (2020) is 2.6% off
peak employment, versus
the Great Recession (2008)
which was 6.0% off peak
employment.
The Great Recession (2008)
took 76 months to recover
100% of its job losses.
Percent Change in All Consumer Spending Source: TrackTheRecovery.org 3 MONTHLY CPI HEATMAP
Dec
2020
Jan
2021
Feb
2021
Mar
2021
Apr
2021
May
2021
Jun
2021
Jul
2021
Aug
2021
Sep
2021
Oct
2021
Nov
2021
Overall CPI 1.4% 1.4% 1.7% 2.6% 4.2% 5.0% 5.4% 5.4% 5.3% 5.4% 6.2% 6.8% Category CPI
Food 3.9% 3.8% 3.6% 3.5% 2.4% 2.2% 2.4% 3.5% 3.7% 4.6% 5.3% 6.1% Energy -7.0% -3.7% 2.4% 13.2% 25.1% 28.6% 24.5% 23.9% 25.0% 24.8% 30.0% 33.3% Household Furnishings 2.9% 2.4% 2.3% 2.8% 3.2% 3.7% 3.4% 3.0% 3.3% 4.8% 6.1% 6.0% Apparel -3.9% -2.5% -3.6% -2.5% 1.9% 5.6% 4.9% 4.2% 4.2% 3.4% 4.3% 5.0% Motor Vehicles & Parts 5.0% 4.6% 4.2% 4.5% 9.2% 13.3% 20.3% 19.8% 17.2% 15.0% 16.5% 19.2% Shelter 1.8% 1.6% 1.5% 1.7% 2.1% 2.2% 2.6% 2.8% 2.8% 3.2% 3.5% 3.8% Household Operations 4.1% 4.7% 4.3% 4.3% 4.9% 8.3% 7.2% 7.0% 7.3% 6.6% 6.9% 8.4% Medical Care Services 2.8% 2.9% 3.0% 2.7% 2.2% 1.5% 1.0% 0.8% 1.0% 0.9% 1.7% 2.1% Transportation Services -3.5% -4.1% -4.4% -1.6% 5.6% 11.2% 10.4% 6.4% 4.6% 4.4% 4.5% 3.9% Green = lower CPI Red = higher CPI
INFLATION WATCH
What is the Consumer Price Index and how does it affect consumer spending and sales tax performance? The Consumer Price Index (CPI), is the broadest measure of the increases in the cost of living that the average consumer faces.
The latest reports have shown a growing trend of price increases that the consumer is facing for a myriad of reasons. An infl ux of federal spending, supply chain disruptions, and increased consumer demand are all affecting the prices paid on almost all goods.
Food, energy, and automobile costs are the among the largest drivers of these increased prices. Oil, and its derivative gasoline, have increased 33% in price from November 2020 to November 2021. The pickup in American fuel consumption has surpassed (in total dollar volume) the pre-pandemic high of $44 billion in month gasoline sales, to an all-time high of $54.9 billion per month (as of November 2021).
Automobile prices, specifically used automobiles, have jumped more than 30% from a year ago. The demand for autos and the reopening of the economy caused a surge in automobile prices. Coupled with supply chain and auto manufacturing issues, the perfect storm erupted for the jump in both new and used automobiles. A cooling off of automobile prices is expected as supply chains normalize, and more auto manufacturing comes online.
These pricing increases are expected to level off in the beginning of calendar year 2022, however a decrease in prices is not anticipated. Demand should begin to abate after the holiday season and prices should moderate from the higher growth rates witnessed in 2021. In addition, anticipated Federal Reserve tapering and expected interest rate increases should serve as a brake on the accelerated prices that have spread throughout the economy.
The City has experienced significant growth in sales tax revenues, both because of heightened consumer spending and inflated prices. Through the first fiscal quarte r of FY 2021/22, City sales tax revenue shows large gains (year over year), but a softening in those gains is expected in the upcoming quarters. Higher prices can dampen consumer spending and in turn sales tax revenue.
The remainder of the fiscal year is likely to experience a slower growth rate – nowhere near the gains over the past few quarters – but an overall positive growth rate is expected. Sales tax revenues should remain solid and buoyed by the continued reopening of the economy and solid employment numbers. The recent emergence of the Omicron variant could have a short-term impact on the economy and could temper revenue growth in the third quarter of the fiscal year. As a result of the surge in coronavirus cases due to the variant, any new Federal and State mandates could impact the current economic recovery.
ECONOMIC INDICATORS
4 UPDATED REVENUE PROJECTIONS – FY 2021/22
Budgeted
Projection
Updated
Projection
$
Change
%
Change
Property Taxes $ 76,673,280 $ 76,939,716 $ 266,436 0.3% Sales Tax 68,272,880 81,157,400 12,884,520 18.9%
Utility Users Tax 31,070,222 31,556,617 486,395 1.6%
Transient Occupancy Tax 6,120,000 6,120,000 - 0.0%
Franchise Fees 5,403,601 5,617,000 213,399 3.9%
Licenses & Non-Developer Permits 8,381,657 8,775,457 393,800 4.7% Non-Development Charges for Services 9,784,532 9,428,680 (355,852) -3.6% Development Fees & Charges 6,927,754 6,714,950 (212,804) -3.1% General Fund Transfer 48,208,700 48,208,700 - 0.0%
Measure Z Transfer 18,266,026 18,266,026 - 0.0%
Other Revenues & Transfers In 7,864,545 7,864,545 - 0.0% Total Revenues & Transfers In $ 286,973,197 $ 300,649,091 $ 13,675,894 4.7%
GENERAL FUND REVENUE
Sales Tax History
The 10 -Year history of sales tax revenues
shows strong gains averaging 7.6% in 2013
through 2015, followed by a flattening of
revenue with an average 2.6% annual gain
from 2016 through 2018. In the last full fiscal
year prior to the pandemic, 2019 posted a
6.6% gain over the prior year. Pandemic
impacts, including business closures and
stay-at-home orders, resulted in a 3.1%
decline in 2020.
A combination of factors contributed to an
extraordinary 18. 2% gain in 2021 as
compared to the prior year, including a shift
in consumer spending habits, supply chain
issues driving up costs, and rising inflation
across nearly all spending categories. The
higher sales tax base is expected to be
sustained, providing a new baseline for
revised FY 2021/22 projections. The City’s
sales tax consultant, HdL, projects a 3.6%
growth in 2022 sales tax revenue over prior
year actuals; the fiscal year projection has
been revised accordingly.
$0 M
$10 M
$20 M
$30 M
$40 M
$50 M
$60 M
$70 M
$80 M
$90 M
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
10-Year History of Sales Tax Revenue
Budget Actual/Projected
The chart above displays annual sales tax revenue received by the City through 2021. The sales tax estimate in the adopted budget is $68.3 million; the revised estimate based on 2021 actuals and 2022 sales tax performance to date is $81.2 million, an increase of $12.9 million.
As of the first quarter ending September 2021, total General Fund revenues are expected to exceed budgeted revenue estimates by approximately $13.6 million, primarily due to a $12.9 million increase in projected sales tax revenue. Other revenues were reviewed in detail in preparation for the FY 2022- 2024 biennial budget projections, leading to revised projections for n umerous revenue line items.
5 GENERAL FUND FY 2021/22 DEPARTMENTAL VACANCY SAVINGS TARGETS Department Amount
FTE
Reduction
Other
Methods
Mayor $ - - $ -
City Council - - -
City Manager 214,084 3.00 -
City Clerk 60,853 - 60,853
City Attorney 298,094 3.00 70,470
Human Resources 181,179 2.00* -
General Services 175,207 3.00* -
Finance 322,060 4.00 -
Innovation & Technology 434,094 5.00* -
Community & Economic Development 660,881 7.00* -
Police 4,012,599 31.00 806,573
Fire 2,006,427 - 2,006,427
Public Works 785,296 12.00* -
Library 265,500 3.00 -
Parks, Recreation, & Community Services 507,293 6.00 -
Museum 76,433 3.00* -
Totals $ 10,000,000 82.00 $ 2,944,323
*Includes partial unfunding of some or all FTE via delayed recruitment.
GENERAL FUND EXPENDITURES
Vacancy Factor Balancing
Measure
A $10 million projected structural
deficit in the General Fund was
offset with the adoption of vacancy
savings targets which included full or
partial unfunding of full- time
equivalent (FTE) positions. Some
departments identified other savings
measures to fulfill their pro -rata
vacancy savings target. The Fire
department recommended a
reallocation of Measure Z fire vehicle
funding towards personnel; Council
approved this strategy with the
temporary shift of fourteen firefighter
positions to Measure Z. If Council
approves rescinding the vacancy
savings factor for FY 2021/22, the
firefighter positions and actual costs
to date will be transferred back to
the General Fund. The total fiscal
impact of rescinding the vacancy
savings factor is $5.5 million.
The adopted General Fund expenditure budget included a $10 million vacancy savings target balancing measure to offset a projected structural deficit in the General Fund . Based on performance to date, expenditures are expected to exceed the adopted budget by approximately $573,000, due to a projected $1.06 million increase in subsidy requirements for the Convention Center and Entertainment Funds, offset by $490,000 in other savings.
Based on strong sales tax revenue performance, staff is projecting a $13 million net gain in the General Fund for FY 2021/22. As a result of this posit ive outlook, staff is recommending that the adopted $10 million vacancy savings target be rescinded to allow departments to recruit for and fill all vacant positions. The City is currently responding to a legal challenge to the certification of the results of the General Fund Transfer (Measure C) ballot measure that was approved by voters in November 2021. Staff’s recommendation to rescind the vacancy savings target is contingent upon a successful certification of the General Fund Transfer election results. The fiscal impact of the mid-year action to rescind the adopted vacancy savings target is an estimated $5.5 million.
$43.7 M
($40.9 M)
$.6 M
$11.0 M
$57.2 M
$220.1 M
0% 25% 50% 75% 100%
Transfers Out
Charges to/from Others
Minor Capital
Special Programs
Non-Personnel
Personnel
Quarter 1 Actual Total Budget
EXPENDITURES AS OF SEPTEMBER 30, 2021
6 `
ENTERPRISE FUNDS
Water Fund
The Water Fund is in a healthy position with estimated
reserve levels at t he end of the first quarter within the required policy reserve range (including the available line of credit). Budgeted operating gains of $7.2 million are anticipated, with approximately $3.4 million to be used to fund $21.5 million in capital projects in FY 2021/22,
supplemented by bond proceeds . Residential revenues
were 2.9% less than anticipated during the first quarter.
Commercial, industrial, and other revenues are on target.
Water Fund operating expenditures are 19.9% of budget
at the end of the first quarter.
Electric Fund
The FY 2021/22 adopted budget for the Electric Fund
includes a programmed $7.4 million operating deficit and draw on fund reserves. This
is a financial strategy
employed to draw reserves down to minimize the impact
on rate increases and keep them as low as possible.
Reserve level estimates as of the first quarter end are within established policy levels . At the end of the first quarter, retail sales are 3.4% higher than expecte d, and Electric operating expenditures are 23.7% of total budget. Some
costs vary in their timing throughout the fiscal year; overall, electric expenditures are projected to remain within the budgeted appropriation limit at fiscal year-end.
Refuse Fund
The adopted budget for the Refuse F und projects a draw on fund reserves of approximately $1 million due to
revenues not keeping pace with rising costs. The Refuse Fund began the fiscal year with fund reserves of $3.3
million; as of the first qu arter, the reserve balance is expected to be sufficient to accommodate a current year deficit. The annual rate increase is expected to help the fund to operate at a net gain beginning in FY 2022/23. As of the first quarter of FY 2021/22, both revenues and
expenditures are trending below projections. A scheduled rate increase became effective July 1, 2021.
Sewer Fund
The FY 2021/22 adopted budget projects a net operating
gain of $4.6 million. The operating gain, in addition to fund reserves of $71.4 million will be used to fund $22 million of planned capital projects . Based on an analysis of first quarter performance to date, the Sewer Fund is on track to meet revenue and expenditure projections. At the end of the first quarter, 25.3% of projected revenues have been recorded. Operating expenditures are 35.5% of total
budget (inclusive of prior year encumbrances) at the end of the first quarter and are expected to remain within
adopted appropriation limits through the fiscal year.
$394.5 M $401.9 M
$121.2 M $96.6 M
Revenues Expenditures
Budget to Actual
Adopted Operating Budget Actual
$85.0 M $77.9 M
$25.4 M
$15.8 M
Revenues Expenditures
Budget to Actual
Adopted Operating Budget Actual
$71.1 M $66.4 M
$18.0 M
$24.6 M
Revenues Expenditures
Budget to Actual
Adopted Operating Budget Actual
$29.9 M $30.9 M
$6.9 M $5.6 M
Revenues Expenditures
Budget to Actual
Adopted Operating Budget Actual
7 Measure Z
Based on the spending items approved to date and strong tax revenue performance, Measure Z is projected to end the f iscal year with approximately $44.8 million in unallocated fund reserves . The FY 2021/22 adopted budget included projected revenue of $64.8 million. Considering FY 2020/21 actual tax revenue growth of 15.4% and revenue performance to date, the FY 2021/22 tax revenue projection has been revised to $74.3 million. The revised transaction and use tax projection is 3.25% higher than prior year actuals . If the City Council approves rescinding the General Fund vacancy savings factor contingent upon the certification of the General Fund Transfer ballot results (Measure C), $2 million will be reinstated to Measure Z unallocated reserves. This amount represents the Fire Department’s vacancy savings target that was funded by Measure Z via the temporary transfer of fourteen firefighters from the General Fund to Measure Z.
Actuals Projected
(in millions) 2018 2019 2020 2021 2022
Revenue $ 56.24 $ 62.82 $ 63.14 $ 72.65 $ 74.65
Expenditures (36.14) (40.99) (49.56) (50.85) (68.64)
Encumbrances & Carryovers - - - (36.16) -
Net Change in Fund Balance $ 20.10 $ 21.83 $ 13.58 $ (14.36) $6.01
Beginning Unallocated Fund Reserves $ 2.63 $ 22.73 $ 39.56 $ 53.14 $ 38.78 Net Change in Fund Balance 20.10 21.83 13.58 (14.36) 6.01 Fund Balance Reserve Policy - (5.00) - - -
Ending Unallocated Fund Reserves $ 22.73 $ 39.56 $ 53.14 $ 38.78 $ 44.79
Public Parking Fund
The adopted budget for the Public Parking Fun d reflects the ongoing impact of the COVID -19 pandemic on revenue from downtown parking operations. Downtown parking activity
declined significantly during the pandemic due to business closures and stay-at-home orders. Parking activity is increasing in FY 2021/22, but scaled back events, such as the Festival of Lights, continues to dampen revenue performance. Prolonged revenue loss in this fund will quickly deplete remaining reserves, in which case a General Fund subsidy may be required to fund ongoing operations.
An operating deficit of $ 900,000 is projected in the Public Parking Fund’s adopted FY 2021/22 budge t, with negative fund reserves projected at $1.4 million. The Public Parking Fund began the fiscal year with fund reserves of $1.6 million. Based on adopted revenue projections and appropriations, as well as prior year carryovers and encumbrances, the fund may end the fiscal year with $660,000 negative cash reserves.
Although first quarter revenues are 10% less than revenues for the same period in the prior fiscal year, revenues through November are 19% higher than the prior year and just 10% lower than FY 2019/20 for the same period. Th e revenue performance in comp arison to prior years demonstrates
continued recovery from the effects of the pandemic.
First quarter expenditures are 7 % of the adopted budget .
Expenditures do not occur evenly during the year; debt
expenditures and minor capital expenditures are expected to be recorded in upcoming months.
Staff will continue to monitor the Public Parking Fund
throughout the fiscal year and manage expenditures to
minimize potential negative cash reserves.
OTHER FUNDS
$6.2 M
$7.1 M
$.9 M $.5 M
Revenues Expenditures
Budget to Actual
Budget Actual
8 OTHER FINANCIAL NEWS
American Rescue Plan Act (ARPA)
On March 11, 2021, President Biden signed into law the
American Rescue Plan Act to facilitate the recovery from the devastating economic and health effects of the
COVID-19 pandemic. The American Rescue Plan Act
established the Coronavirus State Fiscal Recovery Fund
and Coronavirus Local Fiscal Recovery Fund, which
provides a combined $350 billion in assistance to eligible state, local, territorial, and Tribal govern ments to assist in the economic and health
recovery by providing
resources to address impacts resulting from the crisis. The City of Riverside will receive Fiscal Recovery Funds in two installments for a total amount of $73,535,189. The first allocation in the amount of $36,767,594 was received in June 2021, and the City will receive the second allocation 12 months later in June 2022 in the amount of $36,767,594.
On November 9, 2021, the City Council approved a
spending plan for the allocation of the first round of ARPA funding. The recommendations were based upon insights
from the community, input received from the CARES Act
survey, lessons learned from CARES Act funded services, departments’ familiarity with services that will serve
disproportionately impacted communities, guidance by
the approved Riverside Road to Recovery and the
Riverside 2025 Strategic Plan, and input received by the City Council on October 5, 2021.
FY 2022-2024 Biennial Budget Development
The City is currently developing the FY 2022-2024 biennial budget. Public engagement is encouraged at numerous meetings during which budget presentations and discussion will be conducted and feedback will be received. The following meetings are currently scheduled (subject to change); additional public outreach meetings may also be scheduled. Get the latest information on public meetings related to the development of the FY 2022 -2024 biennial budget by visiting the City’s budget website at https://riversideca.gov/finance/budget.asp.
Date Time Meeting Body Subject Matter
Feb 10 5:00 PM Budget Engagement Commission Measure Z Review, Critical Unfunded Needs (Final Recommendations)
March 21 6:30 PM Park & Recreation Commission Parks, Recreation, & Community Services Department preliminary budget
March 23 3:00 PM Museum of Riverside Board Museum Department Preliminary Budget March 31 5:00 PM Budget Engagement Commission Departments' Preliminary Budget Presentations (Meeting 1 of 3) April 7 5:00 PM Budget Engagement Commission Departments' Preliminary Budget Presentations (Meeting 2 of 3) April 11 5:00 PM Board of Library Trustees Library Department Preliminary Budget April 11 6:30 PM Board of Public Utilities Public Utilities Preliminary Budget April 14 5:00 PM Budget Engagement Commission Departments' Preliminary Budget Presentations (Meeting 3 of 3) April 18 8:00 AM City Council Budget Workshop Budget Overview (General Fund & Measure Z) & Departments' Preliminary Budget Presentations
April 29 9:00 AM Planning Commission Proposed CIP Conformance to General Plan May 12 5:00 PM Budget Engagement Commission FY 2022-2024 Proposed Biennial Budget May 17 1:00 PM City Council – Afternoon Session FY 2022-2024 Proposed Biennial Budget June 9 5:00 PM Budget Engagement Commission FY 2022-2024 Final Budget June 21 6:15 PM City Council – Evening Session Public Hearing and Adoption of the FY 2022-2024 Biennial Budget