1 QUARTER ENDING DECEM BER 3 1 , 2021
FISCAL UPDATE
CITY OF RIVERSIDE
TABLE OF CONTENTS
Economic Indicators - 2
General Fund – 4
Enterprise Funds - 6
Other Funds – 7
Budget Development - 8
EXECUTIVE SUMMARY
.
Chief Financial Officer/City Treasurer
Edward Enriquez
Assistant Chief Financial Officer
Kristie Thomas
As the country experiences a strong rebound in business sectors heavily impacted by the COVID-19 pandemic, the impact to business sectors, governmental agencies, and individuals spans a broad spectrum. The rebound of business es, travel, and entertainment appears positive for all and has resulted in extraordinary sales tax growth and a rebound in transient occupancy tax for the City. However, the accompanying supply chain issues and inflation have resulted in significant price increases for consumers in nearly all areas of spending. The City continues to monitor the impact of the pandemic on local business es and residents and has allocated a significant portion of federal funding from the American Rescue Plan Act (ARPA) to disproportionately impact ed communities and to offsetting the local negative economic impact of the pandemic. (Visit https://www.riversideca.gov/citymanager/arpa) The second quarter of Fiscal Year (FY) 2021/22 brings mixed news for City financials as General Fund revenue continues to perform exceedingly well whil e some enterprise funds are confronting significant operational and financial challenges. As a result of rebounding business activity and high prices, strong sales tax growth is projected to fully offset the adopted General Fund deficit for the current fiscal year. While the travel and entertainment sectors continue to recover, the City’s entertainment venues are experiencing a prolonged recovery. The Public Parking Fund, already experiencing operational and financial challenges prior to the pandemic, has seen a rapid depletion in fund reserves as parking activity was and continues to be impacted by decreased parking activity in the City’s downtown area throughout the pandemic. Council recently took action to improve the s ustainability of the Parking Fund through an allocation of ARPA funding and revision of parking rates and hours of operation. In the Refuse Fund, an increase in residential tonnage due to more people staying home during the pandemic alongside a shift in the recycling market caused an increase in costs ; despite recent rate increases, refuse revenue is not keeping pace with costs in the Refuse Fund. Staff is engaging the City Council on these and other challenges. Overall, the City is actively addressing areas of fiscal concern, while enjoying a slight reprieve in General Fund concerns. 2 MONTHLY CPI HEATMAP
Feb
2021
Mar
2021
Apr
2021
May
2021
Jun
2021
Jul
2021
Aug
2021
Sep
2021
Oct
2021
Nov
2021
Dec
2021
Jan
2022
Overall CPI 1.7% 2.6% 4.2% 5.0% 5.4% 5.4% 5.3% 5.4% 6.2% 6.8% 7.0% 7.5% Category CPI
Food 3.6% 3.5% 2.4% 2.2% 2.4% 3.5% 3.7% 4.6% 5.3% 6.1% 6.3% 7.0% Energy 2.4% 13.2% 25.1% 28.6% 24.5% 23.9% 25.0% 24.8% 30.0% 33.3% 29.3% 27.0% Household Furnishings 2.3% 2.8% 3.2% 3.7% 3.4% 3.0% 3.3% 4.8% 6.1% 6.0% 7.4% 9.3% Apparel -3.6% -2.5% 1.9% 5.6% 4.9% 4.2% 4.2% 3.4% 4.3% 5.0% 5.8% 5.3% Motor Vehicles & Parts 4.2% 4.5% 9.2% 13.3% 20.3% 19.8% 17.2% 15.0% 16.5% 19.2% 21.3% 23.4% Shelter 1.5% 1.7% 2.1% 2.2% 2.6% 2.8% 2.8% 3.2% 3.5% 3.8% 4.1% 4.4% Household Operations 4.3% 4.3% 4.9% 8.3% 7.2% 7.0% 7.3% 6.6% 6.9% 8.4% 7.4% 9.0% Medical Care Services 3.0% 2.7% 2.2% 1.5% 1.0% 0.8% 1.0% 0.9% 1.7% 2.1% 2.5% 2.7% Transportation Services -4.4% -1.6% 5.6% 11.2% 10.4% 6.4% 4.6% 4.4% 4.5% 3.9% 4.2% 5.6% Green = lower CPI Red = higher CPI
ECONOMIC INDICATORS
INFLATION WATCH
Inflation Trends and Implications
The Consumer Price Index (CPI) is the broadest measure of the increases in the cost of living that the average consumer faces.
CPI is still trending much higher, however, the pace of the gains should begin to abate in the next few months. The overall economy remains very hot (from an inflation standpoint) and will continue to remain in such a state, especially with ongoing supply c hain issues. This constraint on supply is leading to higher prices for goods and services as demand outpaces supply by a large margin.
The main categories contributing to this inflation growth are food, energy, and transportation, specifically automobile prices, both new and used. This annualized increase of over 20% in automobile prices is stoking this area of inflation. Again, this can be directly traced back to supply chain issues and a lack of consistent inventory levels at auto dealers. The expectation remains for a cooling off in automobile prices as more auto parts manufacturing comes back to normal output levels.
Oil and gasoline continue their march upward. Oil prices are nearing the $100-a- barrel mark amid tight supplies, coupled with a reopening economy that is outstripping available petroleum inventories. Reports are floating in about more oil production coming online soon, but that is at least a f ew quarters away before any material relief can be felt at the pump. Additionally, the conflict between Russia and the Ukraine could potentially have a long term impact on gasoline prices.
Housing affordability is also impacted by supply chain issues, with the cost of materials driving up the cost of housing development.
The California Association of Realtors’ (CAR) Housing Affordability Index measures the percentage of households that can afford to purchase a median-priced, single-family home in California. Their December index lists the median price of Riverside housing at $585,000, requiring a monthly housing payment of $2,720 and a minimum qualifying income level of $108,800. CAR reports that 25% of households can afford a home in California, up slightly due to higher incomes and slowing price growth, but well below the 56% affordability level of just a decade ago.
Meanwhile, rental costs in the Riverside-San Bernardino-Ontario region are more expensive than 65% of the state, according to rentdata.org. Median rental prices range from $1,153 for a studio/efficiency apartment to $2,761 for a 4-bedroom home. California law AB 1482 (the Tenant Protection Act) caps annual rent increase at 5% plus the change in the regional April CPI. Accordingly, the maximum allowable rental increase for the period of August 2021-July 2022 was 8.6%. 3 CONSUMER SPENDING TRENDS
Consumer Spending Trends
The City continues to enjoy relatively higher than
expected sales tax receipts . Much of consumer
spending has been impacted by higher prices.
Among those categories are auto sales, which
account for 26% of City sales tax receipts. While an
overall decrease in auto unit sales has been
realized since the start of the pandemic, there has
been a steady, upward trend of units sold.
Coupled with the increase in prices in both new
and used autos, the City’s portion of sales tax
revenue from these sales continues its march
upward and is exceeding expectations.
The City will continue to see significant growth in
sales tax revenues until the slowdown and impacts
of pricing pressures begin to crowd out other
industry segments. Consumer spending does have
limitations and data is showing that the consumer
is beginning to get overburdened with household
debt, especially on the revolving credit side of
things. June 2021 & November 2021 saw some of
the largest increases in revolving debt in many
years (+21.6% & +22.8% respectively).
ECONOMIC INDICATORS
4 GENERAL FUND REVENUE
Transient Occupancy Tax
As one of the hardest -hit revenue
sources during the COVID -19
pandemic, transient occupancy
tax was expected t o experience a
long, protracted recovery as the
entertainment and travel sectors
continued to deal with pandemic
outbreaks and related health
mandates. However, as of the
second quarter end, FY 2021/22
receipts are trending 30% higher
than receipts for the same period in
pre-pandemic FY 2018/19 ($7.2
million). If the trend continues, FY
2021/22 transient occupancy tax
revenues could post an all -time
high near or exceeding $8 million.
Overall, General Fund revenue is on target with revised revenue projections which are $13.7 million above the adopted budget.
Since the first quarter report, sales tax has continued a strong upward trend , prompting the City’s sales tax consultant (HdL) to revise its previous 3.7% annual growth estimate to 8.1% higher than prior year revenue. Overall, sales tax is up 18% over the prior year for the same period. Based on sales tax receipts in the second quarter, sales tax revenue may come in $5 million higher than the first quarter’s revised revenue projections.
5 Position Vacancies by Department as of December 31, 2021 Department Budgeted Vacant % Vacant
Mayor 7.75 0.25 3%
City Council 14 0 0%
City Manager 29.55 6.45 22%
City Clerk 11 1 9%
City Attorney 34 6 18%
Human Resources 31 5 16%
General Services 30 6 20%
Finance 55 10 18%
Innovation & Technology 59.25 12 20%
Community & Economic Development 106.5 26 24%
Public Works 505 63 12%
Library 219 12 5%
Parks, Recreation & Community Service 134 33 25%
Museum 60 13 22%
Police 152.85 18 12%
Fire 13.5 3 22%
Total 1,462.4 214.7 15%
GENERAL FUND EXPENDITURES
As of the second quarter, General Fund expenditures are trending within the approved appropriation limit. General Fund non - personnel expenditures are trending lower than prior years and may produce som e savings at fiscal year -end; however, actual expenditures fluctuate during the fiscal year and are subject to carryover at fiscal year -end. Based on an analysis of overtime trends to date, the Fire Department is likely to exceed its overtime budget in FY 2021/22 by approximately $2 million. Overtime costs are largely impacted by vacancies; currently, the Fire Department has 10 vacant firefighter positions, all of which are in the hiring process. Illness due to the COVID -19 pandemic has also contributed to excess overtime costs in the Fire Department. As of the second quarter, year -to-date trends in all other General Fund departments combined show that total savings from those departments may be sufficient to offset the Fire Department’s budget overage in overtime costs.
In the chart below, General Fund expenditures recorded as of December 31, 2021, are presented in comparison to the Adopted Budget and the Total Budget. The Total Budget includes prior year encumbrances and carryovers as well as current year b udget adjustments. Prior year encumbrances and carryovers represent the amount of unexpended appropriations from previous fiscal years.
$221M
$53M
$10M $.4M
-$41M
$44M
$220M
$59M
$10M $.7M
-$41M
$47M
$104M
$24M
$3M $.1M
-$21M
$22M
-$100M
-$50M
$M
$50M
$100M
$150M
$200M
$250M
Personnel Non-Personnel Special Programs Minor Capital Charges to/from Others
Transfers OutBudget to Actual as of December 31, 2021
Adopted Operating Budget Total Budget Actual
Position Vacancies
The adopted budget includes a $10 million
vacancy savings factor. On January 18, 2022,
the City Council approved a supplemental
appropriation in the General Fund of $5.5 million
to rescind a portion of the $10 million adopted
vacancy factor contingent upon successful
certification of the General Fund Transfer
election results (Measure C). If the General Fund
Transfer election resul t (Measure C) is certified,
staff will record a supplemental appropriation
equal to or less than the approved amount
proportionate to the point in time at which the
certification occurs within the fiscal year. The
legal matter is still pending in the courts.
The chart at right shows the vacancies by
department as of December 31, 2021.
6 `
ENTERPRISE FUNDS
Water Fund
The Water Fund is in a healthy position with esti mated reserve levels at the end of the second 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 mill ion in capital projects in FY 2021/22,
supplemented by bond proceeds . Total operating
revenues for the Water Fund are 56.5% of projections as of second quarter end and operating expenditures are
48.1% of budget.
Electric Fund
The FY 2021/22 adopted budget for the Electric Fund
includes a programmed $7.4 million operating deficit and draw on f
und 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 second quarter end are within established policy levels . As of the end of the second quarter, Electric operating revenues are at 55.0% of budgeted projections and operating expenditures are
48.6% of total budget.
Refuse Fund
The adopted budget for the Refuse Fund 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 $3.1
million net of prior year encumbrances and carryovers; as of the second quarter, the reserve balance is expected to be sufficient to accommodate a current year deficit. The Refuse Fund is currently experiencing both financial and operational challenges . Despite a recent rate increase, revenues are not keeping pace with rising costs. City Staff is in the process of bringing a comprehensive update to the City Council regarding ongoing challenges for the
Refuse Fund.
Sewer Fund
The FY 2021/22 adopted budget for the Sewer Fund
projects a net operating gain of $4.6 million. The operating gain, in addition to fund reserves will be used to fund $22 million of planned capital projects. Based on an analysis of second quarter performance to date, the Sewer Fund is
on track to meet revenue and expenditure projections.
Chemical costs are higher than anticipated due to
market volatility and supply shortages, and unplanned
increases in biosolid removal due to truck driver shortages may cause overages in the non -personnel budget .
Despite these unplanned increases , the Sewer Fund is
expected to remain within total adopted appropriation
limits through the fiscal year.
$394M $402M$394M $414M
$217M $201M
Revenues Expenditures
Budget to Actual
Adopted Operating Budget Total Budget Actual
$85.0M $77.9M$85.0M $80.3M
$48.0M
$38.6M
Revenues Expenditures
Budget to Actual
Adopted Operating Budget Total Budget Actual
$71.1M $66.4M$71.1M $69.5M
$36.7M $33.2M
Revenues Expenditures
Budget to Actual
Adopted Operating Budget Total Budget Actual
$29.9M $30.9M$30.6M
$34.2M
$14.5M $12.6M
Revenues Expenditures
Budget to Actual
Adopted Operating Budget Total 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 fiscal year with approximately $44 .8 million in unallocated fund reserves. The City’s sales tax consultant, HdL, has increased revenue projections from a 3.2% growth rate to a 6.5% growth rate in sales tax revenue over prior year actuals. If the current revenue trend continues through the fiscal year, tax revenue may come in $2 million higher than the revised estimate.
The chart to the right displays the spending status as of December 31, 2021 of approved spending items of various types. Ongoing items are obligations that may increase
annually and cannot be easily defunded, such as personnel .
One-time items are spending items that can be defunded if necessary, depending on contractual obligations.
Public Parking Fund
Parking Fund reserves at the beginning of FY 2021/22 are $1.6 million, or $300,000 net of prior year encumbrances. The adopted FY 2021/22 budget projects a draw on fund reserves of $923,000 due to the lingering impacts of the pandemic on parking revenues, maintenance costs of aging infrastructure, and parking fees not keeping pace with operating costs.
Based on second quarter analysis, the Public Works
Department projected a net operating loss of $1.6 million for FY 2021/22 which would fully deplete fund reserves; however, actions executed after the s econd quarter may produce ending fund reserves of $325,000 (refer to #6 and #7 ,
following).
The Public Works Department has presented several strategies to address infrastructure needs and revenue requirements to achieve financial sustainability in the Par king Fund, and some corrective actions have been approved. Major strategies and actions include:
1. 2016-2017: A recommended Strategic Parking Plan (SPP) addressed future parking needs with a phased approach
to rate revisions; in 2017, the City Council approved an alternate plan consisting of six incremental rate changes and six program enhancements over two fiscal years.
2. 2018-2019: Program updates to the City Council and
Transportation Committee included an operations
overview, technology challe nges, recommendations to
pursue strategies, and balancing measures.
3. 2020: Staff developed and recommended a Parking
Ecosystem Sustainability Plan for program solvency,
including infrastructure and equipment needs and
parking strategies with rate changes.
4. 2020-2022: Replace end -of-life single-space meters with multi-space meters (total cost approximately $836,000).
5. 2021: The City Council declared Garages 1 & 2 surplus property and directed their sale.
6. 2021: On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA) to facilitate the
recovery from the devastating economic and health
effects of the COVID -19 pandemic. On November 9,
2021, the City Council approved the City’s ARPA
expenditure plan which includes $1,300,000 in revenue
loss funding for the Parking Fund.
7. On February 15, 2022, the City Council adopted revised parking rates and hours and approved moving forward
with a Parking Access and Revenue Control Systems
contract at an estimated cost of $925,000. With these
changes sc heduled to be in place by July 1, 2022, net
operating gains of $214,000 are projected for FY 2022/23.
In order to account for the ongoing impacts of COVID -
19, this projection assumes a 60% utilization rate
compared to normal parking volumes. Had the changes
to rates, hours and operations not been adopted , a
revenue loss of $1.3M was projected for FY 2022/23.
OTHER FUNDS
$6.2M
$7.1M
$6.2M
$8.4M
$2.2M
$3.5M
Revenues Expenditures
Budget to Actual
Adopted Budget Total Budget Actual
$18.3M
$4.2M
$52.6M
$28.4M
$9.1M
$2.2M
$8.3M $9.9M
$0 M
$10 M
$20 M
$30 M
$40 M
$50 M
$60 M
General Fund
Support
Debt
Obligations
One-Time Ongoing
Budget to Actual
Budget Actual
8 BUDGET DEVELOPMENT
Priority Based Budgeting (PBB)
Priority Based Budgeting is a decision -making tool that assists City leadership in aligning resources with activities closely aligned to the City’s strategic plan. To date, the City has classified City activities into more than 500 programs, identified the revenue and costs associated with those
programs, and scored the programs in relation to their
alignment to the City’s strategic plan, Envision Riverside 2025.
Alignment to the City’s strategic plan is considered separately for outward-facing programs (Community) and inward facing programs (Governance). Governance programs are internal programs that support the City function at large. Programs are also scored against “Basic Program Attributes” which define the level of necessity or impact o
f a program
separately of the City’s strategic plan.
PBB is a multi -year implementation process that emphasizes successful implementation and integration of PBB into
organizational thought processes. For the upcoming budget cycle, the City focused on vetting critical unfunded needs through the lens of PBB, including relating those needs to existing programs and considering the alignment of those needs with the strategic plan. The needs mostly aligned with the strategic plan will be presented to the Bud get
Engagement Commission and City Council for direction on funding those items in the FY 2022-2024 biennial budget.
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
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
PBB Scoring Criteria
Programs are scored according to their alignment with the City’s strategic priorities:
Community Programs
• Arts, Culture and Recreation
• Community Well-Being
• Economic Opportunity
• Environmental Stewardship
• Infrastructure, Mobility & Connectivity
Governance Programs
• Organizational Culture
• Diverse and Highly Skilled Workforce
• Financial Health
• Technology, Data and Process Improvement
• Communication and Collaboration
Basic Program Attributes
• Population Served
• Level of Cost Recovery
• Level of Reliance on the City to provide the program
• Whether the program is Mandated by Federal, State,
or local rule, regulation, or law
• Level of Demand for the program
• Whether the program is Equally Accessible to
stakeholders