General Fund
2024-25
Budget Preview &
Ten-Year Forecast
April 15, 2024
1 Agenda
• General Fund
• Challenges
• 2024-25 Budget Preview
• 10-Year Forecast
• Budget Strategies and Planning
• Questions and Feedback
2 Background
January 2024 February 2024 April 2024 June 2024
Budget
Kickoff
February 20
2023-24 Mid-Year
Updates
April 15
2024-29 CIP
Preview
2024-25 Budget
Preview
June 3
Proposed Budget
Public Hearing
June 17
Budget Adoption
Public Hearing
Budget Process
3 General Fund Challenges
4 • Costs of providing essential city services
• Fund long-term, legally-obligated
liabilities
• Maintain and repair city facilities
• Provide for infrastructure needs
Costs to
Provide City
Services
Long-Term
Obligations
City Facilities
&
Infrastructure
Revenues
General Fund Challenges
VLF
Shortfall
a major threat to
the city’s fiscal
stability
High
Interest
Rates
negative impact
on tax revenues
Two Major Uncertainties
5 General Fund Budget Preview FY 24-25
6 General Fund FY 2024-25
Revenues Estimates
$166.8 million
General Fund Budget Preview FY 24-25
General Fund FY 2024-25
Expenditure Estimates
$177.3 millionPersonnel
Costs*
120.5
68%
Non-
Personnel
Costs
43.8 25%
Debt
Service and
Other
Transfers
5.0 3%
Contribution
to CIP
8.0 4%
*Personnel Costs included
the City’s share of SMC
Fire personnel costs and
legacy costs.
(shown in millions)
7 2024-25 Budget Highlights
Revenues:
• Property Tax: annual growth slows down to 3%
• VLF: Assuming the State will backfill the FY 22-23 VLF shortfall of $4.2 million • TOT – baseline $4 million (dropped from $7 million baseline) Expenditures:
• High inflation put pressure on operating expenses
• Pension Cost will rise starting in FY 2024-25 – additional $2 million • Contribution to CIP: $7.25 million
8 General Fund Budget Preview FY 24-25
Account Type
2023-24
Mid-Year
Projection
2024-25
Baseline Budget
Estimates
Changes in $
Total Revenues $161.5 $166.8 $5.3
Total Expenditures 169.5 177.3 7.8
Deficit ($8.0) ($10.5) ($2.5)
*shown in millions
9 General Fund Balance
*shown in millions
GENERAL FUND
2023-24
MID-YEAR
PROJECTION
2024-25 BASELINE
BUDGET
ESTIMATES
Up (Down) $
Total Revenues 161.5$ 166.8$ 5.3$ Total Expenditures 169.5 177.3 7.8 Surplus / (Deficit) (8.0)$ (10.5)$ (2.5)$ Beginning Fund Balance 117.9 109.9 (8.0) Ending Fund Balance 109.9$ 99.4$ (10.5)$ 10 General Fund Balance
*shown in millions
GENERAL FUND
2023-24
MID-YEAR
PROJECTION
2024-25 BASELINE
BUDGET
ESTIMATES
Up (Down) $
25% Operating Reserve 39.4$ 41.7$ 2.4$ Housing Reserve 5.9 7.0 1.1 Committed to CIP 8.3 8.0 (0.3) Rainy Day Reserve 56.3 42.7 (13.6) Ending Fund Balance 109.9$ 99.4$ (10.5)$ 11 General Fund 10-Year Forecast
3 Scenarios
• Optimistic
• Pessimistic
• Middle-Ground
12 General Fund 10-Year Forecast
Expenditure Assumptions:
• Personnel Costs
• Salaries and Wages – increase with general alignment of historical CPI • Medical Costs – an annual growth rate of 6.5%
• Pension Costs – based on CalPERS valuation data
• Non-Personnel Costs – 4% compounded annual growth rate was used for FY 2024-25 and 2025-26, then 3% for the out years in the forecast • Transfer Out – $7.25 million of baseline annual contribution to CIP , and required debt service
13 General Fund 10-Year Forecast
Expenditures
*shown in millions. Personnel Costs included the City’s share of SMC Fire personnel costs and legacy costs. 159.5 169.5 177.3 179.4 185.3 190.5 196.9 201.7 206.4 210.1 214.3 217.6 221.8 -
50.0 100.0
150.0
200.0
250.0
2022-23
Actuals
2023-24
Mid-Year
Estimates
2024-25
Baseline
Budget Est.
2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 General Fund Expenditures
Personnel Costs* Non-Personnel Costs Debt Service and Other Transfers Contribution to CIP General Fund Total Expenditures
68%
Personnel
Costs
27% Non-
Personnel
Costs
14 General Fund 10-Year Forecast
Contributions to CIP
7.9 13.2
2024-25
Baseline
Budget Est., 8.0
-
2.0 4.0
6.0 8.0
10.0 12.0
14.0 2022-23
Actuals
2023-24
Mid-Year
Estimates
2024-25
Baseline
Budget Est.
2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 Annual Contribution to CIP
*shown in millions.
Actuals Mid-Year Est. Forecast
$7.25 million baseline
15 General Fund 10-Year Forecast
Pension Costs
2023-24, $17.3
2030-31, $26.1
$0
$5
$10
$15
$20
$25
$30
General Fund Forecast
Pension Costs (in millions)
Normal Cost UAL Payment, including Fire Legacy Costs
16 General Fund 10-Year Forecast
17 Revenue Assumptions:
• Sales Tax stays relatively flat with moderate 1-2% increase • TOT – baseline $4 million (dropped from $7 million baseline) • Property Transfer Tax – baseline $8 million
• Fees and Other Revenues – moderate growth
General Fund 10-Year Forecast
Sales Tax
2024-25 Budget
Estimates, $30.6
$0
$5
$10
$15
$20
$25
$30
$35
$40
Sales Tax (in million)
Actuals Mid-Year Est. Forecast
Note: including ¼ transaction tax for Measure S 18
General Fund 10-Year Forecast
Transient Occupancy Tax
2024-25 Budget
Estimates, $4
$0
$1
$2
$3
$4
$5
$6
$7
$8
Transient Occupancy Tax (TOT)
(in millions)
Actuals Mid-Year Est. Forecast
19 General Fund 10-Year Forecast
Real Property Transfer Tax
2024-25 Budget
Estimates, $8
$0
$2
$4
$6
$8
$10
$12
$14
$16
Real Property Transfer Tax (RPTT)
(in millions)
Actuals Mid-Year Est. Forecast
$8 million baseline
20 General Fund 10-Year Forecast
21 Revenue Assumptions:
Property Tax – depending on the outcome of the two major uncertainties:
Property Tax: Optimistic Scenario Pessimistic Scenario Middle Ground Scenario VLF Shortfalls 100% State Backfilled
(2-year gap)
State refuses to backfill Reduced-levels
Housing Market Strong growth @ 6% 3%-4% growth 4% growth Property Tax in-lieu of VLF (VLF)
$12 $13 $14
$15 $16 $16 $17 $18 $18 $19 $20 $21 $21 $22 $23 $24
$-
$5
$10
$15
$20
$25Millions
VLF Entitlement
VLF available VLF shortfall VLF entitlement
22 Property Tax in-lieu of VLF (VLF)
$12
$8
$12
$16
$11
$14
$16
$13 $13
$16
$18
$20 $20
$16 $16
$19
$-
$5
$10
$15
$20
$25Millions
VLF Shortfall 100% Backfilled by State (with 2-Year Gap) VLF available VLF shortall backfilled by State VLF - Best Scenario VLF entitlement 23 Property Tax in-lieu of VLF (VLF)
24 $8
$12
$16
$11
$14
$9
$7
$5 $6 $5
$7
$5
$3
$- $-
$12 $13 $14
$15 $16 $16 $17 $18 $18 $19 $20 $21 $21 $22 $23 $24
$-
$5
$10
$15
$20
$25Millions
State Refuses to Backfill VLF Shortfall
VLF available VLF shortall backfilled by State VLF - Worst Scenario VLF entitlement VLF Revenues
$118 million
Property Tax in-lieu of VLF (VLF)
$-
$5
$10
$15
$20
$25Millions
Middle-Ground Scenario: Reduced Revenue
VLF available VLF shortall backfilled by State VLF Middle-Ground Scenario VLF entitlement 25 Housing Market – Mortgage Rates
6.88%
26 Housing Market – Single Family Residences
$-
$0.5
$1.0
$1.5
$2.0
$2.5
0 50
100
150
200
250
Millions
Median Sales Price Inventory Sold Average Days on Market 27 General Fund 10-Year Forecast
Optimistic Scenario
0 50
100
150
200
250
2022-23
Actuals
2023-24
Mid-Year
Estimates
2024-25
Baseline
Budget
Est.
2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 General Fund Revenues vs. Expenses
(in million)
Operating Expenses (Baseline) Contribution to CIP General Fund Total Revenues $117.9
$109.9
$99.4
$93.2
$84.4
$76.3 $71.4 $70.4 $73.8
$80.3
$86.9
$97.7
$115.8
0 20
40 60
80 100
120
140
2022-23
Actuals
2023-24
Mid-Year
Estimates
2024-25
Baseline
Budget
Est.
2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 General Fund Balance Forecast
(in millions)
General Fund - Ending Fund Balance 25% Operating Reserve • VLF Shortfall 100% Backfilled by the State of California (with 2-year gap) • Strong Housing Market – Averaging 6% AV Annual Growth 28 General Fund 10-Year Forecast
Pessimistic Scenario
• State refuses to fund its VLF obligation
• Slowdown in Housing Market – Averaging 3%-4% AV Annual Growth 0 50
100
150
200
250
2022-23
Actuals
2023-24
Mid-Year
Estimates
2024-25
Baseline
Budget Est.
2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 General Fund Revenues vs. Expenses
(in millions)
Operating Expenses (Baseline) Contribution to CIP General Fund Total Revenues $117.9 $109.9
$99.4
$85.3
$67.9
$48.1
$27.3
$6.3
($12.2)
($31.0)
($50.7)
($71.2)
($89.9)
-150
-100
-50
0 50
100
150
2022-23
Actuals
2023-24
Mid-Year
Estimates
2024-25
Baseline
Budget
Est.
2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 General Fund Balance Forecast
(in millions)
29 General Fund 10-Year Forecast
Middle Ground Scenario
0 50
100
150
200
250
2022-23
Actuals
2023-24
Mid-Year
Estimates
2024-25
Baseline
Budget Est.
2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 General Fund Revenues vs. Expenses
(in millions)
Operating Expenses (Baseline) Contribution to CIP Total Revenues • State backfills some VLF revenues, but at reduced levels • Housing Market – Averaging 4% AV Annual Growth
$117.9
$109.9
$99.4
$90.4
$80.5
$70.8
$60.1
$50.4
$41.7
$35.5 $31.2 $30.2 $31.7
0 20
40 60
80 100
120
140
2022-23
Actuals
2023-24
Mid-Year
Estimates
2024-25
Baseline
Budget
Est.
2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 General Fund Balance Forecast
(in millions)
General Fund - Ending Fund Balance 25% Operating Reserve 30 Budget Strategies and Planning
• Assumes continued weakness in General Fund revenues until • Interest rates decrease and housing market rebounds
• VLF shortfall funding issue is resolved
• Short-term
• Reliance on Rainy Day Reserve
• Long-term
• Address the funding needs for operational and CIP needs 31 Budget Strategies and Planning
• Measurable Actions
• Cost Recovery
• Use special and restricted funding first
• Grant funding opportunities
• Potential Revenue Measure
• Citywide Financial Sustainability Plan
• Develop a Comprehensive Reserve Policy
32 Council Feedback & Direction
Approach for General Fund Long-Range Planning
• Optimistic
• Pessimistic
• Middle-Ground (staff recommended)
33 Q&A
Karen Huang
Finance Director
[email protected]
650-522-7110
34