CC 2020-02-25_11a Ten Year Fiscal Forecast
MEMORANDUM
TO: CITY COUNCIL
FROM: JAMES A. BERGMAN, CITY MANAGER
BY: CAROLYN GALLOWAY-COOPER, INTERIM DIRECTOR OF
ADMINISTRATIVE SERVICES
SUBJECT: CONSIDERATION OF GENERAL FUND 10-YEAR FISCAL FORECAST
DATE: FEBRUARY 25, 2020
SUMMARY OF ACTION:
Review and discuss a 10-Year forecast of revenue and expenditures for the General
Fund.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
There is no direct financial impact of the fiscal forecast other than the staff time required
to prepare it; however based on the forecast, significant financial impacts are projected
in future years.
RECOMMENDATION:
It is recommended the City Council receive and file the updated General Fund 10-Year
Fiscal Forecast.
BACKGROUND:
Two years ago, the General Fund Forecast indicated a structural budget situation in which
expenditures were anticipated to consistently exceed revenues due to rising costs of
providing services. The City Council adopted a budget with the express intent to eliminate
the structural budget situation by:
Reducing operational costs by approximately $86,000 in FY 2018-19 and
$160,000 in FY 2019-20.
Increasing fees for services in the Community Development Department and the
Recreation Department.
Paying down $5 million in CalPERS unfunded liability debt.
Reducing staffing levels and in turn service levels in the community by 7.4 full time
equivalent employees. Staff reductions and reorganizations are seen in the
Community Development Department, Public Works Department, and the Police
Department (non-sworn positions).
Item 11.a. - Page 1
CITY COUNCIL
CONSIDERATION OF GENERAL FUND 10-YEAR FISCAL FORECAST
FEBRUARY 25, 2020
PAGE 2
After two years, the General Fund Fiscal Forecast, which marks the beginning of the FY
2021 budget planning process, projects a General Fund surplus (revenues exceed
expenditures) of $125,000 in FY 2021.
A continuously improving economic climate is noted by the majority of national, State,
regional and local economic indicators. This Forecast assumes a continued, gradual
growth of the national economy with positive impacts to the local economy, which is
reflective in staff’s estimates of the economically sensitive revenue estimates.
Revenues:
The Forecast assumes an overall revenue increase of just over $500,000, or 3% in FY
2020-21. Increases were projected in Property Tax (5%), Transient Occupancy Tax (TOT)
(11%), Franchise Fees (19%) and Sales Tax (.05%).
As Table 1 below depicts, based on the FY 2020-21 Forecast near status quo Budget,
staff anticipates General Fund revenues to exceed expenses by approximately $125,000
for FY 2020-21. Based on the assumptions of the Forecast, this positive trend of revenue
over expenditures is anticipated in all out-years of the Forecast through 2030. During this
forecast period, surpluses range between $80,000 and $532,000 per year.
Expenditures:
Using a near status quo budget, General Fund expenditure categories are estimated to
increase by approximately $1 million, or 6% primarily due to increased salary and
benefits, minor capital outlay, capital improvements, vehicle and technology
replacements. Salary and benefits account for about 80% of the increase and the other
categories are at about 20% of the estimated cost increase. Overall operating costs are
expected to increase moderately.
The Forecast anticipates salary increases and associated CalPERS costs in the first two
years of 2% each year. Expenditure savings is anticipated with decreases in the
estimated annual payments to CalPERS for the Unfunded Liability (Police). The one-time
payments made to pay down the liability caused a decrease in the payment from over
$900,000 in FY 2018-19 to about $500,000 in FY 2020-21. Although the Police payments
went down, CalPERS increased the annual payment for Miscellaneous from about
$800,000 in FY 2018-19 to about $1.1 Million in FY 2020-21. Employer cost rates are
projected to increase by at least 1%.
Other categories causing an increase in expenditures are vehicle replacements at
$55,000, capital improvement projects at $20,000, and technology replacements at
$100,000.
TABLE 1
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Total Revenues 18,999$ 19,596$ 20,249$ 20,933$ 21,384$ 21,789$ 22,212$ 22,644$ 23,086$ 23,536$
Total Expenditures 18,874$ 19,516$ 19,772$ 20,509$ 20,852$ 21,306$ 21,772$ 22,250$ 22,779$ 23,328$
Net one‐time Surplus (shortfall) 125$ 80$ 478$ 424$ 532$ 483$ 440$ 394$ 307$ 208$
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CITY COUNCIL
CONSIDERATION OF GENERAL FUND 10-YEAR FISCAL FORECAST
FEBRUARY 25, 2020
PAGE 3
Fund Balance:
Assuming a General Fund Reserve requirement at the City Council-approved target level
of 20% of General Fund operating expenditures, the graph below reflects Table 1
revenues and expenditures and positive fund balances for all years of the Forecast. Fund
balances range between 18 – 45% and fall above the target level in all years except FY
2020-21.
Forecast Assumptions:
This Forecast presents a positive fiscal outlook for the City’s General Fund. It is important
to note that it does not include the following potential impacts, which can increase or
decrease the projected annual surpluses and shortfalls to the FY 2020-21 Budget and the
out-years of the Forecast: (1) ongoing labor negotiations; (2) unpredictable CalPERS
actuarial assumptions related to future Pension costs; (3) Diablo Canyon and PG&E
economic losses that may have future impacts on various tax revenues; and (4)
unpredictable workers compensation costs.
Consistent with prior years, the methodology for calculating changes for the out-years of
the Forecast are based on a historical analysis of increases using an estimated annual
growth rate with adjustments factored in for known items. The Forecast is developed
using data from the State of California, the City’s sales and property tax consultant, San
Luis County Property Tax division and other outside agencies. Discussions with internal
staff about the types and levels of services provided by the City now and in the future
were part of our analysis.
(5,000)
0
5,000
10,000
15,000
20,000
25,000
2020‐212021‐222022‐232023‐242024‐252025‐262026‐272027‐282028‐292029‐30In thousandsForecast General Fund
Revenue vs Expenditure and Fund Balance
Rev
Exp
Min Fund Bal
Fund Bal
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CITY COUNCIL
CONSIDERATION OF GENERAL FUND 10-YEAR FISCAL FORECAST
FEBRUARY 25, 2020
PAGE 4
Staff reviewed the CalPERS Unfunded Liability and the projected employer contributions
scheduled by CalPERS. The graph below shows balances due for the six plans as of
6/30/2020 (other funds are responsible for a portion of the total amount due). Also, note
that CalPERS used a Valuation date of 6/30/18, which reflects a time lag and may not
show all extra one-time payments made by the City.
By making regular scheduled employer contributions, three plans will be paid off in FY
2021-22 and one plan will be paid off in FY 2024-25 (highlighted below). The other two
plans have much higher balances and will take longer to pay off. An annual analysis of
the CalPERS Unfunded Liability should be part of the budget planning process. A review
of General Fund surplus and fund balance should be analyzed to determine the possibility
of increased payments on the high balances in order to save amortization costs by paying
the debt off sooner than CalPERS estimates.
Conclusion
This Forecast projects a General Fund surplus for all forecast years and a positive
financial outlook for the City related to fund balance. This Forecast focuses on a near
status quo budget but does not address major policy issues such as significant deferred
maintenance of public infrastructure and assets or unfunded CalPERS pension liabilities.
Additionally, it is important to be aware of cautionary issues facing municipalities today;
(1) growing unfunded liabilities for pension and retiree healthcare benefits; (2) seeking to
remain a competitive employer to keep and attract a talented workforce; and (3) facing
challenges to maintain its infrastructure and address other needs. These strategic long-
term efforts will require additional funding in the FY 2020-21 Proposed Budget and
beyond.
During the next few months, staff will continue to monitor revenue sources as well as
update revenues and expenditures, as applicable, based on newly available information.
This updated information will be reflected in the FY 2020-21 Proposed Budget, which is
scheduled to be reviewed by the City Council in May 2020.
PERS Plans
Balance at
6/30/20
Payment due
2020-21*
Scheduled
Payoff
(from
PERS)
Police 6,502,774 484,036 out-years
Police - 2nd Tier 48,065 10,766 24-25
Police - PEPRA 19,425 10,250 21-22
Miscellaneous 13,113,919 1,094,032 out-years
Miscellaneous - 2nd Tier 21,326 11,254 21-22
Miscellaneous - PEPRA 41,716 22,013 21-22
TOTAL:19,747,225
*Payments vary each year (up and down)
Unfunded Liability at 6/30/2020 (6/30/2018 Valuation Date)
Item 11.a. - Page 4
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CITY COUNCIL
CONSIDERATION OF GENERAL FUND 10-YEAR FISCAL FORECAST
FEBRUARY 25, 2020
PAGE 5
ALTERNATIVES:
1. Receive and file the updated General Fund 10-Year Fiscal Forecast;
2. Direct staff to engage an independent consultant to prepare a fiscal forecast. This is
not recommended as it would be an unbudgeted expense and is unlikely to result in a
significantly different outcome.
ADVANTAGES:
Receiving the 10-Year Fiscal Forecast will assist in informed discussions between the
community, City Council and staff about budgetary priorities as the City develops the FY
2020-21 Budget.
DISADVANTAGES:
There are no disadvantages.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
Attachments:
1. 10 Year General Fund Fiscal Forecast
Item 11.a. - Page 5
1 of 3
General Fund Ten Year Financial Forecast
(Minimum 15% Fund Balance Policy/20% Fund Balance Goal)
Budget
In Thousands 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
REVENUES & OTHER SOURCES
Sales Tax - General 4,087$ 4,107$ 4,173$ 4,261$ 4,350$ 4,442$ 4,535$ 4,630$ 4,727$ 4,827$ 4,928$
Sales Tax - Proposition 172 154 155 157 161 164 167 171 174 178 182 186
Property Tax 5,134 5,389 5,658 5,941 6,238 6,332 6,427 6,523 6,621 6,721 6,821
Property Tax in lieu of VLF 1,719 1,810 1,901 1,996 2,095 2,158 2,180 2,213 2,246 2,279 2,314
Transient Occupancy Tax 1,142 1,199 1,247 1,291 1,323 1,356 1,376 1,397 1,418 1,439 1,461
Business Licenses 100 103 105 108 112 115 119 122 126 130 134
Franchise Fees 690 711 728 743 758 773 789 804 820 837 854
Real Property Transfer Tax 110 110 110 110 113 117 120 124 128 131 135
Aid From Other Governments
Other Subventions & Grants 136 143 150 158 161 164 168 171 174 178 181
Service Charges
Recreation Fees 795 816 837 862 888 915 942 971 1,000 1,030 1,061
Permits & Licenses 557 571 586 604 622 641 660 680 701 722 744
Community Development Charges 514 524 535 545 556 567 579 590 602 614 627
Other Service Charges 166 169 173 176 180 183 187 191 194 198 202
Other Revenues
Fines & Forfeitures 45 46 47 48 49 50 51 52 53 54 55
Use of Money & Property 462 462 462 462 471 481 490 500 510 520 531
Other Revenues 31 32 33 34 35 36 37 38 39 40 41
Transfers
Transfer from Local Sales Tax Fund 223 224 228 232 237 242 247 253 258 263 269
Personnel, Cost & Operating Transfers 2,415 2,427 2,466 2,518 2,581 2,645 2,711 2,779 2,849 2,920 2,993
Total Revenues 18,480$ 18,999$ 19,596$ 20,249$ 20,933$ 21,384$ 21,789$ 22,212$ 22,644$ 23,086$ 23,536$
TEN YEAR FINANCIAL FORECAST
ATTACHMENT 1
Item 11.a. - Page 6
2 of 3
General Fund Ten Year Financial Forecast
Budget
In Thousands 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
EXPENDITURES & OTHER USES
Salary & Benefits 11,264$ 11,779$ 12,068$ 12,016$ 12,547$ 12,707$ 13,049$ 13,411$ 13,782$ 14,162$ 14,553$
PERSable compensation 5,905 6,007 6,027 6,045 6,064 6,082 6,221 6,363 6,507 6,654 6,804
PERS Costs 2,177 2,532 2,711 2,586 3,034 3,143 3,245 3,361 3,481 3,605 3,733
PERS Unfunded Liability Costs - one tim 2,000 - - - - - - - - - -
Part Time/non-PERSable comp 1,021 1,088 1,121 1,149 1,172 1,184 1,219 1,256 1,294 1,332 1,372
PT PERS impacts 103 113 99 106 110 113 116 120 123 127
Insurance (including Workers Comp)1,492 1,537 1,583 1,623 1,655 1,672 1,722 1,774 1,827 1,882 1,938
Medicare, FICA, other 466 511 512 514 515 517 529 541 553 566 578
Pre-fund Retiree Medical Costs 235 235 235 235 235 235 235 235 235 235 235
Operating Programs 5,809 6,334 6,812 7,113 7,246 7,318 7,465 7,614 7,766 7,922 8,080
FCFA contribution 2,052 2,465 2,865 3,107 3,179 3,211 3,275 3,341 3,408 3,476 3,545
All other operating programs 3,757 3,870 3,947 4,006 4,066 4,107 4,189 4,273 4,358 4,446 4,535
Debt Service 230 126 52 52 52 52 52 52 52 40 40
Minor Capital Outlay 127 65 65 65 75 75 75 75 75 75 75
Capital Improvement Projects - 20 20 20 40 40 50 50 50 50 50
Vehicle Replacements - 55 55 55 55 150 150 100 50 55 55
Technology Replacements - 100 50 55 100 115 70 75 80 80 80
Transfers Out 160 160 160 160 160 160 160 160 160 160 160
Total Expenditures 19,825$ 18,874$ 19,516$ 19,772$ 20,509$ 20,852$ 21,306$ 21,772$ 22,250$ 22,779$ 23,328$
Revenues Over (Under) Expend.(1,345)$ 125$ 80$ 478$ 424$ 532$ 483$ 440$ 394$ 307$ 208$
433 362 378 383 396 401 410 420 436 446 457
AVAILABLE FUND BALANCE
START OF YEAR 3,816$ 2,903$ 3,390$ 3,848$ 4,708$ 5,528$ 6,460$ 7,354$ 8,214$ 9,044$ 9,797$
Reserve for carryover
END OF YEAR 2,903 3,390 3,848 4,708 5,528 6,460 7,354 8,214 9,044 9,797 10,462
Fund Balance Goal-20% Expend 3,965$ 3,775$ 3,903$ 3,954$ 4,102$ 4,170$ 4,261$ 4,354$ 4,450$ 4,556$ 4,666$
Ending Fund Balance %15%18%20%24%27%31%35%38%41%43%45%
Unspent appropriations (incr. fund bal)
TEN YEAR FINANCIAL FORECAST
Item 11.a. - Page 7
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General Fund Ten Year Financial Forecast
PROJECTION FACTORS 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30
DEMOGRAPHICS
Population 1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%
Housing Units 1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%1.0%
Inflation 2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%
Compound Pop & Inflation 2.6%2.6%3.0%3.0%3.0%3.0%3.0%3.0%3.0%3.0%
KEY REVENUES
Sales Tax 0.5%1.6%2.1%2.1%2.1%2.1%2.1%2.1%2.1%2.1%
Property Tax 5.3%5.0%5.0%5.0%1.5%1.5%1.5%1.5%1.5%1.5%
TOT 5.0%4.0%3.5%2.5%2.5%1.5%1.5%1.5%1.5%1.5%
Business License/Tax 2019-20 Projection Plus Compound Population and Inflation
Franchise Fees 3.0%2.5%2.0%2.0%2.0%2.0%2.0%2.0%2.0%2.0%
Property Tax in lieu of VLF 5.3%5.0%5.0%5.0%3.0%1.0%1.5%1.5%1.5%1.5%
Development Review Fees 2019-20 Projection Plus Compound Population and Inflation
Recreation Fees 2019-20 Projection Plus Compound Population and Inflation
EXPENDITURES
Salary 2.0%0.0%0.0%0.0%0.0%2.0%2.0%2.0%2.0%2.0%
PERS Benefits 17.5%12.2%2.0%2.8%3.6%3.2%3.6%3.6%3.6%3.5%
Non-PERS Benefits 3.5%3.0%2.5%2.0%1.0%3.0%3.0%3.0%3.0%3.0%
Operating Programs 3.0%2.0%1.5%1.5%1.0%2.0%2.0%2.0%2.0%2.0%
Debt Service Based on Lease Purchase Contracts for Vehicle Replacements
TEN YEAR FINANCIAL FORECAST
Item 11.a. - Page 8