65B - PRELIM YEAR END UPDATE - Laserfiche WebLink

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Preliminary 2017-18 Year -End Update October 16, 2018 Page 2 The City's "Top Six" general fund revenues represent nearly 70% of the City's total General Fund Revenues. Sales Tax revenues came under budget by approximately $4 million when compared to the initial projections. A component of Sales Tax underperformance is attributable to recent changes at the California Department of Tax and Fee Administration (formerly the BOE) where the implementation of their new automated system in May 2018 has caused returns for 2018Q2 [April – June] to remain unprocessed. MuniServices, the City's Sales Tax consultant, estimates the impact at $1 million in Sales Tax which will be received and recorded in fiscal year 2018-19. Furthermore, the Department Stores segment continues to decline as consumers shift purchases from brick and mortar stores to utilizing an online platform. However, a recent Supreme Court decision (South Dakota vs. Wayfair, Inc.) provides states with the authority to require online retailers to collect sales taxes even without a local presence in that state. Implementation at the state level is pending and the City may likely receive revenue during fiscal year 2018-19. Property Tax revenue remains strong and exceeded budget projections by $1.1 million or over 3%. Business Tax revenue continues to show moderate growth by exceeding budget by almost $900,000 or 7.5%. Hotel Visitors' Tax came in under budget by $654,000 due to delays in the anticipated startup of two hotels, one of which began operations in August 2018. Additionally, Utility Users Tax (UUT) continues to decline as a result of the cap and trade program and state legislation. Other key revenues highlights — Jail Revenue was $2 million under budget which was a result of a slower than anticipated ramp up of the US Marshals contract that was approved in August 2017. It is anticipated that jail revenue may achieve projected revenues of $16 million in fiscal year 2018- 19. Building permits and plan check revenues were nearly $1 million under budget. Other permits such as heating and electrical came nearly $300,000 under budget. As citywide development activity increase, these revenues are projected to improve next fiscal year. Cannabis related revenue such as the Adult Use retail has been a positive new revenue source. However, Adult Use Cannabis has impacted Medical Marijuana retail revenue which fell short by $1.3 million. For fiscal year 2018-19, staff has lowered Medical Marijuana projections as Adult -Use Retail sales grow. With additional growth of the cannabis industry, it is projected that cannabis related revenues such as cultivation, manufacturing, distribution, and testing will improve this area of general fund revenue. Pending final audit approval, the projected structural deficit for fiscal year 2017-18 is estimated to be approximately $7.2 million. While the structural deficit is within the original projections, its impact will continue to extend into next fiscal year by reducing available fund balance for fiscal year 2018-19. As outlined in Exhibit 1, final audit work has begun and will continue during the months of October and November 2018. A final audit opinion of all of the City's finances will be issued on or about December 7, 2018 including final balances for all funds. 65B-2