Correspondence - #1 - Laserfiche WebLink

Home Browse Search

Orozco, Norma From: Tim Johnson <tjohnson@jlkrllp.com> Sent: Thursday, May 12, 2022 11:10 AM To: Bacerra, Phil; Sarmiento, Vicente; Hernandez, Johnathan; Lopez, Jessie; Penaloza, David; Mendoza, Nelida Cc: eComment; Downs, Kathryn; Mendoza, Steven; Ridge, Kristine; Flores, Rosa; Carvalho, Sonia R. Subject: Budget Workshop (5.12.22) Mayor and Council (cc other important folks)...today you will be having a budget workshop for the upcoming 22/23 fiscal year. Obviously,there is a lot to consider and we are fortunate that the City's finance team is able to provide you some really valuable information and you have sought some information from the public also. You will also be receiving the Measure X Annual Report(MXAR)today. I am on that committee although these comments are my personal comments since the annual report stands on its own and you should not take my thoughts below to be those of the committee, although it is very possible,that others or perhaps even all may have similar thoughts. One of the new recommendations in the MXAR is to consider establishing a Measure X Sunset Stabilization Fund. If you recall,the council discussed and I believe voted to establish a Pension Stabilization Fund whereby the city would utilize savings derived from utilizing pension obligation bonds to save for future pension increases so as to be better prepared in the future to handle increasing costs. I hope that this council can see the need to plan for the future sunset of Measure X and as such will strongly discuss and hopefully approve the utilization of such a stabilization fund to plan pro- actively for the sunset of Measure X. As a reminder a few logistical details about Measure X (MX): • MX sales tax rate is 1.5% presently through 3/31/29 • MX tax rate will drop from 1.5%down to 1.0%from 4/1/29 to 3/31/39 • When approved by the voters MX was expected to generate approx$60M per year • The most recent budget update as provided at the 5/3/22 council meeting anticipates that MX will generate approx. $84.2M for FY21-22 • In just 3 years MX revenue has increased by approximately 40% ($84.2M anticipated MX less$60M baseline MX /$60M baseline MX) • The FY22/23 draft projected MX revenue appears to be approx. $92M (see Director Down's current presentation)which is approx. a 6.8% increase. This is likely not only spurred on by additional spending but also due to the inflation we are experiencing on taxable goods. I believe that the council is hearing staff and MX Committee recommendations to focus additional MX spending on one- time expenditures. However, a very good share of MX revenue is spent on recurring expenditures. As staff indicates on page 18 of the Staff Presentation you are receiving tonight,you will see that approximately$22M (or 24% of MX spending) is devoted to one-time spending while 76% is spent on recurring expenditures. Recurring expenditures generally increase each year. Mathematically,this means that when the first MX sunset occurs, if we continue to increase recurring expenditures at the same rate as MX revenue increases,that there will be a fiscal issue to contend with due to the drop in revenue by one-third ((1.5%existing rate—1.0%4/1/29 rate= 0.5% rate drop/ 1.5% existing rate= 1/3 drop). When we are spending 76%on one-time spending and the future MX revenue may be 66% of revenue, there is mathematically a 10%shortfall. We need to plan for that shortfall. There are multiple ways to plan for this...I am suggesting that we need to save today at a MINIMUM the increase to MX revenue received in a year over year basis in order to smooth out that decrease in future revenue. For the future FY22/23 budget being discussed this would be to save (or appropriate to a MX Sunset Stabilization Fund) approx. $7.81VI out of the projected $92M revenue generated by MX. This$7.8M is the difference between the$92M 1