Item 32 - Provide Direction for FY 2021-22 Budget

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EXHIBIT 2 SUMMARY OF 2021 GENERAL FUND RISK ASSESSMENT & CASH FLOW ANALYSIS The General Fund Reserve mitigates risk and provides cash flow. The primary risk factors are economic recession and catastrophic events. The following summary is an assessment of the potential scope of financial risk and estimated cash flow needs. The assessment includes historical information and assumptions, and focuses on significant potential impacts to the General Fund. The assessment was not scientifically developed; and does not assess financial risk associated with general liability, workers compensation, or litigation. Every two years, a third -party actuary assesses the risk for general liability and workers compensation liability; and the City maintains separate funds with separate balances to address those liabilities. Based on the information presented below, and weighing the likelihood of multiple assumed scenarios occurring at the same time with the worst timing for cash flow purposes, a General Fund Reserve equivalent to 18% of annual revenue appears to be sufficient. Economic Recession The following summary illustrates historical revenue contraction for significant general purposes taxes. The table includes actual contraction for the Great Recession of 2008-2009, and estimated contraction for the COVID-19 pandemic. Sales Tax Property Tax Business Tax Hotel Visitors Tax Utility Users Tax Great Recession Actual Contraction 2008-2009 -14% COVID-19 Pandemic Estimated Contraction 2020-2021 0% 0% -29% -45 % 0% FY19-20 Actual Revenue as a percentage of Total General Fund 33% 23% 4% 2% 7% By calculating the worst -case scenario for each revenue as a weighted average for the General Fund, the total potential revenue contraction due to economic recession is 9% of annual General Fund revenue. Catastrophic Failure of Infrastructure The following scenario illustrates the scope of the City's potential out-of-pocket costs related to a catastrophic event, such as an earthquake. Per the 2020 Pavement Management Program, the City maintains 96 million square feet of streets; and the per -square -foot cost of repairing a failed street is $14.78. Assuming a 10% failure of City streets in an earthquake scenario, the total cost to repair could be $142 million. In such a circumstance, it is likely the City would receive federal and state emergency assistance. Using traditional emergency assistance matching formulas, the City would pay 6.25% or $9 million out of pocket; which is approximately 3% of annual General Fund revenue. The City has $202 million of capitalized buildings and building improvements, at historical costs. Assuming an average age of 32 years and annual inflation of 3%, the current cost to replace all buildings and building improvements may be $513 million. The City would receive some insurance proceeds, and some federal and state emergency aid. Assuming a 10% catastrophic failure rate and a City contribution rate of 10%, the City may pay $5 million out of pocket; which is less than 2% of annual General Fund revenue.