Item 19 - Fiscal Year 2020-21 Mid-Year Budget Update and Appropriation Adjustments

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Fiscal Year 2020-21 Mid-Year Budget Update and Appropriation Adjustments February 16, 2021 Page 3 4 3 9 Property Tax and Property Tax in lieu of VLF: The Orange County Assessor’s Office releases assessed values after the City adopts its budget each year. Therefore, a Property Tax revenue adjustment at Midyear is normal. Staff assumed a 3.77% increase to assessed values when preparing the current year budget. The actual increase was 4.26%. Based on information provided by the City’s Property Tax consultant, including the rate of property tax collections, staff has increased the revenue estimate by a net $710,612. This includes an increase of $159,125 to correct the accounting for consulting costs previously netted against the revenue (discussed further below). Sales Tax (Bradley Burns & Measure X combined): Actual FY19-20 Sales Tax revenue was $107.5 million. With very little information available during budget preparation about the economic effect of the pandemic, staff anticipated a greater reduction of Sales Tax and reduced the original budget estimate to $98.1 million. Fortunately, taxable sales have not decreased as much as previously expected. In fact, the City has benefited from an increase in online sales. Based on detailed analysis from the City’s Sales Tax consultant, the latest conservative estimate is $110.6 million, and staff has increased the budget estimate by $12.5 million, accordingly. Half-Cent Sales Tax for Public Safety: The latest projections from the City’s Sales Tax consultant is $2.23 million and staff has decreased the budget estimate by $188,100, accordingly. Hotel Visitors’ Tax (HVT): Based upon the expected effect of the pandemic, staff had already decreased the HVT estimate by $2 million from the prior year actual of $7.7 million when the FY20-21 budget was prepared. Based on activity through December 2020, staff has decreased the HVT estimate by another $1.5 million. Utility Users’ Tax (UUT): At the time the UUT estimate was prepared for the current year budget, staff assumed the revenue would increase due to pandemic stay-at-home orders and expected audit activity. The City has recently hired a UUT consultant to conduct the audits and the City may collect additional revenue by the end of the calendar year. In the meantime, staff is reducing the UUT revenue estimate back down to the actual FY18-19 level of $22.65 million. Business License Tax: Based upon the expected impact of the pandemic, staff decreased the revenue estimate from the FY19-20 actual figure of $13 million to a conservative estimate of $9.2 million for the current year. For the first six months of the year, business license tax is doing a little better than expected, and staff is increasing the revenue estimate by $90,000. However, 79% of annual business license tax is collected in the second half of the fiscal year. The $90,000 increase reflects a conservative first step towards adjusting the revenue upwards.