Item 20 - Fiscal 2024-25 Mid-Year Budget Update, Appropriation Requests, and Workforce Changes

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FY24-25 Mid-Year Budget Update, Appropriation Requests, and Workforce Changes March 4,2025 Page 5 4 8 6 7 Zoo and Recreational Program Revenue In FY24-25, Parks, Recreation and Community Services (PRCSA) expects an overall increase in General Fund revenues from zoo and recreational programs, mainly due to higher park reservation activity. Given these trends, staff has revised the revenue estimate with a one-time adjustment of $354,650, bringing PRCSA’s total revenue budget to $3.6 million. Cannabis Staff originally estimated a total Cannabis tax revenue of $14.2 million. However, actual revenue is expected to be short, totaling only $10.1 million, due to several factors contributing to the decline in California's legal cannabis market. These include increased competition from the regional black market, which continues to offer lower prices, and an oversupply in the market which may be driven by more cities allowing the sale of cannabis. As a result, many legal operators have struggled to maintain profitability, with some closing their operations entirely, leading to lower-than-expected tax collections. Several operators have also paid arrearages during the fiscal year, contributing a total of $1.7 million in one-time revenues. While this will help reduce the overall revenue shortfall for this year, it is not an ongoing source of funding. As such, the cannabis budget will need to be adjusted for the next fiscal year to align with the expected baseline revenue. With available data, our best estimate of revenues follows: Therefore, we expect a revenue shortfall of $2.4 million ($14.2 million budgeted, less $10.1 million expected, and $1.7 million in arrearages). This shortfall includes $1.6 million subject to the two-thirds transfer to the Cannabis Public Benefit Fund, while medical- related tax revenue is exempt from this transfer. As a result, the net General Fund impact is a loss of $0.8 million, and the Cannabis Public Benefit Fund revenue loss is $1.6 million. With this report, staff is proposing adjustments to the Cannabis Public Benefit Fund to rebalance the budget, which are outlined later in this report. July through Dec em ber 6 m onths ac tual 4,691,298 January through June 6 m onths expected 5,380,523 Total Revenues Expected (Bas eline) 10,071,821 Money paid in arrear 1,691,669 FY24-25 Expe cte d Re v e nue 11,763,490