HomeMy WebLinkAbout65B - PRELIM YEAR END UPDATEREQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
OCTOBER 16, 2018
TITLE:
PRELIMINARY 2017-18 YEAR END UPDATE
(STRATEGIC PLAN NO. 4, 1)
EMO
RECOMMENDED ACTION
Preliminary 2017-18 Year End Update and Audit Process.
DISCUSSION
CLERK OF COUNCIL USE ONLY:
APPROVED
❑ As Recommended
❑ As Amended
❑ Ordinance on 151 Reading
❑ Ordinance on 2nd Reading
❑ Implementing Resolution
❑ Set Public Hearing For
CONTINUED TO
FILE NUMBER
As part of the adoption of the fiscal year 2017-18 City Budget, staff projected a $9.3 million
structural deficit that was addressed via the use of one-time funds. During fiscal year 2017-18, a
number of City Council approved adjustments were made. These adjustments include, increases
to labor and related costs, addition of staffing for the jail, development activities, and funding to
address homelessness. These adjustments were partially offset through a combination of cost
reductions and revenue enhancements such as maintaining vacancies, new unanticipated Adult -
Use Cannabis related revenue and moderate growth in certain revenues.
At the May 1, 2018 City Council Meeting as part of the Trial Budget Presentation, staff projected
an estimated a structural deficit between $6.1 million to $8.1 million for year-end 2017-18. Most
recent projected year-end estimates indicate a structural deficit of $7.2 million. The final structural
deficit amount will be confirmed following the completion of the audit review, also known as the
Comprehensive Annual Finance Report (CAFR). During the October 8, 2018 Economic
Development, Infrastructure, Budget and Technology (EDIBT) Committee, staff presented the
preliminary year-end General Fund update for fiscal year 2017-18. The presentation covered an
overview of revenues and expenditures, year-end results and outline of the audit process. The
following is a summary that highlights the preliminary 2017-18 year-end update:
Pending completion of the CAFR, the preliminary general fund actual revenues for fiscal year
2017-18 totaled $230.5 million while expenditure actuals totaled approximately $237.7 million. City
departments managed expenditure categories such as personnel, contractual and commodities to
minimize the projected structural deficit. At the end of the fiscal year, there was a total of 180
vacancies citywide of which 123 vacancies are attributed to the General Fund.
6513-1
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
Preliminary 2017-18 Year -End Update
October 16, 2018
Page 3
STRATEGIC PLAN ALIGNMENT
Approval of this item allows the City to meet Goal #4 - City Financial Stability, Objective #1, (Maintain
a stable, efficient and transparent financial environment).
FISCAL IMPACT
There is ng fiscal impact associated with this action.
Acting Executive Director
Finance and Management Services Agency
Exhibit: 1. Preliminary Fiscal Year 2017-18 Year End Update and Audit Process
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