CITY OF LOS ANGELES. Revenue Outlook. Supplement to the Proposed Budget

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1 CITY OF LOS ANGELES Revenue Outlook Supplement to the Proposed Prepared by the City Administrative Officer April 2004

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3 TABLE OF CONTENTS Section 1 OVERVIEW Revenue Summary 1 Assumptions 2 Changes Between Fiscal Years and Fiscal Year Onetime General Fund Revenue 4 Proposition 57 Economic Recovery Bond Act 5 Revenue Opportunities Options 6 Five Year General Fund Forecast 7 2 GENERAL RECEIPTS Property Tax 1% Fund 11 Utility Users' Tax 36 Sales Tax 46 Business Tax 53 State Motor Vehicle License Fees 56 Power Revenue Transfer (Normal and Supplemental) 62 Documentary Transfer Tax 63 Transient Occupancy Tax 68 Municipal Court Fines 74 Parking Users' Tax 78 Grant Receipts 80 Franchise Income 83 Water Revenue Transfer 90 Tobacco Settlement 91 Interest 92 Transfer from Telecommunications Development Account 94 Residential Development Tax 95 3 DETAIL OF LICENSES, PERMITS & FEES Summary by Department Summary by Special Categories 98 Significant Changes, s to Revised Significant Changes, Adopted to Revised Significant Changes, Revised to Proposed Special Categories Ambulance 102 Sewer Construction & Maintenance Related Costs 103 Stormwater Pollution Abatement Related Costs 104 Services to Airports 105

4 TABLE OF CONTENTS (Continued) Section 3 (Cont.) DETAIL OF LICENSES, PERMITS & FEES (Continued) Special Categories (Continued) Services to Harbor 106 Services to DWP 107 Gas Tax Projects Related Costs 108 Chargebacks 109 Grant Funded Related Costs 110 Special Funded Related Cost 112 Bond Reimbursements 116 Sanitation Equipment Charge 117 MTA Reimbursement 118 State Mandated 119 MICLA Financing Reimbursement 120 One Time Reimbursements 121 Miscellaneous Taxes and Fees 122 Aging Animal Services Building and Safety City Administrative Officer City Attorney City Clerk Community Development Commission on Children, Youth and Their Families 145 Commission on the Status of Women 147 Controller Council 152 Cultural Affairs Department of Neighborhood Empowerment 156 Disability Emergency Preparedness Environmental Affairs Ethics Commission Office of Finance Fire. 168 General Services Housing Information Technology Mayor Personnel and Human Resources Benefits 186

5 TABLE OF CONTENTS (Continued) Section 3 (Cont.) DETAIL OF LICENSES, PERMITS & FEES (Continued) Planning Police Public Works Financial Mgmt. & Pers. Services 198 Public Works Board Public Works Contract Administration 204 Public Works Engineering Public Works Environmental Services 214 Public Works Street Lighting Public Works Street Services Transportation Treasurer Transit Shelter Income Civic Center Parking Income Los Angeles Mall Rental Income 235 General Fund Miscellaneous CIEP Capital Financing and Administration 242 Convention Center General City Purposes Liability Claims Water and Electricity Unappropriated Balance Section 4 SPECIAL FUNDS DIRECTLY FINANCING THE BUDGET Summary 249 Sanitation Equipment Charges 250 Local Public Safety 252 Traffic Safety Fund 253 State Gas Taxes 257

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7 SECTION Overview CITY OF LOS ANGELES

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9 REVENUE SUMMARY FISCAL YEAR (Thousand Dollars) Revised $701,550 $711,052 Property Tax $711, , ,903 Utility Users' Tax 569, , ,825 Licenses, Permits, and Fees* 436, , ,752 Sales Tax 394, , ,114 Business Tax 384, , ,200 State Motor Vehicle License Fees 236, , ,214 Power Revenue Transfer 158,600 Power Revenue Transfer Supplemental 60, , ,327 Documentary Transfer Tax 138,100 97,900 94,938 Transient Occupancy Tax 118, , ,000 Municipal Court Fines 114,000 62,427 62,427 Parking Users' Tax 65,222 42,378 56,546 Grants Receipts 46,195 35,476 40,906 Franchise Income 39,428 28,800 27,649 Water Revenue Transfer 20,150 9,641 9,984 Tobacco Settlement 10,114 20,500 15,550 Interest 9,740 2,243 2,243 Transfer from Telecommunications 4,701 Development Account 1,800 2,134 Residential Development Tax 2,160 2,163 1,475 Civic Center Parking Income* 1,500 1,500 Transit Shelter Income* Los Angeles Mall Rental Income* 2,900 2,900 Transfer from Tax Reform Fund 149, ,578 Transfer from Reserve Fund 134,422 $3,497,670 $3,531,756 Total General Fund Receipts $3,653,554 * Civic Center Parking Income, Los Angeles Mall Rental Income, and Transit Shelter Income are included in Licenses, Permits, and Fees (formerly Licenses, Permits, Fees and Fines). 1

10 Fiscal Year Revenue Assumptions Economy Related The local outlook is for continued economic growth, except in the areas of construction and real estate. Since real estate experienced strong growth in recent years, some modest correction in now appears likely. The Los Angeles County Economic Development Corporation (LAEDC) projects growth of about 5 percent in local personal income, about half of which is from inflation. LAEDC forecasts 4.6percent growth in taxable sales and 3.5percent growth in the number of overnight visitors. The Proposed assumes overall economysensitive revenue growth in the range of 4 to 5. State Related The Proposed takes into account the Governor s proposal to increase the state shift of local property tax revenue (known as ERAF). The City s annual loss under previous ERAF shifts is estimated to be in excess of $175 million. For , the state proposes to increase that shift by about $39 million to $214 million. The Proposed assumes the sales and property tax swap (known as the triple flip) will occur. Since neither the timing nor the mechanism for the swap are known and since the state intends the swap to be revenue neutral, no triple flip related adjustments are included in any revenue estimate. (Outlined elsewhere in this section is a possible triple flip cash flow scenario.) The Proposed assumes full restoration of all vehicle license fee revenue taken by the state in fiscal and no further state encroachment on the vehicle license fee or other City revenue (except the ERAF loss). Utility Related the Proposed assumes the normal Power Revenue Fund transfer of 7 percent of gross power system operating revenue. The normal 5percent transfer from the Water Revenue Fund will be reduced by restrictions limiting the transfer amount to fiscal water system net income. The Proposed assumes both the gas users tax and gasrelated franchise income will be reduced in fiscal , reflecting some stabilization in natural gas commodity prices. Grant Related The Proposed assumes that the COPS Universal Hiring (Supplement 2) grant will be substantially expended during fiscal No reimbursements from the new FY03 COPS Universal Hiring grant are assumed in the Proposed. Transient Occupancy Tax Related The Proposed assumes the tax remittance schedule for the hotel and parking taxes will be modified from a quarterly to a monthly basis. Also assumed is that the remittance deadline will shift to the 25 th day of the month following the close of each monthly reporting period. 2

11 Changes Between Fiscal Years and (Thousand Dollars) Revised Estimate $3,531,756 Onetime Revenue Detail shown on nearby page. $189,400 Economic Growth The property tax is projected to grow by 5.5% and the sales, business and hotel taxes are projected to grow in the 4% to 5% range. Combined economysensitive revenues are projected to grow by 4.4%. 81,497 State Reinstatement of City Vehicle License Fee Revenue Taken in Fiscal The fiscal budget assumes the state will keep its promise not to encroach on the Vehicle License Fee. 65,700 3 Permanent Benefit From Revenue Opportunity Group Recommendations Detail shown on nearby page. 7,000 Parking Users' Tax Permanent addition to tax base from enforcement/audit contract 1,200 Documentary Transfer Tax Miscellaneous Adjustments Current estimate would make fiscal receipts the secondhighest year ever. Receipts are still expected to be below the level. Includes net effect of noneconomyrelated changes to such accounts as licenses, permits and fees; utility users' taxes; court fines; interest income; and the transfer from the telecommunications development account. (12,227) (13,865) Police Overtime at Airports Not included in fiscal expenditure and revenue estimates. (21,100) Permanent Property Tax Loss (ERAF) Detail shown on nearby page. (38,800) Grant Revenue The largest component of grant revenue in both and is "COPS Universal Hiring (Supplement 2)." For , this category is shown as "Onetime Revenue." This adjustment provides consistency in the treatment of this grant between fiscal years. Fiscal Onetime Reserve and Special Fund Transfers to This category includes that portion of Fiscal Reserve Fund transfer over $60 million and Tax Reform Fund transfer to General Fund. This adjustment provides consistency in the treatment of these transfers between fiscal years. (44,551) (92,456) Subtotal Changes 121, Proposed $3,653,554

12 Fiscal Year OneTime General Fund Revenue ($ Millions) Description Amount Reserve Fund rollover * $74.40 Includes 0304 Capital Finance savings: Close out old MICLAs LACC refinancing savings 6.3 DWP Supplemental Transfer Based on power system gross operating revenue Transient Occupancy Tax Remittance Schedule Change Grants (net) Close out Fire Life Safety Fund (Licenses, Permits and Fees) 4.80 Total $ * Reflects excess over the typical $60 million. Note: Any LAPD overtime costs for LAWA and corresponding LAWA reimbursements to the General Fund are not included in either the salary estimates for the LAPD or in General Fund revenue estimates. Should these costs and offsetting reimbursements materialize, there would be no net impact on the budget.

13 PROPOSITION 57 The Economic Recovery Bond Act Impact of "TripleFlip" State Debt Financing on the City (Thousand Dollars) City Sales Tax Plan by Month Before Triple flip Comment Sales Tax Subject to Triple Flip City Sales Tax Triple Flip Loss (0.25%) City Sales Tax Revenue Adjusted for Triple Flip Additional Triple Flip Property Tax Revenue (One of Many Possible Scenarios)* July $25,978 City July 2004 sales tax receipt is not subject to Triple Flip because cash that month is attributable to FY taxable sales. August 34,445 City August 2004 sales tax receipt is not subject to Triple Flip because cash that month is attributable to FY taxable sales. September 37,878 Only 25% to 30% of September 2004 City sales tax receipts are subject to Triple Flip. Remaining amount is attributable to FY taxable sales. $25,978 34,445 $10,933 $2,733 35,145 5 October 26,945 26,945 6,736 20,209 November 35,709 35,709 8,927 26,782 December 36,327 36,327 9,082 27,245 January 29,634 29,634 7,409 22,226 $27,479 February 38,138 38,138 9,535 28,604 March 31,583 31,583 7,896 23,687 April 24,265 24,265 6,066 18,199 May 32,100 32,100 8,025 24,075 49,180 June 40,998 40,998 10,250 30,749 $394,000 $306,632 $76,658 $317,342 $76,658 *City property tax receipts from secured and unsecured sources (including receipts for supplemental assessments, redemptions, penalties and other categories) would be increased under this scenario to make up the sales tax loss. On March 2, 2002 state voters approved issuance of up to $15 billion in bonds to repay accumulated state budget deficits. These bonds are secured by a pledge of a discrete levy of the sales tax and are also a general obligation of the state. To make the bonds attractive in the marketplace, the bonds will be secured by an additional onequarter cent sales tax. So that taxpayers see no difference in their sales tax, the local BradleyBurns sales tax will be reduced by onequarter cent. Property tax belonging to schools will be redirected to local government to offset the onequarter cent sales tax loss. And the State General Fund is to make the schools whole for lost property tax. Although the outline is known, the exact mechanism for implementing the triple flip scenario was not available at the time the proposed budget was prepared. Estimates for property and sales taxes are before triple flipadjustments. Since the triple flip is intended to be revenue neutral, adjustments to the sales and property taxes would be offsetting. This table shows one of several possible cash flow scenarios the swap could take.

14 Revenue Opportunity Options Included in Proposed 6 One Time Revenue On Going Revenue Appropriation Reduction Transient Occupancy Tax Change Frequency of Tax Remittance $16.0 $16.0 Include Online Internet Sellers of Hotel Rooms in Definition of Hotel Operator $ Telephone Users' Tax Include Nontraditional Service Providers of Voice Over Internet in Telephone Users' Tax Base Fire Equipment Trust Fund Close Out Culture L.A. Use Special Bus Tours to Showcase L.A. to visitors and Diplomatic Community Parking Meter Rates and Hours of Operation Increase in parking rates and hours of operation Good Business Practices Revenue Opportunities Opportunities shown below Total Revenue Opportunities $20.8 $7.0 $1.2 $29.0 Total Summary of Good Business Practices Recommendations of Revenue Opportunity Group Some of the options identified below may be implemented or partially implemented in Require estimated tax payment at time of request for filing extension Require Automatic Clearing House (ACH) payments on tax liabilities over $50,000 Crossreference vendor payment records with business tax records Change remittance of Electric Users' Tax. and Sanitation and Sewer charge remittances made by DWP from monthly to weekly Factor receivables to recover and liquefy delinquent accounts receivables prior to write off Crossreference business with sales tax permit to verify business registrations with city Development of inhouse business tax discovery program to eliminate contingency fee paid to contractor Coordinate monitoring of certificate of occupancy to ensure compliance with LAMC (Sale of real property) Utilize DWP database for tax discovery and research Use of etechnology to market surplus vehicles and equipment. Littering Administrative enforcement program Advertising on commuter buses (commuter express and DASH) Public Works Trust Fund transfer of backlog on "B" vacation and excavation permits to General Fund Inhouse canvassing for compliance Animal Services

15 GENERAL FUND REVENUE FORECAST Fiscal Years Through (THOUSAND DOLLARS) PROPOSED BUDGET FORECAST FORECAST FORECAST FORECAST FORECAST 7 Property Tax $711,158 $746,716 $784,052 $819,334 $856,204 $894,733 Utility Users' Tax 569, , , , , ,660 Licenses, Permits and Fees 436, , , , , ,995 Sales Tax 394, , , , , ,283 Business Tax 384, , , , , ,087 State Motor Vehicle License Fees 236, , , , , ,373 Power Revenue Transfer 158, , , , , ,989 Power Revenue Transfer Supplemental 60,000 Documentary Transfer Tax 138, , , , , ,000 Municipal Court Fines 114, , , , , ,865 Transient Occupancy Tax 118, , , , , ,346 Parking Users' Tax 65,222 68,483 71,907 75,503 79,278 83,242 Grants Receipts 46,195 12,000 12,000 12,000 5,000 5,000 Franchise Income 39,428 40,808 42,236 43,715 45,245 46,828 Water Revenue Transfer 20,150 29,376 29,964 30,563 31,174 31,798 Interest 9,740 12,000 12,360 12,731 13,113 13,506 Tobacco Settlement 10,114 10,280 10,437 11,333 11,502 11,655 Transfer from Telecomm. Dev.Account 4,701 2,500 2,500 2,500 2,500 2,500 Residential Development Tax 2,160 2,160 2,160 2,160 2,160 2,160 General Fund Before Reserve Fund Transfer and VLF loan Repayment $3,519,132 $3,522,119 $3,646,837 $3,780,144 $3,910,894 $4,054,021 State VLF Loan Repayment 66,000 Transfer from Reserve Fund 134,422 60,000 60,000 60,000 60,000 60,000 Total General Fund Receipts $3,653,554 $3,582,119 $3,772,837 $3,840,144 $3,970,894 $4,114,021 Less onetime Revenue and 189,400 66, "Loan" Repayment Revenue Base $3,464,154 $3,582,119 $3,706,837 $3,840,144 $3,970,894 $4,114,021

16 GENERAL FUND REVENUE FORECAST Fiscal Years Through Percent Change PROPOSED BUDGET FORECAST FORECAST FORECAST FORECAST FORECAST 8 Property Tax 0.0% 5.0% 5.0% 4.5% 4.5% 4.5% Utility Users' Tax 0.6% 2.0% 2.0% 2.0% 3.5% 3.5% Licenses, Permits and Fees 4.7% 3.5% 3.5% 3.5% 3.5% 3.5% Sales Tax 4.6% 4.2% 4.0% 4.0% 4.0% 4.0% Business Tax 4.0% 4.2% 4.0% 4.0% 4.0% 4.0% State Motor Vehicle License Fees 42.1% 4.0% 4.0% 4.0% 4.0% 4.0% Power Revenue Transfer 5.6% 1.0% 2.5% 7.5% 2.0% 2.0% Power Revenue Transfer Supplemental 100.0% Documentary Transfer Tax 8.1% 8.0% Municipal Court Fines 5.6% 2.0% 2.0% 2.0% 2.0% 2.0% Transient Occupancy Tax 25.0% 9.2% 5.0% 4.0% 4.0% 4.0% Parking Users' Tax 4.5% 5.0% 5.0% 5.0% 5.0% 5.0% Grants Receipts 18.3% 74.0% 58.3% Franchise Income 3.6% 3.5% 3.5% 3.5% 3.5% 3.5% Water Revenue Transfer 27.1% 45.8% 2.0% 2.0% 2.0% 2.0% Interest 37.4% 23.2% 3.0% 3.0% 3.0% 3.0% Tobacco Settlement 1.3% 1.6% 1.5% 8.6% 1.5% 1.3% Transfer from Telecomm. Dev.Account 109.6% 46.8% Residential Development Tax 1.2% General Fund Before Reserve Fund Transfer and VLF loan Repayment 4.0% 0.1% 3.5% 3.7% 3.5% 3.7% State VLF Loan Repayment 100.0% Transfer from Reserve Fund 10.1% 55.4% Total General Fund Receipts 3.4% 2.0% 5.3% 1.8% 3.4% 3.6% Less onetime Revenue and % 100.0% 07 "Loan" Repayment Revenue Base 1.9% 3.4% 3.5% 3.6% 3.4% 3.6%

17 General Assumptions Economic Growth GENERAL FUND REVENUE FORECAST Fiscal Years Through Notes Assumptions for years to During the 5year forecast period, the economy could follow a number of paths including mild recession. This forecast is based on longterm historical experience. Periods of economic decline are often followed by years of aboveaverage growth. The projections in this table do not attempt to specify the exact path the economy will follow, including cycles of possible recession or recovery. The average annual economic growth of 4% to 5% shown in these tables, which includes about 3% inflation, is consistent with the City's longterm experience of 1% to 2% real growth. 9 State Action Utility Related Property Related Specific Revenue Assumptions Property Tax Utility Users' Tax Licenses, Permits and Fees Sales Tax Business Tax State Motor Vehicle License Fees Power Revenue Transfer This forecast assumes no further encroachment on local revenue by the state; the "ERAF" loss and all prior "ERAF" "takeaways" (adjusted for inflation) will continue throughout the forecast period; the $66 million involuntary VLF gap "loan" will be repaid in full in ; and that the "tripleflip" state financing plan will be truly revenue neutral to the City. Assumes the water and power systems will both have sufficient net income to permit making the normal transfers in and thereafter; that natural gas commodity prices will return towards normal levels very gradually, and that telephone users' taxes will experience modest (inflation only) growth as the telecommunications marketplace continues to adjust to changing technology. Assumes the ad valorem property tax will continue growth throughout the forecast period as the rising market values of recent years are included in additional properties upon sale and improvement; that the excise documentary transfer tax reached a cyclical peak in and will taper very gradually in both and and be stable thereafter. This assumption is reasonable as a trend forecast, although the documentary transfer tax is among the least likely City revenues to remain stable in any specific year. Assumes longterm growth in the 4.5 to 5% range, which is a little slower than the last several years. Assumes ERAF losses totaling $213 million each year will not be restored. No allowance is made for any new state "takeaways." The property tax is scheduled by the state to receive additional revenue as part of the "tripleflip" debt financing plan. Since such "tripleflip" adjustments are intended to be revenue neutral, these adjustments are not included in either the property or sales tax forecasts Assumes growth of 2% through and 3.5% thereafter to allow for stabilization of gas commodity prices. Assumes full collection on wireless telephone use. Assumes normal growth of 3.5% inflation only. Assumes growth of about 4%. Assumes tripleflip losses will be fully offset; this forecast presents base sales tax revenue and takes no notice of technical adjustments associated with "tripleflip." Economic growth same as sales tax. Economic growth same as sales tax. Assumes normal 7% transfer.

18 Power Revenue Transfer Supplemental Documentary Transfer Tax Municipal Court Fines Transient Occupancy Tax Parking Users' Tax Grants Receipts Franchise Income GENERAL FUND REVENUE FORECAST Fiscal Years Through Notes Assumptions for years to None assumed This volatile revenue could move by large amounts in either direction during the forecast period. The assumption is that the five year average will be 8% less than the amount and 16% less than in One driver of growth is productivity improvement. Another determinant is fine increases. The forecast does not make specific projections of fine increases, but some modest changes would be normal during the fiveyear forecast horizon. The 2% growth looks reasonable and is consistent with longterm experience.. Assumes 5% growth from the normal base through and 4% thereafter. This revenue was hit harder by recent recession than other economysensitive revenues and figures to grow a little faster in next year or two. Assumes average 5% growth based on longterm experience and anticipated improvements in tax compliance. Rate of growth is assumed to be slightly higher than the growth rate for the sales tax. Assumes utilization of $20.9 million FY 03 COPS Universal Hiring Grant by , and minimal disaster and policerelated grants thereafter. Assumes an average 3.5% growth. This is a little lower than other economysensitive revenues since gas commodity prices appear to be at a cyclical high and figure to gradually return to historic levels during the forecast period. 10 Water Revenue Transfer Assumes sufficient net income and necessary rate increases to generate transfer based on 5% of gross operating revenue. Interest Conservative forecast based on longterm experience. Tobacco Settlement California Attorney General Projection. Transfer from Telecomm. Dev.Account Forecast based on longterm experience. Residential Development Tax Forecast based on longterm experience. General Fund Before Reserve Fund The percent change in is distorted due to onetime revenue. Transfer and VLF loan Repayment State VLF Loan Repayment Per State Transfer from Reserve Fund Conservative forecast based on longterm experience. Total General Fund Receipts The percent change in is distorted due to the size of Reserve Fund transfer and in due to scheduled receipt of VLF gap loan repayment the previous year. Less onetime Revenue and "Loan" Repayment Revenue Base Represents projected trend forecast of General Fund growth during the forecast horizon 3.5%.

19 SECTION General Receipts CITY OF LOS ANGELES

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21 Property Tax Base** $749,958 Additional ERAF Shift*** (38,800) Property Tax after Adjustment $711,158 The City's annual property tax loss to ERAF will increase from $175 million to $214 million. * Educational Revenue Augmentation Fund ** Detail on following pages *** Per information from the League of California Cities (Thousand Dollars) A B C D E F Secured ERAF Total Property Additional Property Loss (By Tax Adjusted Triple Flip Tax Only* Month) for Additional Property Tax (Receipts by ERAF Loss Scenario Month) (Impact by Month) Total Property Tax (Receipts by Month) PROPERTY TAX ADJUSTMENT ADDITIONAL ERAF* SHIFT (Thousand Dollars) The Fiscal Year Governor's includes an additional property tax shift of $1.3 billion from local government to schools. The City's loss from this additional shift is $38.8 million. The property tax cash flow projections by category on the following pages are before adjustment for the ERAF reduction contained in the Governor's. Column C on the table below outlines the monthly ERAF cash flow decrease. Column F shows a $76.7 million increase in property tax after the ERAF adjustment. That "increase" is offset by a corresponding loss in sales tax revenue. Property Tax Cash Flow Table Impact of ERAF Loss and Change in Property Tax from Triple Flip One Scenario Property tax with ERAF Loss and Revenue Neutral Triple Flip July $11,250 $9,000 $11,250 $11,250 August 38,622 3,822 38,622 38,622 September October 3,300 3,300 3,300 November 10,300 10,300 10,300 December 265, ,500 16, , ,570 January 73,600 68,400 4,042 69,558 27,479 97,036 February 52,000 43,500 2,571 49,429 49,429 March 6,140 6,140 6,140 April 207, ,500 11, , ,310 May 79,312 71,278 4,233 75,079 49, ,259 June 2,600 2,600 2,600 $749,958 $669,000 $38,800 $711,158 $76,658 $787,816 * Presented for informational purposes only. Secured local property taxes are the principal target of the "shift." 11

22 MONTHLY REVENUE STATUS REPORT BY ACCOUNT PROPERTY TAXES (Thousand Dollars) 12 MONTHLY BUDGET VARIANCE REVISED PLAN JULY $14,055 $8,480 $11,172 $10,795 $10,978 $183 $10,978 $11,250 AUGUST 34,077 38,086 38,661 38,580 38, ,884 38,622 SEPTEMBER 5 (159) 1,285 (250) (224) 26 (224) OCTOBER 2, ,781 2,000 1,431 (569) 1,431 3,300 NOVEMBER 7,552 10,530 10,485 10,750 13,811 3,061 13,811 10,300 DECEMBER 204, , , , , , ,734 JANUARY 57,270 64,275 64,241 68,840 72,801 3,961 72,801 73,600 FEBRUARY 38,884 41,908 49,506 45,750 46,923 1,173 46,923 52,000 MARCH 5,269 4,657 6,266 6,250 9,743 3,493 9,743 6,140 APRIL 155, , , , , ,100 MAY 65,364 66,028 74,975 77,915 76,667 79,312 JUNE 3,696 4,365 3,271 4,060 3,502 2,600 TOTAL $588,307 $622,393 $663,440 $701,550 $711,052 $749,958 % CHANGE 11.5% 5.8% 6.6% 5.7% 7.2% 5.5% CUMULATIVE BUDGET VARIANCE REVISED PLAN JULY $14,055 $8,480 $11,172 $10,795 $10,978 $183 $10,978 $11,250 AUGUST 48,132 46,566 49,833 49,375 49, ,862 49,872 SEPTEMBER 48,137 46,407 51,118 49,125 49, ,638 49,872 OCTOBER 50,237 46,567 52,899 51,125 51,069 (56) 51,069 53,172 NOVEMBER 57,789 57,097 63,384 61,875 64,880 3,005 64,880 63,472 DECEMBER 262, , , , ,616 3, , ,206 JANUARY 319, , , , ,417 7, , ,806 FEBRUARY 358, , , , ,340 8, , ,806 MARCH 363, , , , ,083 12, , ,946 APRIL 519, , , , , ,046 MAY 584, , , , , ,358 JUNE 588, , , , , ,958 Summary and assumptions are presented on the next page. The estimates on this page are before additional ERAF shift included in Governor's Proposed and before adjustments associated with "Triple Flip" shifts linked to funding state deficit bonds. Additional detail follows.

23 SUMMARY Property taxes represent the City's largest source of General Fund revenue. The City forecasts property taxes based on each of the specific categories of receipts: secured, unsecured, delinquent, redemptions, refunds, supplemental assessments and state replacement monies for homeowner exemptions. Estimates for City secured and unsecured receipts in are based on the County Assessor s estimate of growth in assessed valuation. Adjustments are made for growth in redevelopment project areas. The estimates of current secured and unsecured levy receipts are adjusted for delinquencies and the timing of remittances to the City. Estimates of other property tax receipts are based primarily on historical collections. 13 Proposition 13 Article XIII A of the State Constitution (enacted through the passage of Proposition 13 in 1978) limits the ad valorem taxes on real property to one percent of the "full cash value." The County collects the real property taxes and apportions the taxes among local taxing agencies on the basis of a formula established by state law in That formula was modified in fiscal year and fiscal year and reduced City revenue; these modifications were known as ERAF shifts because city, county and special district tax revenues were shifted to Educational Revenue Augmentation Fund. Under this formula, the City receives a baseyear allocation plus an allocation on the basis of growth in assessed value of properties sold/transferred, new construction, and inflation adjustment. As of fiscal year , the City of Los Angeles remained the highest valued municipality in the county with net revenue producing assessed valuation of $263 billion, a 7.8% increase from fiscal year Recent Litigation Involving Assessment Practices In March 2004, the State s Fourth District Court of Appeal overturned a decision by Orange County Superior Court Judge John Watson and said the technique used by all fiftyeight county assessors in California called recapturing is constitutional under Proposition 13. This had been the subject of litigation that represented a significant risk to City revenue. Recent City Revenue Trend The unusually high rate of growth in (11.5%) was caused by the redirection to the General Fund of revenue formerly directed to the Central Business District CRA. Assessed values followed a normal pattern in the late 1990 s and in the early 2000 s, and City receipts usually track valuations. Countywide collections for the past four fiscal years were steady at around 97% of the secured levy. Assumptions for That the County Assessor s estimate of 7.7% growth in countywide property valuations represents the best basis for forecasting secured receipts; his 0.8% estimate for countywide unsecured receipts is used for that City category.

24 That the County will not delay payments that belong in until the next fiscal year. That the amount of redemptions/penalties and supplemental collections will decline reflecting a projected slowdown in sales price escalation and limited inventory. Additional Detail On the following pages, we present historical information and the basis for the revenue assumptions. 14

25 PROPERTY TAX OVERVIEW (Million Dollars) BUDGET REVISED ESTIMATE NOTE NET REVENUE PRODUCING $214,689.9 $229,978.8 $244,253.3 $261,531.4 $263,378.4 $282, VALUATIONS % CHANGE 7.0% 7.1% 6.2% 7.1% 7.8% 7.3% 2 NET SECURED CITY ROLL $193,267.0 $206,569.4 $220,236.7 $236,972.9 $238,040.0 $256, % CHANGE 9.3% 6.9% 6.6% 7.6% 8.1% 7.8% 4 SECURED LEVY $520.2 $554.2 $588.3 $632.5 $638.1 $ SECURED LEVY AS % OF NET 0.269% 0.268% 0.267% 0.267% 0.268% 0.267% 6 SECURED CITY ROLL 15 SECURED RECEIPTS BY $505.5 $541.7 $577.4 $618.2 $623.3 $ COUNTY TAX YEAR % CHANGE 6.8% 7.2% 6.6% 7.1% 7.9% 7.5% 8 COLLECTION RATE 97.2% 97.7% 98.2% 97.7% 97.7% 97.7% 9 CASH ADJUSTMENTS 4.1 (3.9) (1.0) (0.7) 10 SECURED RECEIPTS BY CITY $509.6 $537.8 $579.9 $618.4 $622.3 $ FISCAL YEAR % CHANGE 8.9% 5.5% 7.8% 6.6% 7.3% 7.5% 12 CRA TAX INCREMENT ALL OTHER PROPERTY TAX CATEGORIES % CHANGE 4.5% 10.7% 3.5% 1.3% 15.4% 10.5% TOTAL $588.3 $622.4 $663.4 $701.6 $711.0 $750.0 % CHANGE 11.5% 5.8% 6.6% 5.7% 7.2% 5.5% 15

26 NOTES TO PROPERTY TAX OVERVIEW 1. NET REVENUE PRODUCING VALUATIONS This is the total City revenue producing valuations for secured and unsecured property after exemptions. The County Assessor uses this as the basis for projections. 2. NET REVENUE PRODUCING VALUATIONS PERCENT CHANGE This is the rate of growth in the net revenue producing valuations expressed as a percent change from the prior year. The revised figure for 2003 reflects the Assessor s final determination. We use the County Assessor's preliminary countywide estimate of the net revenue producing valuations as the basis to forecast the net City revenue producing valuations. 3. NET SECURED CITY ROLL This adjusts the net revenue producing valuations to remove unsecured values, which are estimated separately, and CRA increment values, which are not credited to the General Fund. Assessments for public utilities by the State Board of Equalization are added. 4. NET SECURED CITY ROLL PERCENT CHANGE Differs from net revenue producing valuations percent change in some years primarily because of shifts in CRA increment values. However, for FY , the County Assessor is forecasting significantly different growth rates for secured valuations (7.7%) and unsecured valuations (0.8%). The result is the increasing differences in percent change between the Net Revenue Producing Valuations and the Net Secured City Roll 5. SECURED LEVY The County AuditorController applies the general tax levy of 1% to net secured City roll. Portions of that 1% levy are directed to schools, the County, and special districts. The amount shown in this category is the City s portion of the 1% levy. 6. SECURED LEVY AS PERCENT OF NET SECURED CITY ROLL The City gets about 27% of the 1% secured property tax collected in the City; the County, schools and special districts get the rest. The City share of the secured levy has declined slightly in recent years 7. SECURED RECEIPTS BY COUNTY TAX YEAR Typically closely parallels the rate of growth for net secured City roll. 8. SECURED RECEIPTS BY COUNTY TAX YEAR PERCENT CHANGE For , projected City revenue growth is expected to exceed the rate of growth for the net revenue producing valuations. Net revenue producing valuations include unsecured valuations which are not growing. 16

27 9. COLLECTION RATE projected collection rate of 97.7% is historically high but consistent with experience in last several years. Receipts to date support using the same rate in CASH ADJUSTMENTS This is the difference between City fiscal year (receipts from July to June) and County property tax year (City receipts from December to November). For and we assume the normal pattern of receipts. 11. SECURED RECEIPTS BY CITY FISCAL YEAR Currentyear secured receipts are recorded by the County Tax Collector between December and the following June. The County AuditorController remits a portion of the City s share of tax collections in July and August, after the City s books close. The Charter requires the City to use only cash received during its fiscal year as the basis for budget planning, and monies remitted by the County after June 30 are credited to the next fiscal year 12. SECURED RECEIPTS BY CITY FISCAL YEAR PERCENT CHANGE This differs from percent growth in valuations primarily because of yeartoyear changes in remittances by the County during months of July and August. 13. CRA TAX INCREMENT The Central Business District CRA project (CBD) received its final property tax increment payment late in Beginning in , these tax monies were redirected to other taxing agencies, such as the City. The County has been segregating the former CBD tax increment and remitting it separately. CBD is removed from the net secured City roll along with all other CRA tax increments when net City valuations are calculated. Once the County folds the CBD increment into the net secured roll, this category will be discontinued and the CBD assessed valuations will be included as part of the City assessed values. 14. ALL OTHER PROPERTY TAX CATEGORIES Includes unsecured property taxes, homeowner exemption reimbursements, redemptions and penalties, supplemental assessment payments, county charges, refunds and all other adjustments. Historical collections and estimates for these sources are detailed in the following page. 15. TOTAL CITY RECEIPTS This shows the effect of all adjustments to the change in net revenue producing valuations. For , the total rate of growth in City receipts is about 1.8% less than the rate of growth in net revenue producing valuations due to the differences in rate of growth between the net revenue producing valuations (7.3%) and the summary of all other (10.5%). 17

28 SUMMARY OF ALL OTHER CATEGORIES (Thousand Dollars) BUDGET REVISED ESTIMATE UNSECURED $36,945 $39,577 $38,812 $38,800 $41,147 $40,040 % CHANGE FROM PRIOR YEAR 4.5% 7.1% 1.9% 0.0% 6.0% 2.7% HOMEOWNER EXEMPTION 8,426 8,374 8,350 $8,400 8,274 $8,268 % CHANGE FROM PRIOR YEAR 0.1% 0.6% 0.3% 0.6% 0.9% 0.1% REDEMPTIONS & PENALTIES 16,513 18,039 19,560 $20,000 23,571 $20,150 % CHANGE FROM PRIOR YEAR 11.0% 9.2% 8.4% 2.2% 20.5% 14.5% SUPPLEMENTAL 11,686 15,724 18,799 $17,000 21,127 $17,500 % CHANGE FROM PRIOR YEAR 6.9% 34.6% 19.6% 9.6% 12.4% 17.2% 18 COUNTY CHARGE (11,328) (11,817) (12,600) ($13,000) (13,036) ($13,500) % CHANGE FROM PRIOR YEAR 10.8% 4.3% 6.6% 3.2% 3.5% 3.6% REFUNDS (3,554) (1,330) (8,943) ($6,000) (7,000) ($6,000) % CHANGE FROM PRIOR YEAR 37.8% 62.6% 572.4% 32.9% 21.7% 14.3% ADJUSTMENTS 1,533 (1,855) % CHANGE FROM PRIOR YEAR 412.7% 221.0% 119.2% 52.5% TOTAL: ALL OTHER CATEGORIES $ 60,221 $ 66,712 $ 64,334 $ 65,200 $ 74,252 $ 66,458 % CHANGE FROM PRIOR YEAR 4.5% 10.8% 3.6% 1.3% 15.4% 10.5% A brief explanation and additional detail for each of these property tax components are presented separately.

29 City of Los Angeles TOTAL PROPERTY TAX VALUATIONS (Billion Dollars) 19 CALENDAR YEAR Estimate City FY City FY City FY City FY City FY Valuation Valuation Valuation Valuation Valuation Gross Total Locally Assessed Valuations $ $ $ $ $ % change from last year 6.8% 6.9% 6.2% 7.5% 7.3% Less exemptions: Churches, Schools Less: Homeowner exemptions Net Revenue Producing Valuations $ $ $ $ $ % change from last year 7.0% 7.1% 6.2% 7.8% 7.3% Other Adjustments Add: State Assessments for PUC Less: CRA Increment Net City Roll $ $ $ $ $ % change from last year 9.2% 7.0% 5.8% 7.5% 7.4% Values for 2004 are estimates by City staff based on County Assessor estimates of countywide valuations.

30 City of Los Angeles SECURED PROPERTY TAX VALUATIONS CALENDAR YEAR 2000 (Billion Dollars) Estimate City FY City FY City FY City FY City FY Gross Total Locally Assessed Valuations $ $ $ $ $ % change from last year 6.8% 6.7% 7.0% 8.1% 7.7% 20 Less exemptions:churches,schools Less: Homeowner exemptions Net Revenue Producing Valuations $ $ $ $ $ % change from last year 7.1% 6.9% 7.0% 8.5% 7.8% Other Adjustments Add: State Assessments for PUC Less: CRA Increment Net City Roll $ $ $ $ $ % change from last year 9.3% 6.9% 6.6% 8.1% 7.8% Values for 2004 are estimates by City staff based on County Assessor estimates of countywide valuations.

31 City of Los Angeles UNSECURED PROPERTY TAX VALUATIONS (Billion Dollars) CALENDAR YEAR Estimate City FY City FY City FY City FY City FY Gross Total Locally Assessed Valuations $ $ $ $ $ % change from last year 6.8% 9.6% 3.4% 0.0% 0.8% 21 Less exemptions:churches,schools Less: Homeowner exemptions Net Revenue Producing Valuations $ $ $ $ $ % change from last year 5.8% 9.4% 3.9% 1.0% 0.6% Other Adjustments Add: State Assessments for PUC Less: CRA Increment Net City Roll $ $ $ $ $ % change from last year 7.9% 8.1% 4.1% 1.0% 0.7% Values for 2004 are estimates by City staff based on County Assessor estimates of countywide valuations.

32 COMPARISON ASSESSED VALUE * AND TOTAL CITY RECEIPTS ASSESSED VALUE* CITY RECEIPTS ASSESSED VALUE * ($ BILLIONS) CITY RECEIPTS ($ MILLIONS) * 04** 05*** FISCAL YEAR ENDING City receipts closely track assessed values in the City. Since the early 1990s, the City's share of the 1 % property tax is smaller. After voter approval of Proposition 13, 1% of assessed values in the City were allocated by State law among taxing jurisdictions based, in part, on preproposition 13 "taxing effort." The City's share was about 35% of the 1% tax. In the early 1990s, State law shifted additional taxes to schools and the City's share was reduced to about 27% of 1%. Since then, City tax receipts have grown at about the same rate as assessed values. If the pre allocation methodology had remained in effect, the City would have received about $1.6 billion in additional revenue since * Net revenue producing valuations (secured and unsecured). ** Assessed values for fiscal '04 are actual; the City receipts value for that year is an estimate. *** For fiscal '05, the estimate for assessed values is based on the County Assessor's estimate of countywide assessed value. The City receipts estimate is by the CAO. 320

33 % CHANGE IN NET REVENUE PRODUCING VALUATIONS 23 % CHANGE FROM PRIOR YEAR COUNTY CITY EST BEGINNING FISCAL YEAR Growth in City valuations has closely tracked growth countywide valuations for many years. Because the 1994 earthquake disproportionately affected the City, values fell more sharply in the City in County Assessor staff believes the larger City growth in 1999 reflected restoration of some earthquakerelated adjustments. The City and County rates of growth were almost identical for the past three years. The best estimate for 2004 is City growth will continue to closely track that of the County as it has done for many years. We use the County Assessor's preliminary roll forecast for the County as the best available estimate for growth in City net revenue producing valuations.

34 COLLECTION RATES COUNTY PROPERTY TAX COLLECTION RATE CITY SECURED COLLECTION RATE COLLECTIONS AS % OF TOTAL PROPERTY TAX LEVY FISCAL YEAR ENDING SECURED COLLECTIONS AS % OF SECURED LEVY FISCAL YEAR ENDING The table on the left shows the countywide collection rate since shortly after adoption of Proposition 13. Recent collections have been at an historical high. The table on the right shows City secured collections as a percent of the secured tax levy for recent years. The City data is not strictly comparable with the County data because it excludes unsecured collections. The prior year's collection rate appears to be at a cyclical high. For budget planning, the average collection rate for the previous four years is used.

35 Revenue Monthly Status Report PROPERTY TAXES SECURED RECEIPTS RECORDED BY COUNTY PROPERTY TAX YEAR (Thousand Dollars) MONTHLY BUDGET VARIANCE REVISED PLAN DECEMBER $208,068 $221,691 $235,309 $253,000 $255,236 $2,236 $255,236 $273,500 JANUARY 52,017 55,423 58,827 63,500 63, ,809 68,400 FEBRUARY 33,094 33,583 39,103 36,900 40,062 3,162 40,062 43,500 MARCH APRIL 148, , , , , ,500 MAY 53,083 55,565 62,328 67,925 67,071 71,278 JUNE JULY 7,262 9,604 8,689 9,800 9,000 9,200 AUGUST 3,117 4,714 3,133 2,727 3,822 4,374 SEPTEMBER OCTOBER NOVEMBER TOTAL $505,490 $541,737 $577,399 $618,152 $623,300 $669,752 % CHANGE 6.8% 7.2% 6.6% 7.1% 7.9% 7.5% CUMULATIVE BUDGET VARIANCE REVISED PLAN DECEMBER $208,068 $221,691 $235,309 $253,000 $255,236 $2,236 $255,236 $273,500 JANUARY 260, , , , ,045 2, , ,900 FEBRUARY 293, , , , ,107 5, , ,400 MARCH 293, , , , ,107 5, , ,400 APRIL 442, , , , , ,900 MAY 495, , , , , ,178 JUNE 495, , , , , ,178 JULY 502, , , , , ,378 AUGUST 505, , , , , ,752 SEPTEMBER 505, , , , , ,752 OCTOBER 505, , , , , ,752 NOVEMBER 505, , , , , ,752 ORIGINAL LEVY $520,170 $554,228 $588,272 $632,510 $638,090 $685,308 COLLECTION RATE 97.2% 97.7% 98.2% 97.7% 97.7% 97.7% The table above shows monthly secured receipts by county tax year, which begins in December. The estimate on this page for is based on the County Assessor's projection of 7.4% growth in countywide assessed values. The estimate then applies that rate of growth to the net City revenue producing valuations. The City's tax levy is estimated to increase from $638.1 million in to $685.3 million in The recent experience with collections is that 97.7% of payments are received in the year levied. We assume that collection rate w continue in The calculation of secured receipts by County tax year is shown below: Estimated tax levy (thousand) $685,308 Estimated collection rate 97.7% Estimated secured collections by county tax year (thousand) $669,752 25

36 REVENUE MONTHLY STATUS REPORT SECURED RECEIPTS CURRENT AND PRIOR TAX YEAR CITY FISCAL YEAR (Thousand Dollars) MONTHLY BUDGET VARIANCE REVISED PLAN JULY $12,345 $7,262 $9,604 $9,725 $8,689 ($1,036) $8,689 $9,000 AUGUST 2,127 3,117 4,714 3,000 3, ,133 3,822 SEPTEMBER OCTOBER NOVEMBER DECEMBER 208, , , , ,236 2, , ,500 JANUARY 52,017 55,423 58,827 63,500 63, ,809 68,400 FEBRUARY 33,094 33,583 39,103 36,900 40,062 3,162 40,062 43,500 MARCH APRIL 148, , , , , ,500 MAY 53,083 55,565 62,328 67,925 67,071 71,278 JUNE TOTAL $509,583 $537,798 $579,895 $618,350 $622,300 $669,000 % CHANGE 8.9% 5.5% 7.8% 6.6% 7.3% 7.5% CUMULATIVE BUDGET VARIANCE REVISED PLAN JULY $12,345 $7,262 $9,604 $9,725 $8,689 ($1,036) $8,689 $9,000 AUGUST 14,472 10,379 14,318 12,725 11,822 (903) 11,822 12,822 SEPTEMBER 14,472 10,379 14,318 12,725 11,822 (903) 11,822 12,822 OCTOBER 14,472 10,379 14,318 12,725 11,822 (903) 11,822 12,822 NOVEMBER 14,472 10,379 14,318 12,725 11,822 (903) 11,822 12,822 DECEMBER 222, , , , ,058 1, , ,322 JANUARY 274, , , , ,867 1, , ,722 FEBRUARY 307, , , , ,929 4, , ,222 MARCH 307, , , , , ,222 APRIL 456, , , , , ,722 MAY 509, , , , , ,000 JUNE 509, , , , , ,000 The County tax year runs from December to August, overlapping two City fiscal years. Receipts in July and August belong to the county's prior tax year, but must be recorded in the City's current fiscal year. When the county's payment pattern is normal, the City receives about 2 percent of secured receipts in July and August. The adjustment between fiscal years generally is no more than $2 million to $3 million. The and estimates are based on normal July and August payments. The principal risk to this estimate is that the county could delay payment of scheduled receipts normally received in May to July of the next fiscal year. 26

37 REVENUE MONTHLY STATUS REPORT UNSECURED RECEIPTS CURRENT AND PRIOR TAX YEAR CITY FISCAL YEAR (Thousand Dollars) MONTHLY BUDGET VARIANCE REVISED PLAN JULY AUGUST 29,272 31,122 32,053 32,000 31,919 (81) 31,919 32,000 SEPTEMBER OCTOBER 1, ,474 2,500 3,821 1,321 3,821 3,800 NOVEMBER DECEMBER JANUARY 1,965 4,520 FEBRUARY MARCH 3,910 2,920 4,285 4,300 5,407 1,107 5,407 4,240 APRIL 46 MAY JUNE TOTAL $36,945 $39,577 $38,812 $38,800 $41,147 $40,040 % CHANGE 4.5% 7.1% 1.9% 0.0% 6.0% 2.7% CUMULATIVE BUDGET VARIANCE REVISED PLAN JULY AUGUST $29,272 $31,122 $32,053 $32,000 $31,919 ($81) $31,919 $32,000 SEPTEMBER 29,272 31,122 32,053 32,000 31,919 (81) 31,919 32,000 OCTOBER 31,070 32,091 34,527 34,500 35,740 1,240 35,740 35,800 NOVEMBER 31,070 32,091 34,527 34,500 35,740 1,240 35,740 35,800 DECEMBER 31,070 32,091 34,527 34,500 35,740 1,240 35,740 35,800 JANUARY 33,035 36,611 34,527 34,500 35,740 1,240 35,740 35,800 FEBRUARY 33,035 36,611 34,527 34,500 35,740 1,240 35,740 35,800 MARCH 36,945 39,531 38,812 38,800 41,147 2,347 41,147 40,040 APRIL 36,945 39,577 38,812 38,800 41,147 40,040 MAY 36,945 39,577 38,812 38,800 41,147 40,040 JUNE 36,945 39,577 38,812 38,800 41,147 40,040 Unsecured property tax is levied on property of common business usage not secured as a lien for payment of taxes. Unsecured property is typically business equipment not attached to a building. Personal residences are exempt from unsecured property taxes. Estimating unsecured receipts requires an estimate of the current year levy, an estimate of the portion of the current year levy that will not be collected by June, and an estimate of prior levies that will be collected in the current year. Fiscal year receipts include unusually high prioryear levy payments. The fiscal year estimate adjusts for this anomaly and reflects the county's estimate of less than 1% growth in Net Unsecured City Roll. The following page provides historical experience. 27