Supplement to the Proposed Budget Mayor Antonio R. Villaraigosa

Transcription

1 CITY OF LOS ANGELES Supplement to the Proposed AS PRESENTED BY Mayor Antonio R. Villaraigosa i

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3 CITY OF LOS ANGELES Revenue Outlook Supplement to the Proposed Prepared by the City Administrative Officer April 2008

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5 TABLE OF CONTENTS Section 1 OVERVIEW Preface 1 Revenue Summary 3 Revenue Assumptions 5 Summary of Fiscal Year Changes 7 General Fund Forecast: FY to FY GENERAL RECEIPTS Property Tax 15 Utility Users' Tax 48 Business Tax 58 Sales Tax 61 Documentary Transfer Tax 70 Power Revenue Transfer 74 Transient Occupancy Tax 75 Parking Fines 78 Parking Users' Tax 81 Franchise Income 84 Interest 93 Water Revenue Transfer 95 State Motor Vehicle License Fees 97 Grant Receipts 99 Tobacco Settlement 101 Transfer from Tax Reform Fund 102 Transfer from Telecommunications Development Account 103 Residential Development Tax DETAIL OF LICENSES, PERMITS, FEES & FINES Licenses, Permits, Fees and Fines Plan by Month 105 Summary by Department Summary by Special Categories 107 Significant Changes, s to Revised Significant Changes, Adopted to Revised Significant Changes, Revised to Proposed Special Categories Ambulance 111 Services to Airports 112 Services to Harbor 113 Services to DWP 114

6 TABLE OF CONTENTS (Continued) Section 3 (Cont.) DETAIL OF LICENSES, PERMITS, FEES & FINES (Continued) Special Categories (Continued) Sewer Construction & Maintenance Related Costs 115 Solid Waste Fee 116 Gas Tax Projects Related Costs 117 Stormwater Pollution Abatement Related Costs 118 Special Funded Related Cost 119 One Time Reimbursements 126 State Mandated 127 Miscellaneous Taxes and Fees 128 Animal Services Building and Safety City Administrative Officer City Attorney City Clerk Community Development Controller Council 150 Cultural Affairs Disability Emergency Management Environmental Affairs Ethics Commission Office of Finance Fire. 165 General Services Housing Information Technology Mayor Personnel and Human Resources Benefits 181 Planning Police Public Works Board Public Works Contract Administration 195 Public Works Engineering Public Works Sanitation Public Works Street Lighting Public Works Street Services Transportation

7 TABLE OF CONTENTS (Continued) Section 3 (Cont.) DETAIL OF LICENSES, PERMITS, FEES & FINES (Continued) Treasurer Transit Shelter Income Civic Center Parking Income Los Angeles Mall Rental Income 224 Court Fines General Fund Miscellaneous Aging Commission on Children, Youth and Their Families 233 Department of Neighborhood Empowerment 234 CIEP Capital Financing and Administration 236 Convention Center General City Purposes Liability Claims Water and Electricity Zoo Section 4 SPECIAL FUNDS DIRECTLY FINANCING THE BUDGET Summary 243 Solid Waste Fee 244 Local Public Safety 247 Traffic Safety Fund 249 State Gas Taxes 253

8 SECTION Overview CITY OF LOS ANGELES

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10 Preface Exhibit B, Summary Receipts included in Section 1 of the Proposed itemizes City revenue by source. Additional information on and receipts is displayed in the Detailed Statement of Receipts included in Section 3 of that document. Revenue information is also displayed in other parts of the budget such as The Detail of Department Programs. This Revenue Outlook is a supplement to the Proposed and provides, in one place, supporting information for all General Fund revenue estimates and for estimates for certain special funds that directly finance the budget. Section 1 of the Revenue Outlook provides an overview, major revenue assumptions, changes between estimates and a fiveyear revenue forecast. Section 2 provides historical perspective and current information on each General Fund revenue, except for the category, Licenses, Permits, Fees and Fines, which is provided in Section 3. Section 4 provides similar information for special fund revenue directly financing the budget. 1

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12 REVENUE SUMMARY FISCAL YEAR (Thousand Dollars) Revised $1,397,316 $1,406,716 Property Tax * $1,433, , ,737 Utility Users' Tax 637, , ,829 Licenses, Permits, Fees and Fines 762, , ,128 Business Tax 470, , ,137 Sales Tax 336, , ,204 Documentary Transfer Tax 120, , ,004 Power Revenue Transfer 196, , ,398 Transient Occupancy Tax 155, , ,000 Parking Fines 131,000 88,115 84,700 Parking Users' Tax 94,480 50,373 50,444 Franchise Income 53,341 49,990 51,559 Interest 29,772 Water Revenue Transfer 26,000 19,700 State Motor Vehicle License Fees 19,700 16,800 19,200 Grants Receipts 16,400 11,872 11,872 Tobacco Settlement 12,028 15,980 16,045 Transfer from Tax Reform Fund 5,437 3,996 Transfer from Telecommunications 3,871 Development Account 4,000 2,796 Residential Development Tax 1,920 85,840 63,597 Transfer from Reserve Fund $4,437,776 $4,390,062 Total General Fund Receipts $4,475,103 * Property tax includes all categories of the City allocation of one percentproperty tax collections such as secured, unsecured, state replacement, redemptions and penalties, supplemental receipts and other adjustments and is net of refunds and County charges. Also included are property taxes remitted to the City as replacement revenue for both vehicle license fees and sales and use taxes. 3

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14 Fiscal Year Revenue Assumptions Economy Related Local economists and industry analysts now express less confidence in the Los Angeles area economy than at this time last year. The national and local economic expansion since 2002 does not appear to be sustainable and a recession is a real possibility. The budget estimates of revenue in FY consider forecasts from a variety of sources. While there is a general reluctance to forecast a recession using the technical definition of that term, almost all economic projections acknowledge downside risk and limited upside potential. And the risk to the City s revenue is real, since seventyfive percent of General Fund revenues are directly linked to the economy. These major economysensitive revenues include the property, documentary, sales, business, utility users, transient occupancy and parking users taxes. The propertyrelated taxes alone account for more than 35 percent of General Fund revenue. estimates of economysensitive City revenues are based on a careful review of multiple forecasts for both calendar years 2008 and 2009, but particularly for 2008 since tax revenue typically trails economic activity. The consensus of current forecasts for California personal income in 2008 anticipates growth of 4 percent. Most of this growth is inflationdriven, especially from increased energy prices. The forecasts for California employment are also sliding; growth of only 0.4 percent in 2008 is not encouraging. Sales Tax Related Because the sales tax is the City s most economy sensitive revenue, the budget revises the FY growth estimate downward to 0.7 percent and anticipates no growth in FY Business Tax Related The business tax is also tied to the local economy and the business tax base is expected to grow by less than one percent. Business tax reform measures, including a 3.9percent tax rate reduction, will reduce this revenue but is partially offset by revenue from additional tax compliance Property Related Although the local real estate market is distressed, the county assessor currently forecasts 6percent growth in property valuations. This is the result of sales and construction in 2007 and earlier years. Material changes from property reassessment claims could further affect receipts. The other major propertyrelated revenue is the documentary transfer tax. The measure of the documentary transfer tax is the value of recent sales activity. This tax is projected to decline by 25 percent in FY and another 15 percent in FY due to slowing in the local real estate market. The documentary transfer tax is tied directly to the current local real estate market and that market is suffering from falling prices coupled with rising unsold housing inventory. 5

15 Unlike the property tax, which for the budget year is based on valuation on January 1, 2008, the documentary tax is tied to recent market activity. Industry experts anticipate real estate prices will continue to fall and that sales volume will decline. A real estate downturn as severe as seen in the early 1990s is a risk to the forecast. Hotel and Parking Related Tourism and business travel are expected to outperform other areas of the economy and the hotel tax base is expected grow by 6.5 percent. Additional expansion of the tax base is attributable to increased audit penetration by Office of Finance staff and contractor recovery efforts. The parking users tax base has also been growing faster than other areas of the economy. With additional audits and enforcement by Office of Finance staff; contractor recovery efforts; and new compliance tools, the parking users tax is expected to grow by 11.5 percent. Utility Related The utility users tax estimate is made up of three components telephone, electricity and natural gas. For telephone, the recent passage of Measure S provides protection to the tax base from a series of legal challenges and updates the tax base to include modern technologies. The tax rate was also reduced by 10 percent. A portion of the lost revenue from the 10percent tax rate reduction will be offset from tax collections on previously untaxed telephone technologies. For FY , the budget projects 3 percent growth from industry expansion and another 3 percent growth from taxation of new technologies. This growth is offset by a reduction of 10 percent due to the tax rate cut. The net change is negative 4 percent. The estimate for the electric users tax is based on DWP projections. DWP s estimate assumes a 2.9 percent rate increase effective late in FY and another 2.9 percent increase on July 1, 2008; full collections on the second rate increase will be in place by September In addition to the rate increase, the DWP anticipates the energy cost adjustment factor will increase each quarter through the end of The gas users tax is linked to the volatile natural gas market which is projected to return to higher prices for both FY and FY , compared to the price decreases of FY Higher gas prices coupled with a normal winter is the basis for the budget estimate of $96 million in FY

16 Summary of Changes to FY Revenue Estimates From FY Revised Estimates (Thousand Dollars) Detail by Account Summary by Category of Change FY Adopted $4,437,776 Revenue Related to Real Estate and Building Activity VLF Replacement $1,528 Residential Development Tax (1,204) Documentary Transfer Tax (15,810) Property Tax Base 4,837 ($10,649) Economyrelated Changes Business Tax ($8,462) Franchise Income 0 Parking Users' Tax (3,415) Transient Occupancy Tax 2,398 Sales Tax and Sales Tax Replacement (9,733) (19,212) Revenue Related to Energy Costs Electricity Users' Tax ($5,000) Franchise Income, Gas 71 Gas Users' Tax 5, All Other Adjustments Departmental Receipts * $10,110 Interest Income 1,569 State Motor Vehicle License Fee (6,300) Grant receipts 2,400 Transfer from Tax Reform Fundand TDA (1,376) Transfers from Water and Power ** (2,596) 3,807 Change to FY (25,471) Change in Transfer from Reserve Fund ($22,243) FY Revised Estimates as Presented in FY Proposed $4,390,062 Total * Detail for these changes is in Licenses Permits Fees and Fines section. ** No Water Fund transfer is budgeted for FY or FY

17 Summary of Changes to Fiscal Year Revenue Estimates (Thousand Dollars) Detail by Account Summary by Category of Change Total FY Revised Estimates as Presented in FY Proposed $4,390,062 Revenue Related to Real Estate and Building Activity Property Tax Base $19,606 Property Tax inlieu of Vehicle License Fees 14,863 Residential Development Tax (876) Documentary Transfer Tax (21,180) $12,413 Economyrelated Changes Business Tax $1,267 Sales Tax and Sales Tax Replacement (7,791) Utility Users' Tax (5,137) Transient Occupancy Tax 9,516 Parking Users' Tax 9,780 Vehicle License Fees 0 7,635 Revenue Related to Energy Costs Electricity Users' Tax $7,000 Gas Users' Tax 8,000 Franchise Income from Natural Gas 2,897 17,897 All Other Adjustments Departmental Receipts * $131,998 Transfers from Water and Power 14,296 Tobacco settlement 156 Other transfers (125) Parking Fines 5,000 Interest Income (21,787) Grant Reimbursements (2,800) Transfer from Tax Reform Fund (16,045) 110,693 Summary by Category of Change 148,638 Change in Transfer from Reserve Fund (63,597) FY Proposed $4,475,103 * Detail for these changes is in Licenses Permits Fees and Fines section. 8

18 9 GENERAL FUND REVENUE FORECAST Fiscal Years Through (THOUSAND DOLLARS) Proposed Forecast Forecast Forecast Forecast Forecast Property Tax (Base) $1,009,729 $1,019,826 $1,019,826 $1,040,223 $1,081,832 $1,146,742 Property Tax Sales Tax Replacement 111, , , , , ,010 Property Tax VLF Replacement 312, , , , , ,471 Total Property Taxes $1,433,394 $1,451,078 $1,454,559 $1,486,040 $1,546,724 $1,638,223 Utility Users' Tax 637, , , , , ,297 Licenses, Permits and Fees 762, , , , , ,772 Business Tax 470, , , , , ,646 Sales Tax 336, , , , , ,917 Documentary Transfer Tax 120, , , , , ,285 Power Revenue Transfer 196, , , , , ,422 Transient Occupancy Tax 155, , , , , ,616 Parking Fines 131, , , , , ,882 Parking Users' Tax 94, , , , , ,513 Franchise Income 53,341 54,941 56,589 58,287 60,036 61,837 Interest 29,772 30,367 30,975 31,594 32,226 32,871 Water Revenue Transfer State Motor Vehicle License Fees 19,700 20,094 20,697 21,525 22,601 23,731 Grants Receipts 16,400 15,000 15,000 15,000 15,000 15,000 Tobacco Settlement 12,028 12,166 12,318 12,470 12,614 12,752 Transfer from Tax Reform Fund** Transfer from Telecomm. Dev. Account 3,871 3,900 3,978 4,058 4,139 4,221 Residential Development Tax 1,920 1,728 1,728 1,814 1,941 2,116 General Fund Before Reserve Fund Transfer $4,475,103 $4,479,202 $4,583,097 $4,736,410 $4,935,386 $5,174,100 * The Water Revenue transfer is under a legal challenge and the outcome is unknown. ** The Tax Reform Fund was eliminated in the

19 GENERAL FUND REVENUE FORECAST Fiscal Years Through Percent Change From Prior Year Proposed Forecast Forecast Forecast Forecast Forecast 10 Property Tax (Base) 2.0% 1.0% 0.0% 2.0% 4.0% 6.0% Property Tax Sales Tax Replacement 6.5% 4.0% 3.0% 4.0% 5.0% 5.0% Property Tax VLF Replacement 5.0% 1.0% 0.0% 2.0% 4.0% 6.0% Total Property Taxes 1.9% 1.2% 0.2% 2.2% 4.1% 5.9% Utility Users' Tax 1.6% 3.5% 3.5% 4.0% 4.0% 4.0% Licenses, Permits and Fees 20.9% 9.9% 3.0% 3.0% 3.0% 3.0% Business Tax 0.3% 2.0% 3.0% 4.0% 5.0% 5.0% Sales Tax 0.0% 2.0% 3.0% 4.0% 5.0% 5.0% Documentary Transfer Tax 15.0% 10.0% 0.0% 5.0% 7.0% 9.0% Power Revenue Transfer 7.9% 6.0% 4.0% 4.0% 4.0% 4.0% Transient Occupancy Tax 6.5% 6.5% 6.5% 6.5% 6.5% 6.5% Parking Fines 4.0% 4.3% 2.0% 2.0% 2.0% 2.0% Parking Users' Tax 11.5% 7.0% 7.0% 7.0% 7.0% 7.0% Franchise Income 5.7% 3.0% 3.0% 3.0% 3.0% 3.0% Interest 42.3% 2.0% 2.0% 2.0% 2.0% 2.0% Water Revenue Transfer* State Motor Vehicle License Fees 0.0% 2.0% 3.0% 4.0% 5.0% 5.0% Grants Receipts 14.6% 8.5% 0.0% 0.0% 0.0% 0.0% Tobacco Settlement 1.3% 1.2% 1.2% 1.2% 1.1% 1.1% Transfer from Tax Reform Fund** 100.0% Transfer from Telecomm. Dev. Account 3.1% 0.7% 2.0% 2.0% 2.0% 2.0% Residential Development Tax 31.3% 10.0% 0.0% 5.0% 7.0% 9.0% General Fund Before Reserve Fund Transfer 3.4% 0.1% 2.3% 3.3% 4.2% 4.8% * The Water Revenue transfer is under a legal challenge and the outcome is unknown. ** The Tax Reform Fund was eliminated in the

20 GENERAL FUND REVENUE FORECAST Fiscal Years Through Notes General Assumptions 11 Economic Growth Business Tax State Action Utility Related Property Related Property Tax (Base) Property Tax Sales Tax Replacement (Triple Flip) During the 5year forecast period, the economy could follow a number of paths including a recession. This forecast is based on longterm historical experience. Periods of economic decline are often followed by years of aboveaverage growth. There is also risk that any recession's effects will be felt over a longer period, especially in property related revenues. This table assumes a two year recessionary or near recessionary period followed by a return to normal growth in the 24% range, which is consistent with the City's longterm experience. The business tax forecast is based on the economic assumptions stated above, and is adjusted for business tax reform measures. The full scheduled 15percent tax rate reduction will be completed in FY The forecast assumes a net revenue increase of 35 percent in FY and thereafter. This forecast assumes, as guaranteed by voter approval of Proposition 1A, no further encroachment on local revenue by the state. Assumes the power system will have sufficient net income and be free from legal uncertainty to continue making the normal transfers in FY and thereafter; that natural gas commodity prices will level off; and that telephone users' taxes, now supported through the passage of Measure S, will experience modest growth as the telecommunications marketplace is taxed fairly. We are not expecting a water revenue transfer until the legal challenge has been resolved. Assumes growth in the ad valorem property tax will stall as declining market values are included in additional proeprties upon sale or through reassessment and then resume at a slower rate later in the forecast period; that the excise documentary transfer tax reached a cyclical peak in FY , will fall between FY and FY and grow at a stable rate 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. Property tax estimate in this forecast for FY is 2 percent above the FY revised estimate. Revenue growth is expected to slow in FY through FY , due to reassessments from falling property values. Thereafter growth in property tax revenue is estimated to range between 2.2%5.9% for the rest of the forecast period. This category reflects voter approval of a State bond financing scheme which reduces the City "point of sale" sales tax rate from 1% to 0.75%. The sales tax has long been administered and collected by the State. It is remitted to the City several months after collection. The State's intent is that the City's revenue loss from the sales tax rate reduction will be made up by increasing the City's share of property tax revenue in an amount that exactly offsets the sales tax loss. In the long term, this category should mirror the sales tax. When the State's deficit reduction bonds are retired, the full sales tax will be returned to the City and the replacement property tax program will end.

21 GENERAL FUND REVENUE FORECAST Fiscal Years Through Notes Property Tax VLF Replacement The State reduced the vehicle license fee from 2% of depreciated vehicle value to 0.65%. This change would be expected to reduce City VLF revenue to about onethird of its historic level. But since the State deducts specified fixed costs from local VLF receipts prior to distribution, the effect of the change in the fee is to reduce City VLF revenue to about onetenth of its historic level. To offset this local loss from a Stateimposed fee reduction, the State dedicated an increased share of local property taxes in an amount intended to exactly offset the vehicle license fee loss. The "Property Tax VLF Replacement" revenue will follow the same trend as the property tax. 12 Utility Users' Tax With the passage of Measure S, the telephone tax should be less susceptible to legal challenges. Telephone tax revenue is reduced by a 10% tax rate reduction, but previously untaxed communication technologies plus historically typical growth will offset the rate reduction. For the gas users' tax, the forecast assumes high natural gas price levels; with growth expected to be around 3%. Electricity is projected to grow at 5.8% in FY due to an energy cost adjustment factor, a rate increase and strong power sales. Long term growth for the combined utility taxes is around 3.5%4%. Licenses, Permits, Fees Because FY has $100+ million in onetime revenue, receipts are expected to decline 10% for FY Modest growth of 3% is anticipated in FY and thereafter. Sales Tax After FY , the economic assumptions are based on modest to good growth through the forecast horizon. This category now reflects the current local tax rate of 0.75%. Total sales tax and sales taxrelated property tax revenue equals the trend estimate for the local sales tax at the 1% tax rate. Business Tax State Vehicle License Fee (Net of property tax swap) Power Revenue Transfer Documentary Transfer Tax The business tax forecast is based the same trend as the sales tax. The estimates take into account all recentlyapproved changes to the business tax. This category is now only about onetenth of its previous level. Growth is expected to be similar to that of the sales tax. Forecast uses longterm historical growth rate of 4%; amount of transfer is assumed to continue at 7% of revenue and that sufficient net operating income will be available in all years. This is a very volatile revenue. Forecast assumes a 15% decline for FY , a 10% decline in FY , and a gradual return to 59% annual growth thereafter. Average growth in the forecast period is 2.2%. Parking Fines With some fine increases leading to 4% growth in FY , the forecast assumes full year effect in FY and 2% annual productivity increases thereafter. Transient Occupancy Tax Assumes 6.5% growth in FY and similar growth thereafter. Parking Users' Tax After 11.5% growth in FY , forecast assumes 7% annual growth beginning in FY consistent with longterm experience.

22 GENERAL FUND REVENUE FORECAST Fiscal Years Through Notes Grants Receipts Franchise Income Water Revenue Transfer Interest COPS Supplement 3 will be drawn down through FY Beginning in FY , the estimate for this revenue source is based on historical trend for law enforcement and disaster grants. FY estimate expects gas franchise income to rise based on the commodities market belief that gas prices will continue upward. After adjusting the FY estimate for that, forecast is based on overall growth of 3%. The Water Revenue transfer is under a legal challenge and the outcome is unknown. Forecast made by CAO staff based on expectation of low rates and slow growth in balances available for investment for the next five years. Tobacco Settlement As detailed in the State payment schedule. Transfer from Telecomm. Dev. Account Subject to available revenue and policy decisions by Mayor and Council. Residential Development Tax The forecast is based on the expectation of a period of less development followed by a return to normal growth. Transfer from Tax Reform Fund This fund is expected to sunset in FY

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24 SECTION General Receipts CITY OF LOS ANGELES

25 REVENUE MONTHLY STATUS REPORT PROPERTY TAX ALL SOURCES (THOUSAND DOLLARS) MONTHLY ACTUAL ACTUAL ACTUAL BUDGET ACTUAL VARIANCE REVISED PLAN JULY $10,471 $19,894 $63,802 $20,401 $26,935 $6,534 $26,935 $24,552 AUGUST 38,992 39,179 39,328 39,927 42,536 2,609 42,536 41,151 SEPTEMBER (108) (261) (74) (74) (74) (70) OCTOBER 3,210 3,095 (1,050) NOVEMBER 14,455 18,260 19,211 18,878 25,069 6,191 25,069 19,754 DECEMBER 243, , , , ,291 (9,882) 345, ,745 JANUARY 232, , , , , , ,699 FEBRUARY 48,577 62,568 49,707 66,866 58,948 (7,918) 58,948 54,076 MARCH 11,186 6,653 8,954 11,204 9,860 (1,344) 11,638 7,060 APRIL 185, , , , , ,967 MAY 233, , , , , ,951 JUNE 6,514 13,677 3,462 8,275 4,298 5,058 TOTAL $1,029,161 $1,121,848 $1,334,174 $1,397,316 $1,406,716 $1,433,894 % CHANGE 43.4% 9.0% 18.9% 4.7% 5.4% 1.9% MONTHLY ACTUAL ACTUAL ACTUAL BUDGET ACTUAL VARIANCE REVISED PLAN JULY $10,471 $19,894 $63,802 $20,401 $26,935 $6,534 $26,935 $24,552 AUGUST 49,463 59, ,130 60,328 69,471 9,143 69,471 65,704 SEPTEMBER 49,355 58, ,130 60,328 69,397 9,069 69,397 65,634 OCTOBER 52,565 61, ,130 60,328 69,397 9,069 69,397 64,584 NOVEMBER 67,020 80, ,341 79,206 94,465 15,259 94,465 84,338 DECEMBER 310, , , , ,757 5, , ,082 JANUARY 543, , , , ,022 5, , ,781 FEBRUARY 591, , , , ,970 (2,423) 808, ,858 MARCH 603, , , , ,830 (3,767) 820, ,918 APRIL 788, ,732 1,043,215 1,091,645 1,102,790 1,117,884 MAY 1,022,647 1,108,171 1,330,712 1,389,041 1,402,418 1,428,836 JUNE 1,029,161 1,121,848 1,334,174 1,397,316 1,406,716 1,433,894 This table displays City receipts by month and fiscal year from all property tax sources. The large increase shown in FY reflects the additional City property tax revenue from inlieu of vehicle license fee and the sales tax replacement payments. The doubledigit increase in FY and the apparently small rate of growth in FY results from inclusion of $44 million in the FY base that should have been reflected in FY Although assessed values are expected to increase by 6% in FY , City property tax receipts are expected to increase by only 1.9%. The tables on the following pages outline the difference between projected City valuations and City property tax receipts. 15

26 % CHANGE IN NET REVENUE PRODUCING VALUATIONS 16 % CHANGE FROM PRIOR YEAR COUNTYWIDE L.A. CITY County Assessor Estimate BEGINNING FISCAL YEAR Growth in City valuations has closely tracked growth in countywide valuations for many years. The 1994 earthquake disproportionately affected the City and 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 between 2000 and 2006, but city growth exceeded countywide growth in 2007 by 0.7%. The best estimate for 2008 is City growth will closely track that of the County. We use the County Assessor's preliminary roll forecast for the County 6 growth as the best available estimate for growth in City net revenue producing valuations.

27 Property Tax Collections as a Percent of Levy Countywide Collection Rate Estimate COLLECTIONS AS % OF TOTAL PROPERTY TAX LEVY FISCAL YEAR ENDING The countywide property tax collection rate is from the Los Angeles County Comprehensive Annual Financial Report. Estimates are by City CAO staff. The City estimates are consistent with changes in the local real estate market.

28 COMPARISON ASSESSED VALUE AND TOTAL 1% CITY PROPERTY TAX RECEIPTS ASSESSED VALUE (LEFT SCALE) CITY RECEIPTS (RIGHT SCALE) ADJUSTED FOR DELAYED RECEIPTS ASSESSED VALUE (Billion Dollars) CITY RECEIPTS (Million Dollars) FISCAL YEAR ENDING City receipts closely track city assessed values. 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 tax receipts to schools and the City's share was reduced to about 27% of the 1% tax. 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 more than $2 billion in additional revenue since Assessed value includes net revenue producing valuations for secured and unsecured property. Assessed values for fiscal year 2008 are actual; the City receipts value for 2008 is an estimate. For fiscal year ending 2009, 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. 0

29 Change in Countywide Property Tax Roll Forecast* $ Millions 19 Prior Year Valuations $913,573 $997,790 $84,217 Component of Change: FY FY Difference CPI Adjustment (2%) $17,511 $18,260 $749 Transfers 58,495 41,369 (17,126) Construction 5,849 6, Personal Property & Fixtures 1,967 2, Proposition 8 Restorations 1, (463) Declines in Values (139) (6,242) (6,103) Exemptions (1,409) (4,804) (3,395) All Other 1,256 1, Final Adjustments (319) 319 Total All Changes 84,217 59,966 (24,251) Total Valuations $997,790 $1,057,756 $59,966 % Change from Prior Year 9.2% 6.0% Transfers, which are based on real estate sales, are estimated by the assessor to decline by $17 billion. Reassessments, which are based on declines in value, will reduce growth by another $6 billion. * For net total revenue producing valuations. Estimates of components of change were made in March of each year by County Assessor. The 'Total Valuations' line for FY is actual; the 'Total Valuations' line for FY is an estimate.

30 Difference Between Change in Assessed Value and City Property Tax Receipts Net Revenue Producing Valuations ($ Millions) Estimate $ Change % Change City of Los Angeles $381,104 $403,933 $22, % The assessor forecasts a 6% increase in assessed values for FY as detailed on the preceding page, but... City Receipt Category ($ Thousands) Revised Estimate What Change Would be at 6% Estimated Change % Change the change in projected City property tax receipts is less than 2%: 20 Secured $880,353 $52,821 $45, % Unsecured 45,304 2, % Homeowner Exemption 8, % Supplemental 48,000 2,880 (18,000) 37.5% Redemptions 26,803 1,608 (1,803) 6.7% County Admin Charges (19,105) (1,146) (955) 5.0% Refunds (4,000) (240) (3,000) 75.0% Adjustments 2, (2,411) 100.0% CRA 1, (100) 5.9% 1% Property Tax $990,123 $59,407 $19, % VLF Replacement 297,256 17,835 14, % Sales Tax Replacement 119,337 7,160 (7,791) 6.5% Property Tax All Sources $1,406,716 $84,403 $26, % Collection rate to decline from 96.4% to 95.5% Unsecured values to grow by 3.5%, which is about half the rate for overall assessed values. Also, the prior year contained a onetime collection that will not recur in FY This small category is stagnant. This category is not affected by the change in the assessor's roll; declining supplemental assessments are the most significant reason for slow growth in property taxes. This category is not affected by the change in the assessor's roll; redemptions are not very predictable, but often decline during slow real estate markets. Variation not significant. Refunds are expected to increase due to market conditions. Onetime receipt in FY not expected to recur in Variation not significant. This grows at about the same rate as for secured receipts and also includes a lower collection rate. This account is tied to change in sales tax collections. Unlike the property tax, sales tax is not expected to increase in FY and this account must also be adjusted for an overpayment in FY (This interyear adjustment process is known as trueup.)

31 Property Tax by Account Thousand Dollars Revised Estimate Secured $668,949 $692,772 $839,689 $882,160 $880,353 $925,559 Unsecured 40,306 40,495 41,005 41,826 45,304 45,975 Homeowner Exemption 8,758 8,640 8,492 8,500 8,657 8,657 Supplemental 44,045 57,398 52,875 48,000 48,000 30,000 Redemptions 20,488 23,163 25,958 23,000 26,803 25,000 County Admin Charges (12,581) (11,520) (16,698) (16,700) (19,105) (20,061) Refunds (6,951) (6,408) (4,347) (6,500) (4,000) (7,000) Adjustments 710 (107) (223) 2,411 CRA 14,232 19,505 4,642 5,000 1,700 1,600 1% Property Tax $777,957 $823,938 $951,392 $985,286 $990,123 $1,009, VLF Replacement 208, , , , , ,119 Sales tax Replacement 90,696 88, , , , ,546 ERAF Adjustment (48,424) (48,424) Property Tax All Sources $1,029,161 $1,121,848 $1,334,174 $1,397,316 $1,406,716 $1,433,394 Percent Change from Year Ago Revised Estimate Secured 7.5% 3.6% 21.2% 5.1% 4.8% 5.1% Unsecured 7.5% 0.5% 1.3% 2.0% 10.5% 1.5% Homeowner Exemption 5.8% 1.4% 1.7% 0.1% 1.9% 0.0% Supplemental 69.1% 30.3% 7.9% 9.2% 9.2% 37.5% Redemptions 12.2% 13.1% 12.1% 11.4% 3.3% 6.7% County Admin Charges 3.5% 8.4% 44.9% 0.0% 14.4% 5.0% Refunds Adjustments CRA 11.3% 37.0% 76.2% 7.7% 63.4% 5.9% 1% Property Tax 8.4% 5.9% 15.5% 3.6% 4.1% 2.0% VLF Replacement 23.2% 5.2% 9.3% 9.8% 5.0% Sales tax Replacement 1.9% 26.0% 3.8% 6.5% 6.5% Property Tax All Sources 4.7% 5.4% 1.9%

32 PROPERTY TAX OVERVIEW 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, redemptions & penalties, refunds, supplemental assessments and state replacement monies for homeowner exemptions. Estimates for City secured and unsecured receipts in FY 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 the pattern of historical collections and recent trends affecting property taxes. 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 real property taxes and apportions the taxes among local taxing agencies using a formula established by state law in 1979 (AB 8). That formula was modified in the early 1990s and reduced City revenue; these modifications were known as ERAF shifts because portions of city, county and special district tax revenues were shifted to the Educational Revenue Augmentation Fund. Under this formula, the City receives a baseyear allocation plus an allocation tied to growth in assessed value of properties sold or transferred; new construction; and an inflation adjustment. In FY , the City of Los Angeles remained the highest valued municipality in the county with net revenue producing assessed valuation of $381.1 billion, a 9.9% increase from the prior year. The assessor anticipates a lower rate of growth in FY of 6%. Recent City Revenue Trend City assessed values grew by 8% to 11% in the last several years, and City property tax revenue followed this pattern. The City s secured collection rate has been in the 96% to 98% range since FY , but is anticipated to decline to 95.5% in FY reflecting the general stress in the local real estate market. Supplemental Property Taxes Levy of property taxes is based on the lien date of January 1. Properties assessed after the lien date as a result of real estate sales or improvements are counted as supplemental taxes. These taxes are distributed by the county to the various taxing jurisdictions about six months following receipt by the County. The doubledigit annual percentage price increases in the local real estate market between 2001 and FY 2006 created an environment for a relatively high level of supplemental adjustments. The revised FY estimate and FY budget estimate recognize current market conditions. 22

33 Sales Tax and Vehicle License Fee Shift to Property Tax Vehicle License Fee Replacement In the 1930s, the state removed motor vehicles from the local tax roll and established vehicle license fees inlieu of the ad valorem tax on vehicles. The State collects this revenue and distributes receipts to local governments. Beginning in 1999, State law provided for various fee reductions to vehicle owners. In FY and thereafter, the revenue lost to local government was replaced with a like amount of property taxes. This replacement revenue is tracked separately from other categories of the property tax. Sales Tax Replacement Revenue Under a mechanism called the "triple flip," the local BradleyBurns 1% sales tax revenue was reduced by 25 percent. That ¼% share of the City's 1 % sales tax was dedicated to pay debt service on State deficit reduction bonds approved by the electorate in November To offset the local revenue loss, in FY the City began receiving property tax payments inlieu of the lost onequarter cent sales tax revenue based on Board of Equalization calculations. These property tax payments will continue until the City s sales tax rate is restored to 1%. Assumptions for FY That the assessor s countywide forecast of 6.0 % growth for combined secured and unsecured receipts represents the best foundation for forecasting City property tax receipts. That the City s secured collection rate will decline by about 1% to 95.5% in FY reflecting ongoing stress in the local real estate market. The projected rate of growth in City secured collections is 5% reflecting the assessor s estimate of increased values and the lower collection rate. That the county will not delay payments that belong in one fiscal year until the next fiscal year. That supplemental property tax receipts will decline by 48% from the peak level in FY reflecting ongoing changes in the local real estate market. Property tax remittances from the county for VLF replacement are projected to increase by 5% in FY After adjusting for a lower collection rate, this is the same increase estimated by the assessor for the net local property tax roll. That property taxes replacing sales taxes will decrease consistent with a projection of no change in City taxable sales and an adjustment for an overpayment received in FY Additional Detail On the following pages, we present historical information and the basis for the revenue assumptions. 23

34 REVENUE MONTHLY STATUS REPORT PROPERTY TAX 1% (Excludes Vehicle License Fee and Sales Tax Replacement) (THOUSAND DOLLARS) MONTHLY ACTUAL ACTUAL ACTUAL BUDGET ACTUAL VARIANCE REVISED PLAN JULY $10,471 $19,894 $63,802 $20,401 $26,935 $6,534 $26,935 $24,552 AUGUST 38,992 39,179 39,328 39,927 42,536 2,609 42,536 41,151 SEPTEMBER (108) (261) (74) (74) (74) (70) OCTOBER 3,210 3,095 (1,050) NOVEMBER 14,455 18,260 19,211 18,878 25,069 6,191 25,069 19,754 DECEMBER 267, , , , ,291 (9,882) 345, ,745 JANUARY 82,900 87,077 97, , ,968 (2,165) 101, ,617 FEBRUARY 48,577 62,568 49,707 66,866 58,948 (7,918) 58,948 54,076 MARCH 11,186 6,653 8,954 11,204 9,860 (1,344) 11,638 7,060 APRIL 209, , , , , ,967 MAY 84,045 49,272 96,106 91,381 91,331 98,869 JUNE 6,514 13,677 3,462 8,275 4,298 5,058 TOTAL $777,957 $823,938 $951,392 $985,286 $990,123 $1,009,729 % CHANGE 8.4% 5.9% 15.5% 3.6% 4.1% 2.0% MONTHLY ACTUAL ACTUAL ACTUAL BUDGET ACTUAL VARIANCE REVISED PLAN JULY $10,471 $19,894 $63,802 $20,401 $26,935 $6,534 $26,935 $24,552 AUGUST 49,463 59, ,130 60,328 69,471 9,143 69,471 65,704 SEPTEMBER 49,355 58, ,130 60,328 69,397 9,069 69,397 65,634 OCTOBER 52,565 61, ,130 60,328 69,397 9,069 69,397 64,584 NOVEMBER 67,020 80, ,341 79,206 94,465 15,259 94,465 84,338 DECEMBER 334, , , , ,757 5, , ,082 JANUARY 417, , , , ,725 3, , ,699 FEBRUARY 466, , , , ,674 (4,704) 600, ,775 MARCH 477, , , , ,534 (6,048) 612, ,835 APRIL 687, , , , , ,802 MAY 771, , , , ,825 1,004,671 JUNE 777, , , , ,123 1,009,729 FY revenue includes a $44 million carryover from FY This distorts presentation of the rate of growth in FY , FY and FY The estimates on this page represent the "base" for the property tax revenue. Adjustments to the property tax revenue due to VLF and sales tax replacement are shown separately but are not included in this table. 24

35 PROPERTY TAX TRENDS (Excludes Vehicle License Fee and Sales Tax Replacement) (Million Dollars) ACTUAL ACTUAL ACTUAL BUDGET REVISED BUDGET NOTE NET REVENUE PRODUCING $284,270.0 $312,494.3 $346,831.2 $378,781.9 $381,103.6 $403, VALUATIONS % CHANGE 7.9% 9.9% 11.0% 9.2% 9.9% 6.0% 2 NET SECURED CITY ROLL $256,772.6 $281,831.0 $315,087.0 $345,566.4 $346,361.0 $367, % CHANGE 7.9% 9.8% 11.8% 9.7% 9.9% 6.1% 4 25 SECURED RECEIPTS BY COUNTY TAX $674.5 $732.6 $804.3 $882.8 $882.8 $ YEAR % CHANGE 7.8% 8.6% 9.8% 9.8% 9.8% 5.0% 6 COLLECTION RATE 97.3% 97.3% 97.1% 96.4% 96.4% 95.5% 7 CASH ADJUSTMENTS (5.5) (39.8) 35.4 (0.6) (2.4) (1.3) 8 SECURED RECEIPTS BY CITY FISCAL $668.9 $692.8 $839.7 $882.2 $880.4 $ YEAR % CHANGE 7.5% 3.6% 21.2% 5.1% 4.8% 5.1% 10 ALL OTHER PROPERTY TAX CATEGORIES % CHANGE 14.1% 20.3% 14.8% 7.7% 1.8% 23.3% TOTAL (Before Vehicle License Fees and Sales tax Replacement)) $778.0 $823.9 $951.4 $985.3 $990.1 $1, % CHANGE 8.4% 5.9% 15.5% 3.6% 4.1% 2.0% Notes on Property Tax Trends are on the following pages.

36 NOTES TO PROPERTY TAX TRENDS 1. NET REVENUE PRODUCING VALUATIONS This is the total of City revenue producing valuations for secured and unsecured property after exemptions. 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 FY 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 FY 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 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 and exemptions for churches, schools, etc. 5. SECURED RECEIPTS BY COUNTY TAX YEAR This shows City receipts based on the County property tax year (December to November). 6. SECURED RECEIPTS BY COUNTY TAX YEAR PERCENT CHANGE For FY , projected revenue growth is expected to be one percent less than the rate of growth for the net revenue producing valuations. A projected lower collection rate from 96.4% to 95.5% accounts for most of the difference. 7. COLLECTION RATE The collection rate is total secured taxes received by property tax year divided by the original secured levy. Taxes levied, but not paid by June 30 are delinquent and account for the collection rate being less than 100%. The collection rate has ranged from 92% in FY to 98% in recent years. The collection rate is projected to decline in FY reflecting softening in the local real estate market. 8. 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). The amount of the adjustment varies by fiscal year. The large nearly offsetting adjustments in FY and FY were caused by a delayed remittance from the county. 9. SECURED RECEIPTS BY CITY FISCAL YEAR Currentyear secured receipts are received 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 26

37 planning, and monies remitted by the County after June 30 are credited to the next fiscal year. 10. SECURED RECEIPTS BY CITY FISCAL YEAR PERCENT CHANGE This differs from percent growth in valuations because of yeartoyear changes in remittances by the County during months of July and August; changes in the collection rate; and changes in supplemental and other nonsecured property taxes. 11. ALL OTHER PROPERTY TAX CATEGORIES This category 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. 12. TOTAL CITY RECEIPTS This shows the effect of all adjustments to the change in net revenue producing valuations. Additional detail on the difference between the change in assessed value and City property tax receipts is displayed on the following page. 27

38 City of Los Angeles TOTAL 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 7.8% 9.5% 11.1% 10.0% 6.0% Less exemptions: Churches, Schools Less: Homeowner exemptions Net Revenue Producing Valuations $ $ $ $ $ % change from last year 7.9% 9.9% 11.0% 9.9% 6.0% Other Adjustments Add: State Assessments for PUC Less: CRA Increment Net City Roll $ $ $ $ $ % change from last year 7.3% 9.0% 11.2% 9.9% 6.0% Values for 2008 are estimates by City staff based on County Assessor estimates of countywide valuations.

39 City of Los Angeles SECURED PROPERTY TAX VALUATIONS CALENDAR YEAR 2004 (Billion Dollars) Estimate City FY City FY City FY City FY City FY Gross Total Locally Assessed Valuations $ $ $ $ $ % change from last year 8.4% 10.0% 11.9% 10.0% 6.1% 29 Less exemptions:churches,schools Less: Homeowner exemptions Net Revenue Producing Valuations $ $ $ $ $ % change from last year 8.6% 10.5% 11.7% 9.9% 6.1% Other Adjustments Add: State Assessments for PUC Less: CRA Increment Net City Roll $ $ $ $ $ % change from last year 7.9% 9.8% 11.8% 9.9% 6.1% Values for 2008 are estimates by City staff based on County Assessor estimates of countywide valuations.

40 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 1.3% 0.3% 2.1% 9.6% 3.2% 30 Less exemptions:churches,schools Less: Homeowner exemptions Net Revenue Producing Valuations $ $ $ $ $ % change from last year 2.0% 0.2% 2.4% 9.1% 3.4% Other Adjustments Add: State Assessments for PUC Less: CRA Increment Net City Roll $ $ $ $ $ % change from last year 2.0% 2.9% 0.3% 8.9% 3.6% Values for 2008 are estimates by City staff based on the Los Angeles County Assessor's estimates of countywide valuations.

41 REVENUE MONTHLY STATUS REPORT SECURED RECEIPTS RECORDED BY COUNTY PROPERTY TAX YEAR (THOUSAND DOLLARS) MONTHLY ACTUAL ACTUAL ACTUAL BUDGET ACTUAL VARIANCE REVISED PLAN DECEMBER $278,809 $299,955 $330,535 $366,320 $359,245 ($7,075) $359,245 $380,947 JANUARY 69,702 74,989 82,634 91,580 89,811 (1,769) 89,811 95,237 FEBRUARY 44,858 43,533 39,891 58,388 47,868 (10,520) 47,868 45,975 MARCH APRIL 202, , , , , ,895 MAY 57,593 33,306 74,739 82,230 82,406 86,138 JUNE JULY 16,886 56,924 21,621 17,000 23,732 24,919 AUGUST 3,634 3,434 3,312 5,000 3,635 3,817 SEPTEMBER OCTOBER NOVEMBER TOTAL $674,460 $732,610 $804,264 $882,788 $882,788 $926,927 % CHANGE 7.8% 8.6% 9.8% 9.8% 9.8% 5.0% MONTHLY ACTUAL ACTUAL ACTUAL BUDGET ACTUAL VARIANCE REVISED PLAN DECEMBER $278,809 $299,955 $330,535 $366,320 $359,245 ($7,075) $359,245 $380,947 JANUARY 348, , , , ,056 (8,844) 449, ,184 FEBRUARY 393, , , , ,924 (19,364) 496, ,159 MARCH 393, , , , ,924 (19,364) 496, ,159 APRIL 596, , , , , ,053 MAY 653, , , , , ,191 JUNE 653, , , , , ,191 JULY 670, , , , , ,110 AUGUST 674, , , , , ,927 SEPTEMBER 674, , , , , ,927 OCTOBER 674, , , , , ,927 NOVEMBER 674, , , , , ,927 The table above shows monthly secured receipts by county tax year, which begins in December. The estimate on this page for FY is based on the assessor's projection of 6 % growth in countywide secured assessed values. The city receipt estimate yields a lower rate of growth to account for a projected reduction in the collection rate. 31