Redevelopment Agency of the City of Stockton

Transcription

1 Redevelopment Agency of the City of Stockton $47,000,000 Revenue Bonds, Series 2004 (Stockton Events Center Arena Project) San Joaquin County, California Dated: March 26, 2004 Base CUSIP + : /2010 ANNUAL CONTINUING DISCLOSURE INFORMATION STATEMENT AS OF MARCH 31, 2011 REVISED APRIL 29, Via Industria Suite 110 Temecula, CA T F Copyright, American Banker s Association. CUSIP data is provided by Standard and Poor s, CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP service. The issuer takes no responsibility for the accuracy of such number.

2 City of Stockton 2004 Revenue Bonds, Events Center LIST OF PARTICIPANTS AGENCY Susan Mayer Chief Financial Officer 425 N. El Dorado Street Stockton, California BOND COUNSEL Quint & Thimmig LLP San Francisco, California DISCLOSURE CONSULTANT & DISSEMINATION AGENT Willdan Financial Services* Temecula, California (951) TRUSTEE Bakul Mehta Wells Fargo Bank, National Association Mac# A Market Street, 18th Floor San Francisco, CA (415) UNDERWRITER Stone & Youngberg LLC * In its role as Disclosure Consultant, Willdan Financial Services has not passed upon the accuracy, completeness or fairness of the statements contained herein.

3 I. INTRODUCTION Pursuant to an Official Statement dated March 18, 2004, the Redevelopment Agency of the City of Stockton (the Agency ) issued $47,000,000, Revenue Bonds, Series 2004 (Stockton Events Center Arena Project) (the Bonds ) to finance a portion of the indoor arena consisting of 220,000 square feet, including facilities for ice hockey, indoor football, indoor soccer, concerts and other events, and with a seating capacity of approximately 10,000 (the Project ). The City of Stockton (the City ) is located in San Joaquin County, California and is 78 miles east of the San Francisco Bay area and 45 miles south of Sacramento. Both of Central California s major north/south highways, Interstate 5 and Highway 99, pass through the City. Other freeway connections provide convenient access to the San Francisco Bay area. The West End Urban Renewal Project No. 1 Project Area originally consisted of approximately 642 acres. The Project Area is located in the heart of Downtown Stockton, just north of the City s Crosstown Freeway and east of Interstate 5. The Project Area includes a mix of commercial, industrial and residential uses. In 2010, a merging of redevelopment areas occurred and the former Project Area is now part of the Merged Waterfront Project Area. The City has covenanted in the Lease to make the Lease payments for use of the Project and the site on which it is located (the Site and, together with the Project, the Property ), to include annual Lease Payments in its annual budgets, and to make the necessary annual appropriations for all such Lease Payments. The City will receive a credit for Lease Payments to the extent that the Agency has made Pledge Payments to the Trustee pursuant to the Pledge Agreement and such amounts are available under the Indenture to pay debt service on the Bonds. The Lease Payments are subject to abatement under certain circumstances, as described in the Official Statement. The Agency s obligation to make Pledge Payments is not subject to abatement. It has come to the attention of the Agency that the debt service coverages related to the Bonds that were reported in disclosures for FY through failed to state debt service coverage correctly because the 20% Housing Set-Aside amounts were not deducted prior to the calculation. The attached tables have corrected this error. This Annual Continuing Disclosure Information Statement is being provided pursuant to a covenant made by the Agency for the benefit of the holders of the Bonds and includes the information specified in a Continuing Disclosure Certificate. For further information and a more complete description of the Agency and the Bonds, reference is made to the Official Statement. The information set forth herein has been furnished by the Agency and by sources, which are believed to be accurate and reliable but is not guaranteed as to accuracy or completeness. Statements contained in this Annual Continuing Disclosure Information Statement which involve estimates, forecasts, or other matters of opinion, whether or 2009/2010 Page 1 of Revenue Bonds, Events Center

4 not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. Further, the information and expressions of opinion contained herein are subject to change without notice and the delivery of this Annual Continuing Disclosure Information Statement will not, under any circumstances, create any implication that there has been no change in the affairs of the Agency or any other parties described herein. II. FINANCIAL INFORMATION This Annual Report presents certain financial and operating information of the City as of June 30, 2010, and incorporates the City's audited financial statements for the fiscal year ended June 30, 2010, as required by the Continuing Disclosure Certificate and Securities Exchange Commission Rule 15c2-12. In June of 2010, the City adopted a budget for fiscal year that was balanced. However, since the adoption of that budget, the financial condition of the City's general fund has deteriorated due to a combination of increasing expenses and declining revenues. Moreover, the City faces significant unbudgeted expenses in the event it does not prevail in certain labor arbitration proceedings currently underway. Attached hereto as Appendix A is a report delivered to the City Council on March 29, 2011 concerning the current and projected financial condition of the City's general fund for the remainder of fiscal year Also, attached as Appendix B is a report delivered to the City Council on March 22, 2011 concerning the budget. The City does not expect that the budget will be adopted until June of 2011, and these reports are provided solely for informational purposes in order to make investors aware of the potential operational changes and other actions that the City may be required to take in order to maintain solvency for the remainder of fiscal year and to adopt a balanced budget for , as required by law. Certain statements contained in this Annual Report and the Appendices hereto do not reflect historical facts but are forecasts and forward looking statements. The words estimate, forecast, project, anticipate, expect, intend, plan, believe and similar expressions are intended to identify forward looking statements. No assurance can be given that the future results discussed herein will be achieved, and actual results may differ materially from the forecasts described herein. The audited financial statements for the City for the fiscal year ended June 30, 2010 will be separately filed through the MSRB s Electronic Municipal Market Access system ( EMMA ) and are hereby incorporated by reference into this Annual Continuing Disclosure Information Statement. 2009/2010 Page 2 of Revenue Bonds, Events Center

5 III. BOND INFORMATION A. PRINCIPAL OUTSTANDING Bond Issue As of February 28, 2011 Revenue Bonds, Series 2004 $45,985,000 B. FUND BALANCE Account As of February 28, Reserve $3,921, Reserve Requirement $3,883,479 IV. OPERATING INFORMATION A. ASSESSED VALUE OF ALL TAXABLE PROPERTIES IN THE CITY (Dollar amounts in thousands) Fiscal Year Land Improvements Personal Property Gross Assessed Value Less Exemptions (1) Net Assessed Value 2001 $2,439,069 $6,381,458 $713,937 $9,534,464 $902,578 $8,631, $2,756,278 $7,579,417 $713,936 $11,049,631 $952,815 $10,096, $3,132,565 $8,350,637 $734,773 $12,217,975 $1,003,662 $11,214, $3,532,906 $9,220,951 $780,193 $13,534,050 $1,061,968 $12,472, $4,104,660 $10,509,572 $816,308 $15,430,540 $1,111,509 $14,319, $4,811,339 $12,251,910 $940,438 $18,003,687 $1,185,310 $16,818, $5,992,555 $14,034,608 $1,006,872 $21,034,035 $1,238,271 $19,795, $6,661,962 $15,092,621 $1,006,432 $22,761,015 $1,302,249 $21,458, $6,387,373 $14,984,980 $1,209,964 $22,582,317 $1,398,902 $21,183, $4,817,327 $13,910,082 $1,248,240 $19,975,649 $1,514,454 $18,461,195 (1) For FY 2010, all exemptions (secured, utility, and unsecured rolls) are: homeowners -$253,238,699 and other - $1,261,215,511 = $1,514,454,210. Source: San Joaquin County Auditor/Controller s Office 2009/2010 Page 3 of Revenue Bonds, Events Center

6 B. PROPERTY TAX LEVIES AND COLLECTIONS (Dollar amounts in thousands) Percent of Levy Collected (1) Delinquent Tax Collections Percent of Total Collections to Levy Fiscal Year Total Tax Levy Current Tax Collections Total Tax Collections 2001 $16,132 $16, % $0 $16, % 2002 $18,056 $18, % $0 $18, % 2003 $20,176 $20, % $0 $20, % 2004 $23,498 $23, % $0 $23, % 2005 $26,685 $26, % $0 $26, % 2006 $30,661 $30, % $0 $30, % 2007 $33,891 $33, % $0 $33, % 2008 $33,633 $33, % $0 $33, % 2009 $31,134 $31, % $0 $31, % 2010 $22,150 $22, % $0 $22, % (1) Per agreement with San Joaquin County; The County provides the City of Stockton with 100% of the amount owed to the City of Stockton for secured properties regardless of collection status. In exchange the County is entitled to 100% of revenues collected for interest and penalties. This agreement is commonly referred to as the Teeter Plan. Source: San Joaquin County Auditor/Controller s Office C. LARGEST TAXPAYERS IN THE CITY (Dollar amounts in thousands) % of Principal Taxpayer 2010 Assessed Valuation Secured Property Valuation Levine Investments Ltd PTP $103, % Kyoho Manufacturing California Corp 91, % Simpson Manufacturing Co Inc 88, % Arch Road Limited Partnership 80, % Diamond Walnut Growers Inc 69, % Corn Products International Inc 64, % First American Trust 58, % Inland Western Stockton Airport Way 50, % Stonecreek Village Shopping Center LLC 45, % Sherwood Mall LLC 44, % Principal Secured Property Valuation $698, % Other Secured Taxpayers 17,641, % Less Exemptions relative to secured tax roll 1,472, % Total Secured Property Valuation - Net of Exemptions (1) $16,867, % (1) Exemptions include homeowners ($253,092) and other ($1,218,981). Source: San Joaquin County Auditor/Controller s Office and San Joaquin County Assessor s Office. 2009/2010 Page 4 of Revenue Bonds, Events Center

7 D. FIVE-YEAR HISTORY OF REVENUES FROM OTHER TAXES (Dollar amounts in thousands) Fiscal Year Property $45,549 $58,640 $63,998 $60,015 $47,495 In lieu of sales tax 7,087 9,823 10,164 11,070 9,274 Utility user 30,717 30,854 30,861 30,101 34,313 Sales (levied by City) 7,652 7,921 9,409 9,249 9,941 Franchise fees 11,354 11,608 11,537 10,817 10,333 Business licenses 9,717 9,699 10,772 10,285 11,222 Hotel/motel room 1,749 1,962 2,287 2,180 2,171 Document transfer ,187 2,010 Special assessments Other Totals $114,587 $131,443 $139,960 $135,161 $126,977 Source: City of Stockton Comprehensive Annual Financial Report. E. FIVE-YEAR HISTORY OF REVENUES FROM LICENSES AND PERMITS (Dollar amounts in thousands) Fiscal Year 2005/ / / / /10 Construction Permits $7,680 $5,226 $3,475 $2,229 $2,247 Other Permits & Licenses 1,280 1,551 1,797 2,106 2,010 Total $8,960 $6,777 $5,272 $4,335 $4,257 Source: City of Stockton F. WEST END URBAN RENEWAL NO. 1 REDEVELOPMENT PROJECT 2010/11 ASSESSED VALUE (AV) OF EXISTING LAND USES Category 2010/2011 Secured Assessed Value Percentage Commercial $195,357, % Government 11,015, % Industrial 50,967, % Institutional 3,217, % Recreational 1,978, % Residential 65,083, % SBE Non-Unitary 1,200, % Vacant 7,122, % Total $335,943, % Source: County of San Joaquin 2010/11 Secured Property Roll, as compiled by Willdan Financial Services. 2009/2010 Page 5 of Revenue Bonds, Events Center

8 G. WEST END URBAN RENEWAL NO. 1 REDEVELOPMENT PROJECT HISTORIC TOTAL ASSESSED VALUE Incremental Fiscal Year Secured Unsecured State-Assessed Total Percentage Assessed Value 2001/02 $193,774,563 $102,720,061 $0 $296,494,624 (3.9%) $59,052, /03 $200,571,693 $103,348,720 $0 $303,920, % $66,478, /04 $203,206,945 $88,994,502 $302,768 $292,504,215 (3.8%) $55,062, /05 $226,925,653 $95,323,899 $314,990 $322,564, % $85,122, /06 $268,658,272 $89,496,688 $310,851 $358,465, % $121,023, /07 $300,268,948 $95,885,829 $191,795 $396,346, % $158,904, /08 $332,416,434 $100,871,809 $144,603 $433,432, % $195,991, /09 $371,688,395 $108,282,404 $144,603 $480,115, % $242,673, /10 $355,357,863 $119,749,099 $176,707 $475,283,669 (1.0%) $237,841, /11 $318,339,582 $100,202,125 $176,707 $418,718,414 (11.9%) $181,276,592 Source: California Municipal Statistics, Inc. H. TOP PROPERTY OWNERS The largest property owners based on secured assessed values in the West End Urban Renewal No. 1 Redevelopment Project Area for fiscal year 2010/11 is as follows: 2010/11 Assessed Valuation % of Total (1) Property Owner Land Use Oni Stockton Inc. Industrial $31,297, % Ilsis Inc. Hotel 21,569, % Stockton City Center 16 LLC Movie Theater 11,812, % Steamboat Landing Apartments Apartments 8,741, % San Joaquin Real Estate Co. Inc. Office Building 8,158, % Miner Joaquin Building Corp. Office Building 7,722, % Radford Ventures LLC Office Building 7,700, % Dexter Street Financial Building 7,163, % Delta View Apartments I LLC Apartments 5,872, % First States Investors 5000A LLC Financial Building 5,404, % Financial Center Credit Union Financial Building 5,090, % Doyle Gardens LLC Apartments 5,064, % Riverrock Properties LLC Office Building 4,535, % CB Building LLC Office Building 4,324, % Bank of Agriculture & Commerce Financial Building 3,640, % Clarence C. and Catherine A. Byal Financial Building 3,615, % Guaranty Bank Financial Building 3,196, % Sierra Vista Apartments II LP Apartments 2,698, % ATC Building Co. Financial Building 2,651, % Collins Electric Co. Inc. Industrial 2,283, % Total $152,543, % (1) 2010/11 Local Secured Assessed Valuation: $318,339,582 Source: California Municipal Statistics, Inc. 2009/2010 Page 6 of Revenue Bonds, Events Center

9 I. MERGED WATERFRONT REDEVELOPMENT PROJECT AREA TAX REVENUES Fiscal Year 2004/05 (1) 2005/06 (1) 2006/07 (1) 2007/08 (1) 2008/09 (1) 2009/10 (2) Gross Tax Increment $1,177,335 $1,371,100 $1,880,478 $2,092,895 $2,695,559 $5,669,107 Less: County Administration Charge 3,780 9,125 23,602 26,646 43,313 48,240 Less: Pass-Through Payments 20,598 39,431 55,749 86, ,218 1,133,821 Less: Housing Set-asides (4) ,160,278 Net Tax Increment $1,152,957 $1,322,544 $1,801,127 $1,979,636 $2,530,028 $3,326,768 Merged Waterfront Redevelopment Loan $2,005,600 $2,155,271 $2,155,271 $2,328,521 $2,374,521 $2,424,121 Debt Service Coverage Ratio 0.57 (3) 0.61 (3) 0.84 (3) 0.85 (3) (1) Reflects Revenues for West End Urban Renewal No. 1 Redevelopment Project Area only. (2) Merging of RDA areas occurred in The West End Urban Renewal No. 1 Redevelopment Project Area is now part of the Merged Waterfront Project Area, which also includes the Port Industrial and Rough and Ready Redevelopment Project Areas. Revenues for the Merged Waterfront Development Project Area are available for paying Debt Service on these Bonds. (3) Payments were made by contributions from other Agency Funds, providing the necessary resources to meet all debt service payments as scheduled. These contributions may need to be repaid at a future date from future tax increment. (4) Housing Set-asides amounts are shown as zero from fiscal years 2004/05 to 2008/09. Other Agency funds have provided these resources and the required amounts have been set aside for low and moderate income housing. Source: Redevelopment Agencies Financial Transactions Report for the Redevelopment Agency of the City of Stockton and the County of San Joaquin Office of the Auditor- Controller. J. MERGED WATERFRONT REDEVELOPMENT PROJECT AREA HISTORIC TOTAL ASSESSED VALUE (1) Fiscal Year Secured Unsecured State- Assessed Total 2006/07 $384,167,711 $274,866,956 $841,439 $659,876, /08 $418,998,479 $296,630,192 $216,603 $715,845, /09 $457,638,092 $465,574,243 $216,603 $923,428, /10 $444,895,952 $526,956,653 $291,907 $972,144, /11 $409,618,561 $531,250,414 $291,907 $941,160,882 (1) Merged Waterfront Project Area was formerly West End Urban Renewal No. 1, Port Industrial and Rough & Ready Project Areas. Source: California Municipal Statistics, Inc., as compiled by Willdan Financial Services. 2009/2010 Page 7 of Revenue Bonds, Events Center

10 K. MERGED WATERFRONT REDEVELOPMENT PROJECT PROJECTED (1) (2) TAX REVENUES Less County Administration Charge Less Amounts Due Taxing Entities (3) Fiscal Year Gross Tax Increment Tax Revenues 2009/10 $5,669,107 $48,240 $1,133,821 $4,487, /11 $5,895,871 $50,170 $1,179,174 $4,666, /12 $6,131,706 $52,176 $1,226,341 $4,853, /13 $6,376,974 $54,263 $1,275,394 $5,047, /14 $6,632,053 $56,434 $1,326,410 $5,249, /15 $6,897,335 $58,691 $1,379,467 $5,459, /16 $7,173,229 $61,039 $1,434,645 $5,677, /17 $7,460,158 $63,481 $1,492,031 $5,904, /18 $7,758,564 $66,020 $1,551,712 $6,140, /19 (4) $8,068,907 $68,661 $1,613,781 $6,386, /20 $8,391,663 $71,407 $1,678,332 $6,641, /21 $8,727,330 $74,263 $1,745,465 $6,907, /22 $9,076,423 $77,234 $1,815,284 $7,183, /23 $9,439,480 $80,323 $1,887,895 $7,471, /24 $9,817,059 $83,536 $1,963,411 $7,770, /25 (4) $10,209,741 $86,878 $2,041,948 $8,080, /26 $10,618,131 $90,353 $2,123,625 $8,404, /27 $11,042,856 $93,967 $2,208,570 $8,740, /28 $11,484,571 $97,725 $2,296,913 $9,089, /29 $11,943,953 $101,634 $2,388,790 $9,453, /30 $12,421,712 $105,700 $2,484,341 $9,831, /31 (4) $12,918,580 $109,928 $2,583,715 $10,224, /32 $13,435,323 $114,325 $2,687,064 $10,633, /33 $13,972,736 $118,898 $2,794,546 $11,059, /34 $14,531,646 $123,654 $2,906,328 $11,501, /35 $15,112,911 $128,600 $3,022,581 $11,961, /36 $15,717,428 $133,744 $3,143,484 $12,440,199 (1) West End Urban Renewal Redevelopment Project No. 1 has merged with two other areas (Port Industrial and Rough and Ready Redevelopment Project Areas) to become Merged Waterfront Redevelopment Project Area. (2) This table is provided pursuant to the Section 4 (x) of the Continuing Disclosure Certificate of the Bonds ( The CDC ). Per the CDC, projected tax revenues assumes four percent (4%) growth of assessed values. (3) Consists of projected amounts due under school district pass-throughs, AB 1290 pass-throughs, County pass-through and statutory pass-throughs. (4) The Project Area will cease to receive tax increment revenue from certain sub areas in these fiscal years. 2009/2010 Page 8 of Revenue Bonds, Events Center

11 L. DEBT SERVICE SCHEDULE Date REVENUE BONDS, SERIES 2004 (Stockton Events Center Arena Project) Interest Rate Principal Due Interest Due Semi-Annual Debt Service Annual Debt Service Principal Outstanding 9/1/ % $0.00 $927, $927, $927, $47,000, /1/2005 $1,077, $1,077, $47,000, /1/ % $0.00 $1,077, $1,077, $2,155, $47,000, /1/2006 $1,077, $1,077, $47,000, /1/ % $0.00 $1,077, $1,077, $2,155, $47,000, /1/2007 $1,077, $1,077, $47,000, /1/ % $175, $1,077, $1,252, $2,330, $46,825, /1/2008 $1,075, $1,075, $46,825, /1/ % $225, $1,075, $1,300, $2,376, $46,600, /1/2009 $1,073, $1,073, $46,600, /1/ % $280, $1,073, $1,353, $2,427, $46,320, /1/2010 $1,070, $1,070, $46,320, /1/ % $335, $1,070, $1,405, $2,475, $45,985, /1/2011 $1,066, $1,066, $45,985, /1/ % $395, $1,066, $1,461, $2,527, $45,590, /1/2012 $1,061, $1,061, $45,590, /1/ % $455, $1,061, $1,516, $2,577, $45,135, /1/2013 $1,054, $1,054, $45,135, /1/ % $520, $1,054, $1,574, $2,629, $44,615, /1/2014 $1,046, $1,046, $44,615, /1/ % $590, $1,046, $1,636, $2,683, $44,025, /1/2015 $1,036, $1,036, $44,025, /1/ % $665, $1,036, $1,701, $2,737, $43,360, /1/2016 $1,025, $1,025, $43,360, /1/ % $745, $1,025, $1,770, $2,795, $42,615, /1/2017 $1,011, $1,011, $42,615, /1/ % $830, $1,011, $1,841, $2,852, $41,785, /1/2018 $996, $996, $41,785, /1/ % $920, $996, $1,916, $2,912, $40,865, /1/2019 $979, $979, $40,865, /1/ % $1,015, $979, $1,994, $2,973, $39,850, /1/2020 $960, $960, $39,850, /1/ % $1,115, $960, $2,075, $3,035, $38,735, /1/2021 $937, $937, $38,735, /1/ % $1,220, $937, $2,157, $3,095, $37,515, /1/2022 $913, $913, $37,515, /1/ % $1,335, $913, $2,248, $3,161, $36,180, /1/2023 $885, $885, $36,180, /1/ % $1,455, $885, $2,340, $3,226, $34,725, /1/2024 $855, $855, $34,725, /1/ % $1,580, $855, $2,435, $3,291, $33,145, /1/2025 $822, $822, $33,145, /1/ % $1,715, $822, $2,537, $3,359, $31,430, /1/2026 $785, $785, $31,430, /1/ % $1,865, $785, $2,650, $3,436, $29,565, /2010 Page 9 of Revenue Bonds, Events Center

12 Date REVENUE BONDS, SERIES 2004 (Stockton Events Center Arena Project) Interest Rate Principal Due Interest Due Semi-Annual Debt Service Annual Debt Service Principal Outstanding 3/1/2027 $739, $739, $29,565, /1/ % $2,030, $739, $2,769, $3,508, $27,535, /1/2028 $688, $688, $27,535, /1/ % $2,205, $688, $2,893, $3,581, $25,330, /1/2029 $633, $633, $25,330, /1/ % $2,395, $633, $3,028, $3,661, $22,935, /1/2030 $573, $573, $22,935, /1/ % $2,590, $573, $3,163, $3,736, $20,345, /1/2031 $508, $508, $20,345, /1/ % $2,795, $508, $3,303, $3,812, $17,550, /1/2032 $438, $438, $17,550, /1/ % $3,015, $438, $3,453, $3,453, $14,535, /1/2033 $363, $363, $14,535, /1/ % $3,250, $363, $3,613, $3,613, $11,285, /1/2034 $282, $282, $11,285, /1/ % $3,495, $282, $3,777, $3,777, $7,790, /1/2035 $194, $194, $7,790, /1/ % $3,755, $194, $3,949, $3,949, $4,035, /1/2036 $100, $100, $4,035, /1/ % $4,035, $100, $4,135, $4,135, $0.00 Totals: $47,000, $53,754, $100,754, $99,374, /2010 Page 10 of Revenue Bonds, Events Center

13 M. GENERAL FUND BALANCE SHEET The following table summarizes the general fund balance sheet of the City for the fiscal years ended June 30 (Dollar amounts in thousands): Fiscal Year 2005/ / / / /10 (1) ASSETS Assets: Cash and investments $8,966 $3,959 $3,463 $6,934 $12,571 Cash and investment with fiscal agents 1, Receivables: Interest Taxes and special assessments Accounts and other receivables 16,989 16,700 21,380 23,797 27,283 Allowance for uncollectibles (5,326) (7,311) (8,187) (8,563) (12,064) Due from other funds 6,975 8,599 1,238 4,588 3,678 Due from other governments (less allowance for 12,007 8,713 8,378 7,207 7,597 uncollectibles) Due from other agencies Prepaid items - 1, Inventory of supplies Deposits Advances to other funds 4,083 1,707 9,770 11,163 11,406 Advances to other agencies Total Assets $45,432 $34,196 $37,962 $46,118 $52,283 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $1,575 $2,092 $2,057 $3,374 $2,637 Accrued payroll and benefits 3,451 3,729 4,277 3,854 3,794 Due to other governments 805 Due to other agencies Deposits and other liabilities Deferred Revenue 8,462 6,538 8,033 7,310 7,655 Loans from other funds ,148 13,266 Total Liabilities $13,964 $13,266 $14,837 $23,336 $29,136 FUND BALANCES Reserved or Nonspendable $8,352 $5,169 $13,498 $14,175 $13,466 Restricted ,100 Committed ,851 Assigned ,730 Unassigned Unreserved: Designated 23,116 15,761 9,627 8,607 - Total fund balances $31,468 $20,930 $23,125 $22,782 $23,147 Total liabilities and fund balances $45,432 $34,196 $37,962 $46,118 $52,283 (1) The City implemented Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions in 2009/10. Due to this change and reclassification of funds within the governmental fund types, additional funds have been merged with the General Fund for financial statement reporting purposes. The statement also establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources. Additional information is discussed in the City's Comprehensive Annual Financial Report (CAFR) on pages 74-77, which has been disseminated separately to EMMA as part of this annual disclosure and is available at /2010 Page 11 of Revenue Bonds, Events Center

14 N. GENERAL FUND COMPARATIVE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE (Dollar amounts in thousands) Fiscal Year 2005/ / /08 (1) 2008/ /10 (2) REVENUES Taxes: Property $32,418 $35,497 $37,077 $33,030 $29,170 Utility 34,313 30,101 30,861 30,854 30,717 Sales and Use 37,725 32,388 31,900 27,522 25,623 Other 34,940 35,459 34,810 33,293 30,040 Licenses and Permits Federal Grants and Subsidies Other governmental 18,857 24,059 24,872 25,299 27,160 Charges for Services 10,821 9,226 10,213 11,894 13,043 Fines and Forfeitures 3,900 3,292 3,302 4,492 5,045 Use of Money and Property 537 2,134 2,462 3,669 7,082 Net Investment Income 651 1,779 1,618 1,719 1,066 Refunds and Reimbursements 4,020 6,837 3,709 3,583 2,300 Miscellaneous 4,784 5,359 6,086 10,763 6,091 Total Revenues $183,312 $186,476 $187,287 $187,226 $177,784 EXPENDITURES Current: General Government $14,110 $14,776 $15,089 $13,871 $11,469 Public Safety 131, , , , ,901 Public Works 13,334 14,050 13,936 11,965 3,541 Library ,695 Parks and Recreation 8,027 8,827 8,904 6,724 15,814 Capital Outlay Debt Service - Cost of Issuance Total Expenditures $167,166 $176,488 $182,000 $174,132 $175,657 Excess of Revenues Over Expenditures $16,146 $9,988 $5,287 $13,094 $2,127 Other Financing Sources (Uses) Transfers In $10,848 $6,466 $5,845 $5,897 $2,528 Transfers Out (18,992) (26,997) (17,019) (13,103) (4,920) Sale of Fixed Assets Proceeds of long-term debt Discounts on debt issuances - - (24) - - Total Other Finance Sources (Uses) ($8,142) ($20,526) ($11,154) ($7,097) ($2,392) Special Items $ - $ - $ - ($6,340) ($4,793) Net Change in fund balances $8,004 ($10,538) ($5,867) ($343) ($5,058) Fund Balance Beginning of Year 23,464 31,468 28,992 23,125 28,205 Fund Balance End of Year $31,468 $20,930 $23,125 $22,782 $23,147 (1) Beginning fund balance was restated to reflect a remaining balance of $8,062 at the end of FY 2007 for an advance from the General Fund to the Other Governmental Development Services Fund. (2) The City implemented Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions in 2009/10. Due to this change and reclassification of funds within the governmental fund types, additional funds have been merged with the General Fund for financial statement reporting purposes. Additional information is discussed in the City's Comprehensive Annual Financial Report (CAFR) on pages 74-77, which has been disseminated separately to EMMA as part of this annual disclosure and is available at /2010 Page 12 of Revenue Bonds, Events Center

15 O. REPORTING OF SIGNIFICANT EVENTS The Continuing Disclosure Certificate outlines the Significant Events that must be reported if they are deemed material. None of the items below has occurred or has been previously reported during the fiscal year ended June 30, Principal and interest payment delinquencies on the Bonds. 2. Non-payment related defaults. 3. Unscheduled draws on debt service reserves reflecting financial difficulties. 4. Unscheduled draws on credit enhancements reflecting financial difficulties. 5. Substitution of credit or liquidity providers, or their failure to perform. 6. Adverse tax opinions or events affecting the tax-exempt status of the security. 7. Modifications to rights of security holders. 8. Contingent or unscheduled bond calls. 9. Defeasances. 10. Release, substitution, or sale of property securing repayments of the securities. 11. Rating changes. 2009/2010 Page 13 of Revenue Bonds, Events Center

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21 March 22, 2011 TO: FROM: SUBJECT: Mayor and City Council Bob Deis City Manager GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS RECOMMENDATION This item is informational and no formal Council action is proposed. Summary This workshop updates the City Council and the public on local economic conditions and continued deterioration in General Fund revenue projections. Severe program and service reductions are identified that may become necessary to further downsize City operations by the July 1 st start of the fiscal year. Final reduction recommendations are pending employee bargaining group discussions about voluntary concessions. As previously discussed, there is an alternative to most of these cuts via fair and equitable concessions. The public is invited to a series of Town Hall meetings in April to provide feedback on these reduction alternatives and the priority of the municipal services they receive. DISCUSSION This workshop is the first in a series of City Council agenda items to introduce the fiscal year budget, which starts on July 1, A balanced budget is necessary prior to the start of the fiscal year to appropriate operating funds and to enable the internal borrowing necessary to support City s General Fund cash flow requirements. Because property and other major taxes are received in arrears, the General Fund is dependent upon internal borrowing to finance its operations. The focus of this report is the City s General Fund, which is the depository for the City s unrestricted tax revenues. These revenues are available to finance public safety, which receives approximately 80% of General Fund revenues, and other discretionary service and administrative programs, which are financed with the remaining 20%. Other non- General Fund program budgets are also under development and will be presented to City Council during May and June budget workshops. Non-General Fund programs include the City s utilities, grants, capital/public facilities fees, and city-wide internal service fund programs such as workers compensation, general liability, health insurance, and equipment programs.

22 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 2) The City continues to find itself with a leveling but much depleted revenue base. The immediate budget challenge is a direct reflection of the broader economic problems facing the residents of the city, the state, and the nation. This report walks through the following updates: A Budget Deficit and Changes Since Last Report B. Status of 2010 Fiscal Emergency Plan/Action Plan for Fiscal Sustainability C. Current Economic Environment D. General Fund Revenues E. General Fund Expenditures F. Five Year Projections and Status of Employee Contracts G. Department Reduction Proposals H. Risks and Opportunities I. Next Steps/Town Hall District Meetings Background A Budget Deficit and Changes Since Last Report Current General Fund projections include $162 million in revenues and baseline expenditures of $196 million, for an estimated budget deficit of $34 million or 17% gap. While General Fund revenues are expected to level and begin a slow recovery, most of the $34 million gap, approximately $27 million, is derived from uncontrolled pension, health, and other benefit cost increases that are adding to the unit cost of each of the City s employees. This projected $34 million budget gap is $7 million worse than reported in the last budget update heard by City Council at its February 15, 2011 meeting. Because of the severity of the City s financial condition, staff has started a systematic review of a broad range of employee compensation and financial management practices, including analysis of the regional labor market, revenue assumptions, and internal fund charges. This recent increase in the budget gap was primarily driven by updated analysis of year-to-date revenue trends. We noted a decline in business license and code enforcement collections, both of which will be subject to further research and audit. A variety of external subject matter experts have been identified to further dig into revenue, benefit costs, and program analysis with an overall objective to get the City s fiscal house in order and to identify a game plan to restore the City s fiscal health. B. Status of Fiscal Emergency/Action Plan for Fiscal Sustainability Following years of budgeted deficits, the General Fund reserves are depleted. Available General Fund fund balance has declined from $23 million at June 30, 2006, to about $1 million at June 30, General Fund reserves have declined every year since 2006.

23 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 3) To address these deficits and to create a road map going forward, last year, on June 22, 2010, the City Council adopted an action plan for fiscal sustainability. The plan identified long-term principles for addressing and reducing the City s escalating labor and benefit costs. These action plans continue to set overall long-term employee compensation objectives. Action Plan Principle 1: The City shall reduce or eliminate additional pay categories. Action Plan Principle 2: No side agreements or past practices shall be binding on the City unless the agreement or practice is approved in public by the City Council. Action Plan Principle 3: The City s labor agreements shall not provide for automatic wage adjustments that are premised on formulae or automatic cost of living inflators. Action Plan Principle 4: The City will strive to have its labor agreements expire at the same time particularly with public safety unions. Action Plan Principle 5: The City shall require its employees to make reasonable contributions toward the cost of health care coverage provided throughout the City. Action Plan Principle 6: The City shall offer one or more additional health care insurance plans. The City s contributions shall be negotiated based on the lowest cost plan made available by the City. Action Plan Principle 7: The City will require its employees to contribute a fair share of their pension costs. Action Plan Principle 8: The City will establish vacation use work rules that limit the accumulation of vacation time and provide for use with management approval to ensure that the needs of the public take priority and overtime is minimized. Action Plan Principle 9: The City will regain its management rights to supervise, manage, and direct its workforce. Action Plan Principle 10: The City shall restructure its labor agreements to bring overtime obligations in line with the minimums required by the Fair Labor Standards Act. Further, on May 26, 2010, the City Council enacted Resolution declaring a state of fiscal emergency based on fiscal circumstances, and directed the City Manager to take appropriate and lawful measures to achieve a balanced budget for fiscal year On June 22, 2010, the City Council approved Resolutions , and adopting emergency measures affecting the terms and conditions of labor agreements for sworn employees in the Police and Fire Departments. The emergency measures temporarily suspend scheduled pay increases from taking effect during fiscal year , as scheduled by labor agreements with both the police and fire unions.

24 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 4) In addition, the measures restrict firefighter time off and temporarily closed Fire Truck Company 4, which reduces Fire Department overtime. These measures have been reviewed quarterly as required by the enacting resolutions and reaffirmed by Council Resolution on November 16, 2010, and Resolution on February 15, Both the Police and Fire labor groups affected by the emergency measures have initiated legal actions against the City. These actions are designed to reverse the emergency measures by restoring suspended contract terms and retroactively reimbursing affected employees for lost wages and benefits. The emergency measures imposed on Fire employees were submitted to arbitration at the beginning of the fiscal year. The arbitration hearings were concluded in February 2011, and decision from the arbitrator is not expected before May The emergency measures imposed on Police employees have been challenged by their labor group in Superior Court. A date has not yet been set by the court to hear that case. The potential retroactive employee compensation costs to the City, for losses on both Police and Fire issues, are estimated at $4-5 million. This is additional money we have not set aside. C. Current Economic Environment The City continues to be deeply impacted by the Great Recession. Following a development boom with rapid population increase, the City now continues to face high unemployment, high foreclosure rates, and declining property values. Population Since 2002, the City s population has increased by over 36,000 to 292,133 residents. Although this increase has recently slowed, moderate population growth is expected to continue, along with increasing demand for City services. City of Stockton Population ( ) 300, , , , , , , , Source: Department of Finance Population Estimates for Cities, County and State

25 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 5) Unemployment The unemployment rate in the City of Stockton has been steadily increasing since February 2007, with minor dips due primarily to the seasonal nature of labor within the agricultural sector. In March 2010, the rate within the City reached a high of 22 percent. Since that time, unemployment has decreased slightly to 21.5 percent in December 2010, but still remained significantly higher than the state average of 12.5 percent for Unemployment In Stockton, CA (Feb 2007 Jan 2011) Feb 07 Apr 07 Jun 07 Aug 07 Oct 07 Dec 07 Feb 08 Apr 08 Jun 08 Aug 08 Oct 08 Dec 08 Feb 09 Apr 09 Jun 09 Aug 09 Oct 09 Dec 09 Feb 10 Apr 10 Jun 10 Aug 10 Oct 10 Dec 10 Unemployment Rate (%) U.S Bureau of Labor Statistics, Local Area Unemployment Foreclosures The City of Stockton faced a debilitating housing foreclosure crisis that peaked in , with many months of over 2,000 combined reported Notice of Default, Notice of Trustee s Sale, and Real Estate owned properties within the City. Since July of 2009, overall foreclosure activity in the City has improved and decreased to 1,000 reported foreclosures in November University of the Pacific Business Forecasting Center

26 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 6) 2500 Foreclosure Activity in Stockton CA (Includes Notice of Default, Notice of Trustee's Sale and Real Estate Owned) Source: RealtyTrac U.S Foreclosure Market Report Property Values Beginning in , property values in the City began to decrease slowly at first by 1.3 percent from the previous year. In they dropped another 11.7 percent, and continued to drop another 5.9 percent in This drop in property values directly contributes to a decline in the City s property tax apportionment and the tax revenues available to support services. Stockton Assessed Value of Property (in $ billions) $25.0 $20.0 $16.8 $19.8 $21.5 $21.2 $18.7 $17.6 $15.0 $10.0 $8.4 $8.6 $10.1 $11.2 $12.5 $14.3 $5.0 $ Fiscal Years D. General Fund Revenues Source: San Joaquin County Auditor-Controller General Fund revenues are now projected at $162 million, which reflects a 16 percent and $31 million decline from the City s high mark of $193 million in

27 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 7) $225 from projected through Millions $215 $205 $195 $185 $175 $165 $155 16% Decline 16% Decline Year Revenue (Millions) Percentage Change from Prior Year Actual $193 Na Actual $193 0% Actual $ % Projection $ % Projection $ % Projection $ % Projection $ % The following chart shows the sources of General Fund revenues, of which 69 percent is derived from property, sales, and utility user taxes. Since the 2005 triple flip change in State law, most of revenues formerly received from the State as Motor Vehicle License Fees are now distributed by Counties to Cities as a factor of assessed property value, and will prospectively be discussed and projected along with direct property tax revenue.

28 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 8) FY General Fund Revenues Business License Tax 5% Indirect Cost Recovery 4% Rents & Reimbursements 3% Charges for Services 6% Sales Tax 21% Other Revenues 6% Franchise Tax 7% Property Tax In Lieu of MVLF 12% Property Tax 17% Utility Users Tax 19% Property Tax (including Property Tax in lieu of Motor Vehicle License Fees) Earlier in the decade, Stockton s General Fund property tax revenues almost doubled from $32 million in to $59.9 million in It is during these boom years that agencies were pressured to spend the money rather than to set it aside for the eventual bust years. The building boom, driven by increases in market values for resale homes, contributed to this growth rate. The dramatic decline of this revenue source began in , due to the collapse of the housing market. Property tax revenues dropped by 12 percent in and are expected to drop an additional 4.4 percent in In addition to downward pressure on housing values, this decline was further amplified by a negative Proposition 13 CPI factor used by County assessors to adjust assessed values for properties that remain valued at less than market. For the first time in State history, the factor was negative. Typically the Proposition 13 adjustment factor is limited to an annual 2 growth cap, but for it was a negative percent, and in it is projected to be a nominal percent. The City s property tax revenues in total, including property tax received in lieu of Motor Vehicle License fees, is projected to level off and start nominal recovery in at a growth rate less than 1 percent. The following graph illustrates the General Fund property tax revenue trend since As illustrated in the chart, property tax revenues declined over a four-year period from $59.9 million in FY to an estimated $46.8 million in FY This is a 22 percent decline or a $13.1 million revenue loss.

29 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 9) General Fund Property Tax Revenues Millions FY07 08 FY08 09 FY09 10 FY10 11e FY11 12e Sales and Use Tax Sales and Use tax is the second largest General Fund tax source. Revenues are projected to decline by 21% from their high mark in This decrease amounts to a $9.1 million revenue loss over this four year period. This decline was due to the economic downturn as many Stockton citizens lost their jobs and homes to foreclosures. Loss of consumer confidence in the economy contributed to this dramatic decline, from $43.5 million in FY to a projected $34.4 million in FY General Fund Sales & Use Tax Revenues Millions FY06 07 FY07 08 FY08 09 FY09 10 FY10 11e FY11 12e Point-of-sale sales tax revenues for FY are projected to be approximately flat with prior year point-of-sale revenues. A portion of the reported revenue drop for reflects a prior year true-up in the City s share of the County Sales and Use Tax Compensation Fund, which is part of the triple flip tax backfill distribution formula from the County established in The sales tax revenues are projected to increase 1.7% based on improved consumer confidence. Sales tax is

30 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 10) projected to slowly recover in future years with annual growth rates in the 2-2.5% range. Utility User Tax The third largest General Fund tax revenue sources is utility user tax, which has declined for the past two years due to the recession, houses vacated by the foreclosure crisis, and a leveling of population growth. UUT revenues are expected to see modest growth until housing construction and population growth resume. The estimated utility user tax revenue for FY represents a 0.4% increase over the prior year, reflecting minimal growth from this revenue source. Program Revenues City program and staff reductions have contributed to a decline in program revenues. Local Fire Districts: Districts that contract with the City for fire services are currently charged based upon a percent of the total Fire Department budget. As the Fire budget has decreased from $50.3 million to $46.9 million, between and , revenues from the fire districts also decline as a result of the methodology. Code Enforcement: Revenues are down primarily due to a reduction in staffing in the Neighborhood Services division. Since 2009, staff has been cut by 14 positions or more than 30%. Further, the timing of the County s distribution method for assessments under this particular code citation has changed. Revenues are no longer advanced to the City through the County s Teeter Plan. In the past, any uncollected code enforcement liens were sent to the County for collection through property liens. The County had been distributing cash for the full Code Enforcement liens back to the City through its Teeter Plan. The County s cash distribution practice has changed and reduced the City s cash flow. Crash Tax: The City Council approved a fee in early 2010 for cost recovery of emergency response to car accidents and various other emergencies involving non-residents. The revenue estimate for this cost recovery activity was projected to be $400,000 in Based on actual billings during the first year of the program, the Fire Department is now projecting annual revenues of $50,000 in both and Vehicle Impound: The Police Department charges a release fee for impounded vehicles. Due to staff reductions, fewer vehicles have been impounded and the related revenue is down 45% or $240,000 from Inter-fund cost allocation reimbursements: Revenue estimates for interfund reimbursements have been reduced to reflect a corresponding reduction in support costs and staff. Indirect costs are based on a Cost Allocation Plan

31 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 11) that uses actual prior year expenditures. Because support department expenditures have been declining since , the General Fund will be charging less recovery to other City special fund programs. A second factor in the indirect cost revenue is an overhead charge on capital projects. The City will be reducing its capital project expenditures once federal stimulus funding and bond proceeds are expended. It is projected that support department costs and capital project expenditures will not recover at previous levels. In total, after two years of rapid contraction, General Fund revenues are projected to level off in and slowly increase by 1-2% annually through The total revenues of $170 million projected in 2014 are still far below the City s historical levels of over $190 Million achieved in both and The City can expect a smaller revenue pool from which to finance its municipal services for years to come. This will require a stark re-examination of the size and cost of City services to adjust expectations of the community and its employees to live within these reduced means. E. General Fund Expenditures A baseline expenditure projection has been established for with the estimated cost to preserve existing service and staffing levels within the boundaries of existing labor contracts. Due to ongoing litigation/arbitration with the Stockton Police Officers Association and the International Association of Fire Fighters, this baseline projection assumes full labor contract compliance and expiration of the interim Fiscal Emergency measures implemented and currently in place during In this baseline projection, General Fund expenditures reach $196.5 million, which is an increase of $29.6 million from prior year budget. Significant portions of this cost increase are associated with the sunset of labor concessions such as furloughs, cost of living adjustments (some COLA adjustments are as much as 14%), and the related benefits associated with these significant increases in base pay. Despite several years of significant staff cost reductions through attrition, early retirement incentives, furloughs, renegotiation of labor collective bargaining agreements, hiring freezes, and reductions to operating hours and services, costs are still on the rise, and particularly benefit costs.

32 March 22, GENERAL FUND BUDGET WORKSHOP AND POTENTIAL SERVICE REDUCTIONS (Page 12) Management & Support 8% Baseline General Fund Expenditures ($196.5 Million) Community Services 5% Public Works 4% Other 3% Police 50% Proportion of Labor Expenditures Baseline General Fund Budget Non Labor 19% Labor Non Labor Fire 30% Labor 81% Public safety, including the Police and Fire departments, represents the most significant component of General Fund expenditures. Police and Fire comprise 50% and 30%, respectively, or 80% of the baseline expenditure budget. As a service provider, the City s labor costs drive the General Fund budget. Salaries and benefits comprise 81 percent of general fund costs. The following is a summary of the most significant labor cost components. Of particular note is the current load for benefits and other incremental compensation types ( add pays ). Total benefits and add pays add an estimated 115% load onto base pay. General Fund Personnel Costs Fiscal Year Base Pay 47% Additional Pay 6% Retirement 22% Health/Dental 19% Other Benefits 6% Subtotal 53% Grand Total 100% Employee benefit costs are the most significant factor in the projected growth of City personnel costs. The growth in benefit costs are outpacing the City s tax revenue growth and present costs that the City has limited options to control. Pension: The City s CalPERS actuary has projected City contribution rates for the next five years. Rates are increasing due to CalPERS investment losses and new demographic/longevity factors. Over the next five years, Safety plan contribution rates