REEST FR CCIL ACTI CITY CCIL MEETIG DATE: CLERK F CCIL SE LY: CTBER 16, 218 TITLE: PRELIMIARY 217-18 YEAR ED PDATE STRATEGIC PLA. 4, 1) EM APPRVED CTIED T FILE MBER As Recoended As Aended rdinance on 151 Reading rdinance on 2nd Reading Ipleenting Resolution Set Public Hearing For RECMMEDED ACTI Preliinary 217-18 Year End pdate and Audit Process. DISCSSI As part of the adoption of the fiscal year 217-18 City Budget, staff projected a $ 9. 3 illion structural deficit that was addressed ia the use of one-tie funds. During fiscal year 217-18, a nuber of City Council approed adjustents were ade. These adjustents include, increases to labor and related costs, addition of staffing for the jail, deelopent actiities, and funding to address hoelessness. These adjustents were partially offset through a cobination of cost reductions and reenue enhanceents such as aintaining acancies, new unanticipated Adult - se Cannabis related reenue and oderate growth in certain reenues. At the May 1, 218 City Council Meeting as part of the Trial Budget Presentation, staff projected an estiated a structural deficit between $ 6. 1 illion to $ 8. 1 illion for year-end 217-18. Most recent projected year-end estiates indicate a structural deficit of $ 7. 2 illion. The final structural deficit aount will be confired following the copletion of the audit reiew, also known as the Coprehensie Annual Finance Report ( CAFR). During the ctober 8, 218 Econoic Deelopent, Infrastructure, Budget and Technology ( EDIBT) Coittee, staff presented the preliinary year-end General Fund update for fiscal year 217-18. The presentation coered an oeriew of reenues and expenditures, year- end results and outline of the audit process. The following is a suary that highlights the preliinary 217-18 year-end update: Pending copletion of the CAFR, the preliinary general fund actual reenues for fiscal year 217-18 totaled $ 23. 5 illion while expenditure actuals totaled approxiately $237.7 illion. City departents anaged expenditure categories such as personnel, contractual and coodities to iniize the projected structural deficit. At the end of the fiscal year, there was a total of 18 acancies citywide of which 123 acancies are attributed to the General Fund. 6513-1
Preliinary 217-18 Year -End pdate ctober 16, 218 Page 2 The City's " Top Six" general fund reenues represent nearly 7% of the City's total General Fund Reenues. Sales Tax reenues cae under budget by approxiately $ 4 illion when copared to the initial projections. A coponent of Sales Tax underperforance is attributable to recent changes at the California Departent of Tax and Fee Adinistration (forerly the BE) where the ipleentation of their new autoated syste in May 218 has caused returns for 2182 [ April June] to reain unprocessed. MuniSerices, the City's Sales Tax consultant, estiates the ipact at $ 1 illion in Sales Tax which will be receied and recorded in fiscal year 218-19. Furtherore, the Departent Stores segent continues to decline as consuers shift purchases fro brick and ortar stores to utilizing an online platfor. Howeer, a recent Supree Court decision ( South Dakota s. ayfair, Inc.) proides states with the authority to require online retailers to collect sales taxes een without a local presence in that state. Ipleentation at the state leel is pending and the City ay likely receie reenue during fiscal year 218-19. Property Tax reenue reains strong and exceeded budget projections by $ 1. 1 illion or oer 3%. Business Tax reenue continues to show oderate growth by exceeding budget by alost 9, or 7. 5%. Hotel Visitors' Tax cae in under budget by $ 654, due to delays in the anticipated startup of two hotels, one of which began operations in August 218. Additionally, tility sers Tax ( T) continues to decline as a result of the cap and trade progra and state legislation. ther key reenues highlights Jail Reenue was $ 2 illion under budget which was a result of a slower than anticipated rap up of the S Marshals contract that was approed in August 217. It is anticipated that jail reenue ay achiee projected reenues of $ 16 illion in fiscal year 218-19. Building perits and plan check reenues were nearly $ 1 illion under budget. ther perits such as heating and electrical cae nearly $ 3, under budget. As citywide deelopent actiity increase, these reenues are projected to iproe next fiscal year. Cannabis related reenue such as the Adult se retail has been a positie new reenue source. Howeer, Adult se Cannabis has ipacted Medical Marijuana retail reenue which fell short by 1. 3 illion. For fiscal year 218-19, staff has lowered Medical Marijuana projections as Adult -se Retail sales grow. ith additional growth of the cannabis industry, it is projected that cannabis related reenues such as cultiation, anufacturing, distribution, and testing will iproe this area of general fund reenue. Pending final audit approal, the projected structural deficit for fiscal year 217-18 is estiated to be approxiately $ 7. 2 illion. hile the structural deficit is within the original projections, its ipact will continue to extend into next fiscal year by reducing aailable fund balance for fiscal year 218-19. As outlined in Exhibit 1, final audit work has begun and will continue during the onths of ctober and oeber 218. A final audit opinion of all of the City's finances will be issued on or about Deceber 7, 218 including final balances for all funds. 65B-2
Preliinary 217-18 Year -End pdate ctober 16, 218 Page 3 STRATEGIC PLA ALIGMET Approal of this ite allows the City to eet Goal # 4 - City Financial Stability, bjectie # 1, ( a stable, efficient and transparent financial enironent). Maintain FISCAL IMPACT There is ng fiscal ipact associated with this action. Acting Executie Director Finance and Manageent Serices Agency Exhibit: 1. Preliinary Fiscal Year 217-18 Year End pdate and Audit Process L
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