DISCUSSION
General Fund Fiscal Year 2019-20 Operating Results
The General Fund closed Fiscal Year 2019-20 with a positive operating result despite the pandemic. This is largely due to the newly approved Measure O which brought in additional sales tax revenue of $20.0 million. Without Measure O, we would have ended the year with a $4.8 million deficit. Total General Fund revenues exceeded expenditures by $15.2 million per audited financial statements. Included in the $15.2 million, are $7.0 million budget savings from the unspent FY2019-20 allocations to various projects and programs. These funds are not considered as available resources as they are carried over to the current fiscal year to complete those projects and programs.
When the City Council adopted the Fiscal Year 2020-21 amended budget, $3.2 million from the then-anticipated FY2019-20 surplus was used to balance the current year’s budget. Excluding this amount and the $7.0 million previously committed funds to complete ongoing projects and programs, there is approximately $5.0 million that are remaining from the Fiscal Year 2019-20 surplus. This money can be used to bridge the gap of projected revenue shortfall in Fiscal Year 2021-22, with any remaining balance to establish a much needed comprehensive infrastructure plan.
COVID-19 Related Costs and Relief Funds Received
As of January 14, 2020, we have incurred $2.8 million in costs directly related to the pandemic. Among this cost, $2.3 million is for City employee salaries and benefits, which includes $369,147 in emergency sick leave pay under the Families First Coronavirus Response Act (FFCRA), and $524,161 for materials, equipment and supplies. A total of 44,353 staff hours were incurred directly attributable to COVID-19, with an additional 10,084 hours paid in accordance with the FFCRA.
Table 1 – COVID-19 Related Direct Cost
March16, 2020 through January 14, 2021
These costs were absorbed in the various departments’ operating budget. Some of the costs were offset by the Coronavirus Aid, Relief, and Economic Security (CARES) Act funds allocated to the City and other grants through the State and the County.
In addition to costs incurred, the City also suffered significant loss of revenue directly caused by the pandemic. We estimate a revenue loss accumulated to approximately $20.0 million since March 2020, primarily in Transient Occupancy Tax.
The Treasury established a $150.0 billion Coronavirus Relief Fund under the CARES Act. The City has identified a total of $18.9 million that is available to the City through either pass-through allocations or reimbursement requests. To date, the City has received $6.7 million in CARES funds. Below is a summary of all the relief funds allocated to and received by the City.
Table 2 – CARES Act Funding Summary
Cumulative to date
General Fund Fiscal Year 2020-21 Mid-Year Update
We are half way through Fiscal Year 2020-21. Expenditure wise, we are right on target. Staff has been following the cost containment measures established by our City Manager in April 2020, which included a hiring freeze, restricted travel and training, and reduced capital spending. As an effort to balance this year’s budget, we removed funding for 22 vacant positions across several departments. As a result, any “budget savings” from personnel costs will be minimized this year.
On the revenue front, we project our overall General Fund revenue will just reach the budgeted level. The three major revenue sources, property taxes, sales taxes (including Measure O), and transient occupancy tax (TOT) contributes over 80% of total General Fund revenues. Property taxes are estimated to be slightly over the budgeted level, thanks to the strong real estate market. The City has seen a steady appreciation of its assessed value.
TOT on the other hand, has suffered more losses than we had anticipated when we adopted our amended budget. TOT revenue for the first six months of the current fiscal year totaled $2.7 million, which is a reduction of more than 80.0% comparing to the same period of last fiscal year (pre-pandemic). Our amended FY2020-21 budget projected TOT revenue at $10.5 million. Based on the year-to-date actual and current pandemic situation, we are anticipating a shortfall of $5.2 million in TOT revenue.
Retail activities have been strong since the beginning of the fiscal year. Based on revised estimate provided by our sales tax consultant HdL, overall sales tax for FY2020-21 will reach $44.7 million, which is $5.2 million higher than our current budget. The projected higher sales tax revenue would offset the anticipated shortfall in TOT revenue. Below is a summary of the major three General Fund revenue sources.
Table 3 – Major General Fund Revenues
(Amount in $’000)
Table 4 below summarizes all General Fund revenues and expenditures updated with mid-year projection for Fiscal Year 2020-21.
Table 4 – General Fund Revenue and Expenditure
(Amount in $’000)
When we adopted the amended Fiscal Year 2020-21 budget, we planned to tap into our fund balance in the amount of $10.5 million to balance the budget ($3.2 million from Fiscal Year 2019-20 surplus and $7.3 million from various reserves and unreserved balance). The current mid-year update does not change this assumption. We would still be in deficit for approximately $10.1 million, which will be offset by existing fund balance.
It should be mentioned that in addition to the use of fund balance to balance our Fiscal Year 2020-21 budget, we also had to defund 22 vacant positions. Below is a summary of positions defunded during Fiscal Year 2020-21.
Table 5 – Fiscal Yare 2020-21 Defunded Position List
(Amount in $’000)
As shown above, many of these positions are critical for providing essential services to our community. If these positions are continued to be defunded, service levels will be impacted and the condition of our infrastructure will further deteriorate. However, to bring back these positions in Fiscal Year 2021-22, we estimate it will cost the General Fund $2.3 million per year. The 8% increase is due to the increase in unfunded pension liabilities and various MOU changes.
Considerations for Fiscal Years 2021 through 2023 Biennial Budget
When preparing for the strategies to develop fiscal years 2021 through 2023 biennial budget, staff will continue to focus on the priorities the City Council has established, such as improving infrastructure, quality of life and beautification in districts, public safety, economic development, homelessness, just to name a few.
In April, we will provide a more in depth analysis on revenue forecast for the next two years as well as cost analysis on increases in non-discretionary spending, including personnel and contractual. This information will be used as a baseline target to formulate the Fiscal Year 2021-2023 biennial budget.