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CC - Item 5D - Mid-Year Budget update and 2015-16 OutlookROSEMEAD CITY COUNCIL STAFF REPORT TO: THE HONORABLE MAYOR AND CITY COUNCIL MEMBERS FROM: JEFF ALLRED, CITY MANAGER DATE: FEBRUARY 10, 2015 SUBJECT: MID -YEAR BUDGET UPDATE AND 2015 -16 OUTLOOK SUMMARY The Council will be provided with a mid -year Budget update presentation regarding the current 2014 -15 fiscal year Budget along with a brief look towards the upcoming fiscal year. In terms of the General Fund, revenues have proven to be stable and are generally in -line with budgeted projections. Sales tax revenues are growing moderately as expected and property tax revenues have been relatively stable. General fund expenditures are remaining in line with budgeted figures and staff has implemented cost savings measures when available. It is important to point out that the Budget includes the expenditure from fund balance for certain capital improvement projects such as the Garvey Gym renovation, the Garvey Avenue Specific Plan and EIR project and the purchase of the River Avenue property for a maintenance facility; therefore, expenditures are projected to exceed revenues at the end of the fiscal year. An early look at revenues for 2015 -16 show signs of modest growth due to flat inflation and a higher consumer price index that will enhance property tax revenues. The opening of all new restaurants and businesses has been offset somewhat by the closure of some retail outlets such as Office Depot and Bed Bath & Beyond, which will result in continued slow growth of sales tax revenue. However, we are currently awaiting the opening of two new stores, Ulta and PetSmart which should help Sales Tax in the future. Property tax revenue increases will rely heavily on residential sales as the Consumer Price Index (CPI) increase will be minimal for FY 2014115. Staff Recommendation: Receive and file the mid -year budget update report. ANALYSIS A detailed look into the City's General Fund revenues and expenditures for the first half of the year is provided below. ITEM NO.� City Council Meeting February 10, 2015 Page 2 of 5 Revenues Sales Tax — Sales tax receipts, which comprise the City's second leading source of General Fund revenues, are again projected to increase at conservative levels. Revenues are coming in according to the budget. The tempered gasoline prices along with the closing of Office Depot and Bed, Bath & Beyond will hurt sales tax figures for the year, but fortunately the newer restaurants are performing well and have helped to cover any losses of revenue. For the most recent quarter of data (2 quarter 2014), Casual Dining receipts are up 4.6% and Fast Casual Dining receipts are up 111.8 %. Recent additions to the City including Olive Garden, Chipotle, The Habit, Wing -Stop, and Jersey Mike's, are helping to diversify and strengthen the City's sales tax base. Overall, the City's gross receipts within the City were down 2.1 % for the 2 "d Quarter of 2014 for a total dollar decrease of $24,100. This decrease is partially due to the closing of Office Depot and Bed, Bath and Beyond as well as an adjustment that the City received from Macy's in the prior fiscal year. In addition our 10 year agreement with the City of Baldwin Park ended last year which will decrease our future revenues by $59,000 per year. News regarding the 4 th Quarter, also known as the Christmas quarter, has been tempered by lackluster numbers, but actual figures will not be available for several more months. Property Tax — Although early, property tax revenues are tracking in line with budgeted estimates. Sales of residential properties in Rosemead is still strong and final selling prices have almost fully recovered since before the recession. For the quarter ending September 30, 2014 the average home price was $457,046 and the median price was $440,000 which is a 7.06% increase over the prior year. This positive news is tempered by the Consumer Price Index data that will be used for the 2014 -15 property taxes. For the current 2014 -15 year the CPI increase will be less than 0.5% imposed on property taxes; however, for 2015 -16 the CPI increase will be almost 2% and that is very positive news from a revenue standpoint since the five -year financial outlook the City uses assumes a 2% annual increase overall. While the City will need to see substantial growth from new development and existing sales to meet the estimate for the current fiscal year, the 2015 -16 fiscal year will be more in line with the City's estimate. Transient Occupancy Tax (TOT) — First quarter TOT revenues were up $37,000 to $434,000. Although the 2 "d Quarter fees are not collected until January and are not reflected in the dollars of this report, the TOT reports for the majority of the operators continues to be strong. Business License — Business license revenues are up in comparison to last fiscal year as a result of the new businesses opening in town, the licensing of contractors, and the improved enforcement and outreach efforts by staff. The budget for 2014 -15 was increased by $40,000 to $190,000 and revenues are coming in to meet the increased projection. The integration of the business license process into the one -stop shop approach of the Community Development Department has certainly worked well and is continuing to show positive results. City Council Meeting February 10, 2015 Page 3 of 5 Fines and Forfeitures — The collections of fines such as Court Fines and Parking Tickets has remained stable. However, the collections of Administrative Citations has increased $20,000 in the first quarter. Productivity has increased recently under the supervision of our new Public Safety Supervisor. The budget for 2014 -15 was increased based on 2013 -14 actual collections, and current revenue is being collected at a rate to meet the budgeted figures. Parks and Recreation Related Fees — The budget for several categories related to facility rentals and aquatic center use were significantly increased in the 2014 -15 fiscal year as a result of the RCRC being re- opened and programmed. Until fees are increased or the RCRC is completely re- opened for additional facility rentals and contract classes, Recreation related fees will likely remain stable. Building Fees — Building Permit and Plan Check fees are up in comparison to the previous fiscal year and is a sign of the improved construction industry in the community. Building activity during the first quarter of the year has been steady with a solid mixture of commercial and residential projects. The construction of the SCE pedestrian bridge along with two large mixed use developments should help continue this positive momentum for the remainder of the fiscal year. A combination of commercial development and residential infill has provided a boost to these revenues. It's important to keep in mind that any revenue increases will be partially offset by increased costs for the review and inspections of permits. Expenditures Generally speaking, expenditures in the General Fund are tracking in line with the budget. There are a few individual items that were requested for mid -year adjustments. These include the Garvey Avenue median retrofitting project, the clean -up of the Homeless Encampment and the increased liability costs in the Los Angeles County Sheriff Department contract. These funds were appropriated from General Fund fund balance in January 2015. In May 2014, the City Council authorized an agreement for the Garvey Avenue Corridor Specific Plan and Environmental Impact Report (EIR) to Moore, lacofano Goltsman, Inc (MIG) to help spur and guide economic development at key opportunity sites. These funds were appropriated from General Fund fund balance in July 2014 and the bulk of these expenditures will take place in the 2014 -15 fiscal year. In January 2015, the City purchased the property at 2714 River Avenue for $1.83 million. This property will be used as a corporate yard maintenance facility for the Public Works Department and will provide enhanced security of the City's vehicles, equipment and other assets. While these funds came from our General Fund fund balance, this purchase is consistent with the "Fiduciary Responsibilities Guiding Principles" listed in the Fiscal Policies section of the City's Budget document (page 14). City Council Meeting February 10, 2015 Paqe 4 of 5 The pertinent principle in this case is: Use "reserves" only for one -time expenditures or temporary stop -gap measures. Acquisition of real property is a one -time expenditure for a public purpose. Legal fees related to City Attorney costs are still within budget; however, due to defense costs of the lawsuit against the City by Tammy Gong, a budget adjustment may be necessary before the end of the fiscal year. The 2014 -15 Budget includes a $150,000 for attorney fees and through December the City has spent approximately $70,000. Of this amount, $26,000 is directly related to the Gong lawsuit. 2015 -16 Outlook The modest growth in revenues for the current fiscal year is expected to continue into 2015 -16. The City's major tax revenue bases (property tax and sales tax) are projected to continue growth at a slow to modest pace. Property tax revenue increases are a result of two factors: CPI increase on existing tax bills and increased assessed values from the sale of properties. While the property sales market in Rosemead continues to remain strong especially on the residential side, the CPI increase will be slightly less than 2.0 %. This percentage is higher than the .5% in the prior year which is good news. It's likely that some of the CPI increase will be offset by pending assessed valuation appeals from large commercial properties. As a result, much of the increase in property tax revenue will need to come from sale of existing properties and the resulting increase in assessed value. Sales tax revenues should continue to grow, but with few new retail centers or storefronts becoming available, the growth will be slow. The opening of two new stores in the Target shopping center, Ulta and PetSmart will certainly have a positive impact on revenues as well as the recent opening of the new retail center at Walnut Grove and Valley Blvd. Due to the timing of the sales tax reporting payments, the City will begin to see the results of these new retail centers in the 2015 -16 fiscal year. Other major revenue sources such as TOT, fines, business licenses and fee for use programs are projected to grow slowly unless fees are increased or new businesses are opened. During 2014 -15 the City has begun to make an investment from its reserves for the development of a Garvey Avenue Corridor Specific Plan and Environmental Impact Report (EIR). This project should begin to spur and guide economic development at key opportunity sites. In FY 2015 -16, we are considering several large CIP projects to be funded directly from the General Fund. These may include improvements to the Jay Imperial Park as well as upgrades to the Garvey Park restroom. In addition, we plan on improving the exterior to City Hall including the fagade, stucco and new lights. Also, as mentioned above, we purchased the new City yard and this will require some additional improvements during the next fiscal year. City Council Meeting February 10, 2015 Page 5 of 5 The demand for service from the City's residents and businesses remains high and any increases to service levels will need to be met with new or increased fees to offset costs. As an example, transitioning the business license system to updated software that allows for online payments, renewals and applications is available; however, at a cost of almost $30,000. This increased cost would need to be factored into the business license fees to ensure adequate cost recovery of the new service. Similar considerations will need to be made for other endeavors like the Wi -Fi project at City facilities or new community education and outreach efforts. PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Prepared by: n C, (�, Carolyn A. Chu Acting Finance Director Attachments: