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CC - Item 5A - 2016-17 Budget OutlookROSEMEAD CITY COUNCIL STAFF REPORT TO: THE HONORABLE MAYOR AND CITY COUNCIL MEMBERS FROM: JEFF ALLRED, CITY MANAGE r DATE: MARCH 22, 2016 SUBJECT: 2016 -17 BUDGET OUTLOOK SUMMARY The Council will be provided with a forecast of the upcoming 2016/17 fiscal year budget. An early look at revenues for 2016 -17 show signs of modest growth due to flat inflation and a slightly lower consumer price index. Sales tax revenues are projected to show moderate growth in the upcoming fiscal year bolstered by the opening of a new Boiling Crab seafood restaurant, and possibly a new Lucille's Smokehouse BBQ, as well as a Grocery Outlet neighborhood market. Property tax revenue will continue to be the City's largest revenue source and limited increases will rely heavily on residential sales as the Consumer Price Index (CPI) increase is projected to be less than the previous fiscal year. Expenditures will increase in concert with the rising cost of doing business. Resources will not support any additions to full -time staffing levels. Staff Recommendation: Receive and file the 2016117 budget forecast report. ANALYSIS A detailed look into the City's General upcoming fiscal year is provided below. Fund revenues and expenditures for the Revenues Sales Tax — Sales tax receipts, which comprise the City's second leading source of General Fund revenues, are projected to increase by 5.4 %. Since the Triple Flip ended in FY 2015/16, that revenue will be allocated to the City as Sales Tax once again. Therefore, we are projecting an increase in Sales Tax of $260,000 for FY 2016/17. The opening of the new Grocery Outlet and two new restaurants, Boiling Crab and Lucille's BBQ will have a positive impact on revenues. Due to the timing of the sales tax reporting payments, the City will not begin to see the results of these new restaurants until the latter part of the 2016 -17 fiscal year. Other major revenue sources such as fines, business licenses and fee for use programs are projected to grow slowly unless fees are increased or new businesses are opened. ITEM NO. 5.A City Council Meeting March 22, 2016 Pane 2 of 5 Property Tax — The CPI increase is projected to be 1.525% in FY 16/17. That is not positive news from a revenue standpoint since the five -year financial outlook the City uses assumes a 2% annual increase overall. The City's major tax revenue bases (property tax and sales tax) are projected to continue growth at a 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 is projected to be 1.525% which is less than the 2.0% increase in the prior year. 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. We are projecting a $398,000 increase in property tax in 16117. Transient Occupancy Tax (TOT) — The possible opening of the Qiao Garden Hotel, the Marriott Fairfield Inn and the possible construction of a Hampton Inn provide potential for growth in the 2016/17 fiscal year. Business License — The revenues are estimated to be about the same as last 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 integration of the business license process into the one -stop shop approach of the Community Development Department has certainly worked well and revenues in this category are expected to continue to show positive results in the 2016/17 fiscal year. Fines and Forfeitures — The collections of Administrative Citations, Court Fines and Parking Citations have shown decreased revenue during the current year due to several factors. In the prior year there were numerous citations related to tour bus violations, massage parlors and an illegal marijuana dispensary. During this fiscal year, there were fewer citations related to these issues. Also, our Public Safety staff has concentrated their time on accidents, graffiti, coyote and mosquito issues as well as homeless issues. These activities do not generate revenue. We are decreasing the revenues in this category by $73,000 for the 2016/17 fiscal year until additional revenues can be justified. Parks and Recreation Related Fees — Recreation related fees will likely remain stable for the upcoming 2016/17 fiscal year. Building Fees — We are projecting Building Permit and Plan Check fees to maintain modest growth in FY 16/17. These revenues are up in comparison to the previous fiscal year which is partially due to a new mixed use project on Garvey Avenue and also 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. Several mixed use developments in this area 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. City Council Meeting March 22, 2016 Paoe 3 of 5 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 The Liability Trust Fund (LTF) surcharge costs related to the Sheriff's contract will increase in 2016/17 by a shocking amount of 9.5 %. This will be a huge additional expenditure to our City's General Fund resulting in $251,000 additional costs that the City will need to absorb. This amount is in addition to the Sheriff's contract rate increase of 3.7 %. This rate increase results in an additional $250,000 over last year's contract for a grand total of $501,000 additional expenditures to our General Fund. The City may need to consider shrinking services and /or increasing our revenues in order to absorb these huge additional costs. In FY 2016 -17, the City is considering several large CIP projects to be funded directly from the General Fund. These include improvements to the Jay Imperial Park, Catch Basin Upgrade Analysis and Storm Drain Compliance and Monitoring. 2016 -17 Outlook There are large increases to expenditures in FY 2016 -17 that will need to be addressed. These include the $500,000 increase in Sheriff's costs as well as continued increases related to storm drain issues. 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. PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Prepared by: Carolyn A. Chu Finance Director Attachments: