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HomeMy WebLinkAboutS01-City Administrator Qi ty of San Bernardino 0 INTEROFFICE MEMORANDUM 9009-2732 c TO: The Honorable Mayor and Common Council FROM: Shauna Edwins, City Administrator SUBJECT: First Quarter Report on City's Finances DATE: September 27, 1990 COPIES: Andrew Green, Director of Finance October 1 marks the beginning of the second quarter for fiscal year 1990-91. Attached is a report from Finance Director, Andy Green, which gives a financial analysis of the General Fund for the first quarter and illustrates that the city's financial picture is very dismal. The major problems we face are: to the Iraq crisis, the potential in booking fees and County charges taxes, and the costs of unbudgeted increases in fuel costs due of paying up to $2,000,000 for collection of property salary negotiations. FUEL COSTS o Based on last spring's prices, the City budgeted $543,395 for fuel. Although we cannot predict the full effect of the Iraq crisis on fuel prices, other cities are using 30% as the anticipated rate of increased cost for fuel. At that rate, fuel expenditures will come in $163,000 over budget. UNBUDGETED SALARY NEGOTIATIONS $2,000,000 was budgeted for increases in police and fire salaries as mandated by Charter section 186. However, no funds were set aside for mid-managers who have just reached agreement with the city and are to receive automatic pay and benefit increases as well as a salary survey. The costs of the salary upgrades for mid-managers are unknown at this time. We estimate that the cost may be as high as $380,000. The 186 increases are averaging 7 to 8% and are expected to use up the $2,000,000 set aside. PROPERTY TAX CHARGES The County has not finalized the amount they will for collection of property taxes. Estimates $83,000 to $104,000 per year. be charging range from o BOOKING FEES The estimated charge for booking fees ranges from $125 to i~<<d ,~'".;, c Q o INTEROFFICE MEMO~UM: 9009-2732 First Quarter Report on City's Finances September 27, 1990 . Page 2 o $150 per booking. The Police Department is anticipating 11,616 bookings for this fiscal year; therefore, the City's expense will range from $1,452,000 to $1,742,200. In addition, the booking fees are retroactive. In other words, in 1991, we will receive a bill dating back to July 1, 1990. THE DEFICIT -- $1.998.000 TO $2.309.200 At this time, the City is in a potential deficit that ranges from $1,998,000 to $2,309,200. In addition, our ability to make up this deficit is seriously threatened by Proposition 136 on the November 6, 1990 ballot. If approved, this measure would go into effect upon adoption and remove this City's ability to enact general tax increases without voter approval. One of those general taxes is the business license tax which is on the Supplemental Agenda. If approved, these increases would result in additional revenue of $205,180. The time limitations imposed by Proposition 136 will require first reading of the Business License Code amendments on October 1, 1990 and a second reading as soon as possible. In light of Proposition 136, I recommend that the Mayor and Council also take a look at other general taxes to consider opening the door for increases. . . ~/MA~~/1d "ffffK(fffK 'EDWINS city Administrator SE/md <:kity of San Bernardino c:> INTEROFFICE MEMORANDUM 9009-1708 o TO: SHAUNA EDWINS, CITY ADMINISTRATOR FROM: ANDREW M. GREEN, DIRECTOR OF FINANCE SUBJECT: FINANCIAL ANALYSIS GENERAL FUND DATE: SEPTEMBER 26, 1990 COPIES: FILE ------------------------------------------------------------- Sales Tax The Sales Tax category which comprises 35.4% of General Fund revenues consists of the 6 major areas: o Consumer Retail 36% Transportation 22% Food Products 15% Construction 14% Business to Business 12% Miscellaneous 1% The 1990/91 estimate for Sales Tax is 7% over the 1989/90 estimate. c The possibility of recession was taken into account when this estimate was made. Preliminary year end close information for 1989/90 indicates that Sales Tax revenue will be approximately 1.3% or $279,000 below the 1989/90 estimate. It is evident that the City's economy is slowing down. A recession perpetuates this slow down and depending on its severity can cause major declines in Sales Tax revenues. A recession reduces consumer spending which reduces Sales Tax collections which in turn reduces Sales Tax revenues to the City. The Iraq crisis will also have an effect on the city's Sales Tax Revenues. As oil and gasoline prices rise consumers tend to reduce gasoline usage. Approximately 5% of the Sales Tax revenues received by the City are from oil related products such as gasoline. However as the cost of doing business increases in other areas due to gasoline price increases so does the cost of other consumer products. This could lead to decreased demand for some consumer goods which could adversely affect the City'S Sales Tax revenue. Sales Tax revenues collected as of August 1990 is $2,007,200 or 4.5% above this time last year. Sales Taxes traditionally pick up in the second half of the fiscal year, however if this trend continues Sales Tax revenues could be short by $500,000 to $600,000. ' c INTEROFFICE MEMO~DUM: 9009-1708 FINANCIAL ANALYSIS GENERAL FUND September 26, 1990 Page 2 o UtilitvUsers Tax o The utility Users Tax comprise 19.1% of the General Fund revenues collected. The major generators of the revenue are the Gas and Electric utilities. According to both the Gas Company and Edison the increased cost of oil.will only mini- mally affect their operations. This is due to the fact that both use natural gas for a majority of their operations instead of oil. Additionally the majority of the natural gas used by these entities comes from within the United States. The Gas Company anticipates no immediate increase in rates. However the Edison Company will be proposing a 10% rate increase in January 1991 due to other mandated costs. This should equate to an increase in utility Users Tax revenues. However this revenue will be somewhat offset by the increased electricity expense to the City. utility User Tax revenue could also be affected by increased conservation on the part of consumers as a result of a recession. As consumption decreases so does Utility User Tax revenue to the City. Preliminary year end close information indicates that 1989/90 collections will be .6% or $71,000 above the 1989/90 esti- mate. Utility Users Tax revenue collected as of August 1990 is $2,187,672 or 13.8% above this time last year. This is average for Utility User collections. It is felt that based upon this current trend the 1990/91 estimate is on target. ProDertv Taxes Property Taxes comprise 12.2% of the General Fund revenues. This revenue source has been fairly static. Since Propo- sition 13 limits the revenues collected for Property Tax, the only substantive increases result form transfers or new purchases. A recession adversely affects the construction industry and consumers ability to purchase. This in turn reduces additional property Tax revenue which would have been available. Another item which will reduce the City's Proper- ty Tax revenue is the County's charge for Property Tax administration. Rumor has it that this could cost cities from 1% to 1 1/4% 'of their Property Tax revenues. In the city of San Bernardino that represents $83,000 to $104,000. Property Tax revenues are received beginning in December therefore there is no trend information for this time of year. DeveloDment Fees o Development Fees comprise 6% of the General Fund budget. A recession which would adversely affect the construction industry would have a direct affect on development fees. Recent information indicates that construction within tlie City has not been detrimentally affected to date. o INTEROFFICE MEMO~DUM: 9009-1708 FINANCIAL ANALYSIS GENERAL FUND September 26, 1990 Page 3 o Development Fees collected as of August 1990 were $643,673 or 72% above this time last year. If this trend continues the 1990/91 estimate could be exceeded by $300,00 to $400,000. Motor Vehicle in Lieu Motor Vehicle in Lieu represents 9% of the General Fund budget. This revenue is derived from vehicle registration. As new and used vehicle sales decline so would this revenue. The revenue received as of August 1990 is $968,047 or 133% over this time last year. if this trend continues the 1990/91 estimate will be exceeded. The remainder of the General Fund Revenues consist of miscellaneous items. The major components would be Business Licenses, Franchise Fees and Water Fund Contribution. o Collections as of August 1990 for Business License and Water Fund Contribution is $544,251 and $205,823 respectively. This represents a 12.5% increase in Business License and a 26% increase in Water Fund contribution over this time last year. If this trend continues both 1990/91 estimates will be exceeded. Franchise Fees are generally not collected until March, therefore there is no trend information for this time of year. Salarv Savinas As of August 1990 the city has exceeded its projected salary sav~ngs. However these accumulated savings will be reduced by increased overtime and part time costs, therefore it is impossible at this time to project salary savings for the entire fiscal year. In order to guard this savings, careful monitoring by department heads of their overtime and part time budgets is necessary. EXDenditures General Fund expenditures are on target for this time of the year. The economic impact on the expenditure side for the city as a result of the pending recession and Iraq crisis is increased costs for goods and services. This could result in the city not being able to supply the minimum service levels anticipated as a result of the 1990/91 budget cuts. The increase in fuel costs for example, will have an immediate affect on City vehicle usage. o The impact of the loss of approximately 13% or $120,000 of the Cigarette Tax is another unforseen cost. The County~s charge for bookings which could amount to $1.4 million is another adverse impact on the city. The potential increase o o o INTEROFFICE MEMO~DUM: 9009-1708 FINANCIAL ANALYSIS GENERAL FUND September 26, 1990 Page 4 o in Edison rates of approximately 10% by January 1, 1991 and the potential cost of unbudgeted salary negotiations also adversely impacts the City's financial condition. The preliminary 1989/90 ending General Fund approximately $250,000 estimate. close information indicated that the undesignated fund balance will be short of the beginning 1990/91 Conclusion Overall the city's financial picture is very bleak. The 1990/91 budget process cut departments to the bare minimum and even that was not enough. As a result mandatory salary savings were needed to balance the budget. Now with the Iraq crisis, increased chances of a recession, state revenue withholding, unanticipated County charges and unanticipated internal expenses, the City faces a potential General Fund deficit in excess of $2 million. In my opinion the city has three options available: 1. Raise taxes and/or Fees to make up the potential deficit. 2. Decrease services including layoffs of personnel amounting to the potential deficit. 3. A combination of Tax and/or Fee increases and reduction in services, including layoffs, which amount to potential deficit. If you have any further questions please call me. ~ lt~~w )jr~' Andrew Green Director Of Finance vm