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Qi ty of San Bernardino 0
INTEROFFICE MEMORANDUM
9009-2732
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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
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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
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BOOKING FEES
The estimated charge for booking fees ranges from $125 to
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INTEROFFICE MEMO~UM: 9009-2732
First Quarter Report on City's Finances
September 27, 1990
. Page 2
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$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.
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city Administrator
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<:kity of San Bernardino c:>
INTEROFFICE MEMORANDUM
9009-1708
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TO: SHAUNA EDWINS, CITY ADMINISTRATOR
FROM: ANDREW M. GREEN, DIRECTOR OF FINANCE
SUBJECT: FINANCIAL ANALYSIS GENERAL FUND
DATE: SEPTEMBER 26, 1990
COPIES: FILE
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Sales Tax
The Sales Tax category which comprises 35.4% of General Fund
revenues consists of the 6 major areas:
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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.
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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. '
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INTEROFFICE MEMO~DUM: 9009-1708
FINANCIAL ANALYSIS GENERAL FUND
September 26, 1990
Page 2
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UtilitvUsers Tax
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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
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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.
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INTEROFFICE MEMO~DUM: 9009-1708
FINANCIAL ANALYSIS GENERAL FUND
September 26, 1990
Page 3
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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.
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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.
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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
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INTEROFFICE MEMO~DUM: 9009-1708
FINANCIAL ANALYSIS GENERAL FUND
September 26, 1990
Page 4
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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.
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Andrew Green
Director Of Finance
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