HomeMy WebLinkAboutAgenda Bill 1ALate4Part2
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• Similarly under our independent analysis, Taxable Retail Sales in the category of
General Merchandise stores increased by an average of 58.9 the year following
the opening of a Target store as compared to the year prior to the opening in g
Northern California communities.
• If the Lowe's store had been opened in Petaluma in the past two years or into the
future, the City could generate an additional $?~o,ooo in sales tax per year.
• If the Target store had been opened in Petaluma in the past two years or into the
future, the City could generate an additional ~z~_o_,ooo in sales tax per year.
• Our independent analysis further affirms and validates the FEIA conclusions that
additional retail development in Petaluma would result in significant revenue
enhancement to the City.
IV. Methodology
A. Design
Identification and quantification of changes to the City's annual budgets from
FYzoo6 through FYzo~o was accomplished by analyzing detailed publicly-available data
provided in the City o f Petaluma's FYzoo6 Budget Summary; City o f Petaluma's FY zoo? Budget
Summary; City of Petaluma's FYzoo8 Budget Summary; City of Petaluma's FYzoog Budget
Summary; and the City o f Petaluma's FY zoo Budget Summary.' More specifically, the City's
annual fiscal year budgets provide detailed reports on revenues generated and expenditures
for programs and services. For purposes of this study, we focused solely on General Fund
' http(~cityof~~t~lumanetJfinance, downloaded >>Jt8Jzoo9.
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budgeting since it is the primary fund of the City's government that records all assets and
liabilities that are not assigned to a special purpose. The General Fund provides the
resources necessary to sustain the day-to-day activities, pays for all administrative and
operating expenses, and thus is captive to fluctuations in incoming revenues from year-to-
year.
We determined that a comparative analysis of historical General Fund data was
warranted. First, we identified the five-year period of Zoo6 through zoo analyzed in this
report, not only because it is the last five years of available data, but it also represents a
period of initial strength then decline in the national, state and local economies. Second, we
reviewed and compiled the General Fund Revenues and General Fund Expenditures/Expenses
data from this period. Third, we reviewed and compiled the Sales Tax Revenues from the
same period. Finally, we compared and analyzed this year-over-year data to come up with
our results to determine the impacts upon Petaluma both in lost revenues, but also lost City
services and their corresponding positions (jobs).
Furthermore, we also identified and analyzed the potential projected revenue
enhancements to the City by reviewing the detailed publicly-available Fiscal and Economic
Impact Analyses ("FEIA's") required by the City Council under Resolution No. zoo8-~8g
N.C.S. These FEIA's are required due to the concern about the size and scope of potential
large-scale commercial developments in the City. First, we reviewed the FEIA's prepared by
Bay Area Economics ("BEA") for the City on both the proposed Deer Creek Village and East
Washington Place commercial retail developments.z3 Second, we reviewed and analyzed
the Retail Sales Analysis sections of both FEIA's, with particular attention to the Leakage
z "Fiscal and Economic Impact Analysis for Proposed Deer Creek Village Shopping Center in Petaluma,
CA," prepared for the City of Petaluma by Bay Area Economics, January zoo9.
s "Fiscal and Economic impact Analysis for Proposed East Washington Place Shopping Center in Petaluma,
CA," prepared for the City of Petaluma by Bay Area Economics, January zoog.
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Analysis. Third, we further examined and analyzed the Fiscal Impact Analysis section of both
FEIA's, with focus upon the Projected General Fund Revenues and Projected General Fund
Costs discussion.
As a further point of comparison and validation, we identified and quantified Taxable
Retail Sales for specific California cities by analyzing detailed data provided by the California
Board of Equalization in quarterly and annual reports and further compiled in the California
Retail Survey, zoo9 Edition, published by the Eureka Group ("Survey"). The Survey provides
detailed reports on each of California's 58 counties and z7z of the largest cities. The Survey
also provides summary coverage on zoo smaller cities across the state. Retail sales data
contain eleven years of sales data for up to 45 individual retail store categories. In addition
to historical sales and outlet trend data, the Survey also includes a wide range of statistical
measurements that evaluate past performance of individual markets and the prospects for
future growth. Moreover, we also relied upon the most up-to-date California population
statistics as provided by the California Department of Finance's City/County Population
Estimates with Annual Percentage Change for January zoo9.4
In order to best utilize the available data from the Survey, we also determined that a
comparative analysis of historical and relevant data was warranted. Relevant data in this
case was determined to be related Taxable Retail Sales figures for Northern California
communities that had either Lowe's and/or Target stores similar to those proposed for Deer
Creek Village and East Washington Place. First, we identified the opening dates for each of
the Northern California Lowe's and Target stores analyzed in this report. For the best
comparisons, we focused solely upon those Lowe's and Target stores opened in Northern
California from zoo3 to zoo7. Second, we reviewed and compiled the Taxable Retail Sales
data from the one year prior to the opening of each Lowe's and/or Target store. Third, we
a htt°alwww.dof.cagov/research/demograPhcJreport~estimat~sJe-q/zoos-zoo9/, downloaded
iiltolzoo9.
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reviewed and compiled the Taxable Retail Sales data from the year after the opening of the
Lowe's andJor Target store. Finally, we compared and analyzed this year-over-year data to
come up with our results to determine the impacts upon each community due to the
opening of the Lowe's and/or Target stores. The results were then used for comparative
purposes for possible impacts of such store openings in Petaluma.
B. Scope of Analysis
As of the date of the writing of this report, fiscal year budgets for the City were
available for the five-year period from zoo6 through zoo, and General Fund data from
those years are reviewed. The FEIA's for Deer Creek Village and East Washington Place
were completed in January zoog, utilizing data through the end of zoo7. In addition,
local Taxable Retail Sales data for California was available through the end of zoo8.
Therefore, the comparative Taxable Retail Sales analysis includes communities in
Northern California where Lowe's has opened stores since zoo4; the analysis also
includes g communities in Northern California where Target has opened stores since
zoo3. These include the Lowe's cities of Antioch, Cotati, Dublin, Fremont, Gilroy,
Jackson, Lincoln, Lodi, Los Banos, Stockton, and Yuba City; and the Target cities of
Albany, Antioch, Gilroy, Hayward, Lincoln, Manteca, Morgan Hill, Napa, and Riverbank.
C. Data
We relied primarily upon the Budget Summaries from the City of Petaluma's Fiscal
Year Budgets for zoo6 through zoio, with principal focus upon the General Fund
Summaries for each year.
Additionally, we reviewed the FEIA's prepared for the City by Bay Area Economics
for the Deer Creek Village and East Washington Place shopping centers, with particular
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emphasis on the Retail Sales Analysis and Fiscal Impact Analysis sections of the FEIA
reports.
As outlined above, we also relied upon historical data regarding Taxable Retail
Sales compiled in the Survey. The Survey defines Taxable Retail Sales as those sales that
include all retail transactions subject to California's sales tax. For the purposes of this
comparative analysis and review, we identified the most appropriate individual retail
store category which best correlates with the items sold in a Lowe's store (Building
Materials) and Target store (General Merchandise stores). The Survey defines these as
follows:
Building Materials stores -includes retailers offering lumber, plumbing goods,
electrical goods, tools, hardware, lawn and garden supplies, and related home
improvement supplies.
General Merchandise stores-includes larger scale retailers, offering a broad
range of consumer goods, including apparel for all ages, furniture and home
furnishings, electric appliances, jewelry, and personal care products.
For purposes of this analysis, we relied upon the aforementioned store categories
to remain consistent with those utilized in the FEIA's.
V. Results of Analysis
A. Changes in the City's General Fund Fiscal Year Budgets
The City of Petaluma has continued to rely upon a "bare bones" budget as
referenced in the City Manager's Budget message for the past five years. The approach
to the General Fund budget process was consistent from year to year. The budget is
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formulated and based on the "Revenue Approach," whereby an estimate of General
Fund Revenues is first determined. Fixed Costs, based on existing staffing levels,
including salaries, benefits, and intergovernmental charges are then determined.
Therefore, the City's budget is dependent upon the level of revenues generated each
year. As a result in four of the past five years, the City's revenues have dramatically
declined.
CHART 1
City of Petaluma -Total Revenues
$55,000,000 - - - - - - -
$ 52,005, 503
$50,000,000
$45,000,000
i ,
$40,000,000 Y- -
$41,386,647
$35,000.000 - _
$35,110,600 34,068,550
$30,000,000 Y - -
$25,000,000 T- _ -T---- _T---
FY2006 FY2007 FY2008 FYZ009Est. FY2010
Actual Actual Actual Actual projected
Chart ~ highlights the changes in General Fund Total Revenues from FYzoo6
through FYzo~o. The City's General Fund revenues have dropped from a high of
$5zmillion in FYzoo7 to a projected low of $34million in FYzo~o or a decline of 34.6%.
As seen in the above Chart, revenues have declined continuously from FYzoo7 to
FYzoo8 (-X6.3%), from FYzoo8 to FYzoo9 (-X9.3%), and again from FYzoo9 to FYzo~o
3.0%). These drops are the reflection of the declining national, state and local
economies during this period.
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With drastic reductions in the City's revenues, General Fund Expenditures and
Expenses have been negatively affected as well.
CHART z
City of Petaluma -Total Expenditures & Expenses
$55,000,000 - -
j $51,612,633
$50,000,000 1-- 48~7~;-fin
$45,000,000 - -
$40,000,000
$41,479,977
535,000,000 ~ - _ - -
$35,804,250 535,578,200
$30,000,000 ~
i
$25,000,000 ~ -T r---_._ ______T_ ,
FY2006 FY2007 FY2008 FY2009Est. FY2010
Actual Actual Actual Actual projected
Chart i highlights the changes in the City's General Fund Total Expenditures and
Expenses. The City's General Fund Total Expenditures and Expenses have declined
from a high of $5~.6 million in FYzoo7 to a low of $35.6 million in FYzo~o, or a drop of
3~.z%. Total Expenditures have dropped continuously from FYzoo7 to FYzoo8 (-5.3%),
from FYzoo8 to FYzoog (-z6.7%), and again from FYzoog to FYzo~o (-0.6%).
B. Changes in the City's Sales Tax Revenues
The largest portion of the City's General Fund Revenues comes from the sales tax
collected each year. Over the past five years, Sales Taxes have made up zz.o% (FYzoo7)
to nearly 30.0% (FYzoog) of the overall revenues generated by the City. Therefore, any
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fluctuations in Sales Tax receipts in a given year has an enormous impact upon the
City's General Fund and corresponding ability to deliver programs and services.
CHART 3
City of Petaluma -Sales Taxes
slz,ooo,ooo - - - -
5nssv,-oo~ _
$11,460,000
$11,500,000 - _ -
$11,000,000
$10,500,000
510,500,000 - _
$10,000,000 -
$9,500,000 - - _ -
$9,300,000
$9,000,000 r - , r-- - r
FY2006 FY2007 FY2008 FY2009 Est. FY2010
Actual Actual Actual Actual projected
Chart 3 highlights the changes in the City's Sales Taxes over the last five years.
The City's Sales Taxes have declined from a high of $~~.65 million in FYzoo8 to a projected
low of $9.3 million in FYzo~o, or a drop of zo.z~ in the past two years. The City attributes
the decline in Sales Taxes to a combination of depressed auto sales, prolonged economic
recession, persistent housing mortgage crisis, and increases in the cost of petroleum
products.5 In contrast, this compares with an anticipated modest increase in statewide
Sales and Use Taxes of ~6.89~ between FYzoo8-og and FYzo~o-~~ across Californiab, as a
result of a slowly recovering state economy (and after two years of declining statewide
s City of Petaluma Fiscal Year zoo Budget, pg. s-i3.
e "California's Fiscal Outlook: The zoio-ii Budget," California Legislative Analyst's Office, November i8,
zoog, pgs. ~9-zz.
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taxable retail sales). Therefore, Petaluma appears to be in a much more dire declining
sales tax situation then other parts of the State.
C. Changes to the City's Expenditures-Programs and Services Reduction
The drop in City revenues has resulted in corresponding reductions in General
Fund Expenditures and Expenses (as noted in Chart z above). It is the City's goal to
balance the budget each year which is accomplished by adjusting expenditures to match
the incoming revenues. However, when revenues diminish to unexpected levels
experienced recently, the City has had to achieve a balance through the use of remaining
reserves. An analysis of the current FYzo~o budget actually begins with FYzoo8 and
FYzoo9. The City Council approved a temporary spending plan in June zoo8, upon
learning FYzoo8 year-end imbalances would deplete reserves by $x.85 million. By
October zoo8, when the FYzoog budget was adopted, reserves were found to have
actually been depleted by $5.5 million, due to under-budgeting expenditures during the
year, revenue projections that failed to fully anticipate the economic downturn, and
lower than projected transfers to the General Fund from Capital Improvement Projects
for overhead charges. The adopted FYzoo9 budget was $7 million less than the prior
year's, resulting in the loss of 37 positions in the City's staff.'
Declining projections have continued for FYzo~o, with Sales Tax estimates
expected to be almost million less than FYioo9. Despite actions taken to reduce costs
in FYzoo9, General Fund expenditures are still estimated to exceed available resources
by nearly million by the end of FYzo~o. Reserves, which are nearly depleted, will
again offset the deficit. In order to meet the needs of the FYzo~o budget, additional cuts
to essential City programs have been adopted, including the loss of additional positions
~ City of Petaluma Fiscal Year zoto Budget, pg. ~-i.
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such as three unfilled vacancies in the police department and two unfilled vacancies in
the fire department. In addition, shortfalls in revenues need to be offset with more cuts
to salary and benefit costs. An amount equal to approximately five percent is needed,
and has been reduced from salary and benefit accounts to balance the FYzo~o budget.
CHART 4
City of Petaluma -Salaries & Benefits
$ZS,ooo,ooo - -
$20,000,000 ? 23 433 363
$21,687,797 $21,400,000
$20,038,152 520,147,150
$15,000,000 - -
59,715,837 58,455,663 59,079,612
$10,000,000 - ~ --57;388;659-
$5,000,000 - _ . _
FY2006 FY2007 FY2008 FY2009Est. FY2010
Actual Actual Actual Actual projected
-Salaries ~-Benefits
Chart 4 represents the changes in the City's annual budget for salaries and
benefits. FY2o~o reflects the proposed 4% reduction in salary for all employees with an
approximately savings achieved from benefit reductions. Salaries and Benefits make
up the largest portion of the General Fund Expenditures-8~% in FY2oog, and 77.4% in
FY2o~o. Salaries have been reduced by over $z million from FY2oo8 to FY2oog, and
another decrease of $~.3 million from FY2oog to FY2o~o. Therefore, with declining
revenues and the need for corresponding reductions in expenditures, Salaries and
Benefits (staff positions) have borne the brunt of these devastating cuts.
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