HomeMy WebLinkAboutStaff Report 1.A 2/10/2014 ,4g-e. da, Wenn/#1 .A
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DATE: February 10, 2014
TO: Honorable Mayor and Members of the City Council:through City Manager
FROM: William Mushallo, Finance Director
SUBJECT: Mid-Year General Fund Financial Forecast Update
RECOMMENDATION
It is recommended that the Council receive the fiscal year 2013-14_Mid-Year Financial Forecast
Update report. No action is requested at this time.
BACKGROUND
In January, 2011 the City Council reviewed a five year General Fund financial forecast. The
forecast at that time was based ion assumptions regarding cost escalation for the period, and the
best information then available regarding revenues. The forecast predicted a shortfall of $2.3
million in FY 2011-12 which,;if left uncorrected, increased to a deficit of$14.1 million in 2014-
15. At that time numerous budget balancing strategies were recommended and implemented in
order to reduce the projected deficit.
The Forecast has been revised multiple times since the initial presentation.in January, 2011. The
revisions included the implementation of budget balancing strategies along with updates of all
criticab forecast assumptions. The most recent forecast update was included in the 2014 budget
that was adopted by the City Council in June, 2013. At that time the ending General Fund
Undesignated Reserve balance at June 30, 2014 was projected to be $.5 million. That balance
was projected to decline to ($2.3) million by June 30, 2017.
DISCUSSION
Updating:the Five-Year Financial Forecast:
The.five-year financial forecast is periodically updated to provide the Council with a long-term
financial,planning tool. It has been the practice that updates occur twice annually; at mid-year
and year-end. The forecasting process/model is constantly in a state of development and
improvement, and in developing the forecast updates the following items are,considered:
• Year-end results from the prior fiscal year are updated and included in the forecast.
• An economic update is.included.
• Current year revenues and expenditures are updated. As actual amounts are realized during
the year projected,amounts are analyzed and validated or revised.
• Model;assumptionsifor revenues and expenditures are analyzed and revised as necessary.
Agenda Review:
City Attorney Finance Directo City Managill
• Any ongoing structural deficit is identified.
• The City Council's direction regarding the establishment of reserves is benchmarked against
actual results.
The five year forecast has been updated as of mid-year 2013-14. The update includes multiple
adjustments that are included in the Mid-Year Budget Adjustments Council item presented later
this evening. Those adjustments provide revised FY 2013-14 year-end projections of revenues,
expenditures and fund balance. Thisprovides a base for calculation of the forecasted amounts
over the next four years.
The Economy:
Sonoma County's economy continues to grow and outpace the state, particularly in the area of
job growth. Sonoma County unemployment fell to 6.0%,compared the state's rate of 8.3%.
Petaluma's unemployment rate is even lower at 5.5% and is down from a high of 10% in 2010.
Commercial vacancies continue to trend down with office space vacancy down from a high of
35% in 2009 to 22% in the third quarter of 2013. Industrial space vacancy hovers around 12%
and retail space continues low at 5%. Vacancy for rental housing is 1%.
Home prices rose last year by 19%0 on the west side reaching a median price of$525,000. The
east side experienced a 23%increase in the median cost of a home, which was $410,000 in 2013.
General Fund Revenues:
2013-14 fiscal year to date General Fund revenues have been analyzed and projected amounts for
the remainder of the current fiscal year have been developed. As can be seen in the table below,
total revenues during FY 13-14 are projected to be up.$1,959,456 from budgeted amounts.
Budget Mid Year Change
g
FY 13-14 FY 13-14
Property Taxes $ 7,167,651 $ 7,295,625 $ 127,974
Sales Taxes 1 $ 10,699,000 1 1,256,000 $ 557,000
Bus Licenses & Property Transfer Taxes I 1,755,000 1,925,000 $ 170,000,
Franchise Fees I 2,488,000 2,513,000 $ 25,000
Licenses & Permits 1,029,798 1,089,698 $' 59,900
Fines & Forfeitures 618,366 658,366 $ 40,000
Investment Earnings & Rent f 330,597 412,597 $ 82,000
Intergovernmerital Revenue I 4,219,530 4;363,608 $ 144,078
Charges for Services 4,319,859 4,690,541 $ 370,682
Other Revenues 28,356 50,356 $ 22,000
TOT Transfer 1,290,189 1;544,011. $ 253,822
Other Transfers _ 186,500 293,500 $ 107,000
Totals, $34,132,846 $ 36,092,302 $ 1,959,456
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The following revenues adjustments are>recontmended for.FY'2013-14:
• • Property Taxes - Property taxes are expected to be $127,974 higher than budgeted. This is
due to a higher than anticipated increase in assessed valuations. The increase is partially
offset by lower residual property tax revenues anticipated from the redevelopment
dissolution.
• Sales Tax - Muni-Services is the City's sales tax consultant and has provided an updated long
term revenue forecast. Actual revenues received through December are up 17.5% over the
prior year Total annual FY 13-14 sales tax revenues have been adjusted up by $557,000.
This is based on several factors. FY 12-13 sales tax revenues were higher, adding about
$100,000 to the base for FY 13-14, Sales tax receipts from the'Regency center are coming in
sooner than anticipated, adding just over'$200,000 to the forecast. New car sales and sales of
construction related materials are also significantly over forecast.
• Business License and Property Transfer Tax - These revenues are anticipated to be $170,000
• more than budget due to very strong property transfer volume during the first half of the
fiscal year, along with higher projected business license receipts. Increased business license
receipts reflect.the effect of ongoing auditing efforts.
• Franchise Fees Licenses and.Perrnits Fines and Forfeitures- Each of these revenues are
projected to be slightly over`budget`this fiscal year,based on current performance.
• Investment Earnings and Rent- Revenues are anticipated to be up by $82,000 over budget
based on higher projected interest earnings and lease revenues.
• Intergovernmental-Revenue—This is projected to be up $144 078 due to higher than
anticipated vehicle license in-lieu fee revenues. This increase was also due to the increase in
assessed property valuations year over year.
• Charges for Services—Revenue is projected to be up $370,682.due•mainly to revenues
charged out,from the City Attorney's,office. The service was brought in-house in July and
attorney work performed that is associated with other finds will be billed out accordingly.
• Other Revenues—This category increased by $22,000 due to donations earmarked to cover.
the cost of polling.
• TOT Transfer- The transfer into the General Fund from Transient Occupancy Tax will be
increasing by $253,822 due to increased funding for economic development, downtown
beautification, and sidewalk cleaning and repairs.
• Other Transfers - Increasing by$107,000 due to funding of parking software from
encumbered reserves, along with a$15,000 transfer in of SLESF funds.
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General Fund Expenditures:
Total Expenditures are projected to be $1,865,387 higher thanthe adopted budget during the
current fiscal year. This is due to several factors as described below.
• Salary expenditures have been increased by $575,089 due to the funding of a Police Dispatch
Supervisor, Fire Inspector, and salaries for the newly established in-house City Attorney
Department. This Department was established after the 2013-14 budget was completed,
hence the need for realignment of the budget.
• Comp time payouts have also trended higher than budget this year and the budget has been
adjusted accordingly.
• The annual cost of providing Storm Water services has been.included in the forecast at
$400,000:annually. These costs;have been supported,.since 2012:with,a loan from Storm
Water impact fees. Borrowing from that source has been necessary, as General Fund
balances,have not been sufficient to support the shift of these costs from the Waste Water
budget. Fund balance is sufficient.at this time to support these costs; borrowing from Storm
water impact fees is suspended.
• Benefits have increased by.$129 838 due to budgeting for the above mentioned positions.
• The services,and supplies budget has been increased by$644,581. Police and fire services
and supplies increased.by$1 97,000, Funds totaling $60,000 were earmarked for updating
the City's cost allocation plan and fees. Costs for polling and public education were $82,000.
Note that the polling costs were offset by donations andthe public education budget is for an
education campaign regardinthe City's finances. Appropriations were included for
sidewalk cleaning and repairs in the amount of$136,800. Funds for downtown
beautification were budgeted at $35,000. Public Works building maintenance and
water/sewer budgets were increased by $110,000.
• The Fixed Assets and Capital Outlay budget has been increased primarily due to the purchase
of Parking Enforcement Software in the amount of$92,000.
More information on the details of the mid-year budget adjustments can be found in the staff
report that will be presented later this evening.
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Revenue and Expense Summary:
The chart that follows projects revenue and expenditures as Of mid-year FY 2013-14.
Budget Mid Year
Revenue Categories 2014 r 2014
Roperty Taxes $ 7,167;651 $ 7,295;625
Sales and Use Taxes 10,699;000' 11,256,000
Business Lie&Prop Trf Taxes 1,755;000 1,925,000
Franctiise,Fees 2,488;000 2,513,000
Licenses and permits 1,031,797 1,089;698
Fines&Forfeitures&Penalties 616,367 658,366
Investment Earnings;and Rent 330,597 412;597
Intergovernmental Revenues 4,219530 4,363,608
Charges tor Services 4,319;859, 4696541
Other Revenues :28,356 50,356
f
Transient Occupancy Tax Trf 1;290,189 1;544',011
f
Other'Transfers,and'Sources 186;500. 293;500
, 44!$. t ,r. ,.., 1:$136;10;3-41
n
`T,otal,�Reventire s, �' • � ..St 3,4 132;846
Budget Mid Year
Expenditure Categories 2014. I 2014
Salaries and Wages $ 18,639786 $'191214,875
I Storm w ater,in-pact I 400;000 I
Benefits 9,776,679 9,906,517
T
Services&`Supplies 5,070,310 5,723,750
T
Intragovernmental 1,380,210. 1;380,210
Fixed.Assets,&Cap. Outlay 10,100 117,120
Transfers Dut. 144,000 144;000
Total Ezpe ditures"i w $r135 02 085,,x,5136 886 Z2',1
1Re tre?j(Un46 Fzp; 5' (888;239)x $ . 11,41170
lunassigned;,Bal 2Beg. of Yr $16,9.55, 4::1;t4,511,1
[uhi rgnedxBal tESd'of Yrr , S, X528 7fl $$ 909 44'1
{Designated'Reserves '. .'$ 1 144;1 T.7 $42;347,„439;`
Total:Fund Balance 1$$ 1,672;8931 $'3;256,840
Fund i3 al %•of,Ei$' a 8% _ _ 48%„
As previously mentioned,.revenue estimates are increased $1,959,456 and expenditures estimates
are increased $1,865,387: That has an overall positive impact to projected unassigned fund
balance`of$94;069. .In.addition, the Unassigned fund balance at the beginning of the year was up
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$286,616. This is because FY 12-13 year end results were better than expected. These two
impacts result in a projected unassigned fund balance at the end of FY 2013-14 of$909,401.
Designated reserves were originally budgeted at $1,144,177 for FY 2013-14. This amount has
been revised to $2,347,439 due mainly to the receipt of a one-time distribution of property tax
revenues associated with the return of PCDC funds to the,State. It:should also be noted that,
while total fund balance as a percent of expenditures,has increased from 4:8%to 8.8%, this
amount represents significantly less than Council's direction of maintaining 17% of expenditures
in reserve.
While revenues increased more than expenditures as of mid-year,'expenditures continue to
exceed revenues by $794,170 for FY 2013-14. It should also be noted that expenditure budgets
remain very tight. When°including<the irecommended mid-year budget adjustments, actual
expenditures through December are at 47.8% of budget.
Methodology used to Revise Five-Year Financial Forecast:
The five-year financial forecast:has also been revised in conjunction with the mid-year update.
As mentioned earlier in this report, the forecasting model and process are both constantly
evolving. A new, integrated salary and benefit forecasting module was implemented in
conjunction with the FY 12-13 budgeting process. Salaries and benefits represent approximately
80% of total General Fund expenditures so it is extremely important to focus significan t energy
on this component of the forecasting exercise. This new model allows the results of each
forecast year to roll forward to the subsequent year. In the past a separate forecast was created
for each year: The new model provides for increasingly accurate forecasting.
Another key component of a.forecast update is the evaluation of all assumptions associated with
revenues and expenditures. Below is a table indicating.revenue assumptions that are used in the
long term forecast
°' `, , ' 'g t ' Forecast Forecast Forecas ' Forecast;•Revenue Cate ones; ,'^ 2015 �3 r }A$ ro ams
.zx...,..�W 9 d ,° v °. �?l...� 2096Fs o£v20Iu7 _.w 20.18✓ t.
Property Taxes 1.5% 2.5% I 3.0% 1 3.0%
Sales and Use Taxes 8.7% 5.3% 6.7% 1.0%
BusinessLic&RPrT 3.0% 3.0% 3.0% u 3.0%
Franchise Fees 3.0% 3.0% 3.0% 3.0%
Licenses and•Perrnits 3.0% 3.0% 3.0% 3:0%
Fines.&Forf&'.Penalties 2.0% I 2.0% 2.0% 2.0%
Investment Earnings 3.0% 3.0% 3.0% 3.0%
Int'gov Revenues 1.5% 2.5% 3.0% 3.0%
Charges for Services 2.0% 2.0% 10% 2.0%
Other Revenues 2.0% 2.0% 2.0% 2.0%
T O TTransfer 0.0% 0.0% 0.0% 0.0%
Other Transfers 0.0% I 0.0% _ 0.0% 0.0%
I 1
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Revenue Assumptions:
• Property taxes—Property Taxes are projected to increase only slightly during FY 14-15 at
1.5%. This may seem low but the Prop 13 inflation escalator will only be .4% next year
During FY 15-16 the increase is projected at 2.5% and 3% annually thereafter. Collaboration
with the Sonoma County Tax Collector's office was critical during the formulation of this
projection.
• Sales Tax —Sales taxes are projected to increase significantly (8.7%) next fiscal year due
mainly to Regency and Deer Creek revenues. Strong,retail,construction and transportation
growth is also being forecasted in 2014-15. 2015-16 sales tax growth is forecasted at 5.3%.
In addition to the remainder:ofDeer Creek revenue, strong growth is expected in the food
products, transportation,and construction sectors. Triple flip:revenue should also rebound
that year. In 2016-17 sales tax growth of 6.7% is forecasted due to the balance of the triple
flip,revenue accumulation'being released to cities: Because of that large distribution in FY
2016-17, 2017-18 revenue is projected to grow at only about 1.0%:
• Other Revenue Categories—With the exception of Intergovernmental Revenues, other
revenue categories are growing between 2% and 3% annually throughout the life of the
forecast. These small increases'are mainly driven by anticipated inflation increases over
time Intergovernmental Revenues are made up predominantly of Motor Vehicle In-Lieu
fees and revenue growth is_tied to changes in assessed property valuation.
There'are,also other re'enue.assumptions included in the revised five-year General Fund
forecast. They are as follows:
• Half of the ongoing,refuseifranchise fee payment from the,recently negotiated franchise
agreement has been included in the forecast beginning in FY 13-14. That amount is
$250,000 annually.
• Transient Occupancy Tax revenue growth has been strong,over the past two years and
$100,000 in additional TOT revenue is projected to be transferred in to the General Fund in
FY 13-14 and beyond. This,amount would offset a minimal General Fund contribution to the
Vehicle Replacement Fund that is resumed in FY 13-14 and beyond.
• Transient Occupancy Tax,revenue has also been forecasted to fund sidewalk maintenance
and repair, along with economic development and downtown beautification costs on an
ongoing basis.
• Charges for services revenue,has been increased in FY 14-15 to account for allocations of
City Attorney's Office time to the appropriate departments.
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Expenditure Assumptions:.
Expenditure assumptions have also been evaluated and revised. As mentioned earlier, the salary
and benefit model update has provided for much more accurate,forecast information. In
conjunction with that update positions, payroll rates, allocations, and current benefits for each
employee were verified. Benefits and retirement expenses were also verified and calculations
were reconciled with the payroll module. Sal-ben full time equivalent positions were also
reconciled with the budgeted authorized positions.
There have been several salary and benefit assumptions that have been incorporated into the
updated forecast. They are as'follows:
• There is no allowance for cost of living adjustments.
• Employee step increases continue to'be included.
• It is assumed that there no additional employees, other than the currently vacant firefighter
positions.
• Comp time payout estimates have been updated and are included.
• PERS rates have beenupdated based on actuarial study information received, and estimates
related to changes anticipated to occur in the near future.
• Health care insurance cost increases are capped at 9%annually.
As mentioned above, PERS retirement rates have been adjusted based on updated actuarial
studies received in October, 2013. The 2013 rates include adopted changes in the asset
smoothing methodology in order to:dampen the effect of short term-market fluctuations on
employer contribution rates. On January-9, 2014 a webinarwas presented by CaIPERS and the
California League of Cities. Recommended changes inpost-retirement mortality rates were
discussed and estimates of the impacts,on employer contribution rates were presented. Those
recommendations will be brought forward-to the Ca1PERS Board of Directors in the near future
and the rates below include the estimated impacts. Finally, there has been discussion about
reducing'the investment earnings rate from 7.5% to 7:25%. This discussion will be continuing in
the near future with the Ca1PERS'Board: The rates presented below include the assumption that
a reduction in the discount rate will occur.
[cal PERS Retirement Rate Assumptions FY 13-14 FY 14-15 FY 15-16 FY 16-17 FY 17-18
Actual Actual Projected Projected Projected
Miscellaneous Employees .14.5%1 15.8% 18.5% 20.3% 22.0%
Safety Employees 37.7% 39.7% 43.0% 46.2% 49.4%
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Other expenditure assumptions have also been included in the forecast. They are included in the
appropriate expenditure category and are as follows:
• $150,000 annually is included as a contribution to the Employee Benefits internal service
fund. This fund has been,providing a rate holiday, but would have been exhausted as of June
30, 2013, had a contribution not been made.
• $100,000 annually is included for retiree payout costs. These amounts vary year over year
depending on employee turnover and retirements.
• $100,000 is included as a minimum annual General Fund'contribution to the Vehicle
Replacement Fund. The balance in this fund was.downtoiapproximately $150,000 as of
June 30, 2013. Subsequently, an ambulance has been purchased, further depleting the fund.
Funds will need to be replenished consistent with the planning effort that has been made part
of the Council's goals.for.2013 and 2014.
• $100,000 is included annually as a payment to reduce the City's Other Post Employee
Benefit (OPEB) liability The City's OPEB liability increased from $1,975,778 as of June
30, 2011 to $2,667,349 as of June 30, 2012. This amount, like the contribution to vehicle
replacement represents a place-holder, and recognizes the need to reduce liability. More
appropriate contribution levels will be determined as part of a five-year financial plan called
for in the Council's goals,as well as sources for these payments.
• The General..Services.Fund has provided a rate holiday to the General Fund for some time.
This fund will run out of money by mid-FY 14-15. To cover normal operating costs of the
functions in General Services, a payment of$75,000 has been included in FY 14-15 and
increases to $150,000 in FY 15-t6 and thereafter.
• An analysis was completed last-fiscal year regarding storm water costs that were removed
from utility rates beginning January 2012. In order to fund these,costs until a permanent
funding source can be secured,,a loan from.the Drainage Impact,Fee fund was secured. This
loan has paid for storm water.maintenance costs incurred from January, 2012 through June,
2013. The current loan balance outstanding is $533,000. The City is also in settlement
discussion;regarding the most recent Moynihan lawsuit. It is anticipated that an additional
$1.3 inillionAwill need to be repaid to the Wastewater Utility in conjunction with that
settlement. The:total payback amount for those two amounts is estimated at.$216,000
annually and has been included in the forecast beginning,in FY 2014-15. This is in addition
to the estimated storm water maintenance costs of$400,000 annually. Those costs are
included beginning in FY 2013-14.
Revised Five Year Forecast:
The assumptions previously noted have all been included in the five;year forecasting model and
theresultsare illustrated in.the General Fund Long Term Operating Forecast below.
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General Fund Long Term Operating Forecast
Budget Mid Year Forecast Forecast Forecast Forecast
Revenuer Categories 2014 ' 2014 ' 2015 ' 2016 ' 2017 2018
R'operty Taxes $ 7,167,651 $ 7295,625 $ 7,405;059 '$ 7;590;186 $ 7,617,891 $ 8,052428
Sales and Use Taxes "10,699,000 11,256,000 12,247,727. 12;902,482 13;769,168 13,909,601
Business Lic&Prop TrfTaxes 1;755,000 1,925,000. 1;982,7.50 2,042,233 2;103,499 2,166,604
Franchise Fees 2,488,000 2,513,000• 2,588;390 2616,042 2,694;523 2,775,359
Licenses and I rmits 1,031,797 1,089,698 1,147,389 1;156,811 1,191,515 1,227,260
Fines&Forfeitures&Penelties 616,367 658,366 671,533 684,964 698,663 712,637
Investment Earnings arid Rent, 330,597 412,597 :424;975 437,724 450,856 464,382
Intergovernmental Revenues 4219,530 4;363608 4,429,062 4539,789 4,676982 4,816,262
Charges for.Services 4;319,859 4,690,541 '5,014,352 5;114,639 5,216,932. 5,321,270
Other Revenues 28;356 50;356 51,363 51,363 51,363 ..51,363
1 .
TransientOccupancy Tax Trf 1;290,189 1,544,011 1,569,254- .1;569,254 1,569,254 1,569,254
Other'Transfers and Sources 186,500 293;500 ';201;000 ,201;000 201',000 201,000
Total"Revenues' 341132846'„ $*36 09236at2$*'.7378554"$--r38 906°4857:';E 740 4a0 64Z, ` j
Budget Mid Year Forecast Forecast Forecast Forecast
Expenditure Categories 2014 ' 2014 ' 2015 2016 2017 2018
Salaries and:Wages I•18;639,786 $ 19;223,733 $19,833}217 `$"-20;031,550 $ 20;231,865 $ 20,434,184
1Storm water impact 1 1 400,000 I 616,000 1 616;0001 616,000 1 616,000
Benefits 9,776,679 '9,906,517 10737,002 11,627,180 12;513,897 13,481,794
. -- -., .
Services&".Supplies 5;070,310 5,714,891 5;719;189 5:833,573 5;950,244 6,069,249
Intragovernmental 1;380,210 1,380;210• 1,455,000 1;334,000 1,334,000 1,334,000
Fixed Assets&Cap.Outlay 10,100 117,120 12;000 12;000 12,000 12,000
Transfers;Out _ 144,000 144000, 144000 144,000 144,000 144,000
tail EXpend)tiFes $tgir021085r,;$36886'itifj 38;516;408 $)+39598;303 51`40802006 {E 42091;2271
IRev;Q4 r(UO4e617054fi!.. 5., :1(888`239 E, '_(79=169) $, (763;553) $ (618 8...$". R361-360) $ `,(823;807
(rUnassigned`Bal Big,!ofYE 1;$ `1;4161955• _$ 1 703,57.1,1 $ '909402 l'$, '125849.5. (565;969) ,$ (927,328]
Unasslgned;B ), End,of.Ynr4,'°1$ 'S28'716',1$f 9'09t402f,A$ \!5;849, $ ,(555969)`+ , (927,328)) $l(051'3361
[Designated,Reserves _ $1`1;144'177.- $ 23474,39 $2462,439 $r•2;581 314 ,$ 'r2703755} $ 2;829;870,1
I_�.a»,ate ;.L,. .. _..-a. e. �..s.. _ -
ITotaliFund Balance i$. 1;672;893.$ 3;256,841 f$2 588,288 r$ 2,015 345 $ 1 776,427 $ 1,078,734
,'F.undBal°% of`Expsr, 418%, 8.'8/ ,,87/;
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The unassigned general fund;balance is projected to be $909,402 at,the end of FY 2013-14. The
balance is projected to decline to $125,849 in FY 2014-15, $(565,969) in FY 2015-16,
$(927,328) in FY 2016-17 and $(1,751,136) in FY 2017-18.
Designated reserves.are projected to,grow from $2,347,439 to $2;829,870 over the same period
due to a portion of the revenues from Regency and Deer Creek being placed into that reserve. It
is anticipated that unanticipated one-time revenues received over the duration of the forecast will
also be placed into designated reserves.
Total fund balance is projected to go,from$3,256,841 to$1,078,734 over the duration of the
forecast. It is important to note;that the FY 2018 ending fund'balance amount o€$1,078,734 is
not available. In fact, it requires a.use of designated reserves in the amount of$1,751,136 in
order to meet operational needs. This use of designated reserves does not conform with
Council's direction regarding the establishment, maintenance, and use of reserves.
Total fund balance as a percent of expenditures is projected to go from 8.8% in FY 2013-14 to
2.6% in FY 2017-18. This is a significant shortfall as compared with the City Council direction
of maintaining 17% of expenditures in total fund balance.
Conclusion/Cautionary Remarks:
It is important to note that the amounts contained in the forecast are estimates. While a
conservative "most likely" estimate has been presented, the amounts will change. Most
immediately, they will be>refined;over the next few months in conjunction with the FY 14-15
budget process. There are multiple risks associated with the forecast, such as:
• PERS rates increasing more than forecasted from factors including, but not limited to,
underperforming investments.
• The costs associated with annual turnover could easily surpass the forecast that includes
$100,000 annually to pay for retirement and separation expenses:
• The health care cost growth assumption is reasonable at•9% annually and reflects recent
negotiation with the labor groups; however, it is not yet fully known what the ultimate impact
of the universal health care bill will be.
• An updated cost allocation plan, along with an internal service fund cost allocation study, is
currentlyunderway. The,forecast does not contain any provision for impacts realized as a
result of those studies.
• The City's Liability Insurance Fund has recently incurred significant expenses for claims
paid. This fund may need a contribution from all funds, including the General Fund, in order
to pay for future claims.
There are also opportunities associated with the forecast, such as:
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• An economy that steadily continues:its slow'recovery.
• The on-going recovery in the tourism industry'continues.
• The Regency and Deer Creek projects that are underway and will generate jobs and
significant tax revenue.
• Absorption of vacant office and industrial warehouse space that is occurring will continue.
• Sonoma County will hopefully continue as one of the fastest growing areas for job growth.
There is much work that needs to be done to resolve the projected deficits and to begin to rebuild
reserves. While some funding is being included for vehicle replacement and the OPEB liability
reduction, more resources are needed in both of those areas. Over the next few months next
year's budget will be developed, economic development opportunities:will progress, and revenue
generation options will continue to be evaluated. Based on the recently established City Council
Goals, A five year General Fund financial plan will be developed over the next two years. The
forecast presented here, along with.future updates, will provide'financial perspective as that plan
is developed and implemented.
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