economic update and five year forecast
DESCRIPTION
Economic Update and Five Year Forecast. A presentation to the City Council -- Carol Swindell, Finance Director October 13, 2007. Presentation Outline. Preliminary FY 2006-07 Year End Results Economic Update Five Year Forecast Update Fiscal Policies. Preliminary Year End Results. - PowerPoint PPT PresentationTRANSCRIPT
Economic Update andFive Year Forecast
A presentation to the City Council
--Carol Swindell, Finance Director
October 13, 2007
2
Presentation Outline
Preliminary FY 2006-07 Year End Results
Economic Update Five Year Forecast Update Fiscal Policies
3
Preliminary Year End Results
General Fund Summary (in Millions)UnauditedFY2006-07
Revenues $243.9Operating Expenditures $205.0Total Revenues over (under) Operating Exp. $38.9
Capital Expenditures $32.2Operating & Capital Expenditures $237.2Total Revenues over (under) Total Exp. $6.7
Other Financing Sources/(Uses) ($4.0)Net Change in Fund Balance $2.7
Ending Fund BalanceReserved $91.8Unreserved - Designated $54.4Unreserved - Undesignated $9.4
4
2007-08Revised Revenue Estimates
Total Additional$0.3M
$0.0
$10.0
$20.0
$30.0
$40.0
Proper
ty T
ax
Sales
Tax
Transi
ent O
ccupan
cy T
ax
Utility
Use
rs T
ax
Busines
s Lic
ense
Tax
Real P
roper
ty T
ransf
er T
ax
Parki
ng F
acili
ty T
ax
Parki
ng C
itatio
ns
Struct
ure P
arki
ng
Fees
and C
harges
Budget Projected
Economic Update
Preparation forFY2008/09 Budget
6
National Economy
Economy uncertain
Stocks Are on the Rise Even as the Economy Loses Steam
Holiday retail: More chill than cheer
Job-growth numbers allay fears of recession
Rising Foreclosures in L.A. — The Canary in the Coal Mine
7
Trends
Unemployment low Current inflation
easing Stock market
booming Federal deficit sliding
Weak GDP growth Housing market
slump and subprime fallout
Weak dollar Future inflation
concern Recession?
POSITIVE NEGATIVE
Source: UCLA Forecast for the Nation and California, September 2007
8
U.S. Economic Growth (2000 – 2009)
Real GDP
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2000 2001 2002 2003 2004 2005 2006 2007(f)
2008(f)
2009(f)
Source: UCLA Forecast for the Nation and California, September 2007
9
U.S. Unemployment (2000-2009)
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2000 2001 2002 2003 2004 2005 2006 2007(f)
2008(f)
2009(f)
Source: UCLA Forecast for the Nation and California, September 2007
10
U.S. Consumer Price Index (2000-2009)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2000 2001 2002 2003 2004 2005 2006 2007(f)
2008(f)
2009(f)
Source: www.djindexes.com 11
Stock Market Increase
DJI Closing Averages
10.0
11.0
12.0
13.0
14.0
15.0
2004 2005 2006 Jan Feb Mar Apr May June July Aug Sep
2007
Source: National Association of Realtors, September 2007
12
National Housing Market
Housing Starts/New Home Prices
0.0
0.5
1.0
1.5
2.0
2.5
2004 2005 2006 2007 2008
$0
$50
$100
$150
$200
$250
$300
Housing Starts (Millions) New Home Price (Thousands)
13
State Economy
Another year of economic doldrums –unemployment ticking upward, overall job growth of less than 1%
Slower growth in taxable sales and personal income
Housing slump and subprime fallout Budget deficit
Many of same issues as national economy
Source: UCLA Forecast for the Nation and California, September 2007
14
CA Taxable Sales/Personal Income Growth
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2002 2003 2004 2005 2006 2007(f)
2008(f)
2009(f)
Taxable Sales Personal Income
Local Economy
Positive and Negative
16
Unemployment is Consistently Low
City unemployment rates have historically remained well below the County of Los Angeles and the State of California
Comparative Unemployment Rates
YearCity of
Santa MonicaCounty of
Los AngelesState of
California2000 4.4% 5.4% 4.9%2001 4.6% 5.7% 5.4%2002 5.5% 6.8% 6.7%2003 5.7% 7.0% 6.8%2004 5.3% 6.5% 6.2%2005 4.3% 5.3% 5.4%2006 3.8% 4.7% 4.9%
8/2007 4.2% 5.2% 5.5%Average 4.7% 5.8% 5.7%
Source: State of California Employment Development Department.
17
Expanding Job Center
Source: State of California Employment Development Department.
Attractive location for employers City continues to add jobs, growing by approximately
2,000 since 2004
18
High Demand for Office Space
Office Vacancy Rates: (March 2007)
5.3%
10.0%
5.0%
8.1%
5.9%
14.3%
13.5%
8.6%
8.2%
0% 5% 10% 15%
Hollywood
Beverly Hills
Santa Monica
Marina/Culver City
Westwood
West LA
Miracle/Park Mile
L.A. Central Business Dist.*
Century City
Source: Grubb & Ellis Research. * As of 2Q07.
Asking Rent per sq. ft. - Class A Office Space (March 2007)
$2.9
$3.3
$3.6
$3.8
$4.1
$5.2
$3.2
$3.2
$2.9
$0 $2 $4 $6
L.A. Central Business Dist.*
Miracle/Park Mile
West LA
Hollywood
Marina/Culver City
Century City
Beverly Hills
Westwood
Santa Monica
Office vacancy rate is below the 9.5% average for the Los Angeles market area
Asking rents far exceed rents in other areas
19
CSM Building Permits/Valuation
$0
$50
$100
$150
$200
$250
$300
2003/04 2004/05 2005/06 2006/07
Mil
lio
ns
2,300
2,400
2,500
2,600
2,700
2,800
Valuation Number of Permits
Source: City of Santa Monica Building and Safety Division
20
Property Tax Revenue Growth Based on Strong AV Growth
Source: Los Angeles County Auditor-Controller.
1.3%
1.6%
7.0%
11.1% 8.4%
9.8%
8.2%
7.6%
5.3%
9.4%
8.8%
7.1%
% Growth from year prior
21
Property Tax:
How much goes to Santa Monica?
Source: HdL
City(Non-RDA)14 ¢
County39 ¢
Schools39 ¢
College/Other8 ¢
Source:County of Los Angeles Registrar Recorder
22
Property Transfers
0
500
1,000
1,500
2,000
92/9
393
/9494
/9595
/9696
/9797
/9898
/9999
/0000
/0101
/0202
/0303
/0404
/0505
/0606
/07
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Number of Transfers Average per Transfer
23
Transient Occupancy
Tax13.9%
Utility Users Tax
13.0%
Property Tax13.6%
Business License Tax
9.2%
Other Taxes5.2%
Sales and Use Tax
13.7%
All Other Non Tax
31.4%
Diversified Tax Base
Source: City of Santa Monica FY2007-08 Adopted Budget
24
Status of Key Revenues – Sales Tax
* Adjustments associated with implementation of Triple Flip resulted in lower reported sales tax revenues in FY2004-05.Sources: 2003-2006 Taxable Sales data from California State Board of Equalization. 2007 Taxable Sales, Sales Tax data from City.
25
Key Retail SectorsYear Ended 6/30/07
Fuel and Service Stations
5%
Business and Industry
10%
Restaurants and Hotels
17%
Food and Drugs
5%
Building and Construction
5%
General Consumer
Goods33%
Autos and Transportation
25%
26
Retail Sales GrowthFY 2007 Compared to FY 2006
0%
3%
6%
9%
12%
15%
Gener
al C
onsu
mer
Autos
/Tra
nsport.
Resta
uran
ts/H
otels
Busin
ess/
Indu
stry
Fuel/S
vc S
tatio
ns
Food a
nd Dru
gs
Bldg/C
onst
ruct
.
Total
27
Strong Retail Sales Per Capita
FY 2006-07 (Per Capita)
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$32,663
$13,286
Source: PKF Consulting 28
Santa Monica TourismLodging Rental/Occupancy Rates
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
90.0%
2000 2001 2002 2003 2004 2005 2006 2007
$150.00$170.00
$190.00$210.00
$230.00$250.00
$270.00$290.00
$310.00$330.00
Occupancy Rate Average Room Rate
Source: PKF Consulting 29
Average Room Rates-Various Cities
$413
$321
$298
$202 $200
$160
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
J uly 2007
Beverly Hills Santa Monica West L.A.
Marina del Rey West Hollywood L.A. Average
Source: City of Santa Monica Finance Department
30
Gross Receipts-Santa Monica Businesses
$6.5
$7.0
$7.5
$8.0
$8.5
$9.0
$9.5
2002 2003 2004 2005Billions
31
Utility Users Tax
Legal challenges may reduce or eliminate telecommunication portion of UUT
Loss from telecommunication services could result in lower ongoing revenues of $8-12 million per year
32
Managing Revenue Vulnerabilities
Real Estate Transfer Activity
Budget assumes no growth from FY2006-07 level; FY2007-08 tax of $4.6 million is low as a % of Budget
Transient Occupancy Tax
High room rates and demand provide cushion and provide hotels with ability to manage occupancy levels
6.4% growth assumed in Budget
Property Reassessments
More volatile office buildings still showing high demand and rents
Residential prices not declining as sales activity slows
Utility Users Tax Five-year forecast is built on assumption of an eventual $7 million revenue loss
Economic Downturn
Impact of an economic downturn could be mitigated with a designated reserve. Approx. 47% of general fund revenue is elastic
33
Economic Summary
Slower economic growth expected Small chance of a recession Housing weakness expected to continue
through 2009 Interest rates could drop further Tightening credit may impact local economy
Fund Forecasting
General Fund
35
General Fund Revenues
$246.1
$247.9
$255.9
$263.4
$272.8
$230.0
$235.0
$240.0
$245.0
$250.0
$255.0
$260.0
$265.0
$270.0
$275.0
FY07/ 08Revised
FY08/ 09 FY09/ 10 FY10/ 11 FY11/ 12
Millions
36
Forecast Assumptions
Revenues: Reflects FY06/07 unaudited results Adjusted FY07/08 revenues to reflect changes
in projected ongoing revenues Utility User Tax annual growth at 1.8% adjusted
for ongoing revenue losses of $4.8 m. (FY08/09), $7.0 m. (FY09/10 and beyond)
Sales Tax average annual growth 5.5% adjusted for Santa Monica Place redevelopment (Total $1.2 m. over 18 months)
37
Forecast Assumptions
Revenues: Property Tax average annual growth 4.1% Business License Tax annual growth 4.5% Transient Occupancy Tax growth range from
5.5% (FY07/08) to 3% (FY11/12)
38
Forecast Assumptions
Expenditures: Labor costs inflated by MOU upper limit: CPI
plus 0.5% Supply & Expenses increase by CPI Capital programs limited to $10 million in one-
time projects
39
Forecast Assumptions
Expenditures: MOU changes incorporated Program growth limited to current programs
plus 415 PCH and operation of the PDC/Permit Center
Includes subsidies for the Civic Auditorium, Beach, Cemetery and Pier funds
40
General Fund Expenditures
Driven by labor costs
Labor $160.6 m
73%
Supplies & Expense $59.9 m
27%
41
General Fund Expenditures/Uses
$248.3 $248.0 $256.5 $269.7
$282.3
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
FY07/ 08 FY08/ 09 FY09/ 10 FY10/ 11 FY11/ 12
42
Budget Gaps
Forecast
$230.0
$240.0
$250.0
$260.0
$270.0
$280.0
$290.0
$300.0
FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12
Millions
Revenues & Resources Expenditures & Uses
$10.7M Projected Shortfall
43
Expanded Fiscal Policies
Policies are key to ensuring the City’s long-term fiscal health
Local economy is important But not the most critical feature….
financial management counts!!
Not just for the “good times” --- may be more important in the “bad times”
44
Fiscal PoliciesExamples of Areas to Cover
General Maintain sound financial
practices Assure long-term fiscal
viability Operating Budget
Ongoing revenue sufficient to cover ongoing expenditures
Periodic budget review Revenue
Maintain diversified and stable revenue base
Expenditures Debt
Target ratios Use of pay as you go
vs. when to issue debt
Reserves Minimum target of
20-25% in total Consider targeted
reserve for economic uncertainties
45
Capital Improvements 10-year plan 5-year CIP Future operating cost impact
Accounting, Auditing and Financial Reporting Investments
Annual policy review
Fiscal PoliciesExamples of Areas to Cover
46
Budget Milestones
Community Outreach – November 2007 Mid-Year Update – January 2008 Council Priorities – January 2008 Budget Development – Jan - April 2008 Budget Study Sessions – May 2008 Budget Adoption – June 2008