Transcript Preliminary Year End Results

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
2
Preliminary Year End Results
General Fund Summary (in Millions)
Revenues
Operating Expenditures
Total Revenues over (under) Operating Exp.
Capital Expenditures
Operating & Capital Expenditures
Total Revenues over (under) Total Exp.
Unaudited
FY2006-07
$243.9
$205.0
$38.9
$32.2
$237.2
$6.7
Other Financing Sources/(Uses)
Net Change in Fund Balance
($4.0)
$2.7
Ending Fund Balance
Reserved
Unreserved - Designated
Unreserved - Undesignated
$91.8
$54.4
$9.4
3
2007-08
Revised Revenue Estimates
Total Additional
$0.3M
$40.0
Budget
Projected
$30.0
$20.0
$10.0
$0.0
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Economic Update
Preparation for
FY2008/09 Budget
National Economy
Economy uncertain
Job-growth numbers
allay fears of recession
Stocks Are on the Rise Even as
the Economy Loses Steam
Holiday retail: More chill than cheer
Rising Foreclosures in L.A. — The Canary in the Coal Mine
6
Trends
POSITIVE
NEGATIVE
 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?
7
U.S. Economic Growth (2000 – 2009)
5.0%
Real GDP
4.0%
3.0%
2.0%
1.0%
0.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
(f)
(f)
(f)
Source: UCLA Forecast for the Nation and
California, September 2007
8
U.S. Unemployment (2000-2009)
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
(f)
(f)
(f)
Source: UCLA Forecast for the Nation and
California, September 2007
9
U.S. Consumer Price Index (2000-2009)
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2000
2001
2002
2003
2004
2005
2006
Source: UCLA Forecast for the Nation and
California, September 2007
2007
(f)
2008
(f)
2009
(f)
10
Stock Market Increase
DJI Closing Averages
15.0
14.0
13.0
12.0
11.0
10.0
2004 2005 2006
Jan
Feb
Mar
Apr
May June July Aug
Sep
2007
Source: www.djindexes.com
11
National Housing Market
Housing Starts/New Home Prices
2.5
$300
2.0
$250
$200
1.5
$150
1.0
$100
0.5
$50
0.0
$0
2004
2005
Housing Starts (Millions)
2006
2007
2008
New Home Price (Thousands)
Source: National Association of Realtors,
September 2007
12
State Economy
Many of same issues as national 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
13
CA Taxable Sales/Personal Income Growth
Taxable Sales
Personal Incom e
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
2002
2003
2004
2005
2006
2007
(f)
Source: UCLA Forecast for the Nation and
California, September 2007
2008
(f)
2009
(f)
14
Local Economy
Positive and Negative
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
City of
County of
State of
Year
Santa Monica
Los Angeles
California
2000
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.
16
Expanding Job Center
 Attractive location for employers
 City continues to add jobs, growing by approximately
2,000 since 2004
Santa Monica Employment
56,000
54,700
54,000
55,300
53,400
52,000
50,000
2004
2005
2006
Calendar Year
Source: State of California Employment Development Department.
17
High Demand for Office Space

Office vacancy rate is below the 9.5% average for the Los
Angeles market area

Asking rents far exceed rents in other areas
Office Vacancy Rates: (March 2007)
0%
15%
10%
5%
Asking Rent per sq. ft. - Class A Office
Space (March 2007)
$0
Hollywood
Beverly Hills
Santa Monica
$2
$4
$6
5.0%
5.3%
5.9%
Marina/Culver City
Westwood
West LA
Miracle/Park Mile
L.A. Central Business Dist.*
Century City
Source: Grubb & Ellis Research.
L.A. Central Business Dist.*
$2.9
Miracle/Park Mile
$2.9
West LA
$3.2
Hollywood
$3.2
Marina/Culver City
$3.3
8.1%
8.2%
8.6%
Century City
10.0%
13.5%
14.3%
* As of 2Q07.
Beverly Hills
Westwood
$3.6
$3.8
$4.1
Santa Monica
$5.2
18
Millions
CSM Building Permits/Valuation
$300
2,800
$250
2,700
$200
2,600
$150
2,500
$100
$50
2,400
$0
2,300
2003/04
2004/05
Valuation
2005/06
2006/07
Number of Permits
Source: City of Santa Monica Building and Safety Division
19
Property Tax Revenue Growth Based
on Strong AV Growth
Santa Monica Net AV (in Billions)
$25
$20
% Growth from year prior
$15
$10
$5
1.3
%
1.6
%
7.0
%
11.1%
8.4
%
9.8
%
8.2
%
7.6
%
5.3
%
9.4
%
8.8
%
7.1
%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
$0
Fiscal Year
Source: Los Angeles County Auditor-Controller.
20
Property Tax:
How much goes to Santa Monica?
City
(Non-RDA)
14 ¢
Source: HdL
County
39 ¢
Schools
39 ¢
College/
Other
8¢
21
Property Transfers
2,000
$6,000
$5,000
1,500
$4,000
$3,000
$2,000
1,000
500
$1,000
$0
0
93 /94 /95 /96 /97 /98 /99 /00 /01 /02 /03 /04 /05 /06 /07
/
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Number of Transfers
Average per Transfer
Source:County of Los Angeles Registrar
Recorder
22
Diversified Tax Base
All Other Non
Tax
31.4%
Sales and Use
Tax
13.7%
Other Taxes
5.2%
Utility Users
Tax
13.0%
Business
License Tax
9.2%
Property Tax
13.6%
Transient
Occupancy
Tax
13.9%
Source: City of Santa Monica FY2007-08 Adopted Budget
23
Status of Key Revenues – Sales Tax
Growing Tax Base
$50
Taxable Sales
(Billions)
$3.0
$40
$2.5
$2.0
$30
$1.5
$20
$1.0
$10
$0.5
$0.0
Sales Tax Revenue
(Millions)
$3.5
$0
2003 2004 2005* 2006 2007
Fiscal Year
Taxable Sales (All Outlets)
Sales Tax Revenue
* 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.
24
Key Retail Sectors
Year Ended 6/30/07
Fuel and
Service
Stations
5%
Business and
Industry
10%
Restaurants
and Hotels
17%
Food and
Building and
Drugs
Construction
5%
5%
General
Consumer
Goods
33%
Autos and
Transportation
25%
25
Retail Sales Growth
FY 2007 Compared to FY 2006
15%
12%
9%
6%
3%
0%
.
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Strong Retail Sales Per Capita
FY 2006-07 (Per Capita)
$70,000
$60,000
$32,663
$50,000
$40,000
$30,000
$13,286
$20,000
$10,000
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$0
27
Santa Monica Tourism
Lodging Rental/Occupancy Rates
90.0%
$330.00
$310.00
$290.00
$270.00
$250.00
$230.00
$210.00
$190.00
$170.00
$150.00
85.0%
80.0%
75.0%
70.0%
65.0%
60.0%
2000
2001
2002
2003
Occupancy Rate
2004
2005
2006
2007
Average Room Rate
Source: PKF Consulting
28
Average Room Rates-Various Cities
July 2007
$450
$400
$413
$321
$298
$350
$300
$202
$250
$200
$160
$200
$150
$100
$50
$0
Beverly Hills
Marina del Rey
Santa Monica
West Hollywood
Source: PKF Consulting
West L.A.
L.A. Average
29
Gross Receipts-Santa Monica Businesses
$9.5
$9.0
$8.5
$8.0
$7.5
$7.0
$6.5
Billions
2002
2003
2004
Source: City of Santa Monica Finance
Department
2005
30
Utility Users Tax
Millions
Utility Users Tax Revenue
$40.0
$30.0
$20.0
$10.0
$0.0
$29.3
$30.0
$31.2
2005
2006
2007
$31.9
Fiscal Year
Telephone
Electrical
Cable
$27.8
2008 (budget) 2009 (budget
plan)
Gas
Water/Wastewater
 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
31
Managing Revenue Vulnerabilities
Real Estate
Transfer Activity
 Budget assumes no growth from FY2006-07
Transient
Occupancy Tax
 High room rates and demand provide cushion
level; FY2007-08 tax of $4.6 million is low as a
% of Budget

Property
Reassessments
and provide hotels with ability to manage
occupancy levels
6.4% growth assumed in Budget
 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
Economic
Downturn
 Impact of an economic downturn could be
eventual $7 million revenue loss
mitigated with a designated reserve. Approx.
47% of general fund revenue is elastic
32
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
33
Fund Forecasting
General Fund
General Fund Revenues
Millions
$272.8
$275.0
$270.0
$263.4
$265.0
$260.0
$255.9
$255.0
$250.0
$247.9
$246.1
$245.0
$240.0
$235.0
$230.0
FY07/08
Revised
FY08/09
FY09/10
FY10/11
FY11/12
35
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)
36
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)
37
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 onetime projects
38
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
39
General Fund Expenditures
 Driven by labor costs
Labor
$160.6 m
73%
Supplies &
Expense
$59.9 m
27%
40
General Fund Expenditures/Uses
$282.3
$300.0
$248.3
$248.0
$256.5
FY07/08
FY08/09
FY09/10
$269.7
$250.0
$200.0
$150.0
$100.0
$50.0
$0.0
FY10/11
FY11/12
41
Budget Gaps
Forecast
Millions
$10.7M Projected Shortfall
$300.0
$290.0
$280.0
$270.0
$260.0
$250.0
$240.0
$230.0
FY 07/08
FY 08/09
FY 09/10
Revenues & Resources
FY 10/11
FY 11/12
Expenditures & Uses
42
Expanded Fiscal Policies
Policies are key to ensuring the City’s longterm 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”
43
Fiscal Policies
Examples 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
44
Fiscal Policies
Examples of Areas to Cover
 Capital Improvements
 10-year plan
 5-year CIP
 Future operating cost impact
 Accounting, Auditing and Financial Reporting
 Investments
 Annual policy review
45
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
46