Economic Update and Five Year Forecast

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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

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Preliminary Year End Results
4
2007-08Revised Revenue Estimates
Total Additional 0.3M
5
Economic Update

• Preparation for
• FY2008/09 Budget

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National Economy

• Economy uncertain

Rising Foreclosures in L.A. The Canary in the
Coal Mine
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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?

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U.S. Economic Growth (2000 2009)
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U.S. Unemployment (2000-2009)
10
U.S. Consumer Price Index (2000-2009)
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Stock Market Increase
12
National Housing Market
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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

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CA Taxable Sales/Personal Income Growth
15
Local Economy

• Positive and Negative

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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
Source State of California Employment
Development Department.
17
Expanding Job Center

• Attractive location for employers
• City continues to add jobs, growing by
  approximately 2,000 since 2004

Source State of California Employment
Development Department.
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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

Source Grubb Ellis Research. As of 2Q07.
19
CSM Building Permits/Valuation
Source City of Santa Monica Building and Safety
Division
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Property Tax Revenue Growth Based on Strong AV
Growth
Source Los Angeles County Auditor-Controller.
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Property Tax How much goes to Santa Monica?
City (Non-RDA) 14
College/Other 8
County 39
Schools 39






Source HdL
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Property Transfers
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Diversified Tax Base
Source City of Santa Monica FY2007-08 Adopted
Budget
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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.
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Key Retail SectorsYear Ended 6/30/07
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Retail Sales GrowthFY 2007 Compared to FY 2006
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Strong Retail Sales Per Capita FY 2006-07 (Per
Capita)
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Santa Monica TourismLodging Rental/Occupancy
Rates
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Average Room Rates-Various Cities
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Gross Receipts-Santa Monica Businesses
Billions
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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

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Managing Revenue Vulnerabilities
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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

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Fund Forecasting

• General Fund

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General Fund Revenues
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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)

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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)

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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

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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

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General Fund Expenditures

• Driven by labor costs

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General Fund Expenditures/Uses
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Budget Gaps
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Expanded Fiscal Policies

• Policies are key to ensuring the Citys 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

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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

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Fiscal PoliciesExamples 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

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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