AgdaPkt 2017-12-18 Special Joint SA PFA

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iv Long-Term Financial Planning Maintaining a sustainable budget and prudently planning for the City’s current and long-term needs is a top priority for Redwood City. The City continues to focus strategically on appropriate funding strategies for annual operations, a robust capital improvement program, and future liabilities. Each year, the City prepares a five-year forecast to project revenue and expenditure trends. These forecasts are an integral part of the annual budget process as the City seeks to establish and implement its priorities in a fiscally sustainable manner. The City reviews major cost drivers to anticipate and control expenses to the full extent possible and makes fiscal decisions within the framework of the forecast. The City also monitors its revenue sources to identify and plan for trends. A summary of major revenue sources and other significant financial planning items is below. Sales Tax Sales tax is an important source of general fund revenue as it accounts for about 19% of total General Fund revenues. When compared to FY 2016-17 budget, actual revenues generated approximately 2.7% less revenue than expected. Sales tax revenue decreased by 2.1%. Even though there was significant growth in the food products category, activities in all other categories resulted in decreasing revenues during the same period. Several factors are negatively affecting the generation of sales tax revenue, nationally and locally. The increasingly rapid growth of online sales transactions, currently exempt from sales tax, is eroding the tax base; changing demographics are causing greater spending in non-taxable categories of goods and services among all age groups; and the numbers and types of transactions that are exempt from sales tax is also increasing. Given the cyclical nature of the local economy, the stabilizing of the rate of new vehicle sales, and the aforementioned factors, it is anticipated that sales tax revenue will remain flat or possibly even decline in the near future. Property Taxes Property tax accounts for 37% of City revenue and is a key indicator of the City’s economic outlook. Projections for secured taxes in Redwood City in FY 2017-18 call for a 1% increase over FY 2016-17 actuals with indications that growth in assessed value will continue in FY 2017-18 due to strong real estate sales, property improvements, and development. Utilities Users Taxes This City collects a voter-approved Utilities User Tax (UUT) on gas, electricity, cable and telecommunications services. UUT revenue increased 2% in FY 2016-17 compared to FY 2015-16, driven by an increase in utility rates and usage, although other sources of UUT revenues such as wireless and cable services continue to decline. Following the passage of Assembly Bill 1717 in 2014, the City entered into an agreement with the State Board of Equalization for the collection of our UUT on prepaid wireless services. The City began collecting revenue on prepaid wireless in January 2016 and will continue until AB 1717 sunsets in 2020. This revenue source amounted to $159,337 for FY 2016-17. While traditional UUT revenue has been dedicated on an annual basis to support the City’s capital improvement program, the City has committed this particular new source of UUT revenue to affordable housing. Educational Revenue Augmentation Fund Refunds In FY 1992-93 and FY 1993-94, the State shifted property taxes from cities, counties, and special districts to school districts to supplant funding that the State was providing to school districts. The funds shifted from these local governments are placed into the Educational Revenue Augmentation Fund (ERAF) by the County Controller. The Controller then disburses these funds to school districts based upon the formula prescribed by State law. Any funds remaining in ERAF (after the distribution to the school districts) are returned to the cities, county, and special districts in proportion to the amount they contributed to ERAF. This return of property tax revenue is difficult to anticipate due to complicated State school funding formulas and at risk of reduction or elimination by State action. In FY 2015-16 and FY 2016-17, the City received $4.8 million and $4.9 million respectively. This level 6.1.E. - Page 15