AgdaPkt 2018-12-17 Joint Special

Browse Search

6.G. - Page 17 of 187 takes the form of continuous review and refinement of fiscal policies and forecasts, and an understanding of the initiatives being undertaken by the entire organization. During FY 2017-18, the City began the process of reshaping service delivery for the future in order to fund upcoming costs and long-term liabilities. Strategic elements to this process include: • Addressing unfunded liabilities and preparing for dramatic increases in pension costs • Implementing efficiencies through reorganization and best management practices • Exploring shared services with outside agencies to reduce costs • Paving the way for new service approaches • Continuing to invest in employees and our organizational culture • Seeking outside funding and asking for community support via two revenue measures 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 approximately 16 percent of total General Fund revenues. When compared to the FY 2017-18 budget, actual revenues generated approximately 3.8 percent less revenue than the amount budgeted in the General Fund. Sales tax revenue in the General Fund decreased by 0.8 percent when compared to the prior fiscal year. Even though there was significant growth in the sales tax revenues generated by the County pool (online sales) and in the food products and construction categories, there were decreased results in all other categories. The budget versus actual variance is attributed to the accounting requirement that all revenue accruals be received within 60 days of the year-end and lower than expected actual receipts. Due to statewide sales tax return processing delays by the California Department of Tax and Fee Administration (CDTFA), the final sales tax receipts were received after the 60 -day requirement, and will be recorded in FY 2018-19. If the City were to accrue the late sales tax payments for FY 2017-18, actual sales tax revenue for all funds of the City would be 1.6 percent higher than the prior fiscal year. Redwood City, like all cities in California, experiences volatility of sales tax revenues as economic cycles ebb and flow. Residents are spending more of their disposable income on non-taxable items than before, like housing, medical care, and education. The Consumer Price Index reveals that in recent years, the prices of these items have increased rapidly, while the cost of many taxable items has dropped. Additionally, burgeoning trends toward online purchasing impact the City's sales tax revenue, since the method of distributing the tax varies. For purchases made at physical establishment located in Redwood City, sales tax is distributed based on "point of sale." For online purchases, the tax is treated as a "use" tax. A use tax is charged on goods sold to California customers from out-of-state retailers. Use taxes are allocated to countywide pools where the goods are used. The taxes are distributed proportionately countywide based on the City's pro rata share of sales tax. Ultimately, increasing online sales will reduce local sales tax revenues. In June 2018, the U.S. Supreme Court issued its ruling in South Dakota vs. Wayfair, Inc., a case in which South Dakota sought to have a statue imposing economic nexus standards on remote sellers upheld by the Court. The Court held that states may charge taxes on purchases made by out-of-state sellers, even if the sellers do not have a physical presence in the taxing state. This decision opened the door for the State of California to require remote sellers to collect and remit sales and use taxes to local taxing agencies. The CDTFA will be issuing notices that require businesses to begin collecting and remitting sales tax by early 2019. At this time, the effect of this change on the City's sales tax revenue is unknown. In an effort to continue the strong financial position of the City, the Redwood City Council placed two revenue measures on the November 6, 2018, ballot: a half -cent sales tax increase (Measure RR), and a cannabis excise tax iv 196