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8.B. - Page 4 of 122 FY 2018-19 MID -YEAR BUDGET UPDATE — GENERAL FUND Revenue Update FY 2018-19 General Fund revenues are budgeted at $142.7 million, but are now estimated at $153.2 million, resulting in a positive variance of $10.5 million. This variance is primarily attributed to one-time excess Educational Revenue Augmentation Fund (ERAF) payments received, as well as increased development fees, property tax increment in the downtown (former Redevelopment Agency area), and increased Transient Occupancy Tax (TOT) revenues. Property tax, which represents 43.8 percent of General Fund revenue, is exceeding budget by $7.9 million, or nearly 13.3 percent. This is largely due to the receipt of the excess ERAF funds and to increases in assessed valuation for commercial property, completion of several development projects, and strong demand compared to limited supply for residential property. Sales tax, which represents 15.5 percent of General Fund revenue, is expected to decrease modestly by $143,000, or 0.6 percent, as compared to the adopted budget. As has been noted in the past, the growth in online retail sales has cut into sales tax revenue, and a greater proportion of economic activity is dedicated to purchasing services or "experiences," which are not taxed, rather than goods, which are taxed. In addition, residents are spending more of their disposable income on non-taxable items than before, such as housing, medical care, and education. Charges for Services and Licenses and Permits revenues are expected to exceed the adopted budget by $1.6 million, or 7.3 percent. A number of the development -associated fees are estimated to be higher than expected in the Licenses and Permits category and in the Charges for Services category. The increased revenues are estimated to be 9.0 percent and 6.6 percent, respectively. Other taxes are expected to exceed the adopted budget by $1.6 million, or 13.3 percent, primarily due to TOT exceeding budget by $1.5 million. This increase is due to increased hotel occupancy rates and the collection of TOT on short-term rentals (which is dedicated towards affordable housing projects, programs, and administration). Expenditure Update General Fund expenditures are budgeted at $124.5 million, but are now estimated at $128.9 million before contributions and transfers out. Of the proposed $4.4 million increase in operating appropriations, $2.7 million is due to the restoration of certain budget reductions included in the FY 2018-19 Adopted Budget. The remaining increase is attributed to mid -year budget amendment requests to appropriate funds for grants, increase appropriations for professional services, increase overtime costs for fire inspections, and for the cost of implementing the City's sales tax increase. The mid -year amendments are included on the consent calendar for City Council approval. AM NNWF11"_ City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 230