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6.B. - Page 3 of 10 February April Revenue Forecast Forecast Cha Sales Tax $ 35,174 $ 35,087 $ (87) Other Taxes 14,253 11,575 (2,678) Licenses and Permits 6,833 5,621 (1,212) Interest Earnings/Rentals 1,488 645 (843) Recreation Revenues 2,955 1,928 (1,027) Property tax is the top revenue source for City operations. No adjustment has been made to anticipated revenue for FY 2019/20 or FY 2020/21, but 2% decrease in property tax revenue is included in FY 2021- 22 and then 2% annual increases after that. This approach reflects the City's experience following the 2008 recession. Sales tax is the second largest contributor to the City's revenue stream, representing 21 percent of General Fund revenue. Due to the Shelter in Place Order, it is anticipated that sales tax revenue could be the most negatively affected by the COVID-19 pandemic. For example, auto sales are among the top 10 sources of sales tax paid to the City and dealerships currently are permitted to repair cars, sell auto supplies, and only sell vehicles online or by phone. Restaurant activity also contributes significantly to the City's sales tax base, and restaurant sales are expected to plummet due to requirements to provide food only for take-out or delivery. However, due to Redwood City's diverse sales tax base, the negative impacts are partly offset by the City's large retailers that have been deemed essential during the Shelter in Place Order, online retailers with headquarters located in Redwood City, and online retailers complying with new legislation related to the South Dakota v. Wayfair case. Additionally, on April 2, 2020, Governor Newsom announced the State will allow small businesses (less than $5 million in taxable annual sales) to defer payment of sales and use taxes of up to $50,000, for up to 12 months. The Revised Forecast does not include the potential negative impact that this policy may have on the City's sales tax revenue. Staff is currently analyzing impacts on sales tax revenue, in coordination with the City's sales tax consultant and will provide an update with the Recommended Budget submitted to the City Council for discussion on June 8, 2020. At this time, a 7.6% revenue decrease is anticipated in FY 2020-21 and modest recovery after that. Other Taxes are primarily transient occupancy tax (hotel tax) and business license tax revenue. Staff is estimating a reduction of $2.7 million in this category this year, the largest projected change in FY 2019- 20. This is primarily due to reduced occupancy rates and reduced room rates currently being experienced by local motels/hotels/inn operators. Revenues are expected to increase in FY 2021-22, with an assumed 2% increase in FY 2022-23 after that. Licenses and Permits are primarily development -related revenues, including building permits. Due to restrictions on construction activities during the Shelter in Place Order, staff is estimating a reduction in permit activity, resulting in lower-than-expected revenue of $1.2 million in FY 2019-20. Staff estimate a revenue decline in FY 2021-22 and then assume a 2% annual increase in FY 2022-23 and beyond. Interest earnings/rentals revised revenue estimate for FY 2019/20 adjusts for an expected loss in investment earnings/fair value of $843,000. This is partly due to the current volatility in the economy and the rate of return in investments. This revenue estimate has been compiled from the respective departments and is assumed to be flat in FY 2022-23 and after. Recreation revenues are program fees in the Parks, Recreation, and Community Services Department. Staff is estimating a reduction of $1.0 million in this category for FY 2019-20, due to the closure of facilities Page 3 of 8 IM11 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 223