Economic update and five year forecast
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Economic Update and Five Year Forecast. A presentation to the City Council -- Carol Swindell, Finance Director October 13, 2007. Presentation Outline. Preliminary FY 2006-07 Year End Results Economic Update Five Year Forecast Update Fiscal Policies. Preliminary Year End Results.

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Economic update and five year forecast

Economic Update andFive Year Forecast

A presentation to the

City Council

--

Carol Swindell, Finance Director

October 13, 2007


Presentation outline

Presentation Outline

  • Preliminary FY 2006-07 Year End Results

  • Economic Update

  • Five Year Forecast Update

  • Fiscal Policies


Preliminary year end results

Preliminary Year End Results


2007 08 revised revenue estimates

2007-08Revised Revenue Estimates

Total Additional

$0.3M


Economic update

Economic Update

Preparation for

FY2008/09 Budget


National economy

Job-growth numbers

allay fears of recession

Holiday retail: More chill than cheer

Stocks Are on the Rise Even as the Economy Loses Steam

National Economy

Economy uncertain

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


Trends

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?

Trends

POSITIVE

NEGATIVE


U s economic growth 2000 2009

U.S. Economic Growth (2000 – 2009)

Source: UCLA Forecast for the Nation and California, September 2007


U s unemployment 2000 2009

U.S. Unemployment (2000-2009)

Source: UCLA Forecast for the Nation and California, September 2007


U s consumer price index 2000 2009

U.S. Consumer Price Index (2000-2009)

Source: UCLA Forecast for the Nation and California, September 2007


Stock market increase

Stock Market Increase

Source: www.djindexes.com


National housing market

National Housing Market

Source: National Association of Realtors, September 2007


State economy

State 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

Many of same issues as national economy


Ca taxable sales personal income growth

CA Taxable Sales/Personal Income Growth

Source: UCLA Forecast for the Nation and California, September 2007


Local economy

Local Economy

Positive and Negative


Unemployment is consistently low

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.


Expanding job center

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.


High demand for office space

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.


Csm building permits valuation

CSM Building Permits/Valuation

Source: City of Santa Monica Building and Safety Division


Property tax revenue growth based on strong av growth

% Growth from year prior

1.3%

1.6%

7.0%

11.1%

8.4%

9.8%

8.2%

7.6%

5.3%

9.4%

8.8%

7.1%

Property Tax Revenue Growth Based on Strong AV Growth

Source: Los Angeles County Auditor-Controller.


Economic update and five year forecast

Property Tax:

How much goes to Santa Monica?

City

(Non-RDA)

14 ¢

College/Other

8 ¢

County

39 ¢

Schools

39 ¢

Source: HdL


Property transfers

Property Transfers

Source:County of Los Angeles Registrar Recorder


Diversified tax base

Diversified Tax Base

Source: City of Santa Monica FY2007-08 Adopted Budget


Status of key revenues sales tax

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.


Key retail sectors year ended 6 30 07

Key Retail SectorsYear Ended 6/30/07


Retail sales growth fy 2007 compared to fy 2006

Retail Sales GrowthFY 2007 Compared to FY 2006


Economic update and five year forecast

$32,663

$13,286

Strong Retail Sales Per Capita

FY 2006-07 (Per Capita)


Santa monica tourism lodging rental occupancy rates

Santa Monica TourismLodging Rental/Occupancy Rates

Source: PKF Consulting


Average room rates various cities

Average Room Rates-Various Cities

Source: PKF Consulting


Gross receipts santa monica businesses

Gross Receipts-Santa Monica Businesses

Billions

Source: City of Santa Monica Finance Department


Utility users tax

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


Managing revenue vulnerabilities

Managing Revenue Vulnerabilities


Economic summary

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


Fund forecasting

Fund Forecasting

General Fund


General fund revenues

General Fund Revenues


Forecast assumptions

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)


Forecast assumptions1

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)


Forecast assumptions2

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


Forecast assumptions3

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


General fund expenditures

General Fund Expenditures

  • Driven by labor costs


General fund expenditures uses

General Fund Expenditures/Uses


Budget gaps

$10.7M Projected Shortfall

Budget Gaps


Expanded fiscal policies

Expanded Fiscal Policies

Policies are key to ensuring the City’s 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”


Fiscal policies examples of areas to cover

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


Fiscal policies examples of areas to cover1

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


Budget milestones

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


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