Item 11AGENDA ITEM NO. 11
AGENDA STAFF REPORT
City of West Covina I Office of the City Manager
DATE: April 5, 2022
TO: Mayor and City Council
FROM: David Carmany
City Manager
SUBJECT: CONSIDERATION OF LONG-RANGE FINANCIAL FORECAST FOR FISCAL YEARS
ENDING 2023-2027
RECOMMENDATION:
It is recommended that City Council receive and file the Long -Range Financial Forecast for fiscal years
ending 2023-2027.
BACKGROUND:
The State audit recommended the City prepare financial analyses that evaluate both the short-term and
long-term financial implications of significant spending decisions. The City's action in regard to this
finding was to use a multi -year forecast to quantify the impact of decisions on the City's financial
condition. The City originally developed a multi -year forecast in 2020, which was used to issue the lease
revenue bonds. Per the City's Financial Recovery Plan, staff must prepare and annually update the
forecast to include all projected revenue and expenditures, adding information on new assumptions,
unanticipated costs, and cost -saving actions.
The purpose of the forecast is to provide long-term context for annual decisions that will be made with
the FY 2022-2023 Budget and FY 2023-2027 Capital Improvement Plan. This forecast was developed to
create a forward -looking, conservative baseline budgetary outlook for the City's General Fund under a
given set of revenue and expenditure growth assumptions.
DISCUSSION:
The Long -Range Financial Forecast is part of the annual budget process. Also included as part of the
budget process is a Budget Survey that was made available online in March for residents and community
members to provide input.
Budget Calendar
Date IlEvent
Tuesday, April 19
1 Proposed Budget Presentation"
Wednesday, April
lCommunity Workshop
Wednesday, May
lCommunity Workshop
Tuesday, May 17th
Budget Status Update'
Tuesday, June 7th 11 Consideration of Budget Adoption*
Friday, July 1st Start of New Fiscal Year
*Council Meeting
Prepared by: Stephanie Sikkema, Finance Director
Fiscal Impact
FISCAL IMPACT:
While the City has experienced recent one-time revenue influxes due to the sale of the lease revenue
bonds and COVID relief funds, the operating expenses are projected to exceed recurring revenue. The
Long -Range Financial Forecast projects budget deficits for each year in the forecast. Additionally,
reserves are anticipated to be depleted to 10% or $8 million by fiscal year ending 2027. Structural
changes are necessary to increase revenues and/or decrease expenditures in future years.
A reduction in General Fund services levels and/or structural changes to personnel costs are possible
ways to address the deficit. Additionally, increasing or resuming revenue programs such as increasing
business license discovery, false alarms, and foreclosures may help offset the expenses.
Attachments
Attachment No. 1 - Long -Range Financial Forecast FYE 2023-2027
CITY COUNCIL GOALS & OBJECTIVES: Achieve Fiscal Sustainability and Financial Stability
bong -Range
Fin49
ancial Forecast
City of West Covina
WWW.WESTCOVINA.ORG 1 1444 W GARVEY AVE, WEST COVINA CA, 91790
City of West Covina Long -Range Financial Forecast: HE 2023-2027
The purpose of this forecast is to provide long-term context for annual decisions that will be made with the
Fiscal Year Ending (FYE) 2023 Budget and FYE 2023-2027 Capital Improvement Plan. This forecast was
developed to create a forward -looking, conservative baseline budgetary outlook for the City's General Fund
under a given set of revenue and expenditure growth assumptions.
The revenue and expenditure growth assumptions were originally developed in 2020 for the bond issuance
and remain the same except for base salaries. These have been updated to reflect the average increase from
the current memorandums of understandings. The base year for this forecast is HE 2022 which is estimated
to be close to pre-COVID conditions.
The City's major revenue sources include property taxes and sales tax. Each of these revenue sources are
driven by the growth of the local economy and the City's population. This is also true of several of the City's
other revenue sources including fees and charges for service, franchise taxes, and licenses and permits.
Revenue Growth Assumptions
• The growth assumptions were established by the 2020 forecast and have not been adjusted.
• Property tax is assumed to increase by 2%.
• The Vehicle License Fees component grows with estimated increase in assessed valuation.
• Sales tax is forecasted to increase moderately by 1.5%. While sales tax has spiked from the previous
year due to the bounce back from the pandemic, it is projected to flatten in future years.
■ The forecast also assumes that the Redevelopment Agency's In -Lieu portion of the City's 1% Local
Sales and Use Tax will go back to the General Fund in FYE 2024.
■ Transient Occupancy Tax is projected to grow by 2% each year.
■ Development -related fees are assumed to be level throughout forecast.
Property Tax
2.0%
2.0%
2.0%
2.0%
2.0%
Sales Tax
1.5%
1.5%
1.5%
1.5%
1.5%
Franchise Fees
0.5%
0.5%
0.5%
0.5%
0.5%
Transient Occupancy Tax
2.0%
2.0%
2.0%
2.0%
2.0%
Business License Tax
1.0%
1.0%
1.0%
1.0%
1.0%
Rent
1.2%
1.2%
1.2%
1.2%
1.2%
Fines
0.0%
0.0%
0.0%
0.0%
0.0%
Ambulance Services
0.0%
0.0%
0.0%
0.0%
0.0%
Development Permits Fees
0.0%
0.0%
0.0%
0.0%
0.0%
Recreation Fees
0.0%
0.0%
0.0%
0.0%
0.0%
U
Page 1 of 5
City of West Covina
Long -Range Financial Forecast: FYE 2023-2027
Expenditures are forecasted for the City's two major funds: General and Debt Service. The baseline forecast
presented herein includes expenditures already approved by and/or committed to by the City Council. Rising
costs due to inflation, and/or interest rates are also anticipated and included in this forecast through growth
factors applied to each forecast category.
Expenditure Growth Assumptions
■ Base salaries have been projected to reflect the average increase through FYE 2024 based on the
current memorandums of understandings. No increases are assumed after the contracted period.
• The forecast assumes recruitment of all FYE 2022 Budgeted positions with an annual estimated vacancy
savings within larger staffing groups.
• Modest increases to expenditures are forecasted for Materials & Services, Fuel, Utilities, etc.
• CalPERS costs have been included based on the August 2021 Actuarial Reports.
• Debt Service has been forecasted based on existing amortization schedules.
Salary Increase
3.0%
3.0%
0%
0%
0%
Worker's Compensation
2.0%
2.0%
2.0%
2.0%
2.0%
Group Life
1.0%
1.0%
1.0%
1.0%
1.0%
Group LTD
1.0%
1.0%
1.0%
1.0%
1.0%
Health Plans
3.0%
3.0%
3.0%
3.0%
3.0%
Dental Plans
2.0%
2.0%
2.0%
2.0%
2.0%
Vision Plans
2.0%
2.0%
2.0%
2.0%
2.0%
Other Materials and Services
1.5%
1.5%
1.5%
1.5%
1.5%
Contract / Professional Services
1.0%
1.0%
1.0%
1.0%
1.0%
Capitalized Lease Payments
0.0%
0.0%
0.0%
0.0%
0.0%
Insurance
1.5%
1.5%
1.5%
1.5%
1.5%
Legal
2.0%
2.0%
2.0%
2.0%
2.0%
Utilities
1.5%
1.5%
1.5%
1.5%
1.5%
Information Technology
1.5%
1.5%
1.5%
1.5%
1.5%
Audit Costs
2.0%
2.0%
2.0%
2.0%
2.0%
Bank Fees
0.0%
0.0%
0.0%
0.0%
0.0%
Fuel Usage
2.0%
2.0%
2.0%
2.0%
2.0%
Animal Control Contract
0.0%
0.0%
0.0%
0.0%
0.0%
Page 2 of 5
General Fund Projections
$8,000
C
n
o $6,000
r $4,000
u
LL
$2,000
N
J
6
7
z $(2,000;
$(4,000)
$(6,000)
$(8,000)
25
N
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=_ 20
u �
15
CO 10
u
General Fund Revenue and Expenditures
Actual Estimate Forecast Forecast Forecast Forecast Forecast
FYE 2021 FYE 2022 FYE 2023 FYE 2024 FYE 2025 FYE 2026 FYE 2027
General Fund Revenues General Fund Expenditures
—Surplus / (Deficit)
Ending General Fund Balance - Unassigned
Actual Estimate Forecast Forecast
HE 2021 HE 2022 HE 2023 HE 2024
Economic Contingency Unassigned Fund Balance
$85
$80
$75
$70
$65
$60
30%
w
0
25%
N N
20% @ i
Y_
15% y a
10% w CL
v x
$% t W y
00 m
0% N CO
Forecast Forecast Forecast @
C
HE 2025 FYE 2026 HE 2027
Unassigned Reserve as % of Base Expenditures
z
zz
W
a
W
W
2
W
W
1'
J
z
z
z
City of West Covina
Long -Range Financial Forecast: FYE 2023-2027
Future Pension Costs
The City's pension contributions to CalPERS are a significant expense the City must incur. While the City
lowered its unfunded liability through the sale of lease revenue bonds in FYE 2021, the unfunded liability
payment in FYE 2023 is expected to spike per the July 2020 valuation. The City will experience a 73% increase
in FYE 2023 which is offset by higher employee contributions as a result of recent labor negotiations.
Remainder of this page intentionally left blank.
Page 4 of 5
City of West Covina
Long -Range Financial Forecast: HE 2023-2027
Debt Service
The General Fund will generally be responsible for funding the following debt service payments annually:
2018 Lease Revenue Refunding Bonds, Series A and B
On November 20, 2018, the City issued $19,310,000 of Lease Revenue Bonds, Series A and $4,855,000 of
taxable Lease Revenue Bonds, Series B to provide
financing for the advance refunding of the City's
2002 Lease Revenue Bonds Series A, 2004 Lease
Revenue Bonds Series A&B, and the 2013 Lease
Revenue Refunding Bonds Series A.
2020 Lease Revenue Bonds, Series A
On July 23, 2020, the City issued $204,095,000 of
Lease Revenue Bonds, Series A (taxable) to
provide financing to pay the City's unfunded
pension liabilities to CalPERS, to establish a
reserve fund, and pay issuance costs.
Energy Efficiency Loans Payable
In May 2021, the City entered into two lease -purchase agreements for the acquisition and installation of
certain energy conservation equipment and improvements (solar) and installation of certain energy
conservation equipment including lighting and HVAC (non -solar) with an aggregate principal borrowing of
$6,602,048.
Principal 5.10 5.42 5.80 5.90 6.29
Interest 8.15 8.02 7.87 7.72 7.54
Page 5 of 5