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Item 4 - Additional Materials posted 04-30-201 of 15 (Agenda Related Writings/Documents provided to Budget Review Committee or Staff after distribution of the Agenda Packet for the April 29, 2020 Council Meeting DATE: April 30, 2020 TO: Honorable Chairman and Members of the Budget Review Committee FROM: Aaron Beanan, Director of Finance CONTACT: Aaron Beanan, Director of Finance (858)668-4411 or abeanan@poway.org SUBJECT: Item 4 – The Projected Economic Impacts of COVID-19 Summary: The presentation attached to this memorandum was presented at the April 29, 2020 Regular Budget Review Committee meeting. Attachments: A.Projected Economic Impacts of COVID-19 Presentation Approved By: Aaron Beanan Director of Finance April 30, 2020, Item #4 PROJECTED ECONOMIC IMPACTS OF COVID-19 APRIL 29, 20202 of 15ATTACHMENT AApril 30, 2020, Item #4 •Where we were: Mid-Year Budget Update (Fiscal Year 2019-20) General Fund Adopted Budget Revised Budget Operating Revenue $48,786,730 $49,953,293 Non-Operating Revenue 739,810 739,810 Total Revenue $49,526,540 $50,693,103 Operating Expenditures $46,544,580 $46,820,978 Transfers Out 2,923,801 2,923,801 Total Expenditures $49,468,381 $49,744,779 Change in Fund Balance $58,159 $948,3243 of 15April 30, 2020, Item #4 •Where we are going (as of 3/31/20): •Where we are going (as of 4/16/20): Projected Revenue Impacts (Fiscal Year 2019-20) Revenue Type Mid-Year Est.Revised Est.Change ($)Change (%) Sales Tax $14,498,095 $13,569,537 ($928,558)(6.4%) TOT 700,820 501,670 (199,150)(28.4%) Interest 850,000 779,000 (71,000)(8.4%) Total $16,048,915 $14,850,207 ($1,198,708)(7.5%) Revenue Type Mid-Year Est.Revised Est.Change ($)Change (%) Sales Tax $14,498,095 $13,135,648 ($1,362,447)(9.4%) TOT 700,820 501,670 (199,150)(28.4%) Interest 850,000 779,000 (71,000)(8.4%) Total $16,048,915 $14,416,318 ($1,632,597)(10.2%)4 of 15April 30, 2020, Item #4 ModerateU Virus Contained Summer; Slower Growth Rebound Peak: March 2020 Trough: Fall 2020 Recovery: June 2023 Duration: ~3 years Annual revenue loss: $3M -$4M Cumulative revenue loss: $9 -$12M Recession Scenarios MildV Peak: March 2020 Trough: April -May 2020 Recovery: July –August 2020 Virus Contained Spring; Strong Growth Rebound Duration: ~6 months Effective Interventions Ineffective Interventions Annual revenue loss: $1M -$1.5M Cumulative revenue loss: $1 -$1.5M ModerateV Virus Contained Spring; Slower Growth Rebound Peak: March 2020 Trough: July –August 2020 Recovery: June 2022 Duration: ~2 years Annual revenue loss: $1.5M -$2.5M Cumulative revenue loss: $3 -$5M SevereU Virus Contained Fall; Slow Growth Rebound Peak: March 2020 Trough: Fall 2020 Recovery: June 2025 Duration: ~5 years Annual revenue loss: $5M -$6M Cumulative revenue loss: $25 -$30M (Self-reinforcing recession dynamics occur)(Minimal economic structural damage)5 of 15April 30, 2020, Item #4 Analogue: Great Recession 6 of 15April 30, 2020, Item #4 Initial Unemployment Claims (Weekly, SA) 4/18/20: 4,427,000 4/11/20:5,245,000 4/4/20:6,606,000 3/28/20:6,867,000 3/21/20:3,307,000 3/14/20:282,000 3/7/20:211,0007 of 15April 30, 2020, Item #4 Retrenchment Techniques Level1 -Defer non-essential purchases -Reassess discretionary spending -Evaluate vacant positions Level2 -Defer Capital Projects -Delay vendor payments -Defer FY 19/20 capital replacement charges Level3 -Defer FY 20/21 capital replacement charges -Defer PCPA operations -Use reserves Level4 -Defer PERS unfunded payments -Staffing cuts: furloughs -Service cuts Baseline Deep Recession -Use unassigned fund balance-Reassess ISF charges -Staffing: benefits -Staffing cuts: layoffs -Use capital replacement funds8 of 15April 30, 2020, Item #4 Analogue: Great Recession 9 of 15April 30, 2020, Item #4 •Departments are currently (Level 1): •Reassessing discretionary spending & deferring non-essential purchases •Requesting Sheriff’s contract increase eliminated ($750k) (Level 1) •Evaluating vacant positions (Level 1): •Community Services: Director (S&B ~$195k) •City Manager: Analyst (GF S&B ~$49k) •Evaluating FY 2019/20 capital replacement charges (~$1.2M) (Level 2) •Evaluating PCPA operation deferral (Level 3) Current Discussions 10 of 15April 30, 2020, Item #4 •Deferring FY 2020/21 capital projects (Level 2) : •General Fund •Blue Sky Amphitheater Shade Structure ($12,000) •Capital Replacement Fund •Public Facilities Renovation –Evaluating Various ($681,795) •Drainage Fund •Annual CMP Replacement ($300,000) •Evaluating FY 2020/21 capital replacement charges ($1M) (Level 3) Current Discussions (cont.’d)11 of 15April 30, 2020, Item #4 •Sharp revenue and expense changes •PERS earnings •Scenario 1: 0% @ 6/30/20 (~$950k/year) •Scenario 2: (5%) @ 6/30/20 (~1.37M/year) •Unemployment (self-insured) •Liquidity and cash flow •Sales tax deferral ( of all 1,600+ eligible businesses) •Scenario 1: 2 quarter deferral: $2.2M deferred for 1 year •Scenario 2: 4 quarter deferral: $5M deferred for 1 year •HDL Scenario (4.15.20): $538k deferred for 1 year •Significant property tax delinquencies Other Considerations 12 of 15April 30, 2020, Item #4 Reserves GF Unassigned June 30, 2019 $7,308,113 Mgmt Confidential –Year 1 (Sept. 17, 2019)($230,000) Mgmt Confidential –Year 2 (Sept. 17, 2019)($153,000) Teamsters –Year 1 (Dec. 17, 2019)($162,000) Teamsters –Year 2 (Dec. 17, 2019)($109,000) Fire SCBA’s (Jan. 21, 2020)($315,000) Mid-Year: Boil Water (Mar. 17, 2020)($339,000) TOTAL (Apr. 2020)$6,000,113 Poway Commons (April 2020)$3,227,195 Projected Total1 $9,227,308 GF Reserves June 30, 2019 $20,961,853 Extreme Events: Boil Water (Feb. 4, 2020)($339,000) Extreme Events: Mid-Year (Mar. 17, 2020)$339,000 Extreme Events: PEARL (Apr. 16, 2020)($2,000,000) TOTAL (Apr. 2020)$18,961,853 Capital Repl. June 30, 2019 $13,878,638 Revenues $4,628,577 Expenses ($4,335,729) TOTAL (Apr. 2020)$14,171,486 1. Anticipated items such as Espola Rd, Los Penasquitos, LMDs, pending litigation, among others could impact the availability of these funds.13 of 15April 30, 2020, Item #4 •BRC •Schedule •April 29, May 6, May 13 •Content •April 29 –The projected economic impacts of COVID-19 •May 6 –Summary of COVID-19 retrenchment techniques •May 13 –Distribution of proposed budget •Council Budget Adoption –June 16 Budget Schedule 14 of 15April 30, 2020, Item #4 Questions15 of 15April 30, 2020, Item #4