TO: ADAM PIRRIE, CITY MANAGER
FROM: JEREMY STARKEY, FINANCE DIRECTOR
DATE: SEPTEMBER 24, 2024
Reviewed by:
City Manager: AP
SUBJECT:
Title
LONG RANGE FINANCIAL PLAN
Body
SUMMARY
The 2025-2034 Long Range Financial Plan (LRFP) was developed by staff in order to align with the Council Priority ”Maintain Financial Stability”, and to achieve the following objectives:
• Allow the City Council to develop a strategic vision
• Allow for informed decision making
• Transparency and Accountability
• Community Engagement
• Risk Management
The LRFP is a ten-year forecast based on the most recent information available and includes preliminary estimates for 2023-24, at the point in time of release, for reference. The recently adopted budgets for 2024-25 and 2025-26 are included as the first two years of the total ten years that the plan is comprised of.
RECOMMENDATION
Recommended Action
Staff recommends the City Council receive and file the Long Range Financial Plan.
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ALTERNATIVE TO RECOMMENDATION
In addition to the recommendation, there is the following alternative:
• Request additional information from staff.
FINANCIAL REVIEW
The staff cost to prepare this report is estimated at $6,300 and is included in the operating budget of the Financial Services Department.
ANALYSIS
The City’s LRFP is intended to complement the biennial 2024-26 Budget by providing an assessment of the City’s General Fund financial capacity over the next ten years. The LRFP can also be used to evaluate the City’s ability to sustainably deliver services to residents, using existing service levels, staff levels and anticipated economic pressures such as inflation.
While the LRFP is anchored to the 2024-26 Budget, this document itself is not a budget for the future years it portrays. It does however provide an overview of the City’s financial capacity based on assumptions for the next ten years, providing the City Council, management, and citizens a financial outlook beyond the biennial budget cycle. It can also serve as a planning tool for longer-term priorities and needs.
Using the 2024-26 Budget as a baseline, the LRFP incorporates a number of specific assumptions to General Fund revenues and expenses. These assumptions are briefly described below.
General Fund Revenues
General Fund revenues are summarized in seven categories to show several major revenue sources separately. Explanation of the major revenue sources and their assumptions are described below:
1. Property Tax: The City has seen healthy growth in assessed property values, contributing to higher receipts of property tax revenue. Proposition 13 provides for the annual increase in the assessed value of taxable property by the Consumer Price Index (CPI), capped at an increase of 2 percent. Staff estimates that the CPI increase will continue to be at or above 2 percent. Proposition 13 also permits the reassessment of property at market value when it is sold or transferred to a new owner, or to account for new construction or the reassessment of properties that had their assessed values reduced in the past due to appeals. Staff is currently estimating an additional 2 percent increase in assessed value due to property reassessments.
2. Sales Tax: Claremont currently receives 1 percent of the total 9.5 percent total tax rate for the City. Sales tax revenues for the LRFP are estimated to increase 2 percent each year. Sales tax revenues consist of two components: (1) sales tax generated from taxable sales in Claremont and (2) Proposition 172 revenues, which are State sales tax collections distributed to cities and counties to fund public safety services. Increased sales tax revenue projections are the result of strengthening auto sales at our local dealerships, recovery and growth of revenues for our local businesses and the allocation of taxable online sales to the City from the County pool.
3. Transient Occupancy Tax (TOT): Claremont imposes a 10 percent TOT tax to the operators of hotels and motels within the City. Staff is currently estimating a 2 percent increase in the collections of this tax each year due to increased occupancy and room rates. Estimates do not yet include the addition of the Residence Inn by Marriott, currently under construction.
4. Utility User Tax (UUT): Claremont levies a 5.5% tax on utilities such as telephone (land and wireless), gas, electric, water and cable television. Staff is currently estimating a 2 percent increase in the collections of these taxes each year due to increasing utility rates, particularly in the areas of electricity, gas and water.
5. Business License Tax: Staff is currently estimating an increase in these taxes of 2 percent to coincide with the estimated CPI increase allowed each year. There are currently over 3,000 businesses that renew their licenses with the City each year.
6. Charges for Services: Staff is currently estimating an increase of 2 percent to coincide with the estimated CPI increase and expects continued development to take place throughout the City providing revenues from development review and plan check fees.
7. Other Revenues: These revenues include Franchise Taxes, Permits, Fines and Forfeitures, Lease revenue from City-owned property, and interest earnings. These revenues are estimated to be unchanged from the 2025-26 levels.
General Fund Expenditures
General Fund expenditures are also summarized into major categories and also include Transfers Out to other funds that require the use of General Fund resources. Explanation of the major expenditures and their assumptions are described below:
1. Salaries and Benefits: Existing service and staff levels are assumed throughout the LRFP with placeholder assumptions on salary and benefit cost changes. These cost changes include scheduled merit increases, a 2 percent increase in Workers Compensation rate changes, and assumptions for negotiated salary increases. The City participates in the California Public Employees’ Retirement System (CalPERS) for all full-time regular employees. The LRFP continues to fund the annual rate for the Employer’s share of the Normal Cost, the annual Unfunded Actuarial Accrued Liability (UAL), which is based on a twenty-year amortization schedule, and an additional discretionary payment annually of $250,000. The Normal Cost rates and UAL payments are based on the latest CalPERS Actuarial Valuation for all retirement plans covering City employees. As of this report, the latest valuation was as of June 30, 2023.
2. Services and Supplies: Staff has applied an assumed increase in Services and Supplies that is based on annual inflationary rates of 2.1 percent each year beginning in 2026-27. This assumption is based on data provided by Statista (www.Statista.com <http://www.Statista.com>), a global data and business intelligence resource that is used by more than 2,000 academic institutions and over 30,000 companies worldwide according to their website.
3. Transfers Out: Transfers from the General Fund to the Landscape and Lighting District and Nutrition Funds are assumed for the LRFP with a 2.1 percent increase each year to coincide with the inflationary rate anticipated. Debt Service transfers from the General Fund for the 2021 Lease Agreement for the Energy Efficiency Project are also included according to the scheduled debt service payments required in future years.
General Fund Surplus/Deficit
The LRFP calculates an annual General Fund surplus or deficit by deducting both expenditures and transfers out from revenues. The City’s Fiscal Policies include the requirement to develop a balanced budget that preserves existing reserves and provides the opportunity to commit additional funds to reserves when budget surpluses are identified. Additionally, the City’s Reserve Policy was amended in October 2023 to increase the Operating and Environmental Emergency Reserve (O&EE Reserve) balance threshold by 5 percent to a total of 30 percent. The LRFP includes a calculation of the total amount needed each year to maintain that level of O&EE Reserves using General Fund surpluses.
It is important to note that actual revenues and expenditures often vary from budgeted figures. The LRFP provides the best assumptions based on information provided and/or available at the time of the report. These assumptions are subject to change and will be evaluated periodically. Staff intends to update the LRFP annually and present the updated report to the City Council each fall.
RELATIONSHIP TO CITY PLANNING DOCUMENTS
Staff has evaluated the agenda item in relationship to the City’s strategic and visioning documents and finds that it applies to the following City Planning Documents: Council Priorities, Sustainable City Plan, Economic Sustainability Plan, and the 2024-26 Budget.
CEQA REVIEW
This item is not subject to environmental review under the California Environmental Quality Act (CEQA).
PUBLIC NOTICE PROCESS
The agenda and staff report for this item have been posted on the City website and distributed to interested parties. If you desire a copy, please contact the City Clerk’s Office.
Submitted by:
Jeremy Starkey
Finance Director
Attachment:
Long Range Financial Plan