City of Alexandria, Virginia
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MEMORANDUM
DATE: APRIL 8, 2020
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: MARK B. JINKS, CITY MANAGER /s/
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Consideration of the Monthly Financial Report for the Period Ending February 29, 2020.
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ISSUE: Receipt of the Monthly Financial Report for the Period Ending February 29, 2020.
RECOMMENDATION: That City Council receives the Monthly Financial Report (Attachment 1).
BACKGROUND: The following discussion is a summary of the Monthly Financial Report for this period. Schedules comparing revenues and expenditures to date to the same period in
FY 2019 are attached.
DISCLAIMER: This monthly financial report provides an update for City Council on the financial condition of the City as of February 29, 2020. In March 2020, the City’s economic outlook changed dramatically as safeguards related to the COVID-19 virus were put into place. On March 24, 2020, City Council passed several emergency ordinances and resolutions to provide relief the business community. Social distancing, restrictions placed on the number of people that can gather, quarantine recommendations and the virtual elimination of travel and tourism has had a significant negative impact on revenue projections in FY 2020. On April 1, 2020, staff presented City Council with an updated projection for FY 2020. This new projection has been included in Attachment 1. It is important to note that the current revenue forecast is not sufficient to cover the appropriated expenditure amount. A combination of expenditure reductions and use of fund balance is expected to be utilized to fund this gap.
REVENUES: Through the first 8 months of FY 2020, the economic outlook was very strong. Nearly all categories were performing at or above the budgeted amount, with a few exceptions.
At this time in FY 2020, the City’s revenue and expenditures were not noticeably different than the same time period last year. As of February 29, 2020, General Fund revenues totaled $427.6 million, an increase of $22.3 million or 5.5% above revenues collected at the same time in FY 2019. After eight months in FY 2020, approximately 54.9 percent of budgeted revenues have been collected. Revenues may not track consistently with the calendar since many revenue sources have due dates that do not occur evenly through the year. Large revenue sources, such as real estate and personal property tax revenues are remitted twice per year and once per year, respectively. Personal property taxes were due on October 5th. Personal Property tax revenue is $52.9 million or 10.8 percent higher than collections for the same period last year. With the elimination of the decal, the motor vehicle license fee was eliminated. The personal property tax rate was increased to offset this fee elimination. The first half of the calendar year real estate tax is due on June 15th. Revenue from real property taxes is consistent with the budgeted amount in FY 2020 and the amount collected in FY 2019 through December.
In other local taxes, local sales tax was trending 10.5 percent over collections in FY 2019. Sales tax revenue is remitted by the State, two months after it is collected. Through 8 months of the fiscal year, the City has received 6 months of local sales tax revenue, which amounts to 55.4 percent of the amount budgeted. Recordation tax was also comparing favorably to FY 2019. Through February 2020, collections reflect 78.4 percent of the budgeted amount and exceed collections for the same period in FY 2019 by 43.8 percent. It should be noted that nearly all tax revenue sources that are driven by consumer spending and confidence were performing at or above projected amounts. This was largely attributable to low unemployment, high consumer confidence and diminished fears of an imminent recession. Variances in intergovernmental revenue from the Commonwealth and Transfers from Other Funds are related to the timing of payments or posting.
As we begin the process of re-forecasting revenues and revising our budget assumptions for both FY 2020 and FY 2021, it is important to keep in mind that the City is facing the COVID-19 environment in a position of economic strength relative to many other communities. There will be significant declines in revenue in the coming months, but the first two thirds of the fiscal year reflected economic strength across nearly every revenue category
With the presentation of the City Manager’s Proposed FY 2021 Operating budget, the Monthly Financial Report includes a projection of total General Fund revenues for the year. Prior to changes in the economy from COVID-19, most categories of revenues were expected to meet or exceed the FY 2020 budgeted amount. Communication Sales and Use tax continue to decline each year due to consumer behavioral changes related to telecommunications and television. With the refunding of the City’s Build America Bonds in 2017, the subsidy that is received from the federal government is being eliminated. The revenue is offset by lower costs for debt service on the new debt. Conversely, interest rates are significantly lower than assumed during the development of the FY 2020 budget and are resulting in lower Revenue from Use of Money and Property compared to FY 2019 and compared to the FY 2020 budgeted amount.
It is important to note that the projections that were developed in January 2020 as part of the
FY 2021 Proposed Operating Budget will not materialize. This monthly financial report includes a new set of projections that reflects a long, slow recovery period. Most notable will be the significant declines in taxes generated from consumer spending, travel and tourism. On March 24, City Council adopted an emergency ordinance that placed a moratorium on penalties and fees until the end of June. This action is likely to result in little of no payment of Transient Lodging and Meals Sales tax through the end of the year. Given the significant restrictions placed on restaurants, even though the taxes are still owed and payable in FY 2021, there is unlikely to be a significant of revenue generated in either of these categories. To help mitigate the financial stress on the community, Finance Department staff has curtailed collection efforts on overdue taxes. The taxes are still owed and will be pursued when the timing is more appropriate.
EXPENDITURES: As of February 29, 2020, General Fund expenditures totaled $428.3 million, a decrease of $2.2 million compared to the same time period for FY 2019. The situation has changed since the end of February, and the City is recording a number of unplanned expenditures related to the COVID-19 situation. Staff is tracking these expenditures and will be prepared to submit spending information to FEMA in the event that reimbursement is available. In addition, efforts to mitigate spending (e.g., travel bans, a soft hiring freeze) to ensure that the City maintains a balanced budget at the end of FY 2020.
Similar to the situation with revenues, no significant expenditure has occurred in the first eight months of Fiscal Year 2020 that is unbudgeted or unexpected. The most significant difference is the timing and source of payments. The variance in the Department of Transportation and Environmental Services is largely attributable to the shift of the residential curbside refuse collection program from the General Fund (in FY 2019) to a self-supported fund in FY 2020. This is offset by the transfer of the Fleet Services Division from General Services, which is showing a 18.0 percent decline in spending compared to FY 2019, to TES in FY 2020. The variance in the Office of Performance and Accountability relates to software user licenses and costs associated with the Resident Survey. In FY 2019, the Transfer to Housing was included in Cash Match and Transfers to Special Revenue. In FY 2020, this transfer is displayed separately to provide additional transparency.
ATTACHMENTS:
Attachment 1: Comparative Expenditure Schedule for February 29, 2020
Attachment 2: Comparative Revenue Schedule for February 29, 2020
STAFF:
Laura Triggs, Deputy City Manager
Kendel Taylor, Director, Finance Department
Morgan Routt, Director, OMB