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Home My WebLink AboutCOUNCIL - AGENDA ITEM - 04/13/2021 - FINANCIAL UPDATE AND RESPONSE TO COVID-19 PANDEMICDATE: STAFF: April 13, 2021 David Lenz, FP&A Director Travis Storin, Chief Finance Officer WORK SESSION ITEM City Council SUBJECT FOR DISCUSSION Financial Update and Response to COVID-19 Pandemic Impacts. EXECUTIVE SUMMARY The purpose of this work session is to provide Council with an update to the City’s preliminary financial condition at year-end 2020, to illustrate the response to the economic impact s of the COVID-19 pandemic, to provide an updated outlook for the balance of 2021 and to offer a first glimpse into the environment facing us as we start the process of evaluating 2022 Budget for Outcome (BFO) offers. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED What questions or feedback do Councilmembers have related to the update on the City’s financial condition and near-term outlook? BACKGROUND / DISCUSSION In response to the COVID-19 outbreak, the City was required to deviate from its normal course of business related to the biennial Budgeting for Outcomes (BFO) process and management of its financial affairs during 2020. The City was faced with a high degree of uncertainty over the estimates of revenue impacts from the pandemic and instituted emergency cost reduction efforts in 2020. The City instituted a modified, one -year BFO process for 2021 that was informed by the cost reductions and lower revenue forecasts projected in mid -2020. During the June/July 2020 timeframe, the City estimated a potential revenue shortfall of approximately $31 million for the year. Preliminary, unaudited results for year -end 2020 show that the estimated negative revenue impacts were less severe than anticipated and the City’s efforts to curtail spending exceeded initial projections. These two factors, combined with realized federal stimulus funds available to the City, resulted in a more favorable overall financial position at year-end. However, these results were not evenly distributed among th e different funds across the organization. This disparity also mirrors how the economic impacts of the pandemic been felt unevenly in the greater Fort Collins, Colorado, and national landscapes. As we look at updated view of the 2021 economic environment (and preview of 2022), we are cautiously optimistic that financial recovery from the pandemic has taken a foothold. Sales tax collections over the past 6 months have rebounded to pre-pandemic levels. Additional stimulus funds from the recent $1.9 trilli on federal package will continue to boost the local economy. Continuation of this better -than-expected performance will allow for selective reinstatement of program and/or spending cuts that were instituted in the 2021 budget and set the stage to allow for targeted budget increases as part of the 2022 budget. ATTACHMENTS 1.Powerpoint Presentation (PPTX) Financial Update Council Work Session Ap ril 13, 2021 Tr avis Storin and David Lenz ATTACHMENT 1 Fiscal Stewardship •Revenues of $500M+ per year; cash and investment holdings of $450M+ •48 employees across Accounting, Purchasing, Budget, Financial Planning & Analysis, Safety/Risk Management, Sales Tax, and CityGive •Service provider to PFA, Library District, DDA, and URA •3rd party audits provided for annually by City Charter •Moody’s AAA Rating –3-5% of local governments nationally •Recipient of GFOA Financial Reporting Certification for 33 years 2 Presentation Overview •2020 Review –Expectations, Uncertainty and Outcomes •2021 Update / 2022 Outlook •Revenue Opportunities •Challenges for 2022 BFO •Appendix: Supplemental Appropriations Review 3 Guidance Sought •What questions or feedback do Councilmembers have related to the update on the City’s financial condition and near-term outlook? 4 2020 Overview •2020 started strong –employment, growth •Over the Cliff •Dire predictions of economic collapse and shutdowns •Early estimates of revenue shortfall -$25 to $50 Million (10-20%) •Q2 saw actual revenue contraction •Bracing for the unknowns -duration and recovery •Cost containment efforts •BFO process changes •Spending cuts, Federal aid, potential use of reserves •Closed an anticipated $31M funding gap; $15M in budget cuts 5 July 2020: Closing the Revenue Gap 6 -31.2 0.0 6.6 7.4 3.4 0.3 1.2 1.0 2.4 7.8 1.1 -40.0 -30.0 -20.0 -10.0 0.0 Projected Shortfall Fed/State Funding Tier 1 Spending Cuts Hiring Freeze Closed Facility Furloughs Transit Expense reductions - NEW CARES Expense Offset - NEW June Sales/Use Tax - NEW Additional Expense Cuts Reserve Usage Remaining Funding Gap 2020 Revenue Gap Closure -$M $15 M in cuts to budget City Revenue 7 •Roughly half of our revenue comes from Utilities and half comes from Governmental activity •Utility revenue driven by demand and rate changes •Governmental revenue growth slowed starting in 2015 and fell off in 2020 •Grants and contributions have a separate and independent cadence Sales Tax History 8 Sales Tax Collections -Category 9Wide range of outcomes across industries: some up nearly 20%, others down nearly 50% Sales Tax -Business Remittance 10 3k+ Businesses Recovery has been a tale of two recoveries within the community Variance to Budget Variance to Budget $ Millions % of Budget $ Millions % of Budget Sales & Use Tax ($4.6)(3.3%)Personnel Costs $5.6 4.4% Property Taxes $0.6 1.8%Purchased Prof &Tech Services $4.9 9.8% Intergovt . Shared Reven ues $0.6 4.6%Purchased Property Services $6.4 13.5% Culture,Parks, Rec & Nat A. Fees ($5.4)(32.7%)Other Pu rchased Services $6.6 14.1% Payment in Lieu of Taxes ($0.2)(1.6%)Supplies $4.7 23.8% General Government Fees ($1.0)(7.7%)Cap ital Outlay $9.0 38.6% Transportation Fees ($1.4)(19.3%)Other $2.5 36.3% Interest Reven ue ($1.3)(32.7%)Deb t & Other Uses $1.7 17.1% Other Miscellaneous ($2.9)(11.2%)Frozen Ap propriations $12.0 100.0% Total ($15.5)(5.9%)Total $53.4 15.6% Ove r /(Under)Under /(Ove r) Revenue Expenses Governmental –2020 Preliminary Results 11 City finished the year $16M behind its revenue budget for the year while significantly reducing expenditures and adjusting timing in response to the pandemic impacts. TS2 TS3 Slide 11 TS2 What if we were to create appendix exhibits with the next-level drilldown on expenses? I presume we'd drill to SA instead of to the next LOD in JDE but open to discussion. Travis Storin, 4/7/2021 TS3 Travis Storin, 4/7/2021 Utilities –2020 Preliminary Results 12 Utility Services finished the year slightly over its revenue budget while expenses were significantly down due to lower purchase power costs and timing of expenditures. Variance to Budget Variance to Budget $ Millions % of Bud get $ Millions % of Bud get Electricity ($1.2)(0.8%)Personnel Costs $0.2 0.6% Water $3.0 10.0%Purchased Prof & Tech Services $0.8 13.3% Wastewater ($0.6)(2.4%)Purchased Property Services $0.7 8.1% Stormwater $0.4 2.3%Other Purchased Services $0.2 0.6% Al l Other ($0.9)(3.0%)Supplies $11.1 10.1% Capital Outlay $2.7 60.7% Total $0.8 0.3%Other $3.9 37.9% Frozen Ap prop riations $2.7 100.0% Total $22.4 10.4% Ove r /(Under) Revenue Under /(Ove r) Expenses Ye ar-End Fund Balances 13 (1) Includes GID and URA balances but excludes DDA and General Employees Retirement Plan balances. (2) Utility Funds balances reflect working capital amounts only. Fund (1)Endi ng Balance Endi ng Balance Change ($ M illions)12/31/2019 12/31/2020 2020 vs.2019 Actual Preliminary General Fund $72 $68 ($4) Keep Fort Col lins Great Fund $8 $10 $2 Tr an sportation Fund $13 $11 ($2) Capital Projects Fund $25 $17 ($8) Other Govern men tal Funds $107 $117 $10 Util ity Funds (2)$170 $188 $18 In ternal Service Funds $32 $32 $0 Other Funds $9 $11 $2 Tot al $437 $453 $16 2020 Key Takeaways •Planned for a $31M governmental budget revenue shortfall (12%), experienced a $16M shortfall (6%) •Federal and state relief packages appear to have an impact to the local and regional economy •Disparate impact across the community and City organization •Cost containment efforts (hard freezes and other pullbacks) had a significant impact to the bottom line 14 2021 Update / 2022 Outlook 15 2021 Update •Economic Environment •Revenue update: Sales Ta x / Other •Additional federal relief is in the works ~ $27.5M •Other initiatives/programs 16 Sales Tax: Fort Collins vs. National 17We have recovered to pre-pandemic levels over the past 6 months 2021/22 Outlook: Using “New” sources 18 15.0 -4.1 5.0 6.0 ?? 3.2 4.3 Up to 9.4 Up to 13.2 -10.0 0.0 10.0 20.0 30.0 2021 Potential Revenue Upside 2022 Revenue Growth Mktplace Facilitators Remove Hiring Freeze Anticipated pay increases Sustainably fund ongoing expenses Restore Reductions 2022 Enhancements 2022 Funding Status Primary BFO objectives include evaluating previous reductions for restoration and removing the hiring freeze. TS1DL1 Slide 18 TS1 Could we restate the 2022 Funding Shortfall label to 2022 Funding Status? [@David Lenz] Travis Storin, 4/6/2021 DL1 Done David Lenz, 4/7/2021 Risks 19 •Uneven impacts continue •Some Funds negatively impacted •Funding for increased ongoing maintenance costs •Signs of inflationary impacts (fuel, consulting/contract labor rates) •Impacts of hiring freeze and job openings on service delivery levels American Rescue Plan Act (ARPA) 20 •Current estimates indicate $27.5M available for state and local aid •Other funds available for childcare, utility bills, libraries, small business, travel/tourism, and broadband •Considerably broader definition of eligible expenses vs. CARES •Have until 12/31/2024 to spend •Tr easury Guidelines expected by week of 4/12 •Programs / timing for utilization -TBD 2021-2022 Key Takeaways •The fiscal challenges look slightly different than 2020: •Restoring 2020 reductions, lifting hiring freeze, and compensation strategies •Likely to be limited enhancement offers without dedicated funding •Several City revenue opportunities with still-unknown community impacts •We’re playing the long game –BFO 3 years in a row 21 •Returning Sales Tax growth to pre-pandemic levels of growth & flat Use Tax projections •Development activity is healthy •Development review volume, including pre-submittal activity, continues to be steady compared to past 5 years •Revenues related to development review anticipated to remain consistent wi th 2020 levels for 2021 and 2022 •Ongoing offers can include non-personnel inflation of 2% 22 Macro Considerations Closing •What questions or feedback do Councilmembers have related to the update on the City’s financial condition and near-term outlook? 23 Appendix 24 2020/21 Supplemental Appropriations 25 26 Supplemental Appropriations 1/1/2020 –3/31/21 Fundi ng Source To tal Gr an ts 26,083,357$ Un an ti ci pate d Revenue 21,336,920$ Prior A ppropriati ons 317,657$ Re se rv es 28,168,010$ Gran d Total 75,905,944$ 27 Supplemental Appropriations 1/1/2020 –3/31/21 •$5.3M in January 2020 for Ta ft Hill Improvement Project Federal Grant, LarCo Contribution •$5.0M in January & April 2020 for the Epic Homes Loan Program External Capital •$3.7M in January 2020 for Climate Action Plan Mitigation & Resilience Light & Power Fund Reserves •$1.2M in February 2020 for Land Bank Property Acquisition General Fund Reserves •$8.7M in May 2020 for Natural Areas Annual Reappropriation Natural Areas Fund Reserves •$4.1M in June 2020 for College Ave / Tr ilby Rd Intersection Improvements Federal and State Grants •$9.0M in July 2020 for the CVRF (Coronavirus Relief Fund) CARES Act Funding •$1.5M in August 2020 for West Elizabeth BRT Design Grant, CSU Contribution, Reserves •$10.3M in December 2020 for Transit Services CARES Act Funding •$1.5M in December 2020 for Hail Damage Repairs Insurance Claim Proceeds •$1.5M in January 2021 for Small Business Relief Fund Add’l Revenues •$4.5M in March 2021 for South Ti mberline Improvements Project Federal Grant, Reserves •$3.5M total for CDBG / HOME Annual Federal Grants, Coronavirus Grants •$8.0M total for Reappropriation (2020 & 2021) and 2020 Annual Adjustment Reserves, Add’l Revenues