HomeMy WebLinkAboutFIN 2020-04-21 COMPLETE AGENDA PACKET (SPECIAL MEETING)City of Tukwila
Finance Committee
O Verna Seal, Chair
O Kathy Hougardy
O Zak Idan
Distribution:
V. Seal
Mayor Ekberg
K. Hougardy
D. Cline
Z. Idan
R. Bianchi
D. Quinn
C. O'Flaherty
K. Kruller
A. Youn
T. McLeod
L. Humphrey
C. Delostrinos Johnson
SPECIAL MEETING AGENDA
Note special meeting TUESDAY, APRIL 21, 2020 — 4:00 PM
day and time. 4 HAZELNUT CONFERENCE Reem
(At east entFance of City Ha4111)
THIS MEETING WILL NOT BE CONDUCTED AT CITY FACILITIES
BASED ON THE GOVERNOR'S PROCLAMATION 20-28.
THE PHONE NUMBER FOR THE PUBLIC TO LISTEN TO THIS
MEETING IS: 1-253-292-9750, Access Code 382071406#
Item
Recommended Action
Page
1. BUSINESS AGENDA
Financial impacts from the COVID-19 emergency.
Discussion only.
Pg.1
Vicky Car/sen, Finance Director
2. MISCELLANEOUS
Next Scheduled Meeting: Monday, April27, 2020
JG The City of Tukwila strives to accommodate individuals with disabilities.
Please contact the City Clerk's Office at 206-433-1800(TukwilaCityClerk(aTukwilaWA.gov) for assistance.
TO: Finance Committee
FROM: Vicky Carlsen, Finance Director
CC: Mayor Ekberg
DATE: March 31, 2020
SUBJECT: Budget Impacts due to COVID-19 Pandemic
Uadated for Aaril 21. 2020 Finance Committee
ISSUE
Financial impacts of the COVID-19 pandemic.
Staff has been working on a daily basis to evaluate and analyze the financial impacts to
the City of Tukwila's budget as a result of the ongoing coronavirus pandemic. This memo
is to share with the Council current thinking and potential next steps associated with this
global issue.
I want to start with a shared recognition that there are difficult choices ahead as we deal
with lost and delayed revenues. The organization is here to serve the Tukwila residents,
businesses and broader communities and we committed to moving forward through
process with our City values of Caring, Professional and Responsive at the forefront of
our work. We also understand that there may be additional impacts to employees. As we
approach what we hope is a new, but relatively short-term, fiscal reality we remain
committed to being transparent, creative, and empathetic as we identify solutions that
preserve City services and, as much as possible, as many positions that are feasible.
Further, we are committed to working with our employees and labor partners in this effort.
Because there is so much uncertainty with regard to the duration of this pandemic, as
well as how long businesses will be closed, a number of assumptions have been made
regarding impacts to general fund revenue. As new information is received and when
there is a better idea of when the pandemic will end, we will be able to better predict the
full impact of this emergency.
We can partially identify revenue impacts through June. However, estimating financial
impacts for the second half of the year will depend greatly on when the pandemic is over
and how quickly the economy can recover. At this time, there is not enough information
to predict what the second half of 2020 could look like.
1
INFORMATIONAL MEMO
Page 2
That said, our assumptions are as follows:
• Non -essential Businesses will be shut down into May
• When businesses reopen, it will take some time to return to normal
• We expect very little sales tax to be remitted during March and April given the "Stay
Home, Stay Healthy" order
• Property tax deadlines have been extended to June 1 for residential and commercial
properties who pay property taxes themselves (property taxes paid through
mortgage companies will still be required to be remitted on time). It is unknown how
many taxpayers pay property taxes themselves in the City, but payment delays will
affect the City's cash flows
• Uncertainty regarding utility customer payments which would impact interfund utility
tax
• Sales tax revenue is received two months after it is earned. We will not know the
true impacts on sales tax until May and June
• Impacts of lost and deferred revenue will create cash flow issues
Financial impacts affecting the City are broken down into two categories: Lost Revenue
and Delayed Revenue.
Lost Revenue
This category includes revenue that will forever be lost due to businesses and
programming closed down. Each month that businesses are closed will result in well over
$1 million in lost revenue. With the information we have today, the following chart
estimates lost revenue each month through June. March has been calculated as a partial
month because systematic closures did not occur until mid -month. Other miscellaneous
revenue in the last row include a myriad of other small revenue sources including interest
earnings, donations, court fines, permits, licenses, etc. Again, the full impacts to March
revenue will not be known until the latter part of May.
Potential Lost Revenue
Admissions Tax
Gambling Tax
TCC Programming
TCC Rentals
Sales Tax
Mall
Retail (excluding Mall)
Accomodation & Food Service (excluding Mall)
Entertainment, Recreation (excluding Mall)
Other sales tax categories and other misc. rev
Total
March April
66,000 85,000
- 500,000
23,000 57,000
44,000 26,000
May June
97,000
75,000
350,000
350,000
40,000
37,000
21,000
46,000
167,500
300,000
335,000
350,000
253,500
442,000
348,000
390,000
39,500
70,000
75,000
82,000
11,500
20,000
26,000
28,000
500,000
500,000
258,000
292,000
1,105, 000
2,000,000
1,550,000
1,650,000
2
INFORMATIONAL MEMO
Page 3
Cumulative impact of Lost Revenue is as follows:
March only
$1,105,000
March - April
$3,105,000
March - May
$4,655,000
March - June
$6,305,000
Delayed Revenue
The second category includes revenue that the City will most likely receive, but at a later
time, once economic activity has returned to normal. It is unknown when the delayed
revenue would be received by the City.
With a high rate of unemployment caused by businesses closing, many utilities are
waiving late fees and not shutting off utilities to customers until the emergency is over.
We have also made the determination to not undertake either commercial or residential
shut off as this time, and have suspended late fees associated with utility nonpayment.
This could result in utility customers, including businesses, paying their bills late, which
would result in a delay in receiving utility tax revenue.
As noted above, an extension for property tax payments has been extended to June 1st
for residential and commercial property owners that pay the tax themselves.
Other reasons for revenue receipts delayed include:
• City permit counter currently closed to new permits, though still processing existing
projects' permits
• Potential new businesses are not opening during this pandemic
• Businesses that are granted permission to defer tax payments without penalty
At this time, with so little information available, it is next to impossible to predict when
delayed revenue could be received by the City. For now, an assumption that 30% of total
monthly revenues in the delayed category will be received either later this year or next
year. The assumption of 30% is only an estimate and the actual impact could be much
higher, or lower.
Potential Delayed Revenue
March
April
May
June
Utility Taxes
385,000
340,000
300,000
294,000
Interfund Utility Taxes
130,000
650,000
130,000
150,000
Property Taxes
-
250,000
200,000
-
Permit Activity
220,000
460,000
280,000
247,000
Business Licenses, State Entitlements
75,000
33,000
21,000
68,000
Other misc. revenue categories
500,000
500,000
500,000
500,000
1,310,000
2,233,000
1,431,000
1,259,000
March
April
May
June
Totals
10% delayed
131,000
223,300
143,100
125,900
623,300
20% delayed
262,000
446,600
286,200
251,800
1,246,600
30% delayed
393,000
669,900
429,300
377,700
1,869,900
Totals
786,000
1,339,800
858,600
755,400
3,739,800
3
INFORMATIONAL MEMO
Page 4
Cumulative impact of Delayed Revenue is as follows:
March only
$393,000
March — April
$1,062,900
March — May
$1,492,200
March — June
$1,839,900
To summarize, the financial impacts due to COVID-19 is as follows. Please recognize,
information changes on a daily basis. As new information becomes available, the
assumptions and projections will be updated.
march
A01
May
Jule
Totals
Lost 1 105.000
2 000.000
1,550,000
1.650.000
6.305.000
Delayed 393 000
669.900
429,300
377.700
1,869.900
Totals 1.498.000
2669.900
1.979,300
202T700
8.174.900
Curnulatve
March 1.498,000
March - Alan 1 4,167.900
%-larch - tiW 6.147,200
M arch - June 8.174.900
Based on businesses closed into the first part of May and the assumption that it will take
time for the economy to return to normal, the funding gap to close would be $6.1 million
using the March through May assumptions. It should be noted that this gap is roughly
equal to 10% of the City's annual general fund.
Adjust General Fund Expenditures Based on Revenue Assumptions
An effective way to reduce general fund expenditures would be to implement changes in
three phases: immediate changes, near -term changes, and changes that can be
implemented as better information becomes available and/or the longer the pandemic
lasts.
Immediate: Immediate changes that have already been implemented include the
following:
Hiring freeze for all currently vacant positions annual savings)
$1,600,000
All travel cancelled, no non -essential training (unspent balance
$140,000
Furlough all part-time, temporary extra labor(excluding unemployment)
$150,000
No overtime unless authorized by Mayor
$910,000
No transfers to capital project funds
$1,200,000
Total immediate savings
$4,000,000
11
INFORMATIONAL MEMO
Page 5
After implementing the measures above, it is anticipated that two-thirds of the gap will be
closed, leaving a remaining gap of $2.1 million. All departments are being required to
immediately scrub their budgets and identify all other cost savings from programs that
could be delayed until 2021 or eliminated altogether. Department reductions must be in
excess of the reductions already listed above and may not include expenditures that are
revenue backed. We expect to have that information back next week.
In addition, staff is investigating a number of other opportunities to identify $2.1 M in
savings, knowing that there may be additional savings needed should the duration of this
emergency go longer, therefore requiring making up for additional lost revenues above
$6.1 M. While not all of these may come to fruition for a variety of reasons, we are also
currently:
• Identifying potential additional transfers from the general fund that could be delayed
or eliminated
• Reviewing the Fleet Fund to determine if there is additional capacity there that could
be used as a partial one-time, short term stop -gap measure, and what the
implications of such a decision would be
• Fully scrubbing our contingency and reserve funds to determine if there are
additional funds over the mandated policy amounts that could be used
• Initiating the discussion with our labor partners to identify if any of the following can
help close the budget gap: voluntary retirements, voluntary leave without pay for
staff that choose this option, additional potential furloughs, reduction in hours,
reduction in pay or potential layoffs, and seeking labor's own ideas to fill in the gap
We have been soliciting ideas from staff on other areas for reductions and, as usual, are
impressed by the many varied ideas that have come from our employees that serve our
City. It is clear that they understand the serious nature of the financial issues we are facing
and want to be a part of the solution. In addition, there is a clear ethic of teamwork
permeating through the different ideas. As you know, no impacts to wages, benefits or
working conditions can be implemented without bargaining such impacts in advance with
our labor partners.
Our commitment is to continue to keep you informed of any changes as we progress
through these difficult times. Once we have a better idea of a final recommendation to
close the current $2.1 M we will work with you, as well as the staff, to implement any
additional changes. In the meantime, please do not hesitate to reach out to me directly.
New Information for April 13, 2020 Finance Committee
The intent of this memo is to prepare the City Council to make informed policy and budget
decisions regarding the financial impacts of the COVID-19 pandemic.. Decisions will need
to be made this year for the 2020 budget. As this is a budget year, decisions for the next
biennium can be made through the normal budget process this summer.
5
INFORMATIONAL MEMO
Page 6
The COVID-19 pandemic is causing unprecedented financial impacts world-wide and the
full extent of these impacts will not be known for months. However, we do know several
key factors:
- Initial U.S. unemployment claims are significantly higher than during the Great
Recession. The graph below is from the April 4, 2020 CV-19 Track No. 4, published
by the King County Office of Economic and Financial Analysis. The line at the far
right side of the graph is not the border, but the number of claims between March
22, 2020 and March 28, 2020;
FRED
UWX
5.aao.000
3,900,000
tocaoon
roro 2W
- King County unemployment claims totaled 47,333 for the week of March 29, 2020
through April 4, 2020;
- Statewide, businesses have the option to file, and pay, excise tax returns later than
the normal due date. This will impact the City's ability to forecast revenue as well
as cash flow for the next several months;
- The City has received requests from businesses for an extension to file tax returns
later than the current due date. City Council will be asked to approve temporary
emergency policies that will formally grant businesses an extension.
In order to understand, and develop a plan to address the financial impacts due to the
COVID-19 pandemic, three models have been developed. The models have been
developed using information available the week of April 6, 2020 and are subject to change
as new information becomes available. All models consider revenue losses and include
immediate expenditure reductions listed in the chart at the bottom of page 4 above as
well as additional reductions identified by department totaling $1.8 million for a grand total
expenditure reduction of $6.2 million.
The City has already taken several steps to address the financial impacts of the
pandemic. The city immediately implemented several cost savings measures.
- Hiring freeze on all existing vacant positions. Positions will be filled only by approval
of the Mayor, as deemed necessary. If all positions listed below are frozen for the
remainder of 2020, total savings would be roughly $1.6 million in salaries plus
benefits. Total projected savings will change as other positions become vacant due
to retirements and/or if some of the positions listed below are filled. Currently
vacant positions by department are as follows:
9
INFORMATIONAL MEMO
Page 7
o Community Development: senior planner, building inspector III, associate
planner, plans examiner
o Fire: emergency management specialist, admin support technician — Note:
Firefighter personnel positions currently in the hiring process will continue.
o Police: community policing coordinator, evidence technician, police officer
(3), master police officer (3) — Note: Police are authorized to continually
actively recruit and hire new police officers to fill these vacant positions. Due
to the time involved in this process and further retirements, it is assumed
that not all of these positions will be able to be filled in 2020.
o Public Works: engineer, facilities maintenance technician
o Street: maintenance & operations specialist
o TIS: information technology specialist
- All travel and non -essential training canceled for the remainder of the year. Total
savings is estimated to be $140 thousand.
- Furlough all extra labor and part-time staff. Net savings, after considering
unemployment costs, could be as much as $150 thousand but only if all extra labor
and part-time positions remain vacant for the remainder of 2020.
- Remove transfers of $1.2 million from the general fund to capital project funds. This
will impact capital projects in residential street, arterial street, and the general
government improvement funds. Further discussion on what capital projects would
be impacted will be held at a later Finance Committee meeting.
- No overtime unless authorized by the Mayor could result in a savings of up to $910
thousand. This affects all departments including Police and Fire.
All departments have been asked to identify additional expenditure reductions. To date,
departments have identified an additional $1.8 million in savings.
In addition to the steps highlighted above, the City also established a budget ideas email
address for employees to submit budget reduction suggestions. A cross -departmental
group is being put together to review all suggestions and provide Administration with
recommendations on which suggestions should be implemented. These suggestion will
be vetted with the unions, and unions are being asked to come with budget ideas, as
well.
Fire department overtime: During 2019, the Finance Committee spent considerable time
reviewing several aspects of fire department operations in order to understand why the
fire department is consistently over budget. Per the informational memo dated May 22,
2019 and most recently reviewed by the Finance Committee on October 28, 2019, one
option to keep the fire department within budget was to significantly decrease use of
overtime to fill staffing when additional firefighters call in sick leave. Station 52 had the
least amount of fire calls the last 5 years and would be the station affected with this
change. The temporary impact would be to staff an aid car instead of an engine at this
station, as warranted based on available staffing.
VA
INFORMATIONAL MEMO
Page 8
At the April 13, 2020 Finance Committee meeting, the following question was asked: Are
firefighters moved among stations when faced with minimum staffing so that it is always
Fire Station 52 that affected by placing the aid car in service in place of an engine? Per
Chief Wittwer, personnel shift between stations as needed. Fire Station 52 would be the
station where the aid car will be alaced in service.
Effective April 1, 2020, this option was implemented and is estimated to save $250
thousand in overtime over the course of the year. It should be noted that Fire Station 54's
response time to the neighborhood around Fire Station 52 is very quick and within our
adopted goals for response times for the Tukwila community. Fire Station 54 responds
to the Old Hill neighborhood often, particularly when Fire Station 52 personnel are at
trainings or covering a different area of the City for a variety of reasons.
Tire Calls by Station ay Year
with Average Response Times
26b
185
6W:12
180
1ilci
0.06,29
16D
� :
0:05:46
146
0"45 W
120
102
0=04:19
103
100
65
66
0:05:36
8062
G2 G3 I2
6038
d2440,02:10
570,02:53
A0I
9:01:26
2q
I I
9A0:00
S1 51 51 51 51 52 5�r 52 52 52
53 53 53 53
53 54 54 54 54
54
2014 2015 2016 2017 2018 2014 201S 2016 2017 201E
2014 2015 MIS 2M
2018 2014 2015 2015 2017
2018
�Fire Calls
-Resporise7ime
The current prediction is that the economic recovery from the pandemic would not be
complete until 3rd or 4t" quarter of 2021, a full 18 months to return to a pre -pandemic
economy. Unemployment levels, sustainability of businesses, and how the State and
County plan to ease social distancing restrictions are considered in the models.
Timeline through April 15, 2020
The timeline below highlights select significant events that have occurred in the State as
well as King County. The time period covered is 38 days and begins on February 29,
2020 with the first known COVID-19 related death in the State through April 6, 2020 when
schools across the State were ordered closed for the remainder of the academic year.
INFORMATIONAL MEMO
Page 9
Timeline of Select COVID-19 Related Events
February 29
March 2 March 11
March 13 March 16 March 17 March 23 April 2
April 6
First known
Companies begin Governor bans
Governor extends Closure of all Governor bans Governor issues Stay at home
Schools ordered
COVID-19 death
encouraging gatherings of 250
ban of gatherings restaurants, bars, gatherings of 'stay at home' order extended
closed for
in WA State
employees to work or more in King,
of 250 or more entertainment, and groups larger than order for 2 weeks through May 4
remainder of
from home Pierce, and
across State recreational 50 people
academic year
Governor issues
Snohomish
facilities
state of
Some schools counties
Schools closed for
emergency across state close 6 weeks Limits large group
for a few days gatherings
through March 31
" 38 days in the timeline "
Scenario 1 — Stay At Home Ends May 4:
- Stay at home order does not extend beyond May 4, 2020 and allows for gatherings
of up to 100 individuals through the summer months and all restrictions lifted by
September.
- Sales tax, along with admissions, and gambling taxes will be significantly impacted
through May but will begin to grow in June.
- Due to increases in unemployment benefits, consumer demand could fuel sales
growth back to 80% of pre -pandemic sales by the end of the year.
- We expect minimal defaults on property tax payments but there would be a cash
flow issue.
- Casinos could experience half the demand through summer and back to 80% by the
end of the year.
- Admission tax could remain low through summer and return to 80% of prior year by
the end of the year.
- During the closure order, utility tax revenue could be 20% below normal and
returning to normal levels in the fall.
- Programming revenue from the Tukwila Community Center will begin to provide
some programming during the summer and fully open by September.
Under Scenario 1, the City would need to identify ways to close an additional gap of $2.4
million.
Scenario 1- The "Stay at Home" order not extended past May 4th and
allows gatherings of up to 100 individuals through the summer months
and all restrictions lifted by September.
GENERAL FUND SUMMARY
PROJECTED
j BUDGET
2020 COVID
REDUCTIONS
COVID REDUCED
BUDGET
REVENUES
SALARIES AND BENEFITS
SUPPLIES AND PROF SERVICES
67,475,493
44,958,702
22,762,577
(8,602,709)
(3,081,520)
(3,136,432)
58,872,784
41,877,182
19,626,145
TOTAL EXPENSES
67,721,279
(6,217,952)
61,503,327
OVER/(UNDER) FUNDED
(245,786)
(2,384,758)
(2,630,544)
n
9
INFORMATIONAL MEMO
Page 10
SCENARIO 1 — GENERAL FUND REVENUES AND EXPENSES
�� to
C G
LU 1•J
R
6
1
lan F,1, Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- Sl-Revenues 51-Expenses •••••• Bud Revenues •••••• Bud Expenses
Below is a araoh for Scenario 1 that shows the 2020 budaet for revenue alona with the
revised revenue projections based on lost as well as delayed revenue. The yellow line
indicates the 2020 revenue budget, by month. The blue section in each bar indicates the
adjusted revenue budget after taking into consideration both lost and delayed revenue.
The orange section of each bar indicates lost revenue, while the gray and green sections
indicate delayed revenue; gray is revenue delayed but projected to be received later in
2020 while green is projected to be received in 2021.
10
INFORMATIONAL MEMO
Page 11
- $12
nd
f
$ i0
58
$6
SA
52
$0
52
$a
S1 REVENUES - BUDGET VS. COVID
� Revised Revenue � COVk0 Reductions =;m Delayed Revenues in 2020 � Delayed Revenues to 2021 - Budgeted Revenue
n
i
M"— ` M AU
$12
510
58
$6
Sa
52
50
DEC
52
$4
56 56
Scenario 2 - Stay at Home Extended into June:
- Stay at home order extends by an additional month, through June 4, 2020 and allows
for gatherings of up to 100 individuals through the summer months and all
restrictions lifted by September.
- Any extension on the stay at home order will most likely result in more businesses
going out of business.
- Sales tax, along with admissions, and gambling taxes will be significantly impacted
through June but will begin to grow in June.
- Due to increases in unemployment benefits, consumer demand could fuel sales
growth back to 70% of pre -pandemic sales by the end of the year.
- We would still expect minimal defaults on property tax payments but there would be
a cash flow issue.
- Casinos could experience half the demand through summer and into fall and back
to 60% by the end of the year.
- Admission tax will remain low through summer and return to 70% of prior year by
the end of the year.
- During the closure order, utility tax revenue could be 20% below normal and
returning to normal levels in the fall.
- Programming revenue from the Tukwila Community Center will begin to provide
some programming during the summer and fully open by October.
With Scenario 2, the City would need to close an additional gap of $4.3 million.
11
INFORMATIONAL MEMO
Page 12
Scenario 2 - The "Stay at Home" order is extended until May 31st and
allows for gatherings of up to 100 individuals through the summer
months and all restrictions lifted by September
2020 COVID COVID REDUCED
GE
BUDGET REDUCTIONS BUDGET
REVENUES
67,475,493 (10,473,648) 57,001,845
SALARIES AND BENEFITS
44,958,702 (3,081,520) 41,877,182
SUPPLIES AND PROF SERVICES
22,762,577 (3,136,432) 19,626,145
TOTAL EXPENSES
67,721,279 (6,217,952) 61,503,327
OVER/(UNDER) FUNDED
(245,786) (4,255,696) (4,501,482)
SCENARIO 2 - GENERAL FUND REVENUES AND EXPENSES
12
r
0 0
� r $
ft H
1
2 7
Jan Feb Mir Apr Mov Jun Jul Aug Sep Oct Nr, :• f'-r
- W-Revenues -SZ-Expenses ...... Bud Revenues ...... bud Expenws
12
INFORMATIONAL MEMO
Page 13
S2 REVENUES - BUDGET VS. COVED
� Revised Revenue MAD Reductions � Delayed Revenues in 2020 r_ Delayed Revenues to 2021 -Budgeted Revenue
S 1D
e
0
$8
S6
S4 _
S2
$D
JAN FEB
s2
54
Sn
$8
1111111111111111111t S6
Sd
Scenario 3 — Stay at Home Order Extended into July:
- Stay at home order extends by an additional month, through July 4, 2020 and allows
for gatherings of up to 50 individuals through the summer months and additional
restrictions lifted by Fall with full restrictions lifted by end of the year.
- The assumption is restrictions would last longer in order to stave off a second wave
of infection.
- Any extension on the stay at home order will most likely result in even more
businesses going out of business.
- Sales tax, along with admissions, and gambling taxes will be significantly impacted
through the end of August but will begin to grow in September.
- Due to increases in unemployment benefits, consumer demand might fuel sales
growth back to 60% of pre -pandemic sales by the end of the year.
- We would still expect minimal defaults on property tax payments but there would be
a cash flow issue.
- Due to the length of restrictions with this scenario, casinos would not open in 2020.
- Admission tax will remain low through summer and return to 60% of prior year by
the end of the year.
- During the closure order, utility tax revenue could be 20% below normal and
returning to normal levels in the fall.
- Programming revenue from the Tukwila Community Center will begin to provide
some programming during the summer but not return to normal in 2020.
13
INFORMATIONAL MEMO
Page 14
With Scenario 3, the City would need to close an additional gap of $7.1 million.
Scenario 3 - The "Stay at Home" order is extended until July 4th and
allows for gatherings of up to 50 individuals through the summer
months and additional restrictions lifted by Fall will full restrictions
2020 COVID COVID REDUCED
GENERAL FUND SUMMARY
BUDGET REDUCTIONS BUDGET
REVENUES
67,475,493 (13,305,252) 54,170,241
SALARIES AND BENEFITS
44,958,702 (3,081,520) 41,877,182
SUPPLIES AND PROF SERVICES
22,762,577 (3,136,432) 19,626,145
TOTAL EXPENSES
67,721,279 (6,217,952) 61,503,327
OVER/(UNDER) FUNDED
(245,786) (7,087,300) (7,333,086)
SCENARI❑ 3 - GENERAL FUN❑ REVENUES AND EXPENSES
12 12
c v
� f
10 1❑
S 8
6 6
4 A
7 7
Jan Feb Mar Apr May Jun Jul Aug Sep OU Nov Del
53-Revenues 53-Expenses •••••• Bud Revenues •••••• Bud Expenses
14
INFORMATIONAL MEMO
Page 15
$12
c
0
510
58
$6
Sa
52
SD
S2
,R
S3 REVENUES - BUDGET VS. COVI❑
Revised Revenue � CMD Redu Itlons � Delayed Revenues in 2020 � Delayed Revenues to 2021 —Budgeted Revenue
— S12
0
E
SID
$s
$6
$9
52
50
JAN FEB MAR
A summary of the 3 scenarios are as follows:
S2
5<
sr,
58
Initial assumption
$6.1 million in lost revenues in 2020
Scenario 1
Additional $2.4 million for a total of $8.5 million
Scenario 2
Additional $4.3 million for a total of $10.5 million
Scenario 3
Additional $7.1 million for a total of $13.3 million
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INFORMATIONAL MEMO
Page 16
Also included is a summary of the assumptions for each scenario:
Assumption
Scenario 1
Scenario 2
Scenario 3
Basis
Stay at home order does not extend beyond
Stay at home order extends by an additional
Stay at home order extends by an additional
May 4, 2020 and allows for gatherings of up
month, through June 4, 2020 and allows for
month, through July 4, 2020 and allows for
to 100 individuals through the summer
gatherings of up to 100 individuals through
gatherings of up to 50 individuals through the
months and all restrictions lifted by
the summer months and all restrictions lifted
summer months and additional restrictions
September.
by September.
lifted by Fall with full restrictions lifted by end
of the year.
Any extension on the stay at home order will
most likely result in more businesses going
The assumption is restrictions would last
out of business.
longer in order to stave off a second wave of
infection.
Any extension on the stay at home order will
most likely result in even more businesses
going out of business.
Sales and Other
Sales tax, along with admissions, and
Sales tax, along with admissions, and
Sales tax, along with admissions, and
Taxes
gambling taxes will be significantly impacted
gambling taxes will be significantly impacted
gambling taxes will be significantly impacted
through May but will begin to grow in June.
through June but will begin to grow in June.
through the end of August but will begin to
grow in September.
Unemployment
Due to increases in unemployment benefits,
Due to increases in unemployment benefits,
Due to increases in unemployment benefits,
consumer demand could fuel sales growth
consumer demand could fuel sales growth
consumer demand might fuel sales growth
back to 80% of pre -pandemic sales by the
back to 70% of pre -pandemic sales by the
back to 60% of pre -pandemic sales by the
end of the year
end of the year.
end of the year
Propety Taxes
We expect minimal defaults on property tax
We would still expect minimal defaults on
We would still expect minimal defaults on
payments but there would be a cash flow
property tax payments but there would be a
property tax payments but there would be a
issue.
cash flow issue.
cash flow issue
Casinos
Casinos could experience half the demand
Casinos could experience half the demand
Due to the length of restrictions with this
through summer and back to 80% by the end
through summer and into fall and back to
scenario, casinos would not open in 2020.
of the year.
60% by the end of the year.
Admission Tax
Admission tax could remain low through
Admission tax will remain low through
Admission tax will remain low through
summer and return to 80% of prior year by
summer and return to 70% of prior year by
summer and return to 60% of prior year by
the end of the year.
the end of the year.
the end of the year.
Utility Tax
During the closure order, utility tax revenue
During the closure order, utility tax revenue
During the closure order, utility tax revenue
could be 20% below normal and returning to
could be 20% below normal and returning to
could be 20% below normal and returning to
normal levels in the fall.
normal levels in the fall.
normal levels in the fall.
Culture and
Programming revenue from the Tukwila
Programming revenue from the Tukwila
Programming revenue from the Tukwila
Recreation
Community Center will begin to provide some
Community Center will begin to provide some
Community Center will begin to provide some
programming during the summer and fully
programming during the summer and fully
programming during the summer but not
open by September.
open by October.
return to normal in 2020.
Because it is currently expected that a COVID related recession will last through 2021,
there will be impacts to the next biennial budget. The City should expect a reduced base
of at least $4 million in revenue in 2021 which means that ongoing savings will be needed
to maintain the budget for the next biennium.
Cash Flow
Loss of revenue without an equal offset in expenditure reduction will result in an impact
to cash flows. The chart below demonstrates the impacts to cash flow for each of the 3
scenarios modeled as well as cash flow for the current budget; revenue received by the
City each month less payment of expenditures each month.
As indicated in the chart below, if the general fund began the year at zero (no cash in the
bank), the general fund would end the year at very close to zero. However, during the
year, the general fund would have a cash deficit of $3.4 million in April and a cash deficit
of $2.3 million in October. Approximately $3.4 million in reserves are currently used for
16
INFORMATIONAL MEMO
Page 17
cash flow purposes in April and October, shortly before the City receives property tax
revenue.
As each of the 3 scenarios indicate, without reducing expenditures above what has
already been identified, the need for cash on hand throughout the year increases.
Scenario 1 would require maintaining a minimum contingency fund reserve of $5.2 million
in order to cover expenditures, while Scenario 3, the worst case, would require a minimum
contingency fund reserve of at least $7.8 million at year-end to maintain a positive cash
balance. Minimum contingency fund reserves are summarized as follows:
Current budget
$3.4 million required to maintain positive cash flow
Scenario 1
$5.2 million required to maintain positive cash flow
Scenario 2
$7.1 million required to maintain positive cash flow
Scenario 3
$7.8 million required to maintain positive cash flow
CASH FLOW
G 51 Cashflo - 52 Cash AM
3
54
$2
so
Beg Bala )an Feb Mar
$2 ..........
• • •$3.4
_Sp
so
53 Cash Fines • • • • • Budget Cash Fbw
lun IW • '•A4 Sep
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Oct hW Oe[
Financial Reserve Policy
The City adopted a reserve policy that was most recently amended by Resolution 1919,
adopted by Council on November 20, 2017. The policy states that the general fund
unassigned fund balance shall equal or exceed 18% and the contingency fund reserve
balance shall equal or exceed 10% of previous year general fund revenue, exclusive of
significant non -operating, non -recurring revenues such as real estate sales or transfers
from other funds. The policy also requires a one-time revenue reserve that will be
maintained in the contingency fund. The one-time revenue reserve shall be credited
annually with 10% of the prior year one-time revenues to the extent general fund surplus
for the year is sufficient to cover the reserve funding. A copy of the resolution is included
as an attachment to this memo.
INFORMATIONAL MEMO
Page 18
The policy also states that any draw down of minimum balances shall occur only upon
recommendation of City Administration and approval by City Council through a resolution.
Should a draw down occur, the City Administration shall establish a plan, no later than
the end of the fiscal year following the decline, to restore the fund balance to the
prescribed minimum level. The plan shall be presented to and approved by the City
Council.
Per Government Finance Officers Association (GFOA), a national organization
representing public finance professionals throughout the United States and Canada and,
among other functions, provides best practice guidance on all aspects of government
finance functions. For minimum unassigned general fund balances, GFOA recommends,
"at a minimum, that general-purpose governments, regardless of size, maintain
unrestricted budgetary fund balance in their general fund of no less than two months of
regular general fund operating revenues or regular general fund operating expenditures."
Other considerations include:
- Vulnerability to natural disasters;
- Dependency on volatile revenue sources, in our case, sales tax;
- The predictability of its revenues and the volatility of its expenditures (i.e., higher
levels of unrestricted fund balance may be needed if significant revenue sources
are subject to unpredictable fluctuations or if operating expenditures are highly
volatile);
- Perceived exposure to significant one-time outlays (e.g., disasters, immediate
capital needs, state budget cuts);
- The potential drain upon general fund resources from other funds, as well as the
availability of resources in other funds;
- The potential impact on the entity's bond ratings and the corresponding increased
cost of borrowed funds
Additional best practices include the following:
- Define the time period within which and contingencies for which fund balances will
be used;
- Describe how the government's expenditure and/or revenue levels will be adjusted
to match any new economic realities that are behind the use of fund balance as a
financing bridge;
- Describe the time period over which the components of fund balance will be
replenished and the means by which they will be replenished;
- Governments should seek to replenish reserves within one to three years of use.
Parameters for using unassigned general fund balance and contingency fund reserves
should include the following:
- Are one time in nature. Once they are used, they are gone unless replenished via a
repayment plan.
- Some reserves must be maintained for cash flow purposes. The amount maintained
is determined by the lowest balance during the fiscal year. (As noted above in the
in
INFORMATIONAL MEMO
Page 19
cash flow section, with each worsening scenario, the amount of reserves required
to maintain a positive cash flow increase.
- Funds can be used for short-term downturns/losses but any use of the funds must
be repaid within a reasonable timeframe.
_Funds used for longer -term downturns should be a stop -gap only and a long-term,
sustainable solution must be identified and implemented.
- It should be noted that the draft general fund unassigned fund balance as of
December 31, 2019 meets best practice guidelines of maintaining a minimum two
months of general fund expenditures.
Current reserves are as follows (draft until 2019 is officially closed):
"General fund unassigned fund balance
$12,476,158
Contingency fund
$6,402,392
One-time revenue reserve
$699,586
Total reserves
$19,578,136
** Exceeds required unassigned fund balance by $951,851
Suggested schedule for the next several Finance Committee meetings
• April 13, 2020: review 2020 projections, review cash flow, review contingency fund
reserve policy and best practices
• April 27, 2020: review impacts to capital projects in residential and arterial street
funds, impacts of unemployment costs to the City
• May 11, 2020: Review decision tree and triggers for each scenario
• June 44 , 2020: review updated projections and sales tax data
RECOMMENDATION
Schedule an additional Finance Committee meeting, if needed, then forward to April
27,2020 Committee of the Whole for further discussion
ATTACHMENTS
Resolution #1919 — Reserve Fund Policy
19
20
Cl*ty of T
Washington
Resolution No. / Q I q
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
TUKWILA, WASHINGTON, REVISING THE PREVIOUSLY
ADOPTED FINANCIAL RESERVE POLICY TO ELIMINATE THE
EFFECTS OF GASB 68 FOR PURPOSES OF CALCULATING
THE UNRESTRICTED BALANCES OF THE ENTERPRISE
FUNDS; AND REPEALING RESOLUTION NO. 1861.
WHEREAS, for the well-being and sustainability of the community, its residents,
and businesses, it is important that the City of Tukwila be prepared to respond to any and
all situations that could result in a risk and/or crisis to the City's finances including, but not
limited to, revenue shortfalls and unanticipated expenditures; and
WHEREAS, it is the responsibility of the City Council of the City of Tukwila to provide
policy direction for the City's biennial budget through the passage of motions and
ordinances, adoption of resolutions, and final approval of said budget; and
WHEREAS, a financial reserve policy establishes, attains, and restores minimum
fund balances, including self -insured health care reserve funds, and specifies review and
reporting of such; and
WHEREAS, beginning in 2015 the City was required to implement Governmental
Accounting Standards Board Statement 68 (GASB 68) related to accounting and
reporting for pension plans; and
WHEREAS, it is the responsibility of the City to report the effects of GASB 68 in the
Comprehensive Annual Financial Report (CAFR), even though the effects are not a
current liability of the City; and
WHEREAS, the City desires to eliminate the effects of GASB 68 for purposes of
calculating the unrestricted balances of the Enterprise Funds;
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA,
WASHINGTON, HEREBY RESOLVES AS FOLLOWS:
Section 1. Minimum Fund Balances.
A. At the close of each fiscal year, the General Fund unassigned balance shall
equal or exceed 18% and the Contingency Fund reserve balance shall equal or
exceed 10% of the previous year General Fund revenue, exclusive of significant non-
WAWord Process ing\Reserve Policy revised 11-14-17
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operating, non -recurring revenues such as real estate sales or transfers in from other
funds.
B. At the close of each fiscal year, the unrestricted balances of the Enterprise
Funds shall equal or exceed 20% of the previous year revenue, exclusive of the
effects of GASB Statement 68, as well as significant non -operating, non -recurring
revenues such as real estate sales, transfers in from other funds or debt proceeds.
C. Use or draw down of minimum balances shall occur only upon
recommendation of City Administration and approval by City Council through a
resolution. Should use or draw down occur, the City Administration shall establish a
plan, no later than the end of the fiscal year following the year of decline, to restore
the fund balance to the prescribed minimum level. The plan shall be presented to
and approved by the City Council.
Section 2. One-time Revenue Reserve. A One-time Revenue Reserve shall be
established and maintained in the Contingency Fund. The One-time Revenue
Reserve shall be credited annually with 10% of the prior year one-time revenues to
the extent General Fund surplus for the year is sufficient to cover the reserve funding.
Use of the reserve shall occur only upon recommendation by City Administration and
approval by City Council through a resolution.
Section 3. Self -insured Health Care Fun
each of its self -insured health care funds in an
the actuarially determined IBNR (incurred b
reserve shall occur only upon recommendation
City Council through a resolution.
ds. The City shall maintain a reserve in
amount equal to 1.5 times, or 150%, of
ut not reported) balance. Use of the
by City Administration and approval by
Section 4. A report showing compliance with the Financial Reserve Policy shall
be provided to the City Council on an annual basis, no later than July 1 of each year.
Section 5. Repealer. Resolution No. 1861 is hereby repealed.
PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON,
at a Regular Meeting thereof this )'04 day of 2017.
AT�T"E�ST/AUTHENTICATEDo
Christy O' la erty, MMC, City Clefg
APPROVED AS TO FORM BY:
(2CKA&
Rachel B. Turpin, City Attorney
W:\Word Processing\Reserve Policy revised 11-14-17
SW:bjs
raw-W a
Dennis Roe o , Council President
Filed with the City Clerk: - c� l t7
Passed by the City Council: -
Resolution Number: c� 19
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