Title
Discussion Regarding Assumptions for the Long Range Financial Projection
Body
The purpose of this item is to discuss and re-examine the assumptions in the current Long Range Financial Projection (LRFP).
During the Fiscal Year (FY) 2024 budget hearings, Council considered and unanimously approved the budget and the LRFP. In addition, Council also directed staff to "...return with a proposed ordinance for Council consideration to increase the County's Gross Receipts Tax (GRT) rate by 0.5%, with 2 options, effective either Jan 1, 2024, or July 1, 2024." However, during the hearings to enact one of the GRT options, neither option was enacted. Having no new GRT option enacted contradicts the previous assumptions in the LRFP. In order for staff to operate effectively over the next year in accordance with our financial plan, this discussion is to examine this contradiction and all assumptions in the LRFP, with the goal of eventually having Council approved amended assumptions at a future meeting.
The FY 2024 Adopted LRFP assumptions are included as Attachment A. Since there are a large number of potential variables, staff is suggesting that for purposes of this discussion, the focus be on 3 areas:
1. Assumptions regarding future GRT revenue;
2. assumptions regarding new GRT increment; and
3. assumptions regarding expenditures.
For each of these areas, the current assumptions will be discussed, potential alternative assumptions will be outlined, and possible alternative financial outlooks associated with each potential alternative assumption will be demonstrated.
1. Future GRT Revenue
a. Current Assumptions - FY2024, +5%; FY2025, +5%; FY2026, +3%; FY2027, -10%; FY2028, -5%; FY2029, 0%; and then + 3% per year thereafter. The 15% decrease currently projected in FYs 2027 and 2028 was one of the factors driving a proposed new GRT.
b. Potential Alternative Assumptions
i. Replace the -10% and -5% in FYs 2027 and.2028 with 0% (Attachment D)
ii. Other potential alternatives assumptions could be considered, such as different timing and different magnitude of changes.
2. New GRT Increment
a. FY 2024 Adopted Assumption - new 0.5% increment effective Jan 1, 2024. (Attachment B)
b. Potential Alternative Assumptions
i. No new GRT - current status (Attachment C)
ii. New 0.5% GRT increment effective July 1, 2024
iii. New 0.5% GRT increment effective July 1, 2025 (Attachment E)
iv. New 0.25% increment effective July 1, 2025 (Attachment F)
v. Other potential alternative assumptions could be considered.
3. Expenditures
a. Current Assumptions - 3% projected inflation FY 2025 and all future years
b. Potential Alternative Assumptions - these potential alternative assumptions will, in part, be driven by the potential alternative revenue assumptions in items 1 and 2 above.
i. Assume 0% growth for a number of specific years (Attachment G)
ii. Assume -2% (or another %) decrease for a number of specific years
iii. Defer or eliminate specific capital projects and / or alternatively increase capital related debt to replace some or all eliminated revenue.
Staff suggestion:
Given the prior Council discussion and actions to date, it appears that Council is comfortable enough with the assumptions regarding Lower GRT to approve the overall budget, but not yet comfortable enough to enact New GRT. So this could, in general, be characterized as an issue of timing. Therefore staff would suggest that the assumption "New 0.5% GRT increment effective January or July 1, 2025" might be an appropriate adjusted assumption. This would allow approximately 12-15 months to gain further insight to the Lower GRT assumption. If this is the selected assumption, this would represent a short-term or one-time loss of revenue, relative to the FY 2024 Adopted Budget assumptions. To offset the lower revenue, staff would recommend that a combination of adjusting unassigned fund balance downward (greater use of fund balance reserves), and considering either capital project deferral or elimination and / or higher capital debt be considered.
Attachments
A - FY 2024 Adopted LRFP Assumptions
B - FY 2024 Adopted 10-yr General Fund projection and alternatives summary
C - 10-yr General Fund projection - no new GRT
D - 10-yr General Fund projection - assume GRT decreases are 0%
E - 10-yr General Fund projection - new 0.5% GRT increase effective July 1, 2025
F - 10-yr General Fund projection - new 0.25% GRT increase effective July 1, 2025
G - 10-yr General Fund projection - 0% expenditure growth FYs 2025 - 2027 and no new GRT