Long-Range Financial Plan

The City maintains a comprehensive and detailed long-term forecast for the City’s General Fund, referred to as the Long-Range Financial Plan (L-RFP). The L-RFP provides a 30-year forecast that is used for planning and budgeting purposes. 

 

Background

The L-RFP is an important tool and reflects the City's commitment to fiscal health and sustainability. This financial model is used to evaluate the immediate impact of budgetary decisions and the costs of decisions over multiple years. During the bankruptcy process, the L-RFP was reviewed by the judge and creditors as the foundation for the Plan of Adjustment. The Plan of Adjustment is the City's plan, filed with the court, for emerging from bankruptcy. The L-RFP withstood challenges by the City's creditors and was approved by the bankruptcy court.

 

Since its development, the L-RFP has become a dynamic tool that is updated based on current revenue and expenditure trends. Though the individual variables and assumptions may change over time, the L-RFP provides a consistent model to realistically forecast the City's fiscal performance. The L-RFP includes all aspects of the General Fund. It models and forecasts all General Fund revenues (property tax, sales tax, utility users tax, etc.) and expenditures in detail. 

 

The City updates the L-RFP as part of regular quarterly budget updates and presents it to the City Council and the public. These updates are part of developing the budget for the upcoming fiscal year. 

 

The chart below is the L-RFP included in the FY 2016-17 4th Quarter Update:

 

LRFP Chart Dec 2017

 

Reading the L-RFP Chart

  • Top Red Line - The top red line is the Working Capital reserve goal (equal to 2 months of operating expenses) outlined in the City’s General Fund Reserve Policy.
  • Blue Bars - The blue bars include available funds and the Working Capital reserve used to manage cash flow.
  • Green Bars - The green bars represent the remainder of funds not available for ongoing operating expenses which are part of the Known Contingency and Risk-Based reserves outlined in the City’s General Fund Reserve Policy. These funds are set aside for:
    • protection against economic uncertainties and downturns,
    • catastrophic events,
    • future costs such as infrastructure repair and maintenance, replacement of the City's antiquated financial system, and pensions.
  • Bottom Red Line - The bottom red line is a warning level that indicates operating reductions may be required to maintain services. The warning level is when reserves fall to 5% of operating expenses.

  

L-RFP Assumptions 

The following are key assumptions made when preparing the L-RFP:

 

Revenues

  • Property tax growth rates: 2% plus some new home construction
  • Sales tax growth rates: 3.5%
    • The near-term estimate is provided by the City’s sales tax consultant, an expert in forecasting sales tax in local economies throughout California.
    • The long-term growth assumption of 3.5%, consistent with the long-term trend.
  • Utility users tax growth rates: ranges from 0.5% to 2%
  • Investment earnings of 1.5%
  • Assumes continuation of the Measure A sales tax
  • Assumes the Measure M sales tax will expire in 2034-35
  • Assumes a revenue decline due to recession every seven years

 

 Expenditures

  • No part-time or new position growth
  • No service increases
  • No growth in capital improvement funding
  • Staff vacancy rate of 5%, due to turnover, following completion of hiring for new Marshall Plan positions.
  • Employee compensation increases (includes health contribution) based on current employee agreements and 2% thereafter
  • CalPERS discount rate of 7.375% in 2018-19, 7.25% in 2019-20, and 7% thereafter
  • Other expenditure growth at 2%
  • Resources available above reserve levels are spent on one-time needs

 

 

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This City of Stockton web page last reviewed on --- 1/30/2018