TO: The Honorable Mayor Levar M. Stoney

The Honorable Michael Jones Chair of the Finance and Economic Development Committee The Honorable Members of City Council

Lincoln Saunders, Chief of Staff, Office of the Mayor THROUGH: Lenora Reid Acting Chief Administrative Officer Deputy Chief Administrative Officer, Finance & Administration FROM: Jay A. Brown, Ph.D. Budget & Strategic Planning Director DATE: May 11, 2020 RE: Fiscal Year 2020 Third Quarter Revenue & Expenditure Projection Report

The Fiscal Year 2020 Third Quarter Revenue and Expenditure Projection Report is provided to the Finance and Economic Development Committee to describe the City’s Fiscal Year 2020 year-to-date financial performance. The report includes revenues and expenditures up-to-date through March 31, 2020 – utilizing nine months of data. A brief overview of the projected FY2020 general fund revenues and expenditures is provided below. Details, as well as a write up of major variances, are provided further within the report. General Fund Revenues

General Fund Revenues are currently forecasted to be below budget with a preliminary projected shortfall of $18,024,211. This projected revenue shortfall is a distinct difference from the revenue surplus that was projected at the second quarter.

There are several sources of revenue that are projected to come in under budget to include: Prepared Food/Meals Taxes, Lodging, Admissions, and Sales Taxes. The shortfall projected in these specific sources of revenue are directly attributed to COVID-19 and its impact on city revenues. Additional shortfalls are projected in: Personal Property Taxes –Delinquent, Real Property Taxes – Delinquent, Penalty and Interest – Penalty, Motor Vehicle Licenses, Charges for Sanitation and Waste Removal, and Social Services Categorical Aid. There are a few sources

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of revenue that are projected to come in higher than budget, to include: Real Property Taxes – Current, Consumer Utility Taxes, Permits and Other Licenses, Miscellaneous revenues, and Welfare and Social Services Categorical Aid, but these sources are not projected, in total, to exceed the sources that are currently projected to be unfavorable to budget.

Although this forecast utilizes 9 months of data, the third quarter projections reflect the implications of the COVID-19 pandemic to the local economy. Staff will continue to monitor revenue collections and projections throughout the end of the fiscal year and will recommend budget amendments as appropriate.

General Fund Expenditures General Fund Expenditures are trending in a positive direction, with a total preliminary, projected savings of $11,782,826. This preliminary, projected savings represents 1.56% of the total modified general fund budget. The projected general fund savings is primarily the result of the Mayor’s proactive implementation of expenditure reduction measures – specifically a freeze on hiring all non-essential positions and a moratorium on discretionary spending – in response to COVID-19 and its impact on general fund revenues. These measures, in tandem with departments regularly engaging in operational efficiencies results in a projected savings in the general fund which gives the City the ability to make additional investments in critical programs and services in response to COVID-19 and in the areas of homelessness and affordable housing. These critical investments – all of which have been publicly disclosed – include increased funding for HOME, Homeward, EnRichmond Foundation, and the Affordable Housing Trust Fund – are all in the Non-Departmental budget. Despite these increased investments, the City is still projected to have, in total, expenditure savings relative to the modified budget. A summary of the Third Quarter 2020 report is provided below. Details of the report as well as a write up of variances are provided on the next several pages.

Summary of FY2020 Projected Balances as of 3/31/2020

Projected Total FY2020 General Fund Revenue $739,161,138

Projected Total FY2020 General Fund Expenditures $745,402,522

Total: FY2020 Projected Budgetary Surplus/(Shortfall) ($6,241,384) *Note very minor discrepancies may exist due to rounding

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City of Richmond Finance & Administration Portfolio

FY2020 Third Quarter Report

Sources

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Sources

All Projections are based on data collected at a point in time. All Projections could change as more data becomes available at year end closing. *Note very minor discrepancies may exist due to rounding

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Uses

All Projections are based on data collected at a point in time. All Projections could change as more data becomes available at year end closing. *Note very minor discrepancies may exist due to rounding

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FY2020 Third Quarter Revenue Projections Below are explanations of variances within major accounts in the revenue projections. Explanations are offered for variances that are +/- 5% or +/- $500,000. The current forecast projects revenues to be less than the FY2020 budget by $18,024,211 or -2.38%. The explanations are in order as they appear in the prior table. Machinery & Tools Taxes Projected Revenue Surplus: $403K Machinery & Tools Taxes were projected in the third quarter to exceed amended budget amounts by 3%. This is reflective of the strong economy and an increase in production prior to COVID-19. Penalties and Interest - Penalties Projected Revenue Shortfall: ($944K) Penalties and Interest – Penalties were projected to fall short of amended budget amounts by 23%. This shortfall corresponds with surpluses in a number of revenue sources exceeding current collection expectations, including Machinery & Tools Taxes, Personal Property Taxes, Real and Personal Public Service Corporation Taxes - Real and Personal Property, etc. A surplus in numerous current categories will naturally yield a decrease in collections of penalties. Personal Property Taxes - Current Projected Revenue Surplus: $1.6M Personal Property Taxes – Current were projected to surpass the amended budget amount in the third quarter by 5%. This revenue surplus is reflective of the healthy economy prior to COVID-19 and the efforts of the Revenue Administration Division’s increased efforts towards supplemental billings. Personal Property Taxes - Delinquent Projected Revenue Shortfall: ($1.6M) Personal Property Taxes – Delinquent were projected to fall short of the amended budget amount in the third quarter by 18%. This revenue category’s shortfall is tied directly to an increase in current collections (directly above) – Personal Property Taxes. Delinquent and Current combined show a positive variance of $57K versus collective budgeted amounts. Real and Personal Public Service Corporation Property Taxes - Personal Property Delinquent Projected Revenue Shortfall: ($243K) Real and Personal Public Service Corporation Property Taxes - Personal Property Delinquent were projected to fall short of the amended budget amount in the third quarter by 26%. This shortfall partially stems from an increase in current collections in the same revenue category. Combined, Real and Personal Public Service Corporation Property Taxes – Personal Property Current and Delinquent exceed the budgeted amount by $71K. Real Property Taxes - Current Projected Revenue Surplus: $3.4M Real Property Taxes – Current were projected in the third quarter to exceed amended budget amounts by 1%. This increased current collection is reflective of a healthy economy prior to COVID-19 and the increased efforts of the Revenue Administration Division.

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Real Property Taxes - Delinquent Projected Revenue Shortfall: ($1.1M) Real Property Taxes – Delinquent were projected in the third quarter to fall short of amended budget expectations by 8%. This shortfall correlates with a surplus in Real Property Taxes – Current, combined, these revenue categories exceeded expectations by $2.3M. Admissions Taxes Projected Revenue Shortfall: ($338K) Admissions Taxes are heavily impacted by COVID-19. A projected shortfall of 13% versus the amended budget amount is attestable to the reduction and in most cases complete shuttering of movie theaters, concert venues, athletic events, and more during the latter part of the fiscal year. Cigarette Tax Projected Revenue Surplus: $456K Cigarette Tax exceeded the amended budget amount by 15% according to third quarter revenue projections. Cigarette taxes have regularly performed well above the budgeted amount, primarily due to the first-time application of tax stamps on pre-existing citywide inventory. Due to convenience stores and other cigarette vendors remaining open during the COVID-19 epidemic, this trend is expected to continue. Consumer Utility Tax Projected Revenue Surplus: $1.1M An adjustment was made to correct funding that was allocated to a Special Fund. In correcting this entry, $1,084,101 was added to the Consumer Utility Tax – Electric accounting string, therefore increasing the projections for this account by $1.0M. Local Sales and Use Tax Projected Revenue Shortfall: ($1.7M) Local Sales and Use Tax was projected in the third quarter to fall short of the amended budget value by 5%. This revenue source is moderately impacted by the COVID-19 epidemic; while essential purchases will continue through the epidemic, non-essential purchases and their associated Local Sales and Use Tax are diminished considerably. Motor Vehicle Licenses Projected Revenue Shortfall: ($735K) Motor Vehicle Licenses were projected in the third quarter to fall short 10% of the amended budget amount. Motor Vehicle Licenses’ shortfall represents a shift towards public transit and correlates with GRTC’s increasing ridership levels prior to COVID-19. Other Local Taxes Projected Revenue Surplus: $156K This source of revenue is projected to have a surplus that is primarily associated with an increase in telephone commission revenue in the Sheriff’s Office. The projected increase is the result of a fee increase, imposed by the Sheriff, for inmate telephone usage. Prepared Food Taxes Projected Revenue Shortfall: ($10.8M) Prepared Food Taxes are heavily impacted by COVID-19 and fell short of amended budget values by 29%. Restrictions at the state level have shuttered the interiors of restaurants, bars, and other prepared food vendors in the city. A large number of these vendors have shifted to novel strategies to continue selling prepared food and collecting the associated taxes – however, these strategies cannot obtain previous levels of collection. Eight Richmond restaurants have closed during the last two months.

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Prepared Food Taxes – School Facilities Projected Revenue Shortfall: ($2.8M) Prepared Food Taxes – School Facilities revenues are directly correlated to the Prepared Food Taxes statement above. Short Term Rental Tax Projected Revenue Shortfall: ($36K) Short Term Rental Tax, while not a major source of revenue for the city, has been impacted by the COVID-19 epidemic. Third quarter revenue projections anticipate a shortfall of 30% versus the amended budget amount. Transient Lodging Tax Projected Revenue Shortfall: ($2.9M) Transient Lodging Tax is extremely impacted by the ongoing COVID-19 epidemic. Travel, and ensuing lodging for both business and tourism are currently at all time historical lows. This lack of travel and ensuing lack of Transient Lodging Tax being generated yields a 32% shortfall in this revenue category versus the amended budget amount. Permits and Other Licenses Projected Revenue Surplus: $1.2M This revenue source is expecting a surplus due to new development and construction projects throughout the City, which are increasing demolition and various permit charges. Revenue from Use of Property Projected Revenue Surplus: $16K This revenue source is projected to have a small surplus as a result of an increase in collections of general property rental payments. Charges for Fire and Rescue Services Projected Revenue Shortfall: ($68K) This revenue source is experiencing a shortfall primarily because DEC did not bring the False Alarm program in-house within the first three quarters of FY20 as predicted. Therefore the efficiencies and expected savings from the exorbitant costs being paid to a third-party to manage this program were not realized. Additionally, there is a projected $18,200 reduction in revenue generated by Richmond Fire and Emergency Services due to a decline in customer requests for site inspections, a decline in customer requests for fire reports, as well as personnel shortages within the Prevention division. Charges for Information Technology Projected Revenue Shortfall: ($12K) This revenue source represents Library Copy Center Sales which will experience a shortfall because of the closure of Libraries associated with COVID-19. Charges for Law Enforcement and Traffic Control Projected Revenue Shortfall: ($24K) This revenue source is projected to be lower than budget due to the Police department seeing a decrease in requests for record checks, including background checks. Charges for Library Projected Revenue Shortfall: ($32K) This revenue source is experiencing a shortfall because of the elimination of overdue book fines during this fiscal year as well as the non-pursuit of lost and damaged book fines due to Library closures associated with COVID-19.

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Charges for Other Protection Projected Revenue Shortfall: ($20K) Animal Care & Control expects a reduction in animal shelter charges due to adoption fees being waived in an effort to encourage adoptions and reduce the amount of staff needed during the COVID-19 health crisis. Also less animals have been taken in due to the current health crisis, beginning March 2020. Charges for Parks and Recreation Projected Revenue Shortfall: ($31K) This revenue source is projected to have a shortfall due to COVID-19 related closures. All reservations for facility rentals, field rentals, and athletic league participation from March 12-May 15 were canceled and refunded. This date is expected to be extended beyond May 15th, and as such this revenue source is expected to continue its decline. Charges for Planning and Community Development Projected Revenue Shortfall: ($19K) This revenue source is projecting a shortfall due to a decline in rehab applications received by the Assessor’s office, which is expected to continue. Additionally, this revenue source is subject to the City's re-opening date. Charges for Sanitation and Waste Removal Projected Revenue Shortfall: ($1.7M) This revenue source is projected to be less than the budget but more in line with prior year collections. Other Projected Revenue Surplus: $4K This revenue source has a small surplus as a result of an increase in returned checks.

Miscellaneous Projected Revenue Surplus: $1.4M This revenue source is projected to have a surplus that is primarily attributed to the GRCCA’s reimbursement revenue that was generated in the City in FY2019 above the 50% cost share as well as additional funds received from EDA for the Redskins Training Camp. Miscellaneous Non-Categorical Aid Projected Revenue Surplus: $66K This revenue source is difficult at best to forecast due to its erratic nature. However, FY20 is reflecting a surplus as a result of an increase in debt set-off revenues received from the State. State Shared Expenses – Commonwealth Attorney Projected Revenue Shortfall: ($225K) This revenue source is projected to be lower than budget due to the final Compensation Board approved reimbursement for this office. Additionally, anticipated savings in personnel in the Commonwealth Attorney’s Office also results in a reduction in State reimbursement for allowable expenditures. State Shared Expenses – Registrar Projected Revenue Surplus: $100K This revenue source is projected to be higher than budget due to the anticipation that the State will reimburse localities in FY20 for costs associated with conducting the March Presidential Primary election. The Office of the General Registrar has submitted its costs to the State as requested and anticipates a reimbursement in the amount of $100,000.

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Welfare and Social Services Projected Revenue Surplus: $1M The projected surplus in this revenue source, within the DSS-Admin Benefits category, is due to an adjustment in calculating administrative revenue received from the state government. This surplus is partially offset by a projected shortfall in Social Services revenue (see below), 43357 Federal Pass-Thru Aide category, received from the federal government. Social Services Projected Revenue Shortfall: ($3.1M) Per the Department of Social Services, The Virginia Department of Social Services budget allocation to the City of Richmond Social Services for FY20 has decreased from $50,113,273 in 2019 to $47,404,142, due to a trend in decreased expenditures by DSS in the past 5 years. RDSS projects to expend funds to maximize the VDSS reimbursable allocation of 84.5% of the $47,404,142 budget allocation. Utilities Projected Revenue Surplus: $7K This revenue source is projecting a surplus due to an increase in Police off duty charges.

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FY2020 Third Quarter – Expenditure Projections Overall, the third quarter forecast shows projected expenditures trending in a positive direction, with a projected, estimated savings of $11,782,826 or just 1.56% of the modified budget. It is important to note that these projections are based on data collected for FY20 as of March 31, 2020. As a result, these projections could change as more data becomes available throughout the fiscal year. Below are explanations of major variances in the third quarter expenditure projections. The explanations are in order as they appear in the third quarter status report. Variances of +/- 5% or +/- $500,000 are detailed below. Auditor Projected Budget Surplus: $137K The City Auditor is projected to have a surplus of $56K in personnel that is attributed to current departmental vacancies. Operating savings of $81K is projected and is attributed to a slow-down in discretionary spending due to COVID-19, the Cybersecurity Assessment being less than anticipated, as well as delaying further contract audit work for FY20. Citizen Service and Response Projected Budget Surplus: $644K The Department of Citizen Service and Response is projected to have a surplus in personnel of $214k that is attributed to the existence of departmental vacancies. Operating savings of $430k is projected and is the result of anticipated savings in the cost for the implementation of the RVA311 software contract. Additional operating savings are the result of a slow-down in discretionary spending due to COVID-19. City Council Chief of Staff Projected Budget Surplus: $98K The Office of the City Council Chief of Staff is projected to have a surplus of $86k in personnel that is the result of departmental vacancies. Operating savings of $12k is attributed to a slow-down in discretionary spending due to COVID-19. Economic Development Projected Budget Surplus: $283K The Department of Economic Development is projected to have a surplus of $297k in personnel that is attributed to the existence of departmental vacancies. A total departmental operating shortfall of 14k is projected and is attributed to the need for the Department to transfer funds to eliminate a projected deficit in the Rapids Transit Pulse special fund. Originally, savings were projected in operating but were offset by the planned contribution to this special fund. Finance Projected Budget Surplus: $973K The Finance Department is projected to have a surplus of $718k in personnel that is attributed to departmental vacancies as well as the directive to freeze all non-essential hiring. An operating surplus of $255k is projected and is the result of costs in Financial & Investment, Information & Research Services, and Food & Drink Services incurred for the Navy Hill project, offset by reduced spending in Contract and Temporary Personnel and Employee Training, and is also attributed to a slow-down in discretionary spending due to COVID-19.

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General Registrar Projected Budget Shortfall: ($112K) The Office of the General Registrar is projected to have an overall shortfall of $112k in FY20, due to increased overtime/temp services associated with the March and June primaries (personnel), as well as anticipated expenses related to the June primary, such as equipment, postage, contract temps, printing, telecommunications, and COVID-19 supply needs for precincts. Note that while this agency is projected to have a deficit, the General Assembly is exploring the possibility of delaying the June primary until July, which would result in primary costs shifting to FY21, potentially causing surplus funding in FY20 and a deficit in FY21. Also note that the State intends to reimburse localities for costs associated with conducting the March primary. The agency expects to receive around $100k, and this has been factored into revenue projections. Housing and Community Development Projected Budget Surplus: $359K The Department of Housing and Community Development is projected to have a surplus of $122k in personnel that is attributed to the existence of departmental vacancies. Operating savings of $237k is projected and is attributed to a slow-down in discretionary spending due to COVID-19, as well as savings attributed to lower supply costs and printing costs as a result of several vacancies. Planning and Development Review Projected Budget Surplus: $854K The Department of Planning and Development Review is projected to have a surplus of $785k in personnel that is attributed to the existence of numerous departmental vacancies. Operating savings of $69k is projected and is attributed to a slow-down in discretionary spending due to COVID-19. Press Secretary Projected Budget Shortfall: ($213K) The Office of the Press Secretary is projected to have a very minor surplus in personnel of $3k. However, the department is projected to have a shortfall of nearly $215k in operating that is attributed to a recent, preliminary auditor report that indicated that 31% of the costs associated with the production studio/office renovation were unallowable and should be moved to the General Fund as they were not deemed appropriate special fund expenditures. The projection includes the full estimated cost of this recommendation which is $159k in addition to the inclusion of an additional $70k to cover expected expenditures that occurred after December 31, 2019. Other, minor operating savings are projected but will not offset the costs associated with the studio/office renovation. Procurement Projected Budget Surplus: $104K The Department of Procurement Services is projected to have a surplus of $75k in personnel that is attributed to the existence of departmental vacancies. Operating savings of $28k is projected and is attributed to a slow-down in discretionary spending due to COVID-19. Public Works Projected Budget Shortfall: ($1.6M) The Department of Public Works is projected to have a surplus of $842k in personnel that is primarily attributed to departmental vacancies. An operating shortfall of $2.4M is projected and is the result of several items:

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The new rates for the Franchise Agreement between Waste Management has increased by approximately 50% and DPW has experienced increased collection in tonnage by approximately 20%. With COVID-19, DPW anticipates even more increases in tonnage. The estimated cost increase, resulting from the Solid Waste Franchise Agreement, along with the projected increase in collected tonnage, is projected at an additional, estimated $700,000.

Additional expenses related to Solid Waste, both in construction as well as the Temporary & Contractual employee areas, are projected to exceed budgeted amounts. Capital funding was not sufficient to complete the necessary repairs for the transfer station and as a result, operating funds were used. Without the needed repairs, DPW would not have been allowed to dump (offload solid waste) thus violating the existing contract. Therefore, DPW would have had to travel into another locality to dispose of the City’s household waste. The projected increase for the construction is estimated to be $420,000. The projected increase for Temporary & Contractual employees is estimated at $1,130,000.

Unforeseen and additional expenses for Facilities Management related to the COVID-19 pandemic. As a result of COVID-19, enhanced cleaning is necessary resulting in increased costs within DPW’s janitorial contracted services, cleaning products, PPE, and environmental supplies recommended by OSHA, CDC, etc. The cost of products have increased by more than 100%. In cases where an employee has received a positive test result, an environmental contractor is procured and facilities pays this expense. It is anticipated that some of these costs will be reimbursed, but the projected increase is estimated at $150,000.

DPW has realized cost savings in Utilities, Uniforms, Software, and other discretionary lines; however these cost savings are not projected to cover the overages related to the mandated services DPW provides.

Justice Services Projected Budget Surplus: $407K The Department of Justice Services is projected to have a surplus of $216k in personnel that is attributed to the existence of departmental vacancies as well as the freeze on hiring all non-essential positions. Operating savings of $191k is projected and is attributed to a slow-down in discretionary spending, as well as the department not projected to utilize grant matching funds. Social Services Projected Budget Surplus: $4.7M The Department of Social Services is projected to have personnel savings of $1.7M, which is attributed to the existence of numerous vacancies in the department as well as the time period in which to fill positions. Operating savings of $3M, nearly doubled from the second quarter projections, are projected and are attributed to Social Services’ philosophy of emphasizing long term family preservation and stabilization environments for at-risk children. This philosophy is projected to result in a decrease in the number of children requiring long term out of home services, especially for foster care. Additionally, the local match to the Children’s Services Act special fund, is projected to be less than budget, again due to a trending decrease in projected expenditures. The projected reduction in Social Services departmental expenditures is resulting in a projected corresponding decrease in reimbursement from the State.

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Non-Departmental Projected Budget Surplus: $4M The Non-Departmental budget is projected to have a surplus of $4M that is attributed to a variety of factors:

A voluntary retirement incentive program (VRIP) was authorized by City Council as part of City Council’s amendments to the Mayor’s Proposed FY20 budget. The VRIP projected savings of $3 million was budgeted within the Non-Departmental budget. Based on initial estimates and using March 1st as the assumed date in which all VRIP positions will be rehired, it is projected that a savings of only $1.65M will be achieved. This results in an estimated shortfall, against the original projected, budgeted savings of $3M, of an estimated $1.35M. This lower than anticipated budgeted savings is currently projected within the Non-Departmental budget;

There is a projected decrease in expenditures associated with GRCCA and the 1.5% increase in meals tax (which is tied to the construction of 3 new schools) – due to a projected decrease in both lodging and meals tax revenue, respectively;

There is a projected increase in expenditures associated with the general fund contribution to Risk Management, which is due to the City purchasing “malicious act” coverage due to the tragic shooting at the Virginia Beach municipal complex;

There is a projected savings within the Tax Relief for the Elderly account, which is projected to be less than the budget by an estimated $638k;

There is a projected savings of $800k in the Retiree Healthcare account due to the current number of eligible retirees;

The Mayor has acknowledged additional, planned appropriations to the following entities to address the city’s most at risk population during the COVID-19 pandemic (of which these costs are included in the projection):

o HOME - $250,000 o Homeward - $300,000 o EnRichmond - $500,000 o Affordable Housing Trust Fund - $1,000,000

A number of Non-Departmental entities will not be receiving a 4th quarter payment from the city due to these organizations not being able to fulfill the services specified within their contractual grant agreement because of the effects of COVID-19.

Emergency Communications Projected Budget Surplus: $469K The Department of Emergency Communications is projected to have a surplus of $206k in personnel, which is attributed to departmental vacancies. Operating savings of $262k are projected and is attributed to a slow-down in discretionary spending due to COVID-19, that consist of reductions of (1) semi-annual cleaning of the operations floor/admin offices, (2) ground services, (3) employee appreciation events for National Telecom Week and monthly morale builders, and (4) travel cancellations. Jail/Sheriff Projected Budget Shortfall: ($518K) The City Sheriff is projected to have a shortfall of $518k, significantly less than the projected shortfall at the second quarter, all in personnel, attributed to the department’s projected increase in overtime related expenses. The following factors are attributing to the increases in overtime costs.

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Vacancies still remain high as there are currently 67 sworn vacancies. There are certain posts which are mandated by DOC that has to be manned at all times for a Direct Supervision Facility. To ensure that all mandated posts are covered, overtime is required to ensure proper coverage for safety purposes.

There are at least 2 training academies per year at 16 weeks per training academy in addition to all mandated training for current sworn staff. Overtime costs tend to increase during this time.

Although there are projected salary/full time savings, the projected surplus in this area is not anticipated to exceed the projected shortfall in overtime. Operating savings of $733k is projected and is attributed to the suspension of any non-emergency spending except for janitorial or COVID-19 related expenses. This includes but is not limited to inmate meal expenses, pharmaceutical expenses, vehicle expenses, and utility expenses. Judiciary - Other Projected Budget Surplus: $123K The Judiciary - Other is projected to have a $123k surplus primarily due to savings in the Civil Court of $29K and Traffic Court of $22k associated with building maintenance delays related to COVID-19, $37k and $5k savings in the Traffic and Criminal/Manchester Court from lower public defender expenses in light of continued and postponed cases due to COVID-19, and $21k savings within the Special Magistrate associated with less planned supplemental payouts to retain employees and lower than anticipated costs associated with the setting up of mobile offices to process caseloads during emergency events. Minor operating savings of $9k is projected and is attributed to a slow-down in discretionary spending due to COVID-19.