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HomeMy WebLinkAbout06-30-2020 REOC Agenda PacketCity of San Luis Obispo, Agenda, Planning Commission Agenda REVENUE ENHANCEMENT OVERSIGHT COMMISSION Tuesday June 30, 2020 Based on the threat of COVID-19 as reflected in the Proclamations of Emergency issued by both the Governor of the State of California, the San Luis Obispo County Emergency Services Director and the City Council of the City of San Luis Obispo as well as the Governor’s Executive Order N-29-20 issued on March 17, 2020, relating to the convening of public meetings in response to the COVID-19 pandemic, the City of San Luis Obispo will be holding all public meetings via teleconference. There will be no physical location for the Public to view the meeting. Below are instructions on how to view the meeting remotely and how to leave public comment. Additionally, members of the Revenue Enhancement Oversight Commissioners are allowed to attend the meeting via teleconference and to participate in the meeting to the same extent as if they were present. Using the most rapid means of communication available at this time, members of the public are encouraged to participate in Commission meetings in the following ways: 1. Remote Viewing - Members of the public who wish to watch the meeting can view:  View the Webinar (recommended for the best viewing quality):  Registration URL: https://attendee.gotowebinar.com/register/8832817118393495822  Webinar ID 662-450-155  Telephone Attendee: (415) 655-0060; Audio Access Code: 451-688-327 2. Public Comment - The City Council will still be accepting public comment. Public comment can be submitted in the following ways:  Mail or Email Public Comment  Received by 3:00 PM on the day of meeting - Can be submitted via email to advisorybodies@slocity.org or U.S. Mail to City Clerk at 990 Palm St. San Luis Obispo, CA 93401. All emails will be sent to Commissioners and saved as agenda correspondence however we cannot guarantee emails received after 3:00 PM on the day of the meeting we be sent out to Commission or uploaded to the website prior to the meeting starting.  Verbal Public Comment  In Advance of the Meeting - Call (805) 781-7164; state and spell your name, the agenda item number you are calling about and leave your comment. The verbal comments must be limited to 3 minutes. All voicemails will be forwarded to the Council Members and saved as Agenda Correspondence. Voicemails will not be played during the meeting.  During the meeting – Joining the webinar (instructions above). Once the meeting has started please put your name and the item # you would like to speak on in the questions box. During public comment for the item your name will be called, and your mic will be unmuted. Contact the office of the City Clerk at cityclerk@slocity.org for more information. All Comments/Correspondence received will be saved as part of the record for the meeting. Revenue Enhancement Oversight Commission Agenda for June 30, 2020 Page 2 Tuesday June 30, 2020 5:30 p.m. REGULAR MEETING Teleconference CALL TO ORDER Chair Chris Coates ROLL CALL: Commissioners Jeannette McClure, Vice-Chair Ken Kienow, Michael Multari, and Jim Hamari PUBLIC COMMENT: At this time, people may address the Commission about items not on the agenda. Persons wishing to speak should come forward and state their name and address. Comments are limited to three minutes per person. Items raised at this time are generally referred to staff and, if action by the Commission is necessary, may be scheduled for a future meeting. CONSIDERATION OF MINUTES 1. Draft Minutes of the Revenue Enhancement Oversight Commission of May 14, 2020 BUSINESS ITEMS 2. Consideration of a Potential General Sales Tax Renewal Measure. Recommendation: Receive a report on the results of public engagement and outreach efforts regarding SLO Forward, a plan to support community investment and economic recovery by maintaining and enhancing community services and facilities, and to consider making a recommendation to the City Council regarding a potential ballot measure on the November 2020 ballot to extend the existing .5¢ general sales tax with a 1¢ increase, until ended by voters. (Greg Hermann and Ryan Betz). COMMENT AND DISCUSSION 3. Staff Updates 4. Commission Communications Revenue Enhancement Oversight Commission Agenda for June 30, 2020 Page 3 ADJOURNMENT The next Regular Meeting of the Revenue Enhancement Oversight Commission has yet to be determined. The City of San Luis Obispo wishes to make all of its public meetings accessible to the public. Upon request, this agenda will be made available in appropriate alternative formats to persons with disabilities. Any person with a disability who requires a modification or accommodation in order to participate in a meeting should direct such request to the City Clerk’s Office at (805) 781-7100 at least 48 hours before the meeting, if possible. Telecommunications Device for the Deaf (805) 781-7107. Meeting audio recordings can be found at the following web address: http://opengov.slocity.org/weblink/1/fol/61028/Row1.aspx DRAFT Minutes – Revenue Enhancement Oversight Commission Meeting of May 14, 2020 Page 1 Minutes - DRAFT REVENUE ENHANCEMENT OVERSIGHT COMMISSION Thursday, May 14, 2020 Regular Meeting of the Revenue Enhancement Oversight Commission CALL TO ORDER A Regular Meeting of the San Luis Obispo Revenue Enhancement Oversight Commission was called to order on Thursday, May 14, 2020 at 5:42 p.m., by Chair Coates via webinar. ROLL CALL Present: Commissioners Jim Hamari, Jeannette McClure, Michael Multari, Vice Chair Ken Kienow, and Chair Chris Coates Absent: None Staff: Greg Hermann Deputy City Manager and Ryan Betz Assistant to the City Manager and City Clerk Teresa Purrington PUBLIC COMMENT ITEMS NOT ON THE AGENDA None. --End of Public Comment-- APPROVAL OF MINUTES 1. Consideration of Minutes of the Regular Revenue Enhancement Oversight Commission Meeting of April 30, 2020: ACTION: UPON MOTION BY COMMISSIONER MULTARI SECONDED BY CHAIR COATES, CARRIED 5-0-0, to approve the Minutes of the Regular Revenue Enhancement Oversight Commission Meeting of April 30, 2020, with the correction that only one seat was vacant. BUSINESS ITEMS 2. Annual Community Report Review/Annual Citizen Oversight Meeting Assistant to the City Manager Ryan Betz provided a PowerPoint presentation and responded to Commissioner inquiries. DRAFT Minutes – Revenue Enhancement Oversight Commission Meeting of May 14, 2020 Page 2 Public Comment None --End of Public Comment-- ACTION: UPON MOTION BY COMMITTEE MEMBER MULTARI, SECONDED BY COMMISSIONER MCCLURE, CARRIED 5-0-0 to accept the 2019 Annual Community Report. 3. 2020-21 Supplement Budget Deputy City Manager Greg Hermann, Assistant to the City Manager Ryan Betz, Finance Director Brigitte Elke, Deputy Director Public Works Matt Horn, Supervising Civil Engineer Brian Nelson provided a PowerPoint presentation and responded to Commissioner inquiries. Public Comment None --End of Public Comment-- ACTION: UPON MOTION BY COMMITTEE MEMBER MULTARI, SECONDED BY COMMISSIONER COATES, CARRIED 5-0-0 to recommend to the City Council the proposed use of Local Revenue Measure funds for operating and capital expenditures as part of the 2020-21 Supplemental Budget and to recommend to the City Council the authorization of the City Manager to use available, but not yet appropriated, funding from the Local Revenue Measure to protect essential services and facilities under the Council-adopted priorities for the use of the Local Revenue Measure related to the City declared COVID-19 emergency. COMMENT AND DISCUSSION 4. Staff Updates 5. Commission Communications ADJOURNMENT The meeting was adjourned at 7:36 p.m. APPROVED BY THE REVENUE ENHANCEMENT OVERSIGHT COMMISSION: XX/XX/2020   Revenue Enhancement Oversight Commission March 10, 2016 Revenue Enhancement Oversight Commission Agenda Report Meeting Date: 6/30/20 Item Number: 2 FROM: Greg Hermann, Deputy City Manager Prepared By: Ryan Betz, Assistant to the City Manager SUBJECT: CONSIDERATION OF A POTENTIAL GENERAL SALES TAX RENEWAL MEASURE RECOMMENDATION 1. Receive a report on the results of public engagement and outreach efforts regarding SLO Forward, an effort to support community investment and economic recovery by maintaining and enhancing community services and facilities. 2. Consider to making a recommendation to the City Council City Council regarding a potential ballot measure on the November 2020 ballot to extend the existing .5¢ general sales tax with 1¢ increase, until ended by voters. REPORT-IN-BRIEF SLO Forward is a comprehensive effort to engage with the commun ity about the current and long- range City services, maintenance and infrastructure needs to maintain and improve San Luis Obispo’s unique character and quality of life. As part of the Fiscal Sustainability and Responsibility Major City Goal in the 2017-19 Financial Plan to explore various infrastructure financial plans and options for the City Council, the City conducted a top to bottom review of infrastructure needs informed by hours of community input during the adoption of various City plans. The review also showed a financial gap between the type of infrastructure community members identified and the City’s financial ability to deliver those projects. After considering several infrastructure financing options including a general sales tax, general obligation bond and community facilities districts, the City Council directed staff to conduct public engagement efforts with the community and the viability of renewing and amending the existing Local Revenue Measure (LRM) to support these needs. The LRM is a .5¢ local general sales tax approved by City voters in November 2006 and renewed in 2014. It protects and maintains essential services and facilities and is subject to voter extension in 2023. The City Council also appointed Council Members Pease and Stewart to help guide the public engagement efforts. Through these efforts, including two focus groups and a statistically relevant survey, residents identified their top priorities, a need to maintain and increase the level of City services and a need to maintain and improve infrastructure. With the social and economic impacts of the COVID-19 pandemic, that financial gap has only increased. The City is facing a revenue shortfall of $8.6 million in its General Fund in 2020-21 and is projecting to not return to 2018-19 revenue levels until 2023-24. As part of the adopted 2020-21 Supplemental Budget, the City’s top priority is San Luis Obispo’s economic stability, recovery and resiliency. SLO Forward, a conversation with residents about community investment SLO Forward – Consideration of a Potential General Sales Tax Renewal Measure Page 2    and economic recovery, is a key component of that effort. Based upon these factors, including recent input from the community about the types of services, maintenance and infrastructure they value most, staff is recommending the Revenue Enhancement Oversight Commission (REOC) consider recommending to the City Council regarding a potential ballot measure on the November 2020 ballot to extend the existing .5¢ general sales tax with 1¢ increase, until ended by voters. DISCUSSION Background On April 30, 2020, staff presented an update on SLO Forward to the REOC, including public engagement and education efforts completed prior to the COVID-19 pandemic. That update included presentations to sixteen community groups and advisory bodies. In addition, the results of an online survey (678 responses representing approximately 40 hours of public comment) showed the following top priorities ranked (1 being the highest priority): 1. Address homelessness 2. Keep public areas safe and clean 3. Preserve open space and natural areas 4. Maintain police, fire/emergency response 5. Protecting long-term fiscal stability 6. Repair streets and potholes 7. Protect creeks from pollution 8. Prepare for wildfires and other natural disasters 9. Help ensure children have safe places to play 10. Requiring all funds used locally to benefit the community Prior to this update, staff presented the results of two focus groups and a statistically relevant survey conducted by an independent research firm to the REOC on December 12, 2019. The focus groups, held in June 2019, included 18 city residents who provided community perspectives and helpful insight on drafting the statistically relevant survey. The results of the focus groups included: 1) General View of the City a) Overall, most had favorable opinions of living in the City. b) Like many California cities, there were concerns about maintaining the City’ s character and quality of life into the future. 2) Perceived Additional Funding Needs and Support for a Proposed Measure a) There is a general sense that the City has a need for additional funds. b) A general-purpose measure that could fund City services as well as infrastructure projects was principally supported in the groups. c) Participants primarily focused on the need for additional, locally controlled revenue for City services and some infrastructure projects. d) Support for a 1-cent general purpose, simple majority sales tax was slightly lower than support for a 1 ½- cent sales tax. This may be attributed to the 1-cent sales tax focusing on SLO Forward – Consideration of a Potential General Sales Tax Renewal Measure Page 3    infrastructure only while the 1 ½ cent sales tax includes services, maintenance, and infrastructure. e) Most participants agreed that the City did need to ensure there was enough funding to provide the services, maintenance, and infrastructure they value and rely on. 3) Perceived Funding Priorities a) Maintaining the City’s quality of life, character, and the need for road improvements, safety upgrades and cross-town connections were the leading reasons the participants would consider additional, locally controlled funding. Statistically Relevant Survey Following the results of the focus groups, a statistically relevant survey of registered voters took place in September 2019 and included 442 individual responses with an overall margin of error of +/- 4.9%. The survey asked residents’ preferences on a variety of topics including services, maintenance of existing infrastructure, replacement/upgrades of infrastructure and overall spending priorities. The survey asked participates to respond to a sample ballot measure that renewed the existing LRM at a 1.5¢ rate that focused on essential services, maintenance and infrastructure. The results of the survey included: 1) Almost six in ten survey respondents perceive the City needs additional funds to provide the level of services and infrastructure residents need and want, though only about two in ten indicate there is a great need. 2) A majority of survey respondents initially support a conceptual local ballot measure, renewing and amending the existing LRM at a 1.5-cent rate, at 63 percent. This is an increase from a previous survey conducted in April 2018 which had an initial support of 57 percent. The language in the 2018 survey focused solely on upgrades to infrastructure. Based on the input from the focus groups regarding the importance of services and maintenance, the 2019 survey was broadened to include City services, maintenance, and infrastructure. 3) The survey asked respondents if they would support the potential ballot measure at a 1-cent rate. The results show there is no statistical difference in support between an extension of the current voter approved LRM at a 1½-cent rate or at a 1-cent rate. 63 percent of respondents would vote yes on an LRM at a 1 ½-cent rate while 60 percent of respondents would vote yes on a 1-cent rate. 4) Respondents continued to rate with greater importance maintaining (68 percent) rather than improving (42 percent) essential City services. This is consistent with the 2018 survey, when voters rated maintaining (64 percent) rather than improving (42 percent) essential City services. This was consistent with the rating of maintaining rather than improving City infrastructure, with 61 percent ranking maintaining City infrastructure as extremely/very important rather than 48 percent ranking improving City infrastructure. 5) Respondents were also asked to rate their preferences on a variety of spending priorities. Below are the results of those preferences: SLO Forward – Consideration of a Potential General Sales Tax Renewal Measure Page 4    Rating by Extremely/Very Important Requiring all funds used locally 79% Protecting creeks from pollution 73% Addressing Homelessness 71% Maintaining police, fire/emergency response 71% Keeping public areas safe and clean 67% Helping ensure children have safe places to play 67% Preserving open space and natural areas 66% Requiring all funds to benefit the community 66% Protecting long-term fiscal stability 65% Preparing for wildfires and other natural disasters 62% Repairing streets and potholes 62% Increasing affordable housing supplies 59% Replacing fire stations that have been determined by structural engineers to not meet current seismic earthquake standards 59% Retaining and attracting local businesses 55% Maintaining and improving parks 55% Expanding open space and natural areas 54% These spending priorities helped inform the online survey noted earlier in the report. Impacts of the COVID-19 Pandemic Over the past four months, the world has faced a health and fiscal crisis brought on by the COVID- 19 pandemic that lead to a “shelter at home” order and physical distancing mandates that have significantly reduced most economic activity. For most of this time, all but essential businesses remained closed. The impacts to businesses and the community have been unprecedented. The City faced steep revenue declines in the third and fourth quarter of the FY 2019-20 and projections assume continued declines into FY 2020-21 and beyond as the economy gradually reopens while local governments prepare for continued or a resurgence in cases. As soon as the City announced the County’s ‘shelter-at-home” directive, it enacted the Fiscal Health Contingency Plan that immediately placed a hiring, purchasing and travel chill on all non-essential City operations. As part of the adoption of the FY 2020-21 Supplemental Budget, the City reduced the General Fund by $4.7M in operations and revised the planned number of LRM funded projects from 102 to 86, a total reduction of $1.8M. Recognizing the impacts of COVID-19 on the community and the long-road to recovery, the City Council consolidated the five current Major City Goals into a single, overarching goal: San Luis Obispo’s economic stability, recovery and resiliency. SLO Forward is an important component of this new goal. With the economic impacts of COVID-19 on City revenues continuing to be analyzed, staff will be returning to the City Council with an updated, long-term financial outlook and potentially additional service and capital project reductions in October 2020. The impacts of COVID-19 on City revenues, including the LRM, increases the importance of SLO Forward as a conversation with the community about what type of investment and economic recovery they value most. To continue that conversation, the City relaunched an updated online survey in June 2020 to determine if the community’s top priorities had changed based upon COVID-19. Due to the SLO Forward – Consideration of a Potential General Sales Tax Renewal Measure Page 5    service and economic impacts of COVID-19 on the businesses and community organizations/non- profits that serve the community’s most vulnerable, both of these categories were added to the updated online survey. Currently, there have been 321 responses, representing an additional 16 hours of public comment. In total, both online surveys have almost 1,000 responses, representing 56 hours of public comment. Here is a comparison of the results from the two online surveys. Current Online Survey Results 1. Keep public areas safe and clean 2. Protecting long-term fiscal stability 3. Preserve open space and natural areas 4. Programs that support economic recovery 5. Maintain public safety, fire and emergency response 6. Address homelessness 7. Support community organizations and non-profits that serve the community's most vulnerable 8. Prepare for wildfires and other natural disasters 9. Requiring all funds used locally to benefit the community 10. Protect creeks from pollution 11. Repair streets and potholes 12. Help ensure children have safe places to play Previous Online Survey Results 1. Address homelessness 2. Keep public areas safe and clean 3. Preserve open space and natural areas 4. Maintain police, fire/emergency response 5. Protecting long-term fiscal stability 6. Repair streets and potholes 7. Protect creeks from pollution 8. Prepare for wildfires and other natural disasters 9. Help ensure children have safe places to play 10. Requiring all funds used locally to benefit the community The results of the current online survey show that four of the top five priorities, with the exception of addressing homelessness, are consistent with the previous online survey results. Again, the online survey is not statistically relevant, but does provide another opportunity to gather input on community members’ highest priorities related to City services, maintenance and infrastructure that could be supported through an extension and increase of the current revenue measure. To gather a more precise perspective of community members’ priorities and the viability of renewing and amending the LRM, a statistically relevant follow-up survey is currently being conducted and the results will be presented to the City Council on July 21, 2020. The purpose of the follow-up survey is to measure if the sentiment of registered voters who live in the City has changed since the previous survey conducted in September 2019. Staff will also provide the REOC with a summary of those results once they are available and in advance of the July 21, 2020 City Council meeting. In addition, public engagement and education efforts will continue with community and businesses organizations leading up to the July 21, 2020 City Council meeting. SLO Forward – Consideration of a Potential General Sales Tax Renewal Measure Page 6    Existing Local Revenue Measure The existing LRM was passed by 70 percent of voters in November 2014. The LRM was a renewal of the City’s half-cent sales tax approved in 2006 that focused on the protection and maintenance of essential services and facilities in the following priorities: 1. Open Space Preservation 2. Bicycle and Pedestrian Improvements 3. Traffic Congestion Relief/ Safety Improvements 4. Public Safety 5. Neighborhood Street Paving 6. Code Enforcement 7. Flood Protection 8. Parks and Recreation/Senior Programs and Facilities. 9. Other Vital Services and Capital Projects The funding is generally split with 70 percent supporting capital projects and 30 percent supporting operations. The LRM has an eight-year sunset, scheduled to expire in spring of 2023. In 2014, the Council established a citizen advisory body, the Revenue Enhancement Oversight Commission, to review the half-cent sales tax revenues and expenditures, report on the City’ s stewardship of this general purpose tax and provide recommendations directly to the City Council regarding expenditures of these tax revenues as an integral part of the budget process. As an advisory body, comprising of five residents, the REOC provides important citizen oversight of local sales tax revenues and expenditures and serves as a venue for citizen engagement on the highest priority for the use of the funds. The LRM continues to remain a vital funding source to maintain essential services and maintaining existing infrastructure. Staff will be recommending to the City Council that the REOC continue its oversight role of the LRM should a ballot measure be placed and approved by the voters on the November 2020 ballot. Copies of previous annual reports from the REOC to the community on spending of the LRM can be found at slocity.org/budget. Fiscal Health Response Plan Similar to other member agencies in CalPERS, the City was faced with significant financial challenges due to increased pension costs. To address these challenges, the City adopted and implemented the Fiscal Health Response Plan (FHRP) in 2018. The FHRP contained several components including employees paying more of their retirement costs, operational reductions/ new ways of doing business and revenue options. This has resulted in approximately $8.9M of annual savings. If the FHRP had not been implemented, the City’s financial situation would have been worse due to the economic impacts of COVID-19 on City revenues. 2020 Benchmark Study In June 2020, the City published the 2020 Benchmark Study (Attachment 1). A benchmark study helps illustrate how the City of San Luis Obispo is performing compared to similar cities across a number of performance measures. The benchmark study evaluates the most current data on financial performance such as revenue diversity, expense allocation, staffing costs, and debt management. Service costs do not always reflect service levels or efficiency, so the study also compares service outcomes like crime rates, fire response and pavement condition. To ensure consistency with previous completed benchmark studies, the following eight cities were chosen SLO Forward – Consideration of a Potential General Sales Tax Renewal Measure Page 7    for comparison to San Luis Obispo (46,800 residents, General Fund 72.4M). The results indicate that San Luis Obispo is close to the median on most comparisons. 1. Davis (68,700, $69M) 2. Monterey (28,600, $78M) 3. Napa (79,300, $89M) 4. Palm Springs (48,700, $95M) 5. Santa Barbara (94,800, $131M) 6. Santa Cruz (65,800, $104M) 7. Santa Maria (106,600, $72M) 8. Paso Robles (31,200, $37M) As shown in Chart 1, the benchmark study shows San Luis Obispo has the 2nd strongest sales tax revenues per capita. It is the City’s top revenue source; about one-third of total General Fund revenues. San Luis Obispo’s strong sales tax revenues are due to its regional sales draw, tourism, and nearby student shoppers. According to a recent sales tax study, approximately 70% of every dollar the City collects in sales tax is paid by non-residents (Attachment 2). Chart 1: Sales Tax Revenues Per Capita The minimum general sales tax in California is 7.25%, while the average sales tax rate for cities in the state is 8.66%. All eight benchmark cities have add-on local sales tax measures, and the remaining five cities in San Luis Obispo County do as well. Of the other six cities in San Luis Obispo County, five are considering placing an additional, add-on local sales tax ballot measure on the November 2020 ballot (the City of Pismo Beach is considering placing an increase to Transient Occupancy Tax). SLO Forward – Consideration of a Potential General Sales Tax Renewal Measure Page 8    ATTACHMENTS 1. 2020 Benchmark Study 2. 2020 Retail Sales Analysis A Fiscal Comparison with Selected Benchmark Cities June 2020 Measuring Our Performance A Fiscal Comparison with Selected Benchmark Cities PROJECT MANAGER Ryan Betz, Assistant to the City Manager CITY STAFF Derek Johnson, City Manager Greg Hermann, Deputy City Manager Jeff Smith, Police Captain Matt Horn, Public Works Director Luke Schwartz, Transportation Manager Jennifer Rice, Transportation Planner/Engineer Devin Hyfield, Recreation Manager Miguel Guardado, Information Technology Manager Shawna Scott, Senior Planner James Blattler, Administrative Analyst, Fire Robert Hill, Sustainability & Natural Resources Official Victoria Tonikian, Interim Executive Assistant to the City Manager / Fiscal Officer TABLE OF CONTENTS Contents INTRODUCTION .......................................................................................................................... 1 Factors that Affect Benchmark Comparisons ............................................................................. 1 FINANCIAL BENCHMARKS: RESOURCE COMPARISON ................................................... 3 Chart 1: General Fund per Capita ............................................................................................... 3 Chart 2: Sales Tax, Property Tax & Transient Occupancy Tax: Percent of Total General Fund Revenues ..................................................................................................................................... 3 Chart 3: Sales Tax Revenues per Capita ..................................................................................... 3 Chart 4: Property Tax Revenues per Capita ................................................................................ 4 Chart 5: Transient Occupancy Tax (TOT) Revenues per Capita ................................................ 4 Chart 6: Ratio of Fees to Total General Fund Revenues............................................................. 4 FINANCIAL BENCHMARKS: COST COMPARISON .............................................................. 5 Chart 7: Governmental Costs per Capita..................................................................................... 5 Chart 8: General Fund Operating Costs per Capita..................................................................... 5 Chart 9: Percent of Governmental Costs that are Interest Payments .......................................... 5 Chart 10: General Fund Allocations to Public Safety ................................................................. 6 Chart 11: General Fund Public Safety Costs per Capita ............................................................. 6 Chart 12: General Fund Allocations for General Government ................................................... 6 FINANCIAL BENCHMARKS: STAFFING COMPARISON ..................................................... 7 Chart 13: Staffing from General Fund (per 1,000 residents) ...................................................... 7 Chart 14: Sworn Police Staff (per 1,000 residents) ..................................................................... 7 Chart 15: Sworn Fire Staff (per 1,000 residents served) ............................................................. 7 OTHER BENCHMARKS: SERVICE OUTCOMES .................................................................... 8 Chart 16: Violent Crimes (Per 1,000 Residents) ......................................................................... 8 Chart 17: Fire Calls for Service (per 1,000 residents)................................................................. 8 Chart 18: Pavement Condition Index .......................................................................................... 8 CONCLUSION ............................................................................................................................... 9 BEST MANAGEMENT PRACTICES ..................................................................................... 10 SOURCE DATA ....................................................................................................................... 10 Introduction Page 1 INTRODUCTION The City Council of San Luis Obispo adopted a Major City Goal for Fiscal Sustainability and Responsibility with a focus on efficiencies, strategic economic development, unfunded liabilities and infrastructure financing. Developing a benchmark study helps illustrate how the City of San Luis Obispo is performing compared to similar cities across a number of performance measures. The City is committed to delivering the services, maintenance and infrastructure improvements the community values most. This benchmark study evaluates the most current data on financial performance such as revenue diversity, expense allocation, staffing costs, and debt management. Service costs do not always reflect service levels or efficiency, so the study also compares service outcomes like crime rates, fire response and pavement condition. The results indicate that San Luis Obispo is close to the median on most comparisons. To ensure consistency with the 2014 Benchmark Study, the same eight cities were chosen for comparison to San Luis Obispo (population 46,800, General Fund $72.4M). 1. Davis (68,700, $69M) 2. Monterey (28,600, $78M) 3. Napa (79,300, $89M) 4. Palm Springs (48,700, $95M) 5. Santa Barbara (94,800, $131M) 6. Santa Cruz (65,800, $104M) 7. Santa Maria (106,600, $72M) 8. Paso Robles (31,200, $37M) Each selected city shares many characteristics, including: 1. Full-service city that provides a wide range of core services directly, including police, fire, street maintenance, planning, and parks and recreation. 2. County seat or largest city in the nearby vicinity. 3. Distinct regional identity separate from a large metropolitan area. 4. Major employment, commercial, cultural and government urban center. 5. Quality of life community. 6. Mid-size city, with populations ranging from 28,000 to 107,000. 7. Implemented or re-authorized a sales tax measure during the past 10 years. 8. College community and/or major tourism. 9. Slow growth: between -0.5% and 1.5% population change from 2018 to 2019. The objective is to provide a snapshot of how San Luis Obispo measures up to similar cities in California. The study also provides the opportunity to evaluate San Luis Obispo’s revenue sources in comparison with costs, services and community priorities. FACTORS THAT AFFECT BENCHMARK COMPARISONS Accurately measuring benchmarks between San Luis Obispo and the selected cities can be a difficult task. Comparisons do not tell the entire story because every city differs on a variety of issues, including but not limited to geography, daytime versus resident population, accounting methods, and fund management. Introduction Page 2 Geography Fire service in San Luis Obispo is impacted by mountains, freeways, railroad tracks and other unique topographical features. To meet the ideal four minute fire response time, the City’s Fire Department has to maintain and staff four separate fire stations, which can inflate costs when compared to other cities with less challenging geography and/or less fire stations. Daytime Population San Luis Obispo’s resident population is approximately 46,800, but the City realizes a peak population of 75,000- 90,000 citizens expecting services during “normal business hours.” In addition, the peak daytime population of nearby Cal Poly is 25,000 citizens that are also covered by contract City services, including Fire Department emergency response service 24 hours a day, seven days a week. Accounting Methods Every city budgets and accounts for service costs differently. For example, some cities account for internal services like printing, fleet maintenance, insurance and information technology using “internal service funds”, which charge user departments for their services. Other cities (like San Luis Obispo) account for internal service costs in the General Fund and use a cost allocation plan in distributing costs to other departments and funds. For public services like paving, street lighting, or storm drain maintenance, some cities account for these services in separate special revenue or enterprise funds, while others account for them solely in their General Fund. The “General Fund” can be a relative term, and those cities that use separate funds to account for services that others account for in their General Fund may appear to have lower General Fund costs. Fund Management The services that cities provide can be divided into two major groups: governmental and enterprise. Governmental activities include: police, fire, capital projects, planning and building inspections, street maintenance, recreation and park maintenance. Governmental activities costs and cash balances are typically tracked using the General Fund, Capital Outlay Fund, and other miscellaneous funds like Debt Service or Special Revenue Funds. Enterprise activities are fee-for-service operations ranging from water services to international airports. Enterprise Funds vary widely which makes them difficult to compare statistically. The majority of financial comparisons provided in this benchmark study focus on governmental activities since they are more uniform across the sample cities and consistently reported in a city’s Comprehensive Annual Financial Report (CAFR). Comparison of Enterprise Services provided by Benchmark Cities Service San Luis Obispo Davis Monterey Napa Palm Springs Santa Cruz Santa Barbara Santa Maria Paso Robles Water X X X X X X X Sewer X X X X X X X Parking X X X X Transit X X X X Golf X X X X Solid Waste X X X X X X Stormwater X X Marina X X Airport X X Cemetery X Presidio X Housing X X Financial Benchmarks Resource Comparison Page 3 FINANCIAL BENCHMARKS: RESOURCE COMPARISON CHART 1: GENERAL FUND PER CAPITA CHART 2: SALES TAX, PROPERTY TAX & TRANSIENT OCCUPANCY TAX: PERCENT OF TOTAL GENERAL FUND REVENUES CHART 3: SALES TAX REVENUES PER CAPITA Cities typically have two major governmental funds: the General Fund and Capital Outlay Fund. Other minor governmental funds can include Special Revenue Funds, like a Business Improvement District, or Debt Service Funds. The size of San Luis Obispo’s General Fund per capita is the median among benchmark cities. It is primarily used for operating programs (84%), debt service (5%), and capital improvement plan (8%) expenditures. Sales tax, property tax and transient occupancy tax (TOT) account for at least 40% of total General Fund revenues in all benchmark cities. These top three revenues account for only 62% of San Luis Obispo’s General Fund revenues, which implies that there is a diverse revenue base. This financial risk management tool allows San Luis Obispo to weather changes in the economy better than other municipalities that rely on only a few revenues to make up most of the total revenue base. San Luis Obispo has the 2nd strongest sales tax revenues per capita. It is the City’s top revenue source; about one-third of total General Fund revenues. The majority of cities have a local add-on sales tax (Measure G in San Luis Obispo) that generates local revenue (ranging 0.25% to 2% per dollar). San Luis Obispo’s strong sales tax revenues are due to its regional sales draw, tourism, and nearby student shoppers. According to a recent sales tax study, approximately 70% of every dollar the City collects in sales tax is paid by non-residents. $500 $1,500 $2,500 $3,500 $4,500 Palm Springs Monterey Santa Cruz Santa Barbara San Luis Obispo Paso Robles Napa Davis Santa Maria 40%50%60%70%80%90%100% Santa Maria Paso Robles Napa Santa Barbara San Luis Obispo Palm Springs Santa Cruz Monterey Davis $200 $300 $400 $500 $600 $700 $800 $900 Palm Springs San Luis Obispo Santa Barbara Paso Robles Santa Maria Santa Cruz Monterey Napa Davis Financial Benchmarks Resource Comparison Page 4 CHART 4: PROPERTY TAX REVENUES PER CAPITA CHART 5: TRANSIENT OCCUPANCY TAX (TOT) REVENUES PER CAPITA CHART 6: RATIO OF FEES TO TOTAL GENERAL FUND REVENUES San Luis Obispo’s property tax revenues per capita are in the lower percentile of benchmark cities. Proposition 13, adopted by California voters in 1978, limits the amount of annual growth in assessed values to a maximum of 2% per year. This makes property tax a relatively static revenue source that grows slowly as ownerships change and new property values are assessed. TOT revenue is largely generated by visitors staying in hotels, which can indicate which cities have strong tourist economies. TOT is specialized because it focuses on one part of a local economy: tourism. It is not as broad-based as sales tax. Significant TOT rate increases would be needed to generate the same amount of revenue as a general sales tax; San Luis Obispo’s TOT rate would have to go from 10% to 21.9% to equal revenue from Measure G. Significant increases to TOT could create a competitive disadvantage in the local market. $100 $200 $300 $400 $500 $600 $700 Palm Springs Napa Paso Robles Santa Barbara Santa Cruz Monterey San Luis Obispo Davis Santa Maria $- $200 $400 $600 $800 Monterey Palm Springs Napa Santa Barbara Paso Robles San Luis Obispo Santa Cruz Santa Maria Davis 0%5%10%15%20% Santa Cruz Davis Napa San Luis Obispo Santa Barbara Santa Maria Monterey Paso Robles Palm Springs This chart shows the comparison of how much General Fund revenue is generated by service fees like building permits and business licenses. Increasing cost recovery through service charges is a local City Council decision and has historically been part of San Luis Obispo’s budget-balancing strategy. However, fees should never exceed the actual total cost of providing services. Financial Benchmarks Cost Comparison Page 5 FINANCIAL BENCHMARKS: COST COMPARISON CHART 7: GOVERNMENTAL COSTS PER CAPITA CHART 8: GENERAL FUND OPERATING COSTS PER CAPITA CHART 9: PERCENT OF GOVERNMENTAL COSTS THAT ARE INTEREST PAYMENTS Governmental activities include costs for police, fire, planning, building inspections, capital projects, recreation and parks maintenance, and general government. All of the benchmark cities provide these essential services. Enterprise operations (fee for service) costs are not included in this comparison. What cities choose to include in enterprise operations varies widely making it a difficult cost category to evaluate. The General Fund is the primary operating fund for most cities. It is used for essential services (e.g. public safety, maintenance), but does not include other governmental activities like capital purchases and construction projects. Most cities maintain a separate Capital Outlay Fund for these costs. This chart shows a comparison of how much interest benchmark cities pay on long-term debt. Cities use debt financing for long-term investments such as a fire station. Costs for debt obligations constrain available resources. Less than 1% of San Luis Obispo’s governmental costs are interest payments on long-term debt, which is below the median, and about 3.6% below benchmark cities on the high end of the spending range. *Santa Barbara did not record any interest payments in 2018-19 $200 $700 $1,200 $1,700 $2,200 $2,700 Monterey Palm Springs Santa Barbara Santa Cruz San Luis Obispo Napa Paso Robles Davis Santa Maria $500 $1,000 $1,500 $2,000 $2,500 $3,000 Monterey Palm Springs Santa Cruz San Luis Obispo Santa Barbara Paso Robles Napa Davis Santa Maria 0%1%2%3%4%5% Palm Springs Paso Robles Monterey Santa Cruz San Luis Obispo Napa Santa Maria Davis Santa Barbara* Financial Benchmarks Cost Comparison Page 6 CHART 10: GENERAL FUND ALLOCATIONS TO PUBLIC SAFETY CHART 11: GENERAL FUND PUBLIC SAFETY COSTS PER CAPITA CHART 12: GENERAL FUND ALLOCATIONS FOR GENERAL GOVERNMENT Public safety costs for police and fire services are the most significant General Fund allocations in San Luis Obispo, accounting for about 43% of general operating costs. When compared to the eight benchmark cities, San Luis Obispo is below the median (47%). San Luis Obispo’s public safety allocation is 24% Police and 19% Fire. This allocation ratio is consistent with most benchmark cities. The exceptions are Santa Maria (larger allocation to police). San Luis Obispo’s police service and fire service cost per capita is $666. This is below the median. San Luis Obispo’s Fire Department is unique because it is under contract to serve an area beyond the City boundaries, the Cal Poly campus. The total “per capita” number for fire service costs was increased in Chart 11 by the number of beds on campus (8,000) to present a more accurate ratio of public safety costs per total residents served. General government costs include staffing and resources that support all governmental activities including City Administration, Attorney’s Office, City Clerk, Information Technology, Finance, and Human Resources. General government costs may also support enterprise activities. San Luis Obispo adopted a cost allocation plan that reimburses General Fund from Enterprise Funds for administrative support costs. The numbers shown in this chart for San Luis Obispo are net totals after reimbursements. 30%40%50%60%70% Santa Maria Monterey Napa Santa Cruz Santa Barbara Paso Robles San Luis Obispo Davis Palm Springs $- $500 $1,000 $1,500 Monterey Davis Palm Springs Santa Cruz Santa Barbara Napa San Luis Obispo Paso Robles Santa Maria 5%10%15%20% Santa Cruz Paso Robles Palm Springs Napa San Luis Obispo Santa Barbara Santa Maria Davis Monterey Financial Benchmarks Staffing Comparison Page 7 FINANCIAL BENCHMARKS: STAFFING COMPARISON CHART 13: STAFFING FROM GENERAL FUND (PER 1,000 RESIDENTS) CHART 14: SWORN POLICE STAFF (PER 1,000 RESIDENTS) CHART 15: SWORN FIRE STAFF (PER 1,000 RESIDENTS SERVED) Chart 13 compares the number of regular authorized General Fund staff positions, per 1,000 residents, across all benchmark cities. San Luis Obispo is below the median compared to the benchmark cities. Police staff are a subset of General Fund staffing. According to the Bureau of Justice Statistics, local police departments serving populations of 50,000- 99,999 residents employed an average of 1.7 officers per 1,000 residents. San Luis Obispo has approximately 1.3 officers per 1,000 residents (and has an even lower ratio if daytime population is considered). Fire staff are also a subset of General Fund staffing. San Luis Obispo Fire Department is unique because it is under contract to serve an area beyond the City boundaries, the Cal Poly Campus. The total number of “residents” was increased in Chart 15 by the number of beds on campus (8,000) to present a more accurate ratio of sworn fire staff per total residents served. 2 4 6 8 10 12 14 16 18 Monterey Santa Cruz Palm Springs Santa Barbara San Luis Obispo Davis Santa Maria Napa Paso Robles 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Monterey Palm Springs Paso Robles Santa Barbara San Luis Obispo Santa Cruz Napa Davis Santa Maria 0.0 0.5 1.0 1.5 2.0 Palm Springs Monterey Santa Barbara Santa Cruz San Luis Obispo Santa Maria Paso Robles Napa Davis Other Benchmarks Service Outcomes OTHER BENCHMARKS: SERVICE OUTCOMES CHART 16: VIOLENT CRIMES (PER 1,000 RESIDENTS) CHART 17: FIRE CALLS FOR SERVICE (PER 1,000 RESIDENTS) CHART 18: PAVEMENT CONDITION INDEX According to the FBI, San Luis Obispo is within the middle range of benchmark cities in terms of violent crime (murder, manslaughter, rape, robbery, and aggravated assault. The FBI also reports that incidences of property crime in San Luis Obispo are the fifth highest of all benchmark cities (Santa Maria, Palm Springs, Santa Barbara, and Santa Cruz are higher). Fire responses includes hazardous material spills, vehicle and vegetation fires, heavy rescues, structure fires and medical emergencies. San Luis Obispo’s low number of responses indicates that proactive fire prevention activities are working well. San Luis Obispo’s Fire Department is unique because it serves an area beyond the City boundaries, the Cal Poly campus. The Pavement Condition Index (PCI) is a National standard on a 0-100 scale that indicates the quality of a city’s pavement. Generally, the scale is: 100 - 70 Good/Excellent; 50-70 At Risk; 0-50 Poor/Failed. The 2018 California Statewide Local Roads Needs Assessment concludes the average California road PCI is 66 (San Luis Obispo was 73). San Luis Obispo’s “Good/Excellent” rating is directly related to the annual average pavement investment from Measure G sales tax revenues. 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Santa Cruz Palm Springs Santa Maria Santa Barbara San Luis Obispo Monterey Napa Davis Paso Robles 40 50 60 70 80 90 100 Santa Maria San Luis Obispo Santa Cruz Monterey Paso Robles Davis Santa Barbara Napa 0 50 100 150 200 250 300 Monterey Palm Springs Santa Maria San Luis Obispo Napa Paso Robles Santa Cruz Santa Barbara Davis Conclusion Page 9 CONCLUSION The 2020 Benchmark Study was developed using data primarily from FY 2018-19 and before the COVID-19 pandemic. Despite the social and financial impacts of the pandemic, the City continues to deliver essential services and maintain facilities. The City’s financial operations is at the average operating costs and debt levels. In some categories, such as fire service, being below average on costs is especially significant given service level differences among benchmark cities. Santa Maria does not provide advanced life support (paramedic) services, and Santa Barbara, Santa Cruz, and Napa do not provide advanced life support by all emergency response crews. Only San Luis Obispo and Paso Robles provide this service by all emergency response crews. The provision of advanced life support services increases costs related to personnel, training, administration, and equipment, and approximately 70% of San Luis Obispo’s fire emergency response activities are for medical emergencies. Comparison of service outcomes reveals that San Luis Obispo is among the safest communities in terms of violent crime and fire emergencies. San Luis Obispo’s pavement condition index, an indicator of street quality, is slightly above the median compared to the benchmark cities. Staffing levels are consistent with benchmark cities as well, with San Luis Obispo hitting the median in the staffing areas selected for comparison. San Luis Obispo was near the top of the benchmark range on one item: Sales Tax Revenue per Capita. This result indicates that sales tax is vital for delivering quality levels of service to the community. According to the 2019-21 City of San Luis Obispo Financial Plan, 41% of total General Fund revenue comes from sales tax, 28% from property tax, and 13% from TOT. Approximately 30% of sales tax comes from the local revenue measure (Measure G) that adds a half-percent to the County sales tax rate. Measure G generates $7-8 million annually or about 12% of total in General Fund revenue in San Luis Obispo. All eight benchmark cities have add-on local sales tax measures, and the remaining five cities in San Luis Obispo County do as well. Six of the eight benchmark cities generate more revenue from property tax and TOT than San Luis Obispo. As a comparison, the average sales tax rate for cities in the state is 8.66%. The Local Revenue Measure has been in effect for fourteen years and is set to expire in March 2023. More information on Local Revenue Measure, including expenditures, public feedback, and timelines, is available at slocity.org. CITY LOCAL SALES TAX RATE San Luis Obispo 7.75% Benchmark Cities Napa 7.75% Paso Robles 7.75% Davis 8.25% Monterey 8.75% Santa Barbara 8.75% Santa Maria 8.75% Palm Springs 9.25% Santa Cruz 9.25% Other Cities in SLO County (Non-Benchmark) Atascadero 7.75% Arroyo Grande 7.75% Grover Beach 7.75% Morro Bay 7.75% Pismo Beach 7.75% Conclusion Page 10 BEST MANAGEMENT PRACTICES Beyond benchmark comparisons, it is prudent to evaluate whether San Luis Obispo is implementing general best management practices (BMPs) for local governments. The City has adopted and implemented many BMPs for financial management, including: 1. Multi-year budgeting 2. Long-term fiscal forecasts 3. Integration of goal-setting into the budget process 4. Development of fiscal contingency plans 5. Use of generally accepted accounting principles and audits by independent certified public accountants 6. Effective ongoing monitoring of our financial condition 7. Long-term capital improvement plans 8. Use of comprehensive fiscal policies as the foundation for decision-making Many of these BMPs come from Fitch Ratings (one of the “big three” national credit rating agencies), who has formally integrated them into their rating systems. The City recently received affirmation from the nationally recognized statistical rating organization Standard & Poor’s Ratings (S&P) that City bond ratings remain “AA” and the rating outlook is stable. S&P’s long-term credit ratings are assigned on an alphabetic scale from AAA to C. The bond rating AA means that the City’s investment grade is “quality”. The City’s 2018 Lease Revenue Bonds are rated AA, and the City’s implied General Obligation bond rating is AA+. Currently, the City of San Luis Obispo has no general obligation debt. In reaching its decision, S&P’s analysts lauded the City’s “excellent financial management.” The analysis noted factors that led to their conclusion including (1) active budget monitoring by the City Council and staff, (2) comprehensive financial policies, and (3) the use of long-term budget planning to provide a solid framework for managing financial resources through unexpected budgetary challenges during the economic downturn. S&P analysts noted that the City has robust fiscal management and recovered quickly from the Great Recession. SOURCE DATA • Department of Justice Federal Bureau of Investigation. 2018 Crime in the United States Report. • California Polytechnic State University. 2014. Cal Poly Quick Facts. http://calpoly.edu • Cities of Davis, Monterey, Napa, Palm Springs, El Paso de Robles, Santa Barbara, Santa Cruz, Santa Maria, San Luis Obispo. June 2019. Comprehensive Annual Financial Reports and Budget Documents. • Strategic Economics. 2020. San Luis Obispo Retail Sales Analysis. For questions or comments on this benchmark study, please contact Ryan Betz, City of San Luis Obispo Administration, (805) 781-7589 or rbetz@slocity.org STRATEGIC ECONOMICS | 2991 SHATTUCK AVE. BERKELEY, CA. 94705 | 510.647.5291 MEMORANDUM To: Georgina Bailey, Management Fellow, City of San Luis Obispo From: Derek W. Braun, Senior Associate Jesse Brown, Associate Date: March 18, 2020 Subject: Retail Sales and Leakage Analysis INTRODUCTION The City of San Luis Obispo retained Strategic Economics to prepare a retail sales analysis to estimate the share of retail spending attributable to city residents compared to non-residents. The City commissioned this analysis in order to inform discussion of renewing or amending the existing, voter- approved Local Revenue Measure (Measure G) as part of City Council’s “SLO Forward” effort. This memorandum describes the methodology and results of the retail sales analysis for both San Luis Obispo as a whole and in five subareas of the city. The first section provides a summary of key findings, and the second describes the retail analysis methodology. SUMMARY OF FINDINGS Citywide Findings Shoppers in San Luis Obispo spent a total of $1.47 billion on taxable and non-taxable retail sales in 2018. Retail sales in the Auto Dealers and Suppliers category accounted for the largest share of sales (22 percent), followed by Eating and Drinking Places (13 percent) and General Merchandise (13 percent). Non-resident spending contributed the largest share of retail sales in San Luis Obispo, accounting for an estimated $1 billion dollars in 2018. As an employment center, tourist destination, and major city within the region, San Luis Obispo attracts a wide variety of non-residents who purchase goods at retail establishments within the city. This analysis indicates that 69 percent of retail sales can be attributed to those living outside the city. Tourists, regional shoppers, and other non-residents generate 54 percent of total retail sales. Those who are employed in the city but do not live in the city account for a smaller but still notable 15 percent of total spending. San Luis Obispo Retail Sales Analysis 2 FIGURE 1: ESTIMATED SHARE OF RETAIL SPENDING BY GROUP, CITY OF SAN LUIS OBISPO, 2018 (2018 DOLLARS) Spending Group Annual Retail Spending Share Visitors, Regional Shoppers and Other Non-Residents $802,165,751 54% Residents $456,363,155 31% Non-Resident Workers $217,988,809 15% Total $1,476,517,715 Source: HdL, 2018; City of San Luis Obispo, 2018; Strategic Economics, 2020. FIGURE 2: ESTIMATED SHARE OF RETAIL SPENDING BY GROUP, CITY OF SAN LUIS OBISPO, 2018 Source: HdL, 2018; City of San Luis Obispo, 2018; Strategic Economics, 2020. Subarea Analysis Findings Downtown San Luis Obispo is a regional destination that serves city residents, workers, regional shoppers, and out-of-town visitors. Downtown generated 13 percent of all retail sales in the city in 2018, making it the second largest source of sales among the subareas. 41 percent of the area’s retail sales were generated by Eating and Drinking Places and 24 percent from Apparel Stores. While the citywide estimate suggests that about half of the spending in these categories comes from visitors, the share of visitor spending may be higher in Downtown due to its regional draw. The Los Osos Valley Road Corridor generates the largest share of sales among subareas in the city (36 percent in 2018) and is likely a major source of non-resident spending. 43 percent of retail sales in the LOVR Corridor came from Auto Dealers and Supplies, a category likely to attract a high share of spending from non-residents since dealerships draw shoppers from a large regional trade area. Additionally, the large chain and big box stores in the LOVR Corridor, such as Costco, Target, and Home Depot, draw from a large trade area and are likely to capture a high share of non-resident spending. The Madonna Road Area’s diverse range of establishments in Furniture and Appliances, Eating and Drinking Places, Other Retail Stores, and General Merchandise likely serves a mix of both local and Visitors, Regional Shoppers and Other Non- Residents 54% Residents 31% Non- Resident Workers 15% San Luis Obispo Retail Sales Analysis 3 regional shoppers. The Madonna Road Area is the third largest subarea in terms of retail sales, generating seven percent of citywide retail sales in 2018. The Foothill Area’s businesses likely serve both resident and non-resident shoppers, including non- residents passing through via Highway 1 and living, working, or visiting at the nearby Cal Poly campus. The area contains mostly smaller retail businesses located along Foothill Boulevard and within the University Square Shopping Center. The Foothill Area accounted for three percent of citywide retail sales in 2018. Since the Airport Area largely consists of light industrial uses accommodating a wide range of business types, the area’s retail sales are a relatively small share of the area’s total sales. The subarea largely consists of light industrial uses accommodating production, distribution, and repair service businesses, and airport-related uses such as car rental agencies. While the Airport Area generated four percent of citywide retail sales in 2018, the exact mix of the area’s resident versus non-resident spending is less certain since the types of businesses vary widely. Retail sales also represent a relatively small portion of total sales in the Airport Area since 44 percent of the area’s 2018 sales tax revenue was generated in business-to-business sales categories. San Luis Obispo Retail Sales Analysis 4 RETAIL SALES ANALYSIS To estimate the share of retail spending within the City of San Luis Obispo that is attributable to city residents compared to non-residents, Strategic Economics prepared a retail leakage analysis that measured the difference between the buying power (demand) of the household population in San Luis Obispo and the actual sales (supply) in the city limits. This type of analysis allows for an evaluation of how much local spending is attributable to residents. The following sections describe the methodology and results of the retail sales analysis, including citywide retail sales, resident spending and non- resident spending. Citywide Retail Sales An estimate of annual citywide retail sales was calculated using data on sales tax revenues in the City of San Luis Obispo, provided by HdL. The HdL data reflected the local one percent share of total taxable sales received by the City under the “Bradley-Burns” state sales tax allocation formula.1 Therefore, total taxable sales were estimated by dividing sales tax revenues by one percent. However, not all items sold are taxable, such as groceries and prescription drugs. To convert taxable sales to total sales, certain categories were adjusted based on assumptions about the share of non-taxable sales in those categories. The estimated retail sales in 2018 for the City of San Luis Obispo total over $1.47 billion. Shoppers spent the most on Auto Dealers and Supplies, about 22 percent of total sales. Eating and Drinking Places and General Merchandise represented the next largest categories, followed by Building Materials and Food stores. FIGURE 3: CITY OF SAN LUIS OBISPO RETAIL SALES, 2018 (2018 DOLLARS) Type of Business Sales Tax Estimated Sales Share of Sales Apparel Stores $727,348 $72,734,800 5% Auto Dealers and Supplies $3,232,724 $323,272,400 22% Building Materials $1,622,945 $162,294,500 11% Drug Stores $161,988 $24,543,636 2% Eating and Drinking Places $1,849,090 $184,909,000 13% Food Stores $471,375 $157,125,000 11% Furniture and Appliances $1,057,352 $105,735,200 7% General Merchandise $1,793,534 $188,793,053 13% Packaged Liquor $152,896 $15,289,600 1% Service Stations $943,203 $99,284,526 7% Other Retail Stores $1,425,360 $142,536,000 10% Total $13,437,815 $1,476,517,715 Note: The growing popularity of online shopping has negatively impacted sales in traditional retail stores across the nation, while spending is typically increasing at restaurants, bars, and entertainment venues that provide experiences that cannot be replicated online. Source: HdL, 2018; City of San Luis Obispo, 2018; Bureau of Labor Statistics, 2018; Strategic Economics, 2020. 1 For an explanation of the Bradley-Burns formula, see https://www.cdtfa.ca.gov/taxes-and-fees/local-and-district-taxes.htm San Luis Obispo Retail Sales Analysis 5 Resident Spending Analysis This section describes the methodology used to estimate the annual retail spending of residents within the City of San Luis Obispo. According to U.S. Census American Community Survey 2012-2017 estimates, there are 18,728 households located within the City of San Luis Obispo. These households were assumed to conduct most of their spending within city limits, including both convenience goods (daily needs such as food and personal care items) and comparison goods (larger items that are purchased infrequently, such as furniture, appliances, and clothing). METHODOLOGY Retail spending by San Luis Obispo households was calculated by estimating average annual household spending in the city and multiplying this by the number of households. The methodology, data sources, and estimated revenues are described below and shown in Figure 4.  Average annual household spending : The average amount a household spends in each retail category was estimated using data from the U.S. Bureau of Labor Statistics (BLS) 2017-2018 Consumer Expenditure (CE) Survey. To best approximate household spending patterns in the City of San Luis Obispo, the analysis used data for the “Western” region and for households earning between $70,000 to $99,999.  City capture rate: A city sales capture rate was applied to account for the proportion of spending that may take place outside San Luis Obispo. The share of spending within the city was assumed to vary for different retail categories. For example, nearly all of spending on Drug and Food Stores was assumed to take place within the city, while some spending at Eating and Drinking Places and Service Stations was assumed to be distributed outside the city due to travel and vacations.  Annual spending from households in the city: The total amount of resident spending within the city was calculated by multiplying the average household spending within the city by the number of households in the city. RESULTS: TOTAL RESIDENT SPENDING San Luis Obispo households were estimated to spend a total of $456 million each year on retail in the city, with average household spending of $24,368 annually.2 Residents spend the most locally at grocery and other food retail businesses for preparing food at home, with one-fifth of household spending in the Food Stores category. Households in San Luis Obispo also spend a significant share of their total retail spending in the city at businesses in the Eating and Drinking Places (16 percent) and Auto Dealers and Suppliers categories (15 percent). 2 This does not represent the total amount households spend each year, as housing, healthcare and insurance costs are not included and can account for a significant share of annual household spending. San Luis Obispo Retail Sales Analysis 6 FIGURE 4: ESTIMATED HOUSEHOLD SPENDING, CITY OF SAN LUIS OBISPO (2018 DOLLARS) Type of Business Average Spending Per Household City Capture Rate Average Spending Per Household in the City Annual Spending Households in the City Apparel Stores $2,213 85% $1,881 $35,228,304 Auto Dealers and Supplies $3,926 95% $3,730 $69,849,822 Building Materials $619 95% $588 $11,009,442 Drug Stores $667 95% $634 $11,866,997 Eating and Drinking Places $4,504 85% $3,828 $71,698,275 Food Stores $5,431 95% $5,159 $96,626,180 Furniture and Appliances $3,198 85% $2,718 $50,908,322 General Merchandise $794 85% $675 $12,639,527 Packaged Liquor $806 95% $766 $14,340,030 Service Stations $2,750 75% $2,063 $38,626,500 Other Retail Stores $2,737 85% $2,326 $43,569,756 Total $27,645 $24,368 $456,363,155 Source: Bureau of Labor Statistics, 2018; Strategic Economics, 2020. Note: Total retail household spending does not fully represent total household spending, as housing, healthcare and insurance costs are not included. Non-Resident Spending Analysis Non-resident shoppers include tourists, those who work in San Luis Obispo but do not live in the city, and residents of the surrounding region. Those residents include students, staff, and faculty of California Polytechnic State University (Cal Poly) who live on campus or elsewhere outside the city. This section describes the methodology used to estimate the annual retail spending of non-residents within the City of San Luis Obispo. METHODOLOGY The total amount of spending by non-residents was calculated by subtracting resident spending from the citywide retail sales as shown in Figure 5. Total non-resident spending was further segmented to determine the share of non-resident worker spending. The City of San Luis Obispo is a regional employment center with three-quarters of the workforce living outside the city limits.3 Based on U.S. Census Longitudinal Employer-Household Dynamics data for 2017, of the 32,696 individual jobs in San Luis Obispo, 24,831 of associated workers do not live in the city. These employees likely purchase a variety of goods and services within the city during their workday. The estimated amount of retail spending attributable to non-resident workers was calculated using employee spending patterns data from a national survey conducted in 2011 by the International Council of Shopping Centers (ICSC).4 Average weekly spending per employee was adjusted to an annual basis and to 2018 dollars and then multiplied by the number of non-resident workers. 3 U.S. Census Bureau, Longitudinal Employer-Household Dynamics (LEHD), 2017. 4 Michael P. Niemera and John Connolly, “Office-Worker Retail Spending in a Digital Age,” International Council of Shopping Centers, 2012, http://www.icsc.org/srch/rsrch/wp/USSC_Class_091305.pdf San Luis Obispo Retail Sales Analysis 7 RESULTS: TOTAL NON-RESIDENT SPENDING In 2018, non-residents spent over $1 billion in the City of San Luis Obispo. This accounts for 69 percent of the city’s total retail sales. A high share of sales in the Building Materials and General Merchandise categories are generated by non-residents, as well as over three-quarters of Auto Dealers and Supplies sales. Non-residents were also estimated to account for a significant share of the spending in Eating and Drinking Places and Other Retail Stores. Local-serving businesses, such as Food Stores and Drug Stores, are less dependent on non-resident spending. FIGURE 5: ESTIMATED NON-RESIDENT SPENDING, CITY OF SAN LUIS OBISPO (2018 DOLLARS) Type of Business Citywide Sales Resident Spending Non-Resident Spending Non-Resident Share Apparel Stores $72,734,800 $35,228,304 $37,506,496 52% Auto Dealers and Supplies $323,272,400 $69,849,822 $253,422,578 78% Building Materials $162,294,500 $11,009,442 $151,285,058 93% Drug Stores $24,543,636 $11,866,997 $12,676,639 52% Eating and Drinking Places $184,909,000 $71,698,275 $113,210,725 61% Food Stores $157,125,000 $96,626,180 $60,498,820 39% Furniture and Appliances $105,735,200 $50,908,322 $54,826,878 52% General Merchandise $188,793,053 $12,639,527 $176,153,525 93% Packaged Liquor $15,289,600 $14,340,030 $949,570 6% Service Stations $99,284,526 $38,626,500 $60,658,026 61% Other Retail Stores $142,536,000 $43,569,756 $98,966,244 69% Total $1,476,517,715 $456,363,155 $1,020,154,560 69% Source: HdL, 2018; City of San Luis Obispo, 2018; Strategic Economics, 2020. San Luis Obispo Retail Sales Analysis 8 WORKER SPENDING Those who work in the City of San Luis Obispo but live outside the city limits spent nearly $218 million in the city in 2018. Non-resident worker spending represents 15 percent of total retail spending in San Luis Obispo and 21 percent of total non-resident spending in the City. FIGURE 6: ESTIMATED NON-RESIDENT WORKER SPENDING, CITY OF SAN LUIS OBISPO (2018 DOLLARS) Type of Business Annual Per Capita Spending Total Non-Resident Worker Spending Apparel Stores $636 $15,787,547 Auto Dealers and Supplies $0 $0 Building Materials $0 $0 Drug Stores $417 $10,361,430 Eating and Drinking Places $1,585 $39,346,167 Food Stores $1,185 $29,421,008 Furniture and Appliances $490 $12,174,680 General Merchandise $2,517 $62,509,417 Packaged Liquor $0 $0 Service Stations $1,551 $38,517,934 Other Retail Stores $398 $9,870,625 Total $8,779 $217,988,809 Source: ICSC, “Office Worker Retail Spending in a Digital Age,” 2012; Strategic Economics, 2020. OTHER NON-RESIDENT SPENDING Visitors, regional shoppers, and other non-residents make up the remainder of non-resident spending, totaling an estimated $802 million for 2018. Due to the proximity of Cal Poly, a significant share of this spending is likely attributable to students, staff, and faculty who live outside the city. The student population includes nearly 22,000 students. Of this total, approximately 7,744 students live on campus, which is outside of the city limits.5 Visitors from outside of the region and other tourists constitute another large share of non-resident shopping. Specific data about tourist spending in the city was not available; however, information on countywide visitor spending provides some insight. In 2018, retail spending by visitors to San Luis Obispo County was estimated at more than $1 billion (See Figure 6). Since the City of San Luis Obispo is a major destination in the region, a significant share of the total visitor spending is likely occurring in the city.6 5 https://calpolynews.calpoly.edu/quickfacts.html 6 The City of San Luis Obispo accounted for approximately 23 percent of countywide travel spending impacts in 2007. Source: Economic Vitality Corporation, San Luis Obispo County Tourism Analysis Report 2008, prepared by Strategic Marketing Associates and Dean Runyan Associates. San Luis Obispo Retail Sales Analysis 9 FIGURE 7: VISITOR RETAIL SPENDING BY CATEGORY, SAN LUIS OBISPO COUNTY, 2018 Category Visitor Spending (millions) Food Service $513.2 Food Stores $72.7 Local Transportation & Gas $207.8 Retail Sales $281.0 Total $1,074.7 Source: California Travel Impacts 2010-2018, prepared by Dean Runyan Associates; Strategic Economics, 2020. Finally, a significant portion of non-resident spending in the City of San Luis Obispo is likely attributable to regional shoppers. These shoppers are non-residents who live outside of the city but are attracted to the quantity and variety of the city’s shops and restaurants. SUBAREA ANALYSIS In addition to estimating the citywide share of retail spending that is attributable to non-residents, Strategic Economics conducted an evaluation of five subareas of the city. The five subareas that were analyzed include: the Downtown area, the Los Osos Valley Road (LOVR) Corridor, the Madonna Road area, the Foothill area, and the Airport area (Figure 8). Together the subareas accounted for 62 percent of the total retail sales in the City in 2018 (Figure 9 and Figure 10). FIGURE 8: RETAIL SUBAREAS IN THE CITY OF SAN LUIS OBISPO Source: City of San Luis Obispo, “Sales Tax Newsletter,” 2012. San Luis Obispo Retail Sales Analysis 10 FIGURE 9: ANNUAL RETAIL SALES BY SUBAREA, 2018 Subarea Retail Spending Share of City's Retail Spending Los Osos Valley Road Corridor $527,615,100 36% Downtown $195,333,200 13% Madonna Road Area $96,319,537 7% Airport $58,063,100 4% Foothill $43,465,700 3% Other $555,721,078 38% Citywide Total $1,476,517,715 100% Source: Strategic Economics, 2020. FIGURE 10: SHARE OF ANNUAL RETAIL SALES BY SUBAREA, 2018 Source: Strategic Economics, 2020 Strategic Economics estimated retail sales in each of the subareas based on sales tax revenue data provided by HdL and by applying the same methodology used to estimate citywide sales. Figure 11 provides a breakdown of retail sales for the top categories in each subarea. The share of non-resident spending in the subareas was not calculated since this would require sidewalk surveys or other data on the residency of individual customers. However, the composition of sales within each subarea provides insight on resident versus non-resident spending based on the findings of the citywide analysis and general trade area sizes typically associated with different retail categories. DOWNTOWN AREA Downtown San Luis Obispo is a regional destination that serves city residents, workers, regional shoppers, and out-of-town visitors. Downtown generated 13 percent of all retail sales in the city in 2018, making it the second largest source of sales among the subareas. Downtown attracts shoppers Los Osos Valley Road Corridor 36% Downtown 13% Madonna Road Area 7% Airport 4% Foothill 3% Other 38% San Luis Obispo Retail Sales Analysis 11 from around the region to its concentration of restaurants and clothing stores. 41 percent of the area’s retail sales were generated by Eating and Drinking Places and 24 percent from Apparel Stores. While the citywide estimate suggests that about half of the spending in these categories comes from visitors, the share of visitor spending may be higher in Downtown due to its regional draw. LOS OSOS VALLEY ROAD CORRIDOR (LOVR) The LOVR Corridor consists of big box and automobile sales retailers in the southern part of the city. The LOVR Corridor generates the largest share of sales among subareas in the city (36 percent in 2018) and is likely a major source of non-resident spending. 43 percent of retail sales in the LOVR Corridor came from Auto Dealers and Supplies, a category likely to attract a high share of spending from non-residents since dealerships draw shoppers from a large regional trade area (78 percent of citywide spending in Auto Dealers and Supplies is estimated to come from non-residents). Additionally, the large chain and big box stores in the LOVR Corridor, such as Costco, Target, and Home Depot, are represented in the Other Retail category. These stores also draw from a large trade area and are likely to capture a high amount of non-resident spending.7 MADONNA ROAD AREA The Madonna Road Area is located along Highway 101, south of the Downtown and adjacent to the LOVR Corridor. It is the third largest subarea in terms of retail sales, generating seven percent of citywide retail sales in 2018. The subarea includes several large chain stores that are mostly located within the Madonna Plaza Shopping Center. The Madonna Road Area’s diverse range of establishments in Furniture and Appliances, Eating and Drinking Places, Other Retail Stores, and General Merchandise, likely serves a mix of both local and regional shoppers, with General Merchandise stores most likely to attract non-residents. FOOTHILL AREA The Foothill Area is a collection of retail located off Highway 1 in the northern part of the city. The area contains mostly smaller retail businesses located along Foothill Boulevard and within the University Square Shopping Center. These businesses likely serve both resident and non-resident shoppers, including non-residents passing through via Highway 1 and living, working, or visiting at the nearby Cal Poly campus. Apparel Stores generated 37 percent of sales in the subarea in 2018, while sales in all other retail categories accounted for 63 percent of spending. AIRPORT AREA The Airport Area includes commercial and industrial spaces surrounding the San Luis Obispo County Regional Airport west of Broad Street and south of Rockview Place. The subarea largely consists of light industrial uses accommodating production, distribution, and repair service businesses, and airport-related uses such as car rental agencies. Nearly a quarter of 2018 retail sales were in the Building Materials category, 10 percent in Auto Dealers and Supplies, and the remainder in all other categories. Based on the citywide analysis, a high share of sales in these categories are likely generated by non-resident spending. However, the exact mix of resident versus non-resident spending 7 The Other Retail Stores category includes sales in the pet products, toys, hobbies, and other miscellaneous items categories, and a varying mix of other categories that were aggregated due to confidentiality requirements. The categories aggregated in Other Retail Stores varies by subarea since each subarea’s business mix triggers unique confidentiality suppression requirements. San Luis Obispo Retail Sales Analysis 12 is less certain for the Airport Area since the types of businesses vary widely. Notably, retail sales likely represent a relatively small portion of total sales in the Airport Area. Only 56 percent of the Airport Area’s 2018 sales tax revenue was generated in retail sales categories; the remainder was instead generated in business-to-business sales categories. FIGURE 11: TOP RETAIL CATEGORIES BY SUBAREA, 2018 Total Sales % of Total Subarea Sales Citywide Non-Resident Share of Spending in Category Downtown Area Apparel Stores $47,431,600 24% 52% Eating and Drinking Places $80,155,000 41% 61% Furniture and Appliances $26,676,200 14% 52% Other Retail Stores* $41,070,400 21% 69% Total Retail Sales $195,333,200 100% 69% Los Osos Valley Road Corridor Auto Dealers and Supplies $226,632,500 43% 78% Eating and Drinking Places $13,210,000 3% 61% Furniture and Appliances $11,859,400 2% 52% Other Retail Stores* $275,913,200 52% 69% Total Retail Sales $527,615,100 100% 69% Madonna Road Area Apparel Stores $10,067,400 10% 52% Eating and Drinking Places $15,343,300 16% 61% Furniture and Appliances $36,555,800 38% 52% General Merchandise $10,098,737 10% 93% Other Retail Stores* $24,254,300 25% 69% Total Retail Sales $96,319,537 100% 69% Foothill Apparel Stores $15,876,200 37% 52% Other Retail Stores* $27,589,500 63% 69% Total Retail Sales $43,465,700 100% 69% Airport Auto Dealers and Supplies $5,791,300 10% 78% Building Materials $14,075,600 24% 93% Other Retail Stores* $38,196,200 66% 69% Total Retail Sales $58,063,100 100% 69% *Certain retail categories were aggregated under “Other Categories” in order to preserve merchant confidentiality. The aggregated categories vary by subarea since each subarea’s business mix triggers unique confidentiality suppression requirements. Source: City of San Luis Obispo, 2018; Strategic Economics, 2020.