Cathedral City Projects $7 Million Budget Surplus

Cathedral City expects to have an operational budget surplus in General Fund of approximately $7 million for FY 2021/2022

CATHEDRAL CITY — There is good news for this growing community. Let Tami Scott, Administrative Services Director, tell you in her own words: “Where we expected extreme volatility, and had projected more than a $5 million deficit, we expect to have an operational (budget) surplus for our General Fund of approximately $7 (million) for FY 2021/2022.”

Yes, you read that correctly.

The City Council will officially hear that news when it meets in special session at 2 p.m. Thursday, Sept. 1. Scott will present the information for discussion and direction only. The surplus could mean adding jobs.

So, exactly how did the city end up with a surplus after declaring a fiscal emergency in July 2020?

There are several reasons, according to Scott who writes that:

• Sales Tax and Transactions and Use Tax (TUT) Revenue is expected to “far exceed” projections due to significant changes in buying patterns. Sales Tax is anticipated to reflect $14 million, and TUT will reach $9.7 million. Collectively, this will result in $6.7 million in additional revenue than what was projected. This amount of revenue, in these categories, is unheard of for Cathedral City and even with the caveat of
a potential 15%-20% softening in the next 12-24 months, these revenue categories are still expected to be better than any of these revenues historically for the city…truly unprecedented times.
• With more development and growth in our city, e.g., rooftops, we believe there will be continued economic growth and a more stable property tax revenue base as well as increased Utility User’s Tax (UUT) revenue. As an example, for 14 years, we have consistently budgeted $2.7 million for this UUT revenue source … we expect this revenue source to reach $3.2 million, more than $500 thousand over budget. This is directly due to increased rooftops and families in Cathedral City.
• Cannabis – although this area has struggled, and the revenue generated is approximately $3 million below budget, we anticipate the Cannabis Cultivation Ramon Road project to finally open in FY 2022/2023 and begin operations with a phased-in approach — slowing any further reduction in projected cannabis tax revenue.
• One-time revenues totaling $2 million will be recognized this fiscal year.

There are other categories with amounts exceeding budgeted projections along with a few that do not meet our projections, according to Scott. A full presentation of details will be presented to City Council in October at the conclusion of the City’s audit.

During the past two years, the city has been operating in unprecedented times, according to Scott.

“The global pandemic, economic shutdowns, and the local increase in development continue to test the city’s resource allocation,” Scott states in a staff report. “In FY 2021/2022, Council adopted a biennial budget designed to be a conservative forecast for an uncertain future. However, the new normal post-2020 has revealed various resources need to be reinstated to improve the city’s service delivery and meet the growing needs of the community.

Although staff is recommending strategic staffing additions and changes, Scott says expects to have
sufficient resources to achieve a small surplus.