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Rancho Santa Margarita staff report midyear surplus, warn of lower sales-tax receipts
Summary
City staff told the Rancho Santa Margarita City Council the midyear FY 2024–25 update projects a modest general-fund surplus driven by strong investment income and property-tax growth, but staff warned sales-tax receipts are tracking below prior estimates and will be monitored.
City staff presented a midyear update on the fiscal year 2024–25 general fund on the Rancho Santa Margarita City Council agenda, reporting a projected surplus and cautioning about weakening sales-tax trends.
At the council meeting, finance staff said revenues were running above budget in some categories and that the city’s investment portfolio had produced stronger-than-expected earnings. “Based on this analysis, the city revenues are projected to be above budget by approximately $313,000,” the presenter said. Staff also reported a projected general-fund surplus of $250,494 for the fiscal year.
Why it matters: the city depends on sales tax, property tax and investment income to support operations and capital projects. Staff said property tax is up roughly 4% year-over-year on assessed values and that investment earnings were about $478,000 higher than budgeted through the midyear estimate. Those gains have helped offset a decline in sales-tax receipts.
Staff identified a sales-tax shortfall in its midyear analysis, noting the city reduced its sales-tax projection by about $236,000 after reviewing quarterly data; as of December, sales tax was tracking roughly $80,000 below budgeted pacing. The finance presentation attributed part of the decline to shifts in state tax distribution and softer consumer spending in categories such as auto and fuel, while restaurants and some commercial sectors remained stable.
On expenditures, staff reported operating departments are managing costs and projected operating expenditures will finish the year about $239,000 under budget. Capital improvement projects remain funded; staff expects roughly $3.3 million of current CIP reserve funds to be used for ongoing projects and noted previously approved grants that will offset some costs.
Council response: Council member Holloway praised the presentation as “very thorough” and asked for the level of concern. Staff responded that reserves remain healthy and that, while the city may need to avoid adding new ongoing programs if revenues soften, the city is not facing immediate cuts to core services. The city will continue monitoring contract costs, including law-enforcement contract increases, and may propose amendments later if needed.
Next steps: staff recommended the council receive and file the midyear budget update and said no budget amendments were required at this time. The city will begin FY 2025–26 budget workshops in May, continue monitoring sales-tax performance and investment options as certain CDs mature in spring 2025.
