“Forecasting Sales and Use Tax Revenues Successfully” -- webinar 2:00 – 3:30 p.m. PST, Wednesday, November 13, 2013

CSMFO Coaching Program Learn how to forecast sales and use tax revenues successfully. CSMFO has identified this as one of the core skills for local government finance professionals. Advance registration required for this no-charge webinar: https://www1.gotomeeting.com/register/594339769 Panel topics: 1. How do sales and use tax revenues fluctuate? 2. What are the common errors to avoid in forecasting these revenues? 3. How can you follow a structured, deliberate approach to forecast accurately and address economic uncertainty? 4. How do you adjust for payment aberrations, economic fluctuations, the “triple-flip,” and other accruals? Presenter: * Lloyd de Llamas, Executive Chairman of HdL Companies, previously City Manager for Monterey Park, Lawndale, and Woodlake. Commentator: * Mary Bradley, Interim Finance Director, Fremont, and past President CSMFO We’ll be using webinar tools (including real-time questions and live polling) to make this a great opportunity for audience interaction. Are you a member of CSMFO and want to earn CPE credit for participation in the webinar? Note the requirements at registration. Post-Webinar Group Discussions Many agencies are organizing groups to participate in the webinars (live or recorded) and discuss the topics among themselves after the webinars. Some are summarizing their discussions and distributing them to managers throughout their organizations. Use the CSMFO Coaching Program as an effective way to enhance professional development in your agency. Here are some discussion starters for this session: a. What are the key drivers of our sales and use tax revenues? b. What can we do to better track and project these sources? c. How can we anticipate important adjustments for State administrative fees, County charges, and triple flip elements? MORE RESOURCES--See the "Coaching Corner" at www.csmfo.org/coaching for valuable resources to boost your career. These include a Financial Management Skills Inventory, Resource Matrix, Coaches Gallery of 24 volunteer CSMFO Coaches willing

to help you on a one-to-one basis, and an archive of digital recordings and materials from past webinars at www.csmfo.org/training/webinars. Moderator: Don Maruska, Master Certified Coach Director, CSMFO Coaching Program; CSMFO@donmaruska.com See "Coaching Corner" at www.csmfo.org/coaching Presenter:

Lloyd de Llamas, Executive Chairman, HdL Companies Lloyd is Executive Chairman of Hinderliter, deLlamas and Associates and has been involved in sales tax management since 1987. He developed much of the analytical and audit methodology use by all local governments to monitor and maximize sales and use tax revenues. His company and its two subsidiaries currently provide revenue related services to 375 agencies in six states. He is a co-founder of two subsidiary companies, HdL Coren & Cone, Inc. and HdL Software LLC and previously served as City Manager of Monterey Park, Lawndale and Woodlake and as an Assistant in Torrance and San Diego. He is a past President of the San Gabriel City Manager’s Association, was a founding Director of the California Redevelopment Association and served for over 20 years on the Los Angeles County Committee on School District Organization. He has a Business degree from San Diego State University and performed his postgraduate work in public administration through the Consortium of California State Colleges and Universities. Commentator: Mary Bradley, Interim Finance Director, City of Fremont, and a past President of CSMFO

Forecasting Sales and Use Tax Revenues

Coaching Program November 13, 2013

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Coaching Program: 15th year as member benefit

Career Development Committee

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Overview of Session 1. How do sales and use tax revenues fluctuate? 2. What are the common errors to avoid in forecasting these revenues? 3. How can you follow a structured, deliberate approach to forecast accurately and address economic uncertainty? 4. How do you adjust for payment aberrations, economic fluctuations, the “triple-flip,” and other accruals? Presenter: Lloyd de Llamas, Executive Chairman, HdL Companies Commentator: Mary Bradley, Interim Finance Director, Fremont, and past President CSMFO Moderator: Don Maruska, Director, CSMFO Coaching Program

Polling Question #1

Who’s attending this webinar at your location?

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FORECASTING SALES AND USE TAX REVENUES

California Society of Municipal Finance Officers November 13, 2013

IT CAN BE A WILD RIDE! 13 YEAR STATEWIDE HISTORY

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00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13

Millions

Autos And Transportation

Building And Construction

Business And Industry

Food And Drugs

Fuel And Service Stations

General Consumer Goods

Restaurants And Hotels

Common Error #1

• Using Monthly Advances as a Forecast Tool: Estimates based on previous year’s allocation

and state-wide growth estimates. Constant Accounting Adjustments and

Tinkering. Irregular Taxpayer Schedules.

Error # 2 Over-Interpreting Monthly News

Sept. Sales Post 4% - Consumer Demand Stronger ICSC - October 10, 2013

Tepid Same Store Sales for September Chain Store Age- October 10, 2013

Gas Prices Drop Again as the Holidays Approach, Auto Association Says CNN, December 17, 2012

Gasoline prices Expected to Set Record in 2012 Post Gazette, December 9, 2012

Here's The Excuse For Why Black Friday Sales Were DOWN Nearly 2% This Year Business Insider, November 25, 2012

Black Friday Results Are In: The Centerpiece of a Huge Multiday Bricks-and-Clicks Shopping Spree Time, November 26, 2012

U.S. Consumer Spending Holds Steady, Consistent With 2011 Gallup.com, December 7, 2012

Consumer Spending Not Looking Too Good Hot Air, December 10, 2012

Housing Starts Near 5 Year High Inman News, December 19, 2012

Housing Starts Slowed to 861K in Nov. AZ Central, December 19, 2012

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Common Error # 3:

• Assuming Economists Live in Your Neighborhood: Top down national/state/regional perspectives. Macro models that may be out of date or

irrelevant to your specific tax base. Economic/political theory biases. Lousy economic information to start with.

Common Error #4:

• Assuming that the BOE lives in Your Neighborhood: Tax Collectors, not forecasters. State estimates based on statewide basket of

goods – your basket will not necessarily match. Fragmented data and forecasting responsibilities.

Your Basket of Goods is not Their Basket:

A

B

C

Different Bases – Different Issues:

Tourist Town

Regional Retail

Industrial Tax Base

Rank Firm Name FY Receipts Percent Change

Percent of Total

Cumulative Percent

1 Bargain Bucks 1,756,226 16.51% 14.62% 15%

2 Acme Dental Supply 493,029 63.30% 6.34% 21%

3 Honest John Auto 649,885 6.59% 5.64% 27%

4 Latest and Greatest 488,856 23.76% 4.75% 31%

5 Wild Things Apparel 473,470 57.42% 4.67% 36%

6 Value Mart 370,634 16.47% 4.11% 40%

7 Lumber Lot 447,480 18.87% 3.68% 44%

8 Last Gasp Electronics 335,134 -13.29% 2.82% 47%

9 Industrial Chemicals inc 334,847 3.46% 2.65% 49%

10 Mike's Beer & Gas 287,702 2.92% 2.37% 52%

Total 5,637,263 51.66% 52%

YOU HAVE A SMALLER SAMPLE OF TAXPAYERS………………………

Polling Question #2

Which of these common errors has your agency avoided?

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The Elements • One Cent Local Tax (Point of Sale) County State and Allocation Pools State Administrative Fees Triple Flip Deduction/Reimbursement County Bite ( In Sacramento Valley: Butte, Pumas, Sierra)

• Transactions Tax Overrides (Point of Purchase)

• Proposition 172 Public Safety (Via Counties)

Step #1 – Recognize One Time Events

• Retroactive Taxpayer Refunds/audit levies. • Use Tax from One-time Purchases. • BOE Fund Transfers. • BOE Accounting Corrections. • Late and Double-up Payments. • Triple Flip True Ups. • Misallocations (Regardless if In Your favor).

Step #2 – Factor in Future Changes

• New or Coming businesses. • Closing or dying businesses. • New Competition from outside of Jurisdiction. • Short-term Capital Projects (Use Tax). • Changes in Tax Law and Regulations. • Shift of Tax to On-line Fulfillment Centers.

Step #3 – Forecast By Economic Segment

Autos &Transportation… Autos &Transportation…Building & Construction… Autos &Transportation…Building & Construction… Business & Industry Autos &Transportation…Building & Construction… Business & Industry…Food & Drugs Autos &Transportation…Building & Construction… Business & Industry…Food & Drugs…Fuel & Service Stations

Autos &Transportation…Building & Construction… Business & Industry…Food & Drugs…Fuel & Service Stations…General Consumer Goods

Autos &Transportation…Building & Construction… Business & Industry…Food & Drugs…Fuel & Service Stations…General Consumer Goods…Restaurants & Hotels

Autos &Transportation…Building & Construction… Business & Industry…Food & Drugs…Fuel & Service Stations…General Consumer Goods…Restaurants & Hotels…Receipts from County Allocation Pools.

Step #4 -From the Net Increase/Decrease, factor takeaways and Give-backs:

• - State Administrative fees. • - County Bites (If Any). • - 25% Triple Flip deduction. • + Triple Flip Reimbursement – two factors:

1. True-Up from Prior Year. 2. BOE’s current estimate of your 25%.

Polling Question #3

Which of these steps does your agency’s forecast include?

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Putting It Together:

City of Gotham BOE Payment (Net of Fees):

Current 2Q2013 $ 3,241,599

One-Time Events/Changes: Gotham Hospital Project $ 275,000 Ajax Generator Purchase Q312 (185,625) Honest John Auto-Mgmt. Change (150,000) Itty Bitty Italian Motors - New (2 QTRS) 120,000 Funky Fuel - Pending Correction 48,500 We Squeeze Finance Refund 4Q12 38,525 Granny's Grill - New (3QTRS) 30,000 Somebody Else's Money 2Q2013 (16,650) Randy Andy’s - closed (13,625)

$ 146,275

Previous 1Q2013 3,313,388 Previous 4Q2012 3,452,303 Previous 3Q2012 3,353,313

$ 13,360,603

Economic Factors (3 Qtrs.)

Autos/Transportation + 8.5% $279,550 General Consumer Goods + 3.5% 99,000

Restaurants/Hotels + 5.7% 68,100 Building / Construction +6.0% 23,100 Fuel / Service Stations – 2.0% -16,200

Business / Industry + 2.5% 9,800 Food / Drugs + 2.7% 9,450

County Pools + 10.5% 116,550 $ 589,350

Triple Flip Deduction (25%) ($ 3,528,916)

Triple Flip Back Fill BOE 2013-14 Estimate (Net of Admin) $ 3,523,486 True Up from 2012-13 168,099

$ 3,691,585

Total – Gotham 2013-14 $ 14,278,331 Round to: $ 14,278,000

One-time + Economic Factors (Less BOE Fees) $728,269 Total (5.2% gain) $14,088,872

Polling Question #4

How many people are attending at your location?

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Transactions Tax Overrides – Same Process - Different Basket of Goods.

• Tax collected only from Jurisdiction’s businesses and residents: Vehicles, Vessels, Aircraft registered to district. Merchandise shipped into district from out-side pays.

Merchandise shipped from inside to outside does not. Walk-In Retail matches sales tax.

• Retailers without In-district Nexus not obligated to collect tax.

Proposition 172 Revenues

• Based on each of the 58 counties share of taxable sales in prior calendar year.

• Calculation of ratio held for two quarters to allow for late payments and other adjustments.

• Cash flow calculations based on federal fiscal year timing rather than state fiscal year.

• Counties keeps 94% to 96% - remainder shared with cities – each county does it slightly different.

RESOURCES FOR TRACKING TRENDS

AAA Gas Price Survey Edmonds Nations Restaurant News AdvisorPerspectives.com Energy Information Administration Oil Price information Service American Institute for Architects Engineering News Record Portland Cement Association American Machine Tool Distributors Fabricators & Manufacturing Association RBC Capital Markets American Road and Transportation Builders Federal Reserve Beige Book Real Time Economics Association of Manufacturing Technology Franchise Tax Board Reed Construction Data Autodata Corp. FRBSF Economic Letter Regional Business Journals Autoweek News Gartner Research Restaurant News Bloomberg News ICSC-Goldman Sachs Sales Snapshot Retail Leas Trac BOE Economic Perspective Institute for Supply Management Retail Traffic Magazine Buildfax Remodeling Index Internet Retailer RetailSails.com Building Industry Association Internet Search Engines Rueter's Bureau of Economic Analysis JD Power and Associates Sageworks Calculated Risk Jefferies LLC Sentier Research California Association of Realtors JP Morgan, Chase & Company Shop. Org California Department of Finance Knapp-Track Index Shopping Center Today California EDD WARN – layoff Notices LADEC Shopper Trak California New Car Dealer Association LMC Automotive Stockholder Quarterly Reports ChainLinks Retail Advisors Local Business Publications Supermarket News Daily Colliers International Manufacturer’s Alliance Supply Mgmt. Index of Mfg. Activity Comerica Regional Update Marketing Daily Technomic Consulting ComScore Inc. Market Watch Trucking Info Costar Group Moody's Analytics True Car Cushman Wakefield – Market Reports Motor Intelligence U.S. Census Bureau Deal Makers National Association of Manufacturers U.S. Travel Association Deloitte Retail-Distribution Group National Bureau of Economic Research Wall Street Journal Dirge Construction Outlook National Real Estate Investigator Wards Automotive Discover US Spending Monitor National Resource Defense Council Wells Fargo Economic Research Dshort Advisor Perspectives National Retail Federation

In Short………..

• Factor out one-time payments and accounting aberrations.

• Factor for new or closing businesses and other changes.

• Forecast by individual Economic Segments. • Factor for Administrative fees, County Shares, Triple

Flip deductions and reimbursements. • Understand and keep up with your city’s tax base.

Polling Question #5

Which of these make sense for your agency’s forecast?

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THOUGHTS, QUESTIONS, COMMENTS? (909) 861-4335 www.hdlcompanies.com Lloyd de Llamas 11/13/13

You may subscribe to HdL’s Headline News for free by sending an email to headlines@hdlcompanies.com.

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Contacts Presenter: Lloyd de Llamas, Executive Chairman, HdL Companies, LdeLlamas@hdlcompanies.com Commentator: Mary Bradley, Interim Finance Director, Fremont, and past President CSMFO, mbradleysv@aol.com Moderator: Don Maruska, Director, CSMFO Coaching Program CSMFO@DonMaruska.com

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Resources and Feedback A digital audio recording of the session and an Agenda packet with PDF of the PPT with polling results and other materials will become available in ~ 24 hours at the “Live Audio & Archives” tab of www.csmfo.org/training/webinars Other coaching resources, including volunteer 1-1 coaches are available at www.csmfo.org/training/coaching Please complete the follow up survey.

Post-Webinar Discussion Questions

a.What are the key drivers of our sales and use tax revenues?

b.What can we do to better track and project these sources?

c. How can we anticipate important adjustments for State administrative fees, County charges, and triple flip elements?

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Polling Question #6

How was this webinar of value to you?

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California Forecast:

Sales Tax Trends and Economic Drivers

HdL provides relevant information and analyses on the economic forces affecting California’s local government agencies. In addition, HdL’s Revenue Enhancement Services and Software help clients to maximize revenues.

HdL serves over 350 cities, counties and special districts in California and across the nation.

“Good information leads to good decisions.”

October 2013

HdL Companies www.hdlcompanies.com

HdL Consensus Forecast – October 2013

STATEWIDE SALES TAX TRENDS

2013-14 2014-15 Autos/Transportation 9.0% 5.0%

A combination of pent-up demand, affordable financing options, better fuel efficiency and highly desirable technology packages are expected to make 2013 the highest sales year for autos since 2007. However, sales are expected to plateau toward the last half of the fiscal year and return to more normal growth levels as the initial backlog is satisfied.

Building/Construction 9.7% 5.0%

Permit activity suggests that many parts of the state are in the early stages of a housing recovery with remodeling and construction activity for single family and multi-family units accelerating at a pace last seen in 2008. However, gains spurred by an increase new households, declining unemployment and rising personal income may be tempered by tightened credit and/or rising mortgage interest rates.

Business/Industry 2.0% 2.5%

The ratio between new orders for capital equipment and inventories has returned to pre-recession ranges suggesting that the post-recession “growth spurt” has passed and expansion going forward will be tepid. Many companies are converting to tax free cloud services rather than investing in new hardware and equipment. Construction of alternative and renewable energy is expected to continue through 2015 though the rate of new project starts may slow.

Food/Drugs 2.6% 2.5%

Large drug store chains continue to expand their range of goods and anticipate increased traffic by adding health care clinics and lab services to accommodate new demand created by the Affordable Care Act. Competitive pressures on traditional grocers will continue with the introduction of new specialty food concepts, expanded food offerings by non-grocer discount retailers and by the resurgence of on-line order/home delivery services.

Fuel/Service Stations -2.4% -2.0%

Increased fuel efficiency, conversions of fleets to natural gas and changing demographic preferences are rapidly reducing gasoline consumption despite population growth. Prices are also experiencing downward pressure due to the seasonal shift to winter fuel blends, and booming domestic oil production. California typically has higher prices than the rest of the nation because of a limited number of refineries and a closed distribution system, leaving it more vulnerable to supply disruptions and price surges.

General Consumer Goods 3.7% 3.0%

Consumer confidence in the recovery remains high despite rising uncertainty related to federal fiscal maneuvers. If Congressional brinksmanship is short-lived, stock market gains should help sustain an increase in luxury consumer spending into next year while increased debt from the purchase of homes and new cars is expected to keep gains in middle income spending at more moderate levels. A job recovery that consists primarily of part-time and minimum wage jobs is expected to produce little sales growth from lower income purchasers.

Restaurants/Hotels 6.2% 5.0%

As the economy improves and people begin to travel more, hotel occupancy rates are increasing and average daily rates at hotels and tourism-related spending are on the rise. The growth in Chinese tourism to the California market has increased almost 900% since 2003. In the restaurant segment, growth appears to be primarily in quick-service and fine dining categories while the middle-priced casual dining segment continues to report losses or very moderate gains.

State and County Pools 11.6% 6.0%

Sales at Amazon and other out-of-state internet retailers that began collecting taxes in September 2012 have boosted countywide pool allocations. In-state retailers are also adding to pool totals as they add emphasis to Internet offerings supplied from distribution centers outside California. Private automobile sales, equipment leases and out-of-state purchases of business equipment and supplies are also adding to pool gains.

TOTAL 5.0% 3.3%

The Proposition 172 growth projection is 4.4% for Fiscal Year 2013-14. This factor varies from HdL’s Bradley-Burns growth forecast due to differing collection periods and comparisons to prior year data that include onetime payment aberrations.

Beacon Economics www.BeaconEcon.com

National and Statewide

ECONOMIC DRIVERSOctober 2013

2013-14 2014-15 U.S. Real GDP Growth 3.0% 4.1%

The U.S. economy posted a modest 2.5% increase in Real GDP during the second quarter of 2013. The expansion was forecast to continue into the third quarter, but may be slowed by headwinds emanating from Washington D.C. Beacon Economics expects the economy to grow during the first two quarters of fiscal 2013-14 despite the ongoing negotiations in the Capitol, though acceleration in growth will likely only begin to express itself in early 2014.

U.S. Unemployment Rate 7.2% 6.8%

Job growth continued during the first two months of the fiscal year. Through August, the U.S. added back over 6.8 million of the roughly 8.7 million jobs lost during the Great Recession. The unemployment rate has already dipped to 7.3%--down from its peak of 10.0% in October 2009. Unemployment is expected to continue to fall as the economy gradually adjusts to fiscal policy changes, but the coming fiscal year will see the unemployment rate remain above 7%.

California Total Nonfarm Employment Growth 1.6% 2.6%

Nonfarm employment growth in California continues to move forward, albeit at a slower pace. Through August, California regained more than 826,000 jobs since hitting bottom in February 2010. Virtually every major sector has added jobs over the past year with the exception of Government and Manufacturing, and every major region saw job growth over the past 12 months. As the economy adjusts to higher taxes and lower government spending, the current forecast calls for growth to accelerate to over 2%.

California Unemployment Rate 8.5% 7.7%

At 8.9%, California’s unemployment rate has maintained a sub-9% rate over the past four months. The monthly figures on labor force participation remain volatile, but the trend shows that the rate has declined despite the upward pres-sure of rising numbers of Californians looking for work. As nonfarm employment growth begins to pick up, Beacon Economics expects the unemployment rate to drop, dipping below 8.5% by the end of 2013 and into the mid-7% range by 2014-15.

California Population Growth 0.7% 0.8%

In recent years, population growth in California has dipped below 1% annually. In part, the lackluster growth is a function of a weak economy as net migration tends to be cyclical. However, it is also a function of slower natural population increase. Natural population growth (births minus deaths) has fallen as fertility rates have declined and the population has aged. Although the cyclical effects of the Great Recession should begin to moderate, slower natural population increases are expected to drive sub-1% population growth in coming years.

California Median Existing Home Prices $ 379,500 $ 416,275

Despite a relatively strong uptick in new construction activity, housing inventory remains at just 3.1 months of supply. As such, home price growth has continued to be robust, with median sales prices up 28.5% on a year over year basis in August. This growth comes despite the fact that mortgage lending at commercial banks remains muted, keeping demand below where it would otherwise be. Expect continued double digit growth this fiscal year before price appre-ciation moderates back toward historical averages in subsequent years.

California Residential Building Permits 88,700 123,000

Tight housing inventories combined with a low housing vacancy rate, rising prices and a gradually improving economy have continued to stimulate building activity throughout the state’s major metropolitan areas. Through August, there were over 52,000 new residential permits issued in California. Given the surge in renter households in the wake of the foreclosure crisis, multi-family construction continues to form a larger portion of new residential units than the single-family market. Although population growth has slowed in recent years, we continue to add new residents, which exacerbate an already-low housing vacancy rate and should keep permit growth robust over the next two years.

SOUTHERN CALIFORNIA OFFICE

5777 West Century Boulevard, Suite 895Los Angeles, California 90045Telephone: 310.571.3399Fax: 424.646.4660E-Fax: 888.821.4647

Beacon Economics, LLC has proven to be one of the most thorough and accurate, economic research/analytical forecasters in the country. Their evaluation of the key drivers impacting local economies and tax revenues provides additional perspective to HdL’s quarterly consensus updates. The collaboration and sharing of informatiion between Beacon Economics and HdL helps both companies enhance the accuracy of the work that they perform for their respective clients.

HdL Companies1340 Valley Vista Drive, Suite 200Diamond Bar, California 91765Telephone: 909.861.4335 • 888.861.0220Fax: 909.861.7726

California’s allocation data trails actual sales activity by three to six months. HdL compensates for the lack of current information by reviewing the latest reports, statistics and perspectives from fifty or more economists, analysts and trade associations to reach a consensus on probable trends for coming quarters. The forecast is used to help project revenues based on statewide formulas and for reference in tailoring sales tax estimates appropriate to each client’s specific demographics, tax base and regional trends.

“Good information leads to good decisions.”

Polling Results from “Forecasting Sales and Use Taxes Successfully” – webinar

November 13, 2013

129 locations; 222 estimated participants in live audience