2022 Fourth Quarter Financial Report

The Financial Report for the City of Arvada provides an unaudited overview of the major funds and how their revenues and expenditures performed in comparison to budget. This is not meant to be a complete accounting, but rather a quick look at the highlights.

The overall economy continues to be in a state of confusion. There are many economic factors that historically point to a recession and others that reflect a very strong and stable environment. This creates uncertainty, which both the business industry and the stock market do not like.

The 2-year and 10-year yields have been inverted since July and at the end of December, were approximately 75 basis points apart. This is an unusually large negative gap and the widest since late 1981 when the economy was pushed into a deep recession. The inversion has led to a recession every time except once since 1955 and that was in 1966. Recent history points to a recession.

Additional factors that show the economy is under pressure: credit card debt, auto loan debt and student loan debt are at their highest levels ever; inflation, while slowing down, still increased at 6.5% annually for 2022; and personal savings rates are the lowest in history, sitting at 3.4%. The last time this rate was this low was 2007 at 3.6%, right before the “Great Recession”.

While all these factors point towards a recession, the following factors represent a strong economy.

GDP (Gross Domestic Product) ended the year 2.1% higher than 2021, just a little above the expected number of 2.0%, due to a strong second half of the year. Expectations for GDP in 2023 range from 0% to 1.4% annual growth.

Unemployment ticked down in the 4th quarter ending the year at 3.5%, the lowest number since 1953, with an increased number of workers re-entering the job market. Over 10.7 million jobs have been added in the past two years. Job openings continue to outpace the number of people looking for work, as there were two available jobs for every one unemployed individual at the end of 2022.

Consumer spending, while slowing in November and December, was still strong for 2022. This will be a key metric to follow over the next couple of years as it accounts for more than 2/3rds of the overall economy.

The Federal Reserve, trying to slow down the runaway train known as inflation, raised interest rates seven times in 2022 from .25%-.50% to 4.25%-4.50% – the fastest increase ever. They have continued this practice in 2023, raising rates 25 basis points at both the February and March2023 meetings.

The State of Colorado operates on a fiscal year, running from July through June. Projected GDP is 1.5% for the year, just a little above the federal level. State unemployment ended the year at 3.3%, down from 4.2% the year before and the lowest number since February 2020. The state economist lists future headwinds as: inflation, interest rates, public policy, fiscal policy, international conflict, immigration policy, lower fertility rates and employment weaknesses. The economist lists economic drivers as: a highly skilled workforce, advanced technologies and strong federal based industries.

The City’s overall revenues ended the year strong with the General Fund growing 8.1% over 2021 and exceeding the revised budget by 7.7%. Taking inflation into consideration, the increase was 1.2%. Growth was concentrated in two major categories, Sales Tax and Building revenues.

Sales Tax ended a very strong year up 9.6% over the prior year and exceeded the revised budget by $860,000. The largest categories of growth were: power generators 52.9%, local messengers/delivery 42.5%, limited service restaurants 23.5%, merchant wholesalers 17.8%, grocery stores 8.7% and internet retailers 6.9%. Categories that experienced a pullback from 2021 were: wireless communications (15.4%), computer (12.5%) and hardware stores (4.7%).

Building revenues were up 85.6% over 2021 and exceeded the revised budget by just under $4 million. This was attributed to a couple of large projects located in Olde Town that started in 2022. Building revenues are budgeted conservatively each year at the cost to operate the program. Any additional revenues over these costs are considered one-time and are applied to one-time expenditures.

Auto Use, General Use and HUTF revenues were flat to down for the year and all three came in under budget. These categories will be reviewed during the 2023-2024 revised budget process to see if additional adjustments need to be made.

The City’s overall expenditures grew by 14.0% over 2021 but were under the revised budget by 4.7%. The largest areas of growth were: one-time transfers for street maintenance, parks and replacement of the City’s ERP system; the implementation of the statewide mandated body-worn camera program and overall inflationary increases. Adjusting for the one-time expenditures, the year over growth would 7.1% or in-line with inflation.

The Water and Wastewater Funds issued $100 million dollars ($50 million each) of revenue bonds in December. These bonds will be used for some much needed capital projects. Overall user fees continue to be strong with a diverse base of customers. Tap fees received a one-time boost due to the same projects in Olde Town that supported the increase in building revenues. Rate adjustments to user fees were implemented in January of 2023 and adjustments will be made to system development charges in July of 2023 to help pay for the bond issues.

The golf courses & restaurants built upon their strong 2021 with another good year. Overall rounds were up 7.6% and overall golf revenues were up 7.3%, demonstrating an increase in per player revenue. Advanced tee time fees along with variable pricing helped to create the jump. Restaurant revenues grew 23.7% over 2021 as customers returned in droves. The restaurant was challenged with staying open throughout the year as staffing was very difficult. Changes were made to operating hours and service levels to maximum available staff. The timing of the revenue increases could not have come soon enough as the debt service for the new restaurant and clubhouse began in 2022.

One capital project focus area is discussed this quarter –Holistic Health and Fitness Park. Please take the opportunity to review the write-up on this very unique joint project.

The citizens of Arvada passed Ballot Issue 3F in November of 2018, approving a sales and use tax bond to fund the widening of Ralston Road from Yukon to Garrison and the widening and creation of an underpass on 72nd Avenue from Kipling to Ward. Please see the project detail pages (pages 25-26) in the document for detailed updates.

The City ended 2022 financially secure. Reserves are strong in each of the major funds and the 10-year model is balanced. There are still some very significant ongoing pressures including homelessness, staffing levels, inflation, the current political environment, large CIP projects and long term financial resiliency but the City is well positioned to continue to deliver superior services to everyone in our community.