11 ATTACHMENT 1, EXHIBIT A - Laserfiche WebLink

6 City of Pleasanton Operating Budget • FY 2023/24 - FY 2024/25 Major Expenses - Personnel Personnel is the largest cost category in the City’s budget comprising 68.5 percent of the City’s expenditures. The Personnel expense category includes salaries (temporary and full-time), overtime, health benefits, workers’ compensation, and pensions. Each major Personnel cost category is discussed separately below. Salaries Salaries are set through labor agreements and for several years have increased by approximately three to four percent annually. The FY 2023/24 and FY 2024/25 budgets include salary increases consistent with the City’s labor agreements. The City is in negotiations with two labor groups, Police Officers’ Association (POA) and Fire Battalion Chiefs. POA’s Memorandum of Understanding (MOU) is scheduled to expire on May 31, 2023, and a new MOU with the Fire Battalion Chiefs group is expected to be finalized by the end of FY 2022/23. Based on current MOUs and early projections, the Operating Budget includes baseline percent increases in personnel costs for these groups. Funding will be updated once the new MOUs are finalized and will be reflected in the FY 2024/25 Mid-Term update. Health Benefits The City’s labor agreements limit the City’s contribution to health benefits to the Kaiser Permanente premium rates. Annual premiums tend to fluctuate considerably. For example, Kaiser Permanente’s premium rates increased by 11.0 percent between FY 2017/18 and 2018/19 and then decreased by 1.5 percent between FY 2018/19 and 2019/20 before staying mostly flat for the past few years. Premium rate changes are primarily based on City staff and retirees’ prior year utilization of Kaiser Permanente’s services. The FY 2023/24 budget includes an increase of 7.8 percent in Kaiser Permanente premiums and the FY 2024/25 budget assumes total health benefit costs will increase by 10.0 percent. The City receives health benefit premium rates every year in April for the subsequent fiscal year. Thus, the FY 2024/25 Mid-term budget will be adjusted to reflect the actual change for that year. Workers’ Compensation The budget for workers’ compensation claims is adjusted by approximately $0.7 million from FY 2022/23 to FY 2023/24 to set aside additional funding necessary to cover both current as well as future claim costs. Contributions to the Workers’ Compensation Fund will be gradually increased to build reserves over the next several years to ensure there is at least 70.0 percent of the claims liability available to pay future claims. Pensions The City’s pension expenses have substantially increased since the Great Recession primarily due to CalPERS investment losses and various changes in CalPERS policies as related to calculating pension liabilities, the most significant of which is the reduced CalPERS discount rate. CalPERS adopted a policy in January 2017 that reduced the CalPERS discount rate from 7.5 percent in FY 2017/18, to 7.0 percent in FY 2020/21, and to 6.8 percent in FY 2021/22. CalPERS’ goal is to strengthen the long-term sustainability of the fund to pay promised benefits and reduce the long-term risk of contribution increases associated with the volatility of the markets. Reducing the discount rate results in increased annual pension contributions. Based on CalPERS’s latest projection, the City’s contributions are expected to peak in FY 2030/31 then decrease continuously until the Unfunded Actuarial Liability (UAL) is fully paid off. Citywide pension costs are projected at $24.2 million for FY 2023/24 and $25.9 million for FY 2024/25. Pension contributions should continue to stabilize as a higher percentage of current members will be under the reduced state mandated pension benefits, and there will be accelerating mortality rates for classic members.