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BACKGROUND History of Growth and Development The City experienced significant growth starting in the 1980s, with double digit increases in both property tax and sales tax revenue as business parks and the Stoneridge Shopping Center were developed. This expansion and new revenue sources contributed to the development and renovation of infrastructure and City facilities in the 1980s and 1990s, many of which are still in use today. Revenue and Funding Trends Through several periods of significant growth, the City was able to balance its budget, adopt sound financial policies and set aside healthy reserves, maintain low debt levels, and construct facilities and infrastructure. The Great Recession (2007-2009) had a significant impact on the City's revenues. The decline in revenue resulted in less funding for infrastructure maintenance and development. The COVID-19 pandemic (2020-2023) negatively impacted hotel tax revenue, resulting in over $11.0 million lost revenue during the pandemic. Hotel tax revenue projection at $4.0 million is well below the pre-pandemic level of$6.5 million. Rising costs coupled with reduction in revenue affected by the COVID-19 pandemic has changed the City's financial picture. Pension cost is a key cost driver, and the City has been proactive in funding its pension obligation to achieve budget savings. Labor contracts require employees to contribute their maximum share towards employee pension costs. In 2018, the City also created a Section 115 Trust to help address impacts of rising pension costs; however, the trust is a "smoothing" tool and will not fully address rising costs. The City's recent Long-Term Financial Forecast prepared as part of the 2023-25 budget projects expenditures outpacing revenues in coming years. In addition to infrastructure-related costs, like many other agencies, the City's operating costs are going up due to factors such as inflation, rising energy costs, higher contract service and operating material costs. The decline in hotel tax revenue will continue to impact the City's budget. Without additional resources, it will be challenging to maintain City services and programs at the current level and meet the demand of the community in future years (library services, recreation, and senior services, etc.). Prior City Council Investment and Direction Infrastructure development and maintenance has been a Council priority, as reflected in the work plan adopted by the City Council prior to COVID-19. At the March 21, 2023, Council meeting, staff presented a 10-Year Infrastructure Plan to the City Council that revealed that significant funding — estimated at nearly $89 million per year, or $900 million over the next 10 years — is needed to sustain today's existing public facilities and infrastructure in a state of good repair. Page 2 of 7