CITY COUNCIL WORKSHOP MEETING AGENDA PACKET

Page 1 of 5 Item #1 CITY COUNCIL AGENDA REPORT May 21, 2024 Finance TITLE: RECEIVE A REPORT OUTLINING A CONTINGENCY MENU OF POTENTIAL SERVICE REDUCTIONS THAT WOULD BE DISCUSSED FURTHER AS PART OF ADDRESSING THE FORECASTED STRUCTURAL BUDGET DEFICIT SUMMARY The City is facing a severe and increasing structural deficit, meaning that expenses have and will continue to grow faster than revenues. Current forecasts indicate an average budget shortfall of approximately $13 million annually over the next eight years, which City staff have been working to address proactively with a combination of reduced costs and new revenue. The City identified the structural deficit in early 2023, and since then staff has been containing costs while also working on a revenue measure feasibility project. After exploring several possible new revenue sources, including a potential infrastructure bond, the focus is now on a small ½ cent sales tax increase that would be placed on the November 5, 2024 ballot, if the City Council choose to put this option before the voters. If successful, the proposed sales tax increase would generate approximately $10 million per year, which would largely address the forecasted structural budget gap and allow the City to maintain most vital City services. Since approval of a sales tax increase is not ensured, staff has also developed a contingency menu of reductions if the ballot measure is not successful. This report outlines the menu of programs and services that could be eliminated or reduced as part of the next two-year budget, or sooner if significant new revenue is not secured. RECOMMENDATION Receive a report outlining a contingency menu of service reductions that would be discussed further as part of addressing the forecasted structural budget deficit if a small sales tax revenue measure is not placed on the November 2024 ballot, or voters do not approve a small sales tax increase in November 2024. BACKGROUND The reasons the City is facing a structural deficit go back many years and include factors that other cities across the state and country are also facing. Contributing factors include: •Slowing real estate development activity •Declining retail sales activity, including at the Stoneridge Shopping Center •Increasing insurance costs •Increasing operating supplies and materials costs •Increasing contract service costs •Growing number of unfunded mandates from the State •Rising personnel costs, including pensions •Reduced hotel tax revenue (particularly during and post-pandemic). Page 3 of 10