CITY COUNCIL WORKSHOP MEETING AGENDA PACKET

Page 3 of 5 two-year budget. Forecasting is a critical component of any prudent financial management practice. Based on useful assumptions, the most likely baseline scenario projects an annual deficit of as much as $11 million beginning in FY 2025-26, with peak years approaching a $16 million deficit. Beyond the current budget cycle, the cumulative deficit is projected to exceed $110 million over the next eight years. If there is an economic downturn, the average annual deficit is projected to exceed $22 million and the cumulative deficit is projected to exceed $180 million over the same period. The forecast was presented to the City Council and discussed publicly on March 19, 2024. Immediate (Near-Term) Departmental Budget Reductions To immediately mitigate the impacts of the fiscal deficit, the City Manager has required all departments to identify expenditure reductions that will be incorporated into the FY 2024-25 (mid-term) City budget. Cuts totaling about $2.5 million including non-personnel costs and personnel costs associated with vacant positions have been identified. Non-personnel costs include contract services, equipment, operating supplies, and materials. These cost reductions minimize community service impacts, but often have unintended consequences and indirectly alter service delivery and quality. Contingency Menu (Longer-Term) of Potential Service Reductions While the City works on the revenue measure feasibility project, planning for more severe expenditure reductions in the future if the ballot measure is not successful remains prudent. To that end, staff has developed a contingency menu which consists of options for potential reductions to programs and services from every City department, with the goal of addressing the ongoing, structural nature of the deficit. For that reason, the menu is focused on larger reduction or elimination of ongoing programs and services rather than one-time spending (which is also being evaluated). The contingency menu includes expenditure savings of up to $8.9 million and is designed to provide the City Council and the community with the magnitude of the service impacts that will have to be considered without significant new revenue. The City may not have to use the entire menu as other options to offset cost reductions would be available, including possible use of the Section 115 Pension Trust Fund, and potential reductions or modifications to existing labor contracts, subject to discussion with labor unions. However, those options alone would not be sufficient to close the budget gap and address the structural deficit if a revenue measure is not successful, and the City Council would have to also consider many of the options in the contingency menu. Further, even with new revenue, it is likely that some programs and services will still have to be reduced or eliminated and the aforementioned near-term departmental budget reductions will remain in effect. While the City Council will ultimately have difficult decisions to make in the future if new revenue is not realized, input/direction is not requested at this time. If significant new revenue is not secured, programs and services from the menu would be presented to the City Council for consideration at a future date. The City Council as policy makers for the City will make decisions about areas to cut or retain, informed by community input. For example, the City Council could decide to not reduce public safety expenditures, which would come at a cost to other departmental services and programs. Any impact to existing personnel would be preceded by discussion with impacted labor unions. Page 5 of 10