RES 2024036 - Laserfiche WebLink

Page 2 of 23 SUMMARY This report presents the Mid-Term Update that recommends adjustments to the FY 2024/25 Operating and Capital Budget adopted by the Council on June 6, 2023. The recommended adjustments affect the General Fund, Enterprise Funds, Internal Service Funds, Special Revenue Funds, and Capital Projects Funds. Recommended Mid-Term Budget adjustments are based on current information and projections related to various tax revenues, accompanied by updated funding need analysis for various expenditure budget items since the adoption of the FY 2024/25 Budget. For this Mid-Term Budget cycle, the largest proposed expenditure adjustments are related to utility, legal, and personnel costs. Electricity, water, and recycled water costs are all projected to increase more than previously estimated based on recent rate increases along with more up-to-date usage projections. Costs associated with the City’s legal claims and related obligations have been going up. Personnel cost increases stem from salary adjustments, as well as necessary adjustments based on the most recent pension actuarial reports from the California Public Employees’ Retirement System (CalPERS). The proposed budget adjustments include approximately $2.50 million in non-personnel and personnel cost reductions that were identified as part of the City’s cost containment strategy to address the expected financial challenges. These cost savings help to reduce the increased operating costs mentioned above. Reduced non-personnel costs include contract services, equipment, operating supplies, and materials; personnel reductions include freezing a number of vacant positions. While these cost reductions will likely have minimal impacts on the service the City provides to the community, they will nevertheless have some impact on staff’s ability to provide the same level of quality service and to more fully implement the City Council's policy direction in some areas. Notably, the proposed amendments also reflect the use of Rainy Day Fund (capital improvement funding set aside during the early stages of the pandemic) to help balance the FY 2024/25 budget. BACKGROUND The City follows a three-step operating budget process that begins with the approval of a two-year Budget (Budget); then after the first year of the Budget, the adoption of a Mid-Term Budget, and the adoption of Mid-Year Budget adjustments at the mid-point of each of the two years of the Budget. As part of the Mid-Term Budget adjustment process, staff examines recent years' actual expenditures and revenues, as well as current fiscal year actuals to project estimated budget needs for the coming fiscal year. Additionally, Finance staff routinely monitors various local and regional economic indicators and works with consultants to review and update estimates for the City’s major revenue sources. Given the fiscal challenges the City faces with an ongoing, structural budget gap in the General Fund, this Mid-Term budget adjustment process also included a comprehensive assessment of all City programs and services, based on which various budget reductions in every department were implemented. Without new revenue alternatives, additional and more extensive service cuts and reductions will be necessary starting in FY 2025/26.