CITY COUNCIL REGULAR MEETING AGENDA PACKET

Page 1 of 14 Item #6 CITY COUNCIL AGENDA REPORT September 17, 2024 Finance TITLE: CITY BUDGET UPDATE SUMMARY The City faces significant challenges with both the operating budget and capital budget. This report provides an update on the City’s budget and an overview of the financial challenges that must be addressed in the current fiscal year and incorporated into the development of the upcoming two-year budget. Without new revenue resources, services and programs provided to the community will be significantly impacted. Additionally, capital investments will continue to be lacking, resulting in greater deferred maintenance, leading to higher costs to address needed repair and replacement. In recent years, overall costs associated with operating the City have risen faster than revenue, and the City is facing fiscal challenges heading into the next two-year budget cycle. With population growth, increased service demand, rising expenses (including required pension cost payments), phasing out of federal stimulus funds, and declining hotel tax revenue, current service levels are not sustainable without new revenue sources and reduced spending where possible. To date, the City has reduced costs in program areas with minimal service impact on residents and business owners; future budget reductions will negatively impact the services provided to the community. The City also has a significant infrastructure funding gap. Pleasanton is 130 years old and last experienced major community expansion in the 1980s and 1990s. The City is now impacted by aging infrastructure at a time when there are limited resources to repair and replace buildings, irrigation systems, lighting systems, vehicles, equipment, and the like, which is increasing this funding gap over time. When community assets are not maintained, they continue to age and deteriorate, eventually becoming obsolete and more costly to replace, particularly if issues become emergency repairs in the meantime. The City maintains reserves to cover deficits in major funding categories, including the General Fund, Water and Sewer Enterprise Funds, and special reserve funds, such as the Section115 Pension Trust. However, these reserves are not sufficient or necessarily appropriate to address the forecasted structural deficit, or to address the City’s large unfunded capital repair needs. Fiscal best practices advise prudent use of these reserves, especially in cases of ongoing fiscal deficits, to ensure the funds are maximized. Cities are required to adopt a balanced annual budget, with recurring revenues generally equal to recurring expenditures. This report provides an update on the status of the City’s budget, including the General Fund, Capital Improvement Program (CIP), enterprise funds, major reserves and fund balances, and unfunded retiree medical and pension liabilities. This discussion will inform the decisions the City will need to make as early as the mid-year budget process in early 2025 and leading into the development of the next two-year budget. Page 33 of 114