CITY COUNCIL REGULAR MEETING AGENDA PACKET

Page 3 of 14 model. The model, including the assumptions, was presented to the City Council on March 19, 2024 (view the report at https://pleasantonca.portal.civicclerk.com/event/135/files/agenda/231). In summary, the General Fund long-term financial projection indicates that expenditures are outpacing revenues. Current forecasts show an average (meaning the deficit in some years is less and in other years is more) budget shortfall of approximately $13 million annually, beginning next fiscal year (2025-2026). The cumulative deficit over the next eight years is projected to exceed $110 million. If there is an economic downturn, the annual average deficit is projected to exceed $22 million, and the cumulative deficit is projected to exceed $180 million. The reasons the City faces 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 (e.g., housing element, housing annual progress report, SB 1383 waste and organics recycling, concealed weapon permitting, reporting on police annual activities, water conservation requirements, water loss controls, restriction of irrigation on non-functional turf, air resources standards, greenhouse gas emissions standards, biological surveys and mitigation habitats for work impacting stormwater conveyance, ADA upgrades, etc.) • Rising personnel costs, including pensions, competitive salaries, and benefits • Reduced hotel tax revenue: The City lost more than $11 million in revenue during and post-pandemic, and revenue has not rebounded to the pre-pandemic level • Federal assistance programs that are no longer available: the City received $8.6 million in American Rescue Plan Act (ARPA) stimulus funds during COVID, which helped the City to balance its budget and support services and programs. Actions Taken to Address the General Fund Deficit In light of the City’s financial challenges, the City Council directed staff to implement strategies to begin to address the identified issues with the General Fund, including reducing costs and identifying new revenue sources. The City has already taken a number of actions to reduce costs: the City Council recently approved $2.5 million in reductions from the current fiscal year’s budget. Further reductions to the General Fund will necessitate continued community input and City Council approval, as additional changes/reductions will impact service levels, including fewer employees to do the work. Specific examples of cost-reduction or re-prioritizing measures include: 1. Redirecting Non-Essential Capital Improvements Funds a. The City Council defunded/deferred $18.9 million in General Fund-supported capital projects to fund critical storm drain projects, including defunding the long-planned new Skate Park and Century House renovation projects (see the City Council Agenda Page 35 of 114