Workshop agenda packet - Laserfiche WebLink

Page 2 of 16 In 2023, staff began to develop and share the City’s first detailed long-term financial forecast model. Forecasting is a critical component of any prudent financial management practice, as it provides insight into the organization’s future financial state and allows for proactive planning and development of fiscal strategies to address potential issues on the horizon. As the comprehensive financial forecast model was finalized, staff updated the forecast to reflect capital and deferred maintenance needs. Staff developed and presented two long- range financial forecast scenarios, normal and recession, and both scenarios showed the City facing an ongoing, structural budget gap. At the March 19, 2024, City Council meeting, staff presented the assumptions that were used to develop the General Fund long-term forecast and discussed alternative forecast scenarios. At that meeting, staff also solicited direction regarding proposed reductions to discretionary funding as part of a cost containment strategy (see the City Council Agenda Packet from March 19, 2024, at the link https://pleasantonca.portal.civicclerk.com/event/135/files/report/243). Projected General Fund Structural Deficit The City’s biennial budget includes revenue and expenditure projections and consists of two primary components: the Operating Budget and the Capital Budget. The General Fund is the City’s primary unrestricted operating fund and accounts for more than 60 percent of the Citywide operating budget. The current fiscal year General Fund budget is about $154.0 million, excluding transfers to other funds. Forecasts show the City faces significant fiscal challenges in both the operating and capital budgets. The forecasted General Fund structural deficit averages $13 million annually over the next eight years, starting in FY 2025/26, rising to approximately $22 million in a potential recession scenario. This includes insufficient revenue to cover all funding needs and insufficient funding for many program areas. Factors contributing to this deficit include, but are not limited to, slowing real estate development activity, declining retail sales activity including at the Stoneridge Shopping Center, increasing insurance, utility and other operating costs, as well as the 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). The City lost more than $12 million in revenue during and post- pandemic, and revenue has not rebounded to the pre-pandemic level. COVID-era federal assistance programs, such as American Rescue Plan Act (ARPA) stimulus funds, are no longer available. In addition, rising personnel costs, including pensions, competitive salaries, and benefits continue to be a major cost driver, and the City must address over $200 million in unfunded retiree medical and pension liabilities. State Auditor’s Report and Prior Indications of Financial Challenges While the recent pandemic exacerbated the City’s financial challenges, there were indications of the City’s financial challenges prior to the pandemic. For example, the State Auditor’s Office (SAO) monitored California cities’ financial health for fiscal years 2016/17 through 2020/21 based on the information reported in cities’ Annual Comprehensive Financial Reports (ACFR). The SAO used the following criteria to rank cities: • Financial Reserve: Does the city have sufficient financial reserves to cover Page 4 of 109