CITY COUNCIL SPECIAL MEETING AGENDA PACKET 2

2 BACKGROUND The operating budget represents the City’s two-year financial plan for delivering General Fund programs and services in a fiscally responsible manner consistent with the priorities, goals, and objectives adopted by the City Council. Collectively, the Budget, Capital Budget, and five-year Capital Improvement Program (CIP) include funding for projects, programs, and services. Ten-Year Financial Forecast The City prepared a financial forecast as part of its long-term fiscal sustainability planning effort, and the information was presented to the City Council and community several times over the last two years, most recently at the March 4, 2025, City Council meeting. The full report can be viewed at: https://pleasantonca.portal.civicclerk.com/event/386/files/report/1935. That financial forecast highlighted an ongoing structural deficit, projected at approximately $10.4 million for FY 2025/26 and $12.0 million for FY 2026/27. Using the preliminary numbers from this forecast, City staff began to develop a list of potential budget reduction scenarios to achieve a balanced budget. It is important to note that the two-year proposed budget numbers are still being refined, as new data points, including more up- to-date property and sales tax projections become available. It should also be noted that the proposed budget will not fully account for the City’s true operating and capital investment needs, because, to show a balanced budget, many known operating and capital/infrastructure/facilities needs simply cannot be funded. The latest financial forecast projects that the structural deficit gets significantly larger if there is an economic slowdown that impacts spending and investments. Independent Financial Assessment The City also completed an independent financial assessment to validate the methodologies and assumptions used to develop the City’s financial forecast and confirm the magnitude of the budget deficit and the City’s overall financial challenges. The full report was presented to the City Council at its February 20, 2025, meeting and can be viewed at: https://pleasantonca.portal.civicclerk.com/event/384/files/report/1921. According to Eide Bailly, the firm that provided the independent assessment, the City’s historical financial practices “were lacking in a number of areas relative to long-term financial planning.” While certain actions were taken, like establishing a Section 115 pension trust, other important steps like setting realistic growth assumptions (in terms of magnitude and timing of development/revenue) and setting aside adequate funding for capital needs did not happen. As concluded by Eide Bailly regarding the City’s financial outlook, “the additional work to be completed in the near-term will only further illustrate that the City’s resources are constrained and that its long-term funding needs are significant.” Sales Tax Revenue Measure The City Council has worked to contain costs (e.g., reduced spending by over $2.5 million in FY 2024/25 and deferred purchases of equipment and vehicles), considered Page 4 of 40