CITY COUNCIL SPECIAL MEETING AGENDA PACKET 2

4 DISCUSSION Preliminary General Fund Budget Reduction Proposals As discussed above, the preliminary General Fund reduction proposals were developed using the projected deficit numbers ($10.4 million in Year 1 and $12.0 million in Year 2) from the ten-year financial forecast previously presented to the City Council. These proposals, along with other budget balancing options and potential limited use of one- time funding, are included in this preliminary recommendation as part of the overall strategy to achieve a balanced two-year budget. It should be emphasized that the use of one-time funds is an interim solution and does not address the ongoing structural deficit. As advised by the City’s actuarial consultant, consistent use of one-time funds, such as Section 115 Pension Trust and/or OPEB Trust, could deplete the trusts prematurely, resulting in persistent high unfunded pension and retiree medical liabilities (higher overall expenses) and low funded status. Use of Reserves and Other “One-time Money” The City Council received a report on potential strategies, risks, and benefits of utilizing pension trust funds in the near term at its March 4, 2025, City Council meeting. https://pleasantonca.portal.civicclerk.com/event/386/files/report/1933. That report outlined a number of options for one-time funds. Other than the $2.0 million in one-time funding from the Section 115 Pension trust already authorized by the City Council, use of additional one-time funds is not recommended at this time. Section 115 Pension Trust and OPEB The City’s Pension Trust funds retirement benefits and the Other Post-Employment Benefits (OPEB) account funds retiree medical benefits. The City’s actuary recommended not using any of the funds that had been set aside in the Section 115 Pension Trust until the obligation is 100% funded. For the OPEB account, the actuary recommended that the City should continue to fund the required contribution until the obligation is 100% funded, and the use of funds should be limited to the amounts determined in the actuarial valuation reports. However, the actuary acknowledged that the City is in a challenging financial situation. On March 4, 2025, the City Council voted to authorize staff to develop a budget that would use up to $2.0 million of Section 115 Trust funding in FY 2025/26 and another $2.0 million in FY 2026/27. In future years, the use of these funds will be considered on a rolling basis. It should be noted that the funded ratio for the City’s pension plans is only 68.2% without the pension trust funds, which is below the state average. With the supplemental trust, the funded ratio is 75.0%, which is in line with the state average. Use of the trust funds at any level could see the City’s funded status decrease. The OPEB plans have a much lower liability (in real dollars), and the funded ratio is about 81.0%. The City was able to achieve this funded status without withdrawing significant amounts from the trust accounts since the establishment of these accounts. While it is possible to withdraw funds from this account, it is not recommended at this Page 6 of 40