CITY COUNCIL WORKSHOP AGENDA PACKET

Page 11 of 16 largest revenue source–growing at 2.0% annually, Interfund Charges and Recreation Fees growing at 3.0% annually, and all other revenues growing at 2.0% annually. Expenditure assumptions include personnel costs (the City’s largest expenditure category) growing by approximately 3.3% annually. Salary and general benefit cost categories are assumed to increase at 3.0%, but the overall increase is greater mostly due to growing pension liabilities through FY 2030/31 based on the projection provided by CalPERS. Non- personnel costs are collectively projected to grow by approximately 2.7% annually. Additionally, an annual contribution to capital funds ranges from $3.0 million in FY 2025/26 to $4.5 million in FY 2032/33. The annual contribution to the Capital Improvement Program is below the City’s $5.0 million minimum goal. An average annual contribution of approximately $5.9 million, in addition to the baseline capital contribution, is also included in the forecast model to fund deferred infrastructure maintenance costs. Combined, these contributions represent a small fraction of the overall deferred infrastructure maintenance needs based on staff’s preliminary infrastructure assessment study from March 2023. A revised property tax projection for the current fiscal year shows about 4.0 growth.% While this is slightly higher than the assumption of 3.5%, it does not account for the likely downward adjustments expected in the commercial market in the coming years and will not address the significant projected structural deficit the City faces. Sales tax growth without Costco is projected at only 1.2% for the current fiscal year according to the City’s sales tax consultant. As part of the financial forecast, it was assumed that employee costs would go up 3% per year. However, recent contract negotiations saw significantly higher increases over a three- year period. Additionally, contract negotiations for three labor groups will take place in 2025. In summary, variations are expected as a long-term financial projection intends to identify the trend line so the City can implement budget solutions to reduce costs and generate additional revenues. If revenue projection is more aggressive, expenditure projection needs to be more conservative. Reserves and Pension and Retiree Medical Trust Funds The City’s key reserves include those set aside in the General Fund and the Rainy Day (Capital) Reserve Fund. Funds are also set aside in the pension and retiree medical trust accounts to offset unfunded liabilities, as stated above. Reserves The Government Finance Officers Association (GFOA) recommends maintaining at least 16.7% of unrestricted reserves in the General Fund; the City’s General Fund reserve target is 20%. At the end of FY 2022/23 (FY 2023/24 audited financial reports have not been published), the City’s unrestricted reserve reported in the Annual Comprehensive Financial Report (ACFR), including committed, assigned, and unassigned fund balance, totaled $38.6 million; this includes the $6.6 million Rainy Day (Capital) Reserve intended for capital projects. Currently the General Fund reserve target is met. By comparison, the City of Dublin (with a smaller General Fund) reported $245.4 million in unrestricted reserve in its ACFR, and the City of Livermore (with a similar General Fund) reported $78.2 million. Compared to these neighboring cities, Pleasanton’s unrestricted Page 13 of 109