CITY COUNCIL WORKSHOP AGENDA PACKET

CITY OF PLEASANTON, CALIFORNIA 8 | eidebailly.com ASSESSMENT OF FINANCIAL FORECAST As discussed in the Executive Summary, the primary element of our scope of services was an analysis of the City’s financial forecast. Based on that analysis, we have provided the following observations highlighting the financial forecast’s strengths and weaknesses as identified during the course of our analysis. NO. OBSERVATION DISCUSSION 1 The City’s short-term projections are based on sound data and assumptions. Based on our assessment of the City’s revenue consultant’s projections and the information provided by the City’s staff, we believe the first two to three years of the City’s financial forecast to be based on the best information available and City staff’s best professional judgment. 2 The City utilizes expert revenue consultants to forecast its two largest General Fund revenues. The City has retained the state’s preeminent experts on the unique aspects of California property tax and sales tax to develop a forecast for the City’s use. This is a best practice approach employed by all cities with strong financial management practices in place. 3 Revenue consultants’ forecasts only cover a limited period of time, and revenue growth in the outyears of the City’s forecast may differ from the years covered by their forecast. The City’s revenue consultants provide a detailed five-year property tax forecast and a detailed two-year sales tax forecast. Beyond these periods, reasonable assumptions must be employed to project future likely growth in these revenues. Staff’s analysis can be informed by conversations with these consultants and trend analysis based on actual historical revenues. Although the short-term forecasts may reflect a softening of revenue growth, that trend may or may not continue in the outyears. More detailed analysis of whether more optimistic growth in the later years of the forecast is warranted may therefore be appropriate. 4 The City is appropriately evaluating its infrastructure, facilities, vehicle, and equipment replacement needs. As a best practice, long-term funding plans should be developed for the regular maintenance and ultimate replacement of critical infrastructure, facilities, vehicles, and equipment. The City has, or is in the process of obtaining, the information required to put plans in place to fund these needs. 5 The City’s current baseline and recession scenarios in the financial forecast project salary increases and other spending continuing at or above the historical pace. Gaining control of or reducing expenditures is usually key in any recessionary period, as it is when facing a structural deficit. Modeling scenarios with flat or reduced expenditures may therefore be appropriate to better understand variables that can be controlled or adjusted. 6 The City is appropriately evaluating interfund subsidies and cost allocations. The City recently obtained a comprehensive cost allocation plan and is in the process of evaluating interfund subsidies from the General Fund to certain other funds. Having an understanding of these issues is a critical component of sound long-term financial planning. Page 17 of 33