Attachment 2
EXPENDITURES
The 5-Year Projections for Salaries and Benefits are shown below. The Town has one bargaining unit, the Atherton Police Officers Association. There are annual adjustments associated with the current Memorandum of Understanding based on an agreed upon CPI range. The amounts below do not represent any assumed contractual labor adjustment (i.e. CPI or negotiated benefit increases). For purposes of this forecast, staff used assumptions between 3% and 4%.
Salaries & Benefits
FY 2025/26 FY 2026/27 FY 2027/28 FY 2028/29 FY 2029/30
Administration $927,232 $964,321 $998,072 $1,028,014 $1,058,855 Finance $632,271 $657,562 $680,577 $700,994 $722,024
Building $228,604 $237,749 $246,070 $253,452 $261,056
Police $7,651,857 $7,957,931 $8,236,459 $8,483,553 $8,738,059 DPW $758,443 $788,791 $816,388 $840,880 $866,106
Total $10,198,407 $10,606,344 $10,977,566 $11,306,893 $11,646,100 The Town uses a wide variety of contract services, the most significant portion of expenditures within the department budgets are Professional Services and Other Technical Services. These expenditure categories represent a variety of contract services, software licensing, and basic operational costs. These are included in the projection table below and represent services such as building and safety services, planning services, maintenance services, landscaping services, park event services, tree maintenance, legal services, IT services, and animal control services. The services provided under contract are not Town staff, but they assist in providing day-to-day Town operations services.
It is important to note that contract planning services saw an increase in expenses in FY23/24 as the Town transitioned to a new service provider and the Town continued work on the 6th Cycle update of the Housing element. In the current forecast, the Planning Department expense eliminates the one-time cost for the Housing Element. However, Building Contract services are being evaluated, and the contract methodology may see an adjustment. There has not been a change in the terms of the service contract since 2012. The current building services are provided via contract with Interwest/Safebuilt community development services. The current contract includes the service provider receiving 58% of the first million in revenue and 55% for additional building revenues over $1 million. Staff is evaluating the cost of service model resultant from the Town’s recent fee adjustments.
Basic budget assumptions for the General Operations expenditure budgets are 3% to 4.5% year to year in the forecast. FY 2025/26 and FY 2026/27 forecast 4.5% increases; FY 2027/28 projects
3.5%; and FY 2028/29 and FY 2029/30 projects 3%.
Operational Expenditures
FY 2025/26 FY 2026/27 FY 2027/28 FY 2028/29 FY 2029/30
Council 69,613 72,745 75,291 77,550 79,877
Administration 436,909 456,570 472,550 486,727 501,328
Attorney 323,950 338,528 350,376 360,888 371,714
Attachment 2
Attachment 2
Operational Expenditures
FY 2025/26 FY 2026/27 FY 2027/28 FY 2028/29 FY 2029/30
Finance 230,036 240,659 248,649 256,108 263,791
Planning 1,169,050 $1,000813 1,040,845 1,082,479 1,125,778 Building 1,367,484 1,422,183 1,479,070 1,538,233 1,599,762 Inter-department 1,225,221 1,280,356 1,325,168 1,361,017 1,395,216 Police 1,777,338 1,857,318 1,922,324 1,979,994 2,039,394 DPW 2,885,312 3,015,151 3,120,681 3,214,302 3,304,099
Total Amount $9,484,912 $9,684,323 $10,034,955 $10,357,297 $10,680,959 Pension Liabilities
In November 2021 the CalPERS Board adopted a new investment return assumption of 6.8%. The new discount rate took effect July 2022 and is set for the next several years at 6.8%. The effect of these changes is a gradual increase in the required contributions for UAL and Normal Cost increases. In FY 2024/25 the Normal Cost increased 0.04% for Miscellaneous Employees (nonsworn) and 0.21% for Public Safety Employees (sworn). These represent minimal increases. There was an increase in the total UAL for FY 2024/25 of $296,568 that reflected the negative 6.1% investment return in FY 2021/22.
• The employer contribution rate set by CalPERS for Miscellaneous Employees (non-sworn) is 12.67% in FY 2024/25 and in FY 2025/26 the rate changes to 12.74%. • The employer contribution rate set by CalPERS for Public Safety Employees (sworn) is
29.30% in FY 2024/25 and in FY 2025/26 the rate changes to 29.35%.
The total UAL for the Town in FY 2025/26 increased $124,266 from the previous year’s estimates.
Public Employees Retirement Fund (PERF) rates of return are reflective in CalPERS actuary reports two years after occurrence. The 2022/23 investment return was 6.2% and will first impact employer contribution rates for public agencies in fiscal Year 2025/26. The rate of return on the PERF for FY 2023/24 was 9.5%. This investment return will first impact the employer contribution rates for public agencies in fiscal Year 2026/27. For budget purposes the FY2025/26 Normal Cost and UAL amounts are actual amounts. The CalPERS actuarial reports produce the incoming fiscal year’s rates and UAL amounts, as well provides a projection for the second fiscal year as rates of return are factored in each year. Below is a snapshot of the CalPERS net rate of return over the long term:
CalPERS Returns Net Rate of Return
1-year FY 23/24 9.5%
2-year FY 22/23 6.2%
3-Year FY 21/22 -6.1%
10- year 6.2%
20-year 6.7%
30-year 7.7%
There is an Ad Hoc committee of the Audit & Finance Committee currently reviewing the possibility of recommending an additional ADP towards the Town’s Public Safety UAL. In April 2022, the City Council directed staff to allocate $5 million toward the Town’s Unfunded Accrued Attachment 2
Liability (UAL) for the Public Safety Classic Plan. CalPERS allows employers to make Additional Discretionary Payments (ADP’s) at any time and any amount. Optional ADP payments serve to reduce the Town’s UAL and future required contributions. This can result in significant long-term savings.
In 2022, making the $5m contribution reduced the Public Safety UAL for FY 2022/23 to $815,591 and a net savings of $356,491. The updated UAL payments at the time showed that the savings through FY 2026/27 were estimated at $2.67m. Staff updated the savings analysis with the most recent CalPERS’ updated Actuarial Report (6/30/2023) and it reflects a different savings projection. As noted above, since our initial $5m ADP there have been changes in the investment rate of return, actual realized returns, and CalPERS methodologies.
CalPERS UAL Contribution UAL FY
2022/23
UAL FY
2023/24
UAL FY
2024/25
UAL FY
2025/26
UAL FY
2026/27
Public Safety UAL $1,172,082 $1,235,697 $1,323,634 $1,380,442 $1,434,332 Public Safety UAL w/$5m ADP Actual &
Projection Updated
$815,591 $813,210 $1,000,841 $1,196,485 $1,296,000
Difference – Savings $356,491 $422,487 $322,793 $183,957 $138,332 This recent CalPERS Actuary report as of June 30, 2023, reveals updated UAL payments showing above that the savings are now estimated at $1.424 million over time. In the previous year’s savings projection, it showed $1.573 million savings over time. This is a net change of $149,485. The reduction is due to CalPERS Actuarial changes to the rate of return to 6.8% and the CalPERS’ actual returns. The contribution to the Town’s UAL was a fiscally prudent decision, the impact was not as significant as anticipated due to actuarial changes by CalPERS. Nonetheless, the Town has experienced savings of $1.424 million in operations expenses over time. The investment return was a negative 6.1% for FY 2021/22 (the time of the ADP contribution) and in FY 2022/23 the return was 6.2% combined with a reduction of discount rate from 7.0% to 6.8%. There will be a recommendation from the Audit & Finance Committee on whether to contribute an additional ADP amount to CalPERS during this budget cycle. The Town’s estimated Unfunded Actuarial Liability (UAL) payments (minimum annual payments to CalPERS) for Classic and PEPRA members combined look as follows:
Unfunded Accrued Liability Payments
Plans FY 2025/26 FY 2026/27 FY 2027/28 FY 2028/29 FY 2029/30 Miscellaneous $618,109 $662,000 $698,000 $776,000 $793,000 Public Safety $1,221,757 $1,328,000 $1,417,000 $1,602,000 $1,635,000 Total $1,839,866 $1,990,000 $2,115,000 $2,378,000 $2,428,000 With CalPERS’ discount rate of 6.8% and this year’s return of 9.5%, the estimated overall funded status of the CalPERS Pension Fund stands at 75%. The Town’s FY 2023/24 net pension liability is $19.01m (local miscellaneous and public safety). This is an increase of $1.15m from the previous year. Staff will continue to present the CalPERS Actuarial Reports to the Audit & Finance Committee and work with CalPERS actuary to continue to review and discuss pension liabilities.
Attachment 2
Debt Service Lease Payments
The Town issued COP Lease Financing of $7.68m for cash flow purposes for the Town Center Project. The COP is a ten (10) year financing tool with a five (5) year call option and includes an average annual debt service of approximately $861,871. The first semi-annual payment began in December 2020. Including FY 2024/25 the Town has made $5.14m in payments on the COP Lease.
We are approaching the call option that is available this year in June 2025. The call option estimated payment amount is $4.3m. If desired, the Town can exercise the call option and pay off the COP. However, the current Council direction is to retain the 2.1% interest rate on the lease payments and continue making the semi-annual payments through conclusion in FY 2029/2030.
With the current state of interest rates, it seems judicious to maintain paying the COP lease financing through the term of the lease. Throughout term, the total lease financing payments are $8.6m of which includes interest of $915k.
Capital Projects
Capital Projects will be addressed in detail at Meeting #3 – May 7. Capital projects focus on streets & transportation, drainage, and Town Buildings & Park Facilities. There are priority projects from the various Master plans for Council review and discussion for the Capital Improvement Program.
There is currently a refresh ongoing on the Bike & Pedestrian Master Plan. Some of the priority projects from the various master plans have been completed, one major project being the Town Center and Library. As we shift focus on other capital projects throughout the Town, priorities may change or redevelop as we move to accomplish projects from the master plans.
Funding sources for capital projects are the following:
General Fund Library Funds
Capital Improvement Fund Channel Funds
Measure A, Measure W, & Measure M Surface Transportation Funds Gas Tax Donations (Town Center)
MTC transportation Funds Federal Grants
San Mateo County Bayfront Canal Loan (Lease Financing) $1,515,000- in 2018 the Town of Atherton entered into a $165,000 loan agreement for the Bayfront Canal and Atherton Channel Collaborative Memorandum of Understanding between the City of Redwood City, City of Menlo Park, Town of Atherton, and the County of San Mateo. The County provided a $165,000 loan to the Town of Atherton for the planning design, and environmental permitting for the Bayfront Canal and Atherton Channel Flood Management and Restoration Project. The loan in the amount of $165,000 is being repaid over a ten (10) year period. In addition to the planning and design loan on the project, on December 9, 2022 the Town of Atherton entered into a sublease with the County of San Mateo for the construction of the Bayfront Canal Restoration Project related to the San Mateo County Intra-County Lease Agreement. The County loaned the Town of Atherton $1,350,000 for the Town’s portion of the construction costs of the Bayfront Canal Project. The loan is to be repaid over a five (5) year period through reduction of Atherton property taxes remittance from the County for a fix amount of $148,500 on April 15 and December 15 annually.
The Town repays these loans through reduction from our property taxes yearly in the amount of $313,815. The outstanding amount on the loans is $815,731.