STAFF REPORT
Meeting Date: August 20, 2024
To: Honorable Mayor and City Council
From: Nancy Hunt-Coffey, City Manager
Jeff S. Muir, Director of Finance
Tatiana Szerwinski, Asst. Director of Finance
Subject: Recommendation by the Audit and Finance Committee Regarding Cost Reduction and Revenue Enhancement Opportunities
Attachments: 1. March 18, 2024 Staff Report and Recommendations by the Blue Ribbon Committee on Long-Term Strategic
Financial Planning
2. Draft Timeline
INTRODUCTION
On July 9, 2024, the Audit and Finance Committee (Mayor Friedman, Councilmember Wells, and City Treasurer Howard Fisher) met to discuss and provide feedback on cost reduction and revenue enhancement opportunities. The Committee reviewed the projected budget deficits for the next few years and discussed ways to address them. This report summarizes the discussion from that meeting and requests City Council direction on the next steps in the process.
DISCUSSION
On March 18, 2024, the City Council received both a financial update from staff and the recommendations from former Mayor Gold’s Blue Ribbon Committee. The financial update included a General Fund forecast that indicated projected deficits through fiscal year 2028-29, which were further refined during the budget adoption process. The Blue Ribbon Committee recommendations focused on revenue generation opportunities, but also urged further exploration of expenditure reduction opportunities.
The Fiscal Year 2024-25 Proposed Operating Budget included an updated five year General Fund forecast. As discussed in the City Manager’s Budget Message, as well as during the budget study session, the forecast continues to show significant potential deficits through Fiscal Year 2028-29.
Even when factoring in anticipated one-time revenues, substantial deficits are forecasted.
Furthermore, it is not best practice to use one-time funding to offset ongoing expenses.
As recommended by the City Manager, the City Council approved the budget with the understanding that measures to reduce spending and expand our revenue base would be required to address these projected deficits.
The Mayor directed that this process be coordinated through the Audit and Finance Committee (“Committee”). As measures or strategies are identified for further exploration and analysis, appropriate City Council Liaisons or Ad Hocs will be leveraged for discussion and direction for items that fall within their purview.
On July 9, 2024, the Audit and Finance Committee met to discuss and provide feedback on cost reduction and revenue enhancement opportunities. During this meeting, the Director of Finance reviewed the updated five-year forecast as presented to the City Council as part of the budget adoption process and suggested the committee review several major expenditure areas by departments, including contractual services, travel/training, supplies, and overtime. Additionally, in consideration of the forecasted General Fund deficits, staff will be considering both structural, ongoing budget reductions as well as other short-term or one-time options, some of which are summarized below.
Category FY 2022-23
Actuals
FY 2023-24
Projected
FY 2024-25
Proposed
FY 2025-26
Forecast
FY 2026-27
Forecast
FY 2027-28
Forecast
FY 2028-29
Forecast
Operating Revenue $ 315.7 $ 319.0 $ 324.9 $ 330.6 $ 324.3 $ 336.4 $ 358.1 Operating Expenditures 273.1 298.0 305.0 316.6 327.6 339.1 350.4 Operating Surplus/(Deficit) 42.6 21.0 19.9 14.0 (3.3) (2.7) 7.7 Transfers Out (34.8) (46.9) (21.9) (21.4) (21.4) (20.4) (17.9) Surplus/(Deficit) before One-Time
Public Benefit Contributions 7.8 (25.9) (2.0) (7.4) (24.7) (23.1) (10.2) One-Time Public Benefit Contributions 1.5 10.0 12.5 10.0 15.0 15.0 15.0 Total General Fund Surplus/(Deficit) $ 9.3 $ (15.9) $ 10.5 $ 2.6 $ (9.7) $ (8.1) $ 4.8 General Fund Results and Forecast (in Millions)
Options
Structural/Long-term Changes Short-term/One-time Changes Revisit partner agency agreements Review holiday decorations/events, consider direct participation from businesses
Review Community Assistance Grant
Funds (CAGF) process and distributions
Review internal service fund charges and
propose reductions / deferrals (vehicle,
equipment replacements)
Review private security and Ambassador
responsibilities
Suspend or reduce General Fund transfers for
capital projects
Improve liability mitigation strategies Reduce/defer CIP spending Review Departments’ staffing plans relative
to vacancies and consider position
eliminations
Freeze positions/delay non-essential
recruitments (short-term salary savings)
Revisit use of TOT and 2% allocation to
tourism/marketing Review/reduce materials and supplies budget Reconsider future Metro security (staff and
substations) Review/reduce travel and training expenses Review/reduce overtime citywide
Zero-based budgeting options
-Rebuild / Review CIPs
-Discretionary department budgets
Review significant ongoing contractual
services vendor agreements
Staff also provided the following proposals for respective City Council liaisons/ad hoc discussions, which may result in improved efficiencies and/or possible reductions in expenditures.
• Commission Standardization Liaison
o Consider any further consolidation/changes to commissions. • RDC/Special Events Liaison
o Consider the totality of events offered by the City and determine if any changes, reductions, or eliminations are warranted.
• Social Services Ad Hoc
o Consider overlaps in Community Assistance Grant Funds and other City services considering recent investments in housing for the homeless and consolidation of social services in the Fire Department. • Community Security Ad Hoc
o Consider the role of the Ambassadors and private security and whether there is overlap or a change in responsibilities.
• Litigation Subcommittee
o Consider lines of insurance to consider the possibility of pooled coverage and whether any reductions can be made without significantly compromising coverage.
• CVB/Chamber Liaison
o Conduct cost benefit analysis of work performed by partner agencies.
In addition to expenditure reduction activities, the Director of Finance shared the summary of recommendations from the Blue Ribbon Committee, and the full report can be found as Attachment 1 to this report.
Mayor Friedman, Councilmember Wells, and City Treasurer Howard Fisher provided direction and action items for reductions in expenditures, which are summarized below. • Establish the City’s priorities for the next year and beyond to focus on what areas need more attention and those which have too much attention. Prioritization would help to understand what the City is able to accomplish due to current spending patterns. As City Council is aware, the revised priority setting process was approved by the City Council at the August 6th meeting. Per the attached draft schedule, it is expected that the City Council priority setting process will occur on October 10, 2024.
• Ask the respective City Council liaisons listed above to convene and discuss possible efficiencies and/or reductions in expenditures. • Work with departments to make sure their department and commission work plans align with updated City priorities.
• Once fully developed, consider the staff’s proposals for reductions in expenditures provided in the chart above.
• Authorize the Audit and Finance Committee to work through major expenditure areas by departments, including contractual services, travel/training, supplies, and overtime.
• Contemplate zero based budgeting in certain areas over a five year period. • Establish a timeline for setting priorities and for implementing expenditure reductions and simultaneously work on revenue enhancement recommendation options, so if needed, they can be implemented timely.
• Revisit free parking in the City.
Also presented (Attachment 2), is a tentative timeline for reviewing expenditure reduction options, along with the potential plan for evaluating/implementing revenue enhancements.
FISCAL IMPACT
There may be a variety of fiscal impacts based on recommendations implemented.
RECOMMENDATION
It is recommended that the City Council provide feedback and direction on the Audit and Finance Committee recommendations to:
• Convene relevant Liaisons/Ad Hocs to discuss possible efficiencies and/or reductions in expenditures.
• Once the priority setting process has occurred, task the City Manager to work with departments to make sure their department and commission work plans align with City Council priorities.
• Once compiled, consider the City Manager’s proposals for reductions. • Authorize the Audit and Finance Committee to work through major expenditure areas by departments, including contractual services, travel/training, supplies, and overtime.
• Contemplate zero based budgeting in certain areas over a five-year period. • Review the attached draft timeline.
• Revisit free parking in the City.
The overall budget examination/reduction process will be coordinated to pursue expenditure reduction and revenue enhancement opportunities, through the oversight of the City Manager and the Audit and Finance Committee.
Jeff S. Muir Nancy Hunt-Coffey
Approved By Approved By
Attachment 1
Attachment 2
FY25-26 Budget Plan with Expenditure Reduction and Revenue Enhancement Opportunities Category Resource Names Task Name Start Finish Duration Budget Reduction Various
Liaisons/Committees
Convene appropriate City Council Ad Hoc/Liaisons to examine areas for possible efficiencies/budget reductions Thu 8/1/24 Wed 10/2/24 45 days Budget Reduction Staff Work on proposed list of budget reductions to be presented to Audit and Finance Committee Thu 8/1/24 Wed 10/2/24 45 days
Budget Reduction Audit & Finance
Committee
Review progress and examine possible operating budget reductions (contractual services, overtime, etc.) Thu 8/1/24 Wed 10/2/24 45 days General City Council Priority Setting Thu 10/10/24 Thu 10/10/24 1 day General City Clerk 2024 General Election Tue 11/5/24 Tue 11/5/24 1 day Budget Process Finance Department FY23-24 Year-End & FY24-25 Q1 Financial Update Sun 10/20/24 Tue 11/19/24 23 days Budget Process All Departments Essential Budget Enhancements Due Mon 12/2/24 Mon 12/16/24 11 days Budget Process City Manager Review Proposed Budget Enhancements for FY25-26 Mon 12/16/24 Fri 12/20/24 5 days Budget Process Finance Department FY24-25 Q2 Financial Update Wed 1/15/25 Tue 2/11/25 20 days Budget Process Finance Department Deliver CIP Budget to Council Mon 4/21/25 Mon 4/21/25 1 day Budget Process Finance Department Deliver Operating Budget to Council Mon 4/28/25 Mon 4/28/25 1 day Budget Process Finance Department CIP Budget 2-2-2s Mon 5/5/25 Fri 5/9/25 5 days Budget Process Finance Department Operating Budget 2-2-2s Mon 5/12/25 Fri 5/16/25 5 days Budget Process Finance Department City Council CIP Budget Meeting #1 Tue 5/20/25 Tue 5/20/25 1 day Budget Process Finance Department City Council CIP Budget Meeting #2 Wed 5/21/25 Wed 5/21/25 1 day Budget Process Finance Department City Council CIP Budget Meeting #3 Thu 5/22/25 Thu 5/22/25 1 day Budget Process Finance Department City Council Budget Adoption Meeting Tue 6/17/25 Tue 6/17/25 1 day Revenue
Enhancement
Audit & Finance
Committee Business License Tax Updates (BRT) Fri 11/1/24 Mon 6/30/25 172 days Revenue
Enhancement Planning Commission Real Estate Leasing Process Review (BRT) Mon 1/6/25 Fri 8/29/25 170 days Revenue
Enhancement Public Works Commission Review Parking Revenue Recapture (BRT) Mon 1/6/25 Wed 10/1/25 193 days Revenue
Enhancement Planning Commission Review Project Planning/Permitting Processes (BRT) Mon 1/6/25 Wed 12/31/25 258 days Revenue
Enhancement
Audit & Finance
Committee Review Public-Private Partnerships (Ongoing) (BRT) Tue 12/3/24 Wed 12/31/25 282 days Revenue
Enhancement
Audit & Finance
Committee Review Special Assessment Districts (BRT) Mon 1/6/25 Wed 12/31/25 258 days Revenue
Enhancement
Audit & Finance
Committee
Review Recouping Additional Development Costs/Impact Fees (BRT) Mon 1/6/25 Wed 12/31/25 258 days
Revenue
Enhancement
Audit & Finance
Committee Consider Increase to Sales Tax (BRT) Mon 1/6/25 Thu 2/5/26 284 days Revenue
Enhancement
Audit & Finance
Committee Consider Increase to TOT (BRT) Mon 1/6/25 Thu 2/5/26 284 days General City Council Ballot measure deadline Fri 1/30/26 Fri 3/6/26 26 days General City Clerk 2026 General Municipal Election Tue 6/2/26 Tue 6/2/26 1 day