Carlsbad City Council
April 20, 2023

To the members of the:

CITY COUNCIL
Date~ CA / CC ✓
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April 20, 2023
Council Memorandum
To: Honorable Mayor Blackburn and Members of the City Council From: Laura Rocha, Deputy City Manager, Administrative Services Via: Geoff Patnoe, Assistant City Manager B.?
Re: City Staffing and Compensation History (Districts - All) {city of
Carlsbad
Memo ID# 2023035
This memorandum provides information related to the city's staffing and compensation history.

With the City Council meeting held on April 4, 2023 (Attachment E}, which included a discussion on the city's financial status, staff received comments regarding the increase in staffing levels over various time periods.

Staffing levels have, in fact, increased and we believe it is critical to view the history of and reasons for staffing level changes beginning with fiscal year 2007-08. This memorandum details the city's annual full-time equivalent position figures, comparative analysis with the city's historical revenues and expenditures, as well as the functional reasoning for changes in staffing over this 15-year period.

Background
In fiscal year 2007-08, the city's General Fund stood healthy with $118.5 million in revenues and $101.5 million in expenditures. Citywide, there were 711 full-time employees and 140.34 full­ time equivalents (commonly referred to as part-time employees} for a total of 851.34 full-time equivalents (FTE}. With a city population of 103,811, the FTE per capita was 122. In other words, for every 122 residents, there was one FTE. Another useful indicator is the ratio of revenues, or General Fund resources, in comparison with FTEs. With $118.5 million in General Fund revenues, for every FTE, there were $139,213 General Fund revenues.

Following 2008 and until fiscal year 2012-13, the city implemented reductions to staffing levels to account for the economic downturn driven by the Great Recession. The following chart shows the level of General Fund revenues, expenditures and citywide FTEs during that 5-year period.

Administrative Services Branch
Finance Department
1635 Faraday Avenue I Carlsbad, CA 92008 I 442-339-2127 t Council Memo - City Staffing and Compensation History {Districts - All) April 20, 2023

$130,000 ,000 - - - - - --
$120,000 ,000
$110,000,000
$100,000,000
1- I
$90,000,000
$80,000 ,000
FY07-08 FY08-09 FY09-10 FYl0-11 FYll-12
I
FY12-13
- General Fund Revenue - General Fund Expenditure Citywide Full-time Equivalents 900
850
800
750
700
650
600
The axes in the chart above have been condensed for illustrative purposes. We can see the Great Recession impacted General Fund revenues, while the reduction in staffing and General Fund expenditures contributed to maintaining healthy annual surpluses. Over this 5-year period, the year-over-year change in revenues totaled 1.3%, expenditures totaled -5.0%, and FTEs totaled -

5.3%. Baseline revenues in excess of expenditures totaled $92.2 million over the same period.

The next 5-years-between fiscal year 2013-14 and fiscal year 2017-18-coincided with the recovery from the Great Recession and continued economic growth and expansion. $160,000,000
$150,000,000
$140,000,000
$130,000,000
$120,000,000
$110,000,000
$100,000,000
$90,000 ,000
$80,000 ,000
FY13-14 FY14-15 FY15-16
- General Fund Revenue - General Fund Expenditure
900
850
800
750
700
650
600
FY16-17 FY17-18
Citywide Full-time Equivalents
Council Memo - City Staffing and Compensation History (Districts - All) April 20, 2023

The axes in the chart above have been condensed for illustrative purposes. We can see General Fund revenues and expenditures increasing relatively proportionally while maintaining healthy annual surpluses. FTEs grew slowly but did not reach levels consistent with fiscal year 2007-08 until fiscal year 2017-18. Over the 5-year period, the year-over-year change in revenues totaled

27.3%, expenditures totaled 26.2%, and FTEs totaled 6.9%. Baseline revenues in excess of expenditures totaled $134.1 million over the same period.

Between fiscal year 2018-19 and 2022-23, the city experienced continued economic growth and expansion. Even with the COVID-19 pandemic and its adverse fiscal impacts showing up in fiscal year 2019-20 through 2020-21, the city's revenues recovered in an accelerated fashion in fiscal year 2021-22 and operations normalized to pre-pandemic conditions by the end of the 5-year period .
$220 ,000,000 1000
$200,000 ,000 950
$180,000,000 900
$160 ,000,000 850 I
$140,000 ,000 800
$120,000 ,000 750
$100,000,000 700
FY18-19 FY19-20 FY20-21 FY21-22 FY22-23
- General Fund Revenue - General Fund Expenditure Citywide Full-time Equivalents The axes in the chart above have been condensed for illustrative purposes and it is important to note that estimates have been applied for fiscal year 2022-23, as the year has not yet ended.

Despite the impacts of COVID-19 where revenues declined in fiscal year 2019-20 and expenditures were reduced accordingly in fiscal year 2020-21, the General Fund was able to maintain healthy annual surpluses. Over the 5-year period, the year-over-year change in revenues totaled 29.0%, expenditures totaled 39.7%, and FTE totaled 13.7%. Baseline revenues in excess of expenditures totaled $143.3 million over the same period.

Attachment A presents the previous three graphs in a consolidated format, and we can clearly see that revenues, expenditures, and FTEs have increased over the 15-year period. Comparing fiscal year 2007-08 to fiscal year 2022-23 estimates, the following statistics apply:

Council Memo - City Staffing and Compensation History (Districts - All) April 20, 2023

Revenues have increased from $118.5 million to an estimated $205 million, 73% in total, or 5% annually on average
Expenditures have increased from $101.5 million to an estimated $180.0 million, 77% in total, or 5.1% annually on average
FTEs have increased from 851.59 to 987.65, 16% in total, or 1% annually on average The amount of General Fund revenue per FTE was $139,213 in fiscal year 2007-08 and is projected at $207,563 in fiscal year 2022-23 (Attachment B) FTEs per capita was 122 in fiscal year 2007-08 and is projected at 117 in fiscal year 2022-23 (Attachment C)
When comparing the start and end points, it is clear staffing levels have remained relatively proportionate, regardless of the metric. But a great deal of fluctuations occurred between those 15 years. Referring back to the first 5-year bar chart, we saw the reduction in staff and expenditures to account for the economic downturn driven by the Great Recession. And we saw that trend linger into the second 5-year period. It was not until about fiscal year 2017-18 that we began to see more significant increases in staffing and a return to pre-Great Recession levels.

And that is where we want to focus in terms of the purpose and reasons behind the increases.

Bargaining Unit Positions
Below is a chart that summarizes the full-time position additions by bargaining unit. The bargaining units that experienced FTE growth in our time period are defined below. A full detailed list of added positions can be found in Attachment D.

Management (MGMT) - employees in this unit are defined as those employees whose classifications are listed on the Management Salary Structure. Except as to those management employees subject to an applicable law, all management employees are considered "at-will" and have no property rights to their position. Additionally, these are ((salary" employees and do not receive overtime pay. It is commonly thought that all employees in the "Management" unit are managers; however, that's not always the case.

Some distinguishing characteristics of a "Management" employee include, but are not limited to:
• Demonstrates leadership, coaching and mentoring skills. • Leads project teams on complex projects/programs.
• Applies and develops advanced solutions to complex opportunities or problems, using advanced principles, theories and concepts.
• Expert on the city's policies and procedures.
• Selects (and may design new) methods and techniques for obtaining solutions. • Represents the city in the community and at professional meetings.

The following 13 positions added during our time frame are examples of ((Management" employees with the title of ((Manager" absent, but do hold the distinguishing characteristics mentioned above:

Council Memo - City Staffing and Compensation History (Districts - All) April 20, 2023

• Parks Superintendent
• City Traffic Engineer
• Smart City Innovator
• Communications Coordinator
• Community Arts Coordinator
• Public Works Superintendent
• Deputy City Attorney
• SCADA Supervisor
• Community Health Nurse
• Management Analyst (4)
Carlsbad City Employees' Association (CCEA) - Comprises city employees that are, contrary to the Management classification, not considered "at-will." These are also considered "hourly" employees who receive overtime and compensated time.

Carlsbad Police Officers' Association (CPOA) - Comprises and represents the city's Police Officers, communications personnel, and Community Service Officers within the Police Department .

Carlsbad Firefighters' Association (CFA)- Comprises and represents the city's fire employees within the Fire Department.

Unrepresented (Unrep) - Comprises employees, specifically Emergency Medical Technicians, that are not formally represented by a bargaining unit.

25.00 20.00

15.00 10.00

5.00 0.00
-5.00
FY17-18
Position Additions by Bargaining Unit
I I 111 I I • FY18-19 FY19-20 FY20-21 FY21-22
■ MGMT ■ CCEA ■ CPOA ■ CFA ■ UN REP
FY22-23
In total and from fiscal year 2016-17 to fiscal year 2022-23, full -time employees increased by 130.5 or 19%.

Council Memo - City Staffing and Compensation History (Districts - All) April 20, 2023

30 or 23% were part of the "Management" bargaining unit 51 or 39% were part of "CPOA," "CFA," or "Unrepresented" bargaining units

49.5 or 38% were part of "CCEA" bargaining unit
23 of the 130.5 were non-General Fund
Program, Service, and Resource Expansion
During this 6-year period, many new programs, expanded services, and regulatory requirements were implemented.

Police Ranger Program Lifeguard Program Lagoon patrol
Emergency medical response Boards & Commission transparency New parks and maintenance Traffic safety Homeless Response Program Environmental initiatives Public health Cybersecurity and data analytics Diversity, equity, and inclusion The items above are a non-exhaustive list, but since fiscal year 2018-19, they contributed to additional budgeted costs of approximately $50 million and 45 full -time employees. Changes to the city's staffing since fiscal year 2016-17 are discussed further below. It is important to note that referenced positions reflect the department to which they were added at that respective point in time. It does not reflect interdepartmental transfers in order to agree with City Council Adopted Budgets in each respective fiscal year.
• The Fire Department's Standards of Cover evaluation was part of the fiscal year 2021-22 .

City Council Goals Work Plan which was approved via City Council resolution on April 27, 2021. This effort included $21 million in one-time costs and $21.4 million in annual ongoing/future costs. In addition to temporary and permanent Fire Station No. 7, the Standards of Cover also called for the addition of 24 full-time employees. An additional 9 full-time employees were added during this period including, but not limited to, a Community Health Nurse, Paramedic Lifeguard Lieutenants, and Fire Prevention Specialists. A portion of these staff and budget increases serviced and funded additional ambulances and medical transports which resulted in increased ambulance fee revenues. • The Homeless Workplan, resulting from the fiscal year 2021-22 City Council Goals Work Plan, included $4.9 million in related costs in fiscal year 2021-22 and estimated annual costs of $1.7 million through fiscal year 2025-26. It also called for the establishment of a Housing and Homeless Services Department as well as the hire of a Police Sergeant and two Officers to staff the Homeless Outreach Team. During this period, and excluding the three Homeless Outreach Team employees added to the Police Department, 5 full-time employees were added to the Housing and Homeless Services Department. • The Carlsbad Police Department has added 24 full-time employees since fiscal year 2016-17 to ensure maintained levels of public safety service. Compared to other jurisdictions in San Diego County, Carlsbad is tied with the City of Chula Vista in terms of having the lowest amount of General Fund expenditures allocated to law enforcement each fiscal year (22%). The regional average is 32% and the highest allocation is the City of El Cajon at 48%.

Council Memo - City Staffing and Compensation History (Districts - All) April 20, 2023

• Recent legislation impacting environmental sustainability has required additional city resources. 2 full-time employees were added in fiscal year 2019-20 to achieve and maintain compliance with SB 1383 and AB1826 which requires a program to recycle organic waste. In fiscal year 2022-23, 6 full-time employees were added to implement the Sustainable Materials Management Plan and additional sustainability initiatives directed by the City Council, such as the single-use plastics ban. • As governments look to increase efficiency, collect and manage data, and safeguard its assets, they become more heavily dependent on technology. There are endless benefits of leveraging technology, but it does come at a cost and it also requires city staff to operate, maintain, and continue to innovate. 11 full-time employees were added to the Information Technology (IT) and Innovation & Economic Development (IED) Departments during this 6-year period. Six of these positions were requested to assist with internal operations and customers, including addressing demand at the Client Service desk and deployment of software/hardware and devices. One Senior Applications Analyst was added solely to address the increasing technology support needs for the city's Police Department. While the remaining added positions in IT were added to manage the city's investment in GIS technology, have someone dedicated solely to the city's IT operations security, and support the installation and maintenance of the city's voice, video and mobile device management. Lastly, the city converted two part-time jobs in Innovation & Economic Development into one full-time Strategic Plan Analyst position to support the work outlined in the Citywide Data Governance and Management Council Policy, along with having responsibility for analyzing data related to the Strategic Plan's five goals, 28 strategic objectives, and over 60 priority projects.
• S full-time employees were added to the Utilities Department, most of which were recommended in the city's master plans. A SCADA Supervisor and Technician were added in relation to the city's 2019 SCADA Master Plan allowing the city to monitor water and wastewater infrastructure. The city's Asset Management Master Plan called for a Utilities Asset Management Program Specialist in order to move forward with the plan's projects, resulting in proactive rather than emergency repairs, and assistance on compliance with new regulations. Adding a Utility Locator enabled the city meet increasing markout needs with cost savings from reduced contractor use, greater efficiency, and better accuracy, and a new Management Analyst assisted with existing financial management demands. • 4 full-time employees were added to Human Resources, primarily to ensure timely and sufficient service continuity for receiving departments. The addition also included the city's first Senior Program Manager of Diversity Equity and Inclusion. The remaining three positions were added to assist primarily with compliance efforts, citywide training programs, and discipline and employee relations .
• 2.5 full-time employees were added to the Library & Cultural Arts Department. Part of this represents the conversion of two part-time to full-time Circulation Supervisors to improve organizational alignment and address the gaps in staff development, connectedness and morale caused by the difficulty in retaining part-time staff. This conversion resulted in a net reduction in full ,.time equivalent positions as well as savings Council Memo - City Staffing and Compensation History (Districts - All) April 20, 2023

to the General Fund. Additionally, with an additional $100,000 in public art budget granted in fiscal year 2015-16, the department required a Community Arts Coordinator to design, implement, and maintain public art on an ongoing basis to ensure this budget appropriation is appropriately utilized. The addition of a Library Assistant also allowed the department to open its Library Learning Center on Saturdays-like Cole and Dove Libraries-to address unmet literacy learner needs and enable the center to use its endowment funds to supplement these efforts.
• 9.75 full-time employees were added to the Transportation, Fleet & Facilities, and Construction Management and Inspection Departments, as described below. o Three positions were added to the Transportation Department to support storm drain engineering, act as the City Traffic Engineer with the important responsibility of overseeing the Traffic Safety Commission (now known as the Traffic & Mobility Commission) and a Director to better coordinate related activities across Transportation and serve as the City Engineer.
o Facilities & Fleet required a new Superintendent to provide oversight when departments develop specifications and want to procure vehicles. The department also needed a Facility Specialist to serve the high demands of all user groups at the Safety Training Center, based on the results of an operational study deeming existing staffing levels insufficient. A limited term Senior Engineer was added to cover the anticipated workload for the next five years currently programmed in the CIP to significantly assist in project delivery of these important projects, some of which are also City Council priorities and/or involving public safety. Lastly, an operational study conducted in 2019 found the current staffing levels for custodial services to be inadequate; as a result, the city converted three part time custodians to full time to better preserve public health and safety by maintaining hygienic and cleanliness standards of city facilities for staff and the public. o Lastly, an Associate Contract Administrator was added to Construction Management & Inspection to handle additional workload and serve as backup performing revenue and contract management tasks related to CIP and private development projects.
• 1.25 full-time employees were added to the Finance Department for additional treasury and accounting support. A new Accountant was necessary to ensure the Financial Reporting and Accounting Group can meet its obligations to Council, residents, regulators, and the organization, in part due to the increased number and complexity of accounting standards.
• 1 full-time employee was added for City Council administrative support. • 4 full-time employees were added to the Communications Department for enhanced communications and public outreach through the conversion of 4 part-time to 2 full-time Community Relations Managers, a Communications Coordinator and a Media & Graphics Supervisor.

Council Memo - City Staffing and Compensation History (Districts - All) April 20, 2023

• 2 full-time employees were added to the City Attorney's Office for additional city prosecution and code enforcement support via a new Assistant City Attorney and Deputy City Attorney.
• 2 full-time employees were added to the City Clerk's Office for assistance with the retention and destruction of paper and digital records citywide with a Records Technician as well as an additional Deputy City Clerk.
• 1 full-time employee was added to the City Manager's Office for additional administrative support. This position was later transferred to the Community Development Department.
• 1 full-time employee was added for increased legislative and intergovernmental efforts and collaboration.
• 2 full-time employees enhanced efforts in the area of innovation and analytics, with the addition of a Smart City Innovator (now titled Chief Innovation Officer) and Business Intelligence & Analytics Manager, later transferred to the Office of Innovation & Economic Development.
• 10 full-time employees were added to the Community Development Department to increase service levels for engineering and building permits and inspections and code enforcement monitoring and compliance. The positions can be broken down as follows:
o One position add was administrative, working on bonds and agreements and other similar contracts and documents of the department. o Two positions were added in support of the city's housing division and homeless response plan, before later being transferred to the city's subsequently formed Housing & Homeless Services Department.
o Four of the remaining seven position additions were conversions from limited term to permanent positions. These included an Associate Engineer to maintain current customer service levels for processing of development applications and engineering demands related to flood plain analysis and Transportation Demand Management programs, a Building Inspector to meet growing and increasingly complex service demands for building inspections, a Building Technician to maintain minimum staffing needs of the Community and Economic Development front counter at the Faraday Center to sustain quality customer service, and a Senior Program Manager dedicated to Carlsbad Village programs and projects.

This Senior Program Manager position was later transferred to Housing & Homeless Services to support housing services.
o Two of the remaining three added positions - an Engineering Technician and Code Enforcement Officer-were added to better address demands and case management.
o Lastly, a Code Enforcement Program Manager was added to provide daily management of the code enforcement program; the department previously had a Manager before it had to reassign duties to address the new short-term vacation rental program enforcement needs.

Council Memo - City Staffing and Compensation History (Districts - All) April 20, 2023

• 4 full-time employees (net} were added to the Parks & Recreation Department for 4 senior lifeguards. This action reduced the total FTE count by 2.6. These positions were provisionally approved during mid-year, and this budget request in fiscal year 2022-23 made them permanent FTEs. The city's aquatic centers were significantly impacted by the nationwide staffing shortages and lap swimming and aquatic programs were also reduced. Full time staff helps ensure dependability as opposed to the high turnover in part-time staff, as FT are more stable and provide the public with the greatest potential for regular hours of operations and programs at the pools.

Management Compensation
Staff have received comments about the number of new managers hired and number of employees making over $100,000 per year. In short, yes, new managers have been hired and there are employees making more than $100,000 per year. But it's important to look at the actual figures in the appropriate context. Of the 130.5 full-time position additions since fiscal year 2016-17, 30 or 23% were part of the "Management" bargaining unit. And of these 30 positions, 13 do not have the title of "manager" and may not operate or function as a "manager." On an adjusted basis, 17 managers were added in the 6-year period.

The following chart shows the number and percentage of employees with budgeted annual salaries of more than $100,000 in each of the respective years. With fiscal year 2016-17 serving as the base year for the $100,000 threshold, we have applied the consumer price index (CPI) for San Diego in each of the future years to account for inflation.

Fiscal year 16-17 17-18 18-19 19-20 20-21 21-22 22-23
CPI - San Diego 0.0% 3.0% 3.4% 2.4% 1.5% 5.2% 7.7%
# of full-time employees 127 119 117 134 148 149 110 with a budgeted base salary
of $100,000, CPI adjusted
Total # of full-time 676.25 685.25 693.25 745.75 747.75 772.25 806.75 employees citywide % of full-time employees 19% 17% 17% 18% 20% 19% 14% with a budgeted base salary of $100,000, CPI adjusted
Transparent California (https://transparentcalifornia.com) is an on-line database that provides comprehensive and easily searchable information on the compensation of public employees and retirees in California. It is provided by the Nevada Policy Research Institute which is a non­ partisan think tank that focuses on, among other things, empowering citizens and elected officials with information they need to make informed public policy decisions. Transparent California is a great tool for all users, but there are some limitations to be aware of when reviewing the information. The data used by Transparent California is based on a calendar year whereas the city's budget and financial data is based on a fiscal year (July 1- June 30).

I
II
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I I
Council Memo - City Staffing and Compensation History {Districts - All) April 20, 2023

Additionally, the timing of actual changes in personnel and compensation also may not be timely or accurately represented in the data published by Transparent California. For example, if a position becomes vacant halfway through the year and it is quickly filled, Transparent California's data might appear as though there are two positions instead of one.

The city has changed significantly over the last 15 years. From forging through the Great Recession and COVID-19 pandemic to making strategic reductions and adding and expanding programs and services, the city's staff has been a steady constant and driving force in ensuring the community continues to receive excellent levels of service.

Next Steps
This memorandum is for informational purposes. Staff will be presenting the Fiscal Year 2023-24 Preliminary Budget on May 23, 2023, to receive input and direction from the City Council and community members before final budget adoption slated for June 13, 2023.

Attachment: A. General Fund Revenue, Expenditures, and Citywide Employees B. General Fund Revenue per Full-time Equivalent
C. Full-time employees and Equivalents per Capita
D. Citywide Position Additions from FY 2017-18 to FY 2022-23 E. April 4, 2023, City Council Item #8
(Due to the size of Attachment E, a hard copy is on file in the Office of the City Council, as reference)
cc: Scott Chadwick, City Manager
Cindie McMahon, City Attorney
Michael Calderwood, Fire Chief
Mickey Williams, Police Chief
Gary Barberio, Deputy City Manager, Community Services
Paz Gomez, Deputy City Manager, Public Works
Judy Von Kalinowski, Human Resources Director
Zach Korach, Finance Director
Attachment A
General Fund Revenue, Expenditures, and Citywide Employees $250,000,000 --· --·-· - ---·--- -- -- ------ - •· - 1200 1000
$200,000,000
-------------- , .;-~ -I 800
$150,000,000 - -------.._._.,;.-;;=~::::.:====:~==~;:: 1--~ - ---ci I .- 600
$100,000,000 ----
, ______ _
400
$50,000,000 I- .. -
200
$- 0
FY07-08 FY08-09 FY09-10 FYlD-11 FYll-12 FY12-13 FY13-14 FY14-15 FYlS-16 FY16-17 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23 - General Fund Revenue - General Fund Expenditure - Citywide Full-time Employees Source: City of Carlsbad Adopted Budget and Annual Comprehensive Financial Report Notes:
(1) Fiscal year 2022-23 is estimated until year-end close after June 30, 2023.

Citywide Full-time Equivalents
(2) General Fund expenditures exclude transfers and additional contributions to CalPERS for purposes of establishing a baseline trend.

Atta chment B
General Fund Revenue per Full-tim e Equivalent
$250,000.00
$200,000.00
$150,000.00
$100,000.00 -- I
$50,000.00
$-
FY07-08 FY08-09 FY09-10 FYl0-11 FYll- 12 FY12-13 FY13-14 FY14-15 FYlS-16 FY16-17 FY17-18 FY18-19 FY19-20 FY20-21 FY2 1-22 FY22-23 Source: City of Carlsbad Adopted Budget and Annual Comprehensive Financial Report Attachment C
Full-time Employees and Equivalent s per Capita
180
160
140
-~---------------==-~~--- ~-
120 - - - --- - ----- - -
100
80 60
40 20
FY07-08 FY0B-09 FY09-10 FYl0-11 FYll-12 FY12-13 FY13-14 FY14-15 FYl S-16 FY16-17 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23 - Full-time emp loyee per capita - Full-time equiva lent per capita ____ J
Source: City of Carlsbad Adopted Budget and Annual Comprehensive Financial Report FULL-TIME POSITION ADDITIONS FROM FISCAL YEAR 2017-18 TO FISCAL YEAR 2022-23 AttachmentD 676 .25
FY 2017-18 Parks & Recreation Park Maintenance Worker II CCEA General Budget -1.00 City Attorney Deputy City Attorney MGT General Budget 1.00 City Clerk Records Technician CCEA General Budget 1.00
Information Technology Service and Release Manager MGT Internal Service Budget 1.00 Information Technology Client Systems Associate Administrator CCEA Internal Service Budget 3.00 Information Tec hnolo gy Senior Applications Analyst CCEA Internal Service Budget 1.00 Information Technology Senior Network Engineer CCEA Internal Service Budget 1.00 Parks & Recreation Park Planner CCEA General Budget 1.00 Transportation Property and Environmenta l Management Director MGT General Budget 1.00

9.00 685 .25
FY 2018-19 Parks & Recreation Maintenance Aide CCEA General Budget ·1.00 Parks & Recreation Park Maintenance Worker II CCEA General Budget -1.00 Parks & Recreatio n Parks Superintendent MGT General Budget 1.00 Transpo rtation City Traffic Engineer MGT General Budget 1.00 Fleet&Facilit ies Facility Specia list CCEA General Budget 1.00 City Manager Smart City Innovator MGT General Budget 1.00 Police Police Officers (Sworn) CPOA General Budget 4.00 Police Ranger Community Serv ice Officer s (limited term conversio CPOA General Budget 2.00

8.00 693 .25
FY 2019·20 Fleet&Facilities Administrative Secretary CCEA General Mid•year -0.25 Fire Paramedic lifeguard Lieutenant CFA General Mid•year 2.00 Police School Resource Officer CPOA General Mid•year 1.00 City Counci l Senior Office Special ist CCEA General Mid·year 1.00 Communication & Engage ment Communications Coordinator MGT Genera l Mid-year 1.00 Communication & Engagement Media & Graphics Supervisor CCEA Genera l Mid-yea r 1.00 City Clerk Deputy City Clerk CCEA Genera l Mid-yea r 1.00 Community Development Building Inspector 1/11 CCEA Genera l Mid-year 1.00 Community Development Building Technician 1/11 CCEA Genera l Mid-year 1.00 Community Development Senio r Program Manager MGT General Mid-year 1.00 Community Developm e nt Associate Engineer CCEA General Mid-year 1.00 City Attorney Assistant City Attorney MGT General Budget 1.00 City Manager Administrative Secretary CCEA General Budget 1.00 City Manager Business Intelligence & Ana lytics Manager MGT General Budget 1.00 City Manager Intergovernmental Affairs Manager MGT General Budget 1.00 City Treasurer Assistant to the Treasurer CCEA General Budget 0.25 Commu nity Develop ment Engineering Technician II CCEA General Budget 1.00 Commu nity Development Code Enforcement Officer II CCEA General Budget 1.00 Community Deve lopment Code Enforcement Program Manager MGT General Budget 1.00 Community Development Housing Assistant CCEA Gene ral Budget 1.00 Community Development Program Manager (Homeless Respon se Plan) MGT Gene ral Budget 1.00 Finance Accountant CCEA General Budget 1.00
Fire Business Systems Specia list CCEA General Budget 1.00 Fire Fire Captai n Specialist CFA General Budget 1.00
Fire Fire Prevention Specialist CFA General Budget 0.75 Fire Fire Prevention Specialist ll CFA General Budget 2.00 Fire Senior Office Specia list CCEA General Budget 1.00 Human Resources Human Resources Technician CCEA General Budget 1.00 Human Resource s Management Analyst MGT General Budget 1.00 Human Resources Senior Office Specialist CCEA General Budget 1.00 Information Technology Client Systems Administrator CCEA Internal Service Budget 1.00 Informa tion Technol ogy GIS Associate Ad ministrato r CCEA Internal Service Budget 1.00 Information Technology IT Operations Secu rity Manager MGT Internal Service Budget 1.00 Library & Cultural Arts Commun ity Arts Coordinator MGT Genera l Budget 1.00 Library & Cultura l Arts Library Assistant CCEA Genera l Budget 1.00 Police Police Officers CPOA General Budget 8.00
Police Police Records Specialist II CCEA General Budget 2.00 Police Police Sergeant CPOA General Budget 1.00
Construction Manageme nt & Inspection Associate Contract Administrator CCEA General Budget 1.00 Environ mental Sustainability Environmental Specialist 11 CCEA Enterprise Budget 1.00 Fleet& Facilities Public Works Super intendent , Fleet MGT Internal Service Budget 1.00 Utilities SCADA Supervisor MGT Enterprise Budget 1.00
Transportation Senior Engineer MGT General Fund Budget 1.00 Environmental Sustainability Senior Environmenta l Specialist CCEA Enterprise Budget 1.00 Commu nity Development Senior Office Specia list CCEA General Budget 0.75 52 .50 745 .75
FY 2020-21 Police
FY 2021-22 Housing & Homeless Services
Housi ng & Homeless Services
Housing & Homeless Services
Housing & Homeless Services
Human Resources
Fire
Fire
Fire
Community Developm ent
Police
Police
Fleet&Facill ties
Utilities
Utilities
FY 2022-23 Police
Fleet &Facilit ies
Utilities
Fire
Innovation & Econ omic Development
Pa rks & Recreation
Parks & Recreation
Housing & Homeless Service s
Information Tech nology
Utilities
Fire
Commu nication and Engagement
Communication and Engagement
Enviro nmental Sustainability
Enviro nmental Sustainability
Library&CulturalArt s
Total

ADDITIONS BY BARGAINING UNIT
CCEA
MGT
CPOA
CFA
UNREP
TOTAL
FULL-TIME POSITION ADDITIONS FROM FISCAL YEAR 2017-18 TO FISCAL YEAR 2022-23 Attac hmentD Police Officers
Director of Housing & Homeless Services
Housing Services Manager
Mana gement Ana lyst
Program Manager
Senior Prog ram Manager , Diversity Equity & Inclusio n Paramedic Firefighters
Emergency Medical Technicians
Fire Preve nti on Specialist II (0. 75 to 1.0 convers io n) Senior Office Specialist (0.75 to 1.0 conversion)
Police Se rgeant
Police Officers
Custodians (PT to FT con version)
SCADA Technician
Utllltles Asset Management Progr am Spe cialist
Management Ana lyst
Senio r Engineer (5-Year Limited Term)
Mana geme nt Ana lyst
Emergency Medical Tec hnicians
Strategic Plan Ana lyst
Se nior Lifeguards
Park Planner (5-Year Limited Term )
Housing Assista nt
Client Systems Associate Administrator
Utility locator
Community Hea lth Nurse
Community Relations Ma nager
Community Relatio ns Manager
Environme nta l Specia list
Environmental Specialis t
Circulation Supervisors (0.75 to 1.0 co nversions)

49.50 38%

30.00 23%

21.00 16%

15.00 11%

15.00 11%
130 .50 100%
CPDA
MGT
MGT
MGT
MGT
MGT
CFA
UN REP
CFA
CCEA
CPOA
CPOA
CCEA
CCEA
CCEA
MGT
MGT
MGT
UNREP
CCEA
CCEA
CCEA
CCEA
CCEA
CCEA
MGT
MGT
MGT
CCEA
CCEA
CCEA
General Mid-year 2.00

2.00 747 .75
General Budget 1.00
General Budget 1.00
General Budget 1.00
General Budge t LOO
Genera l Budget 1.00
General Budget 9.00
Genera l Budget 3.00
General Budget 0.25
General Budget 0.25
General Budget 1.00
General Budget 2.00
General Budget 3.00
Enterprise Budget 1.00
Enterpri se Budget 1.00

25.50 773 .25
General Budget 1.00
General Budget 1.00
Enterprise Budget 1.00
General Budget 12.00
Genera l Budge t 1.00
General Budget 4.00
Genera l Budget 1.00
Spe cial Revenue Budget 1.00
Internal Serv ice Budget 1.00
Enterprise Budget 1.00
General Mid-year 1.00
General Mid-ye ar 1.00
Genera l Mid-year 1.00
General Mid-yea r 2.00
Enterpri se Mid-yea r 4.00
General Mid-yea r 0.50

33.50 806 ,75
130.50 806.75
Not es:
(1) Positions in thi s list are reflecte d as of a point in time and do n ot refl ect interdepartmental transfe rs or reclassificat ions for purp oses of agreeing w ith respect ive Adop te d Budget documents.
(2) 23 of the 130.S or 18% were non-Ge n eral Fund
CA Review CKM
Meeting Date: April 6, 2023
To: Mayor and City Council
From: Scott Chadwick, City Manager
Staff Contact: Laura Rocha, Deputy City Manager – Administrative Services [email protected], 442-339-2415
Zach Korach, Director of Finance
[email protected], 442-339-2958
Subject: City Financial Status Update
District: All
Reco
mmended Action

1. Receive a report on city finances, funding challenges and funding options.

2. Provide feedback and direction to staff.

Executive Summary
The City of Carlsbad has always prided itself on providing a high level of service to the community, responsibly managing public resources and working in partnership with the community to realize its vision for the future. As the city transitions from a time focused on building a great city to maintaining what has been created, the needs, priorities and revenue sources are changing.

Carlsbad has been able to maintain strong financial health by planning ahead and using the best data available to make informed decisions. One tool used by the city’s Finance Department is a 10-year forecast of planned spending and expected revenues.

Identifying potential future funding gaps between revenue and expenditures serves as an early indicator that spending needs to be modified, new revenues brought in, or both, to maintain long term fiscal sustainability. For example, during the 2008 recession, staff identified a funding gap, and the City Council adjusted the timing of certain projects and made other changes to the city budget that successfully closed the gap. Staff’s forecasts have identified a potential similar future funding gap that could occur in coming years.

City staff are preparing to present the proposed budget for the coming fiscal year to the City Council next month. This report provides an overview of the city’s current financial status, longer-term forecasts and potential new revenue sources the City Council may want to consider
to ensure the city’s ongoing fiscal health and its ability to continue to provide the high level of service our community has come to expect.

April 4, 2023
Item #8 Page 1 of 13
Attachment E
Explanation & Analysis
Background
When Carlsbad was being developed, the city’s goal was to build an excellent community while maintaining fiscal health to provide a high level of service. As cities approach a time when much of the new development is complete, the focus traditionally shifts to maintaining what has been created.

As infrastructure ages, so do the investments needed to maintain it. Carlsbad’s water, sewer and storm drain system alone represents over $2 billion in assets that need to be maintained.

The city also has more people to serve than it did in the past.

This occurs at the very time that fees from building – the fees that originally paid for much of this infrastructure – are less than they were in those previous years. In addition, limits on certain taxes, such as property tax, mean that revenues may not keep pace with inflation, or with the increases in service costs. This is how maturing cities can face a structural deficit. And staff’s financial forecasts indicate that the city’s revenues will fall short of its spending in the next five to ten years.

Cities have several options when determining how best to close a funding gap, including postponing major new projects, finding more efficient ways to deliver services, eliminating services that aren’t core to the city’s mission and expanding the revenue base. In 2021, the City Council approved a project to study potential new sources of revenue to better understand these options. A City Council Workshop was held on April 20, 2022, to discuss the results of the study. Although no further action was taken at that time, uncertainty in the economy remains.

Current fiscal condition
Following the Great Recession of 2007-09, the city has thrived through the longest recovery and expansionary period in United States history. Since 2012, proceeds from the city’s property, sales and transient occupancy taxes, the top three sources of the city’s general fund money, have increased approximately 53%, 80% and 120%, respectively. Below is a chart showing the General Fund’s revenues and expenditures since fiscal year 2012-13.

Note: Transfers include financing district, storm water, golf course, workers’ compensation, risk, fleet, infrastructure replacement and general capital construction. Additional discretionary payments to CalPERS are not included. $-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
General Fund Revenues General Fund Expenditures Transfers General Fund revenues, expenditures and transfers
April 4, 2023
Item #8 Page 2 of 13
II. I. I. I. I ■ ■ ■ I I I
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Since fiscal year 2012-13, revenues have grown approximately 5.3% on average each year.

Excluding transfers out, expenditures have outpaced the growth of revenues by increasing 6.9% on average each year.

The increase in expenditures over the last ten years was partly the result of the city adding staff to maintain its high level of service while meeting meet new and changing community priorities, but it has also been driven by new requirements imposed by the state and federal governments that cost the city money but are not eligible for reimbursement. For example, the city is responsible for reducing greenhouse gas emissions by state deadlines, which requires a multi-year comprehensive effort involving nearly every city department.

New/expanded city services 2017-202 2
The city has also added several new or expanded city operations and services in recent years.

Here is a partial list, which includes new investments in public safety, community services, sustainability and city administration.

Public safety
• Homeless Response Program
• Policy body worn cameras
• Beach lifeguard program
• Trail ranger program
• Lagoon patrol (on-water)
• Citizens Police Academy
• Expanded public health role (due to pandemic)
Community services
• New community special events
• New and expanded park amenities
• Intergenerational Parks & Recreation programs
• Expanded city arts and culture programs
• Mobile library program
• Age-friendly cities initiative
Sustainability
• Community Choice Energy electrical service
• New environmental initiatives
• Sustainable Mobility Program
Administration
• Internal audit program
• Innovation and data analytics
• Diversity, equity and inclusion program
• Enhanced cybersecurity program
• New citizens committees
• New City Council subcommittees: Legislative and Economic Development

April 4, 2023
Item #8 Page 3 of 13

Steps already taken to safeguard financial health
Consistent with the city’s well-established track record of prudent financial management, staff and the City Council have taken the following steps in recent years to support the City of Carlsbad’s ongoing fiscal sustainability:

1. Strong general fund reserve policy
The City of Carlsbad maintains a healthy general fund reserve, sometimes called a rainy-day fund, to protect against unanticipated changes that could negatively affect city finances.

The General Fund Reserve Guidelines established in City Council Policy No. 74 requires the city to hold in reserve an amount equivalent of 40% of the annual General Fund operating budget.

Even with the expanded services approved by the City Council, the city has been able to build up our general fund reserve to record levels. The chart below shows that the city has been able to maintain a reserve account that is higher than the 40% required by City Council policy.

Strategic use of reserves
On June 18, 2019, the City Council adopted revisions to the city’s General Fund Reserve Policy (City Council Policy No. 74). These changes narrowed how General Fund reserves could be used to three purposes:

1. To mitigate financial impacts resulting from a natural disaster or other catastrophic events

2. To respond to the challenges of a changing economic environment

3. To continue demonstrating prudent fiscal management and creditworthiness This new policy provided greater City Council control over how reserves are spent and opened the door to using General Fund reserves to strategically put the city in a better long-term financial position.
0%
10%
20%
30%
40%
50%
60%
70%
Healthy General Fund reserves
Reserve Percentage Reserve Policy
Amount of money required to be held in reserve for emergencies, fiscal sustainability and to withstand economic downturns Actual amount of money the city has in reserve
April 4, 2023
Item #8 Page 4 of 13
■ ■

• For example, in FY 2016-17 and FY 2020-21, approximately $30 million was used to fund the City’s General Capital Construction Fund, Infrastructure Replacement Fund, and to reduce the city’s CalPERS pension debt, its unfunded liability, which helps save the city money in the long run.
• These investments mean that the city has money set aside to keep its major infrastructure well-maintained, thus avoiding costly emergency repairs.

2. Putting money away for future needs
The city has consistently allocated the equivalent of 6% of estimated General Fund revenues each year to an infrastructure replacement fund. This enables the city to keep up with maintenance, to prolong the useful life of approximately $1.2 billion worth of city infrastructure and to be in a position to replace infrastructure as needed.

On June 8, 2021, the City Council approved City Council Policy No. 91, the city’s Long Term General Fund Capital Funding Policy, which formalizes not just setting funds aside funding each year for infrastructure replacement but also for general construction needs and investments in technology, which has become a costly yet critical part of efficient and effective city operations.

3. Reducing pension debt
In recent years, unfunded liabilities, or pension debt, have caused cities in California to cut back on public services. Three cities have declared bankruptcy. Pension debt is the difference between how much money is available to pay for the pensions city employees receive when they retire and the money needed to pay for the actual benefits. Pension debt is an estimate because it’s not possible to know exactly how well the pension fund investments will perform nor how many employees will retire, at what age they will retire and how long they will live.

The City of Carlsbad has long recognized the financial uncertainty caused by the state’s pension system. That’s why Carlsbad was one of the first cities in the region to enact pension reform, pre-dating state reforms in 2013. This and other strategies have reduced the city’s pension debt considerably compared to most other cities in the state.

What is the problem?
In the early 2000s, CalPERS, the state agency that manages pensions for cities, anticipated that investment returns would be higher than the investments actually performed. This resulted in less money than expected in the overall pension fund, thus increasing the pension debt for cities. Since this time, CalPERS has taken several steps to improve transparency and the financial health of its fund:
• In December 2016, CalPERS reduced the assumed rate of return for investments, from 7.5% to 7.0% over three years, from FY 2018-19 to FY 2020-21. • In February 2018, CalPERS decreased the amortization period for new pension liabilities from 30 years to 20 years effective July 1, 2019. • In FY 2020-21, CalPERS reported an investment return of 21.2% which, under CalPERS’s Funding Risk Mitigation Policy, triggered a reduction in the discount rate used to calculate contributions from employers and those employees who joined CalPERS since 2013, when the Public Employees’ Pension Reform Act was passed.

April 4, 2023
Item #8 Page 5 of 13

• This reduction from 7.0% to 6.8% will affect contributions starting in FY 2023-24.

While these changes will provide long-term benefits to the pension plan, they will also increase the city’s required pension contributions.

One way to reduce the city’s long-term pension costs is by making early payments to reduce the pension debt.
• In 2019, the City Council adopted a Pension Funding Policy (City Council Policy No. 86). This policy states that the city will strive to maintain an 80% funded status. Said another way, the goal of this policy is to keep Carlsbad’s pension debt at no more than 20% of the total liability.
• Since FY 2016-17, the city has contributed $56.4 million to CalPERS to reduce the city’s unfunded liability and thereby achieve interest savings. • These contributions were in addition to the annual required contributions set by CalPERS.
• Even though CalPERS is continuing to take prudent measures to manage the pension liability for its participants, the annual costs paid by participating members will continue to increase. In fiscal year 2021-22, CalPERS experienced a 6.1% investment loss, which largely offset the positive gain from the previous year and will have a significant impact on the city’s future costs. Staff will continue researching and developing a proposed funding plan for the establishment of a Section 115 Trust and will present this item for the City Council’s consideration as part of the fiscal year 2023-24 preliminary budget. (A Section 115 Trust is a pension prefunding tool whereby contributing city assets to the trust can provide benefits such as improving local control, increasing investment diversity, potential increase in investment return and mitigating risk and volatility.)

4. Strategic use of general fund surpluses
By taking a conservative approach to estimating revenues and by actively managing spending, the City of Carlsbad often ends the year with a General Fund surplus. This means the city has spent less General Fund money than the amount of General Fund revenues coming in.

On Aug. 27, 2019, the City Council approved City Council Policy Statement No. 87, which provides greater City Council oversight and a strategy for allocating surplus money each year. Among the allowed uses of General Fund surplus money are ensuring the General Fund’s reserve is at or above its target amount and reducing pension debt. Once those two goals are met, surplus money may be carried forward to the next budget year to fund one- time expenses associated with City Council goals and other needs, as approved by the City Manager or City Council, depending on the amount.

5. New internal budget policies and practices
In addition to supporting the City Council in developing and enacting the new budget policies described in this report, the City Manager immediately upon appointment put new budget practices in place at the organizational level. These include:
• Eliminating the automatic cost of living increase to department budgets. Instead, departments must demonstrate with objective data the need for any year-over-year increase to their budgets.

April 4, 2023
Item #8 Page 6 of 13

• Eliminating the ability of departments to automatically carry forward up to 10% of unspent budget to the following year.
• Recommending additional staff positions only under three conditions:

1. Needed to comply with new legal and regulatory requirements

2. To support a City Council priority

3. To address a critical public safety need
• In 2022, challenging all departments to reduce their annual maintenance and operations budgets by 2%.
• In 2023, challenging all departments to reduce their annual budgets by 3%.

Fiscal forecast
Even though these combined actions have greatly improved the city’s financial sustainability, the long-term financial forecast shows a future gap in funding if the city continues to maintain and build the public safety, infrastructure, parks, recreation and other services that contribute to the quality of life expected by Carlsbad residents.

A financial forecast is a planning tool that helps identify trends and anticipate the long-term consequences of budget decisions. The forecast is instrumental in modeling the effects of retirement costs, employee compensation, on-going maintenance and operations, as well as revenues for the city’s budget.

The forecast is not a budget nor a plan but rather a model based on cost and revenue assumptions updated regularly as new information becomes available. Of these components, cost projections which are based on known costs are relatively reliable. However, revenue forecasts are based on assumptions related to future economic conditions, which are inherently more uncertain. Economic forecasts change frequently and demonstrate the difficulties of committing to a particular prediction of the future. For this reason, the city’s forecast is updated regularly.

Changing conditions
Looking ahead five years, several conditions point to the need to identify new ongoing sources of revenue:
• Economic conditions, inflation, housing, and the impacts to the city’s primary revenue sources (sales, property and transient occupancy tax).
• More demand for city services due to increases in population, including residents, employees and visitors. New state housing laws in particular are expected to result in increases to the city’s population greater than current service models anticipated. • As the city approaches a time when most of the major new development has occurred, revenue from development fees will decrease significantly. City infrastructure, originally funded by those fees, is now aging and needs maintenance or replacement. o The FY 2022-23 Adopted Capital Improvement Program Budget included $42.6 million in new appropriations, with $695 million in projected projects over the next 15 years.
o Many of the city’s capital projects will require annual operating expenditures upon their completion. Notable projects with anticipated significant operating April 4, 2023
Item #8 Page 7 of 13

impacts include, but are not limited to, Veteran’s Memorial Park, Fire Station No. 7, Orion Center, City Hall and Monroe Street Pool.
• Expenditures increasing at a faster rate than the city’s revenues o Although we predict revenues will exceed expenditures on an annual basis for the next few years, we are expecting this excess to diminish which results in an ever-increasing budget deficit.

The forecast presented above represents the city’s baseline forecast and applies consistent methodology as forecasts presented in the past. Revenues, particularly sales, property and transient occupancy tax, are forecasted relatively conservatively given their sensitivity to economic changes. Expenditures are generally easier to predict because their increases are driven by contracts or inflationary indices. Over the next 10 years, revenues are expected to increase on average by 2% annually while expenditures are expected to increase on average by

3.7% annually. Expenditure growth continuing to outpace revenue growth results in a projected annual operating deficit beginning in fiscal year 2026-27.

Because financial forecasts are built upon assumptions at a point in time with inherent uncertainty, it is important to understand the assumptions driving the revenues and expenditures, as well as the budget line items that are included and those that are not. The city has historically budgeted and forecasted revenues relatively conservatively. This increases the likelihood of realizing a budget surplus at the end of the year and also allows for sufficient funding for unanticipated one-time or ongoing budget items. It is important to note that the city’s standard forecast does not include any one-time or ongoing costs associated with capital improvement program projects that are expected to be started and/or completed in the future. $-
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
General Fund five-year forecast
Revenues Expenses
April 4, 2023
Item #8 Page 8 of 13
-

Applying more moderate or optimistic revenue assumptions improves the General Fund’s projected fiscal outlook. In other words, the timing for which expenditures are projected to exceed revenues is pushed out further into the future.

For example, assuming the city’s sales tax, property tax, and transient occupancy tax revenues increase at an annual rate of one percentage point higher than in the model presented above, expenditures would not be projected to exceed revenues until fiscal year 2027-28, a postponement of two fiscal years.

While more moderate or optimistic revenue assumptions improve the fiscal outlook, we must also consider the potential risks and challenges that may be associated:
• First, we must consider the revenue growth in recent years and understand that much of it resulted from inflationary increases. For example, the price of goods increased substantially and, because demand was not as adversely impacted, the city’s sales taxes benefitted. This is particularly important when determining whether the same level of growth and inflationary increase will persist for the next 5-10 years. • Secondly, we must think about future operating costs associated with the completion of capital projects and maintaining again infrastructure and equipment. These costs are difficult to estimate and are not included in the city’s forecast.

With the current recessionary risk and economic uncertainty, aging infrastructure, and anticipated additional operating costs coming online in the future, applying more conservative estimates and assumptions helps to mitigate possible revenue shortfalls. It also enables the city to make fiscally responsible and informed decisions, ultimately positioning itself with its best fiscal foot forward.

Budget savings strategies
As discussed above, the city has taken many prudent steps to continue pushing the “crossing of the lines” out into the future. This has included eliminating department contingency budgets and reducing department budgets based on historical savings and implementing more efficient and cost-effective ways of providing services. Through these efforts, the city has achieved better alignment between budget and actual expenditures and staff will continue to explore innovative ways to reduce budgeted costs. However, it is becoming increasingly difficult to absorb costs associated with new budget items, unanticipated needs and operational impacts from completed capital projects. To ensure sufficient funding exists, staff may have to recommend further budget reductions that could have significant service level impacts.

Revenue enhancement
Cities have several options to consider in determining how best to close an anticipated funding gap, including postponing major new projects, finding more efficient ways to deliver services, eliminating services that aren’t core to the city’s mission and expanding the revenue base. In 2021, the City Council approved a project to study potential new sources of revenue so they could better understand these options.

City staff hired a firm specializing in municipal revenue studies and strategy to identify and assess revenue enhancement options for the City of Carlsbad, Terris Barnes Walters Boigon April 4, 2023
Item #8 Page 9 of 13

Heath Lester Inc., or TBWBH Props & Measures. The firm’s findings and recommendations were presented to the City Council on April 20, 2022.

The report’s key findings, observations and recommendations are:
• The majority of Carlsbad voters support a 1 cent-on-the-dollar sales tax measure. • Reducing the tax rate to less than 1 cent does not significantly improve a measure’s chance for passage.
• Voters’ priorities include maintaining parks, open spaces and recreation facilities, maintaining streets and roads, keeping trash and pollution out of waterways and off beaches, keeping public areas and facilities clean and graffiti free, 911 emergency response, and fire protection and prevention.
• If the City Council wants to pursue a sales tax measure, the next step would be to expand the conversation with the community to build awareness and understanding of the city’s needs and consensus on a proposal.
• An effort totally independent from the city, would be needed to campaign for the measure’s approval.

Tax measures
Cities considering options to enhance General Fund revenue often look to the criteria below:
• Ad
equacy and certainty – Does the option sustainably generate annual needed revenue? Is the option subject to significant variation? • Equity and fairness – Is the fiscal burden appropriately spread and proportionate to surrounding communities? Does the option avoid highly skewed economic incentives? • Transparency – Is information on revenue and the tax system and how it operates easy to find and understand
• Simplicity – Does the option require multiple ballot measures (potentially causing voter confusion and fatigue)? Would the option be highly burdensome, costly, or complicated to administer (by the city of payors)?
The city’s General Fund receives approximately $52 million (as of FY 2021-2 2) in sales tax
annually which represents approximately 24% of the total revenues in the General Fund each year. A general sales tax measure requires a simple majority vote. If approved, the city would begin receiving the new revenues approximately six months after the election.

April 4, 2023
Item #8 Page 10 of 13

Carlsbad current 7.5% tax rate is one of the lowest among those assessed by cities in San Diego County.

Sales tax rates in North
County cities
Sales tax rates outside of
North County
Carlsbad 7.75% Coronado 7.75%
Encinitas 7.75% Lemon Grove 7.75%
Escondido 7.75% San Diego 7.75%
Poway 7.75% Santee 7.75%
San Marcos 7.75% El Cajon 8.25%
Oceanside 8.25% La Mesa 8.50%
Vista 8.25% Chula Vista 8.75%
Del Mar 8.75% Imperial Beach 8.75%
Solana Beach 8.75% National City 8.75%
Average 8.08% Average 8.22%

The table below shows incremental estimates of additional sales tax revenues across sales tax categories. An increase of one cent on the dollar, if approved, would generate approximately $40 million in additional revenue for the city annually.

Incremental tax rate percent*
Category 1/4 1/2 3/4 1
General retail $ 2,239,811 $ 4,479,622 $ 6,719,433 $ 8,959,245 Food products $ 1,835,560 $ 3,671,121 $ 5,506,681 $ 7,342,241 Transportation $ 1,815,146 $ 3,630,292 $ 5,445,437 $ 7,260,583 Construction $ 125,893 $ 251,787 $ 377,680 $ 503,573 Business-to-business $ 166,725 $ 333,450 $ 500,175 $ 666,900 Miscellaneous $ 28,284 $ 56,568 $ 84,852 $ 113,136 subtotal $ 6,211,419 $ 12,422,840 $ 18,634,258 $ 24,845,678 County pool† + growth $ 4,231,002 $ 8,462,003 $ 12,693,006 $ 16,924,007 total $ 10,442,421 $ 20,884,843 $ 31,327,264 $ 41,769,685 * All amounts are estimates based on calendar year 2021 actual sales tax and standard industry forecasting methods.
† A substantial portion of local use tax collections are allocated through a countywide pool to the local jurisdictions in the county

Additional revenue enhancements could also be considered by the city, including but not limited to increasing the transient occupancy tax and the parcel tax as well as the establishing of financing districts. These options are explained below.

Transient o ccupancy tax
Transient occupancy taxes are assessed on occupants of hotels and short-term rentals within the city. These revenues comprise approximately 15% of the city’s General Fund revenues. The transient occupancy tax has been called a “painless” tax in that is generally paid by non- residents, but it can impact future hotel growth if it is disproportionate.

April 4, 2023
Item #8 Page 11 of 13

The current transient occupancy tax rate in the City of Carlsbad is 10%. A 2% Carlsbad Tourism Business Improvement District assessment also applies to hotel businesses within the city, including short-term vacation rental businesses. If a 2% increase was placed on the ballot and approved by a majority vote, the city could generate an additional $5 million to $6 million in General Fund revenue annually. Below is a look at comparative rates assessed throughout the county.

Transient occupancy tax
rates in North County
cities
Transient occupancy tax
rates outside North
County
Carlsbad 10.00% Lemon Grove 6.00%
Encinitas 10.00% Coronado 10.00%
Escondido 10.00% Imperial Beach 10.00%
Poway 10.00% National City 10.00%
Vista 10.00% El Cajon 10.00%
Oceanside 10.00% La Mesa 10.00%
San Marcos 11.00% Chula Vista 10.00%
Del Mar 12.50% San Diego 10.50%
Solana Beach 13.00% Santee 10.50%
Average 10.72% Average 9.67%

Parcel tax
A parcel tax is a non-ad valorem or non-value based tax on parcels of property; either a flat rate per parcel or a variable rate depending on the size, use, or number of units on the parcel may be applied. This allows for different rate schedules for residential and commercial property so long as the methodology is the same. Parcel taxes may also include inflationary increases to ensure the revenue stream keeps pace with rising costs. A parcel tax, unlike a sales tax or transient occupancy tax measure, requires a two-thirds vote of the public and the funds are restricted to specific purposes. The amount of additional revenue generated from a parcel tax is largely dependent on the methodology of a flat versus a variable rate and the amount of tax assessed per parcel type. For context, the city has approximately 40,000 parcels of property (excluding timeshares). If a $100 parcel tax were assessed, approximately $4 million in additional revenue would be generated in the General Fund. If the City Council’s direction was to pursue a parcel tax measure, staff would present multiple methodologies to be considered.

Revenue bo
nds
Lease revenue bonds are issued by local governments and paid from the lease payments of the public facilities or assets that were financed by the bonds. They can be used to finance various public projects. Assuming $50 million of bonds are issued with a city credit rating of AA+, an interest rate of 4.75% and a 20-year term, the city’s average annual debt service would be approximately $4 million.

While this would provide an immediate funding source for a number of the city’s significant capital projects, the General Fund would be responsible for funding the annual debt service payments. As a potential option for funding debt service, the city could consider amending City Council Policy Statement No. 91 to reduce the amount of estimated General Fund revenues April 4, 2023
Item #8 Page 12 of 13

that are transferred to fund future capital projects. For example, reducing the annual transfer from 6% to 4% would result in approximately $4 million in annual savings.

Fiscal Analysis
There is no fiscal impact at this time.

Options
Staff are requesting that the City Council consider the city’s financial outlook and consultants’ findings, observations and recommendations and provide feedback and direction on next steps, either at this meeting or at a future meeting. Options for City Council direction include:

1. Take no further action at this time.

2. Direct staff to gather additional information.

Next Steps
Staff’s next steps will be determined by City Council direction.

Environmental Evaluation
In keeping with California Public Resources Code Section 21065, this action does not constitute a project within the meaning of the California Environmental Quality Act in that it has no potential to cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.

Exhibits
None

April 4, 2023
Item #8 Page 13 of 13
Tammy Cloud-McMinn
From:

Sent:
. To:

Subject :
-----Original Message-----
Council Internet Email
Tuesday, April 4, 2023 10:11 AM
City Clerk
FW: Sales tax increase meeting comment
From: Max Moegling <[email protected]>
Sent: Monday, April 3, 2023 7:36 PM
To: Council Internet Email <CityCouncil@carlsbadca .gov> Subject: Sales tax increase meeting comment
Dear Council members,
All Receiye - Agenda Item # 8
For the Information of the :
:SIT;S OUNCIL
Date '!f..!f/g3cA v cc ✓ - -CM v ACM ~ DCM (3) v
I read on the Carlsbad citizen Facebook page that you plan to increase the sales tax. I oppose such matte r and will not support any council member in support.

Instead, levy fees or taxes from high density housing developers.

Sincerely,
Max Moegling
CAUTION: Do not open attachments or click on links unless you recognize the sender and know the content is safe. 1 Tammy Cloud-McMinn
From:

Sent:

To:

Subject:

Council Internet Email
Tuesday, April 4, 2023 10:11 AM
City Clerk
FW: Sales Tax Increase
From: Dee Forsberg, Global Hire <[email protected]>
Sent: Monday, April 3, 2023 9:24 PM
To: Council Internet Email <[email protected]> Subject: Sales Tax Increase
Hello,
My name is Dee Forsberg and I am writing to oppose the sales tax increase of 1 %. Things are bad enough right now and everyone is having to tighten their belts and so should the city.

Thank you for your service.

[email protected] - (760) 214-7458
Licensed and Insured
CAUTION: Do not open attachments or click on links unless you recognize the sender and know the content i 1 Tammy Cloud-McMinn
From: Council Internet Email
Sent:

To:

Tuesday, April 4, 2023 10:17 AM
City Clerk
Subject: FW: Item $8 City financial status
From: Kris Wright <[email protected]>
Sent: Tuesday, April 4, 2023 9:59 AM
To: Council Internet Email <[email protected]> Subject: Item $8 City financial status
Dear Council,
I read the agenda packet and saw for Item #8 that the issue of a sales tax increase was mentioned . I looked up the survey that stated that "most of Carlsbad voters would pass an increase in the sales tax" and was appalled at the consultant who only interviewed 894 people.

I am against any sales tax increase. The worrisome issue is the increased hiring of more city employees making over $100,000 (not including benefits) . Yesterday I compiled a comparison of employee salaries from 2017 and from 2021, I found over 46 new employees that either were rewarded a huge salary increase and a very large increase in the number of new employees making over $100k. I counted +/- 46 employees making over $1 00k since 2017. I used the
site: https://transparentcalifornia.com/agencies/salaries/?fbclid=lwAR06VU93Gzl0GpMar8RSqMgqgc22EMyn mUZ4tbyiSxQELLQ8SROKJJdxLRQ#cities-c to compare salaries .

I attended the April 20, 2022 Special Council meeting last year. As we all know, the City is liable for a portion of the variable CalPERS state pension system . As you may know the Council adopted a pension funding policy in 2019. So having such a large number of employees and the strain on the City's General fund over the next coming decades can certainly create a problem with our expenditures .

I would suggest instead , as there are other obvious issues to cut back on spending, to reexamine the .cost of projects within the City and to consider the increased salaries of long time employees . As this is a public letter, I won't mention names but I found several employees getting an increase of ~%50k per year with a job reclassification . This is clearly wrong, IMO.

Meople are just making ends meet in our City. With the high cost of rent as well as our inflation of ~8% per year, and some still struggling with the economics of the pandemic, I ask you to decline the increased sales tax as an alternative to the increased expenditures. We need to tighten our belts so to speak and consider the people who live in Carlsbad.

Thank you,
Kris
Kris Wright
[email protected]
en attachments or click on links unless ou reco nize the sender and know the content i 1 Tammy Cloud-McMinn
From:

Sent:

To:
kelly.leberthon [email protected]
Tuesday, April 4, 2023 1 :06 PM
City Clerk
Subject: Agenda Item 8
During times of abundance, it is difficult to successfully argue against virtue signal spending.

For example :

The council had no problem virtue signaling on ending the use of styrofoam products - putting the financial burden on the local small businesses who would lose money on inventory already paid for and new money to have to spend on new products.

The counci l had no problem virtue signaling on Equity - which is NOT E:lquality of opportunity but the inherently unfair dictation of equal outcomes - creating a new and totally unnecessary department within the city and spending tens of thousands of dollars on that staff .

The council had no problem spending tens of thousands of dollars on a tree stump that maybe could be art .

How many hundreds of thousands of dollars spent on the Tamarack Valley intersection design debacle? And how many hundreds of thousands of dollars have been spent on a new Homeless Department staff, homeless programs, homeless housing - and to what end? Has the homeless problem been solved? Has the money even made a dent in the problem? Of course not . It's not meant to be solved - it's meant to be endlessly invested in so that it can be a political issue which politicians to justify spending more money - OUR money- the People's money - to virtue signal for the unhoused. So, millions of dollars are spent to ignore those who don't want help - the ones who are drug addicted , alcohol addicted and mentally ill. No, instead we the people finance their addictions and pathologies, so politicians can falsely say they are helping the unhoused.

But all these programs plus council's gift to self- aka pay raise - and so many more - were put forth during times of abundance.

Now is not a time of abundance.

Now is a time of belt tightening.

Now is a time to cut back on spending.

NOW is a time to CUT OUT wasteful spending, wasteful programs.

Do not be hypocrites and say you want to protect our citizens - when you are increasing the financial burden on us by increasing taxes.

Do not be hypocrites and pretend that Carlsbad citizens are plenty wealthy and can afford to absorb your rapacious spending.

Stop passing the buck to the hardworking middle class and start taking some responsibility for your decision making on spend ing and make some CUTS.

Start by cut ting the Equity Department.

Start by cutting the massive increase of staff positions in the city ove ~ the last 3 years.

Start by acknowledging the money you voraciously crave is not Monopoly money , but the people's money .

You work for the people . Stop crushing Carlsbad citizens with your spending proclivities and show some restraint and respect .
1 4/20/2023
1 City Financial Status
Scott Chadwick, City Manager
Zach Korach, Finance Director
April 4, 2023
TODAY’S PRESENTATION
• Lead‐in to budget discussions
• Steps taken to date
• Financial forecast
• Options to close the gap
ITEM  8:   FINANCIAL   STATUS
1 2
{city of
Carlsbad
{city of
Carlsbad
4/20/2023
2 CHANGING NEEDS
Create Maintain
1952 2023
Establish policies
Establish financing strategy
Plan communities
Build infrastructure
Manage growth
Create an excellent quality of life
Repair, replace infrastructure
Redevelop as needed
Adapt to new needs
Develop new financing strategy
Maintain an excellent quality of life
ITEM   8:   FINANCIAL   STATUS
HOW CITIES RESPOND
Decrease services Ask voters to raise revenue
Charge true cost of services
Increase efficiency
3 4
4/20/2023
3 5
6 4/20/2023
4 Increased fiscal
discipline
Increased fiscal
discipline
Reduce pension debt Reduce pension debt  Increase
transparency
Increase
transparencyNew budget policiesNew budget policies
5‐Year Strategic Plan5‐Year Strategic Plan
NEW FOUNDATION
Budget policiesBudget policies
7 8
Q
Tech funding Surplus policy Reserve policy Pension policy 4/20/2023
5 Fiscal disciplineFiscal discipline
Pension debtPension debt
9 10
Reduced
spending
• Grant writer Budget
transformation
o·····o ·(i)· . . . . . . . .
0 ..... 0
Pension reform
.. • •
~ al
auditor
~(A. X
Infrastructure Staffing Eliminate
plan scrutiny discretionary funds
1$1
Pension trust
Lowest in
region
$56Ma
Made extra payments Saving on interest
4/20/2023
6 Strategic planStrategic plan
TransparencyTransparency
11 12
@) ® °'
Community Increase Reduce changes Increased prioirites focus in direction efficiency w
•
i~ ~
More budget Staffing Public Share
documentation practices reports forecast
4/20/2023
7 13
14 -----
-
4/20/2023
8 CITIES AT MIDLIFE
COSTS
Infrastructure
getting old
More people
to serve
Inflation

REVENUES
Less new
development
Property tax cap
ITEM  8:   FINANCIAL   STATUS
15 16
~ C
~
l· • ·i
•• • ••
ttt ~ ~
4/20/2023
9 NEW ONGOING COSTS
2019           2020        2021       2022          2023 CARLSBAD CPI INCREASES
17 18

8.00 6.00

4.00 2.00

0.00 4/20/2023
10 2019                  2020                  2021                 2022 FUEL & UTILITIES INCREASES
NEW CAR PRICE INCREASES
2019                   2020                   2021                    2022 19 20
4/20/2023
11 21
22 t36%
4/20/2023
12 23
24 9100.000
4/20/2023
13 25
26 4/20/2023
14 27
28 4/20/2023
15 29
30 4/20/2023
16 $137,000
31 32
4/20/2023
17 33
34 4/20/2023
18 35
36 4/20/2023
19 SUMMARY
Increased efficiency
Squeezed more out of our budget
Will present a balanced budget
Now looking for policy guidance
37 38
e e
- - - - - -
•
- - - - - - - - - - - - - - - - - - - - - - - - - - -
4/20/2023
20 FINANCIAL FORECAST
GENERAL FUND GROWTH
ITEM  8:   FINANCIAL   STATUS
39 40
$250,000,000
General Fund revenues, expenditures and transfers
$200,000,000
$150,000,000
$100,000,000
$50,000,000
$- I. I. I. ■ I I ■ I I I
FY12-13 FY13-14 FY14-15 FYlS-16 FY16-17 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23e ■ General Fund Revenues ■ General Fund Expenditures ■ Transfers 4/20/2023
21 $‐
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
$90,000,000
FY19 FY20 FY21 FY22 FY23
Sales Tax Property Tax Transient Occupancy Tax

4.7% average

6.5% average

5.9 % average
TAX REVENUE HISTORY
42 GENERAL FUND RESERVES
0%
10%
20%
30%
40%
50%
60%
70%
FY07‐08 FY08‐ 09 FY09‐ 10 FY10‐ 11 FY11‐ 12 FY12‐ 13 FY13‐ 14 FY14‐ 15 FY15‐ 16 FY16‐ 17 FY17‐ 18 FY18‐ 19 FY19‐ 20 FY20‐ 21 FY21‐ 22 FY  22‐23 Est 40% is the goal
ITEM  8:   FINANCIAL   STATUS
41 42
-
---------
4/20/2023
22 FINANCIAL FORECAST
• Developed at a certain point in time
• Only as good as the assumptions that drive it
• Forecasts are not plans nor budgets, they are a
tool to assist in making informed decisions
• Important to consider alternative models
ITEM  8:   FINANCIAL   STATUS
FORECAST ASSUMPTIONS
Revenue Category Conservative Moderate Optimistic
Property tax 2.8% 2.8% 3.8%
Sales tax 1.4% 2.5% 2.5%
Transient occupancy tax 1.0% 1.5% 2.0%
Expenditure Category Average  Growth Growth  Assumption Compensation 5.4% Negotiated  and step increases,
CalPERS, Health, Workers’
Compensation
Maintenance &
operations

3.8% CPI  –a v e r a g e state and county
(UCLA Forecast)
Transfers 2.1% Total  revenue growth
ITEM  8:   FINANCIAL   STATUS
43 44
{city of
Carlsbad
4/20/2023
23 CONSERVATIVE FORECAST
$150,000,000
$160,000,000
$170,000,000
$180,000,000
$190,000,000
$200,000,000
$210,000,000
$220,000,000
$230,000,000
$240,000,000
$250,000,000
Revenues Expenses
$9.9 M deficit
ITEM  8:   FINANCIAL   STATUS
MODERATE FORECAST
$150,000,000
$160,000,000
$170,000,000
$180,000,000
$190,000,000
$200,000,000
$210,000,000
$220,000,000
$230,000,000
$240,000,000
$250,000,000
Revenues Expenses
$6.1 M deficit
ITEM  8:   FINANCIAL   STATUS
45 46
-
-
4/20/2023
24 OPTIMISTIC FORECAST
$150,000,000
$160,000,000
$170,000,000
$180,000,000
$190,000,000
$200,000,000
$210,000,000
$220,000,000
$230,000,000
$240,000,000
$250,000,000
Revenues Expenses
$600k deficit
ITEM  8:   FINANCIAL   STATUS
WHAT’S NOT IN THE FORECAST
ITEM  8:   FINANCIAL   STATUS
FY24 FY25 FY26 FY27 FY28
INFRASTRUCTURE $3,800 $88,000 $122,000 $865,000 $50,000 TECHNOLOGY $277,000 $837,000
CAPITAL OUTLAY
(one‐time)
$40,000 $1,212,000 $180,000 $88,000 $1,922,000
TOTALS $320,800 $2,137,000 $302,000 $953,000 $1,972,000 47 48
-
4/20/2023
25 FUND BALANCES
ITEM  8:   FINANCIAL   STATUS
REVERSING A DEFICIT
Decrease services Ask voters to raise revenues
Charge true cost of services
Increase efficiency
49 50
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$-
Gen. Capita l Construction (GCC}
FY24 FY25 FY26 FY27
- Beginning Fund Balance - Budget Request
FY28
4/20/2023
26 LEVEL OF SERVICE
ITEM   8:   FINANCIAL   STATUS
$40 M$ 6  M $4.2  M
REVENUE OPTIONS
Sales tax            Hotel room tax         Parcel tax
ITEM   8:   FINANCIAL   STATUS
51 52
4/20/2023
27 CALIFORNIA CITIES/TOWNS 75%
increased sales tax
California Department of Tax and Fee Administration
1,785 California cities and towns (unincorporated areas) SAN DIEGO CITIES
50%
have increased sales tax
California Department of Tax and Fee Administration
53 54
12%
10%
8%
6%
4%
2%
0%

10.00%

9.50%

9.00%
4/20/2023
28 SALES TAX
• Requires simple majority vote
• City of Carlsbad current sales tax rate = 7.75%
• Average rate in North County = 8.08%
• Additional “1%” generates approximately
$40 million annually
ITEM  8:   FINANCIAL   STATUS
CARLSBAD VOTER SUPPORT
58% yes33% no
55 56
DK/NA, 1.20%
Definitely no, 20.60 %
Probably no, 12.80 %
{city of
Carlsbad
Definitely yes , 24.70 %
Probably yes, 33.70%
4/20/2023
29 TRANSIENT OCCUPANCY TAX
• Requires simple majority vote
• City of Carlsbad current rate of 10%
• Average rate in North County = 10.72%
• Additional “2%” generates approximately
$6 million annually
ITEM  8:   FINANCIAL   STATUS
PARCEL TAX
• Requires 2/3 vote
• Either flat rate per parcel or variable rate
depending on the size, use, or number of units
• Inflationary increases can be applied
• Additional revenue dependent on methodology
• 41,853 parcels @ $100 = $4,185,300 annually
ITEM  8:   FINANCIAL   STATUS
57 58
{city of
Carlsbad
{city of
Carlsbad
4/20/2023
30 REVENUE BONDS
• Issue by local governments
• Used to finance various public projects
• $50 million issuance would require ~$4
million in annual debt service
ITEM  8:   FINANCIAL   STATUS
CANNABIS TAX
• Cannabis tax popular with voters (generally)
– 156 out of 176 passed
– Lemon Grove, Oceanside, La Mesa, Vista (2x),
City of San Diego
– Local policy changes would be needed
– Carlsbad voters did not favor the concept
ITEM  8:   FINANCIAL   STATUS
59 60
{city of
Carlsbad
{city of
Carlsbad
4/20/2023
31 0% 10% 20% 30% 40% 50% 60% 70% 80%
Chula Vista: Cannabis
City of San Diego: Cannabis
Encinitas: Cannabis
La Mesa: Cannabis
Lemon Grove: Cannabis
Oceanside: Cannabis
Vista: Cannabis
Chula Vista: Sales
Chula Vista: Sales
County of SD: Sales
Del Mar: Sales
El Cajon: Sales
Escondido: Sales
Imperial Beach: Sales
San Diego: Sales
Solana Beach: Sales
Lemon Grove: Sales
National City: Sales
Oceanside: Sales
Coronado: TOT
City of San Diego: TOT
Imperial Beach: TOT
San Diego: TOT
Santee: TOT
TAX MEASURES PASSED
TAX MEASURES PASSED
61 62
Tourism e Sales Cannabis
4/20/2023
32 KEY POINTS
• City remains financially healthy today
• Future forecasts show a deficit
• Our stage of life, revenue sources, maintenance needs and other factors require new strategies
• This is not an emergency; we have time for a thoughtful approach ITEM  8:   FINANCIAL   STATUS
RECOMMENDED ACTION
ITEM  8:   FINANCIAL   STATUS

1. Receive  a report on city finances, funding challenges and funding options.

2. Provide  feedback and direction to staff
63 64
{city of
Carlsbad
{city of
Carlsbad
4/20/2023
33 QUESTIONS & DISCUSSION
65