Carmel-by-the-Sea City Council
May 16, 2023

CITYOF CARMEL-BY-THE-SEA

CITY COUNCIL AGENDA
Mayor Dave Potter, Councilmembers Jeff Baron,
Alissandra Dramov, Karen Ferlito, and Bobby
Richards
Contact: 831.620.2000 www.ci.carmel.ca.us
All meetings are held in the City Council Chambers
East Side of Monte Verde Street
Between Ocean and 7th Avenues

CITY COUNCIL SPECIAL MEETING
Tuesday, May 16, 2023
4:00 PM
THIS MEETING WILL BE HELD IN PERSON AND VIA TELECONFERENCE. The public is welcome to attend the meeting in person or remotely via Zoom, however, the meeting will proceed as normal even if there are technical difficulties accessing zoom. The City will do its best to resolve any technical issues as quickly as possible. To view or listen to the meeting from home, you may watch the Youtube Live Stream at:
https://www.youtube.com/@CityofCarmelbytheSea/streams, or use the link below to view or listen to the meeting via Zoom teleconference:
https://ci-carmel-ca-us.zoom.us/j/89422203958 Meeting ID: 894 2220 3958 Passcode:
220405 Dial in: (253) 215-8782
HOW TO OFFER PUBLIC COMMENT: Public comment may be given in person at the meeting, or using the Zoom teleconference module, provided that there is access to Zoom during the meeting. Zoom comments will be taken after the in-person comments.

The public can also email comments to [email protected]. Comments must be received 2 hours before the meeting in order to be provided to the legislative body.

Comments received after that time and up to the beginning of the meeting will be made part of the record.

The COVID-19 Community Level for Monterey County as of the date of this agenda posting is LOW (mask wearing not required). Seating will be limited and available on a first come first served basis.

CALL TO ORDER AND ROLL CALL

PLEDGE OF ALLEGIANCE

PUBLIC APPEARANCES
Members of the Public are invited to speak on any item that does not appear on the Agenda and that is within the subject matter jurisdiction of the City Council. The exception is a Closed Session agenda, where speakers may address the Council on those items before the Closed Session begins. Speakers are usually given three (3) minutes to speak on any item; the time limit is in the discretion of the Chair of the meeting and may be limited when appropriate. Applicants and appellants in land use matters are usually given more time to speak. If an individual wishes to submit written information, he or she may give it to the City Clerk. Speakers and any other members of the public will not approach the dais at any time without prior consent from the Chair of the meeting.

ORDERS OF BUSINESS
Orders of Business are agenda items that require City Council, Board or Commission discussion, debate, direction to staff, and/or action.

1. Receive a presentation on the Fiscal Year 2023-2024 Budget and provide direction

2. Resolution 2023-057 receiving the Annual Comprehensive Financial Report (ACFR) for the fiscal year ending June 30, 2022

ADJOURNMENT
This agenda was posted at City Hall, Monte Verde Street between OceanAvenue and 7thAvenue, Harrison Memorial Library, located on the NE corner of Ocean Avenue and Lincoln Street, the Carmel-by-the-Sea Post Office, 5th Avenue between Dolores Street and San Carlos Street, and the City's webpage http://www.ci.carmel.ca.us in accordance with applicable legal requirements.

SUPPLEMENTAL MATERIAL RECEIVED AFTER THE POSTING OF THEAGENDA Any supplemental writings or documents distributed to a majority of the City Council regarding any item on this agenda, received after the posting of the agenda will be available for public review at City Hall located on Monte Verde Street between Ocean and Seventh Avenues during regular business hours.

SPECIAL NOTICES TO PUBLIC
In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the City Clerk's Office at 831-620-2000 at least 48 hours prior to the meeting to ensure that reasonable arrangements can be made to provide accessibility to the meeting (28CFR 35.102-35.104 ADA Title II).

CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
Staff Report
May 16, 2023

ORDERS OF BUSINESS
TO: Honorable Mayor and City Council Members
SUBMITTED BY: Maxine Gullo, Ass't. City Administrator
APPROVED BY: Chip Rerig, City Administrator
SUBJECT: Receive a presentation on the Fiscal Year 2023-2024 Budget and provide direction RECOMMENDATION:

Receive a presentation on the Fiscal Year 2023-2024 Budget and provide direction.

BACKGROUND/SUMMARY:

In accordance with Carmel Municipal Code Section 3.06.020, prior to the beginning of each fiscal year, the City Administrator shall prepare and submit to the City Council a proposed operating and capital budget for the forthcoming fiscal year. The proposed budget, referred to as the Fiscal Year 2023-2024 (FY 23-24) Recommended Budget of $40.9 million is submitted for Council’s consideration. The proposed expenditures totaling $40.9 million, include the General Fund operating budget ($26.3 million), debt service ($528,044), pension mitigation and unfunded liability ($3.0 million), capital budget ($10.9 million), and workers compensation ($90,000). The proposed revenues totaling $30.9 million include property taxes ($8.5 million), sales tax ($9.6 million), transient occupancy tax ($6.8 million), and other revenue ($6.0 million). The FY 23-24 Recommended Budget requires the use of $9.9 million in prior years’ savings ("fund balance") specifically to fund deferred Capital projects.

FY23-24 Recommended Revenue $30,927,502
General Fund Operating Expenditures 26,311,452
Debt Service 528,044
Pension Mitigation / Unfunded Liability 3,007,732
Capital Outlay 10,916,100
Workers Compensation 90,000
FY23-24 Recommended Expenditures $40,853,328
Revenues Over (Under) (9,925,826)
Use of Fund Balance $9,925,826
The City anticipates a nominal increase in revenues for FY 23-24. Additionally, the City also expects its expenditures to grow in FY 23-24, primarily related to increased staffing, pension costs, general operating costs, and a robust Capital Improvement Plan. Highlights of the budget include:

Salary and benefit costs of approximately $15.1 million in funding for maintaining 96.23 full-time equivalent (FTE) positions comprised to support daily citywide operations, Council prioritized projects, and capital projects.

Pension costs of approximately $3.0 million, which includes $2.0 million for the City’s annual unfunded accrued liability (“UAL”) payment to CalPERS and $1.0 million investment into the City’s established Section 115 Trust.

Services and supplies costs of approximately $11.2 million to fund contractual services, fuel and vehicle maintenance, supplies and materials, utilities, fire services, insurance premiums, Sunset Center, staff training, marketing and other operational costs.
$10.9 million for capital projects and vehicle and equipment purchases in the following categories: facilities ($4.4 million), streets/sidewalks ($3.0 million), fleet ($1.1 million), drainage ($665,000), green infrastructure ($553,100), CIP contingency ($500,000), environment ($483,000), libraries ($100,000), IT/Planning ($50,000).
$528,000 for debt service payments on the City’s three existing bonds and $90,000 for workers compensation claim administration, potential claims and costs associated with the implementation of preventive measures.

Staff provided a brief overview of the budget as part of the May 2, 2023 Council meeting. At the May 16, 2023 budget workshop, staff will present a detailed review of the budget as well as present responses to any questions that staff have received. Staff will receive direction from Council on the budget and this direction will be incorporated into the FY 23-24 Recommended Budget, which will be considered for adoption by Council on June 6, 2023.

FISCAL IMPACT:

The FY 23-24 Recommended Budget totals $40.9 million. There is no fiscal impact associated with receiving a presentation on the FY 23-24 Recommended Budget. However, direction provided by Council may have an impact on the budget and planned expenditures for the upcoming fiscal year.

PRIOR CITY COUNCIL ACTION:

Council received a presentation regarding the Five-Year Financial Forecast and Five-Year CIP on March 21, 2023. Council received a presentation regarding the FY 23-24 Recommended Budget, inclusive of the Capital budget, on May 2, 2023.

ATTACHMENTS:

Attachment 1) Carmel Youth Center FY 23-24 funding request Attachment 2) Chamber of Commerce FY 23-24 funding request letter Attachment 3) MCCVB FY 23-24 funding request letter
Attachment 4) Recommended Budget FY 23-24
Attachment 5) Budget Questions

CITY OF CARMEL PROPOSAL

FOR THE
Attachment #1

THANK YOU FOR

YOUR CARE AND

SUPPORT
Attachment #1

Attachment 1
Opening in 1949, the CYC has served this
community for over 74 years. The CYC would
be celebrating its 75th birthday by
rebranding and possibly revamping.

ABOUT US
Bing Crosby founded the Carmel Youth
Center while he was living in Pebble Beach,
and eventually helped form over two hundred
private, non-profit youth centers. The CYC is
the last one open today.

Attachment #1

REQUESTS

WALK THROUGH
We would need
estimates on the cost
and scope of work to
have the HVAC
system replaced and
the ducting rerun to
support the City of
Carmel as a warming
center.

HVAC

FINANCIAL
The CYC would benefit from the City of Carmel
supporting the growing needs of the building.

The City of Carmel
building official would
do a walkthrough of the
CYC with the CYC
facilities chair and
architect. A proposal
would be completed
that outlines all of the
work needing done to
the building.

The CYC would need
$50,000 a year from
the City of Carmel for
a period of 5-years.

This would allow the
CYC the ability to
rebuild, raise money,
and reopen with a
model that works for
the community
youth.

Attachment #1

Attachment 1

LEADERSHIP
The City of Carmel could use their sphere of
influence and inspire the community to come
together and rebuild the Carmel Youth Center. The
Carmel Youth Center would have the time to raise
money, update the building, and find out how they
can serve the community and meet the needs of the
local youth through a youth led survey.

The City of Carmel would lead the charge and keep
the Carmel Youth Center open for another 74 years
or more.

Attachment #1

THANK YOU FOR

YOUR CARE AND

SUPPORT
Attachment #1

Attachment 1
Attachment # 2

Attachment 2
Attachment # 2

Attachment 2
Attachment # 2

Attachment 2
Attachment # 2

Attachment 2
Big Sur | Carmel-by-the-Sea | Carmel Valley | Marina | Monterey Moss Landing | Pacific Grove | Pebble Beach | Salinas | Salinas Valley | Seaside April 20, 2023
RE: FY2023-2024 Jurisdiction Investment Partnership Proposal Mr. Chip Rerig, City Administrator
City of Carmel-by-the-Sea
PO Box CC
Carmel, CA 93921
Dear Chip,
Throughout the COVID pandemic, we have worked together in innovative ways to survive the crisis and maintain the tourism economy that supports TOT, sales tax, employment, and overall quality of life for residents. In the coming Fiscal Year, we’re poised to look further out and with MCCVB’s long-term strategic roadmap, which members of your community participated in, not only to survive but to thrive.

We propose to continue our partnership which will significantly expand in the coming year. The Jurisdiction Investment Partnership in MCCVB’s FY2023-24 business development and marketing plans for Carmel-by-the-Sea include but are not limited to:
 Developing and Implementing Strategic Leisure Marketing – MCCVB will continue to build awareness and familiarity of Monterey County as a premiere destination with regional and national marketing campaigns that inspire longer stays and generate additional visitor spending which incrementally increase the City’s TOT and sales tax revenues.
 Generating Meeting and Conference Business Opportunities – MCCVB will continue generating and distributing leads for potential group business and dedicating advertising/marketing budget specific to group business.  Participation in new destination rebranding program – MCCVB is conducting a strategic rebrand that will roll out in Fall 2023.
 Free membership – for hospitality related businesses in Carmel-by-the-Sea and opportunities for these businesses to participate in MCCVB promotional programs.
 Responsible / Sustainable travel – MCCVB will continue to and further emphasize the need for low-impact, respectful travel behavior to protect our destination  Inclusion in targeted Public Relations – MCCVB will generate press releases, coordinate media opportunities with journalists and social media influencers.  International Marketing Strategies – while this visitor segment is the slowest to return, it represents one of the most valuable traveler categories and we’re ramping up our initiatives in alignment with the opportunities.  Providing Financial, Data Analytics and Research – MCCVB will provide the City as requested with and collaborate on financial and industry related data analytics that will assist the City in strategic planning and financial forecasting.

Attachment # 3 Page 1 of 2
Attachment 3
For reference on the value of this partnership, I’ve attached the latest Jurisdiction Investment Report.

As you know, we developed a Strategic Plan that guides our organization’s business plans and budget priorities through the next five years and beyond. To support that plan, we respectfully propose that the City be equally strategic and aggressive with its investment in our destination’s recovery.

The City’s Jurisdiction Investment Partnership level is based on the following:
 Formula of 3% of total TOT collections currently projected at $8,120,618 for FY2023-24 Fiscal Year which would equate to an investment of approximately $243,619
 Requesting an invest-as-we-go payment model; this model is being used by several other cities and results in the investment being based on actual TOT revenues as collected.

Your City’s Jurisdiction Investment Partnership is leveraged with the investments from other jurisdictions and the Monterey County Tourism Improvement District assessment from the hotel community. Together this creates a robust destination marketing program that is developed collaboratively and implemented with the highest level of integrity and best practices known. Together we can compete for hospitality market share and ensure that the tourism industry in Monterey County remains strong and sustainable.

I hope to speak again soon to finalize the details of our FY2023-24 agreement.

Sincerely,
Rob O’Keefe
President and CEO
Monterey County Conventions & Visitors Bureau
cc: Amy Herzog, MCCVB Board of Directors
Amrish Patel, MCCVB Board Chair Elect

Attachment # 3

Attachment 3
Fiscal Year 2023-2024

RECOMMENDED BUDGET

CARMEL-BY-THE-SEA
Attachment 4
FY 23-24 RECOMMENDED BUDGET 2

CITY COUNCIL

DAVE POTTER, MAYOR

BOBBY RICHARDS, MAYOR PRO TEMPORE

JEFF BARON, COUNCILMEMBER

KAREN FERLITO, COUNCILMEMBER

ALISSANDRA DRAMOV, COUNCILMEMBER

CHIP RERIG, CITY ADMINISTRATOR

CITY OF CARMEL-BY-THE SEA
P. O. BOX CC
CARMEL-BY-THE-SEA, CA 93921
T: (831) 620-2000 www.ci.carmel.ca.us
Attachment 4
FY 23-24 RECOMMENDED BUDGET 3
Table of Contents
INTRODUCTION............................................................................................................................... 4 RECOMMENDED BUDGET MESSAGE........................................................................................ 5 REVENUE...................................................................................................................................... 8 EXPENDITURES ......................................................................................................................... 12 FY 23/24 AUTHORIZED POSITIONS.......................................................................................... 15 ORGANIZATIONAL CHART ....................................................................................................... 17 OPERATING BUDGET................................................................................................................... 18 CITY COUNCIL............................................................................................................................ 19 CITY ATTORNEY ........................................................................................................................ 21 ADMINISTRATION ...................................................................................................................... 22 CITYWIDE (NON-DEPARTMENTAL).......................................................................................... 27 ECONOMIC DEVELOPMENT ..................................................................................................... 29 LIBRARY AND COMMUNITY ACTIVITIES................................................................................. 30 COMMUNITY PLANNING AND BUILDING................................................................................. 34 PUBLIC WORKS ......................................................................................................................... 37 PUBLIC SAFETY......................................................................................................................... 44 CAPITAL IMPROVEMENT PLAN (CIP) ......................................................................................... 49 DEBT SERVICE – FUND 401......................................................................................................... 61 FUNDS OVERVIEW........................................................................................................................ 63 PROJECTED FUND BALANCE..................................................................................................... 65 Proposed Fund Balance as of June 30, 2023........................................................................... 67 Proposed Fund Balance as of June 30, 2024........................................................................... 68 FINANCIAL POLICIES………………………………………………………………………………….....70 Attachment 4
FY 23-24 RECOMMENDED BUDGET 4

INTRODUCTION
Attachment 4
FY 23-24 RECOMMENDED BUDGET 5

RECOMMENDED BUDGET MESSAGE
Honorable Mayor Potter, City Councilmembers, and
Residents of Carmel-by-the-Sea:

The Fiscal Year 2023-2024 (“FY 23-24”) recommended budget is submitted for your consideration and tentative adoption on June 6, 2023. This budget continues to be structurally balanced and maintain service levels from last fiscal year, all in an effort to continue to build organizational resiliency. The City has been through a magnitude of challenges including a series of severe winter storms that absorbed a profound amount of our capacity. Throughout, the City’s dedicated staff, volunteer groups and the community at large rallied together to serve and take the best actions under challenging circumstances. Please allow me to reinforce that we have a strong and dedicated workforce, and unparalleled leadership from the City Council combined with an impassioned and solutions-oriented citizenry.

The adopted Operating Budget serves as a policy document, financial plan, operations guide, and communications device. It is a living document that reflects the City Council’s strategic goals and objects and provides a framework to meet future challenges such as rising operational costs and limited growth in revenues.

As we move forward and plan the Fiscal Year 23-24 operating budget for the upcoming year, it is important to take into consideration the various factors that impact our financial health at the global, national, State, and local levels.

At the global level, we continue to face economic uncertainty and instability due to rising interest rates, the fallout from the global pandemic, market distress, and volatility in financial markets. This has resulted in a decrease in revenue for many businesses and organizations, and we must be prepared for potential impacts on our own financial situation.

At the national level, we saw the noteworthy second largest bank failure in our Country’s history and other factors that are, in many ways, consistent with what one would expect in a typical economic debt cycle; with credit card debt soaring 19% in the last quarter alone, for example. We have also seen significant declines in personal savings which collapsed following the end of federal stimulus programs which could add to a greater sell-off of investments and potentially steep market declines.

Going on fifteen years, the current economic cycle is likely the longest in US history. During this period, the nation has benefited from some of the most extraordinary expansionary monetary policy ever conducted, with interest rates held near zero and concurrent investments tracking.

At the state level, California faces its own set of challenges. The state has a large and diverse economy, but it also has a high cost of living and a significant homeless population. The state’s budget is also impacted by various factors such as natural disasters, healthcare costs, and public education funding.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 6
At the local level, Monterey County is no exception to these challenges. We must also consider factors such as our aging infrastructure, affordable housing shortage, and rising healthcare costs.

Additionally, our tourism industry was impacted by the pandemic, resulting in a decrease in revenue for our county, although the City’s three major sources (Property Tax, Sales and Use Tax and Transient Occupancy Tax) of General Fund revenue are flattening with decreased occupancy in our hotels and uncertainty about travel patterns impacting two of these three major revenue pillars.

As I said, the factors identified above may reflect a monetary tightening that could impact the City’s revenue pillars. As such, we approached our budget planning with an understanding of these factors and their potential impacts on our financial health. This budget is a thoughtful representation working together internally and with the community to identify areas where we can maintain costs without sacrificing essential services, as well as we begin to explore the need for additional sources of revenue to maintain our financial stability.

The recommended budget is not operationally balanced, meaning the total projected incoming revenue does not compensate for our projected expenditures. The recommended budget is, however, structurally balanced – balanced by strategically using unrestricted fund balance (revenue saved over past fiscal years) to address past and current direction of Council. That direction is to maintain core services and invest heavily in deferred infrastructure maintenance and community character. We are fortunate to have available fund balance, accumulated through the prudent budgeting in past years, to close the gap in revenue that we are forecasting. In total, the funds needed to structurally balance the budget exceeds $10,000,000. Using this amount will virtually eliminate our current fund balance.

STAFFING
At this time, I am not proposing any increase in our number of staff. That said, I have considered increasing Library staffing and propose to readdress this issue during mid-year budget review as we get a better sense of potential impacts on our local economic situation. The Library has been and continues to be a treasured community resource, which has been busier than ever, as the pandemic begins to wane. As Library usage and community demands for service continue to increase, including Saturday hours, it is important that staffing be able to match that demand. The Library continues to make judicious use of part-time staff, and an increase in the part-time staff budget at mid-year would ensure that the Library meets community needs, whether that be additional programs, additional hours, or both.

I will continue to carefully consider whether to fill future vacancies, and return to the City Council to discuss operational needs as they may change.

CAPITAL IMPROVEMENTS AND MAINTENANCE
On April 5, 2023 and, again on May 2, 2023, the City Council directed carry-over funding in a total amount of $8,088,000 for our Capital Improvements Program (CIP).

Council also directed that we proceed with sixteen additional Capital Improvement Projects for FY 23- 24 for a total of $2,828,000.

The combined total CIP investment for carry-over plus new projects would be $10,916,000 – a figure that includes both internal and external funding. Capital projects included in the recommended budget consist of rehabilitation of City facilities, sidewalk and street improvements, enhanced public safety, and protection and preservation of the natural environment. More generally, the FY 23-24 budget recognizes the importance of investing our “green” infrastructure, and includes funding for Attachment 4
FY 23-24 RECOMMENDED BUDGET 7
renovating our police station, Library Master planning, and improvements at Sunset Center and other City facilities.

Vehicle & Equipment Fund
The total vehicle acquisition costs are approximately $3,000,000, and the City's 10% reserve target is being implemented beginning in FY 24-25 for $304,000. Currently, the Vehicle & Equipment Fund balance is $366,000, and therefore, no additional funds are being budgeted for FY 23-24. We will continue to increase this Fund as vehicles continue to depreciate.

FISCAL YEAR 23/24 BUDGET AT A GLANCE
FY23-24 Recommended Revenue $30,509,352
General Fund Operating Expenditures 26,301,739
Debt Service 528,044
Pension Mitigation / Unfunded Liability 3,007,732
Capital Outlay 10,916,100
Workers Compensation 90,000
FY23-24 Recommended Expenditures $40,843,615
Revenues Over (Under) (10,334,263)
Use of Fund Balance 10,334,263
Many of you know the level of respect I have for the lessons one can learn by studying the past. And while much of my message may seem dour, history teaches us that economic cycles are intrinsic to local government. Consequently, as clear as I can be about the likelihood of an unavoidable down cycle in two of our three major revenue pillars, I am equally as confident about the inevitable upcycle to follow. The budget I am presenting is not intended to be irrepressibly contrarian; it is meant to be cautious and realistic. In the long term, I remain very bullish, and indeed optimistic about our future.

My profound thanks to my department heads, and especially our Finance Division team, for developing a budget that is realistic given the realities that we are facing. I look forward to Council’s leadership and guidance as we balance fiscal sustainability with the need to fund projects and services for our community.

Respectfully submitted,
Chip Rerig
City Administrator
Attachment 4
FY 23-24 RECOMMENDED BUDGET 8

REVENUE
The FY 23-24 Recommended Budget includes $30.9 million in estimated new revenue. As illustrated in the chart below, statewide sales tax (Sales Tax) and local Measure C district tax (Measure C), contribute 31% and have overtaken over Property Tax as the largest City revenue source. This shift reveals the importance and impact of the voter approved of Measure C in 2020. With the occurrence of the pandemic, the benefits of the Measure C revenues began to emerge in FY21-22 and mature fully in this budget. Property Tax reflects its customary stable growth accounting for 28% of the budgeted revenue. Coming off of a slower year, Hotel Tax (TOT) holds at 22% of budgeted revenue, followed by Other revenues and Charges for Services at 19%, a decrease over prior FY 21-22.

Property Taxes
28%
Sales Tax
12%
Measure C
19%
Other
10%
Charges for Services
9%
Transient Occupancy
Tax
22%
FY 23-24 Citywide Revenue Sources
Property Taxes Sales Tax Measure C Other Charges for Services Transient Occupancy Tax Attachment 4
FY 23-24 RECOMMENDED BUDGET 9

REVENUE
Property taxes are estimated at $8.5 million reflecting a 2% projected growth over prior year amended budget. The City’s portion of the Sales Tax is $3.7 million and Measure C $5.9 million, or 12% and 19% of revenue respectively. The significance of the March 2020 Carmel voter approval of Measure C, at a renewed rate of 1.5%, cannot be understated. In the midst of COVID-19, it provided a financial lifeline allowing for the continuance of core services. Measure C continues to play significantly in seeding both operational and capital needs. Sales Tax has fared well also. This FY 23-24 Recommended Budget projects slowing of Measure C and Sales Tax trends as consumers are recovering after post-COVID overspending.

Transient Occupancy Tax (“TOT”) at 10% of the rent charged by a hostelry operator, has slowed over prior year’s high. Recommended at $6.8 million, TOT accounts for 22% of revenues, unchanged over FY 22-23. Charges for Services are fees collected from a specific user of a service, such as plan review, building inspection and ambulance transports and account for $2.8 million, or 9% of the budget. The category of “Other” revenue includes General Fund revenues from business license tax, franchise fee and other intergovernmental revenue as well as restricted revenue for Community Oriented Policing Services (COPS), road maintenance and transportation-related projects and federal and State grants for planning, parks and radio communications.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 10

REVENUE
This time last year, as shown in Table 1, Estimated Performance and Recommended Budget for Major Revenue Sources, the City was enjoying a notable recovery from COVID after seeing a 26% drop in Hotel Tax and 17% drop in Sales Tax. Now that the economy is recovering from overspending, projecting future trends presents challenges.

Over the last few months, slight inflation improvements materialized in various industries, however real change has yet to take hold. Nevertheless, consumer spending remained relatively strong through the holiday season. Experts vary on whether a recession will occur and to what extent.

Unemployment does reflect a slowdown in taxable merchandise spending to 0.4% in FY 23-24 as the higher cost of utilities, food and other necessities limit dollars available for discretionary and nonessential items.

As we project Sales Tax and Measure C, we remain conservative and vigilant to the current trends.

The dilemma facing us is deciphering if the activity experienced in FY 22-23 as a result of “pent-up demand” will now be replaced with a longer-term change in travel and buying habits as consumers pull back on spending. We remain fully aware that unknowns still exist, whether consumer patterns will settle, and headwinds are in play to be managed. We recognize the economic strains of continued supply chain disruption, rising inflation rates, increased fuel prices and interest rates and their effects on consumer spending patterns. Lastly, geopolitical tensions loom worryingly on our minds. Hence, we have compiled the FY 23-24 Recommended Budget carefully and conservatively. We project a slowing of sales tax activity in the coming year with the City’s Sales Tax coming in at $3.7 million and Measure C $5.9 million in line with current year estimates based on Statewide sales tax trends.

TOT is trending at $8.0 million for FY 22-23, 3% or $250,000 above the prior year actual collections.

Last fiscal year, TOT grew 31% or $1.6 million. The FY 23-24 Recommended Budget assumes continued slowing as world travel slows to pre-COVID levels. For the reasons noted above, we remain guarded in our projections.

Property taxes, which includes secured, unsecured, unitary and property transfer tax, can be relied on to be stable. At the end of this current fiscal year, we anticipate to reach a level of $8.4 million.

The FY 23-24 Recommended Budget projects Property Tax at a total amount of $8.4 million, made up primarily of $7.8 million in secured property tax. National economic reports uniformly indicate that despite the drop-off in sales, housing supply in the state remains constrained. Tight housing supply will have two consequences. First, when interest rates begin to fall, the consequent increase in buyers may again place an upward pressure on housing prices. Second, while prices can and may go lower, there is not enough supply in the market to provide the type of overhang that could lead to acute price declines. This budget conservatively projects growth yet remains confident in the stability of Carmel’s property tax performance.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 11

REVENUE
As the City looks forward to its future revenues that fund services, capital projects and other initiatives,stepping back and reviewing the City’s historic performance is of value. The chart below depicts the performance of the City’s three major revenue sources over the last 10 years.

Fiscal Year TOT Sales* Property
2015 $5,593,689 $5,280,418 $5,127,974
2016 $5,890,538 $4,897,325 $5,598,743
2017 $6,112,347 $5,373,800 $5,825,889
2018 $6,329,074 $5,476,123 $6,163,959
2019 $6,882,015 $5,719,521 $6,496,558
2020 $5,115,277 $4,766,313 $6,690,948
2021 $5,339,291 $7,028,041 $7,389,657
2022 $7,787,643 $9,596,727 $7,694,722
2023 Estimated $8,038,940 $9,518,760 $8,135,188
2024 Budget $6,801,007 $9,605,953 $8,493,132
*Combination of Bradley Burns & Measure C 1.5%
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
2015 2016 2017 2018 2019 2020 2021 2022 2023
Estimated
2024
Budget
Fiscal Year
City's Major Revenues Historical Trend
TOT Sales Property
Attachment 4
FY 23-24 RECOMMENDED BUDGET 12

EXPENDITURES
The FY 23-24 Recommended Budget totals $40.9 million, which consists of the following:
• Operating Budget, or General Fund, totals $29.4 million, or 72%, of the citywide budget; • Debt service totals $528,044, or 1%, of the citywide budget; • Capital totals $10.9 million, or 27% of the citywide budget.

The Operating Budget consists of the City departments and services. Debt is based upon required payments toward various bonds issued by the City or by other governmental agencies on behalf of the City. As shown in the chart below, FY 23-24 Expenditure by Type, the FY 23-24 Budget includes the Operating Budget and Debt Service. The Operating Budget is further categorized by type of expenditure including salaries and benefits, outside services, and other expenditures as explained below.

Salaries & Benefits
37%
Outside Services
20%
Other Expenditures
7%
Pension
8%
Capital
27%
Debt
1%
FY 23-24 Expenditure by Type
Salaries & Benefits Outside Services Other Expenditures Pension Capital Debt Attachment 4
FY 23-24 RECOMMENDED BUDGET 13

EXPENDITURES
The City’s largest expenditure is related to the cost of personnel. Salaries and benefits total $15.1 million and account for 37% of the citywide budget. Capital Outlay is the second largest type of expenditure at $10.9 million, or 27% of the budget. The third largest type of expenditure is Outside Services. This category includes various line item accounts, such as advertising and noticing, contract services and community promotions. Contract services are used as an alternative to City staff directly providing the service due to cost savings or the specialized nature of the work being performed and include funding for expenses such as fire service provided by the City of Monterey ($2.9 million); support for the operations of the Sunset Center and other marketing activities ($1.1 million); legal services ($517,000); tree care and landscape maintenance ($798,000) and janitorial service ($272,000).

Other expenditures total $3.0 million and account for 7% of the citywide budget. This category includes various line item accounts such as, retiree healthcare and citywide operational expenses like property tax assessments and utilities. Also included here are the City’s general liability and property insurance premiums ($813,000) and expenses such as public works materials and supplies, telecommunications, fuel, training and conferences, vehicle maintenance, medical and safety supplies and printing and postage.

Pension expenses total $3.0 million, or 7%, of the budget and include the annual required unfunded pension liability ($2.0 million) and annual funding of the City’s Section 115 trust ($1.0 million) for pension mitigation.

The citywide budget is rounded out with Capital Outlay ($10.9 million) accounting for 27% and Debt Service ($528,044) accounting for 1% of the citywide budget.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 14

EXPENDITURES
Another way to view operating expenditures is by function, as depicted in the “FY 23-24 Expenditures by Function” illustration. Capital Outlay makes up 27% of operating expenditures.

The public safety functions of Ambulance, Fire and Police make up 26% of the budget. The Public Works Department is the next largest operating expenditure at 13% followed by Citywide at 11% of the budget, as it includes the City’s unfunded actuarial liability. In total, Administration, Council, Planning, Legal, Marketing, the Sunset Center, and Library and Community Activities represent the remaining 13% of the Operating Budget.

Administration
8%
Citywide
11% Council
1% Legal
1%
Planning
5%
Ambulance
4%
Fire
8%
Police
14% Marketing
1%
Sunset Center
2% Library/Community
Activities
4%
Public Works
13%
Debt
1%
Capital
27%
FY 23-24 Expenditures by Function
Attachment 4
FY 23-24 RECOMMENDED BUDGET 15
FY 23/24 AUTHORIZED POSITIONS
0 1
2 3
4 5
6 Category 1 Category 2 Category 3 Category 4
Chart Title
Series 1 Series 2 Series 3
Attachment 4
FY 23-24 RECOMMENDED BUDGET 16
FY 23/24 AUTHORIZED POSITIONS
0 1
2 3
4 5
6 Category 1 Category 2 Category 3 Category 4
Chart Title
Series 1 Series 2 Series 3
Attachment 4
FY 23-24 RECOMMENDED BUDGET 17

ORGANIZATIONAL CHART
Carmel-by-the-Sea
Electorate
Council
City
Administrator
Library and
Community
Activity
Library
Admin
Circulation
Youth
Reference
Local History
Community
Activity
Planning
Planning
Building
Safety
Code
Compliance
Public
Works
Admin
Project
Management
Envir.

Compliance
Facilities
Streets
Forest, Parks
and Beach
Public
Safety
Ambulance
Fire
Police
Office of City
Administrator
Clerk
Finance
Human
Resources
Information
Technology
City
Attorney
Attachment 4
FY 23-24 RECOMMENDED BUDGET 18
GENERAL FUND (101)

OPERATING BUDGET
(CITY DEPARTMENTS AND SERVICES)
Attachment 4
FY 23-24 RECOMMENDED BUDGET 19

CITY COUNCIL
The City Council consists of the Mayor and four Councilmembers, elected at large by the citizens of Carmel-by- the-Sea on a non-partisan basis. The City Council is the policy-making legislative body of the City. The Council adopts the annual budget, enacts ordinances, and approves major contracts, acquisitions and leases. With the advice and assistance of the City Administrator and City Attorney, the City Council reviews proposals to meet the community’s needs, initiates action for new policies, and allocates resources.
2023-2024 Priorities
▪ Continued oversight of the implementation of the strategic plan and updating of City priorities. ▪ Continue to respond to any forthcoming State legislation that undermines local control, especially as it relates to local land-use decisions.

Budget Summary and Service Impacts
▪ $30,000 is budgeted as a place holder for the Council discretionary grant program and will be adjusted accordingly, pending Council direction.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 20

CITY COUNCIL
Attachment 4
FY 23-24 RECOMMENDED BUDGET 21

CITY ATTORNEY
The City Council appoints the City Attorney. The City Attorney legally represents the City and provides legal advice and/or training to the City Council, City Administrator, boards, commissions, and departments; investigates and resolves claims against the City; defends the City in litigation and administrative actions; initiates and prosecutes litigation on behalf of the City; and drafts and reviews legal documents and agendaitems.

Budget Summary and Service Impacts
▪ The FY 23-24 contract services budget totals $442,000 and consists of $360,000 for general legal services (a return to pre-pandemic budget level) and $75,000 for other specialized legal assistance from the City’s attorney office, including labor negotiations and personnel. The budget total also includes $7,000 for the City’s attorney’s annual performance evaluation. ▪ $75,000 is budgeted for supplementary specialized legal costs, such as wireless communications, and wilbe reflected in a separate line item. This is a change from prior fiscal years and will help isolate legal costs incurred separately from the City Attorney’s office.

City Attorney
Account Number Account Description FY22-23
Amended
Budget
FY22-23
Estimated
Actual
FY23-24
Recommended
101-112-00-42001 Contract Services 435,000 181,916 442,000 101-112-00-42004 Legal Costs 75,000 76,513 75,000
Total $510,000 $258,429 $517,000
Attachment 4
FY 23-24 RECOMMENDED BUDGET 22

ADMINISTRATION
The City Administrator is appointed by the City Council and responsible for the enforcement of City laws and ordinances; ensuring that the orders of the City Council are executed; preparing the budget and monitoring City finances; and managing day-to-day operations. In addition to overseeing City departments, the Administrator also serves as the director of the centralized administrative functions pertaining to the City Clerk, Finance, Human Resources and Information Technology.
2022-2023 Initiatives and Accomplishments
▪ Ensured the execution of Council policy direction, completion of capital projects, hiring of staff and continuity of daily citywide operations to deliver services in an efficient and effective manner. ▪ Implemented the newly structured mail home delivery program. ▪ Implemented digital signatures, continued efforts for digital storage of records, responded to requests for records.
2023-2024 Priorities
▪ Continue to oversee the City's response to COVID-19 to ensure the safe delivery of City services.
▪ Explore service delivery alternatives and other options to enhance revenue as directed by Council.
▪ Continue hiring of staff.

Administration Budget Summary and Service Impacts
The Administration Divisional budget includes funding for the City Administrator’s performance evaluation within contract services, office supplies, copier fees, and the citywide postage meter.

Funding for the City Administrator’s lunches with staff is now separately reflected under Employee Appreciation.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 23

ADMINISTRATION
Attachment 4
FY 23-24 RECOMMENDED BUDGET 24

ADMINISTRATION

CLERK DESCRIPTION
The City Clerk provides timely and accessible service in response to all inquiries and requests for public information and records, and is responsible for the administration of elections, public records requests processing, records management, and the legislative process. Records the City’s legislative history through approved minutes and maintaining City Ordinances and the Municipal Code; facilitates applications for appointments to boards and commissions and coordinates Statements of Economic Interest as well as campaign and other financial disclosure-related filings.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 25

ADMINISTRATION

FINANCE DESCRIPTION
Finance provides financial analysis, management and reporting through the development of the annual budget, ongoing financial monitoring and reporting of revenues and expenditures. Routine financial duties including vendor payments, payroll, business license processing and the collection of the transient occupancy tax and the administration of pass-through funding to the hospitality and tourism improvement districts. Provides treasury services, invests revenue, and issues and manages debt.

HUMAN RESOURCES DESCRIPTION
Human Resources recruits, develops, and retains a diverse, well-qualified workforce that reflects the high standards of the community, and leads the City departments in positive employee relations, talent management, succession planning, and employee engagement. Services include employee orientation, recruitment, performance assessment, compensation and job classification assessments, safety and wellness programs; and organization development services efficiently to City departments. Staff is responsible for negotiating Memorandums of Understanding with the City’s three bargaining units, subject to Council direction and approval.

The HR divisional budget includes funding for implementing new employee supplemental benefits, managing an updated and expanded citywide Safety Program, and digitizing personnel records using LaserFiche. Funding for the staff appreciation events, such as the annual holiday party, is now separately reflected under Employee Appreciation.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 26

ADMINISTRATION
IT Description
Information Technology (IT) provides innovative and secure technology solutions that support City departments in delivering quality services to the community. The purpose of IT is to provide a broad range of high-quality technology-related solutions to employees, departments, Council members, and the community; and to support and continuously improve essential technology infrastructure for enabling day-to-day operations of the City.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 27

CITYWIDE (NON-DEPARTMENTAL)
Citywide, or non-departmental costs, are expenses that are spread across the entire organization.

These items include the unfunded pension liability, the City’s insurance premiums for general liability and property insurance, and the City’s share of costs toward retiree healthcare. Other operational expenses include utilities, property tax assessments and the administrative fee charged by Monterey County for property tax collection.

Budget Summary and Service Impacts
▪ In addition to the employer contribution toward retirement for City employees, the City also is responsible for pension obligations for the unfunded actuarial liability (“UAL”). This amount decreases by $75,000, or 4%, in FY 23-24 compared to the FY 22-23 originally Adopted Budget. The FY22-23 lump sum payment was paid in July 2022 for a savings of $69,000 and those savings were transferred to other budget line items during the fiscal year. ▪ The City will pay the annual lump sum UAL in July, which will result in approximately $75,000 of interest savings. Those savings would then be available for other line item expenses. ▪ The City’s liability insurance premiums are budgeted to increase by $50,000. ▪ The utility expenses for the Forest Theater are separated out for tracking purposes, as required by the new lease.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 28

MARKETING & ECONOMIC DEVELOPMENT
Two of the City’s unique facilities include the performing arts venue known as the Sunset Community and Cultural Center and the Forest Theater, an outdoor amphitheater. These locations support musical performances, lectures and other cultural activities that enhance the quality of life for residents and promote the City and the Monterey Peninsula as an artistic and cultural destination.

In 2017, the City entered into a lease agreement with the Sunset Cultural Center, Inc. (SCC) for the management of these facilities and the terms of the lease require the City to make an annual grant to SCC to support operations. In 2021, Sunset Cultural Center, Inc.’s management of the Forest Theater ended. The annual grant for management of only Sunset Center remains in the budget.

In 2021, the City entered into a lease agreement with Pac Rep Theater for the management of the Forest Theater. This new lease does not require an operational grant payment. Rather, the City pays for a portion of utilities and repairs, which are budgeted in the Citywide (Non-Departmental) and Public Works budgets, respectively.

The City funds the Monterey County Convention and Visitors Bureau (MCCVB) and Visit Carmel to manage visitors. Visit Carmel maintains the City’s official travel website (www.carmelcalfornia.com) and develops targeted and seasonal marketing campaigns to encourage visitors to stay overnight, dine, and shop within the Village.

In addition to supporting these organizations with General Fund revenues, the City also collects a tourism improvement district assessment from its lodging establishments on behalf of the County and remits these pass-thru funds to MCCVB on a bi-monthly basis. The City also collects an assessment on lodging through the Carmel Hospitality Improvement District and remits these funds to Visit Carmel for the marketing of overnight stays within the Village during mid-week and the non-peak season. As of January 1, 2019, the City also began collecting an assessment from full-service restaurants on behalf of the Carmel Restaurant Improvement District and remits these funds to Visit Carmel for marketing efforts to increase food and beverage sales within the City.

Another partner agency is the Carmel Chamber of Commerce, which operates the Visitor Center in town, publishes a comprehensive visitor guide, and assists businesses. The Chamber also supports small businesses and provides services to assist its members, including listing businesses on the Chamber website, providing educational programs, conducting outreach with businesses via weekly business walks with City elected officials and staff and marketing opportunities to “shop locally”.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 29

ECONOMIC DEVELOPMENT
Budget Summary and Service Impacts
Visit Carmel has been budgeted funding in the amount of $120,000 annually. Funding to MCCVB is $204,030 equates to 3% of the FY23-24 transient occupancy tax revenue budget of $6.8 million.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 30

LIBRARY AND COMMUNITY ACTIVITIES
The Library is an efficient medium for the free and equitable distribution and exchange of books, information, and ideas; and a recognized social center providing the community with a place to learn, interact and gather.The Library aspires to be a welcoming place, in-person and virtually, where reading, learning and imagination thrive; a recognized leader and respected voice in our community; and a model library in our industry.

A five-member Board of Trustees appointed by the City Council governs the Library. The Harrison Memorial Library Board of Trustees, the Carmel Public Library Foundation, Harrison Memorial Library Friends of the Library, and the City work together in partnership to sustain the vital and historic tradition of providing free public library service of excellent quality for the residents and visitors of the City of Carmel and the Monterey Peninsula 2022-2023 Workload Indicators / Performance Measures
• 13,138 reference and information questions were
answered.
• 1,808 library cards were issued.
• 67,388 library items were circulated.
• 4,878 people attended library programs.
• 116,854 visits were made to the library.
• 9,623 log-ins were made to library wi-fi.
• 70,638 digital items (e-books, audios, magazines,
films, music) were accessed.
2022-2023 Initiatives and Accomplishments
• Expanded library hours to 5 days a week.
• Completed the conversion of the collection to Radio Frequency Identification (RFID), including purchasing new self-checks to streamline the check-in/out process for both staff and patrons. • Engaged an architect for the Library Master Plan.
• Began a rebranding project in partnership with the Carmel Public Library Foundation • Added additional programming for Children of all ages and launched a small program series for adults.
2023-2024 Priorities
• Restore Saturday hours.
• Continue the implementation of the Library’s Strategic Plan.

Budget Summary and Service Impacts
The City funds the personnel and building maintenance costs for operating the Main and Park Branch libraries. The sources of funding for library materials, programs and services are the Carmel Public Library Foundation, the Friends of the Library, and other donations.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 31

LIBRARY AND COMMUNITY ACTIVITIES
Attachment 4
FY 23-24 RECOMMENDED BUDGET 32

LIBRARY AND COMMUNITY ACTIVITIES
The Community Activities department and Commission encourage and support the interaction of neighbors, friends, families and visitors through the shared experience of special events, programs,and gatherings which bring the community together virtually and in-person safely on the City’s streets and in its parks and create opportunities to interact, celebrate, enrich people’s lives, and promote inclusiveness.

The Community Activities department facilitates the weekly Farmers’ Market, permitting for special events, beach events, and filming, the City’s annual special events (Memorial Day, 4th of July, Sandcastle Contest, Pumpkin Roll, Halloween Parade, Veteran’s Day, Homecrafters’ Marketplace, and Holiday Menorah and Tree-lighting), and manages the Vista Lobos Community Room and the Scout House.
2022-2023 Workload Indicators/Performance Measures
• Planned and facilitated nine City special events.
• An estimated 5,000 people attended City Special Events. • Issued 40 event, beach, and film permits.
2022-2023 Initiatives and Accomplishments
• Held first Community Group Fair as part of the Farmers’ Market. • Completed streamlining special event, beach, and film permit process. • Began beta testing the 3rd Thursday initiative.
2023-2024 Priorities
• Explore ideas for new events.
• As part of the Community Activities Strategic Plan, implement a “Citizens Academy” to educate new community members and others interested in how to participate in the civic process in Carmel and acquaint them with all things City. • Continue collaborating with local organizations like Sunset Center or the Monterey Pops on special events.

Budget Summary and Service Impacts
Community Activities department expenses include costs for advertising, banners and signage, event and office supplies for City events, equipment replacements, Community Activities Commission initiatives, and the Farmers’ Market.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 33

LIBRARY AND COMMUNITY ACTIVITIES
Attachment 4
FY 23-24 RECOMMENDED BUDGET 34

COMMUNITY PLANNING AND BUILDING
The Community Planning and Building Department (CPB) includes the Planning, Building and Code Compliance Divisions and is responsible for preserving community character while fostering a vibrant community and a high quality of life for its residents, businesses and visitors. ▪ The Planning Division processes current development applications, maintains the General Plan, and ensures that capital programs, zoning and other activities of the City are consistent with the goals and policies of the Plan.
▪ The Building Safety Division is responsible for plans examination and inspections of City and private development projects to ensure compliance with building codes. ▪ The Code Compliance Division ensures compliance with the City Municipal Code. This function includes public education and outreach on existing laws and resolving code violations. 2022-2023 Initiatives and Accomplishments
• Adopted Phase 1 update of the City’s Historic Context Statement to add the period from 1966 through 1986.
• Adopted an ordinance amending the City’s regulations on timeshares. • Completed the scanning/digitizing of physical property files. 100% of parcels have now been digitized and made available for viewing through the City’s GIS map. • Significant progress on an updated Wireless Ordinance, including robust public participation and complete redraft to existing regulations.
• Implemented several measures in line with the CPB 2019 strategic plan’s customer service, technology, and streamlining goals including but not limited to: Implementing a fully online payment system, simplifying CPB’s website portal, completing scanning/digitizing files, refreshing SOPs for the Building and Planning processes. • Multiple community workshops and meetings for the Design Traditions 1.5 Project, culminating in the release of a first draft updates to the Commercial and Residential Guidelines.
• Completed housing feasibility study in accordance with State “SB 2”, local “LEAP”, regional “REAP” grants and began work in earnest on General Plan Housing Element update for completion by December, 2023.
• Implemented a 7-day per week code compliance program, with an emphasis on construction impacts, unpermitted work, and short-term rental enforcement. • Purchased and rolled-out of two (2) residential electric vehicles for Planning, Building, and Code Compliance inspections.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 35

COMMUNITY PLANNING AND BUILDING
2023-2024 Priorities
• Continued implementation of the CPB 2019 strategic plan, with a focus on customer service, technology, and streamlining processes.
• Adopt General Plan Housing Element and Safety Element updates by December, 2023 in accordance with State “SB 2”, local “LEAP”, regional “REAP” grants. • Adopt Phase 2 (final phase) of the Historic Context Statement update. • Adoption of: (1) updated Accessory Dwelling Unit Ordinance; (2) updated Wireless Ordinance. • Scanning/digitizing of rolled building plans currently in storage at Vista Lobos. • Adoption of updated Design Guidelines and Zoning Code through the Design Traditions 1.5 Project. • Engage staff to participate in more training opportunities to continue the professionalization and growth of the Community Planning and Building Department.

Budget Summary and Service Impacts
• Contract services include $247,000 representing State, local and regional grants for housing studies and General Plan updates, $40,000 for scanning rolled plans stored at Vista Lobos, and $80,000 for the Phase 2 update of the Historic Context Statement.
• In an effort to continue professionalizing and growing the Community Planning and Building Department, the overall budget for training and education has been increased by approximately 25%.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 36

COMMUNITY PLANNING AND BUILDING
Attachment 4
FY 23-24 RECOMMENDED BUDGET 37

PUBLIC WORKS
The mission of the Public Works Department is to plan, design, construct, operate, and maintain public infrastructure, streets, sidewalks, storm drains, building facilities, the urban forest, parks, and beach that contribute to the health, safety, and well-being of the Village. Public Works consists of an administrative unit and five operating divisions with responsibilities as follows:

Administration Unit: prepares Council agenda reports, monthly status reports, and annual 5-year Capital Improvement Plans, make presentations, serves as Executive Team liaison to the Forest and Beach Commission and on the TAMC TAC and Traffic Safety Committees, performs engineering services, and provides administrative support, budgeting, scheduling, and performance oversight of the operating divisions.

Environmental Compliance: enforces State storm water quality and waste reduction/ recycling regulations, oversees the City’s waste hauler contract, implements Climate Action and Adaptation Plan projects, serves on Monterey Regional Stormwater
Management Program and ReGen Monterey TAC committees,
manages sensitive projects in the North Dunes and MTNP, evaluates energy reduction initiatives, and coordinates with environmental, resiliency, and sustainability-focused partners.

Facilities Maintenance: maintains and repairs 15 City-owned buildings and facilities with 149,050 square feet, including six historic buildings nearly 100 years old, supports facility renovation capital improvement projects, oversees janitorial contract, obtains quotes and manages trade contractors, implements annual ADA project, and performs annual fire safety apparatus, generators, and backflow inspections.

Forestry, Parks and Beach: prepares reports and staffs Forest & Beach Commission meetings, maintains eight City parks, Carmel Beach, open spaces and landscaped islands, collaborates with volunteer organizations, processes tree removal/pruning permits, reviews development applications, manages multiple on-call tree care and landscape maintenance service contractors, performs tree planting, pruning, and dead or unsafe tree removal services, and provides emergency response during storms.

Project Management: supplemented by project management, architectural and engineering consultants, implements planning, engineering, design, public bidding, and constructionoriented capital improvement projects, performs condition assessments, manages contractors, coordinates with utilities and other departments, checks grading, drainage, and street improvement plans, obtains permits, and prepares specifications, contract documents, and cost estimates.

Street Maintenance: supervises Public Works field personnel and allocates equipment and resources, repairs streets, potholes, sidewalks, curbs, fencing, storm drainage system, berms, traffic signs, striping, and pavement markings, performs street sweeping, provides fleet maintenance services, reviews utility and encroachment permit applications, supports City events, and provides emergency response.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 38

PUBLIC WORKS
2022-2023 Initiatives and Accomplishments
• Tracked incidents during significant storms in January and March 2023 and cleaned up. • Launched the Coastal Engineering Study, which included a condition assessment of the shoreline infrastructure - a key Climate Adaptation Plan project. • Updated Municipal Code Chapter 17 related to storm water requirements. • For the Police Building renovation, supported the Council Ad Hoc Committee, prepared a Request for Proposal, selected an architect with expertise in police operations, and began a detailed facilities condition assessment and options evaluation. • Prepared a Request for Proposal, Operations and Maintenance Agreement, and Site Lease for renovation, activities programming, and facility maintenance of the Scout House. • Carmel Cares installed 800 native plants in the Forest Theater at no cost to the City. • Awarded three, On-Call Tree Services Contracts covering the next three fiscal years. • Awarded On-Call Landscape Maintenance Service
Contract after a two-year gap.
• Designed, bid, and will complete construction of the City Hall Retaining Wall Repair Project.
• Completed design of 2 Mission Trails Nature Preserve
projects: 3 Drainage Improvements for Stream Stability, and Well Abandonment and Tank and Pump House
Removals.
• Substantially completed the design of six facility renovation projects for City Hall, Harrison Memorial Library, and Sunset Center. • Updated the citywide Storm Drain Master Plan to reflect 20-year, rather than 10-year, storm events, to evaluate drainage improvements needed to adapt to climate change. • Performed Pavement Condition Assessment and updated the StreetSaver Pavement Management System database.
• Performed building condition assessments for City Hall, Fire Station, Public Works, and Vista Lobos facilities.
• Purchased an electric street sweeper utilizing a $250,000 rebate from 3CE. • Held the inaugural Earth Day celebration, in conjunction with the annual Arbor Day event.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 39

PUBLIC WORKS
2023-2024 Priorities
● Complete construction of the following Capital Improvement Projects:
▪ MTNP – 3 Drainage Improvements for Stream Stability
▪ MTNP – Well Abandonment, and Removal of Tank and Pump House ▪ FY 21 Street Paving Project
▪ FY 23 Concrete Street Repairs Project
● 4 Facility Renovation Projects: City Hall Roof Replacement, HML Exterior/Interior Painting, Sunset Center Hazardous Materials Remediation and Exterior Painting, and Cottage Window Repairs.
● Complete engineering and design of the following Capital Improvement Projects:
▪ FY 24 Street Paving Project
▪ City-wide Drainage System Repairs and Bottlenecks
▪ Electrical Panel Upgrades at Four Buildings
• For the Coastal Engineering Study, substantially complete the Shoreline and Beach Change Analysis, Erosion Exposure Modeling, and Coastal
Hazard and Sea Level Rise Vulnerability, High Priority
Adaptation, Identification, and Action Plan.
• For the Police/Public Works Building, complete the
condition assessment, reflecting safety concerns, police operations/POST standards, code deficiencies, and
deferred maintenance. Begin to implement Council
direction in terms of renovations, reconstruction, and/or pursuit of an entirely new public safety facility.
• For the Urban Forest Master Plan, complete technical
studies, engage in community outreach, and prepare and
present the Master Plan Report.
• For the Scout House, enter into an Operations and Maintenance Agreement and Site Lease with a qualified contractor, complete design, and begin the renovation. • Establish an Underground Utility District utilizing PG&E Rule 20A funds. • Plant at least 60 new trees, and reduce the backlog of tree stump removals. • Implement beautification projects, including landscaping along the Ocean Avenue Median Islands.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 40

PUBLIC WORKS
Budget Summary and Service Impacts
• The Administration Unit budget includes funding for Contract Services ($22,500), including uniforms, copier lease, and software contracts, training ($12,000), safety equipment ($10,000), subscriptions ($6,500), and office supplies ($5,000). Deleted $50,000 for project management consultant fees which are charged to CIP projects. Line item increases reflect filled all field positions.
• The Street Division budget includes funding for Materials and Supplies ($67,000) for black mutt mitts, asphalt, sidewalk pavers, and traffic paint, Equipment and Vehicle Maintenance ($37,000), Fuel ($48,000), and Contract Services ($65,000) including reconstruction of the San Antonio Pathway, between Second and Fourth Avenues damaged by January storms (not a CIP project) and subject to FEMA reimbursement. Pink Mutt Mitts for all dispensers would increase the budget by $34,800.
• The Facilities Maintenance Division budget
approximates the Amended Budget for FY
22/23, with increases due to deteriorating
older buildings, inflation, and reduced
contractor availability. The budget includes
funding for Contract Services ($597,000)
including janitorial ($272,000), alarm
monitoring, and generator services,
dumbwaiter decommissioning, and HVAC,
plumbing, roofing, and electrical repairs,
and Materials & Supplies ($109,000) for
doors, hardware, lighting, filters, plumbing,
and first aid supplies.
• The Environmental Compliance Division budget includes funding for Contract Services ($252,500), including SB1383 implementation, recycling containers, and waste hauler oversight ($85,000), stormwater quality enforcement and watershed monitoring ($51,000). As well as Vactor cleaning of storm drains, on-call environmental consultants, and climate change initiatives, and Permits and Licenses ($13,000) for stormwater and Air Resources District permits and MTNP invasive removals and North Dune habitat monitoring services. • The Forestry, Parks, and Beach Division budget includes funding for Contract Services ($941,500), including tree contractors for removals, pruning, stump grinding, MTNP tree removals, and beautification projects ($345,000), landscape maintenance contract ($175,000), storm emergency response ($125,000), and consulting services ($100,000), and Materials and Supplies ($76,000) for trees, landscaping, irrigation supplies, and playground repairs. Tree contract budgets have increased to reflect numerous dead/unsafe tree removals due to drought and severe storms, and the backlog of stumps.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 41

PUBLIC WORKS
Attachment 4
FY 23-24 RECOMMENDED BUDGET 42

PUBLIC WORKS
Attachment 4
FY 23-24 RECOMMENDED BUDGET 43

PUBLIC WORKS
66%
26%
4% 3% 1%
FY23-24 PW F&B Expenditure Detail
Tree Related
Services
Landscaping
Services
New trees/plants
Equipment
Landscaping &
Irrigation Materials
Attachment 4
FY 23-24 RECOMMENDED BUDGET 44

PUBLIC SAFETY
The Director of Public Safety/Police Chief manages the Public Safety Department and three distinct functions:

The Police Department is responsible for law enforcement and crime prevention within the City. The mission of the Department is to protect and serve, with the primary responsibility of ensuring the rights of citizens and visitors to live in peace and safety. It also oversees the management and operation of the Emergency Operations Center; the Volunteers in Policing Program that assists with daily clerical activities, errands, public outreach and special events and the City Community Emergency Response Team of volunteers ready to assist the community during an emergency situation.

The Fire Department is primarily responsible for saving lives and protecting property through the prevention and control of fires. The Fire Department has operated under a contract with the City of Monterey since 2012. The Public Safety Department manages the contract with the City of Monterey and is responsible for oversight of needed equipment and supplies.

Carmel Fire Ambulance provides advanced life support ambulance service to the residents of Carmelby-the-Sea. Ambulance staffing includes paramedic-firefighters and emergency medical technicianfirefighters to provide front line medical emergency response and all-hazard response as a key component of the City’s public safety services. The City of Monterey also provides administrative oversight of this function through a contractual agreement managed by the Public Safety Department.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 45

PUBLIC SAFETY
2022-2023 Initiatives and Accomplishments
• Vacancies were filled to include (1) Firefighter/Paramedic, (1) Police Officer, (1) Community Services Officer, and (1) Dispatcher. Continued recruitments to fill Police Officer and Dispatcher positions are ongoing.
• In the process of developing new contract language for Fire services with the City of Monterey. • New portable radios were purchased to improve radio communications for the transition from analog to digital for police services. A new radio tower was purchased in conjunction with Monterey County and is in the process of being constructed for activation. • A new parking management software system was implemented for parking/permit issuance.

Paid parking is also being explored as part of the parking management system. • Body worn camera and taser contracts were renewed.
• To enhance public safety within the village, new license plate reader cameras were purchased and installed throughout the city.

Additionally, the camera capture program was implemented, and the use of volunteer groups like (VIPS) volunteers in policing and (CERT) Community Emergency Response Team were utilized
during essential Situations such as storms and flooding. • In December 2022, and January 2023 utilized Police Officers, Public Works, City Staff and (CERT) Community Emergency Response Team members along with (VIPS) Volunteers in
Policing for countywide emergency flood and storm
evacuations/power outages.
• Our VIP (Volunteers in Policing) program had an accumulated almost 269 hours of volunteer time designated to storm
preparation and aid during the county wide storm emergency. The Volunteer in Policing (V.I.P.) program is composed of people who give freely of their time. They enjoy the satisfaction of providing worthwhile contributions to departmental personnel and the Community of Carmel. They are motivated by their interest in a higher quality of life for Carmel, and their own ability to liberate and officer’s time for greater enforcement and investigated impact.
• Our Carmel CERT (Community Emergency Response Team) was also integral to our safety in the community and was activated multiple times during the storm emergency to help with power outages, contacting residents, and assisting in life saving measures alongside police, fire, and ambulance services. Our CERT Team is made up of 30 dedicated volunteers who support our village as well as provide mutual aid to our neighboring communities. During emergencies or disasters, both self-reliance and the use of volunteers under professional direction will be necessary. CERT provides community members with the disaster related know how they need to be self-sufficient and support others until further help can arrive.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 46

PUBLIC SAFETY
2023-2024 Priorities
• Continue recruitments to fill additional Police Officer(s) and Dispatcher(s) positions to become fully staffed.
• Complete Police Department renovation project.
• Continue to work with contracted services for paid parking implementation in the downtown area of the village.
• Upgrade outdated computer equipment in police vehicles and parking scooters. • Increase training for staff in preparation for promotional advancement and growth.

Fire
• The FY 23-24 Budget increases by $87,447 over the FY 22-23 Amended Budget. Contract services include fire services provided to the Village by the City of Monterey ($2,950,700) and dispatch services ($25,000). Funding for a wildfire risk assessment is also included within the budget ($20,000).
• The FY 23-24 Budget also includes funding for fuel ($19,000) and vehicle maintenance ($35,000) as Carmel is responsible for vehicle repair and replacement under the contract with Monterey.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 47

PUBLIC SAFETY
Ambulance
• The FY 23-24 Budget increases by $142,377 over the FY 22-23 Amended Budget. Overtime reflects an anticipated decrease due to being fully staffed. Contract services include station coverage by the City of Monterey as needed ($170,000), ambulance billing ($48,000), Monterey Fire management of Ambulance personnel ($24,000). Other major expenses include medical supplies ($48,150), fuel and vehicle maintenance ($21,000), safety equipment ($37,000) and required training to maintain credentials ($19,000). 0 1
2 3
4 5
6 Category 1 Category 2 Category 3 Category 4
Chart Title
Series 1 Series 2 Series 3
Attachment 4
FY 23-24 RECOMMENDED BUDGET 48

PUBLIC SAFETY
Police
• The FY 23-24 Budget increases by $231,852 over the FY 22-23 Amended Budget. The Department will continue to focus on patrol and responding to public safety needs. • The FY 23-24 Budget reflects an increase of $80,151 in services and supplies over FY 22-23.

The increase is primarily the result of upgrading aging equipment, and an increase in ammunition prices, providing CERT team uniforms and equipment, and training and supplies needed to fill vacant positions. Training expenses were increased to add Critical Incident Training, De-escalation and Racial Bias Training for all department members. Contract services include expenses critical to operations including dispatch, jail booking and animal services provided by Monterey County; tasers, body and surveillance cameras and associated software and maintenance costs. Fuel costs are projected to increase as well.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 49

CAPITAL IMPROVEMENT

PLAN (CIP)
Attachment 4
FY 23-24 RECOMMENDED BUDGET 50

CAPITAL IMPROVEMENT PLAN
The FY 23-24 Recommended Budget includes $10.92 million for capital projects. This level of capital spending represents 27% of the total citywide budget of $40.9 million. As the economy recovers from the economic impact of the pandemic, sales tax revenue generated by Measure C, the City’s local sales tax, plays a pivotal role in provide a funding source for the City’s capital needs. The presence of state and county gas and transit taxes also provide a consistent base, albeit partial, for much needed street projects. That said the five-year capital plan points out that, as vital as these funding sources are, they cannot cover the full scope of identified improvements in the long term requiring that we attend to the highest needs and deferring others until funding becomes available.

Capital outlay funds several types of projects as depicted above in the “FY 23-24 CIP Funding by Category” chart. Streets account for 28% of capital expense, with a proposed budget of $3.0 million, largely funded by revenues the City receives specifically for street maintenance and other transportation-related projects. The FY 23-24 Recommended Budget recognizes the importance of facility investments including $3.2 million budgeted for Police Department renovations. Also included in facilities are deferred facility maintenance items equaling $819,000 that addresses Sunset center renovations, City Hall roofing and retaining walls.

Forestry, Parks & Beach reach $803,000, 7% of the CIP budget, and include Urban Forest Master Plan, Scenic Pathways hardscape, and MTNP Streams 3 Construction. Included in this fiscal year’s budget is a $500,000 CIP Contingency to provide funds when needed to award construction contracts that may have outdated cost estimates, such as for carry-over projects, the scope of essential work has increased, and/or when construction bids are competitive, but higher than available funds.

Capital outlay includes $1,155,000 for the projects listed in Table 1, FY 23-24 Recommended Vehicle and Equipment Acquisitions and Funding Source.

Drainage, 6%
Streets, 28%
Facilities, 41%
Foresty, Parks & Beach,
5%
Environment, 4% IT, 0%
Libraries, 1%
CIP Contingency, 5%
Fleet, 10%
Drainage Streets Facilities Foresty, Parks & Beach Environment IT Libraries CIP Contingency Fleet FY 23-24 CIP Funding by Category
Attachment 4
FY 23-24 RECOMMENDED BUDGET 51

CAPITAL IMPROVEMENT PLAN
Table 1: FY 23-24 Recommended Vehicle and Equipment Acquisitions and Funding Source
Funding prioritizes public safety response capabilities, including enhanced communications and the purchase of new vehicles. A focus on environmentally friendly vehicles is evident in this year’s spending plan. The budget also invests in critical safety equipment related to emergency ambulance services.

Vehicle & Equipment
Ambulance: A contract to build the new ambulance with equipment for $410,000 will be submitted for Council approval at an upcoming meeting. There is a long lead time for delivery of approximately three years. The total combined funding of $275,000 from the Vehicle and Equipment Fund, and a $50,000 donation, will need to be carried forward until the invoice is due.

Staff recommends carrying the funding over each fiscal year until needed for payment, and placing the estimated $85,000 balance for the ambulance into the CIP for Fiscal Year 25/26.

Vehicles (3): The Public Works Forestry Division uses a 2000 Dodge Dakota with 87,100 miles for landscape maintenance. The truck is in poor condition, has an undersized flatbed, and is only capable of carrying tools and hauling a very small load. This vehicle will be replaced with a fullsized electric pickup truck. Forestry also uses a 2002 Dodge Dakota with 62,700 miles for tree services. Despite a slightly larger bed capable of hauling larger debris loads, this truck is also in poor condition. This will also be replaced by a full-sized electric pickup truck. The Police Department's 2006 Ford Fusion Administrative vehicle has 106,500 miles and is used for traveling to court appearances, meetings, training, and conferences. This vehicle will be replaced with an electric sedan. Electric Vehicle grants from 3CE will be pursued for all new electric vehicles. While the amount of any grants is unknown at this time, staff estimates that up to $25,000 may be funded by 3CE for qualifying vehicles. The existing gas-powered vehicles will ultimately be sold at a public auction.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 52

CAPITAL IMPROVEMENT PLAN
Street Sweeper: In July 2022, Council awarded a $563,814 purchase of a RAVO SE 5 electric street sweeper, offset by a $250,000 Central Coast Community Energy grant. This was funded by the Vehicle and Equipment Fund. The sweeper is currently being manufactured overseas and is scheduled to be delivered after the first of the fiscal year.

Police Radios Lease, Year 3: Twenty-two (22) radios were purchased in 2021 with a payment schedule of $30,000 per year payments for six years, with funding from the Vehicle and Equipment Fund.

IT Servers: This project funding would be used to purchase hardware intended to enable our transition to running a majority of our workload in the cloud. Per the vendor, our existing Nutanix system will be at the end of its useful life by October 2023. This means support and security updates may become unavailable. We will purchase new hardware, software, and retain vendor services to provide a local copy of our critical data to be used in certain emergencies when and if cloud access is interrupted for extended periods. The hardware will also serve as a local cache for our data, making access faster and allowing for local backups to be kept onsite without incurring data charges.
-----continued to next page---
Attachment 4
FY 23-24 RECOMMENDED BUDGET 53

CAPITAL IMPROVEMENT PLAN
Table 2: FY 23-24 Recommended Capital Projects and Funding Source Attachment 4
FY 23-24 RECOMMENDED BUDGET 54

CAPITAL IMPROVEMENT PLAN
In addition, funding for various other capital projects total $9.76 million. The funding sources include MeasureC revenue as well as transportation-related revenues and project specific grants. (See Table 2, FY 23-24 Recommended Capital Projects and Funding Source, located on the following page) Project descriptions follow the table explain the nature and background of each.

The Recommended Budget proposes the use of available fund balances that have resulted from prior period savings and the postponements of capital projects during pandemic shutdowns and staffing shortages. Table 2has identified these projects that have been deferred and remain in need of attention. The tally and identification of these projects is directly related to the budget strategy taken this year in the attempt to “catch- up”. This use of fund balances as proposed in the FY 23-24 Recommended Budget leaves policy reserves intact and is directly related to this one-year extended level of capital spending.

As we look beyond FY 23-24 into the five-year CIP plan, it becomes apparent that the level of CIP expenditures proposed this year cannot be maintained in the long term. Although the fiveyear plan does its jobin articulating the physical project needs it also tells us that the City is faced with more capital needs than it can afford. This is true even if capacity resources are at full strength. Hence, priorities and limits will need to be setin navigating a sound fiscal plan in the longer term.

Streets:

FY 2019/20 Citywide Annual Paving Project: This Project, which includes the bike route and recentlydeleted median islands along San Carlos Street, land was presented to the City Council at the March 7th meeting. This project is bundled with another prior carryover project called Mission Street Sidewalk Repairs (FY 2021/22). The City was allocated $15,311 from RSTP funding via TAMC to repair a significantly uneven brick sidewalk on the west side of Mission Street, between Fifth and Sixth Avenues.

FY 2022/23 Concrete Street Repairs: At the January 2023 meeting, Council awarded a $189,667 Professional Services Agreement to BKF Engineers for design of this project. The project includes repairs and resurfacing of concrete intersections at Ocean/San Antonio, San Carlos/Fifth, San Carlos/Sixth, and along Ocean Avenue, between Monte Verde and San Antonio, and along San Carlos between Fifth and Sixth. An ADA ramp and bulb outs will also be included at the Junipero/Seventh intersection. The total project budget includes $441,300 in external funds (i.e. Measure X, SB-1) plus the Maintenance of Effort requirement of $563,700. The project is currently in preliminary design, and final design is anticipated to be substantially completed this summer. The remaining balance should be carried forward into the Fiscal Year 2023/24 CIP for construction.

FY 2023/24 Annual Paving Project: At the April 4, 2023 meeting, Council adopted a list of streets to be included in the FY 2023/24 annual paving project. The City’s Maintenance of Effort (MOE) contribution of $657,329 would leverage $438,570 of external funds via TAMC from Measure X, Gas Tax, SB 1, and RSTP. The project will include the design and construction of asphalt pavement overlays of five roadway segments, including Upper Ocean Avenue and Santa Lucia Avenue between Dolores Street and Rio Road, removal of failed pavement sections and providing a slurry seal on up to 20 road segments predominately in residential neighborhoods, and replacing broken Attachment 4
FY 23-24 RECOMMENDED BUDGET 55
concrete, asphalt, and brick sidewalks with permeable pavers along seven road segments in the downtown area. The project will be supplemented with ADA ramps, new trees, bike route markings, and other amenities as appropriate.

Sunset Center Retaining Wall Repairs – Design: Sunset Center requested this project. This project would provide funding to hire an engineering firm to design repairs for four retaining walls around Sunset Center. In the north lot, a 100- foot long, Carmel stone wall along Eight Avenue is leaning, and there are significant cracks in the wall along Mission Street. In the south parking lot off of Tenth Avenue, there is 50-feet of rotted wooden wall on top of a granite wall.

These and other walls require replacements of such as fencing, posts, and railings. Repairs are tentatively programmed in FY 2024/25. The same structural engineering firm will be retained to restore the pathway on the west side of San Antonio Avenue, between Second and Fourth Avenues, which was damaged by the winter storms.

Drainage:

MTNP Stream Stability Projects-Construction: This project, which consists of the first three (3) of eight (8) stream restoration and erosion control measures recommended by the Mission Trail Nature Preserve Stream Stability Study, is largely funded by a California State Parks Per Capita Grant in the amount of $187,000. The design and environmental permits for the project were listed in the completed projects above. Construction must be substantially completed by December 2023. Remaining funding is carried over to Fiscal Year 2023/24.

Drainage System Repair Design Phase I & Phase II: The City-wide Drainage Master Plan identified numerous spot repairs needed for our existing underground storm drain pipes, as well as significant "bottlenecks" in the drainage system. In October 2022, Council awarded a $50,000 Professional Services Agreement to Schaaf & Wheeler Consulting Engineers to update their 2020 Drainage Master Plan to reflect recommendations from the Climate Committee to evaluate 20- year storm event impacts to the drainage system, versus 10-year storm events as previously evaluated, and as much of the drainage infrastructure of the City was built. The Updated Master Plan is complete, and highlights will be presented to Council at an upcoming meeting. On a parallel track, Neill Engineers was issued a $24,999 Professional Services Agreement to design eight to ten specific drainage repairs and bottleneck elimination projects. The design of those improvements is in progress. Remaining funds should be carried-forward into Fiscal Year 2023/24 to complete the design. At least $4M will be needed to fix the most critical repairs and bottlenecks, and allocations for specific repairs will be recommended in future year CIP plans.

Facilities:

Police Building Renovation Project: At the February 2023 meeting, the Ad Hoc Committee recommended, and Council approved, issuing a Request for Proposal to architects with expertise in police building design, to perform a detailed evaluation of the building, including elements shared with the Public Works Department. In brief, the evaluation will consider building code deficiencies, needed safety repairs, police operational deficiencies and best practices, and the useful life of the facility with such investments. The architect will also consider swing space during construction, develop a rough cost for complete reconstruction within the current building footprint, and a cost for an entirely new building. The RFP was issued, four proposals were received, and negotiations are underway with the highest-ranked firm. A Professional Services Agreement with the selected architect will be presented to Council for award at an upcoming meeting. The project is being managed by a 4 Leaf project manager.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 56
ADA Upgrades, Year 6: This project would continue the City’s annual program of modifying public facilities, as identified in the City’s 2018 Americans with Disabilities Act Transition Plan, to provide access to the disabled. For the past few years, the City allocated $15,000 per year for this initiative.

To continue to demonstrate good faith efforts to implement these improvements and to reflect higher costs due to inflation, staff is recommending that this year’s allocation be increased to $20,000. As has been the case in the past, the project will be managed, and improvements will be installed, by the Facilities Maintenance Division supplemented by vendors as needed. Tentative projects will include installing additional ADA-compliant railings and water fountains.

Resilience Infrastructure Pilot Project Planning and Design: As recommended in the Climate Adaptation Plan, this project involves developing plans for sustainable backup power to provide continued operations of critical facilities. Preliminary review to date suggests focusing the project on the Police, Public Works, Vista Lobos, and Youth Center in the event of an extended power outage. The project is currently on hold pending the outcome of the Police Building Evaluation (discussed above).

Electrical Panel Upgrades for City Hall, Public Works, Sunset Center, and Vista Lobos Facilities: Electrical panel upgrades are necessary for these facilities to carry new electric vehicle charging stations, and to provide additional capacity for electric loads since these panels are near or potentially over capacity. Based on the Police Building Project, it is recommended that the Public Works facility of these four panels be incorporated into the Police Building, and that the Fire Station, which is also near capacity be substituted in its place. Note that the electrical switches in the Public Works Garage have been replaced with weatherproof panels. Also, in February 2023, $35,000 was added to the Public Works Operating Budget for Mid-Year Budget augmentation to support the active electrical work at the Vista Lobos parking lot. A contract was executed with PG&E to install the $200,000 transformer for 5 new charging stations at Vista Lobos at no cost to the City. Staff is currently negotiating a new Professional Services Agreement with an electrical/mechanical engineering consultant to provide design services for both the 4 Electrical Panel Upgrades and the Vista Lobos EV Charging Station projects.

Sunset Center – 7 Bollards: Our Sunset Center Cultural Center partners requested this project.

There are currently 11 vehicle bollards along the edge of the center parking lot in the vicinity of the box office. Over time, these bollards get hit by trucks and cars. Sometimes, staff is able to repair the bollards for continued use; however, several bollards are no longer useable. This budget would be used to replace at least three bollards at this time and keep four in stock and used when bollards are damaged in the future. Each bollard costs between $2,000 - $3,000 depending on their specific size and lighting features.

Sunset Center – Carpenter Hall Heater: Sunset Center requested this project. The existing system provides radiant heating from the boiler but is at the end of its useful life.While the outdated system still provides heat, the heat quickly escapes on colder days as soon as the entry doors are open. HVAC technicians were unable to make significant improvements to properly heat the space.

The problem was evident at the Council Strategic Initiative Workshop held at Carpenter Hall in January 2023. This project would include hiring a contractor to replace the heating system.

Sunset Center- North Lot Electrical Panel: This project is a supplement to the carry- over project entitled Electrical Panel Upgrades for City Hall, Public Works, Sunset Center, and Vista Lobos.

Staff is finalizing a Professional Services Agreement with an electrical/mechanical engineering consultant to evaluate and design these panel upgrades. Since the Public Works panel will be evaluated in conjunction with the Police Building project, this panel upgrade has been switched with the Fire Station panel. The existing funding of $75,000 appears to be sufficient for the design of all panels and repair certain panels. However, the electrical panel at the Sunset Center North Parking Lot is not only the most expensive to rebuild but also the most urgent because it is already over capacity and has been tagged by the Building Official. Staff has already been coordinating with PG&E to upsize the power conductors to this panel, with Chargepoint for additional EV Attachment 4
FY 23-24 RECOMMENDED BUDGET 57
charging stations to be installed along the west wall at a later date, and with 3CE for possible grants associated with the EV facilities. The Sunset Center panel also services the north parking lot lighting system and power to the CERT container.

Sunset Center – Portico Design: Sunset Center requested this project. Located at the promenade and concessions exterior, this project would provide for the architectural design of a new portico cover. This project will replace an ornamental garden trellis that was demolished in 2017 and eliminate the remaining columns that are an eyesore and have succumbed to dry rot.

The proposed portico may consist of an approximately 1,000 square foot roof structure to provide a functional outdoor concession space, enhance patron experience, eliminate water intrusion into the concession stand, and provide weather protection for wood framed doors and windows at the lobby entrance.

City Hall Retaining Wall Repair: The redwood retaining wall in the south parking lot of City Hall failed due to the lateral loads from the historic City Hall building over to the under-designed wall. With project management services provided by Ausonio, Inc., structural and geotechnical engineers were retained to design a permanent fix. The fix includes removal of the redwood planter area, constructing a large, concrete wall and footing below the existing building footing, particularly below the office of the Planning and Building Director, and replacing the planter
Facility Renovation Projects: The following four (4) facility renovations have been bundled into one design and construction project for cost-effectiveness and efficiency. These projects are being managed by contract project managers with Ausonio, Inc. In February 2023, Council approved a $78,900 Amendment to the Professional Services Agreement with Ten Over Studio, for architectural and engineering design services for these projects. Preliminary design work is nearly complete, and final design and commencement of construction bidding is likely by the end of Fiscal Year 2022/23; however, remaining funds for these projects will be carried forward for construction in Fiscal Year 2023/24.
• City Hall Roof Replacement
• Harrison Memorial Library Renovations Exterior and Interior Painting • Sunset Center Cottage Window Repairs
• Sunset Center Hazardous Materials Abatement and Exterior Painting Urban Forest Master Plan: The Urban Forest Master Plan (UFMP) is one of Council's high priority strategic initiatives. During FY 2021/22, the City was awarded a Cal Fire reimbursement grant of $150,000 for the UFMP. At the August 2022 meeting, Council awarded a $150,000 Professional Services Agreement with Davey Resources Group to prepare the Plan. Contractual issues, which delayed the start of the project for several months, have all been resolved. This is an 18-month duration project with the tree inventory and technical studies in progress. An Amendment to the Agreement with Davey is currently being negotiated for additional services that are prudent, and will be forthcoming to Council for approval utilizing the forestry operating budget funds.

Water Well and Tank Removal in MTNP: Regulatory decommissioning of the water well, and physical removal of the elevated tank, stone pump house, and abandoned power pole are needed. Under contract to the City, a Wallace Group project manager completed the design of the project and environmental approvals, including the Coastal Development Permit, have been obtained. The Project is anticipated to be advertised for construction bids by the end of the Fiscal Year 2022/23; however, remaining funds will be carried forward into Fiscal Year 2023/24 for construction.

North Dunes Habitat Restoration Interpretive Signage and Split Rail Fencing: Several organizations, including the North Dunes volleyball players, Rotary Club, and Carmel Cares, Attachment 4
FY 23-24 RECOMMENDED BUDGET 58
have expressed interest in donating funds and/or volunteer support to design and install interpretive signage and/or install split rail fencing along the Ocean Avenue and San Antonio frontages of the North Dunes site. These projects are in line with the recreation goals of the North Dunes Restoration Plan.

Scenic Pathway Hardscape Renovations: Carmel Cares requested to continue our Scenic Pathway Renovation Project following the upcoming repairs to the barrier rails, for which a Purchase Order for $50,000 for lumber and materials is expected to be awarded by the City Council on May 2, 2023. The proposed renovations will include Pathway signage, irrigation repairs, pathway trim edging, decomposed granite repairs, and other hardscape improvements. Council requested staff and Carmel Cares to develop a holistic game plan to cover the complete renovation of the Pathway.

This game plan will need to be carefully developed over the next year since co-mingling public and private funds on publicly-owned infrastructure triggers state public works contracting regulations. For example, for the Scenic Pathway Barrier Rails, City funds are only being used to provide materials, and Carmel Cares will hire a contractor and pay for the costs for installation, under guidance of the Community Planning & Building and Public Works Departments.

ENVIRONMENTAL:

Coastal Engineering Study Phase I & II and the Beach Sand Survey Project: These projects have been combined. This Study was identified in the Climate Adaptation Plan as a critical document for sea level rise resilience planning to ensure the City has the tools necessary to make decisions related to the long-term maintenance of coastal resources and infrastructure. At the November 2022 meeting, Council awarded a $175,000 Professional Services Agreement to EMC Planning Group, who teamed up with Integral Corporation and Haro Kashunich & Associates, to complete the four key tasks for Phase I of this Project. The results of Task 1, the Coastal Engineering Condition Evaluation, was presented to the Forest and Beach Commission on March 9th and is planned to be presented to the Climate Committee at an upcoming meeting. Remaining funds should be carried over into FY 23-24 to finish Phase I. For Phase II, an Amendment to the Agreement with EMC will be submitted to Council to incorporate the previously- scoped services and negotiated fee into the overall Study. These two phases will then be considered one combined project. Phase II will include three additional tasks focusing on: hazards policy review and revisions, public outreach and engagement, and adaptation monitoring and pathway development. Phase II may be eligible for a California Coastal Conservancy grant of $100,000, and staff will work with the consultants to develop and submit the grant application.

Shoreline Infrastructure Repairs: As noted in the Coastal Engineering Study above, the first task of Phase 1 was the Shoreline Condition Assessment. The Assessment concluded that of the 11 existing seawalls, 2-4 need repairs, with one (the Fourth Avenue Outfall Wall) as a high priority repair. Similarly, of the 11 beach access stairs, 9 need repairs with 3 considered to be high priority (two of these have been closed due to damage resulting from the winter storms). Finally, of the 6 rock revetments, 4 need repairs, 3 of which are high priority. The total cost for engineering design, environmental permits, and construction for all of these repairs will likely exceed $2 million over the next few years, as outlined in the attached 5-Year CIP spreadsheet; however, this project will initiate the engineering and design of the highest priority repairs, as well as to repair the closed and damaged beach access stairs, with like materials, as a maintenance project which is expected to streamline the regulatory approval process. This starting point will also allow the City to better estimate future costs and phasing to complete all needed shoreline infrastructure repairs.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 59
LIBRARIES:

Library Master Plan – Phases II-IV: This project complements the Library’s Strategic Plan objective to develop facility plans for the Harrison Memorial and Park Branch library buildings. In January 2023, Council awarded a $55,000 Professional Services Agreement to Jayson Architecture to prepare the Master Plan.

CIP PLANNING:

CIP Contingency Fund: While used by other municipalities, this fund would be a new tool for Carmel. This proposed “project” would provide contingency funds when needed to award construction contracts that may have outdated cost estimates, such as for carry-over projects, the scope of essential work has increased, and/or when construction bids are competitive, but higher than available funds. For example, at the April 4th meeting, Council appropriated an additional $113,600 from General Fund End Balance to the CIP Fund to be able to award the City Hall Retaining Wall Emergency Repair Project. The proposed fund may be needed in upcoming construction projects in FY 23-24 including: MTNP 3 Drainage Projects, MTNP Well Abandonment and Tank Removal Project, FY 20-21 Paving Project, Sunset Center Cottage Window Repairs, and/or City Hall Roof Replacement. These funds would be appropriated only by Council authorization at the time construction contracts are awarded, and any remaining balance would carry forward to the subsequent year and used when needed.

KEY PROJECTS AND FUNDING NEEDS FOR THE SUBSEQUENT FOUR (4) FISCAL YEARS OF THE 5-YEAR CAPITAL IMPROVEMENT PLAN (CIP)
A preliminary 5-year Capital Improvement Plan has been developed. Although only the first fiscal year (23-24) would be funded as part of the City Budget, the remaining years serve as a planning tool to identify, well in advance, anticipated future projects. The 5-year CIP is a “snap shot” in time of anticipated needs for future infrastructure revitalization funding in the outer years.

As a dynamic planning document, the CIP for Years 2-5 is subject to change as updated information becomes available. Staff suggests that this year, should this 5-Year CIP be accepted by Council, staff could post this document on the City’s website.

The following are major projects, by asset category, and ballpark budget estimates (including probable grants), for Years 2-5:

Streets: Paving overlays, micro-surfacing treatments, slurry seals, sidewalk repairs, parking lot resurfacing, retaining walls, and bicycle master plan = $3.24M City plus $1.79M external funds.

Drainage: Includes: drainage pipe repairs and upsizing for 20-year storm events, bottleneck reconfigurations, and CDS reconstruction = $2.93M.

Facilities: ADA upgrades, electrical panel repairs, painting, critical repairs/code corrections to City Hall, Vista Lobos, Fire Station, and park restrooms, Flanders structural repairs, resilience and energy upgrades, and equipment replacements = $2.8M.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 60
Forest, Parks, Beach: Construct MTNP stream stability projects, Scenic Pathway and other Carmel Cares joint projects = $0.8M City plus donations to be determined.

Environmental: Shoreline infrastructure repairs, Coastal Engineering Study, Phase 3, and climate action change initiatives = $2.0M plus $0.5M grants.

IT: Equipment replacements, security upgrades, Police records management system, and GIS applications expansion =$0.63M.

Libraries: Renovations as prioritized in the Master Plan = $1.1M plus $2.0M donations. Note: The Library Foundation will be embarking on a fundraising campaign to be able to advance the design and construction of significant improvements to both library buildings based on the Master Planning program.

Fleet: Replace outdated heavy equipment, including dump truck, water truck, asphalt patch truck, speed radar trailer, and other vehicles nearing the end of their useful lives with electric vehicles when possible, and fund balances for Police radios lease and ambulance purchase = $1.24M plus $0.1M grants.

The grand total estimate of $31.7 million (the four-year term yr. 2 through yr. 5) clearly exceeds anticipated revenues and fund balance availability for projects in those future years. Since the noted infrastructure above will not repair itself and will simply continue to decline without adequate funding, additional revenue should be evaluated. The Five-Year CIP would significantly draw upon available fund balances assuming the identified level of capital expenditures progress without alternative funding sources. Although important policy reserves would be preserved, the City would deplete its fund balance cushion taking away its ability to be nimble in the face of uncertainty and economic recession or crisis. -----end of page----
Attachment 4
FY 23-24 RECOMMENDED BUDGET 61
DEBT SERVICE – FUND 401
Debt service includes payments for the Next Generation Radio Project, the Sunset Center, and the Pension Obligation bonds. These payments total $878,000 as shown in Table 1, FY 23-24 Debt Service, below.

Countywide Radio Project: On April 7, 2009, City Council authorized the City’s participation in the Countywide Monterey County Next Generation Radio project (NGEN), including approving a pro-rata share of infrastructure costs and debt financing. The purpose of the project was to enhance communication among public safety agencies. The Certificate of Participation (COP), issued for $381,440, matures on June 30, 2023. Our final payment of $14,744 with will be made FY 23-24.
2020 Refunding Lease Revenue Bonds: On September 10, 2010, City Council approved the issuance and sale of certificates to finance improvements at the Sunset Center (the Sunset Theater Project), including the refinancing of the City’s lease payment obligation related to the preliminary financing of the Sunset Center (the 2010 Refunding Lease Revenue Bond). The COP of approximately $7.6 million included a maturity date of November 1, 2031. On September 3, 2020, the Public Improvement Authority and City Council determined that a refunding of the 2010 Bond was in the City’s best interest to take advantage of historically low interest rates and to achieve cash flow savings in light of the economic impact of COVID-19 on the City’s revenues.

The 2020 Refunding Lease Revenue Bond of approximately $3.9 million matures on November 1, 2032. As part of the refinancing, the City made significantly lower interest only payments in FY 22- 23; however, payments now include principal and have increased the total payment to $513,300.

Funding Sources
General Fund revenues are the source of funding for debt service payments. The General Fund (Fund 101) will transfer $528,044 to Debt Service (Fund 401) in FY 23-24.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 62

OTHER FUNDS
Attachment 4
FY 23-24 RECOMMENDED BUDGET 63

FUNDS OVERVIEW
The City uses a fund accounting structure, which is an accounting structure to record and track resources that are limited in use by law or governing agency. The major governmental funds are the General Fund, Measure D and Capital Projects. The first set of funds listed below are discretionary, meaning there are no legal or policy-related restrictions on their use and can be used at the discretion of Council for services and projects.

General Fund (Fund 101)
Most of the City’s revenues and the expenditure budgets for City services and daily governmental operations are housed within the General Fund (Fund 101) and this is where the majority of the City’s financial activity occurs. The major revenue sources associated with the General Fund include property tax, the City’s share of the statewide sales and use tax, charges for services, franchise fees, business tax, and intergovernmental revenue. These revenues are considered to be general in nature. Throughout this budget document, the General Fund is also referred to as the Operating Budget and City policy recommends a 15% Reserve.

Hostelry Fund (102)
This fund is used to account for the transient occupancy tax and is intended to fund the portion of the municipal budget covering community and cultural and recreation activities including, but not limited to Sunset Center and the Forest Theater, parks, public facilities and municipal structures, and parking lots; acquisition and improvement of parks, recreation land and other municipal purposes as determined from time to time by the City Council; provided, that all such uses shall be in accordance with the General Plan of the City and General Fund for usual and current expenses. City financial policy recommends a reserve of 10% of revenues.

Measure C Sales Tax (Fund 206)
Carmel voters approved a temporary (10 year) 1% increase in the transactions and use tax in 2012 known as Measure D. On March 3, 2020, voters approved Measure C, which increases the tax to

1.5% for 20 years. Measure C may be used for debt service, capital projects and general City services.

The next set of funds are restricted as there are requirements prescribed by the local, state or federal governmental agencies regarding how these funds may be used.

Gas Tax (Fund 201)
This fund is used to account for revenues collected in accordance with California Streets and Highway Code.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 64

FUNDS OVERVIEW
Transportation Safety (Fund 202)
Measure X, a 30-year 3/8 of one-percent transactions and use tax, was passed by the voters in November 2016 to fund transportation safety and mobility projects in Monterey County. This fund accounts for the expenditures for eligible transportation safety projects.

COPS Grant
This fund accounts for the expenditures for the Department of Justice Community Oriented Policing Services (COPS) grant for public safety. This fund transfers into the General Fund for the Police Department budget.

Parking in Lieu (Fund 204)
This fund is used to account for activities associated with parking in-lieu fees as prescribed by Carmel Municipal Code Section 17.38.040.

Asset Seizure (Fund 205)
This fund accounts for expenditures related to asset seizures.

The next two funds pertain to certain types of expenditures. • Capital Projects (Fund 301): This fund accounts for resources utilized, committed, assigned or restricted for capital projects.
• Debt Service (Fund 401): This fund accounts for activities related to the repayment of the Certificate of Participation, Pension Obligation Bond and capital lease obligations.

The next set of funds are considered to be internal service funds. • Workers Compensation (Fund 501): This fund accounts for workers’ compensation insurance provided to departments on a cost reimbursement basis. • Other Post-Employment Benefits (OPEB) Liability Reserve Fund: This fund accounts for other post-employment benefits.
• Vehicle and Equipment Replacement Fund: This fund is to set aside financial resources for future purchases of replacement equipment essential to the operations of the City.

There is one agency fund.

Refundable Deposits: This fund accounts for monies received that are unearned and required to be returned by the City.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 65

PROJECTED FUND BALANCE
The accompanying tables depicts the Projected Fund Balance for FY 22-23 and FY 23-24.

General Fund
The General Fund is estimated to start FY 23-24 with a fund balance of $13.1 million and end with $6.1 million on June 30, 2024 due to the General Fund unassigned balance being utilized and the use of estimated new revenue and transfers in from other funds, such as the Hostelry Fund. Fund balance is the accumulation of prior years’ savings and may also be considered a “rainy day fund”. Carmel Municipal Code Section 3.06.040 states that the City shall maintain a General Fund balance equivalent to at least 15% of the General Fund budget in each fiscal year and this is referred to as the reserve. A reserve may be considered as a minimum amount of savings that the City has available for emergency or other purposes.

Hostelry Fund
FY 23-24 assumes $6.8 million in new revenue. New revenue and fund balance for a total of $10.2 million will be transferred to the General Fund to support citywide operations and CIP projects.

Gas Tax (Fund 201)
Revenue of $179,934 is anticipated in FY 23-24 to be transferred to Capital Projects for street paving.

Transportation Safety (Fund 202)
Revenue of $231,779 is anticipated in FY 23-24 to be transferred to Capital Projects for street paving.

COPS Grant
Revenue of $158,000 is anticipated in FY 23-24 and will be transferred to the General Fund for Police Department salaries for eligible positions.

Parking in Lieu (Fund 204)
There is no activity budgeted in this fund for FY 23-24.

Asset Seizure (Fund 205)
There is no activity budgeted in this fund for FY23-24.

Measure C Sales Tax (Fund 206)
Measure C has a projected fund balance of $1.9 million as of June 30, 2023. The FY 23-24 projected revenue of $5.9 million will be transferred to the Capital Improvement Projects ($5.07 million) and Vehicle & Equipment Replacement ($830,000) There is no reserve requirement for Measure C.

Capital Projects (Fund 301)
This fund is projected to end FY 23-24 at $5,015,998 representing 20% of the 5-Year CIP forecast City Funds total.

Debt Service (Fund 401)
The FY 23-24 debt service activity is $528,044. Additional details on the bonds is found within the debt service section of this document.

Attachment 4
FY 23-24 RECOMMENDED BUDGET 66

PROJECTED FUND BALANCE
Workers Compensation (Fund 501)
The anticipated costs of claims payments, third party administrator services, and preventative costs are reflected in this fund. Previously, these expenses were accounted for in the General Fund. Based upon the auditor recommendation, they will be accounted for in this fund.

Other Post-Employment Benefits (OPEB) Liability Reserve Fund This fund was created by Council resolution to set aside funding to address OPEB liabilities. There is no reserve requirement. There is $1.8 million in the fund and no planned activity for FY 23-24.

Vehicle and Equipment Replacement Fund
The planned activity in this fund for FY 23-24 in the amount of $1,155,000 will be covered by new revenue and transfers in from Measure C Sales Tax Fund. -----accompanying tables on next page---
Attachment 4
FY 23-24 RECOMMENDED BUDGET 67
PROPOSED FUND BALANCE AS OF JUNE 30, 2023
Attachment 4
FY 23-24 RECOMMENDED BUDGET 68
PROPOSED FUND BALANCE AS OF JUNE 30, 2024
Attachment 4
FY 23-24 RECOMMENDED BUDGET 69

FINANCIAL POLICIES
Attachment 4

BUDGET POLICIES AND PROCEDURES
The budget process for the City of Carmel-by-the-Sea involves the citizens, City Council, and staff. Each person plays a critical role in the development of the budget for the upcoming year.

The annual budget and operating plan balances the public service demands of the community with the fiscal resources of the City. It is intended to achieve the goals and objectives established by the City Council.

The goal of the City Administrator is to present a balanced budget to the City Council for review and adoption. A balanced budget is a budget in which sources meet or exceed uses. Available funding sources shall be at least equal to recommended appropriations. As a general rule, the year-end undesignated General Fund balance should not be used to fund ongoing operations.

As set in the Carmel Municipal Code prior to the beginning of each fiscal year, the City Council shall adopt a budget for expenditures and anticipated revenues. On or before February 15th of each year, the City Administrator will present to the City Council a proposed budget schedule.

The City Administrator prepares and submits to the City Council a proposed operating and capital budget for the forthcoming fiscal year. The City Council shall adopt the budget by July 1st.

The City Administrator shall have the right to approve the transfer of appropriations within a departmental budget; however, no additional positions shall be created without the authorization of the City Council. All transfers of appropriations between departments or in regards to capital items or projects shall be approved by the City Council. The City Administrator shall be charged with the responsibility of controlling the expenditures for all departments in accordance with the approved budget. A report on current year revenues, expenditures and fund balances shall be maintained.

The accounts of the City are organized on the basis of funds. A fund is an independent fiscal and accounting entity with a self-balanced set of accounts. The minimum number of funds is maintained consistent with legal and managerial requirements. Annually appropriated budgets are legally adopted on a budgetary basis for the governmental fund types (General Fund, Special Revenue Fund, Debt Service Fund, and Capital Projects Fund) and are controlled on a fund and departmental level. These funds are used to account for most of the City’s general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified-accrual basis of accounting and budgeting.

Expenditures are recognized as encumbrances when a commitment is made. Unencumbered appropriations lapse at year-end.

FINANCIAL AND BUDGET POLICIES
70 Attachment 4

FINANCIAL POLICIES
The City of Carmel-by-the-Sea has strong financial policies that provide City Council direction to allow staff to provide sound fiscal planning and continued management of fiscal integrity. The financial policies are divided into five categories: Capital Budget Policies, Operating Management, Fund Balance Policy, Debt Policies, and Investment Policies. The City has financial policies that are adopted by the City Council with review every two years during the budget development process. The financial policies help ensure that the City maintains a healthy financial foundation into the future.

The goal of these policies is to promote:
• An extended financial planning horizon to increase awareness of future potential challenges and opportunities
• Setting aside reserves for contingencies, replacement of capital equipment, and other similar needs
• Maintaining the effective buying power of fees and charges and increasing cost recovery where directed to do so
• Accountability for meeting standards for financial management and efficiency in providing services
• Planning for the capital needs of the City
• Maintaining manageable levels of debt while furthering quality bond ratings • Communication to residents and customers on how the community goals are being addressed

CAPITAL BUDGET POLICIES
The City develops an annual five-year plan for capital improvements; it includes project design, development, implementation, and operating and maintenance costs. Each project in the Capital Improvement Plan (CIP) shows the estimated capital and on-going maintenance costs, known and potential funding sources and a design/development schedule. As used in the CIP, projects include land acquisition, buildings and facilities construction; these projects do not have a cost threshold. A capital outlay (fixed asset) purchase is any single item or piece of equipment that costs more than $10,000 and has an expected useful life exceeding one year.

The development of the Capital Improvement Plan is coordinated with the development of the operating budget. The CIP is a planning document; the City Council appropriates funding for capital projects in the annual operating budget. Costs for professional services needed to implement the CIP are to be included in the appropriate year’s operating budget.

Annual operating budgets should provide adequate funds for maintenance of the City’s buildings and maintenance and replacement of the City’s capital equipment. The City will make all capital improvements in accordance with an adopted and funded capital improvement program. Prior to ratification of the capital budget for the forthcoming year by the City Council, 71 Attachment 4
the Planning Commission shall review the capital improvement plan and shall advise the City Council as to its recommendations regarding the proposed capital projects in accordance with the Government Code.

Capital (Policy No. C94-01)
Capital expenditures shall be effectively planned and controlled.

Guidelines:

1. The level of capital improvement expenditures, excluding road maintenance program expenditures and lease payments, is established at three and one-half percent (3.5%) of total revenues.

2. Funding for the road maintenance program should improve the pavement condition index.

3. The City shall maintain a Five-Year Capital Improvement Program (CIP), which shall be updated at least annually as part of the budget review process.

4. The City shall annually establish a phasing calendar for capital improvement expenditures.

5. At least ten percent (10%) of the unrestricted funds designated for capital project expenditures shall be set aside for unanticipated expenditures.

6. The City shall conduct periodic reviews of property and facilities to determine the appropriate use and disposition of said property and facilities.

7. The City shall consider the ongoing impact of operations and maintenance expenses before undertaking any capital improvement expenditure.

8. The City shall maintain a capital reserve policy as described in the Reserve Policy.

9. Public participation in the Capital Improvement Program is a priority concern for the City.

10. All projects included in the Capital Improvement Plan shall be consistent with the City’s General Plan.

11. Capital projects that are not encumbered or completed during the fiscal year are required to be rebudgeted to the next fiscal year and subsequently approved by the City Council. All rebudgeted capital projects should be so noted in the proposed budget.

OPERATING MANAGEMENT (Policy No. C94-01)
Operating revenues shall exceed operating expenditures.

Guidelines:

1. The annual operating budget shall contain a current surplus (or “revenue buffer”) of at least five percent (5%) of projected expenditures.

2. A balanced budget is a budget in which total funding sources meet or exceed uses.

3. An appropriated City Discretionary Account of at least one-half of one percent (0.5%) of total projected General Fund expenditures shall be maintained.

4. Ongoing expenses shall not be funded with one-time revenues.

5. The City shall establish internal service funds for the repair, operation, and replacement of rolling stock and data processing equipment.

6. The level of capital outlay expenditures is established at three percent (3%) of total revenues.

7. The City shall annually establish a phasing calendar for capital outlay expenditures. 72 Attachment 4

8. The City shall develop a five-year forecast of operating revenue and expenditures.

9. The City shall establish salary adjustments in conjunction with the budget process.

10. The City shall review the relationship between fees/charges and the cost of providing services at least every three years.

11. The City’s fees and charges for services shall be adjusted annually, based upon the San Francisco-Oakland Consumer Price Index.

12. The City will seek to comply with suggested criteria of the Government Finance Officer’s Association in producing a budget document that meets the Distinguished Budget Presentation criteria.

FUND BALANCE POLICY
The Fund Balance Policy is designed to develop standards for setting reserve levels for various, significant City funds. Adequate fund balance and reserve levels are a necessary component of the City’s overall financial management strategy and a key factor in external agencies’ measurement of the City’s financial strength. The City shall maintain reserves at a prudent level, and shall use reserves appropriately with a focus on contributing to the reserves in good times and drawing on the reserves in times of difficult budget periods to maintain a consistent level of service and quality operations. Use of reserves are to supplement the annual budget.

Guidelines:

1. General Fund and Hostelry Fund reserves shall be maintained at no less than ten percent (10%) of their annual projected revenues.

2. The City shall maintain prudent reserves for identified liabilities a. A Vehicle Replacement reserve will be maintained sufficient to replace vehicles and heavy equipment at the end of their useful lives, with the target being 10% of the total City fleet replacement value.
b. Technology equipment replacement reserves will be maintained sufficient to repair covered equipment and for replacement at the end of its useful life.

3. The City will maintain a long-term budget stability reserve consisting of any unassigned General Fund balance. When available, the year-end General Fund operating surplus will be dedicated to the long-term budget stability reserve.

4. A general capital reserve fund will be maintained with a targeted balance of 20% of the estimated total five-year capital improvement plan project expenditure. Net proceeds from the sale of City owned property will be dedicated to the general capital reserve.

Funds in the general capital reserve will be allocated through the budget process for capital projects.

5. Reserves shall be used only for established purposes.

6. Depleted reserves shall be restored as soon as possible.

7. A minimum level for each of the reserve funds shall be established (see chart below).

8. The City shall maintain reserves required by law, ordinance and/or bond covenants.

DEBT POLICIES
The City considers the use of debt financing for one-time capital improvements that benefit the residents of Carmel-by-the-Sea when the term of the financing is no longer than the project life, and when specific resources are found to be sufficient to provide for the debt. Use of long73 Attachment 4
term debt is limited to capital projects or special projects or obligations that cannot be financed from current revenues. The City has traditionally kept annual debt service payments to less than 5% of the budget.

Use of Long-Term Debt Policy
The City recognizes that it may need to enter into long-term financial obligations to meet the demands of providing a high quality level of government services to our community. The following long-term debt policy sets the considerations for issuing debt and provides guidance in the timing and structuring of long-term debt commitments by the City.

General Practices:

1. The City will strive to maintain good relations with credit rating agencies, investors of the City’s long-term financial obligations and those in the financial community that participate in the City’s financings and demonstrate City officials are following a prescribed financial plan. The City also will strive to maintain and, if possible, improve its current AA+ bond rating in order to minimize borrowing costs and preserve access to credit. The City will follow a policy of full disclosure by communicating with bond rating agencies to inform them of the City's financial condition.

2. Bond issue proposals are to be accompanied by an analysis defining how the new issue, combined with current debt, impacts the City’s debt capacity and conformance with City debt policies. Such analysis shall include identification of the funding source, an assessment of the ability to repay the obligation, the impact on the current budget, commitments to future budgets, maintenance and operational impact of the facility or asset and the impact on the City’s credit rating, if any.

3. City Council must review such analysis, including existing debt level, ability to pay debt service, impact on City services, and make a finding that use of debt is appropriate.

4. Debt service costs (COP, Lease Purchase Agreements and other contractual debt that are backed by General Fund Operating Revenues) are not to exceed 25% of the City’s General Fund operating revenues.

5. The City recognizes that it is of the utmost importance that elected and appointed City officials, and all others associated with the issuance of City debt, not only avoid the reality of a conflict of interest, but the appearance thereof as well. City officials must conduct themselves in a fashion consistent with the best interests of the City and taxpayers.

6. Bonds will be sold on a competitive basis unless it is in the best interest of the City to conduct a negotiated sale. Competitive sales will be the preferred method. Negotiated sales may occur when selling bonds for a defeasance of existing debt, for current or advanced refunding of debt, or for other appropriate reasons.

The City will consider the issuance of long-term obligations under the following conditions:

1. The City will use debt financing for one-time capital improvement projects and specific nonrecurring equipment purchases or refunding of existing liabilities, and only under the following circumstances:
a. When the project is included in the City’s adopted five-year capital improvement program (CIP) and is in conformance with the City’s adopted General Plan. 74 Attachment 4
b. When the project is not included in the City’s adopted five-year capital improvement program (CIP), but the project is an emerging critical need whose timing was not anticipated in the five-year capital improvement program, or it is a project mandated by State or Federal requirements.
c. When the project’s useful life, or the projected service life of the equipment, will be equal to or exceed the term of the financing.
d. When there are designated General Fund revenues sufficient to service the debt, whether from project revenues, other specified and/or reserved resources, or infrastructure cost-sharing revenues.
e. Debt financing (other than tax and revenue anticipation notes) is not considered appropriate for any recurring purpose such as current operating and maintenance expenditures.

2. The City will follow all State and Federal regulations and requirements related to bonds and debt financing instruments regarding bond provisions, issuance, taxation and disclosure.

3. Costs incurred by the City, such as bond counsel and financial advisor fees, printing, underwriter’s discount, and project design and construction costs, will be charged to the bond issue to the extent allowable by law.

4. The City will monitor compliance with bond covenants and adhere to federal arbitrage and disclosure regulations.

5. The City shall continually review outstanding obligations for opportunities to achieve debt service savings through refunding and shall pursue refinancing when economically feasible and advantageous.

Debt Limit
The City will keep outstanding debt within the limits prescribed by State of California statutes and at levels consistent with credit objectives. California Government Code provides that “a city may incur indebtedness for any municipal improvement requiring an expenditure greater than the amount allowed for it by the annual tax levy” (43602). A “city shall not incur an indebtedness for public improvements which exceeds in the aggregate 15 percent of the assessed value of all real and personal property of the city. Within the meaning of this section "indebtedness" means bonded indebtedness of the city payable from the proceeds of taxes levied upon taxable property in the city” (43605). The limit is relative to the principal amount of bonds sold and delivered (43606). The City of Carmel-by-the-Sea, Policy No C94-01 establishes “the City’s debt shall not exceed predetermined levels.” The guideline in that policy is that “the City’s debt service level shall not exceed eight and one-fourth percent (8.25%) of total expenditures.

INVESTMENT POLICIES
This is a time to be particularly cautious. Municipal moneys not required for immediate expenditure will be invested. The City will maintain adequate cash availability and yield on invested idle funds while insuring that invested moneys are protected. The Carmel Municipal Code requires the City Administrator to prepare investment policies and guidelines for adoption by the City Council. The adopted investment policy follows. 75 Attachment 4

INVESTMENT POLICY AND GUIDELINES
Policy
In accordance with the Municipal Code of the City of Carmel-by-the-Sea and under authority granted by the City Council, the City Treasurer is responsible for investing the unexpended cash in the City Treasury.

The investment of the City of Carmel-by-the-Sea funds is directed to the goals of safety, liquidity and yield, in that order. The authority governing investments for municipal government is set forth in the California Government Code, Sections 53601 through 53659.

The primary objective of the investment policy of the City of Carmel-by-the-Sea is SAFETY OF PRINCIPAL. Investments shall be placed in those securities as outlined by type and maturity sector in this document. Effective cash flow management and resulting cash investment practices are recognized as essential to good fiscal management and control. The City’s portfolio shall be designed and managed in a manner responsive to the public trust and consistent with state and local law. Portfolio management requires continual analysis, and as a result the balance between the various investments and maturities may change in order to give the City of Carmel-by-the-Sea the optimum combination of necessary liquidity and optimal yield based on cash flow projections.

Scope
The investment policy applies to all financial assets of the City of Carmel-by-the-Sea as accounted for in the Annual Financial Report. Policy statements outlined in this document focus on the City of Carmel-by-the-Sea’s pooled funds, but will also apply to all funds under the City Treasurer’s control unless specifically exempted by statute or ordinance.

Prudence
The standard to be used by investment officials shall be that of a “prudent person” and shall be applied in the context of managing all aspects of the overall portfolio. Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, direction and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.

It is the City’s full intent, at the time of purchase, to hold all investments until maturity to insure the return of all invested principal dollars.
76 Attachment 4
Safety
Safety of principal is the foremost objective of the City. Each investment transaction shall seek to ensure that capital losses are avoided, whether from securities default, broker-dealer default, or from erosion of the market value.

Liquidity
Historical cash flow trends are compared to current cash flow requirements on an ongoing basis in an effort to ensure that the City’s investment portfolio will remain sufficiently liquid to enable the City to meet all reasonably anticipated operating requirements.

Yield
The investment portfolio should be designed to attain a market average rate of return through budgetary and economic cycles, consistent with the risk limitations, prudent investment principles and cash flow characteristics identified within the financial statements.

Performance Evaluation
Investment performance is continually monitored and evaluated by the City Treasurer.

Investment performance statistics and activity reports are generated on a monthly basis for presentation to the City Administrator and City Council.

Delegation of Authority
For short-term investments, the Administrative Services Director has authority to make transfers to and from the City’s Local Agency Investment Funds (LAIF) account in order to maximize interest earned and meet cash flow requirements. The transfers are made to and from the City’s general checking account to the LAIF account, with a minimum balance maintained in the general checking account to meet daily cash requirements.

The City Treasurer is responsible for investment of all unexpended City funds as per California Government Code section 41000 et seq. The City Treasurer makes long-term investments after review and approval by the Administrative Services Director and the City Administrator.

Ethics and Conflict of Interest
Officers and employees involved in the investment process shall refrain from personal business activity that conflicts with the proper execution of the investment program, or impairs their ability to make impartial investment decisions. Additionally, the City Treasurer and the members of the investment committee are required to annually file applicable financial disclosures as required by the Fair Political Practices Commission (FPPC). 77 Attachment 4
Safekeeping of Securities
To protect against fraud, embezzlement, or losses caused by a collapse of an individual securities dealer, all securities owned by the City shall be held in safekeeping by a third party bank trust department, acting as an agent of the City under the terms of a custody agreement or PSA agreement (repurchase agreement collateral). The third party bank trust department must have safe keeping as a professional business line with expertise in this particular service area. All trades executed by a dealer will settle Delivery vs. Payment (DVP) through the City's safekeeping agent. Securities held in custody for the City shall be independently audited on an annual basis to verify investment holdings. All exceptions to this safekeeping policy must be approved by the City Treasurer in written form and included in quarterly reporting to the City Council.

Internal Control
Separation of functions between the City Treasurer's Office and the Administrative Services Department would be an ideal situation. Time and necessity, however, dictate a different approach. Due to the lack of personnel dedicated to the investment function alone, a proper balance must be maintained between Treasury activities and Administrative Services Department functions. The City Treasurer will make the appropriate arrangements to buy and sell securities that are deemed permissible by the Laws of the State of California as time permits. The Administrative Services Director and/or City Administrator will have the power as granted under the section titled Delegation of Authority in the absence of the City Treasurer.

The City Administrator will have the authority to enter into agreements on securities so long as written policies set by the City Treasurer and State Legislature are followed.

The investment portfolio and all related transactions are reviewed and balanced to appropriate general ledger accounts by the Administrative Services Director on a monthly basis. An independent analysis by an external auditor shall be conducted annually to review internal control, account activity, and compliance with government policies and procedures.

Reporting
The City Treasurer shall review and render monthly reports to the City Administrator and the City Council, which shall include the face amount of the cash investment, the classification of the investment, the name of the institution or entity, the rate of interest, the maturity date, and the current value and accrued interest to date due for all securities.

Qualified Broker/Dealers
The City shall transact business only with banks and broker/dealers that are properly licensed and in good standing. The Administrative Services Director and the City Treasurer shall investigate dealers who wish to do business with the City to determine if they are adequately capitalized and if they market securities appropriate to the City’s needs. 78 Attachment 4
The City Treasurer shall annually send a copy of the current investment policy to all broker/dealers approved to do business with the City. Confirmation of receipt of the City’s policy by the broker/dealer shall be considered evidence that the broker/dealer understands the City’s investment policies and intends to sell the City only appropriate investments authorized by this investment policy.

Collateral Requirements
Collateral is required for investments in certificates of deposit. In order to reduce market risk, the collateral level will be at least 110% of market value of principal and accrued interest.

In order to conform with the provisions of the Federal Bankruptcy Code that provide for liquidation of securities held as collateral, the only securities acceptable as collateral shall be certificates of deposit, commercial paper, eligible banker’s acceptances, medium term notes or securities that are the direct obligations of, or are fully guaranteed as to principal and interest by, the United States or any agency of the United States.

Authorized Investments
Investment of City funds is governed by the California Government Code Sections 53600 et seq.

Within the context of the limitations, the following investments are authorized as further limited herein:
1) United States Treasury Bills, Bonds, and Notes or those for which the full faith and credit of the United States are pledged for payment of principal and interest. There is no percentage limitation of the portfolio that can be invested in this category, although a five-year maturity limitation is applicable but current market conditions and interest rate projections may call for shorter terms.
2) Local Agency Investment Fund (LAIF), which is a State of California managed investment pool, may be used up to the maximum permitted by the California State Law. LAIF is a demand account so no maturity limitation is required.

Investments detailed in items 3) are further restricted to percentage of the cost value of the portfolio in any one-issuer name to a maximum percentage of 15%. The total value invested in any one issuer shall not exceed 5% of the issuer’s net worth. Again, a five-year maximum maturity is applicable unless further restricted by current policy. Market conditions should be evaluated as an important consideration and may indicate a shorter maturity. 3) Negotiable certificates of deposit issued by nationally or state chartered bank or state or federal savings institutions. Negotiable certificates of deposit shall be rated in a category of “A” or its equivalent or better by two Nationally Recognized Statistical Rating Organizations. Purchases of negotiable certificates of deposit may not exceed 30% of the total portfolio. A maturity limitation of up to five years is applicable after considered evaluation of the financial markets.
79 Attachment 4
Ineligible investments are those that are not described herein, including, but not limited to, common stocks and long term (over five years maturity) notes, bonds, and time deposits, unless specifically allowed both by state law and City Council approval. It is noted that special circumstances may arise where these methods of investment may become necessary. When this becomes necessary, the City Council will be asked to take the appropriate action to ratify the means of investment necessary, provided that it is allowable by California Code.

Legislative Changes
Any State of California legislative actions that further restrict allowable maturities, investment type, or percentage allocations will supersede any of the material presented herein. In this case, the applicable law will become part and parcel of this investment policy.

Interest Earnings
All moneys earned and collected from investments authorized in this policy shall be allocated monthly to the General Fund and various special funds of the City that legally require interest proration or when City Council action dictates such proration. This distribution will be based on the cash balance in the fund as a percentage of the entire pooled portfolio.

Policy Review
The City of Carmel-by-the-Sea’s investment policy shall be approved by resolution of the City Council. This investment policy shall be reviewed at least annually to ensure its consistency with the overall objectives of preservation of principal, liquidity and yield, and its relevance to current law and financial and economic trends. Any amendments to the policy, other than State and Federal laws that automatically supersede the relevant sections shall be forwarded to the City Council for approval by resolution.
80 Attachment 4

Updated on 5/13/2023

CITYY OF CARMEL-BY-THE-SEA
FISCAL YEAR 23-24 RECOMMENDED BUDGET
QUESTIONS SUBMITTED AS OF MAY 11, 2023

1. Question/Comment: Why does the Estimated Actual FY 22-23 Sales Tax go up while Measure C goes down compared to FY 21-22 Actual? It seems Sales Tax and Measure C should move the same direction. Is this estimate correct? Response: Administration met with HdL on May 10, 2023 to review sales tax data through 4Q22 and have updated the estimated FY 22-23 with figures provided by HdL.

Measure C FY22-23 is now estimated at $5,865,000. As Sales Tax captures point-ofsale transactions and Measure C tracks point-of-use transactions, it is not uncommon for these two taxes to trend differently.

2. Question/Comment: How does our City’s Transient Occupancy Tax (TOT) compare to other peninsula cities?
Response:

County City TOT
Tax Rate %
Monterey Carmel-by-the-Sea 10%
Monterey Del Rey Oaks 10%
Monterey Gonzales 8%
Monterey Greenfield 8%
Monterey King City 10%
Monterey Marina 14%
Monterey Monterey 12%
Monterey Pacific Grove 12%
Monterey Salinas 10%
Monterey Seaside 12%
Monterey Soledad 12%
Monterey Monterey County 10.5%

3. Question/Comment: Is there a better way to handle the payments to the Monterey County Convention and Visitors Bureau (MCCVB)? Why not estimate, then true up? How would a 'true up' with the MCCVB work?
Response:

The City remits four equal payments to Monterey County Convention & Visitors Bureau (MCCVB) quarterly based upon 3% of the fiscal year adopted budget for Transient Attachment 5

Updated on 5/13/2023

CITYY OF CARMEL-BY-THE-SEA
FISCAL YEAR 23-24 RECOMMENDED BUDGET
QUESTIONS SUBMITTED AS OF MAY 11, 2023
Occupancy Tax (TOT) revenue. There are no true-up payments currently to reflect 3% of actual TOT receipts collected over the fiscal year
Presently, there is a discrepancy between what MCCVB estimates ($8.1M) for the City’s TOT revenues and what the City estimates ($6.8M) for FY 23-24. The City’s TOT FY 23-24 estimates are calculated as a 2% increase over prior fiscal year’s adopted budget.

This variance results in a difference of approximately $40K for the City’s annual Jurisdiction Investment Partnership amount. In order to address situations like this, MCCVB is requesting an “invest-as-we-go” payment model for Council consideration that would result in the City’s investment being based upon actual TOT revenues collected.

Based upon the current procedures and processes for the City’s TOT collections and remittance, the MCCVB Jurisdiction Investment Partnership could be calculated every two months to match the timing of Monterey County Tourism Improvement District remittance, which is based on actual TOT collections. No end-of-the-year true up is needed with this approach and is based on actual TOT collections. Year-end or quarterly true-up calculations would require additional staff time while a bimonthly payas-you-go option could easily be incorporated into the TID processes already in place.

Regardless, the City does need to add a placeholder amount as part of the budget and will continue with the amount in the recommended budget. Based on Councilmember Baron’s direction, City Administrator Rerig will work with Rob O’Keefe of MCCVB to pay this upcoming fiscal year on actuals and should the actual amounts come over the budget amount, the City will submit a midyear adjustment accordingly.

4. Question/Comment: How would we propose cutting the budget by 10 percent if asked by Council?
Response: If a majority of City Council provides direction to cut $4 million (10%) from the budget, the City Administrator will assess and come back with recommendations that may come from one or more sources such as salaries/benefits, operating expenses, and/or capital improvement projects (CIP).

5. Question/Comment: Please clarify the use of the parking in lieu fees? Response: City Municipal Code § 17.38.040 states: “Funds collected by the City from such payments shall be deposited in a specific fund and used by the City to acquire and/or develop off-street parking.” The CMC does not authorize the funds to be used for any other purpose (e.g., inter-city loan or other City program). Administration has requested from the City Attorney a memo specifically to clarify use of funds and whether funds can be utilized for parking improvements on currently owned off-street parking lots and spaces.

Attachment 5

Updated on 5/13/2023

CITYY OF CARMEL-BY-THE-SEA
FISCAL YEAR 23-24 RECOMMENDED BUDGET
QUESTIONS SUBMITTED AS OF MAY 11, 2023

6. Question/Comment: Can you add the position control list back into the budget? How about adding the salary schedules for positions into the budget book? Response: The FY 23-24 Recommended Budget Book has been updated since the May 2, 2023 City Council meeting with the City’s Recommended Fund Positions table for FY 23-24.

7. Questions/Comment: Will the sand ramp at Eighth Avenue be repaired for use during an emergency?
Response:

Staff was anticipating that the ocean tides would bring back enough beach sand such that we could push up the sand and restore the ramp before the summer season. While some sand has returned to the beach, a considerable amount of additional sand is still needed back onto the beach to be able to restore the ramp. Police, Fire, and Public Works are well aware of this situation, and the lack of the beach ramp could potentially hinder emergency access.

However, it would be extremely challenging and costly to reconstruct the sand beach access ramp using imported sand for the following reasons. First, there is no known supply of pristine white sand that would match the natural Carmel Beach sand. Even if a source of sand was found, numerous truckloads would be required to cross the Village and deposit the sand. Not only would such a project be very costly, these operations would trigger an environmental analysis, environmental documentation, and a CEQA determination. A Coastal Development Permit would also be required. Furthermore, the ocean tides could return the sand for us during our summer beach profile.

8. Question/Comment: Can we add a photograph of the entire City Council in the budget book?
Response: The City paid for a recruitment video that included video footage and photos which were incorporated into the FY 23-24 budget. However, a photo of the full City Council can be integrated into the budget book once a photo has been taken.

9. Question/Comment: Regarding the Community Fire Risk assessment - will the document clearly elucidate whether we are at risk of wildfire in the Village? Response: The City believes the Community Fire Risk Assessment will touch on the risk of wildfire in the Village. Administration has taken this question to Chief Panholzer and will update as more information becomes available.

10. Question/Comment: Now that we have prohibited wood burning fires at Carmel Beach will we change the signs?
Response: Yes. We are in the process of ordering and installing the new signs.

Attachment 5

Updated on 5/13/2023

CITYY OF CARMEL-BY-THE-SEA
FISCAL YEAR 23-24 RECOMMENDED BUDGET
QUESTIONS SUBMITTED AS OF MAY 11, 2023

11. Question/Comment: Since there have not been any transactions on the Parking in Lieu fund balance for the last two years, can we invest the $734k (or a portion) in an interest-bearing account?
Response: The Parking in Lieu fund balance is part of the overall City’s investment financial portfolio. City’s investment gain/losses are totaled and allocated among all funds holding a cash balance at the end of the fiscal year. As of June 30, 2022, the City’s cash and investment portfolio was divided among checking accounts (73%), savings accounts (16%) and brokerage accounts (11%).

12. Question/Comment: The staffing positions and comparison to FY 22-23 are missing from the FY 23-24 recommended budget document. Chip called out in the FY 23-24 budget report that there are no increases in staffing. Even so, when will the public be able to see this information?
Response: The FY 23-24 Recommended Budget Book has been updated since the May 2, 2023 City Council meeting and includes the authorized positions.

13. Question/Comment: IT has over 50% increase in budget recommendations.

What are the specific publications and subscriptions driving this and how are they used?
Response: The City’s long term plan to move from on-premise systems which are capital expense heavy to Cloud based technologies which are operating expenses have increased expenditures in IT subscriptions. Additionally, Administration has consolidated all cross-departmental software subscriptions into IT’s Publication and Subscriptions budget for FY 23-24.

Attachment 5

Updated on 5/13/2023

CITYY OF CARMEL-BY-THE-SEA
FISCAL YEAR 23-24 RECOMMENDED BUDGET
QUESTIONS SUBMITTED AS OF MAY 11, 2023

14. Question/Comment: Community Activities has a noticeable increase in community promotions. What specifically are these?
Response: Community Activities has budgeted more in FY 23-24 due to inflationary increases in contractor costs. Additionally, more funds are budgeted towards the Farmers' Market for 3rd Thursdays ($20,100), Programs/Events ($13,200), Community Promotions ($5,100), music ($4,500) and other market improvements, signage, display, and equipment ($13,667).

15. Question/Comment: What is the anticipated amount of reimbursements from storm damage that occurred during the 1st quarter of 2023 and when do we expect to receive this?
Response: At this time, the City is still identifying and inventorying disaster-related damages as required by FEMA. The City has until June 14, 2023 to complete emergency work and June 14, 2024 to complete permanent work. The City met with the new FEMA representative on May 10, 2023 and is actively working through the process.

So far, the storm debris costs approved by FEMA is $36K. Repairs have yet to be approved and will require a FEMA sight adjuster to come to the City and assess the damages, such as the stairs and ramp at the beach, street damages from tree uprooting etc. FEMA has not said when specifically, we would receive the funding.

16. Question/Comment: Contract services for tree care and landscape maintenance increased 50% in last year's budget and now again by 49% in this year's budget.

Attachment 5

Updated on 5/13/2023

CITYY OF CARMEL-BY-THE-SEA
FISCAL YEAR 23-24 RECOMMENDED BUDGET
QUESTIONS SUBMITTED AS OF MAY 11, 2023
Given this trend, is this enough? How do we better prepare for these services given that winter storms will continue to challenge our Village? Response: For Fiscal Years 20-21 and 21-22, during the Pandemic, contracted landscape maintenance services were unfunded. While volunteer groups stepped up to help reduced Public Works/forestry crews with landscape care, the overall quality of the landscaping was diminished.

In the current Fiscal Year 22-23, $149,000 was allocated for landscape maintenance. In late 2022, a contract was awarded to Town & Country Gardening & Landscaping for $140,000. Approximately $24,000 will also be expended to reimburse Carmel Cares for their contracted gardening services along the Scenic Pathway. Staff believes that the quality of the landscaping across the Village is now better than even before the Pandemic.

The proposed landscape maintenance budget for FY 23-24 is $203,000 and covers both Town & Country ($175,000) and Carmel Cares ($28,000) landscaping services. The budgeted increase from $149,000 to $203,000 is 36%.

Staff believes this increase is significant and prudent, but cautions against increasing the budget for landscaping maintenance beyond this amount so as to be in balance with the many other City needs.

17. Question/Comment: The pie chart on page 41 doesn’t seem to represent the PW Forest & Beach FY 2023-2024 budget amount of $1,017,500.

Response: The FY 23-24 Recommended Budget Book has been updated since the May 2, 2023 City Council meeting to reflect the proper allocation of PW’s Forest & Beach services and supplies.

18. Question/Comment: Staff turnover adds to increased recruiting time, costs, and understaffing that can delay project progress. What has been our staff turnover trend/rate for the last 5 years, adjusting for Covid impacts? Response: In summary, 57 full-time employees have separated since 2018 which is close to 60% of personnel. Although COVID and the corresponding layoffs impacted 2020, the City has been proactively taking measures to address issues that may causing employees to leave such as improving employee engagement and satisfaction, and offering competitive compensation and benefit packages. The employee (full-time or temp/hourly/retired annuitant) and elected officials turnover trend/rate for the last 5 calendar years is as follows:

Attachment 5

Updated on 5/13/2023

CITYY OF CARMEL-BY-THE-SEA
FISCAL YEAR 23-24 RECOMMENDED BUDGET
QUESTIONS SUBMITTED AS OF MAY 11, 2023
Calendar
Year
Elected
Official
Temp/Hourly/
Retired
Annuitant
Full-Time Total
2018 2 2 8 12
2019 0 1 9 10
2020 1 3 18 22
2021 0 0 8 8
2022 1 6 10 17
2023 (to
date) 0 0 4 4
4 12 57 73
0 10
20 30
40 50
60 70
80 Elected
Official
Temp/Hourly/
Retired Annuitant
Full-Time Total
Employee Turnover
2018 2019 2020 2021 2022 2023 (to date)
Attachment 5

CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
Staff Report
May 16, 2023

ORDERS OF BUSINESS
TO: Honorable Mayor and City Council Members
SUBMITTED BY: Jane Hogan, Accountant
APPROVED BY: Chip Rerig, City Administrator
SUBJECT:

Resolution 2023-057 receiving the Annual Comprehensive Financial Report (ACFR) for the fiscal year ending June 30, 2022
RECOMMENDATION:

Adopt Resolution 2023-057 receiving the Annual Comprehensive Financial Report (ACFR) for the fiscal year ending June 30, 2022
BACKGROUND/SUMMARY:

This item is on the Council's agenda to receive the Annual Comprehensive Financial Report (ACFR) for the fiscal year ending June 30, 2022 (Fiscal Year 2021-2022). The ACFR includes the City's audited basic financial statements and the independent auditor's report. It also includes a narrative on the City’s financial activities known as the Management Discussion and Analysis and a statistical section pertaining to financial trends, revenue capacity, debt capacity, demographic and economic information and operating information.

State law requires that the accounts and fiscal affairs of all municipal entities be examined annually by an independent certified public accountant. The City has retained an independent auditor, Chavan and Associates, LLP, to audit the City’s financial statements. The audit was performed in accordance with auditing standards generally accepted in the United States, including financial auditing standards issued by the Comptroller General of the United States, in order to determine if the City’s financial statements were misstated or misrepresented, either due to fraud or error. Chavan and Associates, LLP, has issued an unmodified opinion that the financial statements for the year ended June 30, 2022, are fairly presented in conformity with generally accepted accounting principles (GAAP).

As part of the audit process, Chavan and Associates, LLP, also test the City’s internal controls over financial reporting and compliance and reports on the outcome of these tests (“findings”) as part of the Communication Letter. There are different categories of findings, including a material weakness, meaning that a deficiency, or a combination of deficiencies, in internal controls exists and that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, detected or corrected on a timely basis. No material weaknesses or other findings were identified as part of the audit.

Sheldon Chavan of Chavan and Associates LLP will give a presentation on the Fiscal Year 2021-2022 audit as part of the Council's May 16, 2023 meeting.

The Fiscal Year 2021-2022 ACFR was prepared using guidelines issued by the Government Finance Officers Association of the United States and Canada (GFOA) as part of its Certificate of Achievement for Excellence in Financial Reporting Program. The intent of this program is to encourage state and local governments to prepare reports that exceed the minimum requirements of generally accepted accounting principles in order to produce a readable and efficiently organized document intended to allow greater public transparency and full disclosure of the City’s financial health. The City received a Certificate of Achievement for its Fiscal Year 2019-2020 and 2020-2021 ACFRs and the Fiscal Year 2021-2022 ACFR will also be submitted to the GFOA for consideration of a new Certificate of Achievement.

FISCAL IMPACT:

There is no fiscal impact associated with receiving the ACFR. The cost for the audit for fiscal year 2022- 2023 is included within the adopted budget for a not to exceed amount of $32,000.

PRIOR CITY COUNCIL ACTION:

There is no prior action taken on this item.

ATTACHMENTS:

Attachment 1) Resolution 2023-057
Attachment 2) FY 21-22 Annual Comprehensive Financial Report

CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
RESOLUTION NO. 2023-057

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA

RECEIVING THE ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR) FOR THE FISCAL YEAR ENDING JUNE 30, 2022
WHEREAS, State law requires that all accounts and fiscal affairs of municipal entities be examined annually by an independent certified public accountant; and WHEREAS, the City retained the independent auditing firm of Chavan and Associates, LLP to audit the City’ s financial statements; and
WHEREAS, the audit was performed in accordance with auditing standards generally accepted in the United States, including financial auditing standards issued by the Comptroller General of the United States, in order to determine if the City’s financial statements were misstated or misrepresented, either due to fraud or error; and WHEREAS, Chavan and Associates, LLP has issued an unmodified opinion that the financial statements for the fiscal year ending June 30, 2022 (“Fiscal Year 2021-2022)” are fairly presented in conformity with generally accepted accounting principles; and WHEREAS, the audited financial statements are a component of the Annual Comprehensive Financial Report (ACFR); and
WHEREAS, the ACFR is a report that goes beyond minimum requirements of generally accepted accounting principles and was prepared using the guidelines developed by the Government Finance Officers Association (GFOA) for its Certificate of Achievement for Excellence in Financial Reporting program in order to produce a readable and efficiently organized document intended to allow greater public transparency and full disclosure of the City’s financial health.

NOW THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA DOES HEREBY:

Receive the Annual Comprehensive Financial Report (ACFR) for the Fiscal Year Ending June 30, 2022.

PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF
CARMEL-BY-THE-SEA this 16th day of May, 2023, by the following vote:

AYES:

NOES:

ABSENT:

Attachment 1
ATTEST:
_________________________
Nova Romero
Resolution No. 2023-057

ABSTAIN:

APPROVED:
_________________________
Dave Potter
Mayor City Clerk
Attachment 1
Annual Comprehensive Financial Report
City of Carmel-by-the-Sea
California
Fiscal Year Ended June 30, 2022
Attachment 2
Page Intentionally Left Blank
Attachment 2
City of Carmel-by-the-Sea
California
Annual Comprehensive Financial Report
For the Fiscal Year Ended June 30, 2022
Prepared by the Finance Department
Attachment 2
Page Intentionally Left Blank
Attachment 2

CITY OF CARMEL-BY-THE-SEA

ANNUAL COMPREHENSIVE FINANCIAL REPORT
FOR THE YEAR ENDED JUNE 30, 2022

TABLE OF CONTENTS

INTRODUCTORY SECTION
Transmittal Letter ............................................................................................................... 1 Principal Officials .............................................................................................................. 11 Organizational Chart .......................................................................................................... 12 GFOA Certificate ............................................................................................................... 13

FINANCIAL SECTION
Independent Auditor’s Report ............................................................................................. 15 Management’s Discussion and Analysis (Required Supplementary Information) ................. 20 Basic Financial Statements:

Government-Wide Financial Statements:

Statement of Net Position ......................................................................................... 38 Statement of Activities ............................................................................................. 39 Fund Financial Statements
Governmental Funds:

Balance Sheet ..................................................................................................... 41 Reconciliation of the Government Funds Balance Sheet
to the Government-Wide Financial Statement of Net Position ......................... 42 Statement of Revenues, Expenditures and Changes in Fund Balances .................. 43 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities .................................................................................. 44 Proprietary Funds:

Statement of Net Position ................................................................................... 45 Statement of Revenues, Expenses, and Changes in Fund Net Position .................. 46 Statement of Cash Flows ..................................................................................... 47

Notes to the Basic Financial Statements ........................................................................ 48

REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP Basis):

General Fund ........................................................................................................... 82 Measure C Sales Tax Fund ....................................................................................... 83 Harrison Memorial Library Fund .............................................................................. 84 Schedule of Pension Contributions ..................................................................................... 85 Schedule of Proportionate Share of Net Pension Liability ................................................... 86 Schedule of Total OPEB Liability ...................................................................................... 87 Attachment 2

CITY OF CARMEL-BY-THE-SEA

ANNUAL COMPREHENSIVE FINANCIAL REPORT
FOR THE YEAR ENDED JUNE 30, 2022

SUPPLEMENTARY INFORMATION
Combining Nonmajor Governmental Funds:

Combining Balance Sheet.............................................................................................. 91 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ........... 93 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual (GAAP Basis):

Gas Tax Fund ........................................................................................................ 95 Transportation Safety Fund ................................................................................... 96 COPS Grant Fund .................................................................................................. 97 Parking In-Lieu Fun .............................................................................................. 98 Asset Seizure Fun .................................................................................................. 99 Debt Service Fund ............................................................................................... 100 Schedule of Revenues, Expenditures and Changes in Fund Balances – Capital Projects - Budget and Actual (GAAP Basis) ............................................... 101 Combining Internal Service Funds:

Combining Statement of Net Position .......................................................................... 103 Combining Statement of Revenues, Expenses and Changes in Fund Net Position ......... 104 Combining Statement of Cash Flows ........................................................................... 105

STATISTICAL SECTION
Net Position by Component ................................................................................................... 110 Changes in Net Position ........................................................................................................ 111 Fund Balances of Governmental Funds .................................................................................. 113 Changes in Fund Balances of Governmental Funds ................................................................ 114 General Governmental Tax Revenues by Source .................................................................... 116 General Fund Tax Revenues by Source .................................................................................. 117 Net Assessed Value of Taxable Property ............................................................................... 118 Direct and Overlapping Property Tax Rates ........................................................................... 119 Principal Property Tax Owners ............................................................................................. 120 Property Tax Levies and Collections ..................................................................................... 121 Ratios of Outstanding Debt by Type ...................................................................................... 122 Ratios of Net General Bonded Debt Outstanding ................................................................... 123 Computation of Direct and Overlapping Debt ........................................................................ 124 Legal Debt Margin Information ............................................................................................. 125 Pledged Revenue Coverage ................................................................................................... 126 Demographic and Economic Statistics ................................................................................... 127 Principal Employers .............................................................................................................. 128 Number of City Employees by Department ............................................................................ 129 Operating Indicators by Function .......................................................................................... 130 Capital Asset Statistics by Function ...................................................................................... 131

OTHER INDEPENDENT AUDITOR REPORTS
Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ........................................................ 133 Attachment 2

TRANSMITTAL LETTER
Attachment 2

CITY OF CARMEL-BY-THE-SEA
P.O. BOX CC
CARMEL-BY-THE-SEA, CA 93921
March 30, 2023
Honorable Mayor Dave Potter
Members of the Carmel-by-the-Sea City Council, and
Citizens of Carmel-by-the-Sea
SUBJECT: Comprehensive Annual Financial Report – June 30, 2022 The Comprehensive Annual Financial Report (ACFR) for the City of Carmel-by-the-Sea for the fiscal year ended June 30, 2022 is hereby submitted.

REPORT PURPOSE AND ORGANIZATION
In accordance with State law, which requires that the accounts and fiscal affairs of all municipal entities be examined annually by an independent certified public accountant, the City of Carmel-by-the-Sea retained an independent auditor, Chavan and Associates, LLP, to audit the City’s financial statements.

Chavan and Associates, LLP, has issued an unmodified opinion that the financial statements for the year ended June 30, 2022, are fairly presented in conformity with generally accepted accounting principles (GAAP). This opinion, along with the basic financial statements, are submitted as the Comprehensive Annual Financial Report (ACFR) for the City for the fiscal year ended June 30, 2022.

The information included in the financial section of this report fulfills the above requirement.

This report consists of City management’s representations regarding the finances of the City of Carmelby-the-Sea. Management assumes full responsibility for the completeness, data accuracy, and fairness of the information presented, including all footnotes and disclosures. Management believes the data presented are accurate in all material respects and presented in a manner designed to fairly set forth the financial position and results of operations of the City.

To provide a reasonable basis for making these representations, City management has established a comprehensive framework of internal controls that is designed to both protect the City’s assets from loss, theft or misuse and to compile sufficiently reliable information for the preparation of th e City’s financial statements in conformity with generally accepted accounting principles.

Because the cost of internal controls should not exceed their benefits, the City’s internal controls have been designed to provide reasonable, rather than absolute, assurance that the financial statements are free from material misstatements. The audit is intended to provide users with reasonable assurance that the information presented is free from material misstatements. As management, we assert, that to the best of our knowledge and belief, this financial report is complete and reliable in all material respects.

Generally accepted accounting principles require management to provide a narrative introduction, overview, and analysis that accompanies the basic financial statements in a format known as the Management’s Discussion and Analysis (MD&A). This letter of transmittal is intended to augment the MD&A and is meant to be read in conjunction with the MD&A. The MD&A can be found in the Financial Section of this document, immediately following the report of the independent auditor.

Attachment 2

CITY OF CARMEL-BY-THE-SEA PROFILE
Located 120 miles south of San Francisco on the Monterey Peninsula, the City of Carmel-by-the-Sea is a coastal village with a population of 3,041 that is renowned for its natural beauty, including a white sand beach, urban forest of over 9,000 public trees comprised of Monterey pines, live oaks, and Monterey cypress and natural parklands all within a one-square-mile, built-out community. In addition to recreational opportunities afforded by such scenery, the City is also known for its architecture and dining and shopping opportunities, which may be found in the walkable downtown area. In addition to many City sponsored events like the City Parade, Sandcastle Contest and Pumpkin Roll, other special events also occur throughout the year and cultural activities abound, including at such venues as the Sunset Center performing arts center and the Forest Theater, an outdoor amphitheater.

The median age of the City’s residents is 65.0 years. Nearly 75 percent of the population age 25 or older have a bachelor’s degree. The City’s median household income is $101,696. The Carmel area offers outstanding educational opportunities through the Carmel Unified School District as well as institutions of higher learning on the Monterey Peninsula including the Monterey Peninsula College, the Monterey Institute for International Studies, California State University Monterey Bay, and the Hopkins Marine Station operated by Stanford University.

Form of Government
The City of Carmel-by-the-Sea was incorporated on October 31, 1916. As a General Law City, Carmelby-the-Sea operates under a Council-City Manager (City Administrator) style of government and derives its power from the California Constitution and laws enacted by the State legislature.

All legislative power is held by the publicly elected, five-member City Council that consists of the Mayor and four Councilmembers. The Mayor serves a two-year term while Council members serve a fouryear term, with overlapping terms with municipal elections occurring in November of each even numbered year. City Council is the policy making legislative body of the City and it adopts the annual budget, enacts ordinances, and approves major contracts, acquisitions and leases. The Council appoints the City Administrator to serve as the City’s chief administrative officer.

The City Administrator is responsible for the enforcement of City laws and ordinances; ensuring that the orders of the City Council are executed; for supporting Council, which includes the preparation of agendas and the maintenance of records; and overseeing the City’s day-to-day operations. This includes oversight of the departments of Community Planning and Building, Library, Community Activities, Public Safety and Public Works. The City Administrator also directs the centralized administrative functions of the City Clerk, Finance, Human Resources and Information Technology.

City Services
The City provides a variety of services to the residents, businesses and visitors to the village of Carmelby-the-Sea. Administration provides oversight of daily City functions and financial activity. Community Planning and Building provides building safety services, code compliance and planning functions while Community Activities and Library manage new and ongoing special events and provide library services at two branch locations. Public safety services related to ambulance, law enforcement, crime prevention and fire protection are provided by the Ambulance and Police Department respectively while fire services are provided through a contract with the City of Monterey. Public Works is responsible for facility and vehicle maintenance, development and management of capital projects; construction,

Attachment 2
improvement and repair of streets, sidewalks, pathways and storm drain systems and maintaining the Village forest, parks and shoreline areas.

The ACFR includes all financial activities of the City. Financial data for all funds through which services are provided by the City have been included in this report using criteria adopted by the Governmental Accounting Standards Board (GASB), which is the authoritative body establishing U.S. Generally Accepted Accounting Principles (GAAP) for local governments.

Budgetary Policy and Control
The accounts of the City are organized on the basis of funds. A fund is an independent fiscal and accounting entity with a self-balanced set of accounts. The minimum number of funds is maintained consistent with legal and managerial requirements. Annually appropriated budgets are legally adopted on a budgetary basis for the governmental fund types and are controlled on a fund and departmental level. These funds are used to account for most of the City’s general government activities.

Governmental fund types use the flow of current financial resources measurement focus and the modified-accrual basis of accounting and budgeting. Expenditures are recognized as encumbrances when a commitment is made. Unencumbered appropriations lapse at year-end.

The goal of the City Administrator is to present a balanced budget to the City Council for review and adoption. A balanced budget is a budget in which sources meet or exceed uses. Available funding sources shall be at least equal to recommended appropriations. As a general rule, the year-end undesignated General Fund balance should not be used to fund ongoing operations.

As set in the Carmel Municipal Code prior to the beginning of each fiscal year, the City Council shall adopt a budget for expenditures and anticipated revenues. On or before 15 February of each year, the City Administrator will present to the City Council a proposed budget schedule. The City Administrator prepares and submits to the City Council a proposed operating and capital budget for the forthcoming fiscal year. The City Council shall adopt the budget by 1 July.

The City Administrator shall have the right to approve the transfer of appropriations within a departmental budget; however, no additional positions shall be created without the authorization of the City Council. All transfers of appropriations between departments or in regards to capital items or projects shall be approved by the City Council. The City Administrator shall be charged with the responsibility of controlling the expenditures for all departments in accordance with the approved budget. A report on current year revenues, expenditures and fund balances shall be maintained.

FACTORS AFFECTING FINANCIAL CONDITION
This brief narrative on the local economy, City financial policies and major initiatives outlined within the annual budget are intended to provide context to the MD&A and financial statements.

Local Economy
The City’s three major sources of General Fund revenue include Property Tax, Sales and Use Tax and Transient Occupancy Tax. As shown on the chart on the next page entitled “City’s Major Revenues Historical Trend”, property taxes have historically been a strong component to the City’s financial health.

Revenue generated from sales and use taxes have become increasingly important to the City, especially after the passage of a local 1% sales tax measure by Carmel voters in 2012 and the

Attachment 2
subsequent approval of a new 1.5% sales tax for 20 years in March 2020. Statewide sales tax and local Measure C district tax have taken over Property Tax as the largest city revenue source. Transient occupancy taxes (“TOT”) have also significantly contributed to the City’s revenues, eclipsing nearly $7 million in fiscal year 2018-2019 and rebounding to approximately $7.7 million in fiscal year 2021-2022, returning to pre-COVID levels.

Historically, these revenues each represent about 1/3 of the City’s total General Fund revenues. These revenues also illustrate the unique opportunities attributed to the City of Carmel-by-the-Sea. Located within one square mile, the City is considered to be built out, which limits the availability of new housing stock. This limited supply, coupled with a high demand for housing driven by the City’s desirability as a place to live and close proximity to the San Francisco metropolitan area, contributes to a healthy real estate market and thus the stability and strength of property tax revenues.

Many of the features that contribute to residential quality of life, such as a temperate climate, natural beauty, architecture and unique design standards and cultural, dining and shopping opportunities also attract visitors. The variety of restaurants and other dining options located within the City’s boundary as well as art galleries, jewelry and clothing retailers contributes to shopping opportunities for residents and visitors alike. Similarly, visitors have many lodging options to choose from when staying overnight within the City. The lodging establishments charge a 10% transient occupancy tax for stays of 30 days or less, which is remitted to the City.

On November 6, 2012, the Carmel electorate approved a temporary 1% transaction and use tax (“sales tax”’) for ten years to raise revenue for general purposes, known as Measure D. The City received its first tranche of Measure D in the spring of 2013, and, as shown in the chart below entitled “City’s Major Revenues Historical Trend”, the advent of Measure D has increased the viability of sales tax as the City’s top major revenue sources.

While fiscal year 2019-2020 was on track to meet revenue projections, the City’s economic forecast for two of its major revenue streams quickly began to change as news regarding the coronavirus (“COVID19”) emerged. Travel restrictions coupled with decreased consumer spending and demand, particularly in the areas of travel and leisure, resulted in the underperformance of sales and use and transient occupancy taxes in fiscal year 2019-2020. TOT returned to pre-COVID levels in fiscal year 2021-2022, $0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 Fiscal Year
City's Major Revenues Historical Trend
TOT Sales Property

Attachment 2
a tribute to Carmel’s claim as a unique destination place. Sales and use taxes reached a ten-year high of $9.5 million due to increased consumer spending in store and online in addition to the collection of the local 1.5% sales tax.

Property Taxes
The desirability of Carmel-by-the-Sea as a place to reside, coupled with its limited housing stock, contribute to a strong local real estate market. Property tax revenue totaled $4.7 million in fiscal year 2012-2013, increasing on average by 7% over the past 9 years, until reaching $8.1 million in fiscal year 2021-2022. Property taxes remained resilient to potential negative economic impacts associated with COVID19. Local Property taxes grew during the pandemic at rates of 10% in both fiscal year 2020-2021 and fiscal year 2021-2022.

The State median home price is expected to drop 8.8% to $758,600 in 2023, after rising 5.7% to $831,460 in 2022 from $786,700 in 2021. In fiscal year 2021-2022, the total amount of revenue received from property taxes was $7.6 million, a 4% increase over fiscal year 2020-2021. The City has historically averaged a 7% growth in property taxes each fiscal year, largely due to the increase in secured property taxes. As illustrated in the chart to the below entitled “Secured Property Tax Trend”, secured property taxes rose from $3.5 million in fiscal year 2007-2008 to $7.6 million in fiscal year 2021-2022.

Sales and Use Taxes
The majority of the City’s sales and use taxes are attributed to businesses within the categories known as general consumer goods and restaurants. The City receives a portion (1%) of the statewide sales tax as well as revenue from a local sales tax. The Carmel electorate approved a local 1% sales tax measure in November 2012. Sales tax has steadily increased each year since 2013, dropping slightly in 2016 and then rising each year thereafter to reach approximately $5.7 million in 2019. As explained in more detail within the transient occupancy tax narrative below, the City faced a decline in the number of visitors due to COVID-19 for the last quarter of fiscal year 2019-2020, which also impacted sales tax.

Sales tax in 2020 totaled approximately $4.8 million.
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 Amount
Fiscal Year
Property Tax Trend

Attachment 2
Moving forward, consumer spending for certain goods and services remained high, particularly for online shopping, dining and certain retail sectors. In addition, on March 3, 2020, Carmel voters approved Measure C, which increased the local sales tax by 0.5 percent to a new rate of 1.5 percent effective on July 1, 2020. Sales tax in fiscal year 2021-2022 generated approximately $9.5 million, a 37% increase the prior fiscal year.

Transient Occupancy Taxes
Transient occupancy taxes (“TOT”) contributed $4.6 million toward citywide revenues in fiscal year 2012-2013. TOT grew, on average, by 9% over the next 4 fiscal years until reaching $6.1 million in fiscal year 2017-2018. Revenues continued to rise and TOT totaled $6.8 million in fiscal year 2018- 2019 with expected strong performance on the horizon. However, with global news emerging in February 2020 regarding the coronavirus, local hotels experienced an immediate decline in occupancy due to international travel restrictions. Subsequently Monterey County issued a shelter in place (“SIP”) order on March 17, 2020 followed by a statewide SIP issued by Governor Newsom on March 19, 2020. Hotels faced a near absolute shut down with little to no guests in February and March 2020 and entered the early summer, which is one of the City’s busier periods for tourism, with decreased occupancy rates.

As a result, TOT generated $5.1 million in fiscal year 2019-2020, or $1.7 million (25%), less than the fiscal year 2019-2020 Adopted Budget.

The City assumed a continued loss of revenue for fiscal year 2020-2021 due to the pandemic and associated ongoing travel restrictions. However, domestic travel remained strong and the sector started to rebound ahead of the projected 3-5 year schedule. TOT generated approximately $7.7 million in fiscal year 2021-2022, fully recovering from pandemic shutdowns with a 46% increase in revenues over last fiscal year 2022-2023.
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 Amount
Fiscal Year
Sales and Use Tax Trends

Attachment 2
Relevant Financial Policies
Financial and Budget Policies
The City Council adopted Council Policy C94-01: Financial and Budget Policies to provide direction to help ensure sound fiscal planning and the management of fiscal integrity. The Policies pertain to the capital and operating budgets, fund balance, debt management and investments.

Highlights of policy guidelines include the following:

Capital
▪ Total capital expenditures were budgeted at $2.3 million at the beginning of the fiscal year.

During the fiscal year, $2.1 million were added to the capital expenditures budget for the Police station renovations. When omitting the fiscal year 2021-2022 paving project of $962,000, capital expenses were budgeted at approximately $3.4 million, or just above four percent of total revenue. Actual capital expenditures totaled approximately $1.1 million. ▪ Ten percent of the unrestricted funds designated for capital project expenditures were not set aside for unanticipated expenditures. Nor was a capital reserve policy of twenty percent of estimated five-year CIP expenditures maintained. The reserve amount is calculated at $3.96 million.
▪ The Five-Year Capital Improvement Program (CIP) was updated. The estimated cost of the Five-Year Capital Improvement plan is $19.8 million. All fiscal year 2021-2022 funded projects are consistent with the City’s General Plan.

Operating
▪ The fiscal year 2021-2022 Adopted Budget did not include a revenue buffer of five percent of projected expenditures.
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 Amount
Fiscal Year
TOT Tax Trends

Attachment 2
▪ The fiscal year 2021-2022 Adopted Budget projected a balanced budget. Ongoing expenses were not funded with one-time revenues. At fiscal year-end, governmental fund sources were greater than uses by $8.1 million.

Fund Balance
▪ General Fund and Hostelry Fund reserves were maintained at no less than fifteen and ten percent, respectively, of their annual projected revenue. The General Fund Balance of $17.6 million, significantly exceeds the statutory required reserve limit.

Major Initiatives
Continued Investment in Protecting Natural Resources and Critical Infrastructure The fiscal year 2021-2022 Amended Budget allocated $4.4 million in funding for capital projects and vehicle and equipment purchases intended to rehabilitate City facilities; address sidewalks and street improvements; enhance public safety, and protect and preserve the natural environment. The fiscal year 2021-2022 budget recognizes the importance of investing our “green” infrastructure by including $327,250 for projects pertaining to the Mission Trail Nature Preserve, the Carmel Beach, North Dunes and the Scenic Pathway. Additional capital funding included the Police station renovation, Library Master Plan, the Sunset Center materials testing and windows, ongoing implementation of accessibility improvements at various City facilities, two Police patrol vehicles, a traffic sign plotter and upgraded Park Branch Library generator.

Revenue Enhancement and Stability
On November 6, 2012, the Carmel electorate approved a temporary 1% transaction and use tax (“sales and use tax”’) known as Measure D. Measure D sunsets in 2023. Recognizing the importance of this revenue to the City’s financial health, the City Council began discussions regarding the renewal of Measure D well ahead of the sunset date. Council drafted a new sales tax initiative to replace the existing Measure D and increase the local sales tax by 0.50%. On March 3, 2020, Carmel voters approved Measure C, which authorizes a 1.5% tax for 20 years for general City purposes. The criticality of Measure C to both the City’s short and long-term fiscal sustainability immediately became apparent with the emergence of the coronavirus pandemic in the spring of 2020. As the new sales tax rate became effective on July 1, 2020, the additional 0.50% tax rate mitigated projected decreases in visitordriven sales tax performance. In addition, online purchases are subject to local sales tax and this type of spending greatly increased during the pandemic.

Addressing Pension Liabilities
The California Public Employees’ Retirement System (“CalPERS”) is the largest pension fund in the country, managing investments for nearly 2 million members on behalf of the state, schools and other public agencies. The City is a participating member of CalPERS and has two primary CalPERS plans, one for miscellaneous members and one for safety members.

Annually, the City makes a payment to CalPERS that consists of (1) the annual cost for current employees (“normal cost”) and (2) the unfunded accrued liability (“UAL”). The UAL is the actuarial liability less the actuarial value of the assets. In other words, it is the difference between what CalPERS needs in order to pay for retirement benefits when people retire as compared to the amount that CalPERS currently has on hand to pay for the estimated costs of the retirement benefits. Similar to other public agencies, the City’s pension costs have risen. The UAL for the City, as of 6/30/2022, is $28.9 million.

The City has historically used a combination of strategies to help mitigate the costs associated with pension liability, such as the:

Attachment 2
 Issuance of pension obligation bonds;
 Negotiation of employee contributions toward the employer’s cost of pensions; and  Prepaying the annual UAL payment in order to save interest.

More recently, the City Council considered additional pension cost management strategies including:
 Developing a “fresh start” amortization and new amortization schedule with CalPERS;  Establishing a Pension Rate Stabilization Program (e.g. Section 115 Trust);  Making additional lump sum payment to CalPERS to pay down the UAL;  Issuing new pension obligation bonds (POB); and/or
 Restructuring remaining debt service payments on the existing POB.

In January 2019, Council endorsed the City’s participation in a Pension Rate Stabilization Program to pre-fund pension obligations and authorized staff to issue a request for proposals for a Section 115 Trust Administrator. A Section 115 Trust is a tax-exempt investment vehicle authorized by the Internal Revenue Services to prefund government expenses, such as retirement plan benefits. Funds placed within the trust can remain within the trust until such time that the City chooses to draw on its assets to pay an annual benefit obligation (i.e. make either an annual and/or additional payment to CalPERS) or seek reimbursement for a pension-related expense. Other benefits associated with the establishment of a trust include (1) greater investment flexibility and risk diversification compared to the City’s general investment options and (2) City oversight of investment and control over the risk tolerance of its investment portfolio as compared to investments managed by CalPERS. On August 2, 2021, Council authorized the adoption of a Section 115 Trust known as the Public Agencies Post-Employment Benefits Trust administered by the Public Agency Retirement Services (PARS) and authorized the City’s participation within this program. Subsequently, on September 7, 2021, Council authorized City staff to make an initial deposit of $1 million into the Trust. $1 million annual deposits are to be made over the next five years in the Section 115 Trust. The City made the initial deposit of $1 million into the Section 115 Trust over fiscal year 2021-2022.

AWARDS
Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Carmel-by-the-Sea for its comprehensive annual financial report for the fiscal year ended June 30, 2021. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.

ACKNOWLEDGEMENTS
As a result of the professionalism and dedication of the Finance Division staff, the City continues to make strides in updating and enhancing its financial policies, procedures and systems and its financial reporting capabilities, as evidenced by the production of this comprehensive annual financial report.

The preparation of this report also required the involvement of many City departments in gathering

Attachment 2
statistics, as well as the guidance and support of the City’s independent auditor, and we extend our appreciation to these individuals for the assistance provided.

The comprehensive annual financial report is a document that strives to achieve transparency and full disclosure in financial reporting. As such, the preparation of this document would not be possible without the support of the City Council. We wish to acknowledge the City Council’s leadership and commitment to organizational excellence, public transparency and sound fiscal management.

Chip Rerig Jane Hogan
City Administrator Accountant

Attachment 2

CITY OF CARMEL-BY-THE-SEA PRINCIPAL OFFICERS
Fiscal Year 2021-22
City Council
Dave Potter, Mayor
Bobby Richards, Mayor Pro Tempore
Jeff Baron, Councilmember
Karen Ferlito, Councilmember
Carrie Theis, Councilmember
City Administrator
Chip Rerig

Attachment 2

CITY OF CARMEL-BY-THE-SEA ORGANIZATIONAL CHART

Attachment 2
Government Finance Officers Association
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Carmel-by-the-Sea
California
For its Annual Comprehensive
Financial Report
For the Fiscal Year Ended
June 30, 2021
Executive Director/CEO

Attachment 2

FINANCIAL SECTION

Attachment 2
15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037
Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of the
City Council of the City of Carmel-By-The-Sea
Carmel-by-the-Sea, California
Report on the Financial Statements
Opinion
We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Carmel-By-The-Sea (the “City"), as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise City’s basic financial statements as listed in the table of contents.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Carmel-By-The-Sea, as of June 30, 2022, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Responsibilities of Management for the Financial Statements City management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Attachment 2
15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037
Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and GAGAS, we:
 Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, no such opinion is expressed.
 Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
 Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and other required supplementary information, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with

Attachment 2
15105 Concord Circle, Ste. 130, Morgan Hill, CA 95037
Tel: 408-217-8749 • E-Fax: 408-872-4159
[email protected] • www.cnallp.com
management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s financial statements as a whole. The introductory section, combining individual non-major fund schedules, statistical data, and other information as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the financial statements.

The combining and individual nonmajor fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and schedules are fairly stated in all material respects in relation to the basic financial statements as a whole.

The introductory, budgetary and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 29, 2023 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

March 29, 2023
Morgan Hill, California

Attachment 2
MANAGEMENT’S DISCUSSION

AND ANALYSIS

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Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis

INTRODUCTION
As management of the City of Carmel-By-The-Sea, we offer readers of the City’s financial statements this narrative overview and analysis of financial activities of the City of Carmel-By-The-Sea for the fiscal year that ended on June 30, 2022. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in the other sections of the attached audited financial statements, required supplemental information and other supplemental information. The required components of the report are listed below.

Required Components of the Annual Financial Report
FISCAL YEAR 2021/22 FINANCIAL HIGHLIGHTS
Government-Wide Highlights
 The assets and deferred outflows of resources of the City of Carmel-by-the-Sea exceeded the liabilities at the close of the most recent fiscal year by $32.16 million (net position). Of this amount, net position included $33.55 million classified as net investment in capital assets; $6.77 million as restricted; and $8.16 million as a deficit unrestricted net position (negative net position). The negative unrestricted net position is largely due to GASB 68 – Accounting and Financial Reporting for Pensions. This pronouncement requires local governments to record pension liabilities on the government-wide financial statements. The City’s pension liability in accordance with GASB 68 as of June 30, 2022 was $15.97 million.
 The City of Carmel-by-the-Sea’s total net position increased by $4.34 million from last fiscal year mostly due to a decrease in cash and investments.

Management’s
Discussion & Analysis
Government-Wide
Financial Statements
Fund
Financial Statements
Notes to the
Financial Statements
Basic
Financial Statements

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis Fund Highlights
 At the close of Fiscal Year 21/22 the City of Carmel-by-the-Sea’s governmental funds reported combined fund balances of $26.04 million, an increase of $8.14 million in comparison with the prior year. Approximately 38% or $10 million is classified as unassigned fund balance and is available for spending at the government’s discretion, which is up from $850 thousand over the prior year.  At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned, and unassigned components of fund balance) for the general fund was $17.67 million, or 81% of total general fund expenditures, prior to transfers, versus $12.61 million and 69% in the prior year.  The City’s long-term liabilities decreased by $9.58 million primarily as the result of decreases to employee benefit liabilities totaling $8.38 million.
 The City’s net capital assets decreased by 3.3% or $1.33 million primarily as a result of depreciation during the year.

OVERVIEW OF THE FINANCIAL STATEMENTS
The discussion and analysis are intended to serve as an introduction to the City of Carmel-by-the-Sea’s financial statements. The City of Carmel-by-the-Sea’s basic financial statements are comprised of (1) Government-wide Financial Statements (2) Fund Financial Statements, and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

Government-Wide Financial Statements
The government-wide financial statements are designed to provide readers with a broad overview of the City of Carmel-by-the-Sea’s finances, in a manner similar to a private-sector business. Government-wide financial statements are prepared on the accrual basis, which means they measure the flow of all economic resources of the City as a whole. Government-wide financial statements consist of the Statement of Net Position and the Statement of Activities.

The Statement of Net Position presents financial information on all of the City of Carmel-by-the-Sea’s assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City of Carmel-by-the-Sea is improving or deteriorating.

The Statement of Activities presents information showing how the City of Carmel-by-the-Sea’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. This is consistent with a full accrual concept, which may result in the reporting of revenues and expenses in the current fiscal year, with cash flows occurring in future fiscal periods (e.g. uncollected revenues and earned but not used vacation leave).

Both of the government-wide financial statements distinguish functions of the City of Carmel-by-the-Sea that are principally support by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (businesstype activities). An overview of the City’s functions associated with each classification is listed below.

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis Governmental Activities – All of the City's basic services are considered to be governmental activities. This includes general government, public safety, public works, library, and community planning and building.

These services are supported by general City revenues such as taxes, and by specific program revenues such as development and general government program fees. The City also operates three internal service funds, which are combined with the governmental funds and reported as governmental activities. See the table of contents for reference to the government-wide financial statements pages within this report.

Fund Financial Statements
A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Fund financial statements provide detailed information about each of the City's most significant funds, called major funds. Major funds are presented individually, with all nonmajor funds summarized and presented only in a single column. Subordinate schedules present the detail of these nonmajor funds. Major funds present the major activities of the City for the fiscal year and may change from year to year as a result of changes in the pattern of the City's activities. The City's funds are segregated into three categories: governmental funds, proprietary funds, and fiduciary funds.

Governmental Funds
Governmental funds are used to account for essentially the same function reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental funds focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. This represents a modified accrual basis of accounting, with capital assets, long-lived assets, and long-term liabilities excluded from the financial statements. Such information may be useful in evaluating the City's near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for the governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate the comparison between governmental funds and governmental activities.

The City maintains eleven governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, the Measure C Sales Tax Fund, the Capital Projects Fund and the Harrison Memorial Library Fund. These funds are considered to be major funds. Data from the other governmental funds are combined into a single aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements in the combining and individual fund statements and schedules section of this report.

The City of Carmel-by-the-Sea adopts an annual budget for its governmental funds. A budgetary comparison statements have been provided to demonstrate compliance with this budget. See the table of contents for where the basic governmental fund financial statements can be found this report.

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis Proprietary Funds
Internal service funds are an accounting mechanism used to accumulate and allocate costs internally among the City of Carmel-by-the-Sea’s various functions. The City uses internal service funds to account for the management of its retained risks associated with liability self-insurance, workers compensation and other post-employment benefits (OPEB). The City also uses an internal service fund, the Vehicle & Equipment Replacement Fund, to manage the costs of various equipment purchased, maintained and utilized to operate City services for various departments. Because these internal services predominately benefit governmental rather than business-type functions, they have been included within governmental activities in the Government-Wide Financial Statements.

Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The internal service funds are combined into a single aggregated presentation in the proprietary fund financial statements. Individual fund data for the internal service funds are provided in the form of combining statements in the combining and individual fund statements and schedules section of this report. See the table of contents for where the proprietary fund financial statements can be found this report.

NOTES TO THE FINANCIAL STATEMENTS
Notes to the Financial Statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found immediately following the fund financial statements.

OTHER INFORMATION
In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information concerning the City of Carmel-by-the-Sea’s budgetary information for the General Fund and Major Special Revenue Funds, and the City’s funding progress for its employee pension and OPEB benefit obligations. The page numbers for the required supplementary information can be found in the table of contents.

The combining statements referred to earlier in connection with nonmajor governmental funds and internal service funds are presented immediately following the required supplementary information. The page numbers for the combining and individual fund statements and schedules can be found in the table of contents.

An un-audited statistical section provides historical and current data on financial trends, revenue and debt capacity, demographic and economic information, and operating information. The table contents list the page numbers for where this information can be found.

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis

GOVERNMENT-WIDE FINANCIAL ANALYSIS
Over time, net position may serve as an indicator of a government’s financial position. In the case of the City of Carmel-by-the-Sea, assets and deferred outflows of resources exceeded liabilities by $27.8 million at the close of the Fiscal Year. This represents an increase of $2.4 million over the prior year.

The following table summarizes the City’s ending net position:

A significant portion or $33.55 million of the City's net position reflects its investment in capital assets, (e.g., land, buildings, general government infrastructure, equipment, etc.), less accumulated depreciation and any outstanding debt that was used to acquire or construct those assets. Capital assets represent infrastructure which provide services to citizens and are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate the liabilities.

An additional $6.77 million of the City of Carmel-by-the-Sea’s net position represents resources that are subject to external restrictions on how they may be used. The remaining deficit balance of $8.16 million is classified as unrestricted. This negative unrestricted balance is largely due to GASB 68 – Accounting and Financial Reporting for Pensions. The City participates in the CalPERS Miscellaneous and Safety pension plans.

GASB 68 impacted local governments by requiring them to report a proportional share of their pension plan’s net pension liabilities on financial statements. As of June 30, 2022, the City’s proportionate share of the CalPERS pension liability was $15.97 million. See note 8 for detailed information related to the Plans, along with the required supplementary information section of this report.

At the end of the current fiscal year, the City of Carmel-by-the-Sea is able to report a positive balance for the government as a whole. The reasons for the overall financial changes are discussed in the following sections for governmental activities.

Increase
2022 2021 (Decrease)
Assets
Current and other assets $ 30,659,871 $ 21,417,241 $ 9,242,630 Capital assets 38,443,660 39,773,062 (1,329,402)
Total Assets $ 69,103,531 $ 61,190,303 $ 7,913,228
Deferred Outflows of Resources $ 5,571,642 $ 5,875,068 $ (303,426) Liabilities
Current and other liabilities $ 1,866,210 $ 2,302,046 $ (435,836) Noncurrent liabilities 26,341,876 34,703,650 (8,361,774) Total Liabilities $ 28,208,086 $ 37,005,696 $ (8,797,610) Deferred Inflows of Resources $ 14,303,710 $ 2,240,132 $ 12,063,578 Net Position
Net investment in capital assets $ 33,545,605 $ 34,846,110 $ (1,300,505) Restricted 6,773,624 4,748,736 2,024,888
Unrestricted (8,155,852) (11,775,303) 3,619,451
Total Net Position $ 32,163,377 $ 27,819,543 $ 4,343,834 Governmental Activities
Table 1 - Net Position

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis Governmental Activities
As shown in the Statement of Changes in Net Position schedule below, the change in net position for governmental activities increased by $4.34 million. This increase is largely due to an increase of $5.5 million in taxes which is a direct result of increased property values and a new sales tax measure (Measure C). Total revenues from governmental activities increased by $6.1 million from the prior year, which included a $678 thousand increase in program revenues and a $5.4 million increase in general revenues.

The net change in expenses from the prior year was a decrease of $4.1 million.

With total revenues for the fiscal year at $31.15 million and total expenses at $26.81 million, the change in net position for current activity was $4.34 million. An analysis of the changes in revenues and expenses is as follows:

Increase
Functions/Programs 2022 2021 (Decrease)
Program Revenues
Charges for services 2,941,755 $ 2,410,904 $ 530,851 $
Operating grants and contributions 960,670 813,139 147,531 Total Program Revenues 3,224,043 3,902,425 678,382
General Revenues
Taxes 26,544,389 21,037,561 5,506,828
Intergovernmental 734,550 704,337 30,213
Investment earnings (126,009) 47,554 (173,563)
Other revenues 98,571 63,692 34,879
Total General Revenues 21,853,144 27,251,501 5,398,357
Expenses
General government 6,494,737 5,423,821 1,070,916
Community Planning and Building 1,789,916 1,280,518 509,398 Public Safety 10,511,669 8,968,364 1,543,305
Public Works 4,961,215 4,162,030 799,185
Library 1,644,498 1,539,410 105,088
Community Activities 205,869 119,562 86,307
Economic Reviltalization 1,034,150 819,202 214,948
Interest on fiscal charges 168,038 387,525 (219,487)
Total Expenses 22,700,432 26,810,092 4,109,660
Increase / (Decrease) in Net Position 4,343,834 2,376,755 1,967,079 Net Position, Beginning of Year 25,442,788 27,819,543 2,376,755 Net Position, End of Year $ 27,819,543 32,163,377 $ 4,343,834 $ Governmental Activities
Table 2 - Statement of Changes in Net Position

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis Governmental Revenues
The following chart summarizes the changes in revenues by category during the fiscal year:

Significant changes in governmental revenues consisted of the following:
 Property tax increased by $305,065, or approximately 4%, over the prior year due to a strong real estate market bolstered by the coronavirus pandemic, the ability of high-income households to purchase homes and the desirability of Carmel-by-the-Sea as a place to reside, coupled with its limited housing stock.
 Travel and tourism remained strong during the pandemic even with ongoing travel restrictions. Sales and use taxes increased by $2.57 million over the prior year due to a combination of factors including greater than expected consumer spending for online purchases and other types of goods and services; strong restaurant and dining sales, bolstered in part by outdoor dining options; and a new local sales tax measure that increased the local sales tax rate from 1% to 1.5% effective on July 1, 2020. Transient occupancy taxes increased by $2.45 million over the prior year primarily due to an increase in the average daily room rates charged by lodging operators.

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis Governmental Expenses
The following chart summarizes the changes in expenses by category during the fiscal year:

Significant changes in governmental expenses include increases to General Government, Community Planning and Building, Public Safety, and Public Works expenses of $1.07 million, $509 thousand, $1.5 million, and $799 thousand, respectively. In general, City services and related costs have increased as the COVID-19 pandemic moved into an endemic.

FINANCIAL ANALYSIS OF THE CITY’S GOVERNMENTAL FUNDS
As noted earlier, the City of Carmel-by-the-Sea uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements.

In particular, the unassigned fund balance may serve as a useful measure of a government’s net resources available for discretionary use as they represent the portion of fund balance which has not yet been limited to use for a particular purpose by either an external party, the City itself, or a group or individual that has been delegated authority to assign resources for particular purposes by the City of Carmel-by-the-Sea’s Council.

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis The following is a summary of the changes in fund balance of the major and other (nonmajor) governmental funds:

The fund balance of the City’s General Fund increased by $5.05 million mostly due to transfers in from the Measure C Sales Tax fund and increased sales and transient hotel tax. The fund balance in the Measure C Sales Tax Fund increased by $1.76 million mostly because of increased sales tax collections under the measure. The fund balance in the Capital Projects fund increased by $1.6 million mostly from transfers made by the General Fund to fund future capital projects. The fund balance in the Library Fund increased by $78 thousand mostly because of increases to contributions and grants during the year.

Combined Funds – Components of Fund Balance
As of June 30, 2022, the City of Carmel-by-the-Sea’s reported combined fund balances of $26 million, which represents a $8.14 million increase over the prior year. Approximately 38%, or $10 million, was classified as unassigned fund balance, which is available for spending at the government’s discretion. The remainder of the fund balance was either committed, restricted, or assigned. The committed balance of $4.4 million represents funds that are set-aside for specific purposes via resolution of the City Council. The restricted balance of $7.7 million reflects fund that are legally required to remain intact, while the remainder of $3.9 million represents funds that were assigned to a particular purpose by the City Council or management given legal authority by the Council.

General Fund – Components of Fund Balance
The general fund is the chief operating fund of the City of Carmel-by-the-Sea. At the end of the current fiscal year, the unassigned fund balance of the general fund was $10 million, and the total fund balance increased to $17.7 million. As a measure of the general fund’s liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total general fund expenditures. The total general fund expenditures prior to transfers were $20.76 million. Unassigned fund balance represents approximately 48% of the total general fund expenditures, while total fund balance represents approximately 85% of total general fund expenditures.

Harrison
Measure C Capital Memorial Other
General Sales Tax Projects Library Governmental
Fund Fund Fund Fund Funds Total
Total Revenues $ 24,175,911 $ 5,970,464 -$ $ 376,941 $ 640,738 $ 31,164,054 Total Expenditures 20,763,407 - 149,872 298,559 859,212 22,071,050 Revenues Over (Under) Expenditures 3,412,504 5,970,464 (149,872) 78,382 (218,474) 9,093,004 Transfers in 3,074,825 1,206,728 - - 936,441 5,217,994
Transfers out (1,432,910) (4,206,660) - - (535,265) (6,174,835) Net change in fund balances 5,054,419 1,763,804 1,056,856 78,382 182,702 8,136,163 Beginning of year 12,614,869 1,635,906 539,863 1,470,720 1,642,110 17,903,468 End of year $ 17,669,288 $ 3,399,710 $ 1,596,719 $ 1,549,102 $ 1,824,812 $ 26,039,631 Major Funds
Table 3 - Summary of Changes in Fund Balance - Governmental Funds

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis The following charts provide an annual comparison of the fund balance components included in the general fund and the other governmental funds.

The assigned fund balance in other governmental funds was from the Capital Projects Fund which had $1.6 million in fund balance assigned for capital projects.

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis FINANCIAL ANALYSIS OF CITY’S INTERNAL SERVICE FUNDS
The following is a summary of the changes in fund balance of the City’s internal service funds:

CAPITAL ASSETS
The City of Carmel-by-the-Sea’s investment in capital assets includes land, buildings, systems, improvements, machinery, equipment, facilities, roads, and other similar assets and infrastructure. The following table summarizes the City’s capital assets at the end of the year:

The City reported depreciation expense of $2.13 million for fiscal year 2021-22 as compared to $2.16 million for fiscal year 2020-21.

See Note 5 in the notes to financial statements section for additional information.

Vehicle
Workers OPEB & Equipment
Compensation Reserve Replacement
Fund Fund Fund Total
Total Revenues 18,670 $ - $ 50,000 $ 68,670 $
Total Expenditures 47,724 - 172,676 220,400
Revenues Over (Under) Expenditures (29,054) - (122,676) (151,730) Nonoperating Revenue (Expense) (2,526) (7,601) - (10,127) Transfers in 116,158 - 920,663 1,036,821
Transfers out - (79,980) - (79,980)
Net change in fund balances 84,578 (87,581) 797,987 794,984 Beginning of year (20,344) 1,845,329 782,594 2,607,579
End of year $ 1,757,748 64,234 $ 1,580,581 $ 3,402,563 $ Table 4 - Summary of Changes in Net Position - Internal Service Funds Increase
2022 2021 (Decrease)
Land 5,101,641 $ 5,101,641 $ -$
Construction in Progress 51,358 50,529 829
Buildings and improvements 14,895,659 15,089,245 (193,586) Infrastructure 17,820,081 18,949,776 (1,129,695)
Vehicles 227,043 162,735 64,308
Technology/Hardware and Software 96,010 120,343 (24,333) Machinery and equipment 251,868 298,793 (46,925)
Total Capital Assets, Net $ 38,443,660 $ 39,773,062 $ (1,329,402) Table 5 - Capital Assets at Year End - Net
Governmental Activities

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis

DEBT ADMINISTRATION (LONG-TERM LIABILITIES)
During the year, Long-Term Liabilities from governmental activities decreased by $9.6 million primarily due a decrease in the net pension liability and the total OPEB liability as shown below and described in the financial highlights section.

The following table summarizes the City’s debt at the end of the year:

See Note 6 in the notes to financial statements section for additional information.

GENERAL FUND BUDGETARY HIGHLIGHTS
Changes from the City's General Fund original budget to the final budget are detailed in the Required Supplementary Information section along with a comparison to actual activity for the year ended. In Fiscal Year 21/22, the City originally estimated an increase of $2,082 in fund balance; however due to increased performance in revenues, transfers from other funds, and decreased annual spending, the City ended the year with a surplus of revenues over expenditures of $5.05 million.

Revenues
The General Fund adopted and final revenue budgets were $20.3 and $22.9 million, with actual revenues recorded at $24.2 million. This $1.3 million difference was primarily from increased property tax values, sales tax, and transient occupancy tax collections.

Expenditures
The General Fund adopted expenditure budget was $22.1 million and the final budget was $23 million.

The actual expenditures totaled $20.8 million, which resulted in a net difference of $2.2 million. Most of the savings can be attributed to salary and benefit savings.

Increase
2022 2021 (Decrease)
Sunset Center LRB 3,895,000 $ 3,895,000 $ -
Sunset Center LRB Premium 838,004 866,901 (28,897)
Countywide Radio Project 165,051 165,051 -
Pension Obligation Bonds 680,000 1,340,000 (660,000)
Compensated Absences 586,299 598,095 (11,796)
Net Pension Liability 15,965,385 24,342,598 (8,377,213) Claims Liability 575,000 575,000 -
Net OPEB Liability 3,637,137 4,140,591 (503,454)
Total Long-Term Liabilities 26,341,876 $ 35,923,236 $ (9,581,360) $ Table 6 - Outstanding Long-Term Liabilities
Governmental Activities

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis

ECONOMIC OUTLOOK
Summary
The City’s primary revenue sources include property taxes, sales and use taxes, and transient occupancy taxes. The City anticipated its major revenue sources would rebound in fiscal year 2021-2022 from the economic impacts of COVID-19. After experiencing a significant decline in fiscal year 2019-2020, sales tax and transient occupancy taxes are currently outperforming budget expectations. Moreover, the pandemic shifted consumer spending from services to goods, the latter is more likely to be subject to taxes.

Restaurants and general consumer goods (retail) are the City’s leading drivers of sales and use tax revenue.

Carmel-by-the-Sea remained a popular travel destination during the pandemic positively affecting both sales and use taxes and transient occupancy taxes.

The City has recovered and surpassed pre-pandemic tourism and related spending levels. Projections for the City’s three major revenues total $23.9 million, or 79%, of the $30.3 million in estimated total citywide revenues for Fiscal Year 2022-2023. This represents an increase of $1.6 million in revenue when compared to the Fiscal Year 2021-2022 Adopted Budget, primarily driven by strong performance in sales and use taxes. However, while the approaching fiscal year reflects increased revenue receipts, the economic outlook assumes the leveling off sales and use taxes to anticipate only a conservative 2% growth over prior year revenues. Similarly, projected growth in transient occupancy taxes will slow as we anticipate a return to pre-pandemic tourism levels since tourism levels were bolstered during the pandemic.

Anticipating improvements in citywide revenues, planned expenditures also increase in the upcoming fiscal year. After enacting workforce reductions in Fiscal Year 2020-2021 due to the projected loss of revenue, City staffing levels increase from 72.5 full-time equivalents (FTE) to 96 FTE in Fiscal Year 2022-2023.

As such, the cost of staffing increases from $9.6 million to $13.5 million due to a combination of factors such as negotiated salary and benefit adjustments, personnel advancement (annual merit or salary step adjustments), rising retirement and health insurance costs and additional staff. Personnel costs steadily increase, approaching $15 million by Fiscal Year 2024-2025, without any additional increase in FTE beyond the Fiscal Year 2022-2023 staffing levels.

However, even without an increase in staffing levels, the City faces rising personnel costs primarily attributed to pension-related expenses. In addition to its annual contributions toward retirement costs for existing employees, the City makes an annual required payment to the California Public Employees’ Retirement System (CalPERS) for the City’s unfunded actuarial liability (“UAL”). The UAL payment for the upcoming fiscal year is approximately $2 million. To help address its pension obligations, the City established a Section 115 Trust with an initial investment of $1 million in fiscal year 2021-2022 and an additional $1 million contribution in fiscal year 2022-2023.

The City’s ability to providing ongoing funding into the trust while maintaining an annual balanced budget is contingent on (1) revenues sustaining annual growth over the next several years and (2) controlling increases in citywide expenses, particularly regarding salary and benefits and capital outlay. Inflation also affects the ability to reduce costs for staffing, services and supplies.

Outlook for Major Revenues
Property Taxes
Located within one square mile, the City’s land capacity for new housing is limited, which curtails the availability of housing stock. This limited supply, coupled with a high demand for housing driven by the

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis City’s desirability as a place to live and close proximity to the San Francisco metropolitan area, contributes to a healthy real estate market and thus the stability and strength of property tax revenues.

Unlike sales tax and transient occupancy tax, the Fiscal Year 2021-2022 budget assumed incremental growth in property tax and continued resiliency to potential negative economic impacts associated with COVID-19. The State median home price averaged over $831,460 in 2022, setting a new record high. The California median home sales price for 2023 is expected to drop 8.8% to $758,600. Carmel has a consistently strong property tax base. While Fiscal Year 2021-2022 property tax revenue outpaces projections, annual growth of 3% is conservatively realistic. Historically, the City’s annual increase in property taxes over the last ten years averages 5.1%. The financial forecast assumes 3% annual growth over the next several years.

Sales and Use Taxes
Many of the features that contribute to residential quality of life, such as a temperate climate, natural beauty, architecture and unique design standards and cultural, dining and shopping opportunities also attract visitors. The variety of restaurants and other dining options located within the City, as well as art galleries, jewelry and clothing retailers contributes to shopping opportunities for residents and visitors alike.

Restaurants and general consumer goods (retail) are the City’s leading drivers of sales and use tax revenue.

Projections statewide for the restaurant category anticipate growth of nearly 8.6% in 2022-2023 as everincreasing prices and continued pandemic recovery are pushing strong gains. For 2023-2024, growth is expected to slow to 2.5% in 2023-2024. General consumer goods are expected to slow with growth at .9% in 2022-2023, followed by a decline of -.1% in 2023-2024. As consumers have exhausted their COVID19 savings coupled with higher prices from inflation, consumer goods spending is anticipated to remain flat.

Fiscal Year 2022-2023 projects an increase of 21% and 8% respectively in the local sales tax (Measure C) and the City’s share of the statewide sales tax when compared to the Fiscal Year 2021-2022 Adopted Budget.

Transient Occupancy Taxes
Various lodging options are available to visitors and these lodging establishments charge a 10% transient occupancy tax for stays of 30 days or less. Transient occupancy taxes (TOT) are challenging to predict as they are based upon personal choices regarding travel, be it the decision on whether to travel, where to travel, and how much to spend on travel, such as the amount to pay for a hotel room. In addition to facing competition from other popular US destinations that neighbor the Monterey Peninsula to the north and south, the City also competes with other international destinations. On the other hand, given is proximity to San Francisco and location on the California central coast between San Francisco and Los Angeles the City is accessible to many visitors, including guests from California, other states and other countries. Thus, the City’s TOT is sensitive to changes in consumer spending, economic conditions, and, to some extent, statewide, national and international policies.

TOT revenues have recovered to pre-pandemic levels for travel spending in fiscal year 2021-2022. The City’s financial forecast assumes a conservative growth of 1.5% for fiscal year 2022-2023. The City remains guarded in its projections and assumes continued strength but also a softening as world travel returns to come version of a normal state.

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis Outlook for Major Expenditures
Salaries and Benefits
The City’s largest expenditure is related to the cost of personnel. After enacting workforce reductions in Fiscal Year 2020-2021 due to the projected loss of revenue, City staffing levels increase from 72.5 fulltime equivalents (FTE) to 96 FTE in Fiscal Year 2022-2023. Correspondingly, the cost of staffing increases from $9.6 million to $13.5 million due to a combination of factors such as negotiated salary and benefit adjustments, step increases, rising retirement and health care costs and additional staff. Personnel costs steadily increase, approaching $15 million by Fiscal Year 2024-2025, without any additional increase in FTE beyond the Fiscal Year 2021-2022 staffing levels.

Pension Costs
The City provides a defined pension plan through the California Public Employees’ Retirement System (CalPERS) for its full-time employees. As such, the City is responsible for contributing toward current employees’ retirement packages based upon a set amount determined by CalPERS based upon a percentage of salary (“employer contribution”). The employer contribution is included within the City’s overall budgeted salary and benefit costs. In addition, the City is obligated to make additional pension payments to CalPERS known as the unfunded actuarial liability (“UAL”). The UAL addresses any shortfall between funding CalPERS needs to pay for retirement benefits when people retire compared to the funding that CalPERS currently has on hand to pay for the estimated costs of these benefits. As calculated by CalPERS, the City’s UAL payment steadily increases from $1.6 million in Fiscal Year 2020-2021, to $1.9 million in Fiscal Year 2021-2022, and then to $2.1 million in Fiscal Year 2022-2023. The City anticipates annual cost increases of roughly the same magnitude spanning over the next several years. However, CalPERS plans to review its investment returns and potentially lower the discount rate, which affects the UAL amount.

To help address its pension obligations, the City established a Section 115 Trust with an initial investment of $1 million into the trust. Current City Council wishes to provide funding of $1 million annually into the trust and have made contributions to the Section 115 Trust in fiscal year 2022-2023. Based upon preliminary forecasts, overall citywide expenditures outpace revenues. In particular, increases in personnel and capital outlay minimize the amount of funding available to allocate to the trust. However, the maturity of the pension obligation bond in 2023 provides for a potential funding source for the trust moving forward.

Other Operating Costs
In order to deliver services to the community, the City procures various types of goods and services. The category of services and supplies assumes 5% annual growth. However, in addition to overall sensitivity to inflation, certain expenses also increase beyond 5% such as fuel, (general liability, property and workers compensation) insurance premiums and utilities. The City contracts for specialized professional services and costs trend upward based upon credentials, certifications and qualifications of the individuals provided the service. Moreover, the City currently contracts with another governmental agency for fire prevention and response services, subject to increases based upon salary and benefits, including pension.

Capital Projects
After deferring capital projects in Fiscal Year 2020-2021 due to the projected loss of revenue, capital expenditures budgeted increased to $4.4 million in Fiscal Year 2021-2022. In future years, in accordance with the City’s financial policies, capital outlay expenses represent 3.5% of projected revenue, or approximately $1 million annually based upon current revenue assumptions. However, the City’s FiveYear Capital Improvement Plan totals $19.8 million and identifies needs of $2.5-4 million annually over

Attachment 2
City of Carmel-by-the-Sea Management’s Discussion and Analysis the next four fiscal years. Similar to service and supplies, inflation and other market-based conditions drive the availability of contractors and costs to implement public works projects, subject to prevailing wage. In addition, deferring building and infrastructure maintenance drives long-term costs for repair and replacement.

Debt Service
On July 3, 2012, the City Council authorized the issuance of pension obligation bonds to refinance the City’s outstanding side fund obligations to CalPERS. The annual debt service is approximately $700,000 until the bond matures on June 1, 2023. On September 30, 2020, the City refinanced the 2010 Refunding Lease Revenue Bond related to improvements at the Sunset Center (the Sunset Theater Project). Payments for Fiscal Year 2022-2023 approach $158,000. Future payments approximate $500,000 annually until the bond matures on November 1, 2032.

REQUEST FOR FINANCIAL INFORMATION
This Annual Financial Report is intended to provide citizens, taxpayers, investors, and creditors with a general overview of the City’s finances. If you have any questions about this report, need additional financial information, or would like to obtain component unit financial statements, contact the City of Carmel-by-the-Sea-by-the-Sea Finance Department, P O Box CC, Carmel-by-the-Sea, CA 93921, or visit the City’s web page at http://ci.carmel.ca.us/carmel.

Attachment 2

BASIC FINANCIAL STATEMENTS

Attachment 2
This page is intentionally blank

Attachment 2
City of Carmel-By-The-Sea
Statement of Net Position
June 30, 2022
Governmental
ASSETS Activities
Current Assets:

Cash and investments 27,504,925 $
Receivables:

Accounts 1,967,006
Due from other governments 1,169,748
Other assets 18,192
Total Current Assets 30,659,871
Noncurrent Assets:

Capital Assets:

Nondepreciable 5,152,999
Depreciable, net of accumulated depreciation 33,290,661 Total Capital Assets - Net 38,443,660
Total Assets $ 69,103,531

DEFERRED OUTFLOWS OF RESOURCES
OPEB Adjustments $ 249,475
Pension Adjustments 5,322,167
Total Deferred outlows of Resources $ 5,571,642

LIABILITIES
Current Liabilities:

Accounts payable $ 118,924
Payroll related liabilities 769,357
Deposits and other liabilities 494,370
Interest payable 27,723
Claims payable - current portion 57,500
Compensated absences - current portion 450,000
Long-term debt - due within one year 725,650
Total Current Liabilities 3,099,360
Noncurrent Liabilities:

Long-term debt - due in more than one year 4,852,405
Claims payable 517,500
Compensated absences 136,299
Net pension liability 15,965,385
Net OPEB liability 3,637,137
Total Noncurrent Liabilities 25,108,726
Total Liabilities $ 28,208,086

DEFERRED INFLOWS OF RESOURCES
OPEB Adjustments $ 1,214,875
Pension Adjustments 13,088,835
Total Deferred Inflows of Resources $ 14,303,710

NET POSITION
Net investment in capital assets $ 33,545,605
Restricted for:

Transportation 665,438
Public safety 3,350
Debt service 416,577
Library 1,549,102
Public parking 734,015
Measure D 3,399,710
Asset seizure 5,432
Total Restricted 6,773,624
Unrestricted (8,155,852)
Total Net Position $ 32,163,377
The accompanying notes are an integral part of these financial statements.

Attachment 2
City of Carmel-By-The-Sea
Statement of Activities
For the Year Ended June 30, 2022
Operating
Charges for Grants and Governmental
Functions/Programs Expenses Services Contributions Total Activities Primary Government:

Governmental Activities:

General government 6,494,737 $ 478,709 $ 589,295 $ 1,068,004 $ (5,426,733) $ Community Planning and Building 1,789,916 1,332,086 - 1,332,086 (457,830) Public Safety 10,511,669 911,902 - 911,902 (9,599,767)
Public Works 4,961,215 53,251 - 53,251 (4,907,964)
Library 1,644,498 2,239 371,375 373,614 (1,270,884)
Community Activities 205,869 43,922 - 43,922 (161,947)
Economic Revitalization 1,034,150 119,646 - 119,646 (914,504) Interest and fiscal charges 168,038 - - - (168,038)
Total Governmental Activities $ 26,810,092 $ 2,941,755 $ 960,670 $ 3,902,425 (22,907,667) General Revenues:

Taxes:

Property taxes 7,694,722
Sales and use taxes 9,596,727
Transient occupancy taxes 7,787,643
Franchise taxes 851,738
Business license tax 613,559
Total taxes 26,544,389
Intergovernmental revenues not restricted to specific programs 734,550 Investment earnings (126,009)
Other revenues 98,571
Total General Revenues 27,251,501
Change in Net Position 4,343,834
Net Position - Beginning of Year 27,819,543
Net Position - End of Year 32,163,377 $
The accompanying notes are an integral part of these financial statements.

Net (Expense)
Revenue and
Change in Net
Program Revenues Position

Attachment 2

MAJOR GOVERNMENTAL FUNDS
Fund Title Fund Description
General Fund This fund is used to account for all of the general operations and other financial transactions of the City, which are not accounted for by another fund.

Measure C Sales Tax This fund is used to account for the transaction and use tax increase to be used to maintain essential services, including fire, ambulance and police response times; fund capital needs, including streets, beach, parks, forest and trails; increase code compliance; maintain libraries, Sunset Center and other public facilities; address CalPERS pension liabilities and other debt; and provide other general City services.

Capital Projects This fund accounts for resources utilized, committed, assigned or restricted for capital projects.

Harrison Memorial Library This fund is used to account for activities associated with the Harrison Memorial Library.

Attachment 2
City of Carmel-By-The-Sea
Balance Sheet
Governmental Funds
June 30, 2022
Harrison
Measure C Capital Memorial Other Total
General Sales Tax Projects Library Governmental Governmental Fund Fund Fund Fund Funds Funds
ASSETS
Cash and investments 17,502,665 $ 2,326,751$ 1,596,719$ 1,573,889$ $ 1,741,340 $ 24,741,364 Receivables:

Accounts 1,967,006 - - - - 1,967,006
Due from other governments 1,072,959 - - - 96,789 1,169,748 Due from other funds 13,317 - - - - 13,317
Total assets $ 19,482,988 3,399,710$ 1,596,719$ 1,573,889$ $ 1,838,129 $ 27,891,435

LIABILITIES AND FUND BALANCES
Liabilities:

Accounts payable $ 94,137 -$ -$ 24,787 $ -$ $ 118,924
Accrued liabilities 769,357 - - - - 769,357
Deposits 494,370 - - - - 494,370
Due to other funds - - - - 13,317 13,317
Unearned revenues 455,836 - - - - 455,836
Total liabilities 1,813,700 - - 24,787 13,317 1,851,804 Fund Balances:

Restricted:

Transportation - - - - 665,438 665,438
Public safety - - - - 3,350 3,350
Debt service - - - - 416,577 416,577
Library - - - 1,549,102 - 1,549,102
Asset seizure - - - - 5,432 5,432
Public parking - - - - 734,015 734,015
Pensions 942,628 - - - - 942,628
Measure C 3,399,710 - - - - 3,399,710
Committed:

Holstery tax - 656,856 - - - 656,856
Budget stabilization 3,753,398 - - - - 3,753,398
Assigned:

Operational reserves 2,298,939 - - - - 2,298,939
Capital projects - - 1,596,719 - - 1,596,719
Unassigned 10,017,467 - - - - 10,017,467
Total fund balances 17,669,288 3,399,710 1,596,719 1,549,102 1,824,812 26,039,631 Total liabilities and
fund balances $ 19,482,988 3,399,710$ 1,596,719$ 1,573,889$ $ 1,838,129 $ 27,891,435 The accompanying notes are an integral part of these financial statements.

Major Funds

Attachment 2
City of Carmel-By-The-Sea
Reconciliation of the Government Funds Balance Sheet
to the Government-Wide Statement of Net Position
June 30, 2022
Total Fund Balances - Total Governmental Funds $ 26,039,631 Amounts reported for governmental activities in the statement of net position were different because:

Capital assets used in governmental activities were not current financial resources. Therefore, they were not reported in the Governmental Funds Balance Sheet. The capital assets were adjusted as follows:

Capital assets 63,435,888
Less: accumulated depreciation (26,188,038)
Total Capital Assets 37,247,850
Interest payable on long-term debt did not require current financial resources. Therefore, interest payable was not reported as a liability in Governmental Funds Balance Sheet. (27,723) Internal service funds are used by management to charge the costs of stores, vehicle maintenance and various insurance costs to individual funds. The assets and liabilities of the internal service funds are included in the governmental activities in the statement of net position. 3,402,564
The differences from benefit plan assumptions and estimates versus actuals are not included in the plan's actuarial study until the next fiscal year and are reported as deferred inflows or deferred outflows of resources in the statement of net position. (8,732,069) Long-term obligations were not due and payable in the current period. Therefore, they were not reported in the Governmental Funds Balance Sheet. The long-term liabilities were adjusted as follows:

Long-term debt (5,578,055)
Compensated absences (586,299)
Net pension obligation (15,965,385)
Net OPEB liability (3,637,137)
Total Long-Term Obligations (25,766,876)
Net Position of Governmental Activities $ 32,163,377
The accompanying notes are an integral part of these financial statements.

Attachment 2
City of Carmel-By-The-Sea
Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds
For the Year Ended June 30, 2022
Harrison
Measure C Capital Memorial Other Total
General Sales Tax Projects Library Governmental Governmental Fund Fund Fund Fund Funds Funds

REVENUES
Taxes:

Property taxes 7,694,722 $ -$ -$ -$ -$ 7,694,722 $
Sales and use taxes 3,626,263 5,970,464 - - - 9,596,727 Transient occupancy taxes 7,787,643 - - - - 7,787,643
Franchise taxes 851,738 - - - - 851,738
Business license tax 613,559 - - - - 613,559
Intergovernmental revenues 678,437 - - - 645,408 1,323,845 License and permits 1,276,260 - - - - 1,276,260
Contributions - - - 371,377 - 371,377
Fines and forfeitures 55,506 - - - - 55,506
Charges for services 1,446,442 - - 2,239 - 1,448,681
Interest (114,537) - - 3,325 (4,670) (115,882)
Rents and concessions 132,551 - - - - 132,551
Other revenues 127,327 - - - - 127,327
Total Revenues 5,970,464 24,175,911 - 376,941 640,738 31,164,054

EXPENDITURES
Current:

General government 5,990,601 - - - - 5,990,601
Community Planning and Building 1,550,702 - - - - 1,550,702 Public Safety 8,236,353 - - - - 8,236,353
Public Works 3,184,957 - - - - 3,184,957
Library 630,699 - - 298,559 - 929,258
Community Activities 136,788 - - - - 136,788
Economic Reviltalization 1,033,307 - - - - 1,033,307
Capital outlay - - 149,872 - - 149,872
Debt service
Principal - - - - 660,000 660,000
Interest and fiscal charges - - - - 199,212 199,212
Total Expenditures - 149,872 20,763,407 298,559 859,212 22,071,050 Excess (Deficiency) of
Revenues over Expenditures 3,412,504 5,970,464 (149,872) 78,382 (218,474) 9,093,004

OTHER FINANCING SOURCES (USES)
Transfers in 3,074,825 - 1,206,728 - 936,441 5,217,994
Transfers out (1,432,910) (4,206,660) - - (535,265) (6,174,835) Total Other Financing Sources (Uses) (4,206,660) 1,641,915 1,206,728 - 401,176 (956,841) Net Change in Fund Balances 5,054,419 1,763,804 1,056,856 78,382 182,702 8,136,163 Fund Balances Beginning 12,614,869 1,635,906 539,863 1,470,720 1,642,110 17,903,468 Fund Balances Ending $ 17,669,288 $ 3,399,710 $ 1,596,719 $ 1,549,102 $ 1,824,812 $ 26,039,631 The accompanying notes are an integral part of these financial statements.

Major Funds

Attachment 2
City of Carmel-By-The-Sea
Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Government-Wide Statement of Activities
For the Year Ended June 30, 2022
Net Change in Fund Balances - Total Governmental Funds $ 8,136,163 Amounts reported for governmental activities in the Statement of Activities and Changes in net position were different because:

Governmental Funds report capital outlay as expenditures. However, in the Government-Wide Statement of Activities and Changes in net position, the cost of those assets was allocated over their estimated useful lives as depreciation expense.

Capital outlay 151,237
Depreciation expense (1,955,184)
Internal service funds are used by management to charge the costs of stores, vehicle maintenance, and various insurance costs to individual funds.

Net revenue (excess expenses) reported with governmental activities 794,984 Long-term compensated absences and claims payables were reported in the Government-Wide Statement of Activities, but they did not require the use of current financial resources and were not reported as expenditures in governmental funds.

Compensated absences 11,795
In governmental funds, actual contributions to benefit plans are reported as expenditures in the year incurred. However, in the government-wide statement of activities, only the current year benefit expense as noted in the plans' valuation reports is reported as an expense, as adjusted for deferred inflows and outflows of resources. (3,435,021)
Repayment of long-term debt was an expenditure in governmental funds, but the repayment reduced long-term liabilities in the Government-Wide Statement of net position. 688,897 Certain expenses reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the fund statements as follows:

Other postemployment benefits (51,314)
Interest expense on long-term debt was reported in the Government-Wide Statement of Activities and Changes in net position, but it did not require the use of current financial resources. Therefore, interest expense was not reported as expenditures in governmental funds. The following amount represented the net change in accrued interest from and accreted interest from prior year. 2,277
Change in Net Position of Governmental Activities $ 4,343,834 The accompanying notes are an integral part of these financial statements.

Attachment 2
City of Carmel-By-The-Sea
Statement of Net Position
Proprietary Funds
June 30, 2022
Governmental
Activities -
Internal
Service Funds
ASSETS
Current assets:

Cash and investments 2,763,561 $
Other assets 18,192
Total current assets 2,781,753
Noncurrent Assets:

Capital assets - net 1,195,810
Total assets $ 3,977,563

LIABILITIES
Current liabilities:

Claims payable - current 57,500 $
Non-current liabilities:

Claims payable 517,500
Total liabilities $ 575,000

NET POSITION
Net Investment in capital assets 1,195,810 $
Unrestricted 2,206,753
Total net position $ 3,402,563
The accompanying notes are an integral part of these financial statements.

Attachment 2
City of Carmel-By-The-Sea
Statement of Revenues, Expenses and Changes in Fund Net Position Proprietary Funds
For the Year Ended June 30, 2022
Governmental
Activities -
Internal
Service Funds

OPERATING REVENUES
Charges for services 18,670 $
Other 50,000
Total operating revenues 68,670

OPERATING EXPENSES
Claims 47,724
Depreciation 172,676
Total operating expenses 220,400
Operating income (loss) (151,730)

NONOPERATING REVENUES(EXPENSES)
Investment earnings (10,127)
Total nonoperating revenues(expenses) (10,127)
Income (loss) before operating transfers (161,857)
Transfers in 1,036,821
Transfers out (79,980)
Total Other Financing Sources (Uses) 956,841
Change in net position 794,984
Total net position - beginning 2,607,579
Total net position - ending 3,402,563 $
The accompanying notes are an integral part of these financial statements.

Attachment 2
City of Carmel-By-The-Sea
Statement of Cash Flows
Proprietary Funds
For the Year Ended June 30, 2022
Governmental
Activities -
Internal
Service Funds
Cash flows from operating activities:

Receipts from interfund services provided 68,670 $
Payments for claims (47,724)
Payments for supplies and materials (67,089)
Net cash provided (used) by operating activities (46,143) Cash flows from noncapital financing activities:

Interfund transactions 956,841
Net cash provided (used) by noncapital financing activities 956,841 Cash flows from capital financing activities:

Purchases of property and equipment (647,220)
Net cash provided (used) by capital financing activities (647,220) Cash flows from investing activities:

Investment income received (10,127)
Net cash provided (used) by investing activities (10,127) Net increase (decrease) in cash and cash equivalents 253,351 Cash and cash equivalents - beginning 2,510,210
Cash and cash equivalents - ending $ 2,763,561
Reconciliation of operating income to net cash provided (used) by operating activities:

Operating income (loss) (151,730) $
Adjustments to reconcile operating income (loss)
to net cash provided (used) by operating activities:

Depreciation 172,676
Change in operating assets and liabilities:

Other assets (18,192)
Accounts payable (48,897)
Net cash provided (used) by operating activities $ (46,143) The accompanying notes are an integral part of these financial statements.

Attachment 2
City of Carmel-by-the-Sea
Notes to the Basic Financial Statements
June 30, 2022
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The basic financial statements of the City of Carmel-by-the-Sea, California, (the City) have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental agencies. The Governmental Accounting Standards Boards (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the City's accounting policies are described below.

A. Financial Reporting Entity
The City of Carmel-by-the-Sea, California was incorporated on October 31, 1916, under the laws and regulations of the State of California (State). The City operates under a City Council/Manager form of government and provides the following services: general government, community planning and building, public safety (fire, police and ambulance), public works, library, economic revitalization and other community activities.

The City operates as a self-governing local government unit within the State. It has limited authority to levy taxes and has the authority to determine user fees for the services that it provides. The City’s main funding sources include sales taxes, other intergovernmental revenue from state and federal sources, user fees, and federal and state financial assistance. All property taxes are paid to Monterey County (County) as part of the revenue neutrality payment obligation. The financial statements do not reflect the amounts received on behalf of the City and retained by the County.

The financial reporting entity consists of (a) the primary government, the City, (b) organizations for which the primary government is financially accountable, and (c) other organizations for which the primary government is not accountable, but for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. Financial accountability is defined as the appointment of a voting majority of the component unit’s board, and either (a) the City has the ability to impose its will on the organization, or (b) there is a potential for the organization to provide a financial benefit to or impose a financial burden on the City.

As required by US GAAP, these financial statements present the government and its component units, entities for which the government is considered to be financially accountable. These component units are reported on a blended basis. Blended component units, although legally separate entities, are, in substance, part of the government’s operations and so data from these units are combined with data of the primary government. The financial statements of the individual component units, if applicable as indicated below, may be obtained by writing to the City of Carmel-by-the-Sea, Finance Department, Post Office Box CC, Carmel-by-the-Sea, CA 93921.

The City’s reporting entity includes the following blended component units:
 Carmel Public Improvement Authority
 Harrison Memorial Library
The above component units are included in the City’s basic financial statements using the blended method since the component unit’s governing body is substantively the same as the governing body of the City and there is a financial benefit and a burden relationship between the City and the component units. There are no component units of the City that meet the criteria for discrete presentation.

Attachment 2
City of Carmel-by-the-Sea
Notes to the Basic Financial Statements
June 30, 2022
The City applies all applicable GASB pronouncements for certain accounting and financial reporting guidance. In December of 2010, GASB issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.

GASB 62 incorporates pronouncements issued on or before November 30, 1989 into GASB authoritative literature. In June of 2015, GASB issued Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. GASB 76 supersedes Statement No. 55, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. GASB 76 also amends GASB 62 and AICPA Pronouncements paragraphs 64, 74, and 82. The GAAP hierarchy sets forth what constitutes GAAP for all state and local governmental entities. It establishes the order of priority of pronouncements and other sources of accounting and financial reporting guidance that a governmental entity should apply. The sources of authoritative GAAP are categorized in descending order of authority as follows:
a. Officially established accounting principles—Governmental Accounting Standards Board (GASB) Statements (Category A)
b. GASB Technical Bulletins; GASB Implementation Guides; and literature of the AICPA cleared by the GASB (Category B).

If the accounting treatment for a transaction or other event is not specified by a pronouncement in Category A, a governmental entity should consider whether the accounting treatment is specified by a source in Category B.

B. Basis of Accounting and Measurement Focus
The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Governmental resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled.

Government-Wide Financial Statements
The City's government-wide financial statements include a Statement of Net Position and a Statement of Activities and Changes in Net Position. These statements present summaries of governmental and business-type activities for the City. Fiduciary activities of the City are not included in these statements.

Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The City did not report any business-type activities for the year.

These statements are presented on an "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all of the City's assets, deferred outflows of resources, liabilities, deferred inflows of resources (including capital assets, as well as infrastructure assets, and long-term liabilities), are included in the accompanying Statement of Net Position. The Statement of Activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those clearly identifiable with a specific function or segment. In conformity with the City’s indirect cost allocation plan, certain indirect costs are included in the program expense reported for individual functions and activities. Certain types of

Attachment 2
City of Carmel-by-the-Sea
Notes to the Basic Financial Statements
June 30, 2022
transactions are reported as program revenues for the City in three categories:
 Charges for services
 Operating grants and contributions
 Capital grants and contributions
Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements.

Certain eliminations have been made as prescribed by GASB Statement No. 34 in-regards-to interfund activities, payables, and receivables. All internal balances in the Statement of Net Position have been eliminated. Interfund services provided and used are not eliminated in the process of consolidation. The following interfund activities have been eliminated:
 Transfers in/Transfers out
 Internal Service Fund charges
Governmental Fund Financial Statements
Governmental fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures and Changes in Fund Balances for all major governmental funds and non-major funds aggregated. An accompanying schedule is presented to reconcile and explain the differences in net position as presented in these statements to the net position presented in the government-wide financial statements. The City has presented all major funds that met the applicable criteria.

All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, only current assets, deferred outflows of resources, current liabilities, and deferred inflows of resources are included on the balance sheets. The Statement of Revenues, Expenditures and Changes in Fund Balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets.

Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period.

Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (generally up to 60 days after year-end) are recognized when due. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property tax, sales taxes, intergovernmental revenues, other taxes, interest revenue, rental revenue and certain charges for services. Fines, forfeitures, licenses and permits and parking meter revenues are not susceptible to accrual because they are usually not measurable until received in cash. Expenditures are recorded in the accounting period in which the related fund liability is incurred.

Unearned revenues arise when potential revenues do not meet both the "measurable" and "available" criteria for recognition in the current period. Unearned revenues also arise when the government receives resources before it has a legal claim to them, as when grant monies are received prior to incurring qualifying expenditures. In subsequent periods when both revenue recognition criteria are met or when the government has a legal claim to the resources, the unearned revenue is removed from the combined balance sheet and revenue is recognized.

Attachment 2
City of Carmel-by-the-Sea
Notes to the Basic Financial Statements
June 30, 2022
The following funds are major funds:

General Fund
The General Fund is used to account for all of the general operations and other financial transactions of the City, which are not accounted for by another fund.

The Measure C Sales Tax Fund
The Measure C Sales Tax Fund used to account for the transaction and use tax increase to be used to maintain essential services, including fire, ambulance and police response times; fund capital needs, including streets, beach, parks, forest and trails; increase code compliance; maintain libraries, Sunset Center and other public facilities; address CalPERS pension liabilities and other debt; and provide other general City services.

Capital Projects Fund
This fund accounts for resources utilized, committed, assigned or restricted for capital projects.

Harrison Memorial Library Fund
This fund accounts for the contributions, revenues and resources used to operate the operate the Harrison Memorial Library.

Additionally, the City reports the following nonmajor fund types of governmental funds:

Special Revenue Funds
Special revenue funds account for and report the proceeds of specific revenue sources that are restricted, committed or assigned to specific purposes other than debt service or capital projects.

Debt Service Funds
Debt service funds account for the accumulation of resources for, and payment on, long-term obligation debt principal and interest.

Proprietary Funds
In the fund financial statements, proprietary funds are presented using the accrual basis of accounting.

Revenues are recognized when they are earned and expenses are recognized when the related goods or services are delivered. In the fund financial statements, proprietary funds are presented using the “economic resources measurement focus”. This means all assets, deferred outflows of resources, liabilities (whether current or noncurrent) and deferred inflows of resources associated with their activities are included on their balance sheets. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in total net position.

Proprietary fund operating revenues, such as charges for services, result from exchange transactions associated with principal activity of the fund. Exchange transactions are those in which each party receives and gives up essentially equal value. Non-operating revenues, such as subsidies, taxes, and investment earnings result from nonexchange transactions or ancillary activities. Amounts paid to acquire capital assets are capitalized as assets in the internal service funds financial statements.

The City’s internal service funds are proprietary funds. Internal service funds account for charges to City departments for services provided, on a cost reimbursement basis. The City has the following internal service funds:

Attachment 2
City of Carmel-by-the-Sea
Notes to the Basic Financial Statements
June 30, 2022
Worker's Compensation Fund
This fund accounts for workers compensation insurance provided to departments on a cost reimbursement basis.

OPEB Reserve Fund
This fund accounts for other postemployment benefits provided to departments on a cost reimbursement basis.

Vehicle & Equipment Replacement Fund
This fund is to set aside financial resources for future purchases of replacement equipment essential to the operations of the City.

C. Cash, Cash Equivalents and Investments
The City pools its available cash for investment purposes. The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturity of three months or less from the date of acquisition. Cash and cash equivalents are combined with investments and displayed as Cash and Investments.

Deposit and Investment Risk Disclosures - In accordance with GASB Statement No. 40, Deposit and Investment Disclosures (Amendment of GASB Statement No. 3), certain disclosure requirements, if applicable, for Deposits and Investment Risks in the following areas: Interest Rate Risk, Overall Credit Risk, Custodial Credit Risk, Concentrations of Credit Risk, and Foreign Currency Risk. Other disclosures are specified including use of certain methods to present deposits and investments, highly sensitive investments, credit quality at year-end and other disclosures.

The City participates in an investment pool managed by the State of California titled Local Agency Investment Fund (LAIF), which has invested a portion of the pool funds in Structured Notes and Asset Backed Securities. LAIF's investments are subject to credit risk with the full faith and credit of the State of California collateralizing these investments. In addition, these Structured Notes and Asset-Backed Securities are subject to market risk as to change in interest rates.

Investments are recorded at fair value in accordance with GASB Statement No. 72, Fair Value Measurement and Application. Accordingly, the change in fair value of investments is recognized as an increase or decrease to investment assets and investment income. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction.

In determining this amount, three valuation techniques are available:
 Market approach - This approach uses prices generated for identical or similar assets or liabilities.

The most common example is an investment in a public security traded in an active exchange such as the NYSE.
 Cost approach - This technique determines the amount required to replace the current asset. This approach may be ideal for valuing donations of capital assets or historical treasures.  Income approach - This approach converts future amounts (such as cash flows) into a current discounted amount.

Each of these valuation techniques requires inputs to calculate a fair value. Observable inputs have been maximized in fair value measures, and unobservable inputs have been minimized.

Attachment 2
City of Carmel-by-the-Sea
Notes to the Basic Financial Statements
June 30, 2022
D. Interfund Receivables and Payables
Items classified as interfund receivables/payables are referred to as “advances to/advances from other funds” or as “due to/from other funds”. Due to/from other funds include short-term lending/borrowing transactions between funds. This classification also includes the current portion of an advance to or from another fund. Advances to/advances from other funds represents non-current portions of any long-term lending/borrowing transactions between funds. This amount will be equally offset by a reserve of fund balance which indicates that it does not represent available financial resources and therefore, is not available for appropriation.

E. Receivables
In the fund financial statements, material receivables in governmental funds include revenue accruals such as property tax, sales tax, and intergovernmental subventions since they are usually both measurable and available. Non-exchange transactions collectible but not available, such as property tax, are deferred in the fund financial statements in accordance with the modified accrual basis, but not deferred in the government-wide financial statements in accordance with the accrual basis.

Interest and investment earnings are recorded when earned only if paid within 60 days since they would be considered both measurable and available. The City’s experience is that all accounts receivable are collectible; therefore an allowance for doubtful accounts is unnecessary.

The County of Monterey is responsible for the collection and allocation of property taxes. Under California law, property taxes are assessed and collected by the County up to 1% of the full cash value of taxable property, plus other increases approved by the voters and distributed in accordance with statutory formulas. The City recognizes property taxes when the individual installments are due, provided they are collected within 60 days after year-end.

F. Capital Assets
The City's assets are capitalized at historical cost or estimated historical cost, if actual is unavailable, except for donated capital assets, donated works of art and similar items, and capital assets received in a service concession arrangement that are reported at acquisition value rather than fair value. Policy has set the capitalization threshold for reporting at $5,000 for non-infrastructure capital assets and $25,000 for infrastructure capital assets.

Public domain (infrastructure) capital assets include roads, bridges, curbs and gutters, streets, sidewalks, drainage systems, and lighting systems.

The accounting treatment of property, plant and equipment (capital assets) depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements.

Prior to July 1, 2003, governmental funds’ infrastructure assets were not capitalized, since then these assets have been valued at estimated historical cost.

Depreciation of all exhaustible capital assets is recorded as an allocated expense in the Statement of Activities, with accumulated depreciation reflected in the Statement of Net Position. Depreciation is provided over the assets’ estimated useful lives using the straight-line method of depreciation. No

Attachment 2
City of Carmel-by-the-Sea
Notes to the Basic Financial Statements
June 30, 2022
depreciation is recorded in the year of acquisition or in the year of disposition. In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for the same way as in the government-wide statements.

Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows:

Buildings and improvements 20-50 Years
Improvements other than buildings 35 Years
Vehicles, machinery and equipment 5-20 Years
Infrastructure 20-50 Years
Technology/Hardware and Software 5-20 Years
G. Deferred Outflows/Deferred Inflows of Resources
Deferred outflows of resources are a consumption of net assets by the City that is applicable to a future reporting period; for example, prepaid items and deferred charges.

Deferred inflows of resources are an acquisition of net assets by the City that is applicable to a future reporting period; for example, unavailable revenue and advance collections.

H. Interest Payable
In the government-wide financial statements, interest payable of long-term debt is recognized as an incurred liability for governmental fund types. The City has not allocated the interest on long-term debt to departments.

In the fund financial statements, governmental fund types do not recognize the interest payable when the liability is incurred. Interest on long-term debt is recorded in the fund statements when payment is made.

I. Claims Payable
The City records a liability for claims, judgments, and litigation when it is probable that an asset has been impaired or a liability has been incurred prior to fiscal year-end and the probable amount of loss (net of any insurance coverage) can be reasonably estimated.

J. Compensated Absences
Employees accrue vacation, sick, holiday, and compensatory time off benefits. City employees have vested interests in the amount of accrued time off, with the exception of sick time, and are paid on termination. Also, annually an employee may elect to be compensated for up to 40 hours of unused annual leave. However, this is contingent upon the employee using at least 40 hours during the previous year and, the employee having a minimum balance of 80 annual leave hours after the payment. All vacation pay is accrued when incurred in the government-wide and proprietary financial statements. A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a result of employee resignations or retirements and is currently payable. The City had no employee resignations or retirements for which compensated absences should be accrued in governmental funds at year-end. The general fund is typically used to liquidate compensated absences.