Business Item 4a
STAFF REPORT
City Council Business Item
DATE: April 21, 2025
TO: Honorable Mayor and City Council Members
FROM: Amy Nilsen, City Manager
SUBJECT: Budget Outlook and Potential Revenue Generation Options STAFF RECOMMENDATION:
1. Receive the staff report on the budget outlook and potential revenue generation options;
2. Direct staff to return with recommended revenue generation option(s) and necessary implementation plan(s); and
3. Consider appointing two City Council members to a Revenue Generation Ad Hoc Committee.
DISCUSSION:
The City of Fortuna is experiencing limited revenue growth and rising costs. Specifically, estimated total General Fund revenue for Fiscal Year (FY) 2025-26 is $8,065,000, an increase of 2% over FY 2024-25, or $150,000. This increase, however, includes a decrease of $31,500 or 1.4% in sales tax revenue, the City’s largest source of revenue. Estimated expenses are $8,390,000 for FY 2025-26, an increase of $385,000 over FY 2024-25 with liability insurance, employee pay and benefit costs, and utility costs making up a large portion of the cost increases. Expenses are outpacing revenue growth by $235,000 or 3% of total revenue. Limited and even declining revenue growth makes it exceptionally difficult to fund Capital Improvement projects, provide equitable salary increases for City staff, and even maintain City services.
Financial difficulties are not new to the City of Fortuna. In November 2016, a majority of voters approved a local 0.75 percent transactions and use tax (Measure E) with the intention of funding previous cuts to public safety and to help maintain and enhance public safety services, support local businesses, provide essential services, and stabilize the City budget. The tax was originally set to expire on March 31, 2025; however, in November 2020, a majority of voters approved an extension of the tax through March 31, 2033.
The City attempted an additional .75 percent sales tax measure, Measure P, in November 2024. This sales tax measure did not pass with 58 percent of voters voting no.
The role of City government is to serve the public by advocating for a better quality of life for the residents that live in our community. Maintaining a well-prepared, trained, and modern workforce is key to ensuring the City’s success at quality-of-life advocacy while delivering vital services such as police and water and wastewater services, as well as ensuring the City’s overall continuity of operations. City services are delivered by talented, qualified, and dedicated people who want to serve the residents and provide a better quality of life.
Business Item 4a
Investment in the continuation of vital services has been impeded by limited revenue growth and rising expenses, limited available dollars were invested into the police department by changing achievement incentives from a flat dollar amount to a percentage, as is consistent with other jurisdictions. However, the City was not able to afford a Cost-of-Living Adjustments (COLA) for the police department or other City personnel. Wages are rising in other jurisdictions due to the passing of local sales tax measures. This leaves Fortuna at a disadvantage for funding Public Safety, Public Works projects, Parks and Recreation services, and in particular the disadvantage becomes most obvious when it comes to wages. The following charts demonstrate the wage disparity across local jurisdictions.
Police Officer
Fortuna Eureka Arcata Rio Dell
$53,951 to
$65,640
$68,950 to
$83,807
$67,751 to
$86,469
$54,766 to
$65,671
Analysis: Fortuna’s starting salary for a police officer is 27.8% to 1.51% lower than other local agencies. Fortuna remains competitive with Rio Dell but not with other cities.
Police Sergeant
Fortuna Eureka Arcata Rio Dell
$65,369 to
$79,532
$83,753 to
$101,803
$78,675 to
$100,412
$68,939 to
$82,899
Analysis: Fortuna’s starting salary for a police sergeant is 28.12% to 5.46% less than other local agencies. Fortuna remains competitive with Rio Dell but not with other cities.
Building Inspector I
Fortuna Eureka Arcata Rio Dell
$50,788 to
$61,792
$51,374 to
$62,448
$55,861 to
$71,295
N/A
Building Inspector II
Fortuna Eureka Arcata Rio Dell
N/A $56,478 to
$68,652
$62,564 to
$79,850
N/A
Analysis: Fortuna’s starting salary for Building Inspector I is 1.15% to 10% lower than other local agencies, while this may be considered in the competitive range, Fortuna does not have a classification, such as Building Inspector II, which allows staff to move up the pay scale as skills and abilities increase, thereby limiting competitiveness with other agencies. In addition, a recent recruitment did not yield applicants with the appropriate license to perform the job requirements leaving the City in a position to explore other options such as contracting for these services.
Building Official
Fortuna Eureka Arcata Rio Dell
$68,666 to
$83,543
$93,931 to
$114,173
$89,299 to
$113,971
N/A
Analysis: Fortuna’s starting salary for Building Official is almost 37% to 30% less than other local agencies.
Business Item 4a
Administrative Assistant II
Fortuna Eureka Arcata Rio Dell
$40,287 to
$49,015
$46,498 to
$56,250
$48,336 to
$61,691
$40,870 to
$48,782
Analysis: Fortuna’s starting salary for an Administrative Assistant II is 19.98% to 1.45% less than other local agencies. Fortuna remains competitive with Rio Dell but not with other cities.
Utility Worker II
Fortuna Eureka Arcata Rio Dell
$41,371 to
$50,334
$51,360 to
$62,756
$46,445 to
$59,276
$40,870 to
$48,782
*Eureka – Utility Systems Operator II
*Arcata – Senior Maintenance Worker (Streets/Utilities) Analysis: While Fortuna does have a slight competitive advantage over Rio Dell, other local agencies pay between 12.26% to 24.14% more.
Treatment Plant Operator II
Fortuna Eureka Arcata Rio Dell
$47,778 to
$58,130
$56,478 to
$68,652
$53,141 to
$67,823
$47,797 to
$57,201
Analysis: While the starting salary between Fortuna and Rio Dell is negligible at .04%, other jurisdictions pay between 11.22% to 18.21% more than Fortuna.
Recruitment and retention of talented public sector staff remains a critical need and challenge for the City. Vacancies for many positions in the public sector (police, licensed professionals) remain challenging to fill with the City frequently needing to re-open recruitments. In addition to a growing wage gap across the City and its neighboring jurisdictions, the City is also seeing a steady increase in turnover. The City of Fortuna employs approximately one hundred (100) staff. Eighty-one (81) are full-time and nineteen (19) are part-time. Part-time staff can fluctuate throughout the year depending upon Parks and Recreation programming. For FY 2024-25 it is anticipated the City of Fortuna will see 50% turnover as shown on the chart below.
Business Item 4a
Turnover in just full-time positions is estimated to reach just slightly over 30% or 25 staff. In addition, the departure of staff has been growing over the last several fiscal years.
Common causes of turnover include: low salaries; lack of career advancement; poor work-life balance; unfavorable work environment.
0 10
20 30
40 50
60 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2024-25 Projected
Anticipated Turnover Percentage
Full-time Part-time
Business Item 4a
The impact of excessive turnover on an agency is great. The hiring process is costly. Replacing an employee often involves significant costs for recruitment, onboarding, and training, which can strain the budget. Below is year-to-date (YTD) information on the costs associated with recruiting for vacant positions in the City.
YTD (4/10/25) $40,050 in Payroll and Human Resources staff time in hiring YTD (4/10/25) $48,835 for physicals and advertising
YTD (4/10/25) total cost $88,885
Other impacts include loss of expertise and institutional knowledge, potentially impacting project quality and decision-making. Decreased productivity, new employees require time to reach full capacity, leading to temporary productivity dips while they learn the job. High turnover can create a negative atmosphere among the remaining staff, impacting their motivation and job satisfaction. Frequent staff changes can lead to inconsistent service delivery to residents, causing frustration and complaints.
Without additional revenue to increase wages, the City will have to look at other options to retain staff such as moving from a 40-hour work week to a 34-hour work week with City offices closed on Fridays for non-public safety employees, adding December 24 as a holiday, and potentially providing one-time dollars, known as stipends to attempt to retain staff.
However, even with work-life balance modifications made to help retain non-public safety staff, the dollars available for wage increases, particularly for public safety, is scarce. Police Officers in Fortuna at the base rate make 28% less than Eureka or Arcata. Police Sergeants make between 20 to 25% less than their counterparts in Eureka and Arcata. While the populations and issues faced by these cities differ from Fortuna, the significant wage disparity begins to demonstrate the need for increased wages.
Revenue Generation Options:
While the City is engaged in economic development, such as the recent investment in the Mill Site Specific Plan, large scale economic development can take years, and is limited by current infrastructure issues such as interchanges at 12th Street and Kenmar as well as the global economy.
Below are additional revenue generating options the City Council should consider.
A. Sales Tax - general: A general sales tax measure, such as the existing Measure E threequarter cent sales tax, requires a simple majority of the voters to pass (50% + 1). A general sales tax provides the most flexibility in terms of allowable expenditures. Measure E includes an oversight committee, and this approach can be reviewed if the City Council chooses to authorize staff to explore this revenue generation option. A three-quarter cent sales tax generates approximately $1.8 million per year currently in Fortuna. This tax may be worth exploring through public opinion research to assess the community’s inclination for this tax, as well as a specific tax, as it can provide long-term funding for vital services. As with other funding sources, the amount of revenue generated is based upon the economy: when times are good, revenue is up; when times are tougher, revenue is down.
Business Item 4a
Revenue Generation: Variable; subject to fluctuation based upon local economic conditions.
Ease of implementation: Moderate. The state Board of Equalization (BOE) administers the implementation of local district taxes and automatically deducts an administrative assessment ranging between $7,000 to $12,000 annually. The City would need to create and maintain new budget mechanisms to ensure maximum transparency, like Measure E, and factor in local costs to administer any new funding.
Retailers collect sales tax. For retailers located within the City, it is easy to reprogram the sales tax rate into the cash registers. It is also easy for mail order retailers who are already equipped to manage multiple sales tax rates.
Political feasibility: Moderate; requires simple majority approval of the voters.
Equity: Those who buy more, or purchase more expensive items, pay more tax than others. The purchasing power of those with limited means is further decreased.
Flexibility: Funds can be used for City services and items stated in the ballot measure language.
Local Agency Comparison: Eureka Sales Tax Rate is 10.25%, Arcata is 10.25%, and Fortuna is 9.5%
B. Sales Tax - dedicated: A dedicated tax for a specific purpose, such as funding public safety, requires a two-thirds (2/3) majority vote of the citizenry. While this may be a high bar, it provides better protection to the voters as the funds can only be spent on what is in the ballot measure. Similar to a general tax, a three-quarter cent sales tax would generate approximately $1.8 million a year currently. This tax may be worth exploring as it can provide long-term funding for vital services such as public safety.
Revenue Generation: Variable; subject to fluctuation based upon the economic conditions.
Ease of implementation: Moderate. The state Board of Equalization (BOE) administers the implementation of local district taxes and automatically deducts an administrative assessment ranging between $7,000 to $12,000 annually. The City would need to create and maintain new budget mechanisms to ensure maximum transparency, like Measure E, and factor in local costs to administer any new funding.
Retailers collect sales tax. For retailers located within the City, it is easy to reprogram the sales tax rate into the cash registers. It is also easy for mail order retailers who are already equipped to manage multiple sales tax rates.
Political feasibility: Challenging; requires 2/3 majority approval of the voters.
Equity: Those that buy more; or purchase more expensive items pay more tax than others. The purchasing power of those with limited means is further decreased.
Flexibility: Funds can be used for dedicated purposes described in the ballot measure only.
Business Item 4a
Local Agency Comparison: Eureka Sales Tax Rate is 10.25%, Arcata is 10.25%, and Fortuna is 9.5%
C. Transient Occupancy Tax (TOT): TOT is a general tax, approved by voters, and is charged in California when occupying a living space for short periods of time, such as a typical hotel or tourist home for less than 30 days. The authority to levy TOT is granted to the legislative bodies of both cities and counties by Revenue and Taxation Code Section 7280. At present, the City of Fortuna’s TOT rate is 10% and could be increased to 12%. It should be noted the Humboldt Lodging Alliance (HLA) also has a 2% bed tax in addition to what the City currently collects.
Revenue Generation: The current TOT rate is 10% with revenue of $700,000. A 2% increase to 12% is approximately $140,000.
Ease of implementation: Moderate. TOT is collected by Hotel owners and remitted through the City’s Finance Department.
Political feasibility: Moderate; requires simple majority approval of the voters, and since this tax typically impacts those visiting the Fortuna area it will not directly impact Fortuna residents.
Equity: This tax typically impacts those visiting the area and using City services such as Parks and Recreation and Police.
Flexibility: Funds can be used for City services.
Local Agency Comparison: Eureka is 10%, Arcata is 10%, and Fortuna is 10% with an additional 2% to the HLA.
D. General Fund and Reduced City Services: An increased General Fund allocation for all City salaries or just public safety personnel could potentially support salary increases.
Increasing the salary allocation of General Fund monies for City salaries results in diverting funding that would otherwise go towards other City services, programs, and needs. In order to do this, services would need to be reduced or eliminated, for example Parks and Recreation services such as break camps and sports camps. In addition, the amount of General Fund revenue that the City has varies each year. This is not recommended as a long-term funding source.
Revenue Generation: Variable; subject to fluctuation based upon the economic conditions.
Ease of implementation: Moderate. Allocation is made at the discretion of the majority of the City Council. However, City staff would need to present a list of reduced City services in order to “free up” General Fund dollars.
Political feasibility: Challenging. The demand for General Fund allocations exceeds available funding.
Equity: Shifts funding away from other programs, which could negatively affect vulnerable populations and programs supported by the community.
Business Item 4a
Flexibility: Funds can be used for City services.
E. Measure E: While the City Council approves Measure E expenditures as approved by the Measure E Committee, the Measure E funds are insufficient to increase wages without reducing other Measure E expenditures. Over the long-term, costs to provide services that depend on the General Fund including police, Public Works services, and parks and recreation will continue to increase and require nearly all of the discretionary funding generated by Measure E. Below is a list of FY 2025-26 Measure E recommended discretionary funding items. Measure E recurring revenue was not able to support all needed projects, $487,559 is being recommended to be pulled from reserves to fund one-time projects, a practice that is unsustainable long-term.
Measure E is also facing challenges with the majority of the revenue for a given year being previously allocated to fund positions. This means that each time that a new position is funded by Measure E, the available pool of money for discretionary allocation shrinks.
Revenue Generation: Variable; subject to fluctuation based upon the economic conditions.
Measure E
Recommendation
USES:
Police:
K-9 Program Expenses - Cain 25,000
K-9 Program Expenses - Blitz 25,000
Encampment Outreach and Cleanup Services 20,000
PT Code Compliance Officer 30,609
Code Compliance Violation Site Cleanups 5,000
Restoration First Responder Network 18,000
Public Works:
Storm Drain Maintenance Projects 200,000
Street Maintenance Projects 125,000
Street Light Battery Replacement for Solar Lighting on 12th Street 40,000 Boom Mower Replacement 80,000
Parks and Recreation:
Riverlodge Staining Project 190,000
Bartow Field Renovation 20,000
General Park Acquisition and Improvements 60,000
Total Amount Requested $ 838,609
Amount Available After Prior Approvals $ 351,050
Amount Remaining $ (487,559)
* Public Input Idea
FY 2025-26 MEASURE E
DEPARTMENT EXPENDITURE RECOMMENDATION SUMMARY
Business Item 4a
Ease of implementation: Easy. Allocation is made at the discretion of the majority of the City Council after considering input from the Measure E Committee.
Political feasibility: Challenging. The demand for Measure E funding allocations exceeds available funding. The public may not be inclined to re-authorize Measure E prior to the sunset date in 2033.
Equity: Shifts funding away from other programs, which could negatively affect vulnerable populations and important programs.
Flexibility: Funds can be used for City services.
F. Retail Cannabis: On February 18, the City Council directed staff to prioritize ordinance development for Cannabis. Retail cannabis has the potential to bring in $15,000 per retail business annually.
Revenue Generation: Variable; subject to ordinance development and number of retail businesses permitted.
Ease of implementation: Moderate. This does require significant staff time and expense to develop an ordinance. The Finance Department would complete collection of a cannabis tax.
Political feasibility: Requires a majority vote of the City Council.
Equity: Those that buy cannabis would be subject to the tax.
Flexibility: Funds can be used for City Services.
Conclusion:
All the above options or a combination of options should be explored. Each option has advantages and disadvantages. In addition, public opinion research may need to be engaged to better understand the public’s appetite for tax increases to support vital services. Public opinion research, or polling, provides feedback to City staff and the City Council about public views and helps leaders make informed decisions that reflect what people want. Polling also helps highlight critical issues in a community and gauges whether the community is genuinely interested. In addition, staff need the time to explore these options with other City partners such as the Fortuna Police Employees Association and the Fortuna Employees Association, as these associations are deeply impacted by turnover and lack of competitive wages. The City Manager, Finance Director and representatives from the employee associations would work together to bring back recommended options on revenue generation and implementation plans.
Therefore, staff recommend the City Council take the following actions:
1. Direct staff to return with recommended revenue generation options(s) and necessary implementation plan(s); and
2. Consider appointing two City Council members to a Revenue Generation Ad Hoc Committee.
FISCAL IMPACT:
Business Item 4a
Exploring revenue generation options does not necessitate an upfront dollar investment. However, revenue generation implementation plans may necessitate an investment in consultants, such as with public opinion research or consultant time to thoroughly develop a cannabis ordinance. However, without additional revenue in the future, the City will continue to lose the ability to fund infrastructure projects and pay competitive wages. If revenue does not increase soon, the City will need to work toward balancing future budgets by reducing services and staffing. In addition, the following essential services would be at risk for elimination or reduction:
• Capital Improvement Projects (CIP) that are scheduled for the repair and/or replacement of deteriorated City infrastructure will continue to be postponed and/or cancelled • Fewer maintenance projects for city streets
• Fewer repair projects for city drainage facilities
• Fewer expansion or improvement projects in city parks RECOMMENDED COUNCIL ACTION:
1. Receive staff presentation and review Council questions with staff;
2. Receive public comment; and
3. Direct staff to return with recommended revenue generation options(s) and necessary implementation plan(s); and
4. Consider appointing two City Council members to a Revenue Generation Ad Hoc Committee.
Voice Vote.