Capital Improvement Program Budget Workshop for Fiscal Year 2024/25 — Goleta City Council, April 2, 2024 (part 2 of 3)

Long Range Financial Forecast, Revenue and Funding Options Workshop 61 251
Agenda Item A.1

WORKSHOP
Meeting Date: December 10, 2020
_______________________________________________________ TO: Mayor and Councilmembers
FROM: Michelle Greene, City Manager
Luke Rioux, Finance Director
SUBJECT: Long Range Financial Forecast, Revenue and Funding Options Workshop RECOMMENDATION:

A. Receive a presentation from staff on a Cit y of Goleta Preliminary Long-Range Financial Forecast; and
B. Direct staff to pursue new revenue and debt financing options and bring them back to the City Council with a CIP Funding Plan; and
C. Authorize the transfer of funds currentl y set aside in reserves for CalPERS unfunded accrued liability in the amount of $170,000 and OPEB unfunded accrued liability in the amount of $333,500 to the City’s Section 115 Trust; and D. Direct staff to further analyze available Unassigned Fund Balance and return to the City Council with a recommendation for a CIP project funding reserve level.

BACKGROUND:

The purpose of this report is to provide th e City Council a long-range financial forecast beyond the current five-year forecast included in the City’s annual budget, along with information on revenue enhancement options and funding strategies to address unfunded priorities and projects. The report also contains updated information on the C ity’s current unfunded liabilities as they relate to pensions and retiree health also known as other post- employment benefits (OPEB). Additionally, cos t estimates not factored in the budget are provided (if available) for other unfunded prio rity items, such as deferred maintenance on City infrastructure or the cost of implementing master plan documents. In an effort to keep the information organized, the data has been summarized and the report is presented in three major sections listed below:
- Section 1: Long Range Financial Forecast
- Section 2: Unfunded Liabilities and Other Priorities
- Section 3: Revenue Enhancement and Financing Options to Address Ongoing $WWDFKPHQW
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Unfunded Priorities and One-Time Infrastructure Projects The data presented in this report is not int ended to predict the future, but rather create awareness regarding financial challenges and opportunities the City could possibly face and inform the City’s financial and operational decision making to account for such possibilities.

DISCUSSION:

Section 1: Long Range Financial Forecast
Introduction
The C ity’s financial forecast presents estimated information based on past, current, and projected financial conditions and is meant to be used as a tool to evaluate current and future fiscal conditions and guide policy and programmatic decisions. The Government Finance Officers Association (GFOA) recommends that governments at all levels forecast major revenues and expenditures, and that th ese forecasts be regularly monitored and periodically updated. While there is no spec ific time frame recommended, the forecast should extend several years into the future and clearly state its underlying assumptions and methodology.

The City’s current five-year forecast is presented annual ly during the budget process and contains assumptions and projections that are used for current and future budget decisions.

This allows the City to plan accordingly for operating and capital needs. The current economic climate and future needs of the City call for longer range forecasting to further evaluate longer-term impacts, such as pension cost changes, infrastructure needs, and future service levels. The time frame needs to be extended to reflect these longer-term impacts to truly understand the fiscal implications and ensure a path to a solid financial foundation. In an effort to capture these estimated fiscal impacts, staff has prepared a forecast extending out 20 years.

Staff has reviewed its recent Five-Year Forecast model through FY 24/25 and made updates to extend out its forecast 20 years to FY 40/41. The unprecedented impact of COVID-19 has made forecasting very challenging, and financ ial trends are difficult to project with so much uncertainty surrounding the current economic climate, including the length of time the stay-at-home orders will cause both short-term and long-term impacts on the state and regional economy. While staff has data avai lable on what was experienced for the months of March through June of 2020, it is unclear what the future will hold.

To keep the data in this report organized, this first section provides a brief recap of the City’s General Fund history, recent budget adopt ion information, the methodology and assumptions used in modeling, and a summary of the long-range financial forecasts.

History of General Fund Revenues
The following table and chart show how the City’s primary General Fund revenue sources have performed from incorporation through FY 19/20. A few notable events are listed for each fiscal year to provide additional context. The revenue categories shown are the City’s 63 253
three primary revenue sources: property tax; sales tax; and, Transient Occupancy Tax (TOT). All other revenues are consolidated. When comparing total revenues over the fiscal years, only during the Great Recession did the City experience overall decreases and most recently with the start of the COVID-19 pandemic. The Great Recession began in December 2007 and ended in June 2009, and thus extended over 18 months.

Table 1 – History of General Fund Revenues
General Fund Five-Year Forecast Recap
The COVID-19 pandemic presents new challenge s since the revenues primarily impacted are two of the City’slargest revenue sources. The lasting impact is still unknown and even lifting the stay-at-home orders and reopening the economy in phases brings uncertainty, as there will continue to be ongoing fear of traveling and getting infected with COVID-19 and shifts in consumer spending online and telecommuting. Even when widespread treatment, Fiscal Year
(FY)
Property Tax
Revenue
YOY
% Chg
Sales Tax
Revenue
YOY
% Chg
TOT
Revenue
YOY
% Chg
All Other
Revenue
YOY
% Chg
Total
Revenue
YOY
% Chg Notable Events
FY 02/03 1,792,081$ 3,485,996 $ 2,141,810 $ 4,382,338 $ 11,802,225 $ SARS - 11/2002 - 7/2003 FY 03/04 2,045,480$ 14.14% 3,623,036 $ 3.93% 2,142,800 $ 0.05% 5,261,570 $ 20.06% 13,072,886 $ 10.77% FY 04/05 3,727,087$ 82.21% 3,864,388 $ 6.66% 2,281,612 $ 6.48% 3,969,708 $ -24.55% 13,842,795$ 5.89% Vehicle License Fee - Property Tax Swap FY 05/06 4,856,895$ 30.31% 4,039,979 $ 4.54% 2,636,260 $ 15.54% 3,885,783 $ -2.11% 15,418,917$ 11.39% Goleta postal facility shooting: 1/2006, Start of
Triple Flip
FY 06/07 4,793,775$ -1.30% 4,116,749$ 1.90% 2,538,567 $ -3.71% 5,257,402$ 35.30% 16,706,493 $ 8.35% FY 07/08 4,765,991$ -0.58% 4,160,113$ 1.05% 2,783,143 $ 9.63% 4,287,520 $ -18.45% 15,996,767$ -4.25% Great Recession 12/2007 - 6/2009, Zaca Fire
7/2007
FY 08/09 4,860,427$ 1.98% 3,353,658 $ -19.39% 2,461,489$ -11.56% 5,602,297$ 30.67% 16,277,872$ 1.76% Gap Fire 7/2008, Tea Fire 11/2008, Jesuita
Fire 5/2009, 7 hotels now operating
FY 09/10 4,942,940$ 1.70% 3,310,542 $ -1.29% 2,138,896$ -13.11% 4,004,651$ -28.52% 14,397,030$ -11.55% End of Great Recession FY 10/11 4,952,157$ 0.19% 3,905,548 $ 17.97% 2,420,762 $ 13.18% 3,348,128 $ -16.39% 14,626,594$ 1.59% FY 11/12 5,215,822$ 5.32% 3,845,273 $ -1.54% 4,141,635$ 71.09% 3,862,202 $ 15.35% 17,064,932 $ 16.67% FY 12/13 5,320,579$ 2.01% 5,776,818 $ 50.23% 5,604,278 $ 35.32% 4,698,890 $ 21.66% 21,400,564 $ 25.41% TOT RNA sharing adjusted from 40% to 0%
TOT tax rate increase from 10% to 12%
Sales Tax RNA sharing adjusted from 50% to
0%
FY 13/14 5,390,827$ 1.32% 6,812,304 $ 17.92% 6,975,799 $ 24.47% 4,079,384 $ -13.18% 23,258,314$ 8.68% Ebola: 2014-2016, Isla Vista Shooting 5/2014,
8 hotels now operating
FY 14/15 5,517,146$ 2.34% 6,329,870 $ -7.08% 7,807,860$ 11.93% 3,721,385 $ -8.78% 23,376,261$ 0.51% Refugio Oil Spill: 5/2015 FY 15/16 5,999,416$ 8.74% 6,216,442 $ -1.79% 8,175,381$ 4.71% 4,232,841 $ 13.74% 24,624,080 $ 5.34% Zika: 12/2015-9/2016, Sherpa Fire: 6/2016,
End of Triple Flip.

During the FY 20/21 Mid-Cycle Budget Adoption, the City Council received a report containing three budget scenarios, with staff’s recommendation to implement Scenario 2, which fell between best case and worst case. A summary of Scenario 2 through FY 24/25 is provided below along with estimated reserve balances. This scenario assumed a mild recession through end of FY 20/21 and City revenues not returning to normal levels until after FY 24/25. Total revenues from the City’s last normal year totaled a little over $30 million.

Table 2 - General Fund Five-Year Forecast (FY 20/21 Mid-Cycle Budget Adoption) In order to balance the budget, this scenario consisted of a combination of using unassigned fund balance to help offset revenue losses and temporary cost reduction strategies (such as a temporary hiring freeze of 11 FTEs and deferring capital projects). The 11 FTE’s were then phased back in over the next two fiscal yea rs, with 100% of the vacancies filled in FY 22/23.

What is not included in this forecast are the amounts for ongoing unfunded priority items, such as deferred maintenance costs within the City’s pavement program. The next part of this report (Forecast Scenarios below) supplemen ts this existing five-year forecast and extends it twenty years to capture the projected impacts and revenue shortfalls the City is anticipated to face without policy changes and revenue enhancements. Staff has prepared three scenarios using the FY 20/21 current budget as their baseline and has factored other cost information into the forecasts. It is important to note for the purpose of this forecast that starting in FY 21/22 staff has phased back in the 11 vacant positions that were temporarily removed in FY 20/21 a part of the hiring freeze. These costs are factored in FY 21/22 rather than phased over two years in to show the true impacts to the City. The City operates very Scenario 2 - Recession through FY 20/21
Summary of Five Year Forecast FY 20/21
Revised
FY 21/22
Projected
FY 22/23
Projected
FY 23/24
Projected
FY 24/25
Projected
Beginning Fund Balance 19,609,178$ 16,462,928$ 16,930,826$ 17,197,766$ 17,119,604$ Total Revenues 22,910,700$ 27,487,920 $ 28,769,500 $ 29,224,400 $ 29,690,100 $ Total Expenditures 26,056,950$ 27,020,022 $ 28,502,560 $ 29,302,561 $ 30,127,765 $ Net Revenue over Expenditures (3,146,250)$ 467,899 $ 266,940 $ (78,161) $ (437,665) $ Fund Balance Categories
Prepaids and Deposits 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ Public Facilities 830,108$ 830,108$ 830,108$ 830,108$ 830,108$ Capital Equipment 594,869$ 594,869$ 594,869$ 594,869$ 594,869$ Compensated Leave 237,123$ 237,123$ 237,123$ 237,123$ 237,123$ Risk Management 200,000$ 200,000$ 200,000$ 200,000$ 200,000$ Contingency Reserves 7,963,101$ 8,279,643$ 8,766,311$ 9,027,687$ 9,297,324$ Litigation Defense Fund 300,000$ 300,000$ 300,000$ 300,000$ 300,000$ Sustainability 292,500$ 292,500$ 292,500$ 292,500$ 292,500$ OPEB UAL 333,500$ 333,500$ 333,500$ 333,500$ 333,500$ CalPERS UAL 170,000$ 170,000$ 170,000$ 170,000$ 170,000$ CIP Project Funding -$ -$ -$ -$ -$ Encumbrances -$ -$ -$ -$ -$ Unassigned Fund Balance 5,531,726$ 5,683,083$ 5,463,355$ 5,123,818$ 4,416,516$ Ending Fund Balance 16,462,928$ 16,930,826$ 17,197,766$ 17,119,604$ 16,681,940$ 65 255
lean and having these positions left vacant will continue to impact staff capacity and workload. It is assumed in the forecasts al l positions are budgeted for and filled.

Forecast Scenarios
The following scenarios illustrate estimated trends in the Cit y’s revenues and expenditures over the next 20 years. The FY 20/21 current budget is used as the initial base for all scenarios, and FY 18/19 actuals are used to compare when the City’srevenues return to normal levels. FY 18/19 was the last normal fisca l year prior to the COVID-19 pandemic. If one-time or cyclical revenues or expenditures could be identified, they were adjusted in the future forecasted periods. A summary of the assumptions used in each scenario is presented below.

Staff has modeled revenue and expenditure forecasts for three different possible economic scenarios, current (worst case), moderate (trending), and optimistic (best case).

Expenditures for each scenario have been updated to reflect current conditions and cost containment strategies ending in FY 21/22. For forecasting purposes, the additional pavement budget of $3.3 million annually needed to maintain average PCI levels of 69 has been factored into the forecast after this information was recently presented to the City Council. The main characteristics of these scenarios are summarized below.

Scenario 1- Current Budget (Worst Case)
Based on recommended case during budget adoption
Revenues fully recover back to FY 18/19 levels in FY 25/26 Continued gradual conservative increases in re venues, particular with property tax, sales tax and TOT; no new revenue sources implemented, and no policy changes made to increase existing revenue sources
Cannabis tax reflected at very low levels from original adopted budget Moderate inflation of 2% to 3%, but grea ter-than-inflation increases in employee salary and retirement
Additional $3.3 million with annual cost escalator of 3.00% for pavement budget included
Scenario 2 - Moderate (Current Trend – Most Likely Case) Adjusted for current trending data, including cannabis tax Revenues fully recover back to FY 18/19 levels by FY 22/23 More significant revenue increases, specifically in the earlier years with cannabis, sales tax, and TOT; no new revenue sources implemented, and no policy changes made to increase existing revenue sources
Moderate inflation of 2% to 3%, but grea ter-than-inflation increases in employee salary and retirement
Additional $3.3 million with annual cost escalator of 3.00% for pavement budget included
Scenario 3 – Optimistic (Best Case)
Shorter recovery period, back to normal operations in FY 21/22 Revenues fully recover back to FY 18/19 levels by FY 21/22 Cannabis tax revenues reach high estimates; no new revenue sources implemented, 66 256
and no policy changes made to increase existing revenue sources Moderate inflation of 2% to 3%, but grea ter-than-inflation increases in employee salary and retirement
Additional $3.3 million with annual cost escalator of 3.00% for pavement budget included
Methodology and Assumptions
Under the best of circumstances, predicting future revenues and expenditures is especially challenging because of the wide number of economic, demographic, spending and policy variables involved. Forecasting is all about assumptions, and recent events are a reminder of what little control the City has over eco nomic factors. While the City Council does influence salary and benefit costs through the labor negotiation process and staffing levels set through the budget process, revenues are largely controlled by other levels of government or require voter approval. How ever, cities can set fee levels to not exceed related costs and can approve new development during the planning process. All of these factors cannot be known with certainty in advance, but one can understand recent trends, and make reasonable assumptions about the future.

The forecast methodology analyzes historical and current trends and includes a review of growth rates and changes from the last five years. Growth rates are then adjusted based on staff’s knowledge of known one -time events, fiscal conservatism and other economic adjustments. The methodology and assumptions used in the forecast modeling are provided in detail in Attachment 1 - Revenue and Expenditure Assumptions.

Scenario 1 - Current Budget (Worst Case)
This scenario uses current FY 20/21 adopted revenue budget data from the original five- year forecast. Full recovery of revenues is anticipated by FY 25/26. Cannabis tax revenues were projected relatively low due to uncertainty and volatility. TOT revenue estimates reflect very low occupancy levels through end of December 2020 with a gradual increase beginning in January 2021, and TOT revenues not fully recovered until FY 25/26. Sales tax revenues continue to be impacted, and do not achieve full recovery until 24/25.

For expenditures, FY 21/22 assumes ending the full hiring freeze, adding back personnel related costs that were temporarily removed, reprogramming annual Goleta Entrepreneurial Magnet (GEM) funding of $50,000 and resetting the general fund portion of the pavement maintenance budget to $730,000 in FY 21/22. An additional $3.3 million of ongoing pavement budget is also factored in. Giv en the additional $3.3 million General Fund contribution, a deficit is projected in all years under Scenario 1. 67 257
Figure 1 – Scenario 1
Average annual deficit over the next five years: ($5.0 million) Average annual deficit over the next 10 years: ($6.1 million) Average annual deficit over the next 15 years: ($7.7 million) Average annual deficit over the next 20 years: ($9.7 million) Scenario 2 – Moderate (Current Trend – Most Likely Case) In this scenario, General Fund revenues return to FY 18/19 levels by FY 22/23. Revenues have been adjusted based preliminary FY 20/21 fi rst quarter data and trending information received with sales tax, TOT and cannabis. Cannabis is now projected at $1,000,000 in FY 21/22, which is the lower end of the range of revenues currently projected. Based on the data known at this time, staff feels this is the most likely revenue scenario in the near term.

For expenditures, the forecast assumes the same as stated in Scenario 1. Given the higher revenue performance, the gap is not as large when compared to Scenario 1.

Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($30)
($20)
($10)
$0
Millions
Net Operating Revenue (Annual Change in Fund Balance)
68 258
Figure 2 – Scenario 2
Average annual deficit over the next five years: ($2.6 million) Average annual deficit over the next 10 years: ($3.0 million) Average annual deficit over the next 15 years: ($3.9 million) Average annual deficit over the next 20 years: ($5.0 million) Scenario 3 – Optimistic (Best Case)
In this scenario the General Fund experiences the fastest recovery by FY 21/22. TOT is assumed to be back to normal levels by FY 22/23 and cannabis tax revenues reach $2 million in FY 21/22 with continued growth in the near term.

For expenditures, assumptions are the same as the previous two scenarios. Even with the best-case scenario, a projected average deficit continues to exist in the long term.

Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
-$12
-$10
-$8
-$6
-$4
-$2
$0
Millions
Net Operating Revenue (Annual Change to Fund Balance
69 259
Figure 3 – Scenario 3
Average annual deficit over the next five years: ($474,000) Average annual deficit over the next 10 years: ($494,000) Average annual deficit over the next 15 years: ($903,000) Average annual deficit over the next 20 years: ($1.5 million) Risks Related to the Forecast
The City has many other needs and demands beyond the existing programs and services levels that are programmed in the forecasts. These include the following:

COVID-19 Pandemic
The forecast does not contain future impacts related to the COVID-19 pandemic beyond the initial years. There are still many unknown impacts that the ph ased reopening will have on Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($7)
($6)
($5)
($4)
($3)
($2)
($1)
$0
$1
Millions
Net Operating Revenue (Annual Change to Fund Balance)
70 260
the City’s ability to return to business as usual. Unlike the Great Recession where businesses remained open, the COVID-19-realated shutdowns immediately impacted revenues associated with TOT and sales tax, our two largest contributors.

Volatile Economy and Economic Downturns
The City’s revenues are impacted by economic conditions. As seen in the Great Recession, the City’s three largest revenue sources, property, sales and TOT are tied to the broader economic trends. The three scenarios presented in the body of this report do not attempt to incorporate the impact of future downturns, as the timing and duration of downturns is difficult to project. Though for additional in formation depicting what future recessionary impacts may look like, staff prepared recessionary models similar to what was experienced during the Great Recession and provided them in Attachment 2. Also, while the growth projections incorporated in the forecast are conservative, they will be re-evaluated as needed based upon future economic indicators.

State Takeaways and Borrowing
During times of economic downturns, the State of California has previously shifted, borrowed, or taken money from cities to cover its own budget shortfalls. In an effort to protect local governments, Proposition 1A was passed in 2004 to protect local revenues from being transferred to the state. However, Proposition 1A can be suspended if the Governor declares a fiscal necessity and two-thirds of the Legislature concur. The first emergency suspension of Proposition 1A was passed by the Legislature as part of the 2009-10 budget package.

Under this provision the State borrowed 8% of the amount of property tax revenue and was required to repay the obligation plus interes t by 2013. After this initial repayment, the legislature may consider only one additional borrowing within a ten-year period. While it cannot be predicted if the state will once again borrow money from local governments, it is a possibility. There has been no indication leading to any state takeaways. However, the state has taken action in regard to sales tax de ferral options for local businesses that may qualify. Based on FY 19/20 data, there are no projected impacts at this time. Additional updates and information will be known in January 2021.

Unfunded Liability Pension Costs and OPEB
CalPERS pension costs continue to rise, and estimated impacts are currently factored in the forecast models. The forecasts utilize projections from the most recent CalPERS Actuarial Review Report from July 2020, for the June 30, 2019 valuation date.

OPEB retiree health care cost is adjusted an nually based on known retiree amounts. Staff used FY 20/21 figures as a basis and assumed one additional retiree each year. The initial annual OPEB cost is currently projected at $21,000, in which the City pays the Public Employees' Medical & Hospital Care Act (PEM HCA) minimum, which is currently $139 a month or $1,668 annually. Retiree health care costs are expected to grow as the City experiences more retirees. From the last OPEB valuation report, it was anticipated that the City can potentially expect 25 retirements in the next 10 years based on age.

Compensation Increases and Adjustments
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Staff assumed no new positions in the forecast and assumed growth rates based on budgetary practices. Actual impacts or chang es could result based on future labor negotiations or changes in staffing levels.

Deferred Maintenance
The forecast does not include deferred maintena nce items except the amount specific for pavement. As more information becomes available it will be programmed into the forecast.

No Major New One-time Expenses
The forecast does not include any assumptions for unexpected one-time expenses, such as changes in legislation, unexpected events, acts of nature, or other such factors that could require the City to expend a significant amount of General Fund resources. These types of expenditures are generally supported by the City’s fund balances and reserves.

No New Personnel or Program Expansion
The forecast only assumes ending the hiring freeze and restoring back to original FTE levels.

Additionally, no new program expansions are forecasted such as with Affordable Housing, Homelessness, Creeks/Watershed or the Library, but are discussed further below in the next section of the report.

Other Special Revenue Operating Fund Deficits
While this forecast solely focuses on the Ge neral Fund, there are other major operating funds of the City. These special revenue funds support specific services such as the Library, Streetlights, Storm Water and Solid Waste. These major operating funds are being analyzed and future forecasts will be updated when this inform ation is available. It is highly likely operating expenditure growth will exceed the capacity of these funds and they may need additional ongoing support from a dedicated source of revenue.

Addressing the General Fund Gap
Since incorporation the City ’s general fund revenues were limited due to the revenue neutrality agreement and will continue to face fiscal challenges beyond the pandemic and recession. The City’s largest tax revenues will continue to be extremely volatile over the next few years. Additionally, deferred maintenance of major projects and infrastructure continues to grow due to insufficient funds available, which will result in further cost increases in the future if this work continues to be delayed.

In all scenarios modeled, staff projected budget shortfalls through the forecast periods.

While there may be one-time fund balance and reserves to help bridge the short-term gap, revenue levels are not sufficient to keep up with ongoing expenditures when factoring in deferred maintenance items such as pavement. The deficits will be larger when the costs of the additional items are known and included in the models. 72 262
In summary, without additional revenue streams, the City’s General Funddoes not have the capacity to take on the additional ongoing $3.3 million pavement budget needed, any new projects or programs, funding needed for personnel and staffing levels, investment in facilities and ongoing deferred maintenance, or to fully support one-time needs of CIP. The current forecast also indicates the City is not in position to issue debt or take on new debt without going to the voters.

The City’s current revenue sources are only able to support the status quo levels pre- COVID. While the City continues to operat e with a very lean staff, there are staffing imbalances citywide. Overall expenditures will continue to outpace revenues over time.

Even in the best-case scenario, while the deficit is reduced , the City’s revenues are not enough to keep up with the growing demands of maintaining service levels and public infrastructure at the level of investment needed. It should be noted that there are many other unfunded priorities that were not included in the forecast yet due to timing of information available when this report was prepared. However, the inclusion of this information will only increase the deficit further.

Budget strategies to address the needs shown in the forecasts are further discussed below.

In summary, strategies can include four major components: 1) revenue enhancements; 2) expense reductions; 3) alternate use of current funds; and, 4) alternate levels of service.

General Fund Balance and Reserves
The essence of a budget forecast is the fund balance. Budgets cannot run fund balance deficits, so the financial assumptions selected must result in a sustainable fund balance over time in order for the budget to be structurally balanced. The City’s fund balance consists of multiple reserve categories, including the unassigned fund balance, and contains other tools for managing impacts to finances and balancing the budget.

The City’s reserves (fund balance) provide options to respond to e mergencies, economic shocks, other risks and unanticipated expenditure s. The City’s overall reserves consist of various categories for specific uses. The City has been successful over the years in maintaining its contingency reserve at 33% of its operating budget, but also in building its unassigned fund balance over time to address revenue fluctuations and unanticipated expenditures. It will be important to sustain adequate reserves for economic recovery, but also to hedge against other risks.

The Government Finance Officers Association (GFOA) recommends cities maintain at least a minimum of 16 percent of unrestricted fund balance, though this is intended as a baseline, and further recommends cities maintain reserv es at a higher level according to local conditions and unique circumstances.

The City’s primary risk factors are revenue volatilityand liquidity. Revenue volatility because the City has a strong dependency on sales tax and TOT, and liquidity with the timing of large primary revenues such as property tax only being received twice a year, with the first payment in December. Additionally, given the RNA, the City does not receive its full property tax allocation resulting in higher reliance on those sources more sensitive to swings in the economy. Sales tax and TOT accounted for 60 % of the City’s General Fund revenue on 73 263
average over the past five years. The follow ing charts show cumulative fund balance impacts based on the unassigned fund balance.

Figure 4 – Scenario 1 Cumulative Unassigned Fund Balance Figure 5 – Scenario 2 Cumulative Unassigned Fund Balance ($250)
($200)
($150)
($100)
($50)
$0
$50
Millions
Cumulative Unassigned Fund Balance
$(120)
$(100)
$(80)
$(60)
$(40)
$(20)
$-
$20
Millions
Cumulative Unassigned Fund Balance
74 264
Figure 6 – Scenario 3 Cumulative Unassigned Fund Balance Section 2: Unfunded Liabilities and Other Priorities
This next section outlines the City’s unfunded liabilities, estimated deferred maintenance, operating and program costs, CIP projects, and master plan implementation costs. Given the challenges with forecast ing future costs, preliminary assumptions were made on estimates and further detailed under the Expenditure and Assumptions section of this report.

Cost estimates presented in the report are subject to change over time and so any estimated amounts listed now will differ from what will be experienced. Prior to Council considering or action on unfunded priorities, cost estimates should be updated.

Unfunded Liabilities:

The City has pension and retiree medical obligations, along with a one-time settlement agreement with the Department of Finance (DOF) related to the RDA dissolution (see Table 3 below). Unfunded liabilities are as of recent actuarial reports and repayment schedules and total $9.3 million. Funding is currentl y set aside for both pension unfunded accrued liabilities and OPEB liabilities in the General Fund. The City appropriates an annual payment amount of approximately $776,000 related to the DOF settlement agreement, and annually appropriates liability payments for CalPERS UAL and expenditures directly related to retiree OPEB healthcare costs. The settlement agreement is scheduled to be paid off by FY 24/25.

Table 3 – Summary of Unfunded Liabilities
Unfunded
Liabilities
Est.

Amount
Current
Funding
Adj. Est.

Amount
Potential Funding
Sources
CalPERS UAL $ 3,517,839 $ 333,500 $ 3,184,339
Section 115 Trust
(once funded)
OPEB UAL $ 2,438,474 $ 170,000 $ 2,268,474
Section 115 Trust
(once funded)
Settlement
Agreement $ 3,880,000 $ - $ 3,880,000 N/A Total $ 9,836,313 $ 503,500 $ 9,332,813
($35)
($30)
($25)
($20)
($15)
($10)
($5)
$0
$5
$10
$15
Millions
Cumulative Unassigned Fund Balance
75 265
Note: Funding set aside for CalPERS and OPEB UAL will soon be transferred to the recently established Section 115 Trust with PARS. Next steps with the Section 115 Trust includes meeting with the Finance Committee to recommend a strategy and policy, and then brought back to City Council for authorization. Given the timing, staff resources and capacity, staff anticipates this process to begin in January.

Unfunded Priorities in Operating Budget
The City has various unfunded priority needs, with some costs offset by other special revenues, such as with those related to street maintenance, street lighting, solid waste and the library. Table 4 provides a list of other Ci ty priority funding needs and is not complete.

The list provides information on other priorities, such as additional pavement budget needed to maintain an average PCI level of 69 and operating and maintenance costs related to other facilities, ongoing programs or projects and staff level imbalances. Actual funding needs will require additional analysis.

The list is separated in two sections, identified as one-time and ongoing.“One-time” uses of funds are expenditures for projects or programs that are completed within the fiscal year.

While there may be some future maintenance costs for some of these items, such costs are relatively minor when measured against the Ge neral Fund as a whole. “Ongoing” uses of funds, on the other hand, demand continuing expenditures in future years. The most obvious example is the addition of a new employee. Salary, benefits, and support costs, such as training and equipment, will affect every future budget for as long as the new position remains programmed. Because there are future cost increases to which the City may be committed, extreme care needs to be exercised so that current year commitments do not overwhelm future year resources. While most of the projects funded by the General Fund will not create new expenditure commitments, some of the projects funded from other sources will have that effect —particularly new parks (as compared to improvement of existing parks) and new public buildings. On the other hand, many projects, if addressed now (especially street maintenance and park rehabilitation projects) should help control future costs by minimizing the need for emergency repairs and higher costs.

Table 4 - Summary of Unfunded Priorities
The costs identified are either one-time if identified or annual ongoing costs in addition to the current budget. Some of the major deferred maintenance items related to transportation have other special revenue funding sources allocated such as Gas Tax or Measure A. Also, the additional unfunded costs are not related to what was identified as part of the temporary cost reduction strategies or positions related to the hiring freeze. These are areas preliminary identified and subject to further review and analysis as noted in the table.

Unfunded
Categories:

Unfunded
Notes and Funding
Sources One-time
Annual Ongoing
Costs Additional to
Current Budget
Deferred Infrastructure Maintenance
Additional Pavement
Budget to maintain
average PCI level of
69 TBD $3,300,000 Additional annual amount
needed. Tax revenue.
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Backlog of concrete
repair
TBD $250,000 Tax revenue
Backlog of public tree
maintenance
TBD $300,000 Tax revenue
Deferred Traffic
Signals – Full
replacement
TBD $500,000 Tax revenue
Deferred Traffic
Control Sign
Replacements
TBD $40,000 Tax revenue
Storm drain
maintenance
TBD $250,000 Tax revenue
Vehicles and
Equipment
TBD $150,000 Tax revenue
ADA related
improvements
TBD TBD Tax revenue
Facility maintenance TBD $275,000 Tax revenue, user fees San Jose Creek
Annual Cleanout
TBD $200,000 Tax revenue
Park and open space
maintenance
rehabilitation
TBD $150,000 Tax revenue, user fees
Staff level imbalances or service level by Dept/Program General Government TBD TBD Tax revenue, user fees
Library $200,000 Annual cost estimates for
book budget needed once
Library DIF is used up.

Grants, Tax revenue, user
fees
Finance TBD $260,000 Staff level imbalances.

Department to undergo
assessment. Was delayed
due to
COVID-19.

Unrelated to hiring freeze
and preliminary analysis.

Tax revenue, user fees
Planning and
Environmental
Review
TBD TBD Affordable Housing
Program. Staff level
imbalances.

Tax revenue, user fees
Public Works TBD TBD Staff level imbalances. Tax
revenue, user fees
Solid Waste TBD $90,000 Tax revenue, user fees
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Streetlights TBD TBD Tax revenue
Neighborhood
Services and Public
Safety
TBD TBD Tax revenue, user fees
Master Plan Documents Needing Implementation
Parks Master Plan TBD TBD Federal/State Grants
Creek and
Watershed
TBD $50,000 Depending on future action
costs may increase one-
time for CIP and annually if
department or program
created.

Tax revenues, grants, user
fees
Bike/Ped Master Plan $ 13,980,000 TBD Federal/State Grants, tax revenues
IT Strategic Plan TBD $1,188,000 Further analysis needed.

Amount subject to change
based on action.

Economic
Development Plan

TBD TBD TBD
Economic Recovery
Plan
TBD TBD Currently being developed.

Homelessness
Strategic Plan
TBD $760,000 Preliminary estimates,
subject to change on
action. Plan is still under
draft and review
Strategic Energy Plan
and Climate Action
Plan
$3,830,000 $282,000 Preliminary estimates,
subject to change on
action.

Butterfly Habitat
Management Plan
$63,500 $203,600 $3.9 million one-time state
grant. Amount listed is
estimated future unfunded
cost.

Lake Los Carneros
Master Plan
TBD TBD Tax revenues
Unfunded CIP Projects
The City has a major investment in its infrastructure – streets, bike paths, parks, public buildings and improvements, which is valued on the City’s books at $191 million (excluding vehicles and equipment) as of June 30, 2019. Table 5 is a list of the City ’s CIP projects identified in the recent FY 20/21 mid-cycle budget with total estimated amounts of $78 million that have no, or only partial funding sources identified. These amounts along with the entire Five-Year CIP Budget will be updated in the upcoming budget cycle for FY 21/22 and 22/23. 78 268
Funding sources are subject to change as more information is known and other funding sources may become available. Depending on the type of project, grants, DIFs or debt financing may be available to offset some or all costs. For now, staff has included potential funding sources, though this will require further analysis by individual project. The current list below is listed by project number, in no order of priority.

Table 5 - Summary of Unfunded CIP Projects
CIP Projects
(Unfunded Next Five Years)
Est. One-Time
Amount Funding Sources
9001-Hollister Avenue Complete
Streets Corridor Plan $ 1,186,000
Grants, DIF, IBank, Other
Debt Financing
9006-San Jose Creek Bike Path -
Southern Extent $ 1,210,000
Grants, DIF, IBank, Other
Debt Financing
9009-San Jose Creek Improvements
and Fish Passage $ 570,000
General Fund $460,750
appropriated 9/1/2020
9025-Fire Station No. 10 $ 14,821,994
DIF, IBank, Other Debt
Financing
9027-Goleta US 101 Overcrossing $ 28,500,000 Other Debt Financing 9053-Cathedral Oaks Crib Wall
Interim Repair Project $ 8,300,000 IBank, Other Debt Financing 9056-LED Street Lighting Project $ 100,000
Special Revenue Funds,
IBank, Debt Financing
9064-Reclaimed Water Service to
Evergreen Park $ 310,000 DIF
9065-Reclaimed Water Service to
Bella Vista Park $ 230,000 DIF
9067-Goleta Community Center
Upgrade $ 7,650,000
Grants, IBank, Other Debt
Financing
9069-Miscellaneous Facilities
Improvements $ 1,150,000 Other Debt Financing
9077-Recreation Center/Gymnasium $ 1,938,585
Revenue Bonds, Grants,
DIF, Other Debt Financing
9078-Rancho La Patera
Improvements $ 2,985,000
Revenue Bonds, Grants,
DIF, Other Debt Financing
9081-Covington Drainage System
Improvements $ 3,700,000 IBank, Other Debt Financing 9085-Goleta Storm Drain Master
Plan $ 220,000
GF or Special Revenue
Funds
9086-Vision Zero Plan $ 300,000
GF or Special Revenue
Funds
9096-Orange Avenue Parking Lot $ 300,000 Special Revenue Funds 9097-Fairview Corridor Study
(Fowler Road to Calle Real) $ 370,000
GF or Special Revenue
Funds
9100-Hollister Avenue/Fairview
Avenue Roundabout (Intersection
Improvements)
$ 550,000 Special Revenue Funds
9101-City Hall Purchase &
Improvements $ 435,500
GF Facility Reserves, IBank
or Other Debt Financing
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9103-Citywide School Zones
Signage & Striping Evaluation $ 65,000 Special Revenue Funds 9104-Citywide Evaluation of Existing
Traffic Signals $ 65,000 Special Revenue Funds 9105-Ellwood Beach Drive Drainage
Infrastructure Replacement $ 226,725
Special Revenue Funds,
Other Debt Financing
9106-Phelps Ditch Flood Control
Channel Trash Control Structure $ 670,000
Special Revenue Funds,
Other Debt Financing
9107-Old Town South Fairview
Avenue, High Flow Trash Capture
Devices $ 325,000
Special Revenue Funds,
Other Debt Financing
9109-Ward Drive Sidewalk Infill $ 390,000
Special Revenue Funds,
Other Debt Financing
TBD-03-Ellwood Coastal Trails and
Habitat Restoration $ 2,475,000
Grants, Other Debt
Financing
Total Cost $ 79,043,804
Total Adjusted Cost $ 78,473,084
Accounts for GF appropriation
for 9009 of $460,750 and
removes the unfunded budget
amount of $570,000
Any type of debt financing or use of loans should be further evaluated. The type of financing will depend on multiple factors including useful life, project cost, type of project, and how the project is used in regard to private activity. If the type of infrastructure needing funding is considered ongoing, like maintenance and repair, a dedicated source of ongoing revenues should be utilized instead of financing.

Section 3: Revenue Enhancement and Financing Options to Address Ongoing Unfunded Priorities and One-Time Infrastructure Projects Revenue Enhancement Options
The purpose of this section is to provide the Ci ty Council with data that may assist the Council in considering future revenue enhancement options, such as increasing existing tax rates or implementing new taxes. While conducting research last spring on the City’s potential adoption of an ordinance to place a new 1% (or one cent) sales tax measure on the November 3, 2020 ballot, staff presented information regarding various revenue options to Council. This material encompassed: 1) the details of the adoption process for the two- types of add-on sales taxes measures; 2) th e difference between a General Purposes and a Specific Purpose Tax; 3) specifics about Goleta’s current Sales and Use Tax rates; 4) add- on sales tax limits; 5) the difference between a Transactions and Use Tax and Sales and Use Tax; 6) potential impacts of a sales tax increase; and, 7) a summary of alternative revenue options. Attachment 3 contains this detailed information for reference.

Financing Options
In general, local governments rely on two methods of financing infrastructure:
1) Pay-as-you-go (pay-go, or cash)
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2) Pay-as-you-use (pay-use, or debt)
Each financing method has its unique adv antages and disadvantages. Depending on the amount of financing needed, it may become a heavy financial burden for the City to continue paying “cash” for infrastructure improvements that use up a significant amount o f General Fund cash flow each year for capital improv ements with long useful lives. Financing infrastructure and capital assets can achieve inter-generational equity as these long-term investments are paid for by the future taxpayers who will benefit from them. The following table provides a list of traditional financing methods and funding sources that may be used for capital improvements.

Table 6 – Summary of Financing Options
Pay-As-You-Go Financing
(Cash and Savings)
Pay-As-You-Use Financing
(Debt Financing)
Taxation
x General Taxes (General Fund)
x Special Dedicated Taxes (Special
Revenue Fund)
Capital reserves and fund balance
x Inter-fund loans
User charges
Federal/State grants and aid
Loan financing
x Private bank loans
Bond financing
x General obligation bonds
x Revenue bonds
x Private activities bonds
x Leasing-revenue bonds
x State Bond Banks
Any financing options pursued will require a full analysis regarding debt capacity (ongoing revenue available to support debt se rvice payment), conformance with the City’s debt management policy, and would be subject to the City’s debt limitations level, which is currently at $279 million. Staff has provide d detailed information on financing options available to the City in Attachment 4.

Summary Recap, Next Steps, and Recommended Actions
As previously stated in the forecast section, in all scenarios modeled, staff projected budget shortfalls through the forecast periods. While there may be one-time fund balance and reserves to help bridge the short-term gap, revenue levels are not sufficient to keep up with ongoing expenditures when factoring in funds needed to address the deferred maintenance items (such as pavement), and will continue to grow when factoring additional deferred maintenance items. Without additional revenue streams or policy changes, the City’s General Fund does not have the capacity to take on the additional ongoing $3.3 million pavement budget needed, any new projects or programs, funding needed for new personnel and staffing levels, investment in facilities and other ongoing deferred maintenance, or provide one-time gap funding support to the CIP. The current forecast also indicates the City is not in position to issue debt or take on new debt without going to voters.

The long-range financial forecast makes clear that the City faces financial challenges in the near term and long term. New ongoing revenue streams will be needed, or service level reductions will need to be implemented. The CIP needs to be prioritized and financing options need to be pursued. Staff will present recommended CIP project prioritization 81 271
strategies at a future workshop foll owing the discussion of the City’s 20 -year financial forecast.

Funding Ongoing Operations and Unfunded Maintenance
Based on the scenarios modeled above, when averaging out all three scenario’s deficits over a 20-year period, the additional annual revenues needed in the near term are $2.7 million and in the long term are approximately $5.4 million, as summarized in Table 7.

Table 7 – Summary of Average Annual Deficit
The average annual deficit will grow larger when factoring in the other additional budget needed to fund ongoing deferred maintenance. Using current estimates, this would result in an additional $2.1 million or increase the average to approximately $7.5 million.

There are several options available in funding ongoing operations and maintenance in both the near term and long term. Given that these types of expenditures require significant ongoing revenue streams, it is recommended that the City Council direct staff to explore both near term and long-term revenue enhancement solutions.

Near Term Recommendations
In the near term, staff recommends City Counc il direct staff to ev aluate adjustments to existing cannabis business tax rates. For exampl e, based on preliminary estimates, staff have modeled that with a 1% increase to each category except medicinal, the City will have the possibility to almost double its cannabis revenue. Based on the current license types and rates, staff’s model indicated a possible 88% increase in cannabis overall revenues. If Council supports this recommendation, staff will work with the City’s consultants to bring a feasibility analysis back to Council on recommend rate adjustments.

It should be noted that staff is continuing to evaluate other near-term treatments. One of the primary objectives for the City is to ensure full cost recovery of services. Staff plans to bring its final User Fee Study and Cost Allocation Plan for Council consideration in January.

Long Term Recommendations
In the long term, staff recommends City Council direct staff to explore a one percent transaction and use tax measure, as was discussed in the prior fiscal year, and bring it back to Council for further consideration. As was shown in the polling results earlier this year, this type of tax measure has a good chance of being supported by voters, and would generate the amount of ongoing revenue required in the long-term to help meet community needs and allow the City the capacity to finance CIP projects when needed. 5 Years 10 Years 15 Years 20 Years
Scenario 1 (4,969,811)$ (6,085,453) $ (7,727,939) $ (9,701,587) $ Scenario 2 (2,580,215)$ (2,975,407) $ (3,856,853) $ (4,985,740) $ Scenario 3 (473,761)$ (493,934) $ (903,435) $ (1,482,948)$ Average (2,674,595)$ (3,184,931) $ (4,162,742) $ (5,390,092) $ Average Annual Deficit
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A preliminary analysis of local revenue meas ure results shows there were over 400 measures on local ballots in California for the November 3, 2020 election, including 260 local tax and bond measures, with 146 tax measures proposed by cities. For the local add- on sales tax measures there were 68 cities and three counties, with 59 of the 71 measures passing - a passing rate of 83%. Further details of the November tax measure results have been included in Attachment 5. Should the City Council choose to pursue a transaction and use tax measure, the earliest that it can be brought to the voters would be November 2022.

Should the City Council ever declare a fiscal emergency, it can be considered earlier by a unanimous vote of the City Council.

Alternatively, Council can direct staff to ex plore other types of tax measures, including a Transient Occupancy Tax increase, a Utility User Tax, a Business Operations Tax or a Parcel Tax.

Funding Unfunded Liabilities
There are several strategies that can be us ed to meet the future unfunded pension and OPEB UAL challenges. At Council’s direction, staff has implemented the Section 115 Trust, and now seeks Council direction to transfer funds that have been set aside for this purpose to the Trust and begin investing the plan assets. At this time, staff recommends City Council authorize staff to transfer funds currently set aside in reserves for CalPERS UAL in the amount of $170,000 and OPEB UAL in the amount of $333,500 to the Section 115 Trust and utilize the Moderate (passive) investment strategy. Given that these funds are there to be held and used in the long-term, this type of strategy best fits the City’sneeds. While not recommended, if the City were considering withdrawing funds in the near term, then a conservative investment strategy should be considered. Additional information on the investment strategies available to the City is found in Attachment 5.

If directed by Council, staff will initiate the transfer to the Section 115 Trust. Additionally, staff will come back in January or February to the Finance Committee and the City Council with a recommended funding policy and strategy for the trust. As of right now, staff’s preliminary analysis recommends making funding OPEB a higher priority given the plan does not have accumulated assets like CalPERS pension plan, which is currently 80% funded. OPEB is currently 0% funded, until assets are held in the trust.

Funding CIP and Major One-time Maintenance Projects
There are several options available in funding CIP and major maintenance projects in full or in part that would result in a balanced budget. Those options include the following:

Using One-Time Unassigned Fund Balance or Internal Fund Borrowing if Available The City’s General Fund unassigned fund balance has continued to grow over the years due to savings and higher than anticipated one-time revenues over the years. A good portion of these funds could be used to supplement high priority CIP projects or major maintenance items. Ideal use of these funds would be on high priority items or CIP projects that have difficulties securing funding or need a one-time match. Staff recommends that not all of the unassigned fund balance be utilized but a portion. The fund balance is necessary to ensure 83 273
liquidity to cover large outstanding grants reimbursements, unexpected expenditures, and fluctuations in revenues. Based on current projections reported in the FY 20/21 First Quarter Financial Report, approximately $3.4 million may be available for one-time uses, leaving a balance of $5.5 million. Staff recommends City Council direct staff to further analyze and consider this option and recommend a final number be set aside for CIP project funding.

Debt Financing
Similar to what was done for the City Hall acqu isition project. The City could pursue debt financing for large capital projects such as Fire Station No. 10. The only issue would be ensuring enough revenue capacity is available to finance that amount. Based on the rate structure for the recent City Hall purchase financing, a maximum annual debt service of approximately $500,000 will allow the City to finance $10 million.

New Revenues
This is related to pursuing the same tax measure as identified above in funding ongoing operations, except allocating a portion of the new revenues by policy to high priority maintenance items or CIP projects. The additional revenue sources would also give the City the additional capacity to finance more, large projects.

The City could also identify certain projects th at benefit specific users and direct staff to pursue a benefit assessment district as well. This would need to be further evaluated.

Combination of Options
Rather than relying on only one option, the City could utilize a combination of them. As stated, a new revenue source would ensure funds are available to support debt financing.

Staff recommends that Council direct staff to pursue new revenues and debt financing options and bring them back to Council with a CIP Funding Plan. The combination of the two would ensure fiscal stability and flexibility with debt capacity when needed. Funding polices could be developed around the use of the new revenue stream(s) to address maintenance, CIP and staff needed to implement a variety of programs, projects and services. Revenues could then be reprogrammed when available to other priority needs.

FINANCE COMMITTEE:

The Finance Committee received a presentation on Long Range Financial Forecast and Revenue and Funding Options and provided fee dback to staff in preparation for this workshop.

FISCAL IMPACTS:

There are no fiscal impacts associated with report, as the information provided is for forecast purposes. Future action taken based on the in formation provided may result in positive or negative fiscal impacts and will be provided in a later report.

ALTERNATIVES:

The City Council may direct staff to continue with discussion of the Long-Range Financial Forecast and direct staff to model different types of scenarios and continue to provide further 84 274
analysis on other funding mechanisms.

Reviewed By: Approved By:
___________________ _________________
Kristine Schmidt Michelle Greene
Assistant City Manager City Manager
ATTACHMENTS:

1. Revenue and Expenditure Assumptions

2. Alternative Financial Forecast Scenarios

3. Tax Measures

4. Debt Financing Options

5. California Local Revenue Measure Results

6. Section 115 Trust Investment Strategies
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85 275
ATTACHMENT 1:
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86 276
Revenue and Expenditure Assumptions
The forecast methodology used includes analyzing historical and current trends and reviewing the growth rates and changes from the last five years. Growth rates are then adjusted based on staff’s knowledge of known one-time events and fiscal conservatism or other economic adjustments.

By applying an average growth rate, there are no up or down cycles depicted in the base model. The annual growth rate approach provides an overview of the general trend where revenues and expenditures are going in a linear fashion. In reality, year over year changes may deviate significantly positively or negati vely. This type of model shows where the City’s financial condition is headed if it does nothing, and where it stands with current net operating revenues.

The forecast shown in the body of the staff report starting on page six now extends twenty years and summarizes the City’s net operating revenues. Having positive net operating revenue consistently over the years is a key indicator of the City’s ability to support additional ongoing costs, including staffing level changes or taking on debt. Any negative net operating revenue may indicate the City has either a one-time or ongoing deficit, that may be supported by one-time reserves or fund balance if it is available. For Goleta, it is common to see the City adopt a balanced budget with revenues matching or exceeding expenditures by approximately $1 million and then later make adjustments in the new fiscal year where expenditures now exceed re venues. This is due to prior year budget carryovers or new appropriations authorized. Those increased expenditures are supported by use of fund balance or reserves, if available, or other new revenue sources made available.

For this forecast, if there is a positive net operating revenue, this is considered a surplus which in turn adds to the overall fund balance. If there is a negative net operating revenue, where expenditures exceed revenues, this is considered a deficit, shortfall, or budget gap.

The longer the deficit, the more it will depletethe City’s overall fund balance and reserves.

To the extent that a shortfall is not resolved, or a surplus is not expended on an ongoing basis, it is important to understand that the remaining budget gap or surplus will carry over to the following year.

Given that we know what was experienced from March through June of 2020 with sales tax and TOT, along with current trending data, Scenario 1 is now considered the worst- case scenario. Should another economic shutdown happen similar to what was experienced, revenues could produce simi lar results as assumed in Scenario 1.

Additionally, staff also provided a very low and conservative cannabis tax estimate given the volatility and uncertainty of not having experienced our first full quarter and seeing data. Staff has since received data for two full quarters and cannabis tax revenues are now projected higher than budgeted which is adjusted for in Scenario 2.

Key Revenue Assumptions
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Property Tax Assumptions
Over the last five years, property tax revenues have grown on average by approximately

6.8% annually. In Scenario 1, this growth is anticipated to remain flat in FY 21/22, with an approximate 2% growth thereafter accounting for Prop 13 inflation values. Staff does not assume new building or new properties coming on the tax rolls. In Scenario 2, property tax is assumed to grow by 2% annually, and then climb to 3% by FY 25/26. In Scenario 3, property tax is assumed to grow by 3% annually and then climb to 3.5% by FY 25/26.

Update as of December 3, 2020 – There is a high risk that property tax inflation will be less than the maximum 2% as projected in the forecast and experienced since FY 16/17.

The actual number will be known by end of December. The inflation factor is a calculation determined by the California Department of Industrial Relations known as the California Consumer Price Index as is based on the October annual change. Last fiscal year, this number was released on December 27, 2019.

Sales Tax Assumptions
Over the last five years, sales revenue has grown on average by approximately 1.35% annually, though it was impacted with timing of store closures and new ones reopening in the same places. In Scenario 1, this growth was anticipated to remain impacted by COVID-19 in the first year for a total of $5.9 million and then expected to grow on average by 3.33% the next five years and return back to FY 18/19 levels at $6.9 million by FY 25/26. Going forward growth is expected to be at 2%. In Scenario 2, this growth is anticipated to be 11% in the first year, based on internal revised estimates and trending data received from our sales tax consultants. Recovery and impacts are anticipated to be quicker, primarily due to increased allocation in online sales, which will offset the losses in certain industry groups. Going forward the next five years average growth is projected at 2.9%, then it is projected to drop to 2.5%. Sales tax is expected to recover by FY 22/23.

In Scenario 3, this growth is anticipated to be 22% in the first year, then average 2.9% the next five years, then drop down to 2.5%. The 22% growth for a total of $7.2 million is based on the latest projection received by our sales tax consultants. Sales tax will have recovered by FY 21/22 under this scenario. The forecast considers continued economic impacts through end of calendar year 2020 with only a mild return into 2021. Anticipated growth expected in FY 21/22 has more to do with a continued return of consumers from the initial COVID-19/economic shutdown period and sustained growth in countywide use tax pool allocations as online shopping continues to take away from brick and mortar sales.

Transient Occupancy Tax Assumptions
Over the last five years, prior to COVID-19, TOT revenues have grown on average approximately 10.75%. This growth is primarily due to two new hotels coming online and changes in hotel ownership/operations. In FY 19/20, the City experienced a decrease over 20% due to the impact of the pandemic. In Scenario 1, TOT is forecasted to increase by 76% in the first year, and gradually incre ase over the next few years and reach FY 88 278
18/19 levels of $11 million by FY 25/26 and remain steady at 1% annual growth. In Scenario 2, TOT is forecasted to recover quicker and reach pre-COVID-19 levels by FY 23/24, and then experience steady annual gr owth at 1.5%. In Scenario 3, TOT is forecasted to fully recover by FY 22/23 and experience steady annual growth of 2%.

Scenario 3 assumes travel behavior is back to pre-pandemic levels by end of 21/22 and fully experienced in FY 22/23, with TOT revenues at $11.2 million. UCSB is assumed fully reopened and airport passenger numbers at pre-pandemic levels. The forecast assumes returning hotel occupancy and average daily rates to the high levels experienced in 18/19.

The scenario however does not assume any one-time spikes or increase TOT due to pent up demand.

Cannabis Tax Revenues
In FY 19/20 the City received its first q uarterly tax receipts of cannabis business tax revenues, which totaled $391,000. Given the timing of when cannabis tax revenues are due, and the volatility and uncertainty of COVID-19 impacts, there was little data received at the time of preparing the original FY 20/21 budget estimates. Since preparing the First Quarter Financial Review for FY 20/21, the City has now received approximately $500,000 in cannabis tax revenues remitted in total from five operators. Based on current data, cannabis tax revenues on a full fiscal year basis are trending towards $1 million to $2 million. When the City Council originally adopted the cannabis tax rates that appeared on the ballot measure which enacted them, it was projected that revenues would range from $334,000 to $1.4 million annually. In Scenario 1, cannabis tax revenues were left status quo at original preliminary estimates. In Scenario 2, cannabis tax revenues are forecasted at $1,000,000 in the first year, which reflect conservative estimates based on current trends. It isn’t until FY 23/24 that this scenario forecasts revenue levels at $1.8 million as more businesses become operational and full fiscal years of tax receipts are received. There is still substantial uncertainty in this revenue category as the first full fiscal years of receipts have yet to be experienced. In Scenario 3, cannabis tax is forecasted at $2 million in the first year, reflecting the higher end of current trends. It is then projected to gradually increase over the next few years and assumes new businesses become operational with sales ramping up on average of 10%. Then starting in FY 25/26, steady annual growth at 2% is assumed.

All Other Fees and Revenues
All other fees and revenues are made up of cost recovery fees, user fees, franchise fees and investment earnings. Given the makeup of this category each major fee category was reviewed based on expected activity level for the current fiscal year and assumed steady small conservative growth in all scenarios of approximately 1%, since majority of fees are offset by cost of services provided. Over the last five years, before COVID-19, this overall category experienced total growth of less than 1%. For investment earnings it is expected that interest earnings rate will remain below 1% the next few years. When looking at the last ten years of LAIF, they averaged annually 81 basis points. 89 279
Key Expenditure Assumptions
For all three scenarios, expenditures were fo recasted the same and assumptions are summarized below.

Salaries and Benefits
Salary and benefits account for 32% of total operating costs in the FY 20/21 adopted budget and will represent 36% of total operating costs when normal FTE levels are reached in FY 21/22. For the purpose of this forecast all 11 FTE positions subject to the hiring freeze and other related personnel costs are factored back into the forecast in FY 21/22, along with adjustments made to CalPERS retirement costs. Retirement costs have been adjusted to match the latest information i n the most recent actuarial report, plus estimated COVID-19 pandemic impacts. COVID-19 pandemic impacts to investment gain and losses experienced in FY 19/20 are expected to be felt beginning in FY 22/23 with a 5-year ramp up approach. The investment earnings rate by 6/30/2020 was 4.70% which was below CalPERS targeted discount rate of 7.00%. The following estimated impacts for Goleta are listed below and factored in the forecast.

Amortization Payments for Investment
(Gain)/Loss
Est. Additional
UAL Payment
FY 2022-23 $8,540
FY 2023-24 $17,066
FY 2024-25 $25,606
FY 2025-26 $34,147
FY 2026-27 to FY 2041-42 $42,687
Overall salary and benefit increases are assumed to grow 4% from FY 22/23 through FY 26/27 and then at 3.5% from FY 27/28 to FY 40/41. No new personnel are assumed or programmed in future years and assumed at FY 20/21 levels, though it should be noted that some divisions in the organization are significantly understaffed, and when feasible, additional positions should be considered.

Operating and Maintenance
Non-personnel operation and maintenance costs generally grow at 2% in the forecast.

For the purpose of this forecast, 2% is assumed through FY 25/26 and then 2.5% beginning FY 27/28. For the additional annual ongoing pavement maintenance budget needed of $3.3 million, staff assumed an av erage of 3% increase starting in FY 22/23.

The 3% is a rounded average derived from the Department of General Services (DGS) California Construction Cost Index (CCCI). Staff used the annual change for the month of June and averaged the last four years. The CCCI is developed based upon the Building Cost Index (BCI) cost indices average for San Francisco and Los Angeles only as produced by Engineering News Record (ENR).

The annual DOF settlement repayment of $776,000 is expected to be paid off by end of 90 280
FY 24/25 and was removed in future fiscal years.

Capital
For forecasting purposes no use of new General Fund is assumed in the forecast for CIP projects. The initial amount of $6,200 estimate d in this category is related to operating equipment expenditures, such as for comput er replacement or office furniture, and assumes a 2% increase. Unfunded CIP projects are discussed further in the Unfunded Priorities section of the staff report.
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ATTACHMENT :
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Alternative Financial Forecast Scenarios
Staff has modeled various other alternative financial forecast scenarios that are further described below under each scenario. The basel ine forecast assumptions utilized for each alternative scenario are identified below.

Revenue Neutrality Agreement Scenarios
The following scenario shows what Scenario 1 may have looked like without the revenue neutrality agreement in place over the next twenty years. As a reminder, the City shares with the County of Santa Barbara 50% of is property tax allocation revenues (AB 8 Basic 1% only) and 30% of the 1% Bradley-Burns uni form sales and use tax allocation of the

7.75% sales and use tax rate. The full 1% is normally allocated to cities. If the City were to receive its full allocation of property tax and sales and use tax revenues, it would result in an additional annual $6.1 million in tax revenues beginning FY 20/21. The RNA tax revenues are assumed at the same growth rate as property tax and sales tax assumed in Scenario 1. A surplus is projected for the first seven years, then a deficit for the following 13 years.

Alternative Scenario 1 with No Revenue Neutrality Agreement Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($10)
($8)
($6)
($4)
($2)
$0
$2
$4
Millions
Net Operating Revenue (Annual Change in Fund Balance)
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The following scenario shows what Scenario 2 may have looked like without the revenue neutrality agreement in place. If the City were to receive its full allocation of property tax and sales and use tax revenues, it would result in an additional annual $6.1 million in tax revenues beginning FY 20/21. The RNA tax revenues are assumed at the same growth rate as property tax and sales tax assumed in Scenario 2. An annual surplus is projected in all twenty years.

Alternative Scenario 2 with No Revenue Neutrality Agreement AAverage Years: 55 Years 110 Years 115 Years 220 Years
Average Surplus/(Deficit) 1,530,496$ 741,778 $ (579,068) $ (2,217,859)$ Annual SurplusTotal Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
-$1
$0
$1
$2
$3
$4
$5
$6
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) 4,265,616$ 4,363,318 $ 4,030,200 $ 3,506,242 $ 94 284
The following scenario shows what Scenario 3 may have looked like without the revenue neutrality agreement in place. If the City were to receive its full allocation of property tax and sales and use tax revenues, it would result in an additional annual $6.1 million in tax revenues beginning FY 20/21. The RNA tax revenues are assumed at the same growth rate as property tax and sales tax assumed in Scenario 3. An annual surplus is projected in all twenty years. In this scenario rev enue growth begins to closely align with expenditures, resulting in an average annual surplus range of $7.3 million to $7.7 million over the 10 to 20-year period.

Alternative Scenario 3 with No Revenue Neutrality Agreement Annual Surplus
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65Millions
General Fund Forecast: Revenues and Expenditures
($1)
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) 6,726,741$ 7,283,421 $ 7,518,207 $ 7,656,513 $ 95 285
Revenue Neutrality Agreement Ramping Down Over a 10 Year Period The following scenarios have been prepared showing the RNA ramping down over a 10-year period and how that would affect the General Fund in all three of the primary scenarios.

Alternative Scenario 1 with Revenue Neutrality Agreement Ramping Down over 10 Years Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($10)
($8)
($6)
($4)
($2)
$0
Millions
Net Operating Revenue (Annual Change in Fund Balance)
Average Years: 55 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (2,340,584)$ (1,613,264) $ (2,149,096) $ (3,395,380) $ 96 286
Alternative Scenario 2 with Revenue Neutrality Agreement Ramping Down over 10 Years Annual SurplusTotal Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
-$8
-$6
-$4
-$2
$0
$2
$4
$6
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) 194,459$ 1,874,965$ 2,371,297 $ 2,262,065 $ 97 287
Alternative Scenario 3 with Revenue Neutrality Agreement Ramping Down over 10 Years Annual Surplus
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65Millions
General Fund Forecast: Revenues and Expenditures
($8)
($6)
($4)
($2)
$0
$2
$4
$6
$8
$10Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) 2,448,580$ 4,663,068 $ 5,771,306 $ 6,346,337 $ 98 288
Recession Scenarios
The following forecasts model recessionary im pacts as felt during the Great Recession period and assume a moderate recession. The Great Recession officially began in December 2007 and ended in June 2009 with impacts felt over the two succeeding years.

The City experienced a decline of 20% in sales tax and an average decrease of 12% in TOT over two fiscal years. These next alternative scenarios assume a recession every seven years, starting in FY 27/28 and FY 34/35. The first recession assumes the same impact as of the Great Recession and the second recession a more moderate recession about half the impact of the Great Recession.

Alternative Scenario 1 with Recessionary Impacts Every Seven Years Total revenue loss in the recessionary periods were 11.7% and 4.21% Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($30)
($25)
($20)
($15)
($10)
($5)
$0
Millions
Net Operating Revenue (Annual Change in Fund Balance)
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) (4,969,811)$ (7,703,331)$ (10,580,117)$ (13,608,842) $ 99 289
Alternative Scenario 2 with Recessionary Impacts Every Seven Years Total revenue loss in the recessionary periods were 9.93% and 2.56% Annual Deficit
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
-$20
-$18
-$16
-$14
-$12
-$10
-$8
-$6
-$4
-$2
$0
Millions
Net Operating Revenue (Annual Change to Fund Balance
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) (2,580,215)$ (4,736,921) $ (7,010,407) $ (9,377,469) $ 100
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Alternative Scenario 3 with Recessionary Impacts Every Seven Years Total revenue loss in the recessionary periods were 9.53% and 2.06%.

Annual Deficit
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60Millions
General Fund Forecast: Revenues and Expenditures
($16)
($14)
($12)
($10)
($8)
($6)
($4)
($2)
$0
$2
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 55 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (473,761)$ (2,436,445)$ (4,413,404) $ (6,420,874) $ 101
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Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out The following alternative scenarios assume the original five-year forecast extended out twenty years. The temporary cost containmen t strategies are phased out over two-year period as originally presented in the FY 20/21 budget, and the additional pavement budget of $3.3 million is not factored in.

Alternative Scenario 1 – Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out and No Additional $3.3 Million Pavement Budget
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50Millions
General Fund Forecast: Revenues and Expenditures
($12)
($10)
($8)
($6)
($4)
($2)
$0
$2
Millions
Net Operating Revenue (Annual Change in Fund Balance)
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) 35,783$ (786,316)$ (2,037,418)$ (3,560,259)$ 102
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Alternative Scenario 2 – Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out and No Additional $3.3 Million Pavement Budget
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50Millions
General Fund Forecast: Revenues and Expenditures
-$8
-$6
-$4
-$2
$0
$2
$4
Millions
Net Operating Revenue (Annual Change to Fund Balance
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) 2,425,379$ 2,323,730 $ 1,833,668 $ 1,155,587 $ 103
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Alternative Scenario 3 – Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out and No Additional $3.3 Million Pavement Budget
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55Millions
General Fund Forecast: Revenues and Expenditures
($8)
($6)
($4)
($2)
$0
$2
$4
$6
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average Years: 55 Years 10 Years 115 Years 20 Years
Average Surplus/(Deficit) 4,531,833$ 4,805,203 $ 4,787,086 $ 4,658,379$ 104
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Goleta Tax Measure Information
Adoption Process for Add-on Sales Tax (District Tax, Transactions and Use Tax)11 In order for a governing body of any city to levy, increase or extend a transactions and use tax (TUT) for general purposes, an ordinance proposing the tax must be approved by a two-thirds vote of all members of the governing body and the tax must be approved by the a majority vote of the qualified voters of the city voting in an election on the issue (California Revenue and Taxation Code 7251.1). For a specific purpose, this requires a two-thirds vote of all members of the governing body and the tax must be approved by two-thirds vote of the qualified voters. Figure 1 summarizes clarifying information regarding the adoption rules for an add-on sales tax.

Figure 1
2 General Purposes vs. Specific Purpose Tax
Taxes fall into one of two categories: general or special. As noted above, a simple majority approval is required for general purpose taxes. A simple majority means 50% of voters plus one additional voter. A general tax is a tax: 1) levied by a general-purpose government (city or county); and, 2) expended at the discretion of the local government’s governing body on any programs or services. All non –property taxes which cities and counties are authorized to levy may be imposed as general taxes. A general tax is imposed to raise general-purpose revenues. Counties and cities may use revenues from a general tax for any lawful public purpose. A simple majority of voters also must approve the decision to increase or extend a general tax. A general tax may only be submitted for voter approval at an election for city coun cil or board of supervisors seats, unless a unanimous vote of the governing board declares an emergency. 1 Add-on sales tax is also known as transactions and use tax and district tax. 2 Figure 1 Source: California Department of Tax and Fee Administration (CDTFA). 106
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Special taxes require approval from two–thirds of local voters. Definitions of a special tax are as follows: 1) Special –Purpose District Tax (all taxes, other than property taxes for infrastructure bonds, levied by special districts, school districts, and community college districts are special taxes); 2) Tax Dedicated to a Specific Purpose (a city or county tax dedicated to a specific purpose or specific purposes, including a tax for a specific purpose deposited to the agency’s general fund. All non– property taxes that cities and counties are authorized to levy may be raised as special taxes); 3) Tax Levied on Property (all taxes levied on property other than the property tax —typically parcel taxes —are special taxes). Special taxes may be placed before the electorate at any time, either during a general election or in a special election.

A special tax is a tax imposed for a specific purpose. For example, a city may increase the sales and use tax by adding a special use tax for public safety, the acquisition of open space or transportation projects. All taxe s imposed by special districts are considered special taxes. Since the tax is for a specific purpose, the revenues may only be used for that purpose. Two-thirds of voters must agree to enact, increase or extend a special tax.

Special tax revenues must be accounted for in a separate fund. It should be noted that normally a special tax only requires a simple majority of the governing body approval to place on the ballot, but the TUT is one of the few exceptions. The following table summarizes the comparison between general and special purpose taxes. 107
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Table 13
In the context of the City of Goleta, the main benefit of a general-purpose tax is the flexibility of its use and ability to support all operations of the City as needed. Given the various critical funding needed for the City of Goleta, such as a variety of unfunded CIP projects, deferred maintenance of roads and facilities, costs associated with maintaining services, etc., a general purpose tax would give the City the additional funding needed to meet a wide variety of needs since general revenues can be used for any legitimate public purpose.

A special purpose tax legally restricts the fu nds for a specific use and ensures ongoing funding for that specific function. An ex ample of this in Goleta is the special tax assessment for the library. If Council is interested in a special purpose tax, it could choose 3 Table 1 Source: Institute for Local Government.
*Transaction and Use
Tax is the exception and
requires two-thirds for
special purpose
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to restrict the use of funds to specific purposes such as pavement, capital projects, and/or COVID-19 recovery. Doing so would legally re strict those funds for such purposes. The risk with this approach may be that other priority needs may arise in the future that could not be supported by special purpose taxes.

Transactions and Use Tax vs. Sales and Use Tax
TUT’s are local taxes in which revenues are collected and spent locally within that taxing district. Sales and Use Tax are state mandated taxes imposed by the state and allocated to various agencies by law. The base statewide sales tax rate is 7.25% TUTs generally apply to merchandise that is delivered in a jurisdiction which imposes such a tax. In practice, the tax application and allocation for most retail sales will not differ from the sales and use tax. But there are some key differences. The Sales and Use Tax is generally allocated to the jurisdiction where the sale is negotiated or order taken (the “origin” or the “place of sale”), whereas TUT is place of delivery or put into use.

Importantly, in the case of a sale or lease of a vehicle, vessel, or aircraft, a transaction and use tax is charged and allocated based on the location in which the property will be registered.

In other words, a TUT is allocated to the district where the goods are delivered or placed into use (the “place of first possession”) rather than the place of sell. This means that sellers of vehicles are required to collect TUT for the jurisdiction in which the vehicle will be registered. Thus, residents are unable to “escape” paying the tax by buying from a dealer outside the City, as dealers statewide are required to collect the TUT for the jurisdiction where the vehicle will be registered. This means that the patrons of Goleta’s auto dealers who do not reside in Goleta, will not be subject to the TUT, but would rather only be subject to the TUT (if any) that is imposed by the city where they live (where the vehicle will be registered). Conversely, with an add-on sales tax increase of 1%, a Goleta resident purchasing a $30,000 vehicle would pay an additional $300 in TUT that would be directed to the City, regardless of where the vehicle is purchased.

For example, if the City of Goleta has a 1% TUT, and a buyer from Goleta purchases a vehicle from a dealer in the City of Santa Barbara, the City of Santa Barbara would receive revenue from the 1% Bradley-Burns sales tax and the City of Goleta would receive revenue from the 1% TUT. On the other hand, if a buyer from the City of Santa Barbara purchases a vehicle from a dealer in City of Goleta, the City of Goleta and County of Santa Barbara would receive revenues from the 1% Bradley-Burns sales tax, but no TUT would be collected for Goleta, though the City of Santa Barbara would receive revenue for their 1% TUT.

If the vehicle is purchased through a private party or individual and registered at the Department of Motor Vehicles (DMV) the 1% of the Bradley-Burns sales tax revenue is allocated through the countywide use tax pool system on a pro-rata basis. With TUTs there are no pool systems since it is a local tax specific to the district imposing the tax. 109
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Under the pool concept, the tax is first coded to the county of use and then distributed to each jurisdiction in that county on a pro rate share of taxable sales each quarter. An agency generating 8% of the county’s total taxable sales receives 8% of the pool. If the county of use cannot be identified, the allocation goes to the state pool for pro rata distribution on a statewide basis. The following table shows a comparison of the countywide pool allocations based on first quarter taxable sales:

Table 2
Share of County Pool (First Quarter Comparisons)
Agency Name 1Q2017 1Q2018 1Q2019 1Q2020
Buellton 3.3% 3.7% 3.6% 2.8%
Carpinteria 2.3% 2.8% 2.7% 2.4%
Goleta 13.0% 14.3% 12.6% 13.8%
Guadalupe 0.4% 0.5% 0.4% 0.6%
Lompoc 11.6% 1.6% 7.2% 6.8%
Santa Barbara 29.5% 31.0% 30.0% 26.5%
Santa Maria 28.8% 32.8% 30.3% 33.1%
Solvang 1.7% 1.9% 1.7% 1.7%
County of SB 9.5% 11.3% 11.6% 12.4%
Totals (rounding errors) 100.1% 99.9% 100.1% 100.1%
The largest components of the base that makes up the pools are: 1) private party sales of vehicles, vessels and aircraft registered at the DMV, and mobile homes reported by the Department of Housing and Community Development; 2) private party sales of vessels (not required to register with the DMV) and aircraft purchases; 3) use tax paid by contractors who are consumers of material s purchased without tax, but used by the contractor in the improvement of real property, and whose job site is regarded as the place of businesses; 4) merchandise shipped directly to consumers by common carriers from inventory located outside the state with the title passing out of state 4; 5) long term
leases of tangible personal property except long term leases of motor vehicles; 6) catering trucks, itinerant vendors (transient busines ses), vending machine operators and other permit holders who operate in more than one loc al jurisdiction and are unable to readily allocate taxable transactions to specific point of sale; 7) use tax on purchases consumed at non-selling facilities (research and development for example); 8) use tax on motor vehicle leases negotiated by out-of-state leasing companies; 9) internet, telephone and mail-order sales from out of state retailers.

Given the number of options that consumers now have in how they select, pay and take possession of merchandise. new challenges in properly allocating local sales and use tax 4 If merchandise is inventoried and delivered from out of state, the tax is allocated through the countywide pools, except for transactions over $500,000, which are allocated to the jurisdiction of first delivery. 110
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have arisen. The following table summarizes the various scenarios that determine where the local tax from online sales is allocated.

Table 3
Place of Sale
Location of Goods at
the Time of Sale
How Customer
Receives Goods Allocation of Tax
Online – Order is placed
or downloaded outside
California
California Fulfillment
Center
Shipped to Customer
from California
Location
Local tax is allocated to thejurisdiction in
which the fulfillment center is located
Online – Order is placed
or downloaded in
California
California Fulfillment
Center
Shipped to Customer
from California
Location
Per CDTFA Regulation 1802, local tax is
allocated to the jurisdiction where the
order is placed
Online Out of State Fulfillment
Center
Shipped to California
Customer
Local tax is allocated to the countywide
pool based on point of delivery
Online Out of State Fulfillment
Center
Picked Up In-Store
(Click & Collect)
Local tax is allocated to the countywide
pool based on point of delivery
Online
In-Store (Goods
withdrawn from store
inventory)
Shipped to California
Customer
Local Tax is allocated to the jurisdiction
where the store is located
Online
In-Store (Goods
withdrawn from store
inventory)
Picked Up In-Store
(Click & Collect)
Local Tax is allocated to the jurisdiction
where the store is located
In-Store
In-Store (Goods
withdrawn from store
inventory)
Over the Counter
Local Tax is allocated to the jurisdiction
where the store is located
It should be noted that the South Dakota v. Wayfair U.S. Supreme Court decision in 2018 and CA passing of AB 147 (Burke) in 2019 addressed the under-collection of local sales and use tax revenues and made conforming changes to TUT law. As a result, the State of California amended Revenue and Taxation code section 6203 which became effective on April 1, 2019 and requires out-of-state retailers with total annual combined sales of tangible personal property of $500,000 or mo re delivered into California to collect and remit the state’s sales and use taxes. Further, Revenue and Taxation code section 7262 now requires that all retailers with statewide sales of $500,000 or more collect and remit voter approved local TUT for every agency imposing such a tax regardless of the level of sales within the individual district.

Additionally, California also adopted Revenue and Taxation code sections 6040-6049.5, which became effective on October 1, 2019 and requires Marketplace Facilitators such as Amazon, eBay, Google, Walmart.com and Etsy, to assume the obligation for collecting 111
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and remitting the sales and use taxes for third party retailer who contract with the facilitator to provide sales related services. These in clude payment processing, fulfillment or storage services, setting of prices, taking orders, providing customer service or assisting with returns or exchanges. The $500,000 threshold applies to the sum of all third-party transactions that the Marketplace Facilitator processes for its clients.

Current Goleta Sales and Use Tax Rate
The sales and use tax rate currently applied in the City of Goleta is 7.75%, which is the base rate for Santa Barbara County. This inc ludes a combined statewide rate of 7.25% and the Santa Barbara County district tax of 0.50% for Santa Barbara County Association of Governments (SBCAG). Of the total 7.75 % collected, Goleta receives only 0.70%, which is 0.30% less than the 1% normally alloca ted to cities and is referred to as the Bradley-Burns Local Sales and Use Tax. Since Goleta is subject to revenue sharing with the County of Santa Barbara per the Revenu e Neutrality Agreement (RNA), the County receives that 0.30% instead of the City. However, any new add-on sales tax levied by the City is not required to be shared.

Figure 2 below shows a breakdown of the City of Goleta’s current sales and use tax rate of 7.75%.

Figure 2
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Add-on Sales Tax (District Tax, Transaction and Use Tax) Limits The Transactions and Use Tax (TUT) is an additional tax levy on top of the Bradley-Burns Local Sales and Use Tax imposed by individual cities or counties when approved by the local jurisdiction’s voters. Local TUT Tax rates are added on and administered in tandem with the sales and use tax. A Transactions Tax District can be established for a county, within only the unincorporated area of a county or for an incorporated city as a whole. The CDTFA refers to these taxes as “District Taxes”.

As written in California Revenue and Taxation Code Part 1.6 and 1.7 (Sections 7251 through 7299), cities and counties are authorized to seek voter approval of either general purpose or specific purpose transaction and use tax districts at a rate of 0.125%, or a multiple thereof. The combined tax rate of all local sales taxes in any county is generally not allowed to exceed 2.00% (California Revenue and Taxation Code 7251.1). The 2.00% local tax rate cap is exceeded in any city with a combined sales tax rate in excess of

9.25% (7.25% statewide tax rate plus the 2.00% tax rate cap). Should the City Council choose to levy an additional 1% (or 1 cent sales tax) (and voters were to approve such a measure), this would move the City’s combined sales tax rate to 8.75% and will fall below the 2.0% cap by 0.50%.

The following tables summarizes the components of Goleta’s current combined sales tax rate of 7.75%, along with the maximum TUT rate that can currently be imposed by the City of Goleta without exceeding the 2.00% cap.

Table 4
5 5 Public Safety Augmentation Fund – Prop. 172 revenues are allocated to Santa Barbara County. 113
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Table 5 below summarizes the City of Goleta’s 7.75% sales tax rate by primary entity showing the amount of sales tax revenue each entity receives. Additionally, it shows what the addition of a potential 1.00% add-on sales tax rate would look like. An add-on sales tax of 1% would increase the overall combined sales tax rate from 7.75% to 8.75% Table 5
To clarify what future TUT rates may be imposed, and how this affects the City of Goleta, the following figure and table summarize the cap issue. Figure 3 shows an example of how the 2% cap applies.

Figure 3
6,7
For example, this means that in a county where there are three countywide district taxes that total 1.50%, the maximum levy re maining for a city within the county to propose is 0.50%. On the other hand, if a city within a county has already approved district taxes of 1.50%, the maximum levy available for a countywide tax would be the remaining 0.50%.

To show how the 2.0% cap rate applies in Santa Barbara County, Table 6 below summarizes the combined sales tax rates in neighboring cities, which range from

7.25% to 9.0% and displays the available add-on sales tax to each jurisdiction. 6 Figure 3 Source: California Department of Tax and Fee Administration (CDTFA). 7 Data from San Bernardino County used as an example for illustrative purposes. 114
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Table 6
City/County Entity Name
Base Salesand
Use Tax Rate
SBCAG
TUT
City/County
TUT
Total Sales and
Use Tax Rate
%Available
(9.25% Cap)
City of Buellton 7.25% 0.50% 0.00% 7.75% 1.50%
City of Carpinteria (1) 7.25% 0.50% 1.25% 9.00% 0.25%
City of Goleta 7.25% 0.50% 0.00% 7.75% 1.50%
City of Guadalupe (2) 7.25% 0.50% 0.25% 8.00% 1.25%
City of Lompoc (3) 7.25% 0.50% 1.00% 8.75% 0.50%
City of Santa Barbara (4) 7.25% 0.50% 1.00% 8.75% 0.50% City of Santa Maria (5) 7.25% 0.50% 1.00% 8.75% 0.50%
City of Solvang 7.25% 0.50% 0.00% 7.75% 1.50%
County of Santa Barbara 7.25% 0.50% 0.00% 7.75% 0.25% - 1.50% (1) City of Carpinteria passed a 1.25% sales tax measure at the November 6, 2018 General Election.
(2) City of Guadalupe passed a 0.25% sales tax measure at the November 4, 2014 General Election, along with two other tax measures.
(3) City of Lompoc passed a 1% sales tax meas ure during the primary election March 3, 2020, with a sunset date of 15 years
(4) City of Santa Barbara passed a 1.0% sales tax measure at the November 6, 2018 General Election.
(5) City of Santa Maria first passed a 0.25% sales tax measure at the June 5, 2012 Primary Election with a sunset date of 9 years (2021). City of Santa Maria then passed a sales tax renewal measure to increase the 0.25% rate to 1% with no sunset clause at the November 6, 2018 General Election.

In considering a local sales tax measu re, one of staff’s concerns is protecting the City’s ability to retain sales tax for the direct benefit of Goleta and its residents, as opposed to those revenues being used to support programs that serve greater Santa Barbara County. The following table summarizes the estimated TUT revenues at various levels of additional sales tax rates.

Table 7
8 In Goleta’s case, since SBCAG has implemen ted the Measure A countywide TUT, the maximum TUT increase that can be imposed by the City of Goleta is now 1.50% (without authorization by the state legislature to exceed the cap). Given that the combined sales tax rates differ across the city jurisdiction s within Santa Barbara County, the County or SBCAG can only levy up to an additional 0.25% add-on sales tax countywide but can levy up to 1.50% in the unincorporated area. In ot her words, any taxes generated in the City of Goleta from the remaining add-on sales tax cap could be captured by the County or 8 Table 5 Source: HdL.
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other local agencies such as SBCAG, instead of remaining in the City to provide funding for programs and services in Goleta.

If hypothetically, the County of Santa Ba rbara or SBCAG pursue a countywide 0.25% TUT that is passed by voters, then the City of Goleta would be restricted to a max add- on sales tax rate of 1.25%. Should the County of Santa Barbara or SBCAG want to levy a countywide TUT rate greater than 0.25%, they would need authorization by the state legislature to exceed the 2% cap. Numerous agencies in California have pursued state legislation so that the 2% cap may be excee ded within their jurisdictions, including the Counties of Los Angeles, Alameda and Contra Costa. Pursuit of such exemption to the cap can be costly and requires significant political support for approval. When a taxing entity obtains a legislative exemption, that entity’s tax increase is not counted toward the 2% cap.

Draft Resident vs Non-Resident Spending data for the City of Goleta (Draft) Staff reached out to its sales tax consultants HdL and requested an analysis on resident versus non-resident spending for the City of Goleta. The following information is provided from their draft report for reference. Table 8 below summarizes the results of the resident vs versus non-resident spending analysis comp leted by HdL for the City of Goleta. This data is based on calendar year 2019 revenue estimates and shows 42.4% of the 1% Bradley Burns Sales Tax is estimated to be paid by non-residents of the City of Goleta Such a tax is generally assessed based on wh ere the sale is negotiated or the place where the order is taken. Because Transactions and Use Taxes (TUT) are charged in accordance with where purchased goods are delivered or placed into use, HdL’s estimate for the percentage of a 1% TUT that would be paid by non-residents is slightly lower at

38.0% due to the fact that businesses often market and sell their goods and services to buyers and businesses outside the City’s jurisdictional boundaries. 116
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Table 89
The figures shown above were obtained utilizing a variety of methodologies customized to each economic segment. These methodologies considered the mix of businesses located in the City, per capita sales within the City verses the per capita sales across Santa Barbara County, as well as factoring average income population, trade area daytime and trade area population for the designated trade areas previously described as a percentage of those categories within the City of Goleta.
10 Based on HdL ’s analysis and should the City pursue any TUT, approximately 38% would be paid by non- residents.

Potential Impacts of a Sales Tax Increase
A sales tax increase has several potential benefits and drawbacks that the City Council should consider. The potential benefits include:
1) With an add-on sales tax, revenues are generated not only by residents, but also by the thousands of patrons who visit the City on an annual basis to take advantage of the City’s regional retailers. Unlike other forms of taxes, including property taxes, a sales tax can gener ate needed revenue while dispersing the tax burden between City residents and visitors who also benefit from City services. As identified by the analysis above, a significant share of the tax burden 9 Table 6 Source: HdL ECONSolutions.
10 Note: It should be noted that retail performance ha s been estimated based upon market information and sales tax data gathered and analyzed prior to any market impacts as a result of COVID-19. The impact of the current global pandemic has not yet been fully realized or documented in the commercial marketplace as it relates to revenue generation and the impact to resi dent and non-resident contributions. While some short- term adjustments might be warranted, long-term impac ts will likely be tempered through the experiences gained from the 2008 economic downturn.
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(approximately 38%) would be borne by people who reside outside the City and who visit the retail destinations that Goleta provides. 2) The imposition of a sales tax allows the City to collect revenue from non-residents in order to offset their impacts on the Ci ty’s public facilities, infrastructure and services.
3) A sales tax increase would provide an immediate infusion of funds to address the City’s many deferred infrastructure maintenance needs and support unf unded capital projects. It will give the City the opportunity to cultivate economic recovery within Goleta by re-investing in the community.
4) A sales tax increase would provide a permanent and long-term revenue source for funding prioritized core City services and maintenance. It would be subject to repeal by voters by initiative or a City Cou ncil proposal, so the City will be held accountable for its use of these new revenues.
5) A sales tax measure supports the growth of property values City-wide, as revenue from the sales tax will allow th e City to continue to provide the community with high quality programs and services in addition to well-maintained facilities and infrastructure, all of which are key factors in driving increases in property values. Goleta residents and businesses will reap these benefits, all while a significant portion of the burden is shared by non-residents. Conversely, the failure to adequately fund core City services and maintenance is likely to have a detrimental impact on Goleta property values over a sustained period of time.

The potential drawbacks of a sales tax include:
1) An increase in sales tax rates has the poten tial to adversely impact the City’s businesses, as potential patrons could seek to make similar purchases in cities with lower tax rates. However, while shoppers could shop or locate somewhere with a lower tax rate, it would not be nearby because even with a 1% increase in sales tax, Goleta’s tax rate would be the same as or lower than our south coast neighbors and Santa Maria.
2) The potential exists that some businesses may elect not to locate in Goleta (or leave Goleta) due to a sales tax increase, though it should be noted that the City of Goleta does not have business license taxes (except on cannabis) or utility user taxes like other nearby jurisdictions. Also, as noted above, the tax rate would be equal to or less than other jurisdictions on the south coast and Santa Maria, potentially making it less likely that a change in sales tax would be a catalyst for businesses to relocate.
3) A sales tax increase would fluctuate with the economy more than property taxes, utility user fees and some other revenues.
4) A sales tax will have more of an impact on low- to moderate-income households as a percentage of household income, given the regressive nature of sales taxes.

Consumption taxes such as sales taxes are regressive in that they raise prices of purchased goods. Lower-income earners save and invest less money and pay a larger proportion of their income toward these taxes. In terms of direct impact on Goleta residents, a 1.0% sales tax increase would add an additional $1.00 for every $100 spent in Goleta. As a reminder, this type of funding mechanism is not 118
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levied on food purchased as groceries or prescription medication.

Alternative Revenue Options
The following is a discussion of certain g eneral taxes that provide the most impact in the amount of resources generated.

Parcel Tax: A parcel tax is affixed to each property that is subject to the tax and is the most consistent revenue source amount from year-to-year. As such, it is only paid by property owners, many of whom ar e also residents in the jurisdiction that levies this tax. This tax, depending on how it is structured, is not subject to market trends or external detriments of the am ount of tax levied, unless the parcel tax has an inflationary rate dependent upon a market indicator. However, the tax amounts also impact property owners in a more definitive manner as it becomes a fixed cost for them. There is no action that a property owner can take to reduce the amount of the tax amount they must pay. Property Tax revenue does not serve as a good projection about the amount of revenue possible, as property taxes are ad-valorem, which means they are determined by taking rates on the property’s value. However, parcel taxes are either fixed amounts or based upon characteristics of each parcel.

A ballot measure must be taken to the voters in order to institute a parcel tax. Parcel tax measures must pass with a two-thirds supermajority vote, regardless of a general purpose or special purpose

11. It should be noted that a majority of parcel taxes are dedicated to education (local schools, community colleges).

If the City were to consider a parcel tax, it would not be based on the value of the property, as it would be a flat amount per parcel paid annually. If the parcel tax structure were the same as the Library special tax (inherited from the County and passed by voters on June 5, 1990), a fixed annual assessment amount would generate revenues as follows:
11 According to Ballotpedia, the approval rate of all parcel taxes in California is at 56.6% for the period of 2003 through November 2016. At the end of 2012, the median parcel tax was $60 for cities. 119
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Table 9
Land Use FY 20/21
Proposed Rate Number of Parcels FY 20/21
Projected Revenue
Residential
Single Family $ 25.20 5,734 $ 144,497
Condominium $ 25.20 2,567 $6 4,688
Duplex/Triplex $ 50.32 173 $8 ,705
Apartments $ 151.03 193 $2 9,149
Commercial
Heavy $ 113.22 17 $1 ,925
Light $ 113.22 388 $4 3,929
Industrial $ 113.22 228 $2 5,814
Churches/Misc. $ 50.32 25 $1 ,258
Farm/Vacant $ 12.57 279 $3 ,507
Exempt $- 498 $-
TOTAL PARCELS 10,102
TOTAL PARCELS LEVIED 9,604 $ 323,473
Transient Occupancy Tax (TOT): Prior to COVID-19, the City’s TOT had been the largest General Fund revenue source and is paid mostly by non-residents when they stay in hotels in the City and is not by residents unless they a rent a room. The TOT is levied on top of the rental cost of a hotel room and is based on a percentage. The City’scurrent rate is 12% (previously 10% prior to 2012). The 12% rate is in line with all other cities in the County of Santa Barbara. In some areas of California, TOT is as high as 15%. There is a fine balance between the rate and ability for hotels to compete with other regional hotels for transi ents to occupy. If the TOT is too high, transients may go to aneighboring city to get lower room rates. If this happens, the reduced number of transients may limit the amount of revenue that can be generated, reducing the level of benefit. It should be noted that TOT is also one of the most volatile revenue sources; recently, more volatile than sales tax.

TOT may be increased by a simple majority vote on a ballot measure if the tax is for a general purpose. If it is for a specific purpose, then the voting threshold increases to two- thirds approval to be adopted. Should the City consider increasing the TOT rate above the current 12%, each addition al percent would increase General Fund revenues by approximately $900,000.

Utility User Tax (UUT): A UUT is a tax that is levied by a rate charged on the total amounts of certain utilities. These utilities generally include water, sewer, refuse, cable and satellite television, telephone (including mobile phones and long distance), as well as other utilities like electricity and internet, depending upon the design of the UUT. Currently the issue of streaming media services is under debate about whether it constitutes a utility. The City does not have a UUT, unlike other nearby cities. 120
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Utility companies usually collect UUT from their customers as part of their regular billing procedures and remit the funds collected to the city which imposed the tax.

As such, residents, not visitors, pay these types of taxes. Over 150 cities and few counties levy utility user rates varying from 1% to 11%. For those jurisdictions with a UUT, it provides an average of 15% of general revenues and as much as 22%.

UUT may be imposed as general taxes or special taxes, but currently in California all UUT have been imposed as general taxes. Most of the cities and counties with the UUTs adopted the taxes prior to 1986 by vote of the City Council or County Board of Supervisors. Any increase or extension of the local UUT now requires voter approval.

To place a UUT measure on the ballot for Goleta, the City Council would need a two- thirds vote for a general UUT or a majorit y vote for a special purpose UUT. Voters would then need to pass the UUT ballot measure by a simple majority (50% + 1) for a general purpose and two-thirds supermajority for a special purpose tax.

According to California City Finance, new UUTs appear far more difficult to pass than other taxes such as add-on sales taxes, transient occupancy taxes or business license taxes. Voters were more accepting of UUT’s already in place. It took the Isla Vista Community Services District two attempts to pass an 8% special UUT, which was approved in 2018. With special authorizing legislation, Isla Vista is the only special district with a UUT.

One of the advantages of a UUT is that it is considered a durable tax that is more consistent, and it adjusts and inflates with time and tracks growth in consumption of the elements that are subject to the tax. It is less susceptible to economic downturns than other revenue sources, though it is important to note that effective resource conservation may have some impact upon fu ture consumption patterns. State and Federal governments are exempt, as well as gas and water used by utility companies to generate electricity. Cities may also choose to include full or partial exemptions for low income residents, which include seniors.

If the City were to pursue a 6% UUT, projected ballpark revenues could range from $3.5 million to $4.5 million per fiscal y ear. The exact amount of revenue generated will be determined by the types of utilities taxed and the rates for each of those taxes.

Business License Taxes and Cannabis Business Taxes: The City has a business license regulatory program that only charges user fees. The City also has a cannabis business tax, approved by voters in November 2018. This tax measure subjects cannabis businesses to a maximum tax rate of 10% on gross receipts of cannabis sales based on classifications and is a general tax. Based on industry trends, the amount of revenue that can be generated ranged from approximately $334,000 to $1.4 million. This tax has recently brou ght in limited revenue this fiscal year; approximately $43,000. Due to considerable variations, including the number and types of issued licenses, pricing, medici nal sales, productivity of operators, and 121
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preliminary revenues just being received, revenue estimates are still being developed and evaluated. The current ca nnabis business tax rate structure is as follows:

Table 10
Cannabis Business Classification Activities Taxed Tax Rate Adult Use Cannabis Retailing Gross Receipts 5%
Medicinal-Use Cannabis Retailing Gross Receipts 0%
Manufacturing Gross Receipts 2%
Cultivation Gross Receipts 4%
Distribution Gross Receipts 1%
Testing Gross Receipts 0%
Nurseries Gross Receipts 1%
Maximum Tax Limit Gross Receipts 10%
Maximum Cap for Multiple Operations Gross Receipts 10%
The City Council does have authority by ordinance or resolution to adjust the rate of tax imposed, up to a maximum of 10% per classification. Should the City Council pursue this option, additional revenues may be experienced. The cannabis business tax is still a new revenue source to the City and has not yet experienced its first full fiscal year.

Aside from cannabis business taxes, many cities have enacted business license taxes or a type of business operations tax. The tax is typically levied based on a percentage of gross receipts but may be based on the number of employees, square footage of the business, type of business operation or other factors. As mentioned, the City of Goleta does not assess a business license tax, but charges fees to recover costs of operating the business license program. More than half of the cities in the County of Santa Barbara assess a business license tax, while several others charge a small fee similar to Goleta to recover its costs to operate the program.

Business license taxes can affect business location and expansion decisions that could impact the decision to do business in Goleta. If a business operates in more than one city, a city may only tax that portion of the busines s’s activities conducted within the city. In most cases, business license taxes are not imposed for regulatory purposes (as the term license might imply), but to raise revenues for general municipal purposes.
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In terms of revenue estimates for Goleta, a study would need to be conducted and evaluated on the taxing structure. If applying the FY 15/16 median city per capita business operations tax of $12.22 provided from the State Controller’s Office, and multiplied against a population of 32,223 , this would result in approximately $393,000 per year. Though cities vary widely in business operations tax collections largely because cities vary as to the relative size of their commercial and residential sectors.

Documentary Transfer Taxes and Property Tax Transfers : A documentary transfer tax is a tax imposed on the transfer of interest in real estate. Counties tax at a rate of 55 cents per $500 of the property’s value. Cities may impose a tax of up to one half of that amount which is credited to the payment of the county tax. TheState’s Constitution allows charter cities to enact a property transfer tax, with voter approval, on the value of real estate that is sold. In these cases, the entire county documentary transfer tax rate goes
to the County. All cities and counties in California have documentary transfer taxes or property transfer taxes.

The City of Goleta currently receives approximately $150,000/year in documentary transfer tax revenue. Should the city become a charter city and receive voter approval to enact a property transfer tax, the following revenues may be received at the various rates:

Table 11
Documentary Transfer Tax
Actuals
Estimated Real Property Transfer Tax at Various Rates
$ 0.55 $1 . 1 0 $2 . 2 0 $4 . 5 0 $8 . 5 0 $ 10.00 $ 12.00 $1 3 . 0 0 Fiscal Year Annual 2.00 4.00 8.18 15.45 18.18 21.82 23.64 5 YR AVERAGE $ 230,737 $ 461,477 $9 2 2 , 9 5 3 $ 1,887,859 $ 3,565,956 $ 4,195,242 $ 5,034,290 $5 , 4 5 3 , 8 1 2 5 YR MEDIAN $ 197,569 $ 395,141 $7 9 0 , 2 8 1 $ 1,616,485 $ 3,053,360 $ 3,592,188 $ 4,310,625 $4 , 6 6 9 , 8 4 2 Tax Calculator:

Property Value
Sold
$600,000
City $ 330 $ 660 $1 , 3 2 0 $2 , 7 0 0 $5 , 1 0 0 $6 , 0 0 0 $7 , 2 0 0 $7 , 8 0 0 County $ 330 $ 660 $ 660 $ 660 $ 660 $ 660 $ 660 $ 660
Total Tax Paid $ 660 $1 , 3 2 0 $1 , 9 8 0 $3 , 3 6 0 $5 , 7 6 0 $6 , 6 6 0 $7 , 8 6 0 $8 , 4 6 0 At the high end of $13.00 per $1,000 value, the City would generate approximately $4.7 to $5.5 million per year.
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Other Property Related Fees and Assessments: There are other mechanisms for imposing fees and assessments on property to fund public facilities and services, including benefit assessments, also known as special assessment districts. These typically require the City to hold noticed public hearings, notify the affected property owners and conduct property owner elec tions. There are differing noticing, procedural and voting requirements for the various mechanisms available.

Revenues must be used for specific purposes, and, depending on the mechanism used, may require that the special benefit to the property owners to be assessed be identified, with specific benefit being a particular and distinct benefit over and above the general benefits conferred on real property located in the special assessment district or to the public at large.
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City Financing Options
Financing Options
In general, local governments rely on two methods of financing infrastructure:
1) Pay-as-you-go (pay-go, or cash)
2) Pay-as-you-use (pay-use, or debt)
Each financing method has its unique advantages and disadvantages. Depending on the amount of financing needed, it may become a heavy financial burden for the City to continue paying “cash” for infrastructure improvements that use up a significant amount of General Fund cash flow each year for capital improvements with long useful lives.

Financing infrastructure and capital assets can achieve inter-generational equity as these long-term investments are paid for by the futu re taxpayers who will benefit from them.

The following table provides a list of traditional financing methods and funding sources that may be used for capital improvements.

Pay-As-You-Go Financing
(Cash and Savings)
Pay-As-You-Use Financing
(Debt Financing)
Taxation
x General Taxes (General Fund)
x Special Dedicated Taxes (Special
Revenue Fund)
Capital reserves and fund balance
x Inter-fund loans
User charges
Federal/State grants and aid
Loan financing
x Private bank loans
Bond financing
x General obligation bonds
x Revenue bonds
x Private activities bonds
x Leasing-revenue bonds
x State Bond Banks
Any financing options pursued will require a full analysis regarding the City’s debt capacity, conformance with our debt management policy, and would be subject to our debt limitations which is currently at $279 million.

Pay-as-you-go Financing:

Pay-as-you-go financing involves paying for capital projects with cash on hand. This includes reserve balances set aside. These monies can also be derived from specific tax levies dedicated to capital improvements, surplus revenues after operating and debt service requirements are met, grants, or unassigned fund balance. A decision to use fund balance for capital projects should be made carefully, as the City always should keep an adequate level of available reserves to be used as a cushion for unexpected revenue shortfalls, emergency expenditures, or ot her purposes. The City’s Reserve Policy includes a cushion in its Contingency Reserves that is set at 33% of ongoing expenditures but allows up to one-third of the balance to finance capital acquisitions as long as 126
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repayment plan is approved at the same time. The repayment plan must be financially feasible based on the City’s Five-Year Financial Forecast. There is also the unassigned fund balance that the City utilizes to address any potential revenue shortfalls or unanticipated minor expenditures during the year. Ideally staff feels that $1 million is sufficient. Maintaining an ongoing unassigned fund balance also provides as a strong indicator for the City to borrow money in the long-term and pursue debt financing.

Cities should always rely on some amount of pay-as-you-go financing for their capital improvement program. Debt financing is not appropriate for capital assets with short useful lives (e.g., 2 – 5 years), as these assets should be paid for with cash or leased.

Assets, for which much of the benefit is re alized in the short term, are also appropriate for pay-as-you-go financing. Each project should be individually evaluated.

Pay-as-you-use Financing (Debt Financing):

Debt financing means issuing long-term debt in the form of general obligation bonds or revenue bonds to fund capital projects. Long-term bonds (bonds with a maturity of greater than five years), are another method of financing used for capital infrastructure. Borrowing allows the City to acquire assets as needed rather than wait to accumulate a sufficient amount of cash. State and local governments usually can finance capital projects using tax-exempt bonds, where interest income is exempt from federal and often state taxation for investors holding these secu rities. Consequently, investors are willing to accept a lower interest rate than they would for a comparable taxable security, which lowers the cost of financing capital improvements for a City. The use of debt financing is justified in part by the rationale of spreading out the costs of public infrastructure investments throughout life of the asset. Tax-exempt bonds generally fall into two categories: general obligation bonds and revenue bonds. There are also other types of debts, which governments may issue and are briefly discussed in this memo.

General Obligation Bonds: Smaller governments most commonly issue general obligation bonds. Often called GO bonds or simply GOs, these bonds may be secured by an unlimited tax pledge, that is the City pled ges to raise the necessary amount of taxes to repay the debt. They require voter approv al (two-thirds vote of the electorate) and impose debt obligation on future taxpayers and limit budget flexibility in future years. GO’s are the most secure of all municipal debt and generally used for long-term financing of major public projects such as administration buildings, public safety facilities, and water and sewer systems.

Revenue Bonds: Revenue bonds distinguish themselves from GO bonds through their method repayment, unlike GOs, which rely on taxation. Revenue bonds generate from a specific revenue source and are securities for debt service payments. The source is usually the project being financed, or from a dedicated revenue stream (i.e., sales tax).

City enterprise funds, such as sewer operations, usually issue revenue bonds. They have more risk, due to the uncertainty of generated revenues, resulting in a higher cost of issuance.
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Special Assessment or Special District Bonds: At times, cities are asked to fund capital infrastructure in a particular geographic area. For example, a special assessment district may be created in a residential area to finance sidewalks, curbs and gutters. Bonds issued to finance capital improvements are secured with the revenues from a special tax levied on businesses and residences located within the district. This type of financing requires property owner consent and vote.

Construction or Asset-Backed Debt: A construction or asset-backed debt is a loan product offered by financial institutions. As with any secured loan, the City provides collateral, or something of value, to guarantee repayment of the loan.

Lease-Purchase Agreements/Certificates of Participation:

Cities sometimes find it advantageous to use one form or another of lease financing.

Lease-purchase agreements are commonly used mechanisms to procure capital equipment or facilities. Under this arrangement, the City enters into an agreement with a vendor or financial institution to lease an asset over a certain number of years. At the end of the lease period, the City has the option to purchase the asset. These agreements are similar to tax-exempt debt, in that payments by the City are separated into a principal and interest component, with the interest component being exempt from federal and state income taxes.

Lease-purchase agreements have evolved, su ch that securities can be issued and marketed to investors in a manner similar to tax-exempt debt. These securities are known as certificates of participations or COPs. Interest rates are set at the time of the COP sale.

The amount financed would be dependent on the length of financing and debt service that the City could afford under its present and future operational revenues. Issuances of COPs have higher interest costs relative to issuing debt. If the City were to consider this financing option, staff recommends engaging financial consultant to assist the City, due to the complexity of this financing mechanism.

Grants:

The amount of grant funding from federal and state sources has diminished in recent years except for a few types of capital projects. Despite their limited availability, the City will seek out any type of grant for which we may be eligible, and which are consistent with the City’s goals for providing services and capital infrastructure.

Grants often are advantageous in that they do not have to be paid back. Most grants require the City to provide a matching share. Typically, local matching funds of 20% or more are required. The City needs to exercise caution, however, so that the availability of grant funding does not dictate program or service spending priorities. Projects may be moved forward in the capital program if gr ant funding becomes available, however, starting new programs that are not priorities of the City only because grant funding is available should be avoided, particularly if additional revenues are needed from the City’s own sources and staffing to support added oper ating, maintenance, or administrative 128
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costs. This would have the undesirable effect of diverting revenues from essential projects that support the goals and policies of the City.

Development Impact Fees (DIF) and Exactions:

Development impact fees and exactions are contributions paid by developers to fund capital improvements associated with new development. Negotiated exaction, usually determined on a project-by-projected basis, ty pically includes construction of public facilities, such as sewer or water systems, vehicles or equipment, land for public facilities, or payments to support the development. Impact fees are assessed on a one-time basis to pay for infrastructure costs associated with new developments. The City’s DIF fees are tied to a standard measure, such as square footage, vehicle trips associated with the development, or some other measure. The impact fees collected may only be used for specific projects listed in the impact fee program.

Revolving Loan Programs/Bond Banks/Conduit Issuer:

The City may be able to take advantage of state revolving loan programs through the California Infrastructure and Economic Develop ment Bank (I-Bank) Infrastructure State Revolving Fund (ISRF) program. I-Bank is the State of California’s only general-purpose financing authority. They are a conduit bond issuer, meaning I-Bank issues bonds on behalf of a borrower and then lends those proceeds to that borrower. The borrower provides security to the bondholder and agree s to repay the bonds. The I-Bank is designed to assist smaller governments in financing capital improvements. Smaller governments are not frequent issuers of tax-exempt bonds and tend to sell small amounts of bonds when they decide to issue, hence they often pay higher issuance costs than frequent, large issuers and may pay higher interest rates as well. The I-Bank is an option that can lower the costs of financing for sm aller governments. Governments planning to finance their capital assets through the I-Bank need to be sure they meet any special requirements of the I-Bank. The City may choose to pursue utilizing I-Bank in the future for other eligible infrastructure needs, which is the Finance Director’s preferred choice, due to the lower cost of financing. I-Bank financing is available from $50,000 to $25 million per applicant, with terms up to 30 years. Interest rates are based on a combination of the Interest Rate Benchmark (Thompson’s Municipal Market Data Index) and Interest Rate Adjustments. Generally, the Interest Rate Adjustments will cause the interest rate on the ISRF financing to be below the Interest Rate Benchmark, as it is dependent upon the repayment source and a variety of factors. Inte rest rates are set at the time the loan is issued. Before pursuing, cost comparisons should be performed.

Public-Private Partnerships:

Public-Private partnerships are created to permit the public and private sector to achieve certain financial benefits that would not be possible with only one side involved in the transaction. There are many forms of public-private partnerships, including franchise agreements, joint development, and service contracts. With service contracts or franchise 129
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agreements, the responsibility for acquiring the capital assets needed to provide the service may be shifted to the private sector.

Private Contributions:

In some cases, the private sector may be willin g to donate capital assets or facilities to the government.

Other Financing Options:

The City also can utilize other types of common options for immediate infrastructure needs, such as inter-fund loans and bank loans. If utilizing inter-fund loans or bank loans, the Government Finance Officers Association (GFOA) recommends that governments develop policies and procedures related to these debt obligations.

Inter-fund Loans: This allows the City to borrow from its own special revenue funds that have large fund balances and save on issuance and interest costs. Typical uses include financing smaller capital projects or smalle r land acquisitions, which will be paid back within five years to the borrowed fund. The in terest rate normally charged for inter-fund loans is set at the LAIF rate and outlined in the resolution. Essentially, you are borrowing from cash reserves from other special revenue funds that are available and sit idle. If Council interested in exploring inter-fund loans, a cash flow analysis will be provided to display the timing of the funds along with a schedule of payments to properly track any inter-fund loan activity.

Bank Loans: Using bank loans, such as interest only loans or lines of credit, is an option for smaller governments that have limited access to the municipal bond market and cannot afford the costs of bond issuance. One potential advantage of bank loans is that the process for execution is simpler than a bond issue that is marketed to the public, with fewer issuance costs and ongoing complianc e requirements. Financing terms can be adjusted, and further financing options can be explored if needed.

Exhibit A – Debt Management Policy
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ATTACHMENT :
6HFWLRQ7UXVW,QYHVWPHQW6WUDWHJLHV
153
343
City of Goleta
PARS 115 Trust – OPEB & Pension Investment Selection
October 8, 2020
154
344
City of Goleta ڞ2
Contacts
Mitch Barker
Executive Vice President
(800) 540-6369 x116
[email protected]
Angela Tang
Client Services Coordinator
(800) 540-6369 x159
[email protected]
Tory Milazzo, CFA
Senior Portfolio Manager
(805) 564-6219
[email protected]
155
345
City of Goleta ڞ3
• OPEB & Pension Trust Team
• Investment Selection Form
• Actuarial Valuation – OPEB
• Actuarial Valuation – Pension
• Efficient Frontier
• Active vs. Passive
• Quarterly Performance Sheets
• IGD (Investment Guidelines Document)
• Averaging-in Period
Investment Selection Checklist
156
346
City of Goleta ڞ4
Pars 115 Trust Team
Trust Administrator & Consultant
36 Years of Experience
(1984-2020)
1,500+
Plans under
Administration
1,000+
Public Agency
Clients
$4.5B
Assets under
Administration
500 K+
Plan Participants
• Recordkeeping
• Sub-trust accounting
• Monitors plan compliance
• Processes contributions/disbursements
• Hands-on, dedicated support teams
• Coordinates all agency services
Investment Manager
• Investment sub-advisor to trustee U.S. Bank
• Investment policy assistance
• Uses open architecture
• Active and passive platform options
• Customized portfolios (with minimum asset level)
101
Years of Experience
(1919-2020)
$16.2B
Assets under
Management
Trustee
• 5th largest commercial bank and one of the
nation’s largest trustees for Section 115 trusts
• Safeguard plan assets
• Oversight protection as plan fiduciary
• Custodian of assets
157
Years of Experience
(1863-2020)
$5.0T
Assets under
Administration
157
347
City of Goleta ڞ5
Subaccounts
OPEB and pension assets are
individually sub-accounted,
and can be divided by dept.,
bargaining group, or cost center.

Assets in the PARS Section 115
Combination Trust can be used
to address unfunded liabilities.

Financial Stability
Allows separate investment
strategies for OPEB and
pension subaccounts.

Flexible Investing
OPEB and pension assets
aggregate and reach lower fees
on tiered schedule sooner –
saving money!
Economies-of-ScaleAnytime Access
Trust funds are available
anytime; OPEB for OPEB
and pension for pension.

No set-up costs, no minimum
annual contribution amounts,
and no fees until assets are added.

No Set Up Cost or Minimums
Retiree Medical Benefits
Prefund OPEB GASB 75
OPEB
Reimburse agency; or
Pay benefits provider
Pension Rate Stabilization Program
Prefund Pension (PRSP) GASB 68
Pension
Reimburse agency; or
Pay retirement system
Assets can be used to: Assets can be used to:
prefund
either or both
General Fund
PARS IRS-Approved Section 115 Trust
158
348

PENSION OPEB HM MANAGED
ISSDF 203 09.22.2016
Investment Strategy Selection and Disclosure Form
PARS Pension / OPEB Trust Program
ʄ This document is entered into by client and U.S. Bank National Association (“U.S. Bank”), astrustee. ʄ Employer:
ʄ Plan/Trust Name: Public Agencies Post-Employment Benefits Trust ʄ To: HighMark Capital Management, Inc. and U.S. Bank:

U.S. Bank has been or is hereby appointed Investment Manager of the above-referenced Plan/Trust. Please invest the assets of the above-referenced Plan/ Trust for which you have been appointed Investment Manager in the (select one of the strategies listed below for each Plan funded by the Trust) :
OPEB Account Pension Account Primary Goal Strategic Range
Liquidity Management (US Treasury) Liquidity Management (US Treasury) Provide current income with liquidity
and stability of principal through
investments in short-term U.S.

Treasury obligations.

Money Market Fund
Liquidity Management (Prime Obligation) Liquidity Management (Prime Obligation) Generate current income with liquidity. Money Market Fund

DIVERSIFIED PORTFOLIOS
Conservative HighMark PLUS Conservative HighMark PLUS Provide a consistent level of inflation- protected income over the long-term.

Equity:

Fixed Income:

Cash:
5-20%
60-95%
0-20% Conservative Index PLUS Conservative Index PLUS Moderately Conservative HighMark PLUS Moderately Conservative HighMark PLUS Provide current income with capital appreciation as a secondary objective.

Equity:

Fixed Income:

Cash:
20-40%
50-80%
0-20% Moderately Conservative Index PLUS Moderately Conservative Index PLUS Moderate HighMark PLUS Moderate HighMark PLUS Provide current income and moderate capital appreciation.

Equity:

Fixed Income:

Cash:
40-60%
40-60%
0-20% Moderate Index PLUS Moderate Index PLUS
Balanced HighMark PLUS Balanced HighMark PLUS Provide growth of principal and income.

Equity:

Fixed Income:

Cash:
50-70%
30-50%
0-20% Balanced Index PLUS Balanced Index PLUS
Capital Appreciation HighMark PLUS Capital Appreciation HighMark PLUS Primary goal is growth of principal.

Equity:

Fixed Income:

Cash:
65-85%
10-30%
0-20% Capital Appreciation Index PLUS Capital Appreciation Index PLUS Custom Custom Specify:

Note: HighMark PLUS portfolios are diversified portfolios of actively managed mutual funds. Index PLUS portfolios are diversified p ortfolios of Index-based mutual funds or exchange-traded funds.

Acknowledged and Approved
Signature of Authorized Signer Title
Print Name of Authorized Signer Date
SAMPLE
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Primary Go
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easury)sury)
Provide currentcurrent incomeme withwit
and stability of principal of principal t
investments in shortshort
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e HighMark PLUS

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MPAAAMAM
oderately Conservativ

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SASA

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SSSSSS
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SSSSSSS
159
349
City of Goleta ڞ7
OPEB Actuarial Results
Data from 2019 CAFR
Valuation Date: 6/30/2019
Pay-as-you-Go
Discount Rate: 3.75% Percent Change Prefunding
Discount Rate: 6.75%
Total OPEB Liability (TOL) $2,241,108 30-36%▼ ?
Fiduciary Net Position $0 -- $0
Net OPEB Liability (NOL) $2,241,108 30-36%▼ ?
Service Cost
for FY 2018-19 $318,822 30-36%▼ ?
Annual Benefit Payments
(Pay-as-you-Go)
for FY 2018-19
$16,745 -- $16,745
Rule of thumb: For every one percent increase in the discount rate, the unfunded liability is lowered by 10-12%. 160
350
City of Goleta ڞ8
Combined Miscellaneous
& Safety Groups
Valuation as of
June 30, 2018
Valuation as of
June 30, 2019 Change
Actuarial Liability $17.7 M $19.8 M 11.86% ↑
Assets $14.4 M $16.1 M 11.81% ↑
Unfunded Liability $3.3 M $3.6 M 9.09% ↑
Funded Ratio 81.4% 81.6% 0.25% ↑
Employer Contribution Amount $703.0 K
(FY 19-20)
$869.1 K
(FY 20-21) 23.63% ↑
Employer Contribution Amount (FY 26-27) --- $1.2 M 34.7% ↑ Pension Funding Status
As of June 30, 2019, City of Goleta’s CalPERS pension plan is funded as follows*:
* Data through 2026-27 from Agency’s latest CalPERS actuarial valuation. 161
351
City of Goleta ڞ9
Projected Employer Contributions (Misc.)
Projected misc. contributions increase from $869.1K to $1.2M* (34.7% ↑) * Data through 2026-27 from Agency’s latest CalPERS actuarial valuation.

12.80%

13.00%

13.20%

13.40%

13.60%

13.80%

14.00%

14.20%

14.40%

14.60%
2020-21
2021-22
2022-23
2023-24
2024-25
2025-26
2026-27
% of Payroll
Total Contributions (%)
162
352
City of Goleta ڞ10
HighMARK CAPITAL MANAGEMENT
163
353
About HighMark Capital Management, Inc.
*Includes predecessor organizations. HighMark Capital Management, Inc. registered with the SEC as an investment adviser on August 7, 1998. **Assets under management (“AUM”) include assets for which HighMark provides continuous and regular supervisory and management services.

Assets under advisement (“AUA”) include assets for which HighMark provides certain investment advisory services (including, but not limited to, investment research and strategies) for client assets of its parent company, MUFG Union Bank, N.A.

Asset ClassClient Base

LONGEVITY
Managing assets for clients
since 1919*

STABILITY
Investment boutique structure
headquartered in San Francisco
backed by global strength within
MUFG Union Bank, N.A.

TALENT
43 investment professionals
24 professionals hold the Chartered
Financial Analyst® (CFA) designation
22 years average industry experience
ASSETS UNDER MANAGEMENT AND ADVISEMENT**
$16.7 billion as of 6/30/2020
Equity $5.9 billion
Fixed Income $5.3 billion
Liquidity $3.6 billion
Cash $1.9 billion
AUM $8.6 billion
AUA $8.1 billion
164
354
Establish: Determine your Strategic Asset Allocation Strategy Each Investment Objective reflects the associated PARS Diversified Portfolio as of 6/30/2020. A client’s portfolio construction may vary depending on the client's investment needs, objectives, and restrictions as well as the prevailing market conditions at the time of investment.

Moderately Conservative
Moderate
Expected Standard Deviation (Volatility)
Expected Return
Balanced
Capital Appreciation
Efficient frontier of portfolios with varying ranges of equities and fixed income Conservative
Equity Fixed Income Cash
Conservative 5-20% 60-95% 0-20%
Moderately Conservative 20-40% 50-80% 0-20%
Moderate 40-60% 40-60% 0-20%
Balanced 50-70% 30-50% 0-20%
Capital Appreciation 65-85% 10-30% 0-20%
165
355
Construct Your Plan’s Portfolio: PARS Diversified Portfolios –Tactical Allocation Each Investment Objective reflects the associated PARS Diversified Portfolio as of 6/30/2020. A client’s portfolio construction may vary depending on the client's investment needs, objectives, and restrictions as well as the prevailing market conditions at the time of investment.

Conservative
Moderately
Conservative Moderate Balanced Capital Appreciation
Equity 5-20% 20-40% 40-60% 50-70% 65-85%
Current Tactical 14.50% 29.00% 48.34% 58.00% 72.50%
Large Cap Blend 5.40% 10.65% 18.11% 21.98% 27.36%
Large Cap Value 1.68% 3.48% 5.94% 7.12% 8.71%
Large Cap Growth 1.68% 3.48% 5.94% 7.12% 8.71%
Mid Cap Blend 1.02% 2.04% 3.33% 4.07% 5.09%
Mid Cap Value 0.00% 0.00% 0.00% 0.00% 0.00%
Real Estate 0.25% 0.55% 0.94% 1.02% 1.21%
Small Cap Value 0.81% 1.42% 2.32% 2.75% 2.98%
Small Cap Growth 0.81% 1.42% 2.32% 2.75% 2.98%
International 1.83% 3.91% 6.06% 7.12% 10.23%
Tactical - Europe 0.00% 0.00% 0.00% 0.00% 0.00%
Emerging Markets 1.02% 2.05% 3.38% 4.07% 5.23%
Fixed Income 60-95% 50-80% 40-60% 30-50% 10-30%
Current Tactical 81.25% 66.85% 47.60% 38.00% 23.74%
Short Term Bond 16.75% 12.15% 8.80% 6.00% 2.64%
Intermediate Term Bond 64.50% 54.70% 38.80% 32.00% 21.10% Floating Rate Note 0.00% 0.00% 0.00% 0.00% 0.00%
Cash 0-20% 0-20% 0-20% 0-20% 0-20%
Current Tactical 4.25% 4.15% 4.06% 4.00% 3.76%
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
166
356
Construct Your Plan’s Portfolio: PARS Diversified Portfolios –Active v. Passive Each Investment Objective reflects the associated PARS Diversified Portfolio as of 6/30/2020. A client’s portfolio construction may vary depending on the client's investment needs, objectives, and restrictions as well as the prevailing market conditions at the time of investment. Specific securities identified above do not represent all of the securities purchased, sold or recommended for advisory clients, and you should not assume that investments in the securities identified in this presentation were or will be profitable.

HighMark Plus (Active) Index Plus (Passive)
Equity Ticker Fund Name Ticker Fund Name
Large Cap Blend COFYX Columbia Contrarian Core I3 IVV iShares Core S&P 500 ETF Large Cap Blend VGIAX Vanguard Growth & Income Adm
Large Cap Value DODGX Dodge & Cox Stock IVE iShares S&P 500 Value ETF Large Cap Value IVE iShares S&P 500 Value ETF
Large Cap Growth HNACX Harbor Capital Appreciation Ret IVW iShares S&P 500 Growth ETF Large Cap Growth PRUFX T. Rowe Price Growth Stock I
Mid Cap Blend IWR iShares Russell Mid-Cap ETF IWR iShares Russell Mid-Cap ETF Real Estate VNQ Vanguard Real Estate ETF VNQ Vanguard Real Estate ETF Small Cap Value UBVFX Undiscovered Managers Behavioral Val R6 IWN iShares Russell 2000 Value ETF Small Cap Growth RSEJX Victory RS Small Cap Growth R6 IWO iShares Russell 2000 Growth ETF International DFALX DFA Large Cap International Portfolio International DODFX Dodge & Cox International Stock
International MGRDX MFS International Growth R6 EFA iShares MSCI EAFE ETF Emerging Markets HHHFX Hartford Schroders Emerging Mkts Eq F VWO Vanguard FTSE Emerging Markets ETF Fixed Income Ticker Fund Name Ticker Fund Name
Short Term Bond VFSUX Vanguard Short-Term Investment-Grade Adm VFSUX Vanguard Short-Term Investment-Grade Adm Intermediate Term Bond PTTRX PIMCO Total Return Instl AGG iShares Core U.S. Aggregate Bond Intermediate Term Bond PTRQX PGIM Total Return Bond Q
Intermediate Term Bond DBLFX DoubleLine Core Fixed Income I Cash
Characteristics
Fund Manager Dependency Higher dependency on portfolio manager skill Tracks index, thus little-to-no dependency on portfolio manager skill
Opportunity to Outperform Index Opportunity to outperform index Typically performs below index after fees Costs Higher expense ratios due to portfolio manager skill Lower expense ratio due to little dependency on portfolio manager skill or opportunity for outperformance
167
357
City of Goleta ڞ15
Strategy Equity (%) 1 Year 3 Years 5 Years 10 Years
Capital
Appreciation 65-85% 12.24% 8.41% 9.02% 9.68%
Balanced 50-70% 11.44% 7.81% 8.16% 8.73%
Moderate 40-60% 10.52% 7.28% 7.50% 7.88%
Moderately
Conservative 20-40% 8.54% 6.13% 6.08% 6.18%
Conservative 5-20% 7.10% 5.38% 5.14% 4.79%
HighMark Capital Management

ACTIVE PORTFOLIO RETURNS
* Past performance does not guarantee future results.

As of August 31, 2020
168
358
City of Goleta ڞ16
Strategy Allocation (%)
Capital Appreciation
(65-85% Equity) 6.63%
Balanced
(50-70% Equity) 28.31%
Moderate
(40-60% Equity) 34.94%
Mod. Conservative
(20-40% Equity) 16.27%
Conservative
(5-20% Equity) 3.01%
Other
(Custom) 10.84%
TOTAL 100.00%
OPEB Strategy Allocations

HIGHMARK CAPITAL MANAGEMENT
As of July 31, 2020
Active: 64.86%, Passive: 35.14%
Capital Appreciation

6.63%
Balanced

28.31%
Moderate

34.94%
Moderately
Conservative

16.27%
Conservative

3.01%
Other

10.84%
169
359
City of Goleta ڞ17
Strategy Allocation (%)
Capital Appreciation
(65-85% Equity) 5.37%
Balanced
(50-70% Equity) 13.42%
Moderate
(40-60% Equity) 30.87%
Mod. Conservative
(20-40% Equity) 35.57%
Conservative
(5-20% Equity) 6.04%
Other
(Custom) 8.72%
TOTAL 100.00%
PRSP Strategy Allocations

HIGHMARK CAPITAL MANAGEMENT
As of July 31, 2020
Active: 62.50%, Passive: 37.50%
Capital Appreciation

5.37%
Balanced

13.42%
Moderate

30.87%
Moderately
Conservative

35.57%
Conservative

6.04%
Other

8.72%
170
360
HighMark’s dedicated investment team
continuously seeks to add value to our
relationship with your organization.
Integrated client service program established
with PARS over the last 23 years
We have a tradition of interactive client
service to maintain a strong relationship
delivered by local portfolio managers
You benefit from face-to-face meetings and
scheduled conference calls with your client
service team and portfolio management
team
You receive regular communications in a
variety of formats
• Account holdings and transactions
• Quarterly performance evaluation
reports
• Investment outlook and economic
updates
Report: Responsive and Proactive Client Communication
Tory Milazzo, CFA
Vice President
Sr. Portfolio Manager
Central Coast
Andrew Brown, CFA
Director
Sr. Portfolio Manager
Northern California
Hoddy Fritz
Director
Business
Development
Southern California
Fred Hurst
Director
Business
Development
Northern California
Keith Stribling, CFA
Vice President
Sr. Portfolio Manager
Orange County
Christiane Tsuda
Vice President
Sr. Portfolio Manager
San Diego
Anne Wimmer, CFA
Director
Sr. Portfolio Manager
Los Angeles
Randy Yurchak, CFA
Vice President
Sr. Portfolio Manager
Northern California
171
361
HighMark Plus Composite (Active)
Current Quarter* 7.21%
Blended Benchmark*,** 4.99%
Year To Date* 2.61%
Blended Benchmark*,** 2.98%
1 Year 5.78%
Blended Benchmark** 6.19%
3 Year 4.93%
Blended Benchmark** 4.87%
5 Year 4.41%
Blended Benchmark** 4.22%
10 Year 4.75%
Blended Benchmark** 4.26%

PARS DIVERSIFIED PORTFOLIOS

CONSERVATIVE

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — CONSERVATIVE PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

Key features include: sophisticated asset allocation
and optimization techniques, four layers of
diversification (asset class, style, manager, and
security), access to rigorously screened, top tier
money managers, flexible investment options, and
experienced investment management.

Rigorous Manager Due Diligence
Our manager review committee utilizes a rigorous
screening process that searches for investment
managers and styles that have not only produced
above-average returns within acceptable risk
parameters, but have the resources and commitment
to continue to deliver these results. We have set high
standards for our investment managers and funds.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

HighMark Plus utilizes actively managed mutual
funds while Index Plus utilizes index-based
securities, including exchange-traded funds. Both
investment options leverage HighMark’s active asset
allocation approach.

Risk Management
The portfolio is constructed to control risk through
four layers of diversification – asset classes (cash,
fixed income, equity), investment styles (large cap,
small cap, international, value, growth), managers
and securities. Disciplined mutual fund selection and
monitoring process helps to drive return potential
while reducing portfolio risk.

WHY THE PARS DIVERSIFIED
CONSERVATIVE PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 - Present: 7.5% S&P500,

1.5% Russell Mid Cap, 2.5% Russell 2000, 1% MSCI EM (net), 2% MSCI EAFE (net), 52.25% BBG Barclays US Agg, 25.75% ICE BofA 1-3 Yr US Corp/Gov’t, 2% ICE BofA US High Yield Master II, 0.5% Wilshire REIT, and 5% FTSE 1 Mth T-Bill. From 4/1/2007 – 9/30/2012, the blended benchmark was 12% S&P௖500; 1% Russell 2000, 2% MSCI EAFE (net), 40% ICE BofA 1-3 Year Corp./Govt, 40% BBG Barclays US௖Agg, 5%௖FTSE 1 Mth T-Bill. Prior to April 2007: the blended benchmark was 15% S&P 500, 40% ICE BofA 1-3Yr Corp/Gov, 40% BBG Barclays US Agg, and 5% FTSE 1 Mth T-Bill.

To provide a consistent level of
inflation-protected income over
the long-term. The major portion
of the assets will be fixed
income related. Equity securities
are utilized to provide inflation
protection.

Conservative
Moderately Conservative
Moderate
Balanced
Capital Appreciation
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)
Strategic Range Policy Tactical
Equity 5 – 20% 15% 15%
Fixed Income 60 – 95% 80% 81%
Cash 0 – 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
Index Plus Composite (Passive)
Current Quarter* 5.60%
Blended Benchmark*,** 4.99%
Year To Date* 3.74%
Blended Benchmark*,** 2.98%
1 Year 7.00%
Blended Benchmark** 6.19%
3 Year 5.05%
Blended Benchmark** 4.87%
5 Year 4.32%
Blended Benchmark** 4.22%
10 Year 4.49%
Blended Benchmark** 4.26%

PORTFOLIO FACTS
HighMark Plus (Active)
Composite Inception Date 07/2004
No of Holdings in Portfolio 19
Index Plus (Passive)
Composite Inception Date 07/2004
No of Holdings in Portfolio 12
HighMark Plus Composite (Active)
2008 -9.04%
2009 15.59%
2010 8.68%
2011 2.19%
2012 8.45%
2013 3.69%
2014 3.88%
2015 0.29%
2016 4.18%
2017 6.73%
2018 -1.35%
2019 11.05%
Index Plus Composite (Passive)
2008 -6.70%
2009 10.49%
2010 7.67%
2011 3.70%
2012 6.22%
2013 3.40%
2014 4.32%
2015 0.06%
2016 3.75%
2017 5.52%
2018 -1.09%
2019 10.37%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
172
362

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

ABOUT THE ADVISER
HighMark® Capital Management, Inc. (HighMark) has
100 years (including predecessor organizations) of
institutional money management experience with $8.6
billion in assets under management and $8.1 billion in
assets under advisement*. HighMark has a long term
disciplined approach to money management and
currently manages assets for a wide array of clients.

ABOUT THE PORTFOLIO MANAGEMENT TEAM
Andrew Brown, CFA
®
Senior Portfolio Manager
Investment Experience: since 1994
HighMark Tenure: since 1997
Education: MBA, University of Southern California;
BA, University of Southern California
Salvatore “Tory” Milazzo III, CFA
®
Senior Portfolio Manager
Investment Experience: since 2004
HighMark Tenure: since 2014
Education: BA, Colgate University
J. Keith Stribling, CFA
®
Senior Portfolio Manager
Investment Experience: since 1985
HighMark Tenure: since 1995
Education: BA, Stetson University
Christiane Tsuda
Senior Portfolio Manager
Investment Experience: since 1987
HighMark Tenure: since 2010
Education: BA, International Christian University, Tokyo Anne Wimmer, CFA
®
Senior Portfolio Manager
Investment Experience: since 1987
HighMark Tenure: since 2007
Education: BA, University of California, Santa Barbara
Randy Yurchak, CFA
®
Senior Portfolio Manager
Investment Experience: since 2002
HighMark Tenure: since 2017
Education: MBA, Arizona State University;
BS, University of Washington
Asset Allocation Committee
Number of Members: 17
Average Years of Experience: 26
Average Tenure (Years): 14
Manager Review Group
Number of Members: 7
Average Years of Experience: 17
Average Tenure (Years): 8
*Assets under management (“AUM”) include assets for which HighMark provides continuous and regular supervisory and management services. Assets under advisement (“AUA”)
include assets for which HighMark provides certain investment advisory services (including, but not limited to, investment research and strategies) for client assets of its parent company, MUFG Union Bank, N.A.

The performance records shown represent size-weighted composites of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Conservative active and passive objectives.

The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios.

US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. US Bank pays HighMark 60% of the annual management fee for assets sub-advised by HighMark under its sub-advisory agreement with US Bank.

The 0.36% paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio’s returns. Assuming an investment for five years, a 5% annual total return, and an annual sub-advisory fee rate of 0.36% deducted from the assets at market at the end of each year, a $10 million initial value would grow to $12.53 million after fees (Net-of-Fees) and $12.76 million before fees (Gross-of-Fees). Gross returns are presented before management and custodial fees but after all trading expenses and reflect the reinvestment of dividends and other income. A client's return will be reduced by the advisory fees and other expenses it may incur as a client. Additional information regarding the firm’s policies and procedures for calculating and reporting performance results is available upon request. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade-date accounting.

Blended benchmarks represent HighMark’s strategic allocations between equity, fixed income, and cash and are rebalanced monthly. Benchmark returns do not reflect the deduction of advisory fees or other expenses of investing but assumes the reinvestment of dividends and other earnings. An investor cannot invest directly in an index. The unmanaged S&P 500 Index is representative of the performance of large companies in the U.S. stock market. The MSCI EAFE Index is a free float- adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Russell Midcap Index measures the performance of the mid- cap segment of the U.S. equity universe. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The ICE BofA US High Yield Master II Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Wilshire REIT index measures U.S. publicly traded Real Estate Investment Trusts. The unmanaged Bloomberg Barclays U.S. Aggregate Bond Index is generally representative of the U.S. taxable bond market as a whole. The ICE BofA 1-3 Year U.S. Corporate & Government Index tracks the bond performance of the ICE BofA U.S. Corporate & Government Index, with a remaining term to final maturity less than 3 years. The unmanaged FTSE 1-Month Treasury Bill Index tracks the yield of the 1-month U.S. Treasury Bill.

HighMark Capital Management, Inc. (HighMark), an SEC-registered investment adviser, is a wholly owned subsidiary of MUFG Union Bank, N.A. (MUB). HighMark manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, and public and private retirement plans. MUB, a subsidiary of MUFG Americas Holdings Corporation, provides certain services to HighMark and is compensated for these services. Past performance does not guarantee future results. Individual account management and construction will vary depending on each client’s investment needs and objectives. Investments employing HighMark strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by the Bank or any Bank affiliate, and MAY lose value, including possible loss of principal. 350 California Street
Suite 1600
San Francisco, CA 94104
800.582.4734
www.highmarkcapital.com

HOLDINGS
STYLE
Small Cap

1.6%
Interm-Term Bond

64.5%
Short-Term Bond

16.7%
Large Cap Core

5.4%
Large Cap Growth

1.7%
Mid Cap

1.0%
Intl Stocks

2.9%
Cash

4.2%
Large Cap Value

1.7% Real Estate

0.3%
HighMark Plus (Active) Index Plus (Passive)
Columbia Contrarian Core I3 iShares Core S&P 500 ETF
Vanguard Growth & Income Adm iShares S&P 500 Value ETF
Dodge & Cox Stock Fund iShares S&P 500 Growth ETF
iShares S&P 500 Value ETF iShares Russell Mid-Cap ETF
Harbor Capital Appreciation - Retirement Vanguard Real Estate ETF T. Rowe Price Growth Stock - I iShares Russell 2000 Value ETF iShares Russell Mid-Cap ETF iShares Russell 2000 Growth ETF Vanguard Real Estate ETF iShares MSCI EAFE ETF
Undiscovered Managers Behavioral Value-R6 Vanguard FTSE Emerging Markets ETF Victory RS Small Cap Growth - R6 Vanguard Short-Term Invest-Grade Adm DFA Large Cap International Portfolio iShares Core U.S. Aggregate Dodge & Cox International Stock First American Government Obligations Z MFS International Growth - R6
Hartford Schroders Emerging Markets Eq
Vanguard Short-Term Invest-Grade Adm
PIMCO Total Return Fund - Inst
PGIM Total Return Bond - R6
DoubleLine Core Fixed Income - I
First American Government Obligations Z
Holdings are subject to change at the
discretion of the investment manager.
173
363

PARS DIVERSIFIED PORTFOLIOS

MODERATELY CONSERVATIVE

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — MODERATELY CONSERVATIVE PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

WHY THE PARS DIVERSIFIED
MODERATELY CONSERVATIVE PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 - Present: 15.5% S&P500, 3% Russell Mid Cap, 4.5% Russell 2000, 2% MSCI EM (net), 4% MSCI EAFE (net), 49.25% BBG Barclays US Agg, 14% ICE BofA 1-3 Yr US Corp/Gov’t, 1.75% ICE BofA US High Yield Master II, 1% Wilshire REIT, and 5% FTSE 1 Mth T-Bill. From 4/1/2007 - 9/30/2012: the blended benchmark was 25% S&P௖500; 1.5% Russell 2000, 3.5% MSCI EAFE (net), 25% ICE BofA 1-3 Year Corp./Govt, 40% BBG Barclays US௖Agg, 5%௖FTSE 1 Mth T-Bill. Prior to April 2007, the blended benchmark was 30% S&P 500, 25% ICE BofA 1-3Yr Corp/Gov, 40% BBG Barclays US Agg, and 5% FTSE 1 Mth T-Bill.

To provide current income, with
capital appreciation as a
secondary objective. The major
portion of the assets is
committed to income-producing
securities. Market fluctuations
should be expected.

Strategic Range Policy Tactical
Equity 20 - 40% 30% 29%
Fixed Income 50 - 80% 65% 67%
Cash 0 - 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
HighMark Plus Composite (Active)
Current Quarter* 9.68%
Blended Benchmark*,** 7.73%
Year To Date* 0.85%
Blended Benchmark*,** 1.56%
1 Year 4.87%
Blended Benchmark** 5.87%
3 Year 5.22%
Blended Benchmark** 5.52%
5 Year 4.90%
Blended Benchmark** 5.07%
10 Year 5.97%
Blended Benchmark** 5.79%
Index Plus Composite (Passive)
Current Quarter* 7.78%
Blended Benchmark*,** 7.73%
Year To Date* 1.80%
Blended Benchmark*,** 1.56%
1 Year 6.05%
Blended Benchmark** 5.87%
3 Year 5.41%
Blended Benchmark** 5.52%
5 Year 4.98%
Blended Benchmark** 5.07%
10 Year 5.80%
Blended Benchmark** 5.79%

PORTFOLIO FACTS
HighMark Plus (Active)
Composite Inception Date 08/2004
No of Holdings in Portfolio 19
Index Plus (Passive)
Composite Inception Date 05/2005
No of Holdings in Portfolio 12
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)Conservative
Moderately Conservative
Moderate
Capital Appreciation
Balanced
HighMark Plus Composite (Active)
2008 -15.37%
2009 18.71%
2010 10.46%
2011 1.75%
2012 10.88%
2013 7.30%
2014 4.41%
2015 0.32%
2016 4.94%
2017 9.56%
2018 -2.60%
2019 13.73%
Index Plus Composite (Passive)
2008 -12.40%
2009 11.92%
2010 9.72%
2011 3.24%
2012 8.24%
2013 6.78%
2014 5.40%
2015 -0.18%
2016 5.42%
2017 8.08%
2018 -2.33%
2019 13.53%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
174
364

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

The performance records shown represent a size-weighted composite of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Moderately Conservative active and passive objectives.

The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios.

HOLDINGS
STYLE
Small Cap 2.8%
Interm-Term Bond

54.7%
Short-Term Bond

12.2%
Large Cap Core

10.6%
Large Cap Growth

3.5%
Mid Cap 2.0%
Intl Stocks 6.0%
Cash 4.1%
Large Cap Value

3.5%
Real Estate 0.6%
Holdings are subject to change at the
discretion of the investment manager.

PARS DIVERSIFIED PORTFOLIOS

MODERATE

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — MODERATE PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

WHY THE PARS DIVERSIFIED
MODERATE PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 – Present: 26.5% S&P500, 5% Russell Mid Cap, 7.5% Russell 2000, 3.25% MSCI EM (net), 6% MSCI EAFE (net), 33.50% BBG Barclays US Agg, 10% ICE BofA 1-3 Yr US Corp/Gov’t, 1.50% ICE BofA US High Yield Master II, 1.75% Wilshire REIT, and 5% FTSE 1 Mth T-Bill. From 4/1/2007 – 9/30/2012: the blended benchmark was 43% S&P௖500; 2% Russell 2000, 5% MSCI EAFE (net), 15% ICE BofA 1-3 Year Corp./Govt, 30% BBG Barclays US௖Agg, 5%௖FTSE 1 Mth T-Bill. Prior to April 2007: the blended benchmark was 50% S&P 500, 15% ICE BofA 1-3Yr Corp/Gov, 30% BBG Barclays US Agg, and 5% FTSE 1 Mth T-Bill.

To provide current income and
moderate capital appreciation.

It is expected that dividend and
interest income will comprise a
significant portion of total return,
although growth through capital
appreciation is equally important.

Strategic Range Policy Tactical
Equity 40 - 60% 50% 48%
Fixed Income 40 - 60% 45% 48%
Cash 0 - 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
HighMark Plus Composite (Active)
Current Quarter* 12.73%
Blended Benchmark*,** 11.27%
Year To Date* -1.32%
Blended Benchmark*,** -0.85%
1 Year 3.96%
Blended Benchmark** 4.75%
3 Year 5.77%
Blended Benchmark** 6.03%
5 Year 5.67%
Blended Benchmark** 5.91%
10 Year 7.48%
Blended Benchmark** 7.59%
Index Plus Composite (Passive)
Current Quarter* 10.92%
Blended Benchmark*,** 11.27%
Year To Date* -0.94%
Blended Benchmark*,** -0.85%
1 Year 4.54%
Blended Benchmark** 4.75%
3 Year 5.69%
Blended Benchmark** 6.03%
5 Year 5.60%
Blended Benchmark** 5.91%
10 Year 7.39%
Blended Benchmark** 7.59%

PORTFOLIO FACTS
HighMark Plus (Active)
Composite Inception Date 10/2004
No of Holdings in Portfolio 19
Index Plus (Passive)
Composite Inception Date 05/2006
No of Holdings in Portfolio 12
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)Conservative
Moderately Conservative
Moderate
Capital Appreciation
Balanced
HighMark Plus Composite (Active)
2008 -22.88%
2009 21.47%
2010 12.42%
2011 0.55%
2012 12.25%
2013 13.06%
2014 4.84%
2015 0.14%
2016 6.45%
2017 13.19%
2018 -4.03%
2019 17.71%
Index Plus Composite (Passive)
2008 -18.14%
2009 16.05%
2010 11.77%
2011 2.29%
2012 10.91%
2013 12.79%
2014 5.72%
2015 -0.52%
2016 7.23%
2017 11.59%
2018 -4.03%
2019 17.52%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
176
366

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

The performance records shown represent size-weighted composites of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Moderate active and passive objectives.

The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios.

HOLDINGS
STYLE
Small Cap

4.7%
Interm-Term Bond

38.8%
Short-Term Bond

8.8%
Large Cap Core

18.1%
Large Cap Growth

5.9%
Mid Cap

3.3%
Intl Stocks

9.5%
Cash

4.1%
Large Cap Value

5.9%
Real Estate

0.9%
Holdings are subject to change at the
discretion of the investment manager.

PARS DIVERSIFIED PORTFOLIOS

BALANCED

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — BALANCED PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

WHY THE PARS DIVERSIFIED
BALANCED PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: From 10/1/2012 – Present: 32% S&P500, 6% Russell Mid Cap, 9% Russell 2000, 4% MSCI EM (net), 7% MSCI EAFE (net), 27% BBG Barclays US Agg, 6.75% ICE BofA 1-3 Yr US Corp/Gov’t, 1.25% ICE BofA US High Yield Master II, 2% Wilshire REIT, and 5% FTSE 1 Mth T-Bill. From 4/1/2007 – 9/30/2012: the blended benchmark was 51% S&P 500; 3% Russell 2000, 6% MSCI EAFE (net), 5% ICE BofA 1-3 Year Corp./Govt, 30% BBG Barclays US Agg, 5% FTSE 1 Mth T-Bill. Prior to April 2007: the blended benchmark was 60% S&P 500, 5% ICE BofA 1- 3Yr Corp/Gov, 30% BBG Barclays US Agg, and 5% FTSE 1 Mth T-Bill.

To provide growth of principal
and income. While dividend and
interest income are an important
component of the objective’s
total return, it is expected that
capital appreciation will
comprise a larger portion of the
total return.

Strategic Range Policy Tactical
Equity 50 – 70% 60% 58%
Fixed Income 30 – 50% 35% 38%
Cash 0 – 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
HighMark Plus Composite (Active)
Current Quarter* 14.40%
Blended Benchmark*,** 13.11%
Year To Date* -2.36%
Blended Benchmark*,** -2.02%
1 Year 3.51%
Blended Benchmark** 4.23%
3 Year 6.07%
Blended Benchmark** 6.28%
5 Year 6.01%
Blended Benchmark** 6.33%
10 Year 8.24%
Blended Benchmark** 8.52%
Index Plus Composite (Passive)
Current Quarter* 12.53%
Blended Benchmark*,** 13.11%
Year To Date* -2.24%
Blended Benchmark*,** -2.02%
1 Year 3.90%
Blended Benchmark** 4.23%
3 Year 5.79%
Blended Benchmark** 6.28%
5 Year 5.90%
Blended Benchmark** 6.33%
10 Year 8.10%
Blended Benchmark** 8.52%

PORTFOLIO FACTS
HighMark Plus (Active)
Composite Inception Date 10/2006
No of Holdings in Portfolio 19
Index Plus (Passive)
Composite Inception Date 10/2007
No of Holdings in Portfolio 12
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)Conservative
Moderately Conservative
Moderate
Capital Appreciation
Balanced
HighMark Plus Composite (Active)
2008 -25.72%
2009 21.36%
2010 14.11%
2011 -0.46%
2012 13.25%
2013 16.61%
2014 4.70%
2015 0.04%
2016 6.81%
2017 15.46%
2018 -4.88%
2019 19.85%
Index Plus Composite (Passive)
2008 -23.22%
2009 17.62%
2010 12.76%
2011 1.60%
2012 11.93%
2013 15.63%
2014 6.08%
2015 -0.81%
2016 8.25%
2017 13.39%
2018 -5.05%
2019 19.59%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
178
368

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

The performance records shown represent size-weighted composites of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Balanced active and passive objectives.

The composite name has been changed from PARS Balanced/Moderately Aggressive to PARS Balanced on 5/1/2013. The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios. US Bank may charge clients as much as 0.60% annual management fee based on a sliding scale. US Bank pays HighMark 60% of the annual management fee for assets sub-advised by HighMark under its sub-advisory agreement with US Bank. The

0.36% paid to HighMark, as well as other expenses that may be incurred in the management of the portfolio, will reduce the portfolio’s returns. Assuming an investment for five years, a 5% annual total return, and an annual sub-advisory fee rate of

0.36% deducted from the assets at market at the end of each year, a $10 million initial value would grow to $12.53 million after fees (Net-of-Fees) and $12.76 million before fees (Gross-of-Fees). Gross returns are presented before management and custodial fees but after all trading expenses and reflect the reinvestment of dividends and other income. A client's return will be reduced by the advisory fees and other expenses it may incur as a client. Additional information regarding the firm’s policies and procedures for calculating and reporting performance results is available upon request. Performance results are calculated and presented in U.S. dollars and do not reflect the deduction of investment advisory fees, custody fees, or taxes but do reflect the deduction of trading expenses. Returns are calculated based on trade-date accounting.

HOLDINGS
STYLE
Small Cap

5.5%
Interm-Term Bond

32.0%
Short-Term Bond

6.0%
Large Cap Core

22.0%
Large Cap Growth

7.1%
Mid Cap

4.1%
Intl Stocks

11.2%
Cash

4.0%
Large Cap Value

7.1%
Real Estate

1.0%
Holdings are subject to change at the
discretion of the investment manager.

PARS DIVERSIFIED PORTFOLIOS

CAPITAL APPRECIATION

INVESTMENT OBJECTIVE

ANNUAL RETURNS
ASSET ALLOCATION — CAPITAL APPRECIATION PORTFOLIO
Comprehensive Investment Solution
HighMark® Capital Management, Inc.’s (HighMark)
diversified investment portfolios are designed to
balance return expectations with risk tolerance.

This is a highly specialized, time consuming
approach dedicated to one goal: competitive and
consistent performance.

Flexible Investment Options
In order to meet the unique needs of our clients,
we offer access to flexible implementation strategies:

WHY THE PARS DIVERSIFIED
CAPITAL APPRECIATION PORTFOLIO?
Q2 2020
* Returns less than one year are not annualized. **Breakdown for Blended Benchmark: 39.5% S&P500, 7.5% Russell Mid Cap,

10.5% Russell 2000, 5.25% MSCI EM (net), 10.25% MSCI EAFE (net), 16% BBG Barclays US Agg, 3% ICE BofA 1-3 Yr US Corp/Gov’t, 1% ICE BofA US High Yield Master II, 2% Wilshire REIT, and 5% FTSE 1 Mth T-Bill.

To provide growth of principal.

The major portion of the assets
are invested in equity securities
and market fluctuations are
expected.

Strategic Range Policy Tactical
Equity 65 - 85% 75% 72%
Fixed Income 10 - 30% 20% 24%
Cash 0 - 20% 5% 4%

ANNUALIZED TOTAL RETURNS
(Gross of Investment Management Fees, but Net of
Embedded Fund Fees)
Consolidated Composite
Current Quarter* 15.95%
Blended Benchmark*,** 15.76%
Year To Date* -4.09%
Blended Benchmark*,** -3.94%
1 Year 2.66%
Blended Benchmark** 3.18%
3 Year 6.26%
Blended Benchmark** 6.46%
5 Year 6.42%
Blended Benchmark** 6.77%
10 Year 9.06%
Blended Benchmark** 9.48%

PORTFOLIO FACTS
Consolidated Composite
Composite Inception Date 01/2009
No of Holdings in Portfolio 19
Efficient Frontier
Risk (Standard Deviation)
Reward (Rate of Return)Conservative
Moderately Conservative
Moderate
Capital Appreciation
Balanced
Consolidated Composite
2008 N/A
2009 23.77%
2010 12.95%
2011 -1.35%
2012 13.87%
2013 20.33%
2014 6.05%
2015 -0.27%
2016 8.81%
2017 16.72%
2018 -5.82%
2019 22.62%
(Gross of Investment Management Fees, but Net of Embedded Fund Fees)
180
370

HIGHMARK CAPITAL MANAGEMENT
350 California Street
Suite 1600
San Francisco, CA 94104
800-582-4734

The performance records shown represent a size-weighted composite of tax exempt accounts that meet the following criteria:

Accounts are managed by HighMark Capital Advisors (HCA) with full investment authority according to the PARS Capital Appreciation active and passive objectives.

The adviser to the PARS portfolios is US Bank, and HighMark serves as sub-adviser to US Bank to manage these portfolios.

HOLDINGS
STYLE
Small Cap

6.0%
Interm-Term Bond

21.1%
Short-Term Bond

2.6%
Large Cap Core

27.4%
Large Cap Growth

8.7%
Mid Cap

5.1%
Intl Stocks

15.4%
Cash

3.8%
Large Cap Value

8.7%
Real Estate

1.2%
Holdings are subject to change at the
discretion of the investment manager.

HighMark Plus (Active) Index Plus (Passive)
Columbia Contrarian Core I3 iShares Core S&P 500 ETF
Vanguard Growth & Income Adm iShares S&P 500 Value ETF
Dodge & Cox Stock Fund iShares S&P 500 Growth ETF
iShares S&P 500 Value ETF iShares Russell Mid-Cap ETF
Harbor Capital Appreciation – Retirement Vanguard Real Estate ETF T. Rowe Price Growth Stock - I iShares Russell 2000 Value ETF iShares Russell Mid-Cap ETF iShares Russell 2000 Growth ETF Vanguard Real Estate ETF iShares MSCI EAFE ETF
Undiscovered Managers Behavioral Value-R6 Vanguard FTSE Emerging Markets ETF Victory RS Small Cap Growth - R6 Vanguard Short-Term Invest-Grade Adm DFA Large Cap International Portfolio iShares Core U.S. Aggregate Dodge & Cox International Stock First American Government Obligations Z MFS International Growth - R6
Hartford Schroders Emerging Markets Eq
Vanguard Short-Term Invest-Grade Adm
PIMCO Total Return Fund - Inst
PGIM Total Return Bond - R6
DoubleLine Core Fixed Income - I
First American Government Obligations Z
181
371
$WWDFKPHQW
3UHVHQWDWLRQ
182
372
Long Range Financial Forecast, Revenue, and Funding Options Workshop Long Range Financial Forecast, Revenue and
Funding Options Workshop
City of Goleta
City Council Workshop
December 10, 2020
183
373
Long Range Financial Forecast, Revenue, and Funding Options Workshop ` Forecast Overview
` History of General Fund and Five-Year Forecast
` 20-Year General Fund Financial Forecast
` Unfunded Liabilities and Other Priorities
` Revenue Enhancement Options and Funding Strategies
` Staff Recommendations and Next Steps
2 184
374
Long Range Financial Forecast, Revenue, and Funding Options Workshop ` Extension of the General Fund Five-Year Forecast, going out 20 years to FY 40/41 ` Creates a long-range view for strategic decision making and context for balancing short-term and long-term goals
` Forecast is not a Budget
` Forecast is the financial outcome from a given set of assumptions ` Forecast sets long-term budget parameters, whereas the Budget sets annual spending priorities
` Revenue and expenditure trends over time
` Identifies outcomes if nothing changes
` Provides an “Order of Magnitude” feel for the General Fund’s ability to continue services and preserve fiscal sustainability
` Should be viewed as a “Work in Progress” as new information becomes available and updated
3 185
375
Long Range Financial Forecast, Revenue, and Funding Options Workshop ` Analyzed historical and current trends, including growth rates, recession impacts and changes over the last five years
` FY 20/21 is used as the initial base for all scenarios ` FY 18/19 actuals are used to compare when the City’s revenues return to normal levels ` Three primary scenarios modeled with different revenue scenarios based on current policy ` Expenditures assumptions for the three scenarios are all the same and updated to pre- pandemic status quo levels starting in FY 21/22
` All cost reductions and 11 FTE positions subject to hiring freeze added back in ` Additional pavement budget of $3.3 million needed annually needed factored in 4 186
376
Long Range Financial Forecast, Revenue, and Funding Options Workshop ` Scenario 1 – Current Budget (Worst Case)
` Was the recommended case during FY 20/21 Budget Adoption. Severe six- month shock, followed by slow period of growth through June 2021 and beyond, with total revenues estimated to be back to normal levels by FY 25/26 (~$30 million). Now considered worst case for forecasting purposes. ` Scenario 2 – Moderate (Current Trend – Most Likely Case) ` Revenues revised to reflect current trending data with conservative assumptions. Revenues estimated to fully recover to normal levels by FY 22/23. Includes cannabis tax revenues at $1 million starting in FY 21/22. ` Scenario 3 – Optimistic (Best Case)
` Shorter recovery period, as revenues estimated to fully recover back to normal levels by FY 21/22. Cannabis tax revenues are assumed at $2 million starting in FY 21/22.
5 187
377
Long Range Financial Forecast, Revenue, and Funding Options Workshop 6 Fiscal Year
(FY)
Property Tax
Revenue
YOY
% Chg
Sales Tax
Revenue
YOY
% Chg
TOT
Revenue
YOY
% Chg
All Other
Revenue
YOY
% Chg
Total
Revenue
YOY
% Chg Notable Events
FY 02/03 1,792,081$ 3,485,996 $ 2,141,810 $ 4,382,338 $ 11,802,225 $ SARS - 11/2002 - 7/2003 FY 03/04 2,045,480$ 14.14% 3,623,036 $ 3.93% 2,142,800$ 0.05% 5,261,570$ 20.06% 13,072,886$ 10.77% FY 04/05 3,727,087$ 82.21% 3,864,388$ 6.66% 2,281,612$ 6.48% 3,969,708$ -24.55% 13,842,795$ 5.89% Vehicle License Fee - Property Tax Swap FY 05/06 4,856,895$ 30.31% 4,039,979$ 4.54% 2,636,260$ 15.54% 3,885,783$ -2.11% 15,418,917$ 11.39% Goleta postal facility shooting: 1/2006, Start of
Triple Flip
FY 06/07 4,793,775$ -1.30% 4,116,749$ 1.90% 2,538,567$ -3.71% 5,257,402$ 35.30% 16,706,493$ 8.35% FY 07/08 4,765,991$ -0.58% 4,160,113$ 1.05% 2,783,143$ 9.63% 4,287,520$ -18.45% 15,996,767$ -4.25% Great Recession 12/2007 - 6/2009, Zaca Fire
7/2007
FY 08/09 4,860,427$ 1.98% 3,353,658$ -19.39% 2,461,489$ -11.56% 5,602,297$ 30.67% 16,277,872$ 1.76% Gap Fire 7/2008, Tea Fire 11/2008, Jesuita
Fire 5/2009, 7 hotels now operating
FY 09/10 4,942,940$ 1.70% 3,310,542$ -1.29% 2,138,896$ -13.11% 4,004,651$ -28.52% 14,397,030$ -11.55% End of Great Recession FY 10/11 4,952,157$ 0.19%
3,905,548$ 17.97% 2,420,762$ 13.18% 3,348,128$ -16.39% 14,626,594$ 1.59% FY 11/12 5,215,822$ 5.32% 3,845,273$ -1.54% 4,141,635$ 71.09% 3,862,202$ 15.35% 17,064,932$ 16.67% FY 12/13 5,320,579$ 2.01% 5,776,818$ 50.23% 5,604,278$ 35.32% 4,698,890$ 21.66% 21,400,564$ 25.41% TOT RNA sharing adjusted from 40% to 0%
TOT tax rate increase from 10% to 12%
Sales Tax RNA sharing adjusted from 50% to
0%
FY 13/14 5,390,827$ 1.32% 6,812,304$ 17.92% 6,975,799$ 24.47% 4,079,384$ -13.18% 23,258,314$ 8.68% Ebola: 2014-2016, Isla Vista Shooting 5/2014,
8 hotels now operating
FY 14/15 5,517,146$ 2.34% 6,329,870$ -7.08% 7,807,860$ 11.93% 3,721,385$ -8.78% 23,376,261$ 0.51% Refugio Oil Spill: 5/2015 FY 15/16 5,999,416$ 8.74% 6,216,442$ -1.79% 8,175,381$ 4.71% 4,232,841$ 13.74% 24,624,080$ 5.34% Zika: 12/2015-9/2016, Sherpa Fire: 6/2016,
End of Triple Flip.

FY 16/17 6,284,688$ 4.76% 6,491,121$ 4.42% 8,615,207$ 5.38% 4,604,171$ 8.77% 25,995,187$ 5.57% Rey Fire: 8/2016, Debris flow: 1/2017 FY 17/18 6,931,399$ 10.29% 6,424,757$ -1.02% 10,117,983$ 17.44% 4,035,570 $ -12.35% 27,509,710$ 5.83% Whittier Fire: July 2017, Thomas Fire/Debris
Flow: 12/2017 - 1/2018, 2 new hotels open:
11/2017, CDTFA established
FY 18/19 7,431,595$ 7.22% 6,994,204$ 8.86% 11,563,912$ 14.29% 4,034,618 $ -0.02% 30,024,330$ 9.14% Holiday Fire 7/2018, Kmart closed: 10/2018,
Debris flow (154): 2/2019, Cannabis tax
measure passed
FY 19/20 7,684,647$ 3.41% 6,735,609$ -3.70% 9,197,440$ -20.46% 4,956,134$ 22.84% 28,573,830$ -4.83% Cave Fire: 11/2019, Target opened: 10/2019,
Wayfair decsision online sales tax effects,
COVID-19 Pandemic 3/2020 - ongoing
188
378
Long Range Financial Forecast, Revenue, and Funding Options Workshop 7 $12 $13 $14
$15 $17 $16 $16
$14 $15
$17
$21
$23 $23 $25
$26
$28
$30
$29
$0
$5
$10
$15
$20
$25
$30
$35 Millions
Total General Fund Revenues
$16 $16
Great
Recession
189
379
Long Range Financial Forecast, Revenue, and Funding Options Workshop 8 Scenario 2 - Recession through FY 20/21
Summary of Five Year Forecast FY 20/21
Revised
FY 21/22
Projected
FY 22/23
Projected
FY 23/24
Projected
FY 24/25
Projected
Beginning Fund Balance 19,609,178$ 16,462,928 $ 16,930,826 $ 17,197,766 $ 17,119,604 $ Total Revenues 22,910,700$ 27,487,920 $ 28,769,500 $ 29,224,400 $ 29,690,100 $ Total Expenditures 26,056,950$ 27,020,022 $ 28,502,560 $ 29,302,561 $ 30,127,765 $ Net Revenue over ExpendituresA (3,146,250)$ 467,899 $ 266,940 $ (78,161) $ (437,665)$ Fund Balance Categories
Prepaids and Deposits 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ Public Facilities 830,108 $ 830,108 $ 830,108 $ 830,108 $ 830,108 $ Capital Equipment 594,869 $ 594,869 $ 594,869 $ 594,869 $ 594,869 $ Compensated Leave 237,123 $ 237,123 $ 237,123 $ 237,123 $ 237,123 $ Risk Management 200,000 $ 200,000 $ 200,000 $ 200,000 $ 200,000 $ Contingency Reserves 7,963,101 $ 8,279,643 $ 8,766,311 $ 9,027,687 $ 9,297,324 $ Litigation Defense Fund 300,000 $ 300,000 $ 300,000 $ 300,000 $ 300,000 $ Sustainability 292,500 $ 292,500 $ 292,500 $ 292,500 $ 292,500 $ OPEB UAL 333,500 $ 333,500 $ 333,500 $ 333,500 $ 333,500 $ CalPERS UAL 170,000 $ 170,000 $ 170,000 $ 170,000 $ 170,000 $ CIP Project Funding - $ - $ - $ - $ - $ Encumbrances - $ - $ - $ - $ - $ Unassigned Fund Balance 5,531,726$ 5,683,083 $ 5,463,355 $ 5,123,818 $ 4,416,516 $ Ending Fund Balance 16,462,928 $ 16,930,826 $ 17,197,766 $ 17,119,604 $ 16,681,940 $ ` Original forecast shown
` Cost reduction strategies
implemented through FY
21/22 with hiring freeze
of 11 FTE’s phased back
in over 2 years
` General fund share of
pavement maintenance
not programmed back in
` Scenarios on next slide
updated to assume all
expenditures added back
to status quo starting in
FY 21/22 plus $3.3
million of additional
pavement
190
380
Long Range Financial Forecast, Revenue, and Funding Options Workshop 9 Annual
Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
` Revenues based on FY
20/21 adopted budget
and five-year forecast
` Cannabis revenues
very low and not
increased
` TOT back to normal
levels FY 25/26
` Sales Tax back to
normal levels FY 24/25
191
381
Long Range Financial Forecast, Revenue, and Funding Options Workshop 10 ` Revenues based on FY
20/21 adopted budget
and five-year forecast
` Cannabis revenues
very low and not
increased
` TOT back to normal
levels FY 25/26
` Sales Tax back to
normal levels FY 24/25
($25)
($20)
($15)
($10)
($5)
$0
Millions
Net Operating Revenue (Annual Change in Fund Balance)
Average annual deficit over the next five years: ($5.0 million) Average annual deficit over the next 10 years: ($6.1 million ) Average annual deficit over the next 15 years: ($7.7 million) Average annual deficit over the next 20 years: ($9.7 million) 192
382
Long Range Financial Forecast, Revenue, and Funding Options Workshop 11 ` Revenues based on
current trending data
` Sales Tax, TOT and
cannabis adjusted
` Cannabis revenues
assumed at $1 million
starting in FY 21/22
` TOT back to normal
levels FY 23/24
` Sales Tax back to
normal levels FY 22/23
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
193
383
Long Range Financial Forecast, Revenue, and Funding Options Workshop 12 ` Revenues based on
current trending data
` Sales Tax, TOT and
cannabis adjusted
` Cannabis revenues
assumed at $1 million
starting in FY 21/22
` TOT back to normal
levels FY 23/24
` Sales Tax back to
normal levels FY 22/23
-$12
-$10
-$8
-$6
-$4
-$2
$0
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average annual deficit over the next five years: ($2.6 million) Average annual deficit over the next 10 years: ($3.0 million) Average annual deficit over the next 15 years: ($3.9 million) Average annual deficit over the next 20 years: ($5.0 million) 194
384
Long Range Financial Forecast, Revenue, and Funding Options Workshop 13 ` Fastest recovery
` Sales Tax, TOT and
cannabis adjusted
` Cannabis revenues
assumed at $2 million
starting in FY 21/22
` TOT back to normal
levels FY 22/23
` Sales Tax back to
normal levels FY 21/22
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
195
385
Long Range Financial Forecast, Revenue, and Funding Options Workshop 14 ` Fastest recovery
` Sales Tax, TOT and
cannabis adjusted
` Cannabis revenues
assumed at $2 million
starting in FY 21/22
` TOT back to normal
levels FY 22/23
` Sales Tax back to
normal levels FY 21/22
($7)
($6)
($5)
($4)
($3)
($2)
($1)
$0
$1
Millions
Net Operating Revenue (Annual Change to Fund Balance)
Average annual deficit over the next five years: ($474,000) Average annual deficit over the next 10 years: ($494,000) Average annual deficit over the next 15 years: ($903,000) Average annual deficit over the next 20 years: ($1.5 million) 196 386
Long Range Financial Forecast, Revenue, and Funding Options Workshop 15 ` COVID-19 Pandemic
` Volatile Economy and Economic Downturns
` State Takeaways and Borrowing
` Unfunded Liability Pension Costs and OPEB
` Compensation Increases and Adjustments
` Deferred Maintenance
` No Major New One-time Expenses
` No New Personnel or Program Expansion
` Other Special Revenue Operating Fund Deficits
197
387
Long Range Financial Forecast, Revenue, and Funding Options Workshop 16 ` Projected budget shortfalls in all periods
` Short-term fixes with fund balance and reserves
` Ongoing revenues not sufficient to keep up with ongoing expenditures when factoring in additional $3.3 million deferred maintenance needed for pavement ` Deficit to grow larger when other costs of additional items are known and included in updated forecast
` No capacity for additional pavement budget, investment in facilities, or to issue debt without going to voters
` At status quo service levels, without the additional $3.3 million, can possibly maintain the next few years, but at the growing cost of deferring maintenance, resulting in more expensive repairs and replacement.
198
388
Long Range Financial Forecast, Revenue, and Funding Options Workshop 17 ($250)
($200)
($150)
($100)
($50)
$0
$50
Scenario 1 - Cumulative Unassigned Fund Balance
$(120)
$(100)
$(80)
$(60)
$(40)
$(20)
$-
$20
Scenario 2 Cumulative Unassigned Fund Balance
($40)
($30)
($20)
($10)
$0
$10
$20
Millions
Scenario 3 Cumulative Unassigned Fund Balance
` Assumes no one-time use of unassigned fund balance for other unfunded priorities
` Scenario 1 negative by FY 22/23
` Scenario 2 negative by FY 23/24
` Scenario 3 negative by FY 31/32
199
389
Long Range Financial Forecast, Revenue, and Funding Options Workshop 18 Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 1,530,496$ 741,778 $ (579,068) $ (2,217,859)$ Alternative Scenario 1
Annual SurplusTotal Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
Alternative Scenario 2
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 4,265,616$ 4,363,318 $ 4,030,200$ 3,506,242$ Annual SurplusTotal Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65 Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 6,726,741$ 7,283,421 $ 7,518,207 $ 7,656,513 $ ` Assumes no revenue sharing with the County starting in FY 20/21 ` City shares 50% of is property tax allocation
` City shares 30% of the 1% Bradley-Burns uniform sales tax allocation of the 7.75% sales and use tax rate. The full 1% is normally allocated to cities. ` Result in an additional annual $6.1 million in tax revenues beginning FY 20/21
Alternative Scenario 3
Assumes No Revenue Neutrality Agreement
200
390
Long Range Financial Forecast, Revenue, and Funding Options Workshop 19 ` Assumes phasing out revenue sharing with the County over a 10-year period , starting in FY 20/21
` Assumes ramping down in equal installments over ten years, with 100% reduced by FY 29/30
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
Assumes Revenue Neutrality Agreement Ramping Down over 10 Years Alternative Scenario 1
Annual SurplusTotal Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
Alternative Scenario 2
Annual Surplus
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65 Millions
General Fund Forecast: Revenues and Expenditures
Alternative Scenario 3
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 2,448,580$ 4,663,068 $ 5,771,306 $ 6,346,337 $ Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 194,459$ 1,874,965 $ 2,371,297 $ 2,262,065 $ Average Years: 5 Years 1 0 Years 1 5 Years 2 0 Years Average Surplus/(Deficit) (2,340,584)$ (1,613,264) $ (2,149,096) $ (3,395,380) $ 201
391
Long Range Financial Forecast, Revenue, and Funding Options Workshop 20 ` Models recessionary impacts every seven years (FY
27/28 and FY 34/35)
` First recession assumes decline in sales tax at 20% and TOT 12% over two years – similar to what was
experienced during Great Recession
` Second recession assumes moderate impacts and cuts in half the impacts felt during the Great Recession, 10%
reduction in sales tax and 6% reduction in TOT
Recessionary Impacts Every Seven Years
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
Annual Deficit
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
Annual Deficit
Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50
$55
$60 Millions
General Fund Forecast: Revenues and Expenditures
Alternative Scenario 1 Alternative Scenario 2
Alternative Scenario 3
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (4,969,811)$ (7,703,331) $ (10,580,117)$ (13,608,842) $ Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) (2,580,215)$ (4,736,921) $ (7,010,407) $ (9,377,469) $ Average Years: 5 Years 1 0 Years 1 5 Years 2 0 Years Average Surplus/(Deficit) (473,761)$ (2,436,445)$ (4,413,404) $ (6,420,874) $ 202 392
Long Range Financial Forecast, Revenue, and Funding Options Workshop 21 ` Scenarios assume the temporary cost reduction strategy is phased out over two-year period
` Removes additional $3.3 million of pavement budget
Original FY 20/21 Budget with Temporary Cost Containment Strategies Phased Out and No Additional $3.3 Million Pavement Budget Alternative Scenario 1 Alternative Scenario 2
Alternative Scenario 3
Annual Deficit
Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50 Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 35,783$ (786,316)$ (2,037,418)$ (3,560,259) $ Total Revenues
Total
Expenditures
$20
$25
$30
$35
$40
$45
$50 Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 2,425,379$ 2,323,730 $ 1,833,668 $ 1,155,587 $ Total Revenues
Total Expenditures
$20
$25
$30
$35
$40
$45
$50
$55 Millions
General Fund Forecast: Revenues and Expenditures
Average Years: 5 Years 10 Years 15 Years 20 Years
Average Surplus/(Deficit) 4,531,833$ 4,805,203 $ 4,787,086 $ 4,658,379 $ 203 393
Long Range Financial Forecast, Revenue, and Funding Options Workshop 22 ` Unfunded liabilities [CalPERS pension UAL, OPEB (retiree health care) UAL], and settlement agreement payment
` Unfunded deferred maintenance with pavement, concrete, public trees, ADA, traffic signals, storm drains, vehicles and equipment, facilities, and parks and open space ` Staff level imbalances and service levels in departments and programs ` Master Plan Documents needing implementation
204
394
Long Range Financial Forecast, Revenue, and Funding Options Workshop 23 Summary of Unfunded Liabilities
Unfunded
Liabilities Est. Amount Current
Funding Adj. Est. Amount Potential Funding Sources
CalPERS UAL $ 3,517,839 $ 333,500 $ 3,184,339
Section 115 Trust once
funded
OPEB UAL $ 2,438,474 $ 170,000 $ 2,268,474
Section 115 Trust once
funded
Settlement
Agreement $ 3,880,000 $ - $ 3,880,000 N/A
Total $ 9,836,313 $ 503,500 $ 9,332,813
205
395
Long Range Financial Forecast, Revenue, and Funding Options Workshop 24 Summary of Other Unfunded Priorities
Unfunded Categories:

Unfunded
Notes and Funding Sources One-time Ongoing
Operating Costs
Deferred Infrastructure Maintenance
Additional Pavement Budget to maintain
average PCI level of 69 TBD $ 3,300,000 Additional annual amount needed. Tax revenue.

Backlog of concrete repair TBD $ 250,000 Tax revenue Backlog of public tree maintenance TBD $ 300,000 Tax revenue Deferred Traffic Signals – Full replacement TBD $ 500,000 Tax revenue Deferred Traffic Control Sign Replacements TBD $ 40,000 Tax revenue Storm drain maintenance TBD $ 250,000 Tax revenue Vehicles and Equipment TBD $ 150,000 Tax revenue ADA related improvements TBD TBD Tax revenue
Facility maintenance TBD $ 275,000 Tax revenue, user fees San Jose Creek Annual Cleanout TBD $ 200,000 Tax revenue Park and open space maintenance
rehabilitation TBD $ 150,000 Tax revenue, user fees TOTAL CURRENT ESTIMATE $ 5,415,000
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396
Long Range Financial Forecast, Revenue, and Funding Options Workshop 25 Unfunded Categories:

Unfunded
Notes and Funding Sources One-time Ongoing
Operating Costs
Staff level imbalances or service level by Dept/Program General Government TBD TBD Tax revenue, user fees
Library TBD $200,000
Annual cost estimates for book budget needed
once Library DIF is used up.

Grants, Tax revenue, user fees
Finance TBD $260,000
Staff level imbalances. Department to undergo
assessment. Was delayed due to COVID-19.

Tax revenue, user fees
Planning and Environmental Review TBD TBD
Affordable Housing Program. Staff level
imbalances.

Tax revenue, user fees
Public Works TBD TBD Staff level imbalances. Tax revenue, user fees Solid Waste TBD $90,000 Tax revenue, user fees
Streetlights TBD TBD Tax revenue
Neighborhood Services and Public Safety TBD TBD Tax revenue, user fees 207
397
Long Range Financial Forecast, Revenue, and Funding Options Workshop 26 Unfunded Categories:

Unfunded
Notes and Funding Sources One-time Ongoing
Operating Costs
Master Plan Documents Needing Implementation
Parks Master Plan TBD TBD Federal/State Grants
Creek and Watershed TBD $50,000
Depending on future action costs may
increase one-time for CIP and annually if
department or program created.

Tax revenues, grants, user fees
Bike/Ped Master Plan $13,980,000 TBD Federal/State Grants, tax revenues IT Strategic Plan TBD $1,188,000 Further analysis needed. Amount subject to change based on action.

Economic Development Plan TBD TBD TBD
Economic Recovery Plan TBD TBD Currently being developed.

Homelessness Strategic Plan TBD $760,000 Preliminary estimates, subject to change on action. Plan is still under draft and review
Strategic Energy Plan and Climate Action Plan $3,830,000 $282,000 Preliminary estimates, subject to change on action.

Butterfly Habitat Management Plan $63,500 $203,600 $3.9 million one-time state grant. Amount listed is estimated future unfunded cost.

Lake Los Carneros Master Plan TBD TBD Tax revenues
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398
Long Range Financial Forecast, Revenue, and Funding Options Workshop 27 CIP Projects
(Unfunded Next Five Years)
Est. One-Time
Amount Funding Sources
9001-Hollister Avenue Complete
Streets Corridor Plan $ 1,186,000
Grants, DIF, IBank, Other Debt
Financing
9006-San Jose Creek Bike Path -
Southern Extent $ 1,210,000
Grants, DIF, IBank, Other Debt
Financing
9009-San Jose Creek
Improvements and Fish Passage $ 570,000
General Fund $460,750
appropriated 9/1/2020
9025-Fire Station No. 10 $ 14,821,994 DIF, IBank, Other Debt Financing 9027-Goleta US 101 Overcrossing $ 28,500,000 Other Debt Financing 9053-Cathedral Oaks Crib Wall
Interim Repair Project $ 8,300,000 IBank, Other Debt Financing 9056-LED Street Lighting Project $ 100,000 Special Revenue Funds, IBank,
Debt Financing
9064-Reclaimed Water Service to
Evergreen Park $ 310,000 DIF
9065-Reclaimed Water Service to
Bella Vista Park $ 230,000 DIF
9067-Goleta Community Center
Upgrade $ 7,650,000
Grants, IBank, Other Debt
Financing
9069-Miscellaneous Facilities
Improvements $ 1,150,000 Other Debt Financing
9077-Recreation
Center/Gymnasium $ 1,938,585
Revenue Bonds, Grants, DIF,
Other Debt Financing
9078-Rancho La Patera
Improvements $ 2,985,000
Revenue Bonds, Grants, DIF,
Other Debt Financing
9081-Covington Drainage System
Improvements $ 3,700,000 IBank, Other Debt Financing CIP Projects
(Unfunded Next Five Years) Est. One-Time Amount Funding Sources 9085-Goleta Storm Drain Master Plan $ 220,000 GF or Special Revenue Funds 9086-Vision Zero Plan $ 300,000 GF or Special Revenue Funds 9096-Orange Avenue Parking Lot $ 300,000 Special Revenue Funds 9097-Fairview Corridor Study (Fowler
Road to Calle Real) $ 370,000 GF or Special Revenue Funds 9100-Hollister Avenue/Fairview
Avenue Roundabout (Intersection
Improvements) $ 550,000 Special Revenue Funds 9101-City Hall Purchase &
Improvements $ 435,500
GF Facility Reserves, IBank or
Other Debt Financing
9103-Citywide School Zones Signage
& Striping Evaluation $ 65,000 Special Revenue Funds 9104-Citywide Evaluation of Existing
Traffic Signals $ 65,000 Special Revenue Funds 9105-Ellwood Beach Drive Drainage
Infrastructure Replacement $ 226,725
Special Revenue Funds, Other Debt
Financing
9106-Phelps Ditch Flood Control
Channel Trash Control Structure $ 670,000
Special Revenue Funds, Other Debt
Financing
9107-Old Town South Fairview
Avenue, High Flow Trash Capture
Devices $ 325,000
Special Revenue Funds, Other Debt
Financing
9109-Ward Drive Sidewalk Infill $ 390,000
Special Revenue Funds, Other Debt
Financing
TBD-03-Ellwood Coastal Trails and
Habitat Restoration $ 2,475,000 Grants, Other Debt Financing Total Cost $ 79,043,804
Total Adjusted Cost $ 78,473,804
Accounts for GF appropriation for
9009
209
399
Long Range Financial Forecast, Revenue, and Funding Options Workshop 28 ` Funding Ongoing Operations and Ongoing Unfunded Maintenance ` When averaging out the three scenarios over a 20 years, approximately $5.4 million is needed annually to address pavement in the long-term. In the near term $2.7 million annually is needed ` Early estimates indicate an additional $2.1 million in ongoing deferred maintenance is needed annually When combined with the $5.4 million, it is now anticipated to be $7.3 million needed annually ` Ongoing annual expenditures should be matched with ongoing annual revenue streams 5 Years 10 Years 15 Years 20 Years
Scenario 1 (4,969,811)$ (6,085,453) $ (7,727,939) $ (9,701,587) $ Scenario 2 (2,580,215)$ (2,975,407) $ (3,856,853) $ (4,985,740) $ Scenario 3 (473,761)$ (493,934) $ (903,435) $ (1,482,948)$ Average (2,674,595)$ (3,184,931) $ (4,162,742) $ (5,390,092) $ Average Annual Deficit
210
400
Long Range Financial Forecast, Revenue, and Funding Options Workshop 29 ` Near Term Recommendations
` In the near term, it is recommended that the City Council direct staff to evaluate adjustments to existing cannabis business tax rates. If Council supports this recommendation, staff will work with the City’s consultants to bring a feasibility analysis and recommended rates back to Council ` As an example, based on preliminary estimates, staff have modeled that with a 1% increase to each category except medicinal, the City could almost double its c annabis revenue. Staff’s model indicated a possible 88% increase in cannabis overall revenues.
` Long Term Recommendations
` City Council direct staff to explore a one percent transaction and use tax measure, as was discussed in the prior fiscal year, and bring it back to Council for furt her consideration. As was shown in the polling results earlier this year, this type of tax measure has a good chance of being supported by voters and would generate the amount of ongoing revenue required in the long-term to help meet community needs and allow the City the capacity to finance CIP projects when needed. ` Alternatives
` Council can direct staff to explore other types of tax measures, including a Transient Occupancy Tax increase, a Utility User Tax, a Business Operations Tax or a Parcel Tax. 211
401
Long Range Financial Forecast, Revenue, and Funding Options Workshop 30 ` Several strategies that can be used to meet future unfunded pension and OPEB UAL challenges
` Council adopted Section 115 Trust, and staff now seeks Council direction to transfer funds that have been set aside for this purpose to the Trust and being investing plan assets
` Staff recommends City Council authorize staff to transfer funds currently set aside in reserves for CalPERS UAL in the amount of $170,000 and OPEB UAL in the amount of $333,500 to the Section 115 Trust and utilize the Moderate (passive) investment strategy
` Ongoing future funding strategy for additi onal funds to the Trust to be brought back to Finance Committee in January or February
212
402
Long Range Financial Forecast, Revenue, and Funding Options Workshop 31 ` One-time expenditures should be ma tched with one-time revenues or funds available
` Multiple strategies and options
` Use of one-time unassigned fund balance or internal fund borrowing if available ` Debt Financing Options
` New Revenues
` Combination of Options
` Staff recommends that Council direct staff to pursue new revenues and debt financing options and bring them back t o Council with a CIP Funding Plan. The combination of the two would ensure fiscal stability and flexibility with debt capacity when needed. Funding polices could be developed around the use of the new revenue stream(s) to address maintenanc e, CIP and staff needed to implement a variety of programs, projects and services.
213
403
Long Range Financial Forecast, Revenue, and Funding Options Workshop 32 A. Receive a presentation from staff on a City of Goleta Preliminary Long- Range Financial Forecast; and
B. Direct staff to pursue new revenues and debt financing options and bring them back to Council with a CIP Funding Plan; and
C.Authorize the transfer funds currently set aside in reserves for CalPERS unfunded accrued liability in the amount of $170,000 and OPEB unfunded accrued liability in the amount of $333,500 to the City’s Section 115 Trust; and
D.Direct staff to further analyze available Unassigned Fund Balance and return to the City Council with a recommendation for a CIP project funding reserve level.
214
404
ATTACHMENT 4:

Power Point Presentations
215
405

REVENUEE

ENHANCEMENTT

OPPORTUNITIES
- City of Goleta
- HdL ECONSolutions
216
406

TRANSACTION USE TAX (TUT)
MARCH 2022, HdL ECONSolutions Meeting 2
217
407
MARCH 2022, HdL ECONSolutions Meeting 3
218
408
MARCH 2022, HdL ECONSolutions Meeting 4
219
409
MARCH 2022, HdL ECONSolutions Meeting 5
220
410
MARCH 2022, HdL ECONSolutions Meeting 6
221
411
MARCH 2022, HdL ECONSolutions Meeting 7
222
412

REVENUE SUMMARY TABLE
Month Day, Year City Council/Committee Meeting Name 8
223
413
Fiscal Analysis of the
Commercial Cannabis Industry
in Goleta
Presented by: Mark Lovelace
Senior Cannabis Policy Advisor
March 31, 2022
224
414
ABOUT
HdL
• Serves:
വ 333 cities
വ 49 counties
വ 175 transaction districts
• Partnered with over 150 local agencies to
develop cannabis policies
• Team consists of former policymakers, law
enforcement and cannabis regulators with
State, County and local level experience
• HdL staff have experience conducting over
18,000 cannabis compliance reviews in
California, Colorado and Nevada
2 225
415
Overview
of the
Analysis
3 226
416
Purpose of the Analysis
• Ensure the City’s rates are competitive with other nearby jurisdictions and with common rates seen across the state. • Consider impacts t o business attraction, retention and success and to the City’s revenues.
• Discuss how re tail cannabis sales may be influenced by tourism and visitor traffic, along with the impact of UCSB.
• Work within the parameters of Measure Z
4 227
417
Purpose of the Analysis
• Currently 8 commercial cannabis businesses
• M e a s u r eZa l l o w sar ate of up to 10% of gross receipts 5 Cannabis Business Type Tax Rate ; Adult Use Tax Rate; Medicinal Retailers: 5.0% 0.0%
Cultivators: 4.0% 0.0%
Manufacturers: 2.0% 0.0%
Distributors: 1.0% 0.0%
Nurseries: 1.0% 0.0%
Testing: 0.0% 0.0%
228
418
Cannabis Industry in the Santa Barbara Region
6 229
419
Common Cannabis Tax Rates
7 Cannabis Business Type HdL Initial Rate HdL Maximum Rate Current City Rate Cultivation (indoors) $7 per square foot $10 per square foot 4.0% of gross receipts Nurseries $1 per square foot $2 per square foot 1.0% of gross receipts Manufacturing 2.5% of gross receipts 4% of gross receipts 2.0% of gross receipts Distribution 2% of gross receipts 3% of gross receipts 1.0% of gross receipts Retail 4% of gross receipts 6% of gross receipts 5.0% of gross receipts Testing 1% of gross receipts 2.5% of gross receipts 0.0% of gross receipts • The rates for manufacturing, distribution and testing are all somewhat below the range HdL commonly recommends.
230
420
Common Cannabis Tax Rates
• The City’s rates are generally competitive with other jurisdictions. 8 231
421
Cannabis Retailers
9 • 11 retailers serving the Santa Barbara coastal plain • Estimated population of 197,000 people
• Average of 1 retailer for every 18,000 people
232
422
Cannabis Retailers
10 • Estimate cannabis
retailers could
generate between
$9 million and $19
million in sales
• Estimate between
$347,000 and
$1,100,000 in taxes
HdL does not disclose confidential
earnings or tax information for
individual cannabis businesses.
233
423
Cannabis Manufacturers
11 • Gross receipts from around $1 million to over $20 million • Average generally from $2 million to $3 million
HdL does not disclose or discuss confidential earnings or tax information for individual cannabis businesses. 234
424
Cannabis Distributors
12 • Business models and gross receipts vary greatly
• Gross receipts from $1 million to well over $100 million • Most commonly in the range of $2.5 million
HdL does not disclose or discuss confidential earnings or tax information for individual cannabis businesses. 235
425
Cannabis Cultivation
13 • May be taxed by square foot, gross receipts, or per pound • 4.0% of gross receipts roughly equals $16 per square foot • City’s current rate is consistent with Santa Barbara County HdL does not disclose or discuss confidential earnings or tax information for individual cannabis businesses. 236
426
Summary and
Recommendations
14 237
427
Summary and Recommendations
15 • Recommendation 1
• HdL recommends t hat the City work within the existing limitations of Measure Z when making any desired
changes to its current cannabis tax rates.
• Recommendation 2
• HdL recommends that the City consider applying its
cannabis taxes evenly to both adult-use and medicinal
cannabis businesses and sales.
238
428
Summary and Recommendations
16 • Recommendation 3
• HdL recommends t hat the City retain the existing gross receipts-based tax on cannabis cultivation and continue to set the rate at 4.0%.
• Recommendation 4
• HdL recommends that a ny desired adjustments to the
City’s current tax rates for cannabis business types other than cultivation stay within the minimum and maximum
ranges described in Figure 1.
239
429
Summary and Recommendations
17 Business Type HdL Std.

Initial Rate
HdL Std.

Maximum Rate
Current
City Rate
Recommendation
Cultivation $7 per SF or 1.75% GR $10 per SF or 2.5% GR 4.0% GR No Change Nurseries $1 per SF or 1.0% GR $2 per SF or 2.0% GR 1.0% GR No Change Manufacturing 2.5% GR 4.0% GR 2.0% GR 2.5%
Distribution 2.0% GR 3.0% GR 1.0% GR 2.0%
Retail, Adult Use 4.0% GR 6.0% GR 5.0% GR No Change
Retail, Medicinal 4.0% GR 6.0% GR 0.0% GR 5.0%
Testing 1.0% GR 2.5% GR 0.0% GR No Recommendation
SF = Square Feet
GR = Gross Receipts
240
430
Summary and Recommendations
18 • Recommendation 5
• HdL recommends that the City exercise caution and
discretion in applying increases to the tax rates for any existing businesses.
• As an alternative, the City may wish to consider a tiered tax rate for high-earning businesses when revenues
exceed a certain amount.
241
431
Summary and Recommendations
19 242
432
Summary and Recommendations
20 • Recommendation 6
• HdL recommends that the Ci ty consider extending the
allowable hours of operation for cannabis retailers to
10:00 p.m., rather than the current 8:00 p.m.
• Extending the se hours could allow the City’s retailers to recapture sales (and related sales tax revenue) that are likely being lost to retailers in the City of Santa Barbara during these hours.
243
433
Thank You!
Mark Lovelace
Senior Cannabis Policy Advisor
[email protected]
714-879-5000
21 244
434
Questions?
22 245
435
ATTACHMENT 7:

Debt Management Policy
436
City of Goleta

Debt Management Policy

(Revised on April 20, 2018)

437
City of Goleta

Executive Summary of Debt Management Policy

I. Goals and Objectives. In implementing a formal debt management policy, the City’s goal is to maintain long-term financ ial flexibility while ensuring that the City’s capital needs are aligned with goals and supported by sound financial management.

II. Approach to Debt Management. The City’s approach to its financings is to ensure continued market access at the lowe st cost of borrowing. As such, the Debt Policy designates affordability or ca pacity targets which are established by the rating agencies (Moody’s Investor Serv ice, Standard & Poor’s, and Fitch).

Debt capacity is defined as annual debt service payments as a percentage of operating expenditures and debt service pay ments. The debt capacity ratio will be calculated each year. Below are the debt capacity ranges:

 Low debt capacity <5%
 Moderate debt capacity 5% - 15%
 High debt capacity >15%

A separate Debt Affordability Study will be presented when new debt is being considered.

III. Debt Administration. The Finance Department is re sponsible for the City's debt administration activities. In ternal control procedures ar e designed to ensure that the proceeds of any debt issuance ar e directed to the intended use. When issuing debt, the City will comply with all applicable policies regarding initial bond disclosure, continuing disclosure, post-i ssuance compliance, and investment of bond proceeds. The City will maintain compli ance with all federal and state laws and reporting requirements.

IV. Standards for Use of Debt Financing. Debt financing will be utilized when public policy, equity and economic effici ency favor debt over pay-as-you-go financing.

 Debt will be used to financ e long-term capital projec ts, and the respective maturities will not exceed the respective projects’ useful lives.  The City will seek to use the most economical financing alternative.  The City will ensure good record-k eeping and compliance with all debt covenants and State and Federal laws.

438
ii
V. Financing Criteria. Whether issuing long- or s hort-term debt, the City will determine the most appropriate structure, the mode (fixed or variable), and the possible use of synthetic fixed or float ing rate debt. These decisions will be made within the context of already existing obligations.

VI. Terms and Conditions of Bonds . In the issuance of its bonds, the City shall carefully consider and evaluate the term of the financing, use of capitalized interest, call provisions, original i ssue discount and the use of deep discount bonds.

VII. Credit Enhancement . The use of credit enhancement is to be considered on a case-by-case basis and will be purchased only when debt service savings can clearly be demonstrated.

VIII. Refinancing Outstanding Debt . A minimum savings threshold of 3% or $200,000 in present value savings is utilized except when there are legal reasons for defeasance.

IX. Methods of Issuance . The preferred sale method (negotiated or competitive) will be determined for each issuance of bonds. General Obligation Bonds and Tax and Revenue Anticipation Notes will be issued on a competitive basis.

X. Underwriter Selection . Both senior managers and co-managers will be selected on the basis of firm and st aff qualifications, and experience with structures similar to the proposed iss uance. Selling groups may be considered for certain transactions. All parties are subject to post-evaluation of performance.

XI. Market Relationships . The City will actively manage its relationships with the various rating agencies and analysts th rough frequent and open communication.

The City will maintain compliance with Rule 15c2-12 by the time ly filing of its annual financial statements and other financial and operating data for the benefit of its bondholders. The City will also ensure compliance with regulations set forth in Government Code Section 8855 and comply with all annual reporting requirements to the California Debt and Investment Advisory Commission.

XII. Consultants . An RFP or an RFQ will be used to determine the selection and appointment of Consultants, such as fi nancial advisors. The selection of the firm(s) shall be based upon firm and staff qualifications, and experience with debt structures similar to what is being proposed. Consultants will be required to provide complete disclosure regarding any agreements with other financing team members and outside parties.
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Debt Management Policy

Table of Contents

Introduction .................................................................................................................. ... 1 Goals and Objectives ...................................................................................................... 1 Approach to Debt Management ...................................................................................... 2 Debt Administration ......................................................................................................... 4 Standards for Use of Debt Financing .............................................................................. 4 Financing Criteria ............................................................................................................ 6 Terms and Conditions of Bonds ...................................................................................... 9 Credit Enhancements .................................................................................................... 10 Refinancing Outstanding Debt ...................................................................................... 10 Methods of Issuance ..................................................................................................... 13 Underwriter Selection .................................................................................................... 13 Market Relationships ..................................................................................................... 15 Consultants ................................................................................................................... 16 Glossary ........................................................................................................................ 18

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Goleta City CouncilApril 2, 2024

Goleta City Council
April 2, 2024