Hemet City Council
April 22, 2025

22.C.

City of Hemet
City Council Meeting

STAFF REPORT
Meeting: City Council Meeting - Apr 22 2025
Department: Finance
Submitted by: Mark Prestwich, City Manager
Tiffany Barnett, Administrative Services Director;
☐ Receive and File ☐ Consent Calendar ☒ Business Item ☐ Public Hearing TITLE:

California Municipal Financial Health Diagnostic Informational Report on the City of Hemet RECOMMENDED ACTION:

It is respectfully recommended that the City Council:

Receive the California Municipal Financial Health Diagnostic Information Report on the City of Hemet.

BACKGROUND:

The California Municipal Financial Health Diagnostic (the “Diagnostic”) was developed by Michael Coleman, the principal fiscal policy advisor to the California Society of Municipal Finance Officers and League of California Cities, with substantial contributions from a number of highly experienced local government finance professionals.

This tool is designed to assist agencies in their fiscal evaluation, validate areas in which the City is fiscally healthy, identify programs and areas to improve, help management and elected officials identify and act to remedy problems and address them before they become unmanageable, avoid being blind-sided by problems, and to help others understand the City's financial position.

This tool was initiated by the League of California Cities and has been endorsed by the Government Finance Officers Association (GFOA) and used by numerous cities throughout California.

ANALYSIS:

The Diagnostic focuses on the ability of a local government to meet its financial commitments now and into the future (cash, budgetary, and long-run solvency). In contrast to many other financial health monitoring systems, this tool looks at recent past and near future financial measures and indicators to provide an assessment of the local government's level of financial distress and tendency toward financial crisis.

22.D.

The Diagnostic tool was used to evaluate the City's General Fund, but may also be applied to other funds. The General Fund is the focus of the diagnostic because it is the primary measure of fiscal health and the main fund in which the City Council makes decisions with broad impact on the mix of services delivered and the appropriate level of services.

It focuses on the local government's operating position, going beyond reported finances to focus on recurring revenues and expenditures (by distinguishing temporary non-recurring revenues and expenditures) and taking into account any unbudgeted but real current costs of services. The tool includes an evaluation of unsustainable or risky budget practices that indicate an agency in distress and tending toward crisis. The foundation of the diagnosis is an examination of discretionary revenues and spending, distinguishing and identifying the effects of programmatic revenues and spending discretionary resources.

City staff completed the Diagnostic with the purpose of presenting a broad overview of the fiscal health of Hemet. Information for the Diagnostic was acquired from the following:

1. Annual Comprehensive Financial Reports (ACFR) for fiscal years 2022-23 and 2023-24

2. Fiscal year 2024-25 Adopted Budget

3. Long range financial forecasts of fiscal years 2025-26, 2026-27 and 2027-28, and

4. City policies and procedures.

Since this is the first Diagnostic in Hemet's history, it will serve as a benchmark for future year comparisons and help highlight areas that will potentially need attention to ensure that in the longterm Hemet finances remains healthy. Being proactive and addressing concerns early helps mitigate future negative financial impacts.

DISCUSSION:

After completing the analysis, the results show that overall Hemet's General Fund is generally healthy on an operating results basis (total revenues over total expenditures) and generally healthy on the current financial position basis (short-term resources). Although the Diagnostic does show overall health, it is important to note the analysis was completed based on broad assumptions and did not factor asset re-capitalization.

The analysis did identify a few areas of caution:
 Net Operating Deficit/Surplus
 Balancing the Budget with Temporary Funds
 Timeliness and Accuracy of Financial Reports
 Service Level Solvency
Net Operating Deficit Surplus
While the City has been able to present a balanced budget there are certain factors that have been deployed in current year and next year that cannot be relied upon as on-going balancing measures.

This would include a Vacancy Factor and the use of one-time funds for on-going expenditures such as the City Net contract and liability premiums.

Additionally, the City is using one-time temporary revenue of interest income in the next fiscal year which is due to the investment rates at the current condition. Historically, these cannot be counted on in future years as the market ebbs and flows.

22.D.

The City is making every effort to explore all avenues of revenue sources to help secure a solid, financially healthy future. Some of the recently deployed revenue strategies include a voter approved 2% increase in hotel tax from 10% to 12%, digital billboards, and cannabis retail shops.

Balancing the Budget with Temporary Funds
In the current fiscal year, the City deployed a vacancy factor to help balance the budget. In essence, had the City not monitored and met this dollar amount, fund balance would have been used to balance the variance.

Timeliness and accuracy of financial reports
While the City's financial reports are audited and accurate, staffing vacancies and added financial projects like a citywide salary study and an Enterprise Resource Planning (ERP) software implementation have reduced the resources available to meet the reporting deadlines impacting the timeliness reports this fiscal year. However, this is not expected to pose a future concern as the Finance Division is now fully staffed with three professional accountants and will be on the tail end of the ERP implementation in the next fiscal year.

Service Level Solvency
The City is completely dedicate to the public service of the citizens and strives to provide the best quality facilities, roads and response times. Roads and personnel costs are extremely expensive for any city and while the City of Hemet has done a tremendous work on improving road conditions, there remain a significant amount of repairs and ongoing maintenance needed to bring them up to a suitable level.

The City's Fire Department has an incredibly high volume of calls in comparison relative to the number of fire stations and in comparison to industry standards. This ratio pushes response times above the National Fire Protection Associate (NFPA) standards. In an industry where every second counts, this is a growing concern the City is actively deploying strategies and planning efforts to address.

Policies and Procedures
While the City practices the concept of pay-as-you-go financing, there is no additional policy in place.

Additionally, this Diagnostic exercise has led staff to review policies and determine that necessary and periodic review is also part of the City's financial health. As such, staff will be refining the financial policies and providing recommended updates to Council in the near future.

PREVIOUS COUNCIL ACTION:

None
STRATEGIC PLAN INTEGRATION:

GOAL FIVE: ORGANIZATIONAL EFFECTIVENESS
To identify the work needed inside the City organization to effectively provide services to the community and ensure financial stability.

Objective 1: Operate in a financially sustainable manner.

Objective 2: Evaluate existing practices to ensure continuity with industry best practices.

Objective 3: Provide Council with policies that are consistent while lessening liabilities.

Objective 4: Increase employee retention by training and creating a positive workplace.

22.D.

Objective 5: Streamline fire prevention coordination efforts.

FISCAL IMPACT:

None
ATTACHMENT(S):

Attachment 1: DRAFT Hemet Municipal Health Diagnostic 2025-04

22.D.

Contents
Introduction ………………………………………... 2
Financial Health Indicators
Summary Checklist…………………………… 4
Indicators ………………………………………… 6
Data Gathering Worksheets ………………………………………… 15
Special Program Fund 1: Indicators, Data ………………………………………… 20 Special Program Fund 2: Indicators, Data ………………………………………… 26 Special Program Fund 3: Indicators, Data ………………………………………… 32 Notes to the Analyst …………………………………………38
© 2016 CaliforniaCityFinance.com
The California Municipal Financial Health Diagnostic was developed by Michael Coleman with substantial contributions from Andy Belknap, Robert Leland, Dave Millican, Mary Bradley, Ron Bates, Bob Biery, Brent Mason, Max Neiman, and Chris McKenzie among many others. Jeremy Goldberg's assistance in testing draft versions of the tool was invaluable.

The county version, The California County Financial Health Diagnostic, was developed with invaluable guidance from: Terry Schutten, Leanne Link, Michelle Aguire, Martin Polt, Paul Derse, Meegan Jessee, and Graham Knaus.

January 2016
The California Municipal
Financial Health Diagnostic
page
(click to hyperlink to worksheet)

22.D.

How Are We Doing?
Using the The California Municipal Financial Health Diagnostic to Evaluate Your Agency’s Financial Health
According to economists, California's "great recession" ran from December 2007 and ended in August 2009. These years, and those following have been difficult for local governments all around. In addition to deep reductions in local government revenue, cities, counties and special districts have struggled with state take-aways of local funds, the dissolution of redevelopment agencies, and mounting costs of retiree pensions and benefits. The severity and combination of these financial impacts varies but in a few well-known instances, cities have had to seek the legal protections of Chapter 9 Bankruptcy to restructure their contractual obligations, and at least one county required financial intervention from the state.

Grappling effectively with financial distress before it becomes a crisis first requires a shared understanding of the financial condition of the local government. A critical component of the difficulties of the most financially distressed local governments has been a lack of recognition and agreement among local leaders, staff and key interests (labor, retirees, creditors) regarding the agency’s financial condition and what must be done in order to achieve sustainability. Most financial crises can be managed without court or outside agency intervention if leaders, staff and key interests have the courage, competence, and collaborative attitudes to 1) recognize and agree upon the local government’s financial condition, and 2) implement the necessary changes to set the local government on a sustainable financial course.

Defining Local Government Financial Health
Government financial health may be viewed in four related financial contexts: 1) cash solvency - the ability to meet immediate financial obligations – generally over the next 30 or 60 days (accounts payable, payroll); 2) budgetary solvency - the ability to meet all financial obligations during a budget year; 3) long-run solvency – the ability to meet all financial obligations into the future; and 4) service-level solvency – the ability to provide the desired level of services for the general health and welfare of a community.[1] In the context of today’s difficult financial climate, we are primarily concerned with the ability of the local government to meet its financial commitments now and into the future (cash, budgetary, and long-run solvency). A more expansive evaluation of financial condition would examine the community’s economic environment and ability to meet the service level desires of the community (service-level solvency).

A government is in financial distress if it has a continuing imbalance between its level of financial commitments and its available financial resources over time. If revenues and spending are not brought into balance, financial distress can progress into financial crisis, when the government is unable to meet its financial obligations.

Determining Local Government Financial Health
There have been many government financial health monitoring systems devised over the last several decades. Each approach consists of a series of financial indicators or measures that address a local government’s ability to meet the needs of its constituents. The International City/County Management Association’s (ICMA) venerable Financial Trend Monitoring System (FTMS) consists of some 42 financial measures including factors assessing the economic environment of the community, the finances of the jurisdiction, and its managerial practices and legislative policies.[2] Building on the FTMS and various other systems and policies developed by academics and governments, this tool distills the most essential indicators assessing financial health with a pragmatic focus on an agency’s level of financial distress heading into financial crisis.

This California Municipal Financial Health Diagnostic is primarily concerned with the ability of the local government to meet its financial commitments now and into the future (cash, budgetary, and long-run solvency). In contrast to many other financial health monitoring systems, this tool looks at recent past and near future financial measures and indicators to provide an assessment of the local government's level of financial distress and tendency toward financial crisis.

The California Municipal Health Diagnostic is focused first and foremost on the general fund, but may also be applied to other funds. It focuses on the local government’s operating position, going beyond reported finances to focus on recurring revenues and expenditures (by distinguishing temporary non-recurring revenues and expenditures) and taking into account any unbudgeted but real current costs of services. The tool includes an evaluation of unsustainable or risky budget practices that indicate an agency in distress and tending toward crisis. The foundation of the diagnosis is an examination of discretionary revenues and spending, distinguishing and identifying the effects of programatic revenues and spending on discretionary resources.

January 2016 version (c)2016
CaliforniaCityFinance.com Page 6 of 18 Page 2

22.D.

Unique Aspects of California Local Government Finance[3] California local governments’ tax and revenue raising choices are strictly limited. Property tax is the single most important source of general purpose revenue for most cities, counties and many special districts. Yet local governments have no authority over the property tax base, rate or allocation. Other tax increases require voter approval.

Over the last several decades since Proposition 13 (1978), the state has shifted property tax revenues, vehicle license taxes, and eliminated virtually all general purpose state aid to local governments. At the same time, the Legislature has shifted greater program responsiblities and imposed greater mandates but with limited funding. In response, local governments sought and voters approved, several constitutional measures protecting local government finances from further legislative actions.

Most remaining city general purpose revenues are no longer vulnerable to additional state takeaways.[4] Consequently, unlike municipalities in other states or in California in previous times, assessing the financial health of California cities has little to do with the amount or proportion of intergovernmental revenues (which, in any case, is minimal for nearly all cities and special districts).

California counties have much more limited revenue raising authority than cities and remain, by their nature, highly dependent on state budgetary actions. The state Legislature may delegate to counties any of the functions which belong to the state itself.

Counties are responsible for frontline municipal services in unincorporated areas; for countywide local services such as jails, elections, and property tax administration; and for state programs delegated to counties such as health and human services, mental health, and portions of the law enforcement and corrections systems.

The California Municipal Financial Health Diagnostic consists of:

1. The Financial Distress Checklist. A fourteen point list of key indicators to assess the near term financial health of your local government’s general fund and other operations. The checklist is intended for use by policy makers and community members to ask the important questions and get the necessary answers.

2. The Financial Health Indicators. Linked to the fourteen point Financial Distress Checklist, the Financial Health Indicators provide more detailed formulas and methods for determining financial condition and will need to be completed by a team of qualified financial analysts.

WARNING SIGNS
Indications of Crisis
 Failure to pay an undisputed claim from a creditor within 90 days past claim date.  Failure to forward income taxes withheld or Social Security contributions for over 30 days past the due date.  Failure to make required pension fund contributions on time.  Missing a payroll for 7 days.
 Available unrestricted balance for the general fund at the end of the current fiscal year will be negative. © 2016 CaliforniaCityFinance.com
[1] Justice, Jonathan and Scorsone, Eric. “Measuring and Predicting Local Government Fiscal Stress” in Levine, Helisse; Justice, Jonathan; Scorsone, Eric.

Handbook of Local Government Fiscal Health. Jones and Bartlett Learning, Burlington, MA 2012. [2] Groves, Sanford M. and Valente, Maureen Godsey. Revised Nollenburg, Karl. Evaluating Financial Condition: A Handbook for Local Government, 4th edition. International City/County Manager Association (ICMA), USA, 2003. [3] For more information, see Multari, Coleman, Hampian and Statler, Guide to Local Government Finance in California , Solano Press Books, 2012. [4] The continuing impacts of the dissolution of Redevelopment Agencies notwithstanding. These impacts should be taken into account as appropriate in these financial health measures.

Questions, comments, improvements? Michael Coleman 530-758-3952 [email protected] CaliforniaCityFinance.com, The California Local Government Finance Alamanac January 2016 version (c)2016
CaliforniaCityFinance.com Page 7 of 18 Page 3

22.D.

© 2016 CaliforniaCityFinance.com
January 2016 version (c)2016
CaliforniaCityFinance.com Page 8 of 18 Page 4

22.D.

City of Hemet
Caution
Healthy
Healthy
Healthy
Healthy
Healthy
Healthy
Caution
Healthy
Healthy
Healthy
Healthy
Caution
Caution
Measures Practices and Conditions
The California Municipal Financial Health Diagnostic
Financial Health Indicators - Summary Checklist

6. General fund subsidies of other funds. Any general fund subsidies other enterprises or special funds are sustainable and in compliance with adopted policy.

3. Capital Asset Condition. The city is keeping pace with the aging of its capital assets.

4. Liquidity. Cash and short-term investments are suffieicent to cover current liabilities (including short-term debt and accounts payable within 60 days).

5. Fixed costs & labor costs. Fixed costs (including debt service and other contractual obligations), salaries and benefits are stable or decreasing over multiple years relative to reasonably expected revenue growth.

General Fund
Indicator Rating

1. Net Operating deficit / surplus. There are no recurring general fund operating deficits. General revenues are sufficient to meet the net general revenue demand of programs.

2. Fund balance. Reserves are sufficient over multiple consecutive years and in compliance with adopted policy.

7. Constraints on budgetary discretion. The city council's authority to make budget changes is not excessively constrained by charter, contract, or law.

8. Balancing the budget with temporary funds. The use of reserves, selling assets, deferring asset maintenance to balance the general fund has been limited, prudent and in compliance with adopted policy.

9. Balancing the budget with borrowing. The use of short-term borrowing, internal borrowing or transfers from special funds to balance the general fund has been limited, prudent and in compliance with adopted policy.

10. Balancing the budget by deferring employee compensation costs.

Pension liabilities and other non-salary benefits have been determined, disclosed and actuarially funded in compliance with adopted policy.

11. Balancing the budget with backloaded debt service payments. Debt service payments have not been “backloaded” into future years.

12. Funding operating costs with non-recurring revenues. Ongoing operating costs are being funded with ongoing rather than temporary revenues (e.g., from development, etc.)

13. Timeliness and accuracy of financial reports. Financial Reports are being filed on time. (CAFR, Annual Audit, State Controller’s Financial Transactions Report)

14. Service level solvency. Public service levels meet the standards and needs in this community.

January 2016 version (c)2016
CaliforniaCityFinance.comPage 9 of 18 Page 4

22.D.

City of Hemet
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
© 2016 CaliforniaCityFinance.com
Adopted Financial Management Policies
General Fund
The California Municipal Financial Health Diagnostic

7. Debt Management / Affordability

8. Long range financial planning

1. Use of Temporary Funds

2. Reserves and Fund Balance

3. Short term borrowing

4. Interfund Transfers

5. Payment of employee compensation costs

6. Pay-as-you-go Financing
January 2016 version (c)2016
CaliforniaCityFinance.comPage 10 of 18 Page 5

22.D.

City of
1A
2023-24 2024-25

13.14% -15.01%
percent change => 2.21% -214.20%
1B
2023-24 2024-25

10.73% -4.95%
The California Municipal Financial Health Diagnostic: Financial Health Indicators -13.84% -11.08%
2022-23 2025-26
Formula
For comparison purposes
-12.66% -15.91% -18.48%
2022-23 2025-26 2026-27

13.60%
For comparison purposes
Formula Negative Indicator
• Recurring and static or
increasing negative values
Net Operating Deficit/Surplus – sustainable, omitting non-recurring revenues -11.02%
-9.04%
Gross Annual Deficit/Surplus - unadjusted, using all general fund revenues and expenditures

12.86% -13.11%
2026-27
Hemet General Fund
2027-28
-8.99%
2027-28
Operating Deficit/Surplus
The simplest measure of annual operating deficit/surplus is the difference between total revenues and total spending. General fund operating deficits may be an indication that the government’s financial condition is unsustainably out of balance and that corrections to bring the finances into a sustainable condition are not occurring. Though an operating deficit in any one year may not be a cause for concern (because, for example, reserves or one-time remedies might be available to cover the difference), frequent and increasing deficits may indicate that the governments activities are not sustainable within the revenues available over time.

Taken as a percentage of total revenues, the local government’s operating deficit/surplus tells us very plainly if current resources in the fund are sufficient to cover current expenditures. The data to compute this measure should be readily available in the financial statements (comprehensive annual financial reports) of the agency. This is measure 1A below.

But a budget can be balanced and an ongoing structural problem masked if a deficit is covered by temporary solutions, such as non-recurring revenues like limited-term grants, land sale income, or transfers from other funds. This approach cannot be relied upon in the long-run (over multiple years). Measure 1B takes a step further than 1A by taking these temporary revenues out of the equation to see how much worse the revenue shortfall becomes at current spending levels.

Still, this may not show the whole picture. If certain current financial obligations are being delayed and not budgeted, then the financial position shown in measure 1B is still incomplete. Measure 1C takes into account “unbudgeted current liabilities” such as Other Post-Employment Benefits (OPEB); unbudgeted earned leave cash-out liabilities; maintenance and replacement costs of vehicles, technology, buildings, streets, and other properties and infrastructure. For the purpose of determining long run solvency, Measure 1C is the best indicator of a local government’s true fiscal operating position because it reflects the level of spending actually needed to sustain your current level of service over time. If these deferred costs are significant, then your fiscal imbalance may be much worse than you thought. If you cannot find sufficient information to determine these unbudgeted liabilities, that, in itself, is reason for substantial concern (See indicator # 9). gross total revenues
gross total
revenues
gross total
- expenditures
gross annual
deficit/surplus as a
percent of revenues
=
net operating
deficit/surplus as a
percent of revenues
=
temporary
revenues
net operating
expenditures
net operating
revenues
net operating revenues
- -
January 2016 revision ©2016 CaliforniaCityFinance.com Page 6 Page 11 of 18

22.D.

City of
The California Municipal Financial Health Diagnostic: Financial Health Indicators Hemet General Fund
1C
2023-24 2024-25

10.73% -4.95%
Score:

Warning-Red: Persistent & increasing deficits over consecutive years.

Caution-Yellow: Deficits are infrequent or relatively marginal compared to fund balance (see #2 below) and/or there is a reasonable plan for bringing revenues and spending into balance.

Good-Green: not an issue of concern.

One-time (temporary) Revenues. One-time (temporary) revenues include any non-recurring revenues that derive from short-term activities and cannot be relied upon in the long-run (over multiple years). This might include revenues from land sales, one-time transfers from other funds, limited-term grants, court settlements or major donations. Optionally, you might consider also excluding receipt of construction-related revenues from a given project that are significantly in excess of an “average” year, if this represents a level of revenue unlikely to be repeated. Back taxes and late payments do not have to be omitted because they just make up for what was not received in a prior year.

Ongoing General Propose Revenues. Ongoing General Propose Revenues equals total general purpose revenues minus one-time (temporary) general purpose revenues.

Net Operating Expenditures. Net operating expenditures equals total expenditures (after credits/reimbursements) and transfers out, minus one time expenditures capital improvement expenditures (or transfers out for capital purposes).

Unbudgeted Current Liabilities. The amortized costs of long-term general fund liabilities not already included in “net operating expenditures.” This includes amounts not budgeted or expended that “should be” in order to pay the current year portion of liabilities. Examples: unbudgeted actuarially required contributions (ARC) to Other Post-Employment Benefits (OPEB) or pension systems; unbudgeted earned leave cash-out liabilities; maintenance and replacement costs of vehicles, technology, buildings, streets, and other properties and infrastructure. If there is insufficient information to determine these unbudgeted liabilities, that, in itself, is reason for substantial concern (See indicator #9). 2027-28
-9.04%
2025-26
Formula
2026-27

13.60% -13.84% -11.08%
Net True Operating Deficit/Surplus - complete, adding unbudgeted general fund liabilities 2022-23
Definitions
Gross Total Revenues. See CAFR Statement of Revenues and Expenditures “total revenues.” Gross Total Expenditures. See CAFR Statement of Revenues and Expenditures “total expenditures” Net Operating Revenues. Net operating revenues equals gross revenues and transfers in, minus revenues restricted to capital improvements minus revenues legally restricted to special purposes. Transfers related to non-operating activities should be excluded.

General Purpose Revenues. Discretionary taxes including property taxes (other than voter approved debt service), property transfer tax, general sales and use tax, business license tax, transient occupancy tax, utility users tax, construction tax, and other discretionary taxes; franchises; fines, forfeitures and penalties; investment earnings; rents, concessions, royalties; homeowners property tax relief reimbursement; non-restricted state and federal grants; and non-restricted transfers in.

Q1
unbudgeted
current
liabilities
temporary
revenues
net operating
expenditures
net operating
revenues
net operating revenues
- - -
net true
operating
deficit/surplus
as a percent
of revenues
=
January 2016 revision ©2016 CaliforniaCityFinance.com Page 7 Page 12 of 18

22.D.

City of
The California Municipal Financial Health Diagnostic: Financial Health Indicators Hemet General Fund
2 Fund Balance
2023-24 2024-25

29.68% 37.47%
Green - not concerning
Net operating expenditures. Net operating expenditures equals expenditures (after credits/reimbursements) and transfers out, minus capital improvement expenditures (or transfers out for capital purposes), minus expenditures of revenues legally restricted to special purposes.

Definitions
Score:

Warning-Red: Persistently & substantially decreasing or is below 8%.

Caution-Yellow: Has decreased but remains above 8% and there is a reasonable plan for stabilizing.

49.79%
2025-26
Fund Balance
A positive fund balance, or reserves, is important for any government to withstand financial risk over time. Unanticipated fluctuations in revenues may occur from economic impacts or state take-ways. “Financial reserves” are important to meet unforeseen revenue shortfalls or expenditure overages. But reserves cannot be relied upon to cover financial shortfalls that are more than temporary. (See Indicator #7) An unplanned decline in unreserved fund balances as a percentage of operating revenues over time suggests the government is less able to withstand financial emergencies.

The right level of fund balance varies depending on many factors including levels of risk and revenue volatility but, generally speaking, dropping below 8% may be cause for concern. The Government Finance Officers Association recommends maintaining a 5-15% reserve.

32.23%
2022-23 2026-27

28.30%
2027-28

28.70%
Formula
Unreserved fund balance is fund balance not reserved in accordance with state law, charter or contractual obligation. This includes total fund balance minus nonspendable, restricted or committed resources. However, you should review resources categorized as "committed" and include in "unreserved fund balance" any amounts that, even if only in time of emergency, could be accessed with action of the City Council / governing board.

1. See Stephen J. Gauthier, “Governmental Accounting, Auditing, and Financial Reporting.” (The “Blue Book”) 2012 Government Finance Officers Association. net operating expenditures
unreserved fund balance Fund balance as a
percent of
expenditures =
Q2
January 2016 revision ©2016 CaliforniaCityFinance.com Page 8 Page 13 of 18

22.D.

City of
The California Municipal Financial Health Diagnostic: Financial Health Indicators Hemet General Fund
3 2023-24 2024-25

2.09% 1.99%
4 Liquidity
2023-24 2024-25
1323.42% 1720.45% 3600.88%
Capital Asset Condition
2824.22%
Liquidity
A decreasing amount of cash and short-term investments as a percentage of current liabilities suggests the government is less able to pay its short-term obligations.

Increasing current liabilities at the end of the year as a percentage of net operating revenues indicates liquidity problems and/or deficit spending. Liquidity measures the amount of readily available financial resources relative to immediate financial commitments (current liabilities). 2022-23
Score:

Warning-Red: Persistently & substantially decreasing.

Caution-Yellow: Has decreased but there is a reasonable plan for stabilizing.

Good-Green: not an issue of concern.

Capital Asset Condition
Capital assets must be maintained and replaced over time. This requires annual resource commitment such that the value of assets and asset improvements does not decline.
2022-23

1.80%
Formula
Cash and short-term investments includes cash on hand and in the bank as well as other assets that can easily be converted to cash.

Definitions
Current liabilities is the sum of all liabilities due at the end of the fiscal year including short-term debt, current portion of long-term debt, all accounts payable accrued liabilities IMPORTANT : Include
• Advances and amounts due to other funds, including internal funds from pooled cash transactions or borrowing.

Formula
2025-26 2026-27
998.97%
2027-28
• Increases in debt service payments due to financings . 2215.08%
2027-28

2.00% 2.00% 0.00%
Score:

Warning-Red: persistent and substantially negative trend Caution-Yellow: negative or decreasing but there is a reasonable plan for stabilizing.

Good-Green: not an issue of concern.
2025-26 2026-27
cash and short term investments
current liabilities
liquidity =
Q4
Change in Capital
Asset Condition =
beginning net value of
- capital assets
ending net value of
capital assets
beginning net value of
capital assets
Q3
January 2016 revision ©2016 CaliforniaCityFinance.com Page 9 Page 14 of 18

22.D.

City of
The California Municipal Financial Health Diagnostic: Financial Health Indicators Hemet General Fund
5a
2023-24 2024-25

0.00% 0.00%
5b
2023-24 2024-25

68.79% 70.37%
Benefits include costs for contributions to FICA, pension, life insurance, health insurance, etc. and current contributions to self-insurance funds.

Fixed costs are those costs over which the government has little control in the short run because of contractual agreements, charter restrictions, or state or federal law, other than those costs already included under salaries, wages or benefits. Non-labor fixed costs include debt service, retiree health payments, lease-purchase payments, utilities, contracted goods and services, etc.

Net operating expenditures. Net operating expenditures equals expenditures (after credits/reimbursements) and transfers out, minus capital improvement expenditures (or transfers out for capital purposes), minus expenditures of revenues legally restricted to special purposes.

Subsidy Expenditures / Transfers Out. Total of expenditures and transfers out to support enterprises or special funds.

Fixed Costs plus Labor Costs
Fixed Costs and Budget Flexibility
Increasing fixed costs as a percentage of net operating expenditures may indicate an unsustainable financial structure where the government has limited ability to make necessary budget changes. Fixed does not mean static. Fixed costs may be changing over time but cannot be easily altered.

A major component of general fund spending is labor costs for salaries and benefits: often these costs are anything but fixed, as costs continue to escalate, but as long as the employees are on the payroll, these costs are unavoidable. This indicator computes the proportion of net annual operating expenses that these fixed and labor costs represent, to show the degree of flexibility the agency has in making budget reductions. As with all these measures, compute this for general fund and other funds separately. 2022-23 2025-26 2026-27
Formula

0.00% 0.00% 0.00% 0.00%
Definitions
Salaries and wages are compensation paid directly to employees.

Formula
For comparison purposes
2027-28

73.93% 64.81% 62.74% 62.31%
2026-27 2027-28
Fixed Costs
2022-23 2025-26
Score:

Warning-Red: Increasing or over 80%.

Caution-Yellow: Has increased but is projected to stabilize or decline.

Good-Green: not an issue of concern.

Fixed costs and labor
costs as a percent of
expenditures
wages
fixed
costs salaries + + benefits +
net operating expenditures
=
Q5
Fixed costs as a
percent of expenditures
fixed costs
= net operating expenditures
January 2016 revision ©2016 CaliforniaCityFinance.com Page 10 Page 15 of 18

22.D.

City of
The California Municipal Financial Health Diagnostic: Financial Health Indicators Hemet General Fund
6 2023-24 2024-25

0.00% 0.00%
7 General Fund Subsidy of Other Funds
2022-23 2025-26 2026-27

0.00%
2027-28
Score:

Warning-Red: Increasing or over adopted policy.

General Fund Subsidy of Other Funds.

Some cities and counties find themselves using the general fund to subsidize golf course rates; water, sewer, transit, parking or other enterprise operations; or pay debt service or capital improvement costs that should arguably be paid by proprietary or special revenue funds. Often this is because user fees are not sufficiently high enough to be self-supporting. Sometimes it is because debt obligations were incurred that burdened the general fund with a pledge to support bonds if the intended repayment source (development fees, enterprise fund) proved inadequate. These subsidies limit budget flexibility if they are a significant portion of the general fund net operating expenditures and/or if the trend is increasing.

Do charter provisions or other legal commitments (contracts, court decisions/settlements) restrict the City Council’s authority?
Formula
Constraints on Budgetary Discretion
• Binding arbitration: required submission of a dispute to a third person whose decision is obligatory. • Formulas require minimum employee compensation, hiring or staffing levels, or spending levels or require the agreement of others.
• General fund is pledged as support, or public facilities as security, for non-general fund debt. • Others: restrictions on contracting out, voter-approved tax expiring.

0.00% 0.00% 0.00%
Score:

Warning-Red:

Yes - restrictions.

Caution-Yellow: Yes but
minimal/workable.

Caution-Yellow: Has increased but is projected to stabilize or decline.

Good-Green: not an issue of concern.

Green - no restrictions
Constraints on Budgetary Discretion
Constraints on the budgetary discretion of the agency include binding arbitration or required formulas or third party agreement to alter compensation, spending or minimum staffing. These legal constraints impair the agency’s ability to achieve solutions when in fiscal distress and may also accelerate cost increases over time.

Subsidy Expenditures and
Subsidy Transfers Out
net operating expenditures
Subsidy costs as a percent of
expenditures =
Q7
Q6
January 2016 revision ©2016 CaliforniaCityFinance.com Page 11 Page 16 of 18

22.D.

City of
The California Municipal Financial Health Diagnostic: Financial Health Indicators Hemet General Fund
8 2022-23 2023-24 2024-25
Is there an adopted policy on the use of temporary funds? Is there an adopted reserves and fund balance policy?
9 2022-23 2023-24 2024-25
Is there an adopted policy on short-term borrowing?
Is there an adopted policy on interfund transfers?
10 2022-23 2023-24 2024-25
Is there an adopted policy on the payment of employee compensation costs? Has the general fund (budget or financial year close) been balanced with l reserves l selling assets l deferring asset maintenance or operating costs ? Balancing the Budget with Borrowing
An agency’s financial and budgetary management practices may contribute to financial distress. Practices that should be rarely used include solving budgetary imbalances with temporary revenues or cuts (such as furloughs), internal borrowing from special funds beyond budget years (i.e. for more than cash flow), deferring pension or other employee costs, and backloaded debt service schedules. Financial trouble is also strongly correlated with a local government’s failure to file financial reports on time.

Has the general fund (budget or financial year close) been balanced with l short-term borrowing, l internal borrowing (including transfers that must be repaid), l amounts owed to other funds from pooled cash ? l risk programs (e.g., workers comp and liability funds, etc.) l pension obligation bonds which presume overly optimistic payroll growth? Good-Green:

No. Not a concern.

No No No
Caution-Yellow: Yes but
minimal/workable.
l pension, other post-employment benefit liabilities (e.g., compensated absences, deferred comp, retiree medical, etc.)
Balancing the Budget with Temporary Funds
Financial Practices
Score: Warning-Red: Yes,
multiple years.

Caution-Yellow: Yes but
minimal/workable.

Good-Green:

No. Not a concern.

Score: Warning-Red: Yes,
multiple instances.

Caution-Yellow: Yes but
minimal/workable.

Good-Green:

No. Not a concern.

Score: Warning-Red: Yes,
multiple years.

Balancing the Budget by Deferring Employee Compensation Costs Has the general fund been balanced by deferring payments for or not paying the current actuarially determined costs of …
No No Yes
No No No
Q10
Q8
Q9
Q8a Yes No
Q8b Yes
Q10a Yes No
Q9a Yes No
No
Q9b Yes No
January 2016 revision ©2016 CaliforniaCityFinance.com Page 12 Page 17 of 18

22.D.

City of
The California Municipal Financial Health Diagnostic: Financial Health Indicators Hemet General Fund
11 2022-23 2023-24 2024-25
Is there an adopted policy favoring pay-as-you-go financing? Is there an adopted debt management / affordability policy? 12 2022-23 2023-24 2024-25
Is there an adopted long-range financial plan and policy? 13 2022-23 2023-24 2024-25
14 2022-23 2023-24 2024-25
l Comprehensive Annual Financial Report (CAFR)
No No No
Have general fund debt payment schedules been backloaded? (e.g., capital appreciation bonds, pension obligation bonds, or other financings with ballon payments or deferred/increasing payment schedules over time) Score:

Warning-Red: Backloaded
payments
Caution-Yellow:
minimal/workable.

Good-Green:

Not a concern.

Score:

Warning-Red: Yes.

Caution-Yellow: Yes but
minimal/workable.

Good-Green:

No. Not a concern.

No No No
l State Controller’s Financial Transactions Report Green- No: filed correctly and on time.

Score: Warning-Red:

Far below standards.

Caution-Yellow: Below
standards but will improve.

Green- Service levels meet
standards.

Service Level Solvency
Are public service levels below standards in this community ? e.g., emergency response times, road condition, facility maintenance, etc.

Yes Yes Yes
Yes Yes No
Score: Warning-Red: Yes.

Not filed on time.

Caution-Yellow: Yes but
special circumstances.

Funding Operating Costs with Non-recurring Revenues (e.g. development, etc.) Has the general fund (budget or financial year close) been balanced relying on non-recurring revenues, such as from land-use development, to fund on-going operating costs or debt service other than work associated with those temporary revenues? (e.g., developer fees or taxes, sales taxes from construction, etc. funding other than building/planning staff) Timeliness and Accuracy of Financial Reports
Have annual financial reports not been filed on time ?
Balancing the Budget with Backloaded Debt Service
Q11
Q12
Q14
Q13
Q11a
Q11b
Yes No
Yes No
Q12a Yes No
January 2016 revision ©2016 CaliforniaCityFinance.com Page 13 Page 18 of 18

22.D.

Appeal 25-001
Highpointe Aster River Oaks Apartments
City Council April 22, 2025
Appeal (APL) 25-001 Highpointe Aster River Oaks
• Appellant: Shaul Rosen-Rager on behalf of the Green Coalition of San Jacinto Valley
• Owner/Applicant: Highpointe Hemet I LLC
• Location: Southeast corner of West Stetson Avenue and South Elk Street. • APN(s): 464-270-005; and 006
• Acres: 10.07 gross acres
• Aerial Map
N
Celeste Road
Warren Road
W Devonshire Avenue
Myers Street
W Florida Avenue
Stetson Avenue Lyon Avenue
Palm Avenue
• General Plan Land Use Map
N
• Existing Zoning Map
N
• Site Plan
N
51’
156’
120’
90’
• Elevations
• Elevations Clubhouse
Elk Street
Stetson Avenue
• Preliminary Landscaping Plan
N
• Common Open Amenities & Variance
Variance Proposed (Private Balconies)
• 90-386(f)(1)(B) prescribes 100 square feet
of private open space (1 bedroom), and 150
Square feet for (2 bedroom)
• Average 125 square feet.
• 74.2% (7.48 Acres) Devoted to Construction
• Common Open Space 61,292 exceeds the
minimum of 57,000 square feet.
• Comparison of other multi-family development
in the City and surrounding communities.
• Common Open Amenities & Variance
Planning Commission Authority
Site Development Review
• Section 90-48.1- Provides Planning Commission with the authority to review, impose conditions of approval which pertain to the development of the property and the conditions of the proposed use, and approve or deny Site Development Reviews.

Variance
• Section 90-44.5- The purposed of a variance is to allow for a modification in the development standards of the zone.
• The strict or literal enforcement of the chapter would result in practical difficulty or unnecessary hardship inconsistent with the purposes and objectives of this chapter.

Grounds for Appeal

1. Email correspondence from the Green Coalition sent on January 19, 2025 was not attached to the staff report.
• 100% Self-Sustaining Solar Panels
• Battery Backup Storage when no Solar Production is available • All Electric Appliances
• 100% Electric Charging Stations for all 453 parking spaces. • Electric Bicycle and Electric Scooter Infrastructure
Applicant Response

1. Project Complies with the 2022 Calgreen (California Energy Code)

4.106.4.2.2.2
• 10% Installed Level 2 EV chargers (physical charger installed, ready to charge on site)
• 40% EV Ready Receptacles

2. Complies with the Conditions of Approval required by the Planning Commission

3. Increased Construction Costs

4. In compliance with Senate Bill (SB 330) Housing Law & Zoning Recommended Action

1. Open a public hearing and take testimony, if any, and

2. Uphold the determinations of the Planning Commission Planning Commission approval PC Resolution PC 25-002 to adopt Initial Study & Mitigated Negative Declaration (IS/MND) and Mitigation Monitoring and Reporting Program, and Adoption of PC Resolution No. PC 25-003 approving Site Development Review (SDR23-001) and Variance (VAR23-001) to construct a 228-unit multi-family housing community on a 10.07 gross acre site, and variance from the private open space requirements.

DISCUSSION
Variance 23-001 Findings
FINDINGS:

1. There are unique physical circumstances applicable to the subject land, including size, shape, topography, location or surroundings. If the approving body finds that the physical circumstances are similar to other parcels in the zone, such circumstances are not unique and a variance shall not be granted

2. The strict application of zoning standards deprives the property of the right to use the land in a manner enjoyed by other conforming property in the vicinity under identical zoning standards

3. The approval of a variance shall not constitute a grant of special privileges which other conforming properties in the vicinity do not enjoy under identical zoning standards • Fire Department Access Plan
N
N
TYPE A 1ST Floor Plan
• Elevations – Type A (Buildings 1,3,and 6)
• Elevations – Type B (Buildings 2, 4, 5,7, and 8)
• Elevations Maintenance Building
• Floor Plans
15 Units
73 Units
11 Units
Extended Patio
80 Units
22 Units
11 Units
Extended Patio
16 Units
Extended Patio
• Floor Plan PS-A (15 Units) Studio 1, 1 Bath
• Floor Plan P1-A (84 Units) 1 Bedroom, 1 Bath
• Floor Plan P2-B (33 Units) 2 Bedroom, 2 Bath
• Floor Plan P2-A (96 Units) 2 Bedroom, 2 Bath
• Common Open Amenities & Variance
Variance Proposed (Private Balconies)
• 90-386(f)(1)(B) prescribes 100 square feet
of private open space (1 bedroom), and 150
Square feet for (2 bedroom)
• Average 125 square feet.
• 74.2% (7.48 Acres) Devoted to Construction
• Common Open Space 61,292 exceeds the
minimum of 57,000 square feet.
• Comparison of other multi-family development
in the City and surrounding communities.
• Planting Palette
N
• Planting Palette Shrubs & Ground Cover
N
• Traffic Analysis
N
N
TYPE A 2nd Floor Plan
Housing Accountability Act (SB 330)
• The Housing Crisis Act of 2019, more commonly referred to as Senate Bill 330 (“SB 330”) was signed into law on October 9, 2019. • SB 330 creates new state laws directing how local governments may regulate housing production, preservation and planning. • SB 330 aims to increase certainty in the development process, speed the review of new housing development projects, preserve existing affordable housing, encourage the development of new housing units particularly affordable ones, and prevent certain zoning actions that reduce the availability of housing.

Housing Accountability Act (SB 330)
• The Housing Laws further restrict discretionary review on market rate housing development projects.
• The project can only be denied if the City can support the following findings:
1) The housing development project would have a specific, adverse impact on public health safety; and
2) There is no feasible method to satisfactorily mitigate or avoid adverse impact.

CEQA Compliance
• The public review period for the IS/MND occurred from December 19, 2024 and ended on January 20, 2025. A Mitigation Monitoring and Reporting Plan (MMRP) was prepared and identified all mitigation measures required for the project.
• The City of Hemet intends to adopt a Mitigated Negative Declaration for the Project described above. This notice is made pursuant to Section 15072 of the California Environmental Quality Act (CEQA). Based on the information contained in the Initial Study, and pursuant to the requirements of CEQA; it has determined that this Project, with incorporated mitigation measures, will not have a significant impact upon the environment.
• In accordance with the disclosure requirements of CEQA Guidelines Section 15072 (g)(5), the project site IS NOT listed as a hazardous property as designated under Section 65962.5 of the Government Code.
• The project IS NOT a project of statewide, regional, or areawide significance as designated in CEQA Guidelines Section 15206. The project WILL NOT affect highways or other facilities under the jurisdiction of the State Department of Transportation.

Noticing & Planning Commission Action
• Property owners located within A 500-foot radius of the project site and interested parties were notified of the public hearing on December 19, 2024 with a 10-day hearing notice in addition to a public notice in the Press Enterprise.
• On January 21, 2025 the Planning Commission voted to continue the project to the February 4, 2025 meeting.
• On February 4, 2025 the Planning Commission voted to continue the project to the February 18,2025 (Re-Noticed)
• On February 28, 2025 the Project was re-noticed in accordance with City Standards. • Eastern Municipal Water District
• Property Owner 1201 Moonstone Street.

Recommendation
It is respectfully requested that the Planning Commission:

1. Adopt Planning Commission Environmental Resolution (Attachment No. 1) by adopting an Initial Study & Mitigated Negative Declaration (IS/MND) based on the findings incorporated in the Initial Study as provided in Exhibit 1A and 1B and the conclusion that the project will not have a significant effect on the environment and direct staff to file a Notice of Determination; and

2. Adopt Planning Commission Resolution (Attachment No. 2) by approving Site Development Review (SDR23-001)and Variance (23-001) as provided in Exhibit 2A, 2B, and 2C Development Plans subject to the Conditions of Approval as provided in Exhibit 2D; and

3. Authorize staff to file a Notice of Determination with the Riverside County Clerk and State Clearinghouse.
• Historical Zoning Map
N
• Historical Zoning Map
N
Hemet City Council
Replacement Subdivision Improvement Agreement
Public Works Department
April 8, 2025
Parcel Map 36566
```
Discussion & Follow Up
City Council
Downtown Kitchen Grant
April 22nd, 2025
Strategic Plan Integration
Quality of Life Partnership &
Collaboration
Organizational
Effectiveness
Community
Engagement
Economic
Opportunity
2 Purpose
• Revitalize Downtown Hemet
• Stimulate Economic Growth
• Enhance Quality of Life
• Preserve Local Character
• Support Local Entrepreneurship
• Promote Local Ecosystem
3 Grant Program Overview
• Strategic initiative designed to revitalize the heart of Hemet. • Program envisions a transformed downtown, a culinary destination that attracts both residents and visitors.
• Seeks to create a dynamic and diverse food scene that not only enhances the dining experience but also contributes significantly to the economic and social well-being of the community.
• Create new Employment Opportunities.
• Enhance the overall quality of life for all Hemet residents. 4 Downtown Kitchen Grant - Examples
5 Grant Program Budget
* Downtown Kitchen Grant
- FY 24/25 $300,00
- FY 25/26 ?
Total = $300,000
Grant Program Eligibility
• A Detailed Business Plan
• Detailed Budget and Cost Breakdown
• Supporting Documentation (Business license
application,
• Lease agreement, proof of business insurance)
• Financial Statements
• Located in the Downtown Specific Plan
7 Hemet Downtown Specific Plan
8 Eligible Items
• A Detailed Business Plan
• Kitchen Equipment and Infrastructure
• Commercial-grade range/oven
• High-volume refrigerator
• Commercial dishwasher
• Hood system and ventilation
• Three-compartment sink
• Walk-in freezer
• Food processor Ice machine
• Grease trap installation
• Professional-grade knives and cutting boards
9 Program Procedural Steps

1. Applicant Intake, Eligibility, Review

2. Property Inspection

3. Contractor Selection

4. Award of Grant

5. Reimbursement
Discussion & Follow Up
City of Hemet
The California Municipal Financial Health Diagnostic
April 22, 2025
1 Background
2 The Diagnostic is a tool developed by Michael Coleman, the principal fiscal policy advisor to the California Society of Municipal Finance Officers (CSFMO).

A report card to validate areas in which the City is fiscally healthy, identify programs and areas to improve, help management and elected officials identify and act to remedy problems and address them before they become unmanageable, avoid being blind-sided by problems, and help others understand the City's financial position.

This tool was initiated by the League of California Cities and has been endorsed by the Government Finance Officers Association (GFOA) and used by numerous cities throughout California.

Overview
3 1. The Financial Distress Checklist (current year, 2 prior years and 3 future years):
a. Fourteen-point list of key indicators to assess the near-term financial health of the City’s General Fund.
b. The checklist is intended for use by policy makers and community members to ask the important questions and get the necessary answers.

2. The Financial Health Indicators (current year and 2 prior years):
a. Linked to the fourteen-point checklist to provide more detailed formulas and methods for determining financial condition.

Highlights – Financial Distress Checklist
4 WARNING SIGNS – INDICATION OF CRISIS
 Failure to pay an undisputed claim from a creditor within 90 days past claim date- NO
 Failure to forward income taxes withheld for over 30 days past due date- NO
 Failure to make required pension fund contributions on time- NO  Missing a payroll for 7 days- NO
 Available unrestricted balance for General Fund at the current fiscal year will be negative- NO
The City of Hemet is not in financial distress.

Highlights – Financial Health Indicators
5 Highlights – Financial Health Indicators (con’t)
6 Highlights – Adopted Financial Mgmt. Policies
7 Housing Element Update
Discussion/Feedback
8 Thank you!

City of Hemet
FY 2025-26 Budget Workshop II
April 22, 2025
1 Purpose
2 • Update revenue and expenditure changes
• Provide updates to cost drivers and fund balance
breakdown
• Forecast Scenarios
• Receive Feedback
General Fund Allocation Methodology
3 General Fund Revenue Changes
4 INITIAL BUDGET DEFICIT FORECAST FY 2025-26 $(14,600,000)

REVENUE ADJUSTMENTS
State Motor Vehicle Tax (from 3.0% to 6.2%) $335,000
Property Tax (from 3.0% to 5.75%) $255,000
Cannabis $200,000
Transient Occupancy Tax (Audit Findings) $180,000
Sales Tax (from 2.1% to 3.1%) $155,000
Sales Tax Measure U (from 0.1% to 1.0%) $155,000
Transient Occupancy Tax (Short-Term Rentals) $150,000
Rents (Billboards) $100,000
Transient Occupancy Tax (Hotel Tax Increase) $20,000
General Administration (reduction of ISF) $(625,000)
TOTAL REVENUE ADJUSTMENTS $925,000
Expenditure Cost Drivers
5 General Fund Cost Drivers Amount
Internal Service Fund - Liability budget increase for premium* $ 5,000,000 Salaries and Benefits - Vacancy Factor from FY2024-25 to close budget deficit gap $ 3,117,000 Internal Service Fund - Liability budget increase for excess claims $ 1,700,000 Salaries and Benefits - Annual payment on the Unfunded Accrued Liability (UAL) increase to CalPERS $ 1,000,000 Salaries and Benefits - Step Increases and 3% COLA $ 1,000,000 Professional Services - General Plan Update $ 500,000
Internal Service Fund - City Attorney Litigation fees for jury trials and CPI adjustment to retainer $ 300,000 Internal Service Fund - Facilities Maintenance Services $ 200,000 Internal Service Fund - Vehicle Maintenance Services $ 188,000 *Amount is a combination of FY2025-26 increase of $1.8M and FY2024-25 increase of $3.2M which was paid for through onetime use of fund balance.

Historical Pension & OPEB Obligations
6 Impactful Pension Debt Factors:

1. Investment Returns

2. Changes in Discount Rate

3. Other Actuarial Assumption Changes

4. Retirement Plan Formula
General Fund Expenditure Changes
7 EXPENDITURE ADJUSTMENTS
Operational Adjustments
End City Net Contract - Police $(1,026,000)
Move General Plan Update to DIF Fund - Community
Dev $(500,000)
Operations - Non-Safety Departments $(523,000)
Operations - Police $(250,000)
Operations - Fire $(50,000)
Total Operational Adjustments $(2,349,000)
Internal Service Fund (ISF) Adjustments
Use of Internal Service Fund (ISF) Balances $(2,625,000) Defer contribution to Equipment Replacement Fund $(859,000) Total Internal Service Fund (ISF) Adjustments $(3,484,000) Salary and Fringe Benefit Adjustments
Overtime - Police $(500,000)
True-up of positions $(267,000)
Overtime - Fire $(150,000)
Total Salary and Fringe Benefit Adjustments $(917,000)
TOTAL EXPENDITURE ADJUSTMENTS $(6,750,000)
Other Adjustments
8 OTHER ADJUSTMENTS
Vacancy Factor
Fire - Public Safety Operator (1) $(98,000)
Police - Public Safety Operator (1) $(98,000)
Police - Police Officer (1) $(171,000)
City Manager - Management Analyst (1) $(160,000)
Total Vacancy Factor $(527,000)
Interest Income $3,000,000
TOTAL OTHER ADJUSTMENTS $3,527,000
REMAINING DEFICIT $(3,398,000)
FY 25-26 Draft General Fund Recommended Budget (Resources) 9 ESTIMATED RESOURCES
FY 2024-2025

ADOPTED
FY 2024-2025

PROJECTED
FY 2025-2026

PROPOSED
Sales Tax $ 17,896,000 $ 17,896,000 $ 17,180,000
Measure U Transaction Tax $ 16,527,000 $ 16,527,000 $ 16,184,000 Property Taxes $ 10,715,000 $ 10,715,000 $ 11,134,000
Intergovernmental Motor Vehicle License Fee $ 9,758,000 $ 9,758,000 $ 10,490,000 Community Development Revenues $ 6,419,000 $ 6,419,000 $ 6,421,000 Franchise Fees $ 6,032,000 $ 6,032,000 $ 6,095,000
General Administration $ 5,478,000 $ 5,478,000 $ 5,614,000 Other/Miscellaneous $ 3,115,000 $ 3,115,000 $ 3,477,000 Transient Occupancy Tax $ 950,000 $ 950,000 $ 1,350,000 Intergovernmental - Other $ 1,076,000 $ 1,076,000 $ 1,145,000 Charges for Services $ 861,000 $ 861,000 $ 942,000
Use of Money & Property $ 772,000 $ 772,000 $ 753,000
Business License $ 407,000 $ 407,000 $ 409,000
Cannabis Tax $ - $ - $ 200,000
Licenses & Permits $ 74,000 $ 74,000 $ 77,000
Fines and Penalties $ 70,000 $ 70,000 $ 56,000
Total Estimated Revenues $ 80,150,000 $ 80,150,000 $ 81,527,000 Interfund Transfers - - -
TOTAL GENERAL FUND RESOURCES $ 80,150,000 $ 80,150,000 $ 81,527,000 FY 25-26 Draft General Fund Recommended Budget (Uses)
10 ESTIMATED USES
FY 2024-2025

ADOPTED
FY 2024-2025

PROJECTED
FY 2025-2026

PROPOSED
Police - General Fund 32,041,000 32,041,000 30,805,000
Fire - General Fund 15,600,000 15,600,000 16,000,000
Police - Measure U Fund 11,018,000 11,018,000 10,789,000 Fire - Measure U Fund 5,509,000 5,509,000 5,395,000
Public Works 3,848,000 3,848,000 3,934,000
Fire - Dept of Life Safety (Building and Code) 3,523,000 3,523,000 3,560,000 Administrative Services (Finance and HR) 3,187,000 3,187,000 3,004,000 Community Development 2,422,000 2,422,000 2,496,000
Library 2,075,000 2,075,000 2,136,000
City Manager 1,357,000 1,357,000 1,411,000
Non-Departmental - Animal Regulation 1,156,000 1,156,000 1,216,000 City Clerk 689,000 689,000 704,000
City Council 252,000 252,000 244,000
Non-Departmental - Other 328,000 328,000 6,469,000
City Treasurer 97,000 97,000 89,000
Department Subtotal 83,102,000 83,102,000 88,252,000
FY 25-26 Draft General Fund Requested Budget (Uses) (con’t) 11 ESTIMATED USES - ONE-TIME FUND BALANCE
FY 2024-2025

ADOPTED
FY 2024-2025

PROJECTED
FY 2025-2026

PROPOSED
Non-Departmental - Other (use of one-time fund balance) 4,120,000 4,120,000 2,196,000 Police - General Fund (use of one-time fund balance) 3,742,500 2,654,400 - Non-Departmental - Other (use of one-time fund balance) 1,000,000 1,000,000 - Police - Measure U Fund (use of one-time fund balance) 532,800 532,800 - Fire - General Fund (use of one-time fund balance) 260,000 260,000 - City Clerk - General Fund (use of one-time fund balance) 213,000 213,000 - Parks - General Fund (use of one-time fund balance) 80,000 80,000 - Fire DLS - General Fund (use of one-time fund balance) 70,000 70,000 - City Manager - General Fund (use of one-time fund balance) 60,000 60,000 - Admin Services - General Fund (use of one-time fund balance) 25,000 25,000 - Fire - Measure U Fund (use of one-time fund balance) - - 330,000 Total Estimated Expenditures $ 93,205,300 $ 92,117,200 $ 90,778,000 Total Interfund Transfers 165,000 165,000 200,000
TOTAL ESTIMATED USES $ 93,370,300 $ 92,282,200 $ 90,978,000 Vacancy Factor* (3,117,000) (3,117,000) (527,000)
Interest Income** - - (3,000,000)
Minus One time use of fund balance (listed above) (10,103,300) (9,015,200) (2,526,000) Budget Surplus / (Deficit) - - $ (3,398,000)
* "Vacancy factor” is how the City budgets for vacancy savings in department budgets. This is a savings that is taken up-front in the budget process and is based on the expectation that not all positions will be filled 100% of the time during the course of a fiscal year. **Interest Income is anticipated to come in higher than budgeted amount of $500,000 FY 24-25 Draft Budget Requests Using One-Time General Fund Balance 12 FY 2025-26 Supplemental Requests included in Proposed Budget Department Description
General Fund
Ongoing
General Fund
Use of FB
Measure U
Ongoing
Measure U
Use of FB
Non-Departmental
Pension 115 Trust Contribution Placeholder (driven by
policy) 1,496,000
Non-Departmental Kitchen Grant Program 200,000
Non-Departmental Façade Improvement Program 200,000
Non-Departmental Community Enrichment Grants 100,000
Non-Departmental Vandalism Relief 50,000
Non-Departmental Strategic Plan Item - Digital Sign Repair at Library 50,000 Non-Departmental Full Comprehensive Fee Study 45,000
Non-Departmental Replace front doors in City Hall lobby 25,000 Non-Departmental Hemet Beautiful 20,000
Non-Departmental Beautification Program 10,000
Total General Fund One-Time Use of Fund Balance - 2,196,000 Fire
Strategic Plan Item - Emergency Preparedness & Hazard
Mitigation 230,000
Fire Fire Station 3 Improvements 100,000
Total Measure U One-Time Use of Fund Balance 330,000
TOTAL - 2,196,000 - 330,000
Total All Requests 2,526,000
Total Use of Fund Balance 2,526,000
Housing Element Update
General Fund Balance
13 A 40% Reserve went into effect at the close of FY 2023-24.

General Fund Measure U Reserve Total
2015 9,747,500 - 7,169,035 16,916,535
2016 7,483,940 - 7,727,108 15,211,048
2017 3,364,296 1,208,719 8,294,791 12,867,806
2018 1,493,718 6,960,117 8,241,977 16,695,812
2019 2,352,346 11,680,431 8,213,633 22,246,410
2020 5,331,177 13,400,650 8,171,672 26,903,499
2021 15,168,097 16,194,263 8,232,991 39,595,351
2022 25,608,761 19,896,092 8,555,534 54,060,387
2023 34,963,724 19,383,170 9,265,960 63,612,854
2024 31,731,285 18,880,173 21,378,803 71,990,261
General Fund Balance (con’t.)
14 Non-spendable = Pre-paid items
Restricted = PEG funds, CDD grants
Committed = Reserve, all Measure U
Assigned = Capital improvement projects
Unassigned = Available for one-time use
*Total includes use of one-time fund balance investments on the following slide.

FY 2023-24 Itemized Fund Balance FY 2024-25 Draft Itemized Fund Balance EST. CLOSE
Non-spendable Revenues Non-spendable
General Fund 30,306 General Fund $ 66,769,300 General Fund 30,300 Measure U 1,969,640 Measure U $ 16,527,000 Measure U 1,970,000 Restricted 2,194,169 Total Revenue $ 83,296,300 Restricted 2,040,000 Committed Committed
General Fund (40%) 21,873,426 Expenditures General Fund (40%) 30,053,200 Measure U 16,910,533 General Fund $ (80,003,400) Measure U 11,896,400 Assigned 8,328,282 Measure U $ (19,041,200) Assigned 6,830,000 Unassigned 20,683,905 Total Expenditures $ (99,044,600) Unassigned 4,922,000 $71,990,261 $57,741,900
Vacancy Factor $ 4,500,000
Transfer to Liability Fund $ (3,000,000)
Budget Surplus/Deficit $ (14,248,300) *
FY 2024-25 Draft Estimated Close
General Fund Balance (con’t.)
15 FTE Summary by Department
16 FTE Summary by Department
Budgeted
FY24-25
Proposed
FY25-26 Difference
City Council 5.0 5.0 -
City Manager 5.0 5.0 -
City Clerk 3.0 3.0 -
Administrative Services 24.0 24.0 -
City Treasurer 1.0 1.0 -
Police (Sworn) 91.0 91.0 -
Police (Non-Sworn) 50.4 50.4 -
Fire (Sworn) 65.0 65.0 -
Fire (Non-Sworn) 34.5 34.5 -
Library 9.0 9.0 -
Community Development 9.0 9.0 -
Public Works 83.5 83.5 -
380.4 380.4
Forecast Scenario 1
17 SCENARIO 1 - GENERAL FUND FINANCIAL FORECAST SUMMARY - FLAT REVENUE GENERAL FUND FIVE YEAR FORECAST FY 2023-24 TO FY 2027-28 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29
BASELINE Estimated Proposed Forecast Forecast Forecast
BEGINNING FUND BALANCE $ 71,990,261 $ 50,463,700 $ 41,753,700 $ 31,179,000 $ 18,702,300 REVENUES $ 80,296,000 $ 84,527,000 $ 84,527,000 $ 84,527,000 $ 84,527,000 EXPENDITURES* $ (101,822,600) $ (93,237,000) $ (95,101,700) $ (97,003,700) $ (98,943,800) ANNUAL SURPLUS OR (DEFICIT) $ (21,526,600) $ (8,710,000) $ (10,574,700) $ (12,476,700) $ (14,416,800) ENDING FUND BALANCE $ 50,463,700 $ 41,753,700 $ 31,179,000 $ 18,702,300 $ 4,285,500 *Includes use of one-time fund balance investments and vacancy factor in fiscal years 2024-25 and 2025-26.

SCENARIO 1 FLAT - This scenario accounts revenues flat due to slowing of the sales tax growth offset by an increase in property taxes for a net effect. Expenditures include a 3% salary increase in fiscal year 2025-26 for all employee's compensation, along with an approximate 2% inflationary factor on expenditures for fiscal years 2026-27 through fiscal year 2028-29 which includes increases to CalPERS and standard operational contracts but no additional employee compensation. If revenues do not increase, this model shows the City trending in an increasing operational deficit and will require significant increases to revenue or operational cuts and/or the use of available fund balance for all fiscal years.

Forecast Scenario 2
18 SCENARIO 2 - GENERAL FUND FINANCIAL FORECAST SUMMARY - RECESSION GENERAL FUND FIVE YEAR FORECAST FY 2023-24 TO FY 2027-28 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29
BASELINE Estimated Proposed Forecast Forecast Forecast
BEGINNING FUND BALANCE $ 71,990,261 $ 50,463,700 $ 41,753,700 $ 22,726,300 $ (6,571,300) REVENUES $ 80,296,000 $ 84,527,000 $ 76,074,300 $ 67,706,100 $ 58,904,300 EXPENDITURES* $ (101,822,600) $ (93,237,000) $ (95,101,700) $ (97,003,700) $ (98,943,800) ANNUAL SURPLUS OR (DEFICIT) $ (21,526,600) $ (8,710,000) $ (19,027,400) $ (29,297,600) $ (40,039,500) ENDING FUND BALANCE $ 50,463,661 $ 41,753,700 $ 22,726,300 $ (6,571,300) $ (46,610,800) *Includes use of one-time fund balance investments and vacancy factor in fiscal years 2024-25 and 2025-26.

SCENARIO 2 RECESSION - This scenario duplicates the revenue decrease that the City experienced during the recession in fiscal years 2007-08, 2008-09 and 2009-10 at a rate of 10%, 11% and 13% respectively. Expenditures include a 3% salary increase in fiscal year 2025-26 for all employee's compensation, along with an approximate 2% inflationary factor on expenditures for fiscal years 2026-27 through fiscal year 2028-29 which includes increases to CalPERS and standard operational contracts but no additional employee compensation. If the City were to enter into a repeat of this recession, not only will the City operate in an ongoing deficency but drastic operational cuts must be made or fund balance will be depleted by fiscal year 2027-28.

Forecast Scenario 3
19 SCENARIO 3 - GENERAL FUND FINANCIAL FORECAST SUMMARY - FORWARD PROGRESS GENERAL FUND FIVE YEAR FORECAST FY 2023-24 TO FY 2027-28 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29
BASELINE Estimated Proposed Forecast Forecast Forecast
BEGINNING FUND BALANCE $ 71,990,261 $ 50,463,700 $ 41,753,700 $ 37,407,200 $ 38,419,100 REVENUES $ 80,296,000 $ 84,527,000 $ 90,755,200 $ 98,015,600 $ 105,856,800 EXPENDITURES $ (101,822,600) $ (93,237,000) $ (95,101,700) $ (97,003,700) $ (98,142,900) ANNUAL SURPLUS OR (DEFICIT) $ (21,526,600) $ (8,710,000) $ (4,346,500) $ 1,011,900 $ 7,713,900 ENDING FUND BALANCE $ 50,463,661 $ 41,753,700 $ 37,407,200 $ 38,419,100 $ 46,133,000 *Includes use of one-time fund balance investments and vacancy factor in fiscal years 2024-25 and 2025-26.

SCENARIO 3 FORWARD PROGRESS - This scenario reflects a 10-year average of an 8% increase for fiscal years 2026-27 through 2028-29 which include increased growth in cannabis revenue and 2 dealership construction incentives in fiscal year 2026-27 and 3 dealership construction incentives in fiscal year 2027-28. Expenditures include a 3% salary increase in fiscal year 2025-26 for all employee's compensation, along with an approximate 2% inflationary factor on expenditures for fiscal years 2026-27 through fiscal year 2028-29 which include increases to CalPERS and standard operational contracts but no additional employee compensation. If the City's forward progress and revenues increase, this model shows the City does trend in an operational deficit through fiscal year 2027-28 but will rebalance in fiscal years 2028-29 forward, rebuilding its fund balance.

Housing Element Update
Forecast Scenarios
20 • These forecast scenarios are for illustrative purposes only. • They serve as a reflection for the preservation of fund balance. • Future years will need to be carefully evaluated for the use of one-time funds for investments and projects.

Housing Element Update
Upcoming Dates
21 April 29, 2025 – Measure U Citizen’s Oversight Committee Meeting May 20, 2025 – Measure U Citizen’s Oversight Committee Meeting June 10, 2025 – Budget Adoption (tentative)
June 24, 2025 – Budget Adoption (if necessary)
Housing Element Update
Discussion/Feedback
22 Thank you!

Allen Matkins Leck Gamble Mallory & Natsis LLP
Attorneys at Law
2010 Main Street, 8th Floor | Irvine, CA 92614-7214
Telephone: 949.553.1313 |
www.allenmatkins.com
Paige H. Gosney
E-mail:

Direct Dial: File Number:

Los Angeles | Orange County | San Diego | Century City | San Francisco | New York Allen Matkins
Via Email/U.S. Mail
April 18, 2025
Honorable Mayor and City Council Members
Attn: John Paul Maier, City Clerk
City of Hemet
445 E. Florida Avenue
Hemet, CA 92543
Re: April 22, 2025, City Council Agenda Item No. 21.E (Newland Simpson Road Project)
Honorable Mayor and City Council Members:

This office represents Newland Capital Group (“NCG”), the applicant for the proposed Newland Simpson Road Project (“Project”) located on approximately 74.88 acres of land at the intersection of Warren Road and Simpson Road in the City of Hemet (“City”). The Project consists of the development of two warehouse buildings totaling approximately 1.19 million square feet and an ancillary 8.9-acre trailer parking lot, along with certification of the Project’s Final Environmental Impact Report (SCH No. 2023120462) (“FEIR”) and the following discretionary entitlements:

General Plan Amendment No. GPA 22-003, Conditional Use Permit No. CUP 22-006, Tentative Parcel Map No. 38800, Variance No. VAR 24-003, and a Building Height Exception (collectively, the “Project Approvals”).

On April 8, 2025, the City Council held a public hearing to consider the FEIR and Project Approvals and, after taking extensive public testimony, voted to direct Staff to prepare a resolution denying certification of the FEIR based upon the inability to adopt the FEIR’s Statement of Overriding Considerations. The City Council made no motion and took no vote and gave no direction to Staff and/or the City Attorney with respect to the separate and independent Project Approvals. As such, General Plan Amendment No. GPA 22-003, Conditional Use Permit No. CUP 22-006, Tentative Parcel Map No. 38800, Variance No. VAR 24-003, and the Building Height Exception are, and remain, active and viable land use entitlement applications that may be modified and/or acted upon by the City Council at a future, duly noticed public hearing.

Notwithstanding the foregoing, the resolution prepared by Staff and the City Attorney for the City Council’s consideration at Agenda Item No. 21.E for the April 22 City Council meeting (the “Resolution”) purports to not only deny certification of the FEIR per the Council’s vote at the Allen Matkins Leck Gamble Mallory & Natsis LLP
Attorneys at Law
Honorable Mayor and City Council Members
April 18, 2025

April 8 meeting but also to deny the Project Approvals as well. As noted above, this is completely improper and beyond the scope of lawful actions that the City Council may take at the April 22 meeting. Again, the applications for the Project Approvals have not yet been acted upon by a vote of the City Council at a noticed public hearing and therefore they remain both active and pending.

Please be advised that, in the event that the City Council votes to adopt the proposed Resolution at the April 22 meeting and attempt to deny the Project Approvals despite the lack of any prior formal vote authorizing such action, we have been directed by NCG to take all actions necessary to protect and preserve its rights with respect to the entitlement and development of the Project, including litigation concerning any unlawful denial of the Project Approvals. We will not hesitate to exercise all rights and pursue all available remedies, both legal and equitable, in order to do so.

However, a prolonged litigation or contentious or adversarial relationship with the City is in neither party’s best interests and is certainly not the desire of NCG. NCG is and remains committed to working with the City in order to realize the parties’ shared vision for the Project and the development of this important entryway into the City. This vision was cultivated over the past several years throughout the otherwise collaborative entitlement process that, ultimately, left NCG stunned when at the April 8 meeting the City Council expressed its opposition to the Project and voted to deny the FEIR.

That being said, since the April 8 meeting, NCG and its representatives have been actively working with both the property owner and the proposed tenant, Rialto Pacific, on modifications to the Project that would address the City Council’s and the community’s concerns. NCG very much looks forward to discussing the proposed Project modifications with the community and presenting them to the Council in the very near future, likely the upcoming May 13 City Council hearing.

Please contact me if you have any questions and/or if you wish to discuss this matter in further detail.

Very truly yours,
Paige H. Gosney
PHG
cc: Steven Graham, City Attorney
Mark Prestwich, City Manager
Client
From: City of Hemet
To: John Maier; Elodie Klug; Demi Olsen
Subject: Apr 22 2025 - K. Jones - PC-25-25
Date: Tuesday, April 22, 2025 10:37:23 AM
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Apr 22 2025
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Agenda Item or
Subject: Highpointe Aster River Oaks Apartments - 293 - 593 I am opposed to the apartment complex being built on Elk and Stetson.

In the aesthetic section of the Initial Study, you point out that there is public viewing of the San Jacinto Mountains and San Bernardino National Forest and Mountains but the residents to the south will no longer have these if you are putting up three story apartment buildings Comment or
Question:
at a height of 37 feet, 2-inches. One reason that I bought this property was because of the scenic views of the nearby mountains which I now will lose because of these apartments. There is no way that I will have the same views after these are built. With the apartments being 3 stories, I will also lose privacy. If they were to be built only 2 stories high, they will still obstruct my view but would be a little more tolerable. What type of perimeter fencing will be provided along the east and south of the apartment complex? Are they just planning on using what is all ready there from the current residents or will there be additional fencing that protects the current residents from apartment users jumping over into neighboring homes.

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From: Elodie Klug
To: Demi Olsen
Subject: FW: Newland/Simpson warehouse rejection
Date: Friday, April 25, 2025 9:49:07 AM
Attachments: image001.png
To be included as public comment.

Thank you and take care,
Elodie Klug | Deputy City Clerk
City of Hemet | 445 E. Florida Avenue, Hemet, CA 92543
(951) 765-2384 | [email protected]
From:

Sent: Thursday, April 24, 2025 2:16 PM
To: Jaculin Peterson <[email protected]>; [email protected]; [email protected]; Joe Males <[email protected]>; City Clerk Staff <[email protected]>; Jean Faenza Subject: Newland/Simpson warehouse rejection
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Honorable Mayor Peterson and Council Members,
After reviewing the letter dated April 18, 2025 from Mr. Paige H. Gosney, Attorney at Law, I would like to encourage the City Council and City Attorney to stand firm on their decision to deny the intended project mentioned above. The City Council demonstrated their commitment to only approve or deny projects that would compliment the future of Hemet and its citizens.

The meeting on April 8, 2025 was well attended by proponents and opponents of the NS project and all members of the City Council are very deserving of the trust that Hemet citizens place on them.

Although a procedural error may have occurred by failing to have a motion and vote to deny all aspects of the proposed project, it seems reasonable that another meeting could be held to obtain a motion to also deny the acceptance of discretionary entitlements as a remedy for the exclusion.

By assured that the community stands being you and we hope this issue is resolved once and for all.

Respectfully,
Joe R Wood
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