CITY COUNCIL STAFF REPORT
Meeting Date: June 17, 2024
TO: THE HONORABLE MAYOR AND CITY COUNCILMEMBERS
SUBJECT: ADOPT RESOLUTION NO. ___-24 APPROVING THE CITY OF PLEASANT HILL BIENNIAL BUDGET FOR FISCAL YEARS 2024-2025 AND 2025-2026
SYNOPSIS
Staff prepared the Fiscal Year 2024/2025 through 2025/2026 (FY 24/25 & FY 25/26) Proposed Biennial Budget, attached. At its June 5, 2024 meeting, the Budget Committee reviewed the proposed biennial budget and recommended City Council approval. As recommended, staff is seeking City Council’s adoption of the Proposed Biennial Budget for FY 24/25 – FY 25/26..
DISCUSSION
Background
The City Council adopts a budget that matches the services desired by the community with the financial resources required to provide those services. The Budget Committee and the City Council reviewed the Long Term Financial Plan for Fiscal Years 2024/2025 through 2025/2029 last month, which provided a preliminary view of the Proposed Biennial Budget. On June 5, 2024, the Budget Committee held a public meeting to review and discuss the Proposed Biennial Budget for FY 24/25 – FY 25/26 and approved forwarding it to the full City Council with a recommendation to adopt.
FISCAL IMPACT
The Proposed Biennial Budget for FY 24/25 – FY 25/26 is attached for the City Council’s review and comments. The proposed budget assumes maintaining services and programs at current levels. The budget incorporates revenues and expenditures assumptions consistent with the Long Term Financial Plan FY 24/25 through FY 28/29 that was presented to the City Council earlier this month. Overall, the City is expecting General Fund revenues to total $31.4 million in FY 24/25 and increase to $32.1 million in FY 25/26. General Fund expenditures are slightly higher than revenues, totaling $33.7 million in FY 24/25 and $35.2 million in FY 25/26. The proposed budget is projecting that the General Fund Balance will be $11.3 million in FY 24/25 and $8.2 million in FY 25/26. The table below provides a summary of the General Fund:
GENERAL FUND BALANCE
($ in thousands)
FY 23/24
Projected
Results
FY 24/25
Proposed
Budget
FY 25/26
Proposed
Budget
FY 26/27
Forecast
FY 27/28
Forecast
FY 28/29
Forecast
FUND BALANCE, BEGINNING $13,786 $13,677 $11,295 $8,196 $4,735 $972 REVENUES $30,405 $31,352 $32,054 $33,070 $34,124 $35,215 EXPENDITURES (not including pension
unfunded liability) $26,642 $29,143 $30,213 $31,249 $32,324 $33,439 TOTAL SURPLUS $3,763 $2,209 $1,841 $1,821 $1,800 $1,776
EXPENDITURES - PENSION UNFUNDED
LIABILITY $3,872 $4,591 $4,940 $5,282 $5,563 $6,137
TOTAL (DEFICIT) ($109) ($2,382) ($3,099) ($3,461) ($3,763) ($4,361) FUND BALANCE, ENDING $13,677 $11,295 $8,196 $4,735 $972 ($3,389) The City’s main revenue sources are sales tax and property tax, which account for approximately $19 million or 64 percent of the City’s General Fund. The revenue projections are based on recent projections provided by the City’s consultant, HdL Companies, which provided the Budget Committee with a presentation on their methodology to estimate sales tax revenues.
Most other major revenues are projected to grow at a rate of 3 percent.
The City’s main expenditure is salaries and benefits, which are $19.3 million in FY 24/25 and $21.0 million in FY 25/26, and represent approximately 62 percent of the City’s General Fund.
The salary costs are projected to grow from 3.25 percent to 3.5 percent, based on the agreed Memoranda of Understanding, but other personnel costs, such as medical and pension benefits, are projected to grow faster. The City’s pension costs continue to rise as the CalPERS unfunded actuarial liability payment will increase from $3.9 million in FY 23/24 to $4.6 million in FY 24/25 and $4.9 million in FY 25/26. Overall, most non-personnel expenditures are projected to increase year over year by approximately 3 percent.
The preliminary budget shows that without making additional cost reductions or revenue enhancements, the City will have deficits in FY 24/25 and FY 25/26. The previous biennial budget had deficits between $1.2 million to $1.3 million, which were mainly offset by staff vacancies attributable to retirements and the challenges in hiring public safety personnel, higher sales tax revenues, and the use of one-time federal grant funding. The challenge has been and continues to be the increasing CalPERS unfunded liability payment - a cost over which the City Council has no control - that will grow to over $6.0 million by FY 28/29 based on the pension fund’s current projections.
The Budget Committee and City Council have taken steps to enhance revenues and mitigate some of the future costs, but some will require additional steps:
a. Establish a Section 115 Trust and funding policy using $1 million of General Fund reserves in May 2022. During this fiscal year, the City Council approved an additional contribution beyond the amount prescribed by the policy by transferring $300 thousand into the trust (the policy would have required contributing only an additional $57 thousand). b. The Master Fee Schedule to include full cost recovery has been approved by the Budget Committee and will go to the City Council on June 17. Those revenues are assumed in the proposed budget.
c. MOUs for the next couple of years with all bargaining groups, which provide labor stability.
d. This budget still assumes frozen positions throughout the City, which provides savings of $0.9 million.
e. Proposed Assessment rate increases for District 20 and District 22, which, assuming passage by assessment district voters, will provide cost recovery.
In conclusion, consistent with the City Manager’s message, the FY 24/25 - FY 25/26 Biennial Budget maintains current service levels, attempts to mitigate the impact of rising costs, and makes targeted investments responsive to community priorities and Council goals. The City continues to provide the excellent services and programs this budget supports. The City will continue to manage costs responsibly and within the resources available, but the task will become more challenging as some of those costs that are beyond the control of staff and the City Council continue to rise.
Additional information is included in the attached Proposed Biennial Budget for FY 24/25 – FY 25/26.
PUBLIC CONTACT
Public Contact was made through posting of the City Council agenda on the City’s official notice bulletin board, at the Pleasant Hill Senior Center, and at the Pleasant Hill Police Department.
The agenda and staff report are posted on the City’s web page.
RECOMMENDED CITY COUNCIL ACTION
Adopt the proposed resolution approving the Proposed Biennial Budget for FY 24/25 - FY 25/26, as recommended by the Budget Committee.
ALTERNATIVES TO RECOMMENDED ACTION
Do not adopt the proposed resolution approving the Proposed Biennial Budget for FY 24/25 - FY 25/26, and provide direction to staff.
ATTACHMENT(S):
Proposed Resolution - Biennial Budget
Proposed Biennial Budget FY 2024/2025 – FY 2025/2026
Prepared by: Erick Cheung, Finance Manager
Approved by: Ethan Bindernagel, City Manager