CITY OF POMONA
COUNCIL REPORT
February 3, 2025
To: Honorable Mayor and Members of the City Council
From: Anita D. Scott, City Manager
Submitted By: Andrew Mowbray, Finance Director/City Treasurer SUBJECT: PRESENTATION OF THE UPDATED TEN-YEAR FINANCIAL FORECAST RECOMMENDATION:
It is recommended that the City Council receive and file the updated Ten-Year Financial Forecast EXECUTIVE SUMMARY: The budget-based forecast is a dynamic model of the City’s forecasted labor costs, operating expenditures, and revenues for the General Fund. Every component of the model is driven by a set of assumptions and variables that are intended to make the forecast as highly predictive and useful in understanding the City’s future financial condition, based on present revenues and expenditures, expected changes to such revenues and expenditures, and the financial impact of various scenarios the City may consider addressing its service needs, strategic objectives, and incorporating current Fiscal Sustainability Policies. While the forecast is not intended as a replacement or substitute for careful monitoring and consideration of the City’s annual budget and financial statements, it is a tool for good financial planning, recommendations, and decision-making by City leadership to help better secure the City’s financial stability and sustainability.
City staff has worked with the City’s financial advisor, Urban Futures, Inc. (UFI) since 2017 to present the Ten-Year financial forecast. The forecast was used to assist with the February 26, 2024 Impact Analysis Report on the possible effects of the proposed “Pomona Kids First” initiative petition to amend the Pomona City Charter. On October 2, 2023 and Impact Analysis Report was presented on the possible effects of the proposed initiative petition to reduce the Transactions & Use Tax (TUT) rate from 0.75% to 0.50% and to extend the term of the TUT by repealing its March 31, 2029 sunset. On February 6, 2023, staff worked with Urban Futures, Inc. (UFI), to develop an Updated Ten-Year Financial Forecast to explain the proposed a Consolidated Fiscal Policies and Administrative Procedures and presented this information to the City Council. The ten-year forecast was presented to the Mayor and City Council on May 3, 2021, and the findings addressed past action of the development of a Transaction Use Sales Tax (TUT) Measure (PG) that have helped sustain the City’s General Fund. The first Ten-Year forecast was presented by UFI on December 11, 2017, as it was critical for the City to begin addressing long term needs. This forecast assisted towards the effort to put the Measure PG –Transactions & Use Tax (TUT) set at a rate of 0.75% which was passed by the voters in November 2018 and was implemented in April 2019. The ten-year forecast has historically provided the City Council with a tool to assist in financial forecasting and addressing long-term concerns. The purpose of today’s Ten-Year Forecast relates to the recent ballot measure charter amendment, the “Pomona Kids First” initiative that was approved by the voters of Pomona in November 2024 and went into effect in January 2025.
SB1439/GOVERNMENT CODE §84308 APPLICABILITY:
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FISCAL IMPACT: No fiscal impact at this time.
PREVIOUS RELATED ACTION:
On February 26, 2024 an Impact Analysis Report on the possible effects of the proposed “Pomona Kids First” initiative petition to amend the Pomona City Charter was presented to the City Council.
On October 2, 2023 an Impact Analysis Report was presented on the possible effects of the proposed initiative petition to reduce the Transactions & Use Tax (TUT) rate from 0.75% to 0.50% and to extend the term of the TUT by repealing its March 31, 2029 sunset was presented to the City Council On February 6, 2023, the City Council adopted the City’s Updated Consolidated Fiscal Policies and Administrative Procedures that is designed and structured to develop principles that guide the financial administration of the City, which guide the City’s overall fiscal planning and management.
On December 19, 2022 the City Council was presented staff worked with Urban Futures, Inc. (UFI), to develop an the Updated Ten-Year Financial Forecast and explain the proposed Consolidated Fiscal Policies and Administrative Procedures and presented this information to the City Council. The Policies establish guidelines for the City’s overall fiscal planning and management and support the continued financial strength and stability of the City as reflected in its financial goals.
On May 3, 2021, the City Council received a presentation of the City’s Ten-Year Forecast to address past actions that have helped sustain the City’s General Fund and anticipated future needs that could significantly impact the City’s General Fund going forward.
A Ten-Year forecast was presented on December 11, 2017, as it was critical for the City to begin addressing long term needs. The findings assisted with the development of a Transactions Use Sales Tax (TUT) Measure PG that was placed on the November 2018 ballot.
DISCUSSION:
As mentioned, the Finance Department has worked closely with UFI to use the ten-year forecast in various capacities to analyze future impacts to the General Fund dating back to 2017. The model is used to collect and analyze the necessary financial data, structure and trends required to model the various revenue streams and expenditure drivers for the updated General Fund Ten-Year Forecast. Presentation of the current forecast will be broken down into these areas:
Updated Baseline Forecast. The updated Baseline Forecast shows the fiscal outlook for the City’s General Fund as moving toward slightly precarious compared to the prior baseline forecast presented in March 2024. The updated Baseline Forecast projects a persistent annual operating deficit for the General Fund whereas the prior baseline forecast projected a slight but declining operating surplus. The projected annual operating deficit peaks in FY 2029 and then gradually declines. The primary driver of the annual operating deficit is the additional CalPERS Unfunded Accrued Liability (UAL) payment required for the General Fund. In FY 2022, the CalPERS investment fund suffered historic losses with negative 6.2% returns. The City’s annual UAL payment to CalPERS now includes the amortized cost of those historic losses, with an annual increase of approximately $2.3 million.
Scenario Forecast #1. Scenario Forecast #1 adds a potential strategy for the City to manage and minimize the fiscal impact of the increased annual UAL payments. Scenario Forecast #1 assumes the City uses the existing Section 115 Trust funds to make two additional payments of $1.9 million to CalPERS at end of FY 2025 and end of FY 2026. Scenario Forecast #1 shows the estimated beneficial impact of this UAL management strategy is increasing annual savings reaching $2.4 million in FY 2031 and continuing thereafter compared to the Baseline Forecast. The result is to move the fiscal outlook for the City’s General Fund from slightly precarious to generally stable.
Scenarios Forecast #2 adds two additional changes: (1) the projected annual transfers required by Measure Y from the General Fund to the new special Children & Youth Fund, and (2) removal of the annual $2 million in Youth Funding Commitment (to avoid duplication with Measure Y funding). Scenario Forecast #2 projects the General Fund will have significantly increasing and unsustainable operating deficits that increase to $18.5 million by FY 2034, with the existing fund balance and reserves estimated to be fully depleted by end of FY 2030. Compared to Scenario Forecast #1, Scenario Forecast #2 moves the fiscal outlook for the General Fund from generally stable to insolvent (unable to meet projected financial obligations based).
The table on the next page shows the impact to the General Fund balance when comparing the Baseline forecast to Scenario #1 and Scenario # 2. This table is covered within the presentation on slide 18 (Attachment No.1).
The updated Ten-Year Financial Forecast reiterates the overwhelming and unsustainable impact implementation of Measure Y imposes on the General Fund. While Scenario Forecast #1 shows the CalPERS UAL impact can be largely mitigated with the City’s prudent use of its Section 115 trust funds, Scenario Forecast #2 shows that restructuring of existing city services that result in significant, ongoing reduced operating costs will be required to implement the Measure Y and maintain solvency of the General Fund.
COUNCIL PRIORITIES & GOALS: This item supports the Fiscal Year 2019-20 City Council Priorities and Goals - Priority 1 (GOAL A): Continue to ensure that the City has sufficient financial reserves in accordance with the City Fund Balance Policy, including at least 17% of General Fund operational budget for General Fund Reserves.
Prepared by:
Andrew Mowbray
Finance Director/City Treasurer
ATTACHMENT(S):
Attachment No. 1 – Presentation: Ten-Year Forecast
Presentation of the Ten-Year Financial Forecast