DATE: JANUARY 11, 2022
DEPARTMENT: OFFICE OF THE CITY MANAGER
FROM: STEVEN CARRIGAN, CITY MANAGER
BY: ANDREW MYRICK, SR ECONOMIC DEVELOPMENT MGR
TITLE: IMPLEMENTATION OF THE SALINAS PLAN
RECOMMENDED MOTION:
No action is required.
RECOMMENDATION:
No recommendation is provided since this Report is presented for informational purposes only.
BACKGROUND:
On December 4, 2018, the National Resource Network (NRN) presented the Salinas Plan to the City Council. The Salinas Plan is a comprehensive review of City finances and operations that utilizes a ten-year budget model to identify the fiscal challenges facing the City; specifically, the model found that the City has an ongoing structural budget deficit, meaning that expenditures are increasing faster than revenues (see chart below).
Absent corrective action, the City would see increasing deficits, eventually exceeding $10 million per year by FY27 and $60 million total by FY28. Under this projection, the City would exhaust its reserves by FY23. Further, this projection assumes no additional investment by the City to help address the housing affordability crisis the City is now facing. On its current path, the City faces the steady erosion of existing services, with no additional resources available to address the housing crisis or other challenges that may arise.
To prevent this outcome, the Salinas Plan includes a list of 32 recommended initiatives that, taken together, would enable the City to maintain its fiscal solvency, core services, and strategic priorities as well as identify additional resources to address the housing crisis. These initiatives achieve this through a variety of methods, including reducing or eliminating non-core services; identifying new revenues to fund key strategic priorities; and finding efficiencies in operations to enable the City to continue to deliver key services at a lower cost. The recommendations span nearly all City Departments and entail sacrifices by employees, residents, and businesses – however, if completely implemented, the Salinas Plan projects that the City should be able to maintain core services, increase efficiencies, implement new and expanded initiatives to address the housing crisis, and do so over the long-term by implementing fiscally sustainable practices.
DISCUSSION:
The Finance Department has completed processing all transactions related to the FY21 (ie July 2020 – June 2021). The Salinas Plan projected that at this point the City would have saved a total of approximately $5 million ($756,084 in FY20 and approximately $4.27 million in FY21) through implementation of Plan initiatives; in fact, the City saved over $800,000 in FY19, nearly $1.6 million during FY20, and over $2.4 million in FY21, bringing the cumulative total to almost $4.85 million. The table below includes a list of those Salinas Plan initiatives which realized actual savings and/or were projected to accrue savings during FY21:
Some items of note with regards to the table above:
The savings from Item PS01 are primarily derived from the savings obtained by reducing the minimum staffing levels for ladder trucks within the Fire Department from 4 to 3. Beginning in February 2021, the Salinas Police Department instituted modifications to its scheduling; it is believed that these changes will, on the whole, decrease the amount of Police Department overtime. A more complete understanding of the impacts of this change are expected following an analysis of next year’s overtime data.
Although no savings are shown for Item SS01, the City of Salinas and Monterey County Regional Fire District (MCRFD) entered into a new contract that will gradually increase the amount of the annual payments received by the City for covering portions of MCRFD’s territory. The new contract was effective July 1, 2021, and savings from this action will be applied starting in FY22.
Due to the method of accounting for Management and Flex Leave, the total savings shown in WF03 represents only a partial year of savings, as funding was allocated to cover costs associated with employee benefits provided to employees in January 2020 and paid out through the first half of FY21. This amount is expected to increase significantly in FY22.
Although several recommendations for the Worker’s Compensation Fund have been implemented, and it is believed that the City has saved money by doing so, staff has not yet developed a method for quantifying those savings. Once a method has been established, these actual numbers may be updated to reflect actual savings.
The Salinas Plan recommends that the City reinvest some of the savings from implementation of the Salinas Plan to fund the Productivity Bank. However, a method of funding the Productivity Bank was identified that did not require the use of General Fund revenues – as such the additional expenditure was not necessary.
In addition to the above, the implementation of the Salinas Plan has led to additional cost savings that were not specifically contemplated in the Report. For example, by enacting these and other measures to put the City on a sustainable fiscal path, the City was able to refinance some of its outstanding debt at lower interest rates, thus saving additional funds.
The Salinas Plan was originally presented in December of 2018. Since then, there have been major changes to the City’s financial outlook, and the world in general, over the last few years due to the COVID-19 pandemic. The City has experienced significant swings in revenues, state and federal assistance, and its expenditures, and other macroeconomic factors such as inflation, labor shortages, and supply chain disruptions cloud the long-term outlook. There is no certainty that the City’s fiscal picture will return to what it was before the pandemic – it is more likely that some sort of “new normal” will be established. It is therefore unlikely that the financial forecasts used to create the Salinas Plan will continue to be a useful gauge of the City’s actual structural budget deficit as the City gets further from the original presentation date.
Although the City currently faces a significant short-term budget surplus, it is improbable that the City’s long-term structural deficit has disappeared; in fact while the short-term outlook is clearly positive, this situation could change very rapidly in the future. It is essential that the City continue to find ways to address its structural budget deficit. Accordingly, staff will explore the possibility of performing an update to the Salinas Plan, which would look at how the pandemic has altered the City’s long-term liabilities and revisit many of the unaccomplished recommendations to determine whether they are in fact feasible and/or desirable. Staff will return at a later date with more information on the potential scope and costs of such an update.
CEQA CONSIDERATION:
The provision of this information to the City Council is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378).
STRATEGIC PLAN INITIATIVE:
The Salinas Plan furthers all Council Goals (Investment Strategies/Risk Management; New Revenue; Operational Efficiencies; Public Safety).
DEPARTMENTAL COORDINATION:
This information was compiled with the assistance of the Finance Department and other affected City Departments.
FISCAL AND SUSTAINABILITY IMPACT:
The fiscal impacts of implementation of the Salinas Plan are described throughout this Report.
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