Study Session
Agenda Item Staff Report
To: Honorable Mayor and Members of City Council
For the Meeting of May 14, 2024
From: Chris Constantin, City Manager
Prepared by: Michael O'Brien, Director of Administrative Services Subject: Discuss Options to Reduce the Deficit that was Proposed in the First Draft of the 2024-25 Fiscal Year Operating and Capital Improvement Program Budget. ____________________________________________________________________________
SUMMARY
Staff has prepared a deficit reduction plan document to be reviewed and considered by Council in order to provide direction on budget adjustments and remaining reserves.
Council direction will assist staff with finalizing the proposed 2024-25 fiscal year Operating and Capital Improvement Program Budget, with a proposed adoption date of June 11, 2024.
RECOMMENDATION
Staff recommends that that City Council direct staff to incorporate one of the following options:
• Option 1. Total operational reductions & additional revenue that would reduce the deficit by $882,136 keeping a 45% unassigned reserve and 108% total reserve balance. • Option 2. Necessitate further reductions of services from Option 1 that would total $1,122,466 keeping 46% unassigned reserves and 109% total reserve balance. • Option 3. Review all revenue enhancements and cost reduction options, direct staff on which options to move forward with.
FISCAL IMPACT
The draft budget that was presented at the April 23, 2024, study session proposed a $1,726,407 deficit that would result in an unassigned fund balance of 40% and a total fund balance of 101%.
Option 1 would reduce the deficit from $1,726,407 to $844,271, a 51% deficit reduction.
Discuss Options to Reduce Deficit Proposed in First Draft of Fiscal Year Budget. Page 2 For the Meeting of May 14, 2024
Option 2 would reduce the deficit from $1,726,407 to $603,941, a 65% deficit reduction.
BACKGROUND
Staff discussed the proposed budget with Council at the April 23rd, 2024, study session and presented a summary overview of options that could eliminate the proposed deficit, highlighting the potential impacts on service levels to the public and employee morale.
Council requested that staff present at a future study session, a more detailed description of the revenue enhancements and expenditure reductions in ranked order to assist Council in their decision making.
DISCUSSION/ANALYSIS
Council is asked to review the attached listing of revenue enhancements and expenditure reductions in order to direct staff with their preference for service offerings to the public that aligns with the city's available resources.
On May 1, 2024, Department heads met and discussed various reduction items and their proposed impacts on each department. A determination was made to identify the potential reductions based on the City Council request to order reductions, utilize the City‘s community survey and priorities to determine what should be considered, and to present a description of the items and their impact in the case of a reduction.
The items presented provide two options. The City Council can consider one of two options, or the City Council can review the specific list of reduction proposals to provide direction on alternatives for use in the final 2024-25 budget. We should note that in any situation where reductions are necessary, there are good reasons to not consider certain items or to rely more on use of reserves to avoid the cuts. However, given that a deficit may be ongoing, the City will be grappling with similar decision-making to align ongoing revenues with ongoing expenditures. rtunately, the City‘s fiscal prudence for the past number of years has allowed the City options in deciding how to adjust to the increasing costs of providing services. The City’s resilience efforts have
• Reduced the significant disconnect from the fees charged for services and the burden of taxpayers subsidizing activities which benefit individuals; • Utilized short-term and one-time resources from federal American Recovery Act to support a stable level of services rather than expanding ongoing programming only to face larger reductions in subsequent years;
• Funded future liabilities in the areas of lifecycle capital assets (i.e. prioritizing the funding of the City’s Capital Asset Reserve), compensated absences, and other postemployment benefits demonstrating recognition and planning in addressing future obligations; and • Building on more information from the public through the 2023 Community Survey to inform the City on how to prioritize City activities, whether increasing or decreasing services.
However, even with the prudent efforts undertaken by the City for years, the costs for providing services exceeds the revenue to support such activity. Additionally, as is the pattern in other cities, the cost of capital for streets, sidewalks, and public infrastructure is increasing at a much Discuss Options to Reduce Deficit Proposed in First Draft of Fiscal Year Budget. Page 3 For the Meeting of May 14, 2024
higher rate due to degradation in their condition and the costs being far more than the current revenue can annually support.
The City has invested heavily in larger road improvements, but funding cannot support the pace we currently have undertaken nor the significant backlog of capital that is needed in the future.
Over the next year or two, the City will need to take a harder look at the need for additional revenue options to maintain or enhance its ability to provide the quality and service level provided in the past to City residents. Other cities face the same dilemma and worse, so the City having taken a more measured and steady approach for more than a decade has at least put is in a much better position than other cities.
ALTERNATIVES
Council may choose an alternative direction than what is recommended in order to move towards adoption of the 2024-25 fiscal year Operating and Capital Improvement Program Budget.
ENVIRONMENTAL REVIEW
Pursuant to CEQA guidelines Section 15061 (b)(3), CEQA does not apply to this item because there is no potential for causing a significant effect on the environment. Therefore, no additional environmental review is needed at this time.
Respectfully submitted,
Michael O'Brien
Director of Administrative Services
Attachments:
1. Deficit Reduction Plan Listing