Agenda packet — San Luis Obispo City Council, January 17, 2023 (part 7 of 9)

CITY OF SAN LUIS OBISPO 3 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

ENVIRONMENTAL FACTORS POTENTIALLY AFFECTED
The environmental factors checked below would be potentially affected by this project, involving at least one impact that is a “Potentially Significant Impact” as indicated by the checklist on the following pages. ☐ Aesthetics ☐ Greenhouse Gas Emissions ☐ Public Services ☐
Agriculture and Forestry
Resources ☐ Hazards and Hazardous Materials ☐ Recreation ☐ Air Quality ☐ Hydrology and Water Quality ☐ Transportation ☐ Biological Resources ☐ Land Use and Planning ☐ Tribal Cultural Resources ☐ Cultural Resources ☐ Mineral Resources ☐ Utilities and Service Systems ☐ Energy ☐ Noise ☐ Wildfire
☐ Geology and Soils ☐ Population and Housing ☐
Mandatory Findings of
Significance

FISH AND WILDLIFE FEES
☐
The California Department of Fish and Wildlife has reviewed the CEQA document and written no effect determination request and has determined that the project will not have a potential effect on fish, wildlife, or habitat (see attached determination).
☐
The project has potential to impact fish and wildlife resources and shall be subject to the payment of Fish and Game fees pursuant to Section 711.4 of the California Fish and Game Code. This initial study has been circulated to the California Department of Fish and Wildlife for review and comment.

STATE CLEARINGHOUSE
☒
This environmental document must be submitted to the State Clearinghouse for review by one or more State agencies (e.g. Cal Trans, California Department of Fish and Wildlife, Department of Housing and Community Development). The public review period shall not be less than 30 days (CEQA Guidelines 15073(a)).

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CITY OF SAN LUIS OBISPO 5 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

EVALUATION OF ENVIRONMENTAL IMPACTS

1. A brief explanation is required for all answers except “No Impact” answers that are adequately supported by the information sources a lead agency cites in the parentheses following each question. A “No Impact” answer is adequately supported if the referenced information sources show that the impact simply does not apply to projects like the one involved (e.g. the project falls outside a fault rupture zone). A “No Impact” answer should be explained where it is based on project-specific factors as well as general standards (e.g. the project will not expose sensitive receptors to pollutants, based on a project-specific screening analysis).

2. All answers must take account of the whole action involved, including off-site as well as on-site, cumulative as well as project-level, indirect as well as direct, and construction as well as operational impacts.

3. Once the lead agency has determined that a particular physical impact may occur, then the checklist answers must indicate whether the impact is potentially significant, less than significant with mitigation, or less than significant. "Potentially Significant Impact' is appropriate if there is substantial evidence that an effect may be significant. If there are one or more "Potentially Significant Impact" entries when the determination is made, an EIR is required.

4. “Negative Declaration: Less Than Significant with Mitigation Incorporated” applies where the incorporation of mitigation measures has reduced an effect from "Potentially Significant Impact" to a "Less than Significant Impact." The lead agency must describe the mitigation measures, and briefly explain how they reduce the effect to a less than significant level (mitigation measures from Section 19, "Earlier Analysis," as described in (5) below, may be crossreferenced).

5. Earlier analysis may be used where, pursuant to the tiering, program EIR, or other CEQA process, an effect has been adequately analyzed in an earlier EIR or negative declaration (Section 15063 (c) (3) (D)). In this case, a brief discussion should identify the following:
a) Earlier Analysis Used. Identify and state where they are available for review. b) Impacts Adequately Addressed. Identify which effects from the above checklist were within the scope of and adequately analyzed in an earlier document pursuant to applicable legal standards, and state whether such effects were addressed by mitigation measures based on the earlier analysis. c) Mitigation Measures. For effects that are “Less than Significant with Mitigation Measures Incorporated,” describe the mitigation measures which were incorporated or refined from the earlier document and the extent to which they addressed site-specific conditions for the project.

6. Lead agencies are encouraged to incorporate into the checklist references to information sources for potential impacts (e.g. general plans, zoning ordinances). Reference to a previously prepared or outside document should, where appropriate, include a reference to the page or pages where the statement is substantiated.

7. Supporting Information Sources: A source list should be attached, and other sources used or individuals contacted should be cited in the discussion.

8. The explanation of each issue should identify:
a) the significance criteria or threshold, if any, used to evaluate each question; and b) the mitigation measure identified, if any, to reduce the impact to less than significance

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CITY OF SAN LUIS OBISPO 6 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

1. AESTHETICS
Except as provided in Public Resources Code Section 21099, would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Have a substantial adverse effect on a scenic vista? 1 ☐ ☐ ☒ ☐ b) Substantially damage scenic resources, including, but not limited to, trees, rock outcroppings, open space, and historic buildings within a local or state scenic highway?
1 ☐ ☐ ☒ ☐
c) In non-urbanized areas, substantially degrade the existing visual character or quality of public views of the site and its surroundings? (Public views are those that are experienced from publicly accessible vantage point). If the project is in an urbanized area, would the project conflict with applicable zoning and other regulations governing scenic quality?
1 ☐ ☐ ☒ ☐
d) Create a new source of substantial light or glare which would adversely affect day or nighttime views in the area? 1 ☐ ☐ ☒ ☐ Evaluation
a), b), c), d) The city combines a compact urban form in a rural setting and does not have one character, but several, transitioning from urban in its Downtown Core to more suburban along the edges. The city includes public views of many scenic features, such as The Morros, Santa Lucia Mountains, Irish Hills, Laguna Lake, creeks, and open space and agricultural fields surrounding the city (Land Use and Circulation Element [LUCE] FEIR Table 4.1-2). A total of 20 roadway segments in the city are identified as scenic corridors in the Circulation Element and Conservation and Open Space Element (COSE), as either High or Moderate Value (LUCE FEIR Table 4.1-1). Examples of scenic corridors include segments of U.S. Highway 101, South Higuera Street, Broad Street, Tank Farm Road, and Johnson Avenue.

Implementation of the CASE would result in minor physical changes to the visual aesthetic of the city. For example, CASE Policy 2.1 regarding climate-informed flood management would increase the installation of green infrastructure improvements to manage stormwater runoff, including rain gardens, bioswales, detention basins, permeable parking lots, and permeable pavements. The features would typically be installed in the place of gray infrastructure such as gutters, drains, pipes, and ditches, and therefore would not adversely affect the visual character of affected areas in the city.

Interior building improvements would not affect visual character or the city’s aesthetic, while exterior building and site improvements, such as new trees, HVAC systems, reflective roofing, and solar carports, are often visible from adjacent properties, and depending on their placement, could obstruct line of sight or create glare that changes existing views.

Implementation of CASE Policy 4.6 would also result in installation of access roads, where feasible, to ensure adequate access for emergency equipment and civilian evacuation during wildfires. New access roads can change existing visual character of an area, for example by adding an element of developed infrastructure to an otherwise natural or undeveloped area, can add new sources of light to an area, for example from streetlights or vehicle headlights.

However, existing General Plan policies and programs protecting aesthetic resources and visual character would prevent implementation of the CASE from impeding or blocking public views of scenic features, including from scenic corridors;

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CITY OF SAN LUIS OBISPO 7 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 degrading the existing visual character of any of the city’s many different communities; and adversely affecting day or nighttime views due to creating sources of substantial light or glare. Examples of these policies include but are not limited to 1.7.1 regarding protection of open space and agricultural land from development, Circulation Element Policy 15.1.2 regarding the preservation and improvement of views of scenic resources from roadways, Circulation Element Policy 15.03 regarding placement of public equipment and facilities to avoid harming the visual quality of scenic highways or blocking views from scenic routes with trees, Conservation and Open Space Element Policy 9.1.1 regarding preservation and maintenance of existing natural and agricultural landscapes, Conservation and Open Space Element Policy 9.1.4 regarding creation of scenic parkways along new or significantly modified major roadways, Conservation and Open Space Element Policy 9.2.1 protecting views from public places including scenic roadways, and Conservation and Open Space Element Policy 9.2.3 establishing limits on outdoor lighting. Municipal Code Section 17.76.100.B requires that all exterior mechanical and electrical equipment, such as air conditioners, heaters, and utility meters be screened from view so as not to be visible from the public right-of-way or adjacent residential zones. The CASE does not include any policies or programs that could conflict with zoning or other regulations governing scenic quality in urbanized areas of the city.

In addition, Title 17 of the City’s Municipal Code (Zoning Ordinance), includes standards preventing the creation of new sources of substantial light or glare, including prohibitions on creating glare (for example from reflective roofing) that creates a hazard or a nuisance on another property (Section 17.74.080) and outdoor lighting regulations protecting against degradation of the nighttime visual environment (Section 17.70.100).

Conclusion
Less than significant impact.

2. AGRICULTURE AND FORESTRY RESOURCES
In determining whether impacts to agricultural resources are significant environmental effects, lead agencies may refer to the California Agricultural Land Evaluation and Site Assessment Model (1997) prepared by the California Dept. of Conservation as an optional model to use in assessing impacts on agriculture and farmland. In determining whether impacts to forest resources, including timberland, are significant environmental effects, lead agencies may refer to information compiled by the California Department of Forestry and Fire Protection regarding the state’s inventory of forest land, including the Forest and Range Assessment Project and the Forest Legacy Assessment project; and forest carbon measurement methodology provided in Forest Protocols adopted by the California Air Resources Board. Would the project: Sources Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Convert Prime Farmland, Unique Farmland, or Farmland of Statewide Importance (Farmland), as shown on the maps
prepared pursuant to the Farmland Mapping and Monitoring Program of the California Resources Agency, to nonagricultural use? 1 ☐ ☐ ☒ ☐
b) Conflict with existing zoning for agricultural use, or a Williamson Act contract? 1, 2 ☐ ☐ ☒ ☐
c) Conflict with existing zoning for, or cause rezoning of, forest land (as defined in Public Resources Code section 12220(g)), timberland (as defined by Public Resources Code section 4526), or timberland zoned Timberland Production (as defined by Government Code section 51104(g))?
1, 3 ☐ ☐ ☐ ☒
d) Result in the loss of forest land or conversion of forest land to non-forest use? 1, 3 ☐ ☐ ☐ ☒

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CITY OF SAN LUIS OBISPO 8 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 e) Involve other changes in the existing environment which, due to their location or nature, could result in conversion of Farmland, to non-agricultural use or conversion of forest land to non-forest use?
1 ☐ ☐ ☒ ☐
Evaluation
a), b), c), d), e) The City of San Luis Obispo (SLO) is in the central portion of the County's agricultural region. The city is, for the most part, urbanized with only a few small areas still engaged in agricultural production limited to areas zoned in the city as Open Space. Two key areas within and adjacent to the city contain prime soils, including the San Luis Ranch property and portions of the Airport Area Specific Plan, notably an area just north of Tank Farm Road designated for Services and Manufacturing, as well as a large area in the center of the Plan Area south of Tank Farm Road designated as Public land (FEIR Figure 4.2-2). SLO City Farm is approximately 25 acres and located off of Highway 101 and Calle Joaquin Road. Properties zoned for agriculture are located near the southern and northwestern limits of the city, and there are no properties within city limits under Williamson Act contracts. No forest or timberland resources are located in the city.

Implementation of the CASE would result in minor physical changes to the city. For example, CASE Policy 2.1 regarding climate-informed flood management would increase the installation of green infrastructure improvements to manage stormwater runoff, including rain gardens, bioswales, detention basins, permeable parking lots, and permeable pavements. The features would typically be installed in the place of gray infrastructure such as gutters, drains, pipes, and ditches to manage runoff volumes generated by urban development. CASE Policies 3.2 and 3.3 regarding the city’s urban tree canopy and strategy to mitigate urban heat island effect would increase the number of trees planted and maintained in the city, and also increase the use of building and site design techniques that address urban heat island effect, including reflective roofing and placement of solar carports over surface parking lots. In addition, CASE Policy 3.5, which directs the City to update its building retrofit program to incorporate improvements that increase resilience to extreme heat events and wildfire risk, such as HVAC-systems, air filtration systems, weatherization and energy efficiency improvements, and home hardening against wildfire, would result in physical improvements to the interiors and exteriors of buildings in the city. The aforementioned improvements to building interiors and exteriors, and to sites developed with buildings and other urban uses (e.g., parking lots) would not have potential to adversely affect agricultural or forestry resources because they would not occur in areas where such sensitive resources are present..

Implementation of CASE Policy 4.6 would also result in installation of access roads, where feasible, to ensure adequate access for emergency equipment and civilian evacuation during wildfires. Depending on the location, installation of access roads can involve ground disturbing activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or all-weather surfaces. New access roads, if installed, would link existing residential developments in the city to the existing circulation network to facilitate emergency access and evacuation during emergencies. As a result, they would occur in existing developed areas of the city and are not anticipated to convert important farmlands to non-agricultural use or conflict with existing zoning for agricultural use, or result in indirect or edge effects to agricultural resources. Furthermore, Land Use Element Policy 1.7.1 directs the City to protect prime agricultural land, productive agricultural land, and potentially productive agricultural land within the Urban Reserve and city limits for farming, and permanently protect undeveloped prime agricultural land as open space. Therefore, the installation of emergency access roads would not adversely affect agricultural resources.

Conclusion
Less than significant impact.

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CITY OF SAN LUIS OBISPO 9 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

3. AIR QUALITY
Where available, the significance criteria established by the applicable air quality management district or air pollution control district may be relied upon to make the following determinations.

Would the project: Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Conflict with or obstruct implementation of the applicable air quality plan? 1, 4 ☐ ☐ ☒ ☐
b) Result in a cumulatively considerable net increase of any criteria pollutant for which the project region is non-attainment under an applicable federal or state ambient air quality standard? 1, 4 ☐ ☐ ☒ ☐
c) Expose sensitive receptors to substantial pollutant
concentrations? 1 ☐ ☐ ☒ ☐
d) Result in other emissions (such as those leading to odors) adversely affecting a substantial number of people? 1 ☐ ☐ ☒ ☐ Evaluation
a), b), c), d) The project site is located in the South Central Coast Air Basin (the basin), which includes San Luis Obispo, Santa Barbara, and Ventura Counties. The project site is under the jurisdiction of the San Luis Obispo County Air Pollution Control District (SLOCAPCD), which is required to monitor air pollutant levels to ensure that state and federal air quality standards are met and, if they are not met (“non-attainment”), to develop strategies to meet the standards. Air districts are required to prepare a plan for air quality improvement for pollutants for which the district is in non-attainment. San Luis Obispo County is designated as non-attainment for State standards for particulate matter (PM10) and ozone, and non-attainment for the federal ozone standard (for Eastern SLO County only) (SLOCAPCD 2019). San Luis Obispo County is designated as attainment or unclassified for all other federal and state standards.

In March 2002, SLOCAPCD adopted the 2001 Clean Air Plan, and in 2015 adopted a Particulate Matter Report with control measures for particulate matter. SLOCAPCD also adopted an Ozone Emergency Episode Plan in 2019, in compliance with the Federal Clean Air Act, in order to provide the basis for taking actions when ambient ozone concentrations reach a level that could endanger public health in San Luis Obispo County.

Implementation of the CASE would result in the construction of smaller-scale physical improvements within the city, which would involve use of vehicles and operation of equipment that would generate criteria air pollutant emissions and toxic air contaminants (TACs) like diesel PM that, depending on the concentration and duration of exposure, are harmful to human health.

For example, CASE Policies 3.2 and 3.3 to increase the number of trees planted and maintained in the city would involve minor operation of small pieces of construction equipment (e.g., digging holes, trimming established trees). CASE Policies 2.1 and 3.5 would also involve small-scale construction operations generating minor air pollutant emissions, such as installation of solar carports and green infrastructure improvements like bioswales or permeable pavement. Installation of access routes as called for in CASE Policy 4.6 would involve construction activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or all-weather surfaces.

Overall, implementation of the CASE would not result in large-scale construction activities, such as new housing, commercial, or institutional developments, or major infrastructure improvements, which are capable of generating substantial emissions of non-attainment pollutants (i.e., PM10, or ozone precursors ROG and NOx) or exposing people to substantial concentrations of TAC emissions over temporary, short-term periods. It also would not meaningfully increase air pollutant emissions over the long-term, because it would not substantially increase air pollutant emissions from vehicles traveling within, and to and from, the city, or from areawide sources like consumer products, stationary sources like power plants, or sources of TAC emissions like freeways, railyards, gas stations, or distribution centers. Implementation of the CASE would not interfere with implementation of the Clean Air Plan, control measures of the Particulate Matter Report, or Ozone Emergency Episode Plan, because it would not alter the growth projections for the city on which these applicable air quality plans are based.

Conclusion
Less than significant impact.

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CITY OF SAN LUIS OBISPO 10 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

4. BIOLOGICAL RESOURCES
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Have a substantial adverse effect, either directly or through habitat modifications, on any species identified as a candidate, sensitive, or special status species in local or regional plans, policies, or regulations, or by the California Department of Fish and Game or U.S. Fish and Wildlife Service?
1 ☐ ☐ ☒ ☐
b) Have a substantial adverse effect on any riparian habitat or other sensitive natural community identified in local or regional plans, policies, regulations, or by the California Department of Fish and Game or U.S. Fish and Wildlife Service?
1 ☐ ☐ ☒ ☐
c) Have a substantial adverse effect on state or federally protected wetlands (including, but not limited to, marsh, vernal pool, coastal, etc.) through direct removal, filling, hydrological interruption, or other means?
1 ☐ ☐ ☒ ☐
d) Interfere substantially with the movement of any native resident or migratory fish or wildlife species or with established native resident or migratory wildlife corridors, or impede the use of native wildlife nursery sites?
1 ☐ ☐ ☒ ☐
e) Conflict with any local policies or ordinances protecting biological resources, such as a tree preservation policy or ordinance?
1 ☐ ☐ ☒ ☐
f) Conflict with the provisions of an adopted Habitat Conservation Plan, Natural Community Conservation Plan, or other approved local, regional, or state habitat conservation plan?
1 ☐ ☐ ☒ ☐
Evaluation
a), b), c), d), e), f) A variety of natural wetland and upland habitat types and associated plant communities are present within the city limits and support a diverse array of native plants and resident, migratory, and locally nomadic wildlife species, some of which are considered as rare, threatened, or endangered species (FEIR Table 4.4-1). The vast majority of natural and native habitats are located in the City’s Sphere of Influence (SOI) and outside of the city limits. San Luis Obispo, Stenner, Prefumo, and Brizzolara Creeks, and numerous tributary channels pass through the city, providing important riparian habitat and migration corridors connecting urbanized areas to less‐developed habitats in the SOI surrounding the city limits.

Several special status habitat types, and special‐status plant and wildlife species are known to occur in the City’s SOI, including recorded occurrences of 30 special status plant species, 20 special status wildlife species, and four natural communities of special concern (FEIR Tables 4.4-2 and 4.4-3). The City has adopted several open space conservation plans to protect areas of the city containing habitat for special status plant and wildfire species, including Bishop Peak, Cerro San Luis, South Hills, Johnson Ranch, Laguna Lake, Stenner Springs, Miossi Open Space, Irish Hills, Terrace Hill, Reservoir Canyon, and the Agricultural Master Plan for Calle Joaquin Reserve. The City’s Tree Regulations (Municipal Code Chapter 12.24) address the installation, maintenance, and preservation of trees within the city. The City discourages the removal of healthy trees that present no threat to people or property and, with certain exceptions, does not permit tree removals unless a tree removal permit has been issued (Municipal Code Section 12.24.090). The Municipal Code also sets forth setback requirements for all creeks defined in the General Plan Conservation and Open Space Element, which generally prohibit development and related improvements within 20 to 50 feet of creeks (Section 17.70.030).

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CITY OF SAN LUIS OBISPO 11 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 Implementation of the CASE would result in minor physical changes to the city. For example, CASE Policy 2.1 regarding climate-informed flood management would increase the installation of green infrastructure improvements to manage stormwater runoff, including rain gardens, bioswales, detention basins, permeable parking lots, and permeable pavements. The features would typically be installed in the place of gray infrastructure such as gutters, drains, pipes, and ditches to manage runoff volumes generated by urban development.

CASE Policies 3.2 and 3.3 regarding the city’s urban tree canopy and strategy to mitigate urban heat island effect would increase the number of trees planted and maintained in the city, and also increase the use of building and site design techniques that address urban heat island effect, including reflective roofing and placement of solar carports over surface parking lots. In addition, CASE Policy 3.5, which directs the City to update its building retrofit program to incorporate improvements that increase resilience to extreme heat events and wildfire risk, such as HVAC-systems, air filtration systems, weatherization and energy efficiency improvements, and home hardening against wildfire, would result in physical improvements to the interiors and exteriors of buildings in the city. The aforementioned improvements to building interiors and exteriors, and to sites developed with buildings and other urban or suburban uses (e.g., parking lots) would not have potential to adversely affect biological resources because they would be limited to developed, disturbed areas that do not contain sensitive species or habitats or other biological resources.

Implementation of CASE Policy 4.6 would also result in installation of access roads, where feasible, to ensure adequate access for emergency equipment and civilian evacuation during wildfires. Depending on the location, installation of access roads can involve ground disturbing activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or all-weather surfaces. New access roads, if installed, would link existing residential developments in the city to the existing circulation network to facilitate emergency access and evacuation during emergencies. As a result, they would occur in existing developed areas of the city and are not anticipated to result in the loss of habitat for sensitive plant or animal species, including creeks and habitat protected by an adopted open space conservation plan. Further, existing policies of the General Plan Conservation and Open Space Element, including Policies 7.3.1, 7.3.2, 7.3.3, 7.5.4, 7.7.1, 7.7.4, 7.7.8, and 8.3.2, and City’s creek setback regulations, require that the City protect sensitive plant and wildlife species, wetland and upland habitat types, wildlife and habitat corridors and creeks from development and human activities, including the location, design, and maintenance of City roads, including emergency access roads. Conservation and Open Space Element Policy 7.5.1 requires that significant trees making substantial contributions to natural habitat or to the urban landscape shall be protected and any removal will be subject to specific criteria and mitigation requirements. For these reasons, the implementation of CASE policies and programs also would not damage or result in loss of trees protected by the Tree Ordinance, or habitats protected by adopted open space conservation plans.

Conclusion
Less than significant impact.

5. CULTURAL RESOURCES
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Cause a substantial adverse change in the significance of a historic resource pursuant to §15064.5?
1 ☐ ☐ ☒ ☐
b) Cause a substantial adverse change in the significance of an archaeological resource pursuant to §15064.5?
1 ☐ ☐ ☒ ☐
c) Disturb any human remains, including those interred outside of formal cemeteries? 1 ☐ ☐ ☒ ☐

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CITY OF SAN LUIS OBISPO 12 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 Evaluation
a), b), c) Archaeological evidence demonstrates that Native American groups (including the Chumash) have occupied the Central Coast for at least 10,000 years, and that Native American use of the central coast region may have begun during the late Pleistocene, as early as 9000 B.C., demonstrating that historical resources began their accumulation on the central coast during the prehistoric era. The City is located within the area historically occupied by the Obispeño Chumash, the northernmost of the Chumash people of California. The City contains numerous historic resources, including five historic districts, several historic properties, as well as potentially significant historic and prehistoric sites. Burial points and burial sensitivity areas are also located in the city.

Implementation of the CASE would result in minor physical changes to the city. For example, CASE Policy 2.1 regarding climate-informed flood management would increase the installation of green infrastructure improvements to manage stormwater runoff, including rain gardens, bioswales, detention basins, permeable parking lots, and permeable pavements. The features would typically be installed in the place of gray infrastructure such as gutters, drains, pipes, and ditches to manage runoff volumes generated by urban development. CASE Policies 3.2 and 3.3 regarding the city’s urban tree canopy and strategy to mitigate urban heat island effect would increase the number of trees planted and maintained in the city, and also increase the use of building and site design techniques that address urban heat island effect, including reflective roofing and placement of solar carports over surface parking lots. In addition, CASE Policy 3.5, which directs the City to update its building retrofit program to incorporate improvements that increase resilience to extreme heat events and wildfire risk, such as HVAC-systems, air filtration systems, weatherization and energy efficiency improvements, and home hardening against wildfire, would result in physical improvements to the interiors and exteriors of buildings in the city. These types of improvements could occur at designated historic properties, within historic districts, or in areas where archaeological resources may be present or with high sensitivity for human burials. Because these types of improvements can involve minor ground disturbance (e.g., excavation to install stormwater improvements) or changes to building and site design (e.g., solar carports, reflective roofing), there is potential for archaeological resources to be encountered or historic properties or districts to be altered.

In addition, implementation of CASE Policy 4.6 would result in installation of access roads, where feasible, to ensure adequate access for emergency equipment and civilian evacuation during wildfires. New access roads, if installed, would link existing residential developments in the city to the existing circulation network to facilitate emergency access and evacuation during emergencies. Depending on the location, installation of access roads can involve ground disturbing activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or all-weather surfaces, during which archaeological resources could be encountered.

Existing regulatory requirements, including the National Historic Preservation Act, the City’s Historic Preservation Ordinance, Historic Program Preservation Guidelines, and Archaeological Resource Preservation Program Guidelines, the federal Archaeological Resources Protection Act and Native American Graves Protection and Repatriation Act, California Health and Safety Code Section 7050.5 regarding disturbance of human remains, as well as existing Conservation and Open Space Element policies and programs set forth procedures protecting historic properties and districts, and unique archaeological resources from substantial adverse changes (e.g., 3.2, 3.3.1, 3.3.2, 3.3.3, 3.3.4, 3.3.5, 3.5.1 through 3.5-12, and 3.6.1 through 3.6-10). Building and site improvements resulting from CASE policies and programs would not be allowed to adversely affect the integrity of an historic property or district, and any potential resources or human remains encountered during ground-disturbing activities would be protected, reviewed, and handled in accordance with federal and State laws and local requirements. Therefore, implementation of the CASE would not result in substantial adverse changes to historic or archaeological resources or disturbance to human remains.

Conclusion
Less than significant impact.

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CITY OF SAN LUIS OBISPO 13 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

6. ENERGY
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Result in potentially significant environmental impact due to wasteful, inefficient, or unnecessary consumption of energy resources, during project construction or operation?
1 ☐ ☐ ☒ ☐
b) Conflict with or obstruct a state or local plan for renewable energy or energy efficiency? 1, 7 ☐ ☐ ☒ ☐
Evaluation
a), b) Implementation of the CASE would result in the construction of smaller-scale physical improvements within the city, which would involve use of vehicles and operation of equipment that would consume energy, including diesel and gasoline fuel and electricity. For example, CASE Policies 3.2 and 3.3 to increase the number of trees planted and maintained in the city would involve minor operation of small pieces of construction equipment (e.g., digging holes, trimming established trees). CASE Policies 2.1 and 3.5 would also involve small-scale construction operations, such as installation of solar carports and green infrastructure improvements like bioswales or permeable pavement. Installation of access routes as called for in CASE Policy

4.6 would involve construction activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or all-weather surfaces.

Overall, implementation of the CASE would not result in large-scale construction activities, such as new housing, commercial, or institutional developments, or major infrastructure improvements, which involves substantial consumption of energy resources over temporary, short-term periods. It also would not meaningfully increase energy consumption over the long-term, because it would not, for example, substantially increase the amount of vehicle travel within, and to and from, the city, or energy consumed by existing or new buildings in the city. In fact, the CASE would support increased use of renewable energy sources (e.g., through installation of solar carports under CASE Policy 2.1) and more efficient use of energy (e.g., through reflective roofing, planting of shade trees, and other features to mitigate the urban heat island effect under CASE Policies 3.2, 3.3, and 3.5).

Therefore, implementation of the CASE would not involve wasteful, inefficient, or unnecessary consumption of energy resources, because it would support increased use of renewable energy resources and more efficient use of energy. It would further, and not conflict or interfere with, State and local plans for renewable energy and energy efficiency, including the City’s Climate Action Plan for Community Recovery (CAP), which identifies strategies and policies to increase use of cleaner and renewable energy resources including renewable energy financing options, incentivizing renewable energy generation in new and existing developments, and increasing community awareness of renewable energy programs. Refer to Section 8, Greenhouse Gas Emissions, for analysis of the CASE for potential conflicts with the City’s CAP.

Conclusion
Less than significant impact.

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CITY OF SAN LUIS OBISPO 14 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

7. GEOLOGY AND SOILS
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
c) Directly or indirectly cause potential substantial adverse effects, including the risk of loss, injury or death involving:
i. Rupture of a known earthquake fault, as delineated on the most recent Alquist-Priolo Earthquake Fault Zoning Map
issued by the State Geologist for the area or based on other substantial evidence of a known fault? Refer to Division of Mines and Geology Special Publication 42.
1 ☐ ☐ ☒ ☐
ii. Strong seismic ground shaking? 1 ☐ ☐ ☒ ☐
iii. Seismic-related ground failure, including liquefaction? 1 ☐ ☐ ☒ ☐ iv. Landslides? 1 ☐ ☐ ☒ ☐
d) Result in substantial soil erosion or the loss of topsoil? 1 ☐ ☐ ☒ ☐ e) Be located on a geologic unit or soil that is unstable, or that would become unstable as a result of the project, and potentially result in on- or off-site landslide, lateral spreading, subsidence, liquefaction or collapse?
1 ☐ ☐ ☒ ☐
f) Be located on expansive soil, as defined in Table 1802.3.2 of the California Building Code (2013), creating substantial direct or indirect risks to life or property?
1 ☐ ☐ ☒ ☐
g) Have soils incapable of adequately supporting the use of septic tanks or alternative waste water disposal systems where sewers are not available for the disposal of waste water?
1 ☐ ☐ ☐ ☒
h) Directly or indirectly destroy a unique paleontological resource or site or unique geologic feature? 1 ☐ ☐ ☒ ☐
Evaluation
a), b), c), d) As described in the CASE, the city is located in a geologically complex and seismically active region. Seismic conditions have the potential to result in significant harm to people and property. Some fault locations and characteristics have been identified; however, recent earthquakes in California have shown that not all active faults are revealed by surface features.

The CASE establishes Policies 5.1, 5.2, and 5.3 intended to protect people and property from the direct effects of an earthquake:
rupture of the ground surface along a fault, and ground shaking that results from fault movement, as well as other hazards associated with earthquakes: settlement, liquefaction, landslide, collapse of structures. In addition, CASE implementation would not result in the development of any habitable structures that could expose people or property to geologic hazards. Small-scale construction activity associated with implementation of CASE policies, such as installation of solar carports, green stormwater infrastructure improvements, and emergency access roads, would be conducted in accordance with California Building Code requirements and site-specific recommendations of geotechnical studies and therefore not result in substantial risks to people or property.
e) Implementation of the CASE would not involve development or activities that result in new or increased use of septic tanks or alternative waste water systems.
f) The only fossil resources likely to occur in the city limits and SOI are of Quaternary (Pleistocene) age. The Quaternary is the most recent of the three Periods of the Cenozoic Era in the geologic time scale. It follows the Tertiary Period, spanning from about 2,588,000 years ago to the present. The Quaternary includes two geologic epochs: the older Pleistocene‐‐ sometimes known as the "Ice Ages"‐‐ and the younger Holocene, which began approximately 10,000 ybp (years before present). The small-scale

Page 812 of 1071 ends

CITY OF SAN LUIS OBISPO 15 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 construction activity associated with implementation of CASE policies, such as installation of solar carports, green stormwater infrastructure improvements, and emergency access roads, would occur in existing developed areas of the city and also be unlikely to involve subsurface disturbance at a depth where paleontological resources could be encountered. In the unlikely event that such a construction activity could encounter paleontological resources, relevant criteria from the City’s Archeological Resource Preservation Program Guidelines would be followed, including mandatory completion of a Phase 1 study to determine the likelihood of resource discovery during construction, and implementation of protective measures to avoid destroying unique paleontological resources or site. Conservation and Open Space Element Policy 8.3.2 requires buffers between development and scenic rock outcrops and other significant geological features. Therefore, implementation of the CASE would not result in the destruction of a unique geologic feature.

Conclusion
Less than significant impact.

8. GREENHOUSE GAS EMISSIONS
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Generate greenhouse gas emissions, either directly or indirectly, that may have a significant impact on the environment? 1, 7 ☐ ☐ ☒ ☐ b) Conflict with an applicable plan, policy or regulation adopted for the purpose of reducing the emissions of greenhouse gases? 1, 7 ☐ ☐ ☒ ☐ Evaluation
a), b) The City’s CAP strives to achieve an approximately 43 percent reduction in communitywide greenhouse gas (GHG) emissions below 1990 levels by 2030 and an approximately 66 percent reduction in communitywide GHG emissions below 1990 levels by 2035. The CAP strives to achieve these reductions through implementation of measures that reduce natural gas use in buildings, increase the amount of electricity procured from zero-carbon sources, increase the use of low- and zero emission vehicles, reduce vehicle miles of travel, and decrease GHG emissions resulting from consumption of water and disposal of solid waste.

For example, CASE Policies 3.2 and 3.3 to increase the number of trees planted and maintained in the city would involve minor operation of small pieces of construction equipment (e.g., digging holes, trimming established trees). CASE Policies 2.1 and 3.5 would also involve small-scale construction operations, such as installation of solar carports and green infrastructure improvements like bioswales or permeable pavement. Installation of access routes as called for in CASE Policy 4.6 would involve construction activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or allweather surfaces.

Overall, implementation of the CASE would not result in large-scale construction activities, such as new housing, commercial, or institutional developments, or major infrastructure improvements, which generate substantial amounts of GHG emissions. It also would not meaningfully increase the amount of GHG emissions generated in the city over the long-term, because it would not, for example, substantially increase the amount of vehicle travel within, and to and from, the city, or energy consumed by existing or new buildings in the city. In fact, the CASE would support increased use of renewable energy sources (e.g., through installation of solar carports under CASE Policy 2.1) and more efficient use of energy (e.g., through reflective roofing, planting of shade trees, and other features to mitigate the urban heat island effect under CASE Policies 3.2, 3.3, and 3.5), which would contribute to the reductions in annual GHG emissions achieved by CAP implementation. Therefore, GHG emissions generated due to implementation of the CASE would not have a significant impact on the environment., In addition, as shown in Table 8- 1, the CASE would not conflict with, and would support, implementation of GHG reduction measures in the City’s adopted CAP.

Page 813 of 1071 ends

CITY OF SAN LUIS OBISPO 16 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 Table 8-1. Analysis of Potential for Conflicts Between the Community Safety & Resilience Element and the Climate Action Plan for Community Recovery
CAP Foundational Actions Analysis
Leadership 1.1 – Adopt a municipal carbon
neutrality plan in 2021.

The CASE would not conflict with the municipal carbon neutrality plan. It directly calls to continue support for the City’s Carbon Neutral City Facilities Plan.

Leadership 2.1 – Include carbon neutrality,
social equity, and a focus on developing a green
local economy in the updated Economic
Development Strategic Plan.

The CASE would not conflict with including carbon neutrality, social equity, and a focus on developing a green local economy in the Economic Development Strategic Plan. It supports this action because it calls for policies and programs that increase energy efficiency and reduce greenhouse gas emissions, improve equity and environmental justice, and diversify the City’s economy to avoid overreliance on economic sectors that are vulnerable to climate impacts.

Leadership 2.2 – Research methods to support
local contractors and labor.

The CASE would not interfere with research methods to support local contractors and labor because it does not address this topic.

Leadership 3.1 – Create a formal approach to
support and empower community collaboration
for climate action.

The CASE would not conflict with creating a formal approach to support and empower community collaboration for climate action. It broadly supports this action by calling to develop and administer a Community Resilience Enterprise Fund that provides micro-grants to implement projects that support social cohesion as it relates to climate change impacts and disaster recovery. The CASE also calls for integrating regional collaboration as a key component of the City’s climate adaptation planning strategy and for continued participation in the Central Coast Climate Collaborative.

Energy 1.1 – Launch Monterey Bay Community
Power and achieve a 98% participation rate
while advocating for programs that support
equity and achieve maximum local benefit.

The CASE would not conflict with the launch of Monterey Bay Community Power and the achievement of a 98% participation rate because it does not address this topic directly. The CASE also supports advocating for programs that support equity and achieve maximum local benefit because it promotes the inclusion of equity and justice in all policies and programs.

Energy 2.1 – Work with MBCP and PG&E to
develop a regional grid reliability strategy.

The CASE would not conflict with working with MBCP and PG&E to develop a regional grid reliability strategy. It supports this action by calling to seek funding sources from PG&E’s Community Microgrid Enablement Program (CMEP) to conduct a potential feasibility study for developing a clean energy microgrid for key City facilities to provide clean back-up power during utility disruptions. It also calls to develop a streamlined permitting process and proactively provide information on funding sources and financing options for the installation of battery storage systems.

Energy 3.1 – Partner with SoCal Gas to research
options for reducing greenhouse gas emissions
associated with the existing natural gas grid.

The CASE would not interfere with partnering with SoCal Gas to research options for reducing greenhouse gas emissions associated with the existing natural gas grid because it does not address this topic.

Connected 1.2 – Research and develop an
approach to a “Mobility as a Service” platform
for people to easily use all modes of low carbon
mobility in the City.

The CASE would not interfere with research and development of a “Mobility as a Service” platform because it does not address this topic.

Connected 2.1 – Complete Active
Transportation plan and begin implementation
immediately.

The CASE would not interfere with completing and implementing an Active Transportation plan because it does not address this topic.

Connected 2.2 – Launch micro mobility
program by 2021.

The CASE would not interfere with launching a micro mobility program because it does not address this topic.

Connected 3.1 – Establish a policy and strategic
approach to leveraging existing and new
parking garages for downtown residential and
visitor serving uses and to allow for further
implementation of the Downtown Concept Plan.

The CASE would not interfere with establishing a policy and strategic approach to leveraging existing and new parking garages for downtown residential and visitor serving uses and allowing further implementation of the Downtown Concept Plan because it does not address this topic.

Page 814 of 1071 ends

CITY OF SAN LUIS OBISPO 17 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 Connected 4.1 – Develop transit electrification
strategic plan and begin implementing in 2020.

The CASE would not interfere with the development and implementation of a transit electrification strategic plan because it does not address this topic.

Connected 4.2 – Shorten transit headways
through accelerated implementation of the
existing Short-Range Transit Plan.

The CASE would not interfere with shortening transit headways through accelerated implementation of the existing Short-Range Transit Plan because it does not address this topic.

Connected 4.3 – Explore additional innovative
transit options in the 2022 Short-Range Transit
Plan (e.g., on-demand deviated routes, electric
fleet expansion, micro transit, Bus Rapid
Transit, Transit Signal Priority)
The CASE would not interfere with exploring additional innovative transit options in the 2022 Short-Range transit Plan because it does not address this topic.

Connected 4.4 – Assess feasibility of a “free to
the user” transit ridership program.

The CASE would not interfere with assessing the feasibility of a “free to the user” transit ridership program because it does not address this topic.

Connected 5.1 – Complete the 2019-21 Housing
Element of the General Plan Update and
Flexible Zoning Requirements for Downtown.

The CASE would not interfere with completing the 2019-21 Housing Element of the General Plan Update and Flexible Zoning Requirements for Downtown because it does not address this topic.

Connected 6.1 – Develop and begin
implementing electric mobility plan to achieve a
goal of 40 percent electric vehicle miles traveled
(VMT) by 2035.

The CASE would not interfere with the development and implementation of an electric mobility plan because it does not address this topic.

Circular Economy 1.1 – Adopt an ordinance
requiring organic waste subscription for all
residential and commercial customers by 2022.

The CASE would not conflict with the adoption of an ordinance requiring organic waste subscription for all residential and commercial customers. It supports this action because it calls for program implementation of Senate Bill 1383 to reduce food waste and associated greenhouse gas emissions.

Circular Economy 1.2 – Develop and implement
programs to increase edible food rescue by 20
percent.

The CASE would not conflict with the development and implementation of programs to increase edible food rescue by 20 percent. It supports this action because it calls for partnerships with community organizations to address food insecurity and opportunities to support food recovery efforts as part of implementation of Senate Bill 1383 to reduce food waste and associated greenhouse gas emissions.

Circular Economy 1.3 – Develop and implement
a waste stream education program for
HOA/Property Managers and the commercial
sector.

The CASE would not interfere with the development and implementation of a waste stream education program for HOA/Property Managers and the commercial sector because it does not address this topic.

Circular Economy 2.1 – Update the Municipal
Code solid waste section and bin enclosure
standards.

The CASE would not interfere with updating the Municipal Code solid waste section and bin enclosure standards because it does not address this topic.

Circular Economy 2.2 – Develop and expand
funding for a Solid Waste section in the Utilities
Department
The CASE would not interfere with the development and expansion of funding for a Solid Waste section in the Utilities Department because it does not address this topic.

Natural Solutions 1.1 – Conduct Carbon
Farming Study and Pilot Project in 2021. If
feasible, begin implementation by 2023.

The CASE would not conflict with conducting a Carbon Farming Study and Pilot Project. It broadly supports this action by calling for sustainable flood management and open space programs that achieve multiple benefits, including land conservation carbon farming.

Natural Solutions 2.1 – Prepare the City’s first
Urban Forest Master Plan by 2021 and plant and
maintain 10,000 new trees by 2035.

The CASE would not conflict with the preparation of the City’s first Urban Forest Master Plan and planting and maintaining 10,000 new trees by 2035. It supports this action directly by calling to maintain and enhance the City’s tree canopy and to integrate the Climate-Smart Green Infrastructure Strategy into this action of the City’s Climate Plan.

Conclusion
Less than significant impact.

Page 815 of 1071 ends

CITY OF SAN LUIS OBISPO 18 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

9. HAZARDS AND HAZARDOUS MATERIALS
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Create a significant hazard to the public or the environment through the routine transport, use, or disposal of hazardous materials?
1 ☐ ☐ ☒ ☐
b) Create a significant hazard to the public or the environment through reasonably foreseeable upset and accident conditions involving the release of hazardous materials into the
environment?
1 ☐ ☐ ☒ ☐
c) Emit hazardous emissions or handle hazardous or acutely hazardous materials, substances, or waste within one-quarter mile of an existing or proposed school?
1 ☐ ☐ ☒ ☐
d) Be located on a site which is included on a list of hazardous materials sites compiled pursuant to Government Code Section 65962.5 and, as a result, would it create a significant hazard to the public or the environment?
1 ☐ ☐ ☒ ☐
e) For a project located within an airport land use plan or, where such a plan has not been adopted, within two miles of a public airport or public use airport, would the project result in a safety hazard or excessive noise for people residing or working in the project area?
1 ☐ ☐ ☐ ☒
f) Impair implementation of or physically interfere with an adopted emergency response plan or emergency evacuation plan?
1 ☐ ☐ ☐ ☒
g) Expose people or structures, either directly or indirectly, to a significant risk of loss, injury, or death involving wildland fires?
1 ☐ ☐ ☐ ☒
Evaluation
a), b), c), d) The City Emergency Operations Plan (EOP) addresses the planned response to emergencies in, or affecting the City.

The EOP identifies the emergency management organization to coordinate response to emergencies or disasters, describes procedures, and establishes framework for preparedness and response actions. The CALFIRE and San Luis Obispo County Strategic Fire Plan collaboratively addresses fire protection planning efforts within the County and provides a planning level framework for hazardous fuel assessment and strategies to reduce the potential for wildfire ignition. The goals of the plan include coordination between multiple jurisdictions within the County and improvement of fire suppression capabilities. The Airport Land Use Plan for the San Luis Obispo County Regional Airport establishes zones based on flight patterns, with the aim of having future development be compatible with airport operations, considering safety and noise exposure.

Implementation of the CASE would result in the construction of smaller-scale physical improvements within the city, which would involve use routine use, transport, handling, and disposal of hazardous materials, including within ¼ mile of an existing or proposed school. For example, CASE Policies 2.1 and 3.5 would involve small-scale construction operations, such as installation of solar carports and green infrastructure improvements like bioswales or permeable pavement. Installation of access routes as called for in CASE Policy 4.6 would involve construction activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or all-weather surfaces. In addition, construction-related ground disturbance could occur on sites included on a hazardous materials site list compiled pursuant to Government Code Section 65962.5. Overall, implementation of the CASE would not result in large-scale construction activities, such as new housing, commercial, or institutional developments, or major infrastructure improvements, which involve substantial quantities of hazardous materials.

Page 816 of 1071 ends

CITY OF SAN LUIS OBISPO 19 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 Compliance with State and federal laws and regulations governing the use, transport, and disposal of hazardous materials, including those of the Occupational Safety and Health Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Superfund Amendments and Reauthorization Act Title III; the Resource Conservation and Recovery Act; and the Toxic Substances Control Act California Department of Health Services, California Highway Patrol, U.S. Department of Transportation, and San Luis Obispo County Environmental Health Services Division would prevent hazardous materials use and ground disturbance on existing hazardous waste or hazardous release sites associated with CASE implementation from creating significant hazards to people or the environment, or emitting hazardous emissions near schools.

Implementation of the CASE would not increase the amount of hazardous materials or wastes used, handled, or transported in the city over the long-term, because it would not, for example, result in development of any new facilities that use or produce hazardous materials, or infrastructure that could increase the transport of hazardous materials in the city. It also would not result in any physical changes that could increase the likelihood of hazardous materials release due to upset or accident conditions. e) The San Luis Obispo County Regional Airport is located near the City’s southern boundary and provides commuter, charter, and private aviation service. Implementation of the CASE would not involve physical changes to the environment that could affect aircraft approach or takeoff operations in a manner that would create safety hazards or generate excessive noise for people living or working near the County Airport because physical improvements resulting from its policies and programs would not occur in locations or at heights that could interfere with airport operations and would not increase the number of people living or working near the Airport.
f) Implementation of the CASE would not involve physical changes to the environment that physically interfere with adopted plans for emergency response and evacuation. In fact, it would improve emergency response and evacuation access in the city through CASE Policy 7.4 which requires that future substantial development in the city, including industrial, commercial, and institutional uses, multifamily housing, and projects with more than ten single-family dwellings, be allowed only where multiple routes of road access can be provided, consistent with other General Plan policies on development location and open space protection. Multiple routes include vehicle connections that provide emergency access only, as well as public and private streets.

In addition, CASE Policy 4.7 would restrict on-street parking in high wildfire risk areas during Red Flag Days to increase available roadway capacity for emergency response and evacuation. g) Implementation of the CASE would not increase the exposure of people or structures in the city to a significant risk of loss, injury, or death involving wildland fires because it would not result in new development, including residents, workers, or students, in or near any wildfire hazard areas. In addition, the small-scale construction activity that would result from CASE implementation, for example, installation of green infrastructure improvements to manage stormwater runoff per CASE Policy

2.1, including rain gardens, bioswales, detention basins, permeable parking lots, and installation of access roads per CASE Policy

4.6 to, where feasible, ensure adequate access for emergency equipment and civilian evacuation during wildfires, would occur in existing developed areas of the city and are not anticipated to expose people or structures to increased risk of loss, injury, or death involving wildland fires. In addition, the CASE includes several policies and programs to reduce exposure of people and structure to risks from wildland fires (e.g., Policies 4.1 through 4.10, and Programs 4.1 and 4.2) by continuing to implement fuel reduction projects identified in the City Vegetation Management Plan and perform roadside vegetation clearance, avoid new development in high and very high fire hazard severity zones and strengthen fire protection requirements for new development, locate critical public facilities outside of wildfire hazard areas, and allocate resources to property owners for implementation of defensible space and structure hardening improvements.

Conclusion
Less than significant impact

Page 817 of 1071 ends

CITY OF SAN LUIS OBISPO 20 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

10. HYDROLOGY AND WATER QUALITY
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Violate any water quality standards or waste discharge requirements or otherwise substantially degrade surface or ground water quality?
1 ☐ ☐ ☒ ☐
b) Substantially decrease groundwater supplies or interfere substantially with groundwater recharge such that the project may impede sustainable groundwater management of the
basin?
1, 5 ☐ ☐ ☒ ☐
c) Substantially alter the existing drainage pattern of the site or area, including through the alteration of the course of a stream or river or through the addition of impervious surfaces, in a manner which would:
v. Result in substantial erosion or siltation on or off site; 1 ☐ ☐ ☒ ☐ vi. Substantially increase the rate or amount of surface runoff in a manner which would result in flooding onor offsite;1 ☐ ☐ ☒ ☐ vii. Create or contribute runoff water which would exceed the capacity of existing or planned stormwater
drainage systems or provide substantial additional
sources of polluted runoff; or
1 ☐ ☐ ☒ ☐
viii. Impede or redirect flood flows? 1 ☐ ☐ ☒ ☐
d) In flood hazard, tsunami, or seiche zones, risk release of pollutants due to project inundation? 1 ☐ ☐ ☒ ☐
e) Conflict with or obstruct implementation of a water quality control plan or sustainable groundwater management plan? 1, 5 ☐ ☐ ☒ ☐ Evaluation
a), b), c), d), e) The city is located within the San Luis Obispo Creek Hydrologic Subarea of the Estero Bay Hydrologic Unit, which extends roughly 80 miles between the Santa Maria River and the Monterey County line and includes numerous individual stream systems. Within the Estero Bay Hydrologic Unit, the San Luis Obispo Creek watershed drains approximately 84 square miles, generally to the south‐southwest via San Luis Obispo Creek to the Pacific Ocean at Avila Beach. San Luis Obispo Creek is one of four major drainage features that create flood hazards in the city, with the others being Stenner Creek, Prefumo Creek, and Old Garden Creek. In addition, many minor waterways drain into these creeks, and also present flood hazards. Because of the high surrounding hills and mountains in the area, the creek’s drainage sheds are relatively small, but the steep slopes and high gradient can lead to intense, fast moving flood events in the city. In addition, a portion of the San Luis Valley Subbasin of the San Luis Obispo Valley Groundwater Basin underlies the city. A Groundwater Sustainability Plan (GSP) was adopted for this groundwater basin in October 2021.

Page 818 of 1071 ends

CITY OF SAN LUIS OBISPO 21 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 CASE Policies 3.2 and 3.3 regarding the city’s urban tree canopy and strategy to mitigate urban heat island effect would increase the number of trees planted and maintained in the city, and also increase the use of building and site design techniques that address urban heat island effect, including reflective roofing and placement of solar carports over surface parking lots. Increasing the amount of green infrastructure and trees in the city would have beneficial impacts to surface and ground water quality within the San Luis Obispo Creek watershed and San Luis Obispo Valley Groundwater Basin; green infrastructure and trees also reduce levels of inundation and risk of pollutant release during flooding by increasing retention and absorption of flood waters and filtering pollutants conveyed in flood waters. In addition, the CASE sets forth policies and programs that would improve flood management in the city and lessen the potential risk of pollutant release during a flood hazard event.

Small-scale construction activities associated with the above-described policies, as well as with implementation of CASE Policy

4.6 regarding installation of access roads, could result in changes to drainage patterns or create new sources of polluted runoff.

However, compliance with applicable regulations including the Construction General Permit, preparation of Storm Water Pollution Prevention Plans, and the City’s Storm Water Management Program requirements to implement best management practices (BMPs) and Pollution Prevention Methods (PPMs) would prevent adverse impacts to surface and ground water quality and avoid conflicts with plan that protect water quality. In addition, implementation of CASE policies could result in minor increases in impervious surface area in localized areas (e.g., where new access roads are installed), but not at a scale that would interfere with groundwater recharge levels or sustainable management of groundwater within the San Luis Obispo Valley Groundwater Basin.

Conclusion
Less than significant impact.

11. LAND USE AND PLANNING
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Physically divide an established community? 1 ☐ ☐ ☒ ☐ b) Cause a significant environmental impact due to a conflict with any land use plan, policy, or regulation adopted for the purpose of avoiding or mitigating an environmental effect?
1 ☐ ☐ ☒ ☐
Evaluation
a), b) Implementation of the CASE would result in minor physical changes to the city. For example, CASE Policy 2.1 would increase the installation of green infrastructure improvements to manage stormwater runoff, CASE Policies 3.2 and 3.3 would increase the number of trees planted and maintained in the city, and also increase the use of building and site design techniques that address urban heat island effect, including reflective roofing and placement of solar carports over surface parking lots, and CASE Policy 3.5, which directs the City to update its building retrofit program to incorporate improvements that increase resilience to extreme heat events and wildfire risk, such as HVAC-systems, air filtration systems, weatherization and energy efficiency improvements, and home hardening against wildfire, would result in physical improvements to the interiors and exteriors of buildings in the city. These types of improvements would not physically divide established communities within the city, and would not conflict with any land use plan, policy, or regulation adopted to avoid or mitigate an environmental effect; the CASE is consistent with the City’s General Plan, including the Land Use Element.

Conclusion
Less than significant impact.

Page 819 of 1071 ends

CITY OF SAN LUIS OBISPO 22 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

12. MINERAL RESOURCES
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Result in the loss of availability of a known mineral resource that would be of value to the region and the residents of the state?
1 ☐ ☐ ☐ ☒
b) Result in the loss of availability of a locally-important mineral resource recovery site delineated on a local general plan, specific plan or other land use plan?
1 ☐ ☐ ☐ ☒
Evaluation
a), b) There are no known mineral resources of value to the region or State located in the city, and no locally-important mineral resource recovery sites are identified in the General Plan, specific plan, or any other land use plan. The CASE would not result in the loss of mineral resources.

Conclusion
No impact.

13. NOISE
Would the project result in:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Generation of a substantial temporary or permanent increase in ambient noise levels in the vicinity of the project in excess of standards established in the local general plan or noise ordinance, or applicable standards of other agencies?
1 ☐ ☐ ☒ ☐
b) Generation of excessive groundborne vibration or groundborne noise levels? 1 ☐ ☐ ☒ ☐
c) For a project located within the vicinity of a private airstrip or an airport land use plan, or, where such a plan has not been adopted, within two miles of a public airport or public use airport, would the project expose people residing or working in the project area to excessive noise levels?
1 ☐ ☐ ☒ ☐
Evaluation
a), b) Implementation of the CASE would result in the construction of smaller-scale physical improvements within the city, which would involve the temporary use of vehicles and operation of equipment generating noise and vibration. For example, CASE Policies 3.2 and 3.3 to increase the number of trees planted and maintained in the city would involve minor operation of small pieces of construction equipment (e.g., digging holes, trimming established trees). CASE Policies 2.1 and 3.5 would also involve small-scale construction operations, such as installation of solar carports and green infrastructure improvements like bioswales or permeable pavement. Installation of access routes as called for in CASE Policy 4.6 would involve construction activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or all-weather surfaces, all of which temporarily increase noise levels and can produce vibration. These types of smaller-scale construction activities do not involve techniques or activities, such as pile driving or blasting, which are known to generate substantial levels of vibration.

Page 820 of 1071 ends

CITY OF SAN LUIS OBISPO 23 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 Overall, implementation of the CASE would not result in large-scale construction activities, such as new housing, commercial, or institutional developments, or major infrastructure improvements, that temporarily generate substantial amounts of noise or vibration. It also would not meaningfully increase permanent noise levels generated in the city, because it would not, for example, substantially increase the amount of vehicle travel and associated noise in the city.

Per the City Municipal Code Chapter 9.12 Noise Control, operating tools or equipment used in construction between weekday hours of 7:00 p.m. and 7:00 a.m., or any time on Sundays or holidays, is strictly prohibited, except for emergency work of public service utilities or by exception issued by the Community Development Department. The Municipal Code also states that construction activities shall be conducted in such a manner, where technically and economically feasible, that the maximum noise levels at affected properties will not exceed 75 dBA at single-family residences, 80 dBA at multi-family residences, and 85 dBA at mixed residential/commercial uses. Based on the City Municipal Code, operating any device that creates vibration which is above the vibration perception threshold of an individual at or beyond 150 feet from the source if on a public space or right-of-way is prohibited (9.12.050.B.7). Therefore, temporarily increases in noise and vibration levels resulting from smallscale construction activities would not exceed the standards of the Municipal Code. c) The San Luis Obispo County Regional Airport provides commuter, charter, and private aviation service. Implementation of the CASE would not involve physical changes to the environment that could affect aircraft approach or takeoff operations in a manner that would generate excessive noise levels for people living or working near the County Airport.

Conclusion
Less than significant impact.

14. POPULATION AND HOUSING
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Induce substantial unplanned population growth in an area, either directly (for example, by proposing new homes and businesses) or indirectly (for example, through extension of roads or other infrastructure)?
1 ☐ ☐ ☒ ☐
b) Displace substantial numbers of existing people or housing, necessitating the construction of replacement housing
elsewhere?
1 ☐ ☐ ☒ ☐
Evaluation
a), b) The CASE would not directly affect the amount of planned growth in the city because it would change the land use designations of the adopted General Plan. The small-scale construction activities and physical improvements to the city that would result from CASE implementation, such as green infrastructure, trees, and building retrofits, would increase the resilience of the city’s existing built and natural environments, and planned growth. These types of improvements would not indirectly induce substantial unplanned population growth because they would not create demand for residential or non-residential development beyond what is currently contemplated by the adopted General Plan.

Implementation of CASE Policy 4.6 would result in installation of access roads, where feasible, to ensure adequate access for emergency equipment and civilian evacuation during wildfires. New access roads, if installed, would link existing residential developments in the city to the existing circulation network to facilitate emergency access and evacuation during emergencies; these improvements would be designed to provide emergency access for existing and planned communities and therefore would not indirectly induce additional growth in the city. Implementation of the CASE would not result in physical changes that could displace substantial numbers of existing people or housing, and therefore would not result in the need for construction of replacement housing.

Conclusion
Less than significant impact.

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CITY OF SAN LUIS OBISPO 24 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

15. PUBLIC SERVICES
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Would the project result in substantial adverse physical impacts associated with the provision of new or physically altered governmental facilities, need for new or physically altered governmental facilities, the construction of which could cause significant environmental impacts, in order to maintain acceptable service ratios, response times or other performance objectives for any of the public services:

Fire protection? 1 ☐ ☐ ☐ ☒
Police protection? 1 ☐ ☐ ☐ ☒
Schools? 1 ☐ ☐ ☐ ☒
Parks? 1 ☐ ☐ ☐ ☒
Other public facilities? 1 ☐ ☐ ☐ ☒
Evaluation
a) Implementation of the CASE would not increase demand for public services in the city, including fire and police protection, schools, parks and other recreational facilities, or other public facilities such as libraries, because it would not increase the population or physical size of the city. In addition, the CASE includes policies to increase the city’s resilience to wildfires, for example Program 4.1 is intended to encourage defensible space around structures and home hardening improvements in or near very high fire hazard severity zones, which could lessen the demand for fire protection services in the city. CASE policies to provide residential developments with at least two emergency access routes would help the city maintain adequate response times for fire and police protection. As a result, implementation of the CASE would not require construction of new or physically altered government facilities in order to maintain acceptable levels of these public services in the city.

Conclusion
No impact.

16. RECREATION
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Would the project increase the use of existing neighborhood and regional parks or other recreational facilities such that substantial physical deterioration of the facility would occur or be accelerated?
1 ☐ ☐ ☐ ☒
b) Does the project include recreational facilities or require the construction or expansion of recreational facilities which might have an adverse physical effect on the environment?
1 ☐ ☐ ☐ ☒
Evaluation
a), b) Demand for and use of parks and recreational facilities is based on the population of the city and surrounding areas.

Implementation of the CASE would not increase the use of parks and recreational facilities because it would not increase the population of the city or surrounding areas. Therefore, it would not result in physical deterioration of existing facilities, or require that new or expanded recreational facilities be constructed.

Conclusion
No impact.

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CITY OF SAN LUIS OBISPO 25 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

17. TRANSPORTATION
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Conflict with a program, plan, ordinance or policy addressing the circulation system, including transit, roadway, bicycle and pedestrian facilities?
1, 8 ☐ ☐ ☒ ☐
b) Conflict or be inconsistent with CEQA Guidelines section 15064.3, subdivision (b)? 1, 9 ☐ ☐ ☒ ☐
c) Substantially increase hazards due to a geometric design feature (e.g., sharp curves or dangerous intersections) or incompatible uses (e.g. farm equipment)?
1 ☐ ☐ ☒ ☐
d) Result in inadequate emergency access? 1 ☐ ☐ ☒ ☐
Evaluation
The City’s Circulation Element identifies current traffic levels and delays of public roadways and identifies transportation goals and policies to guide development and express the community’s preferences for current and future conditions. Goals include maintaining accessibility and protecting the environment throughout the City’s SOI while reducing single-occupancy vehicle trips, reducing use of cars and increasing travel by walking, riding buses and bicycles, using car pools, and widening and extending streets only when there is a demonstrated need and significant, long-term environmental problems would not result.

The City’s 2021 Active Transportation Plan outlines the City’s official policies for the design and development of bikeways within the City and in adjoining territory under County jurisdiction but within the City’s Urban Reserve and includes specific objectives for reducing vehicle use and promoting other modes. SLO Transit operates transit service in the City of San Luis Obispo and San Luis Obispo Regional Transit Authority (SLORTA) operates transit service throughout San Luis Obispo County and adjacent areas. On June 16, 2020, the City Council adopted resolutions to replace Level of Service (LOS) with Vehicle Miles Traveled (VMT) as the City’s performance measure for CEQA analysis of transportation impacts, and approved revisions to the City’s Multimodal Transportation Impact Study Guidelines, consistent with CEQA Guidelines Section 15064.3(b). a), c) Implementation of the CASE would result in the construction of smaller-scale physical improvements within the city, such as CASE Policies 3.2 and 3.3 that would increase the number of trees planted and maintained in the city, CASE Policies 2.1 and

3.5, which would also involve small-scale construction operations, such as installation of solar carports and green infrastructure improvements like bioswales or permeable pavement. CASE Policies 4.6 and 7.4 would lead to the installation of emergency access routes. These types of physical improvements would not conflict with implementation of the City’s circulation system goals to decrease driving alone and overall vehicle trips, increase walking, biking, and transit trips, and only widen or extend streets when needed and long-term environmental problems would not result. Compliance with existing City policies and development review procedures would ensure that these types of smaller-scale physical improvements would not result in a substantial increase in hazards, for example, requirements to maintain adequate line of sight at intersections. b) Implementation of the CASE would not result in short- or long-term increases in the amount of VMT within, and to and from, the city, because it would not result in new land use development, such as new housing, commercial, or institutional developments, or major infrastructure improvements. New emergency access routes installed pursuant to CASE Policies 4.7 or

7.4 would not induce substantial levels of VMT because they would be provided in hazards areas to facilitate evacuation and emergency vehicle and equipment access during emergencies. Implementation of the CASE would not generate significant levels of VMT as defined the City’s Multimodal Transportation Impact Study Guidelines, and therefore would not result in conflicts or inconsistencies with CEQA Guidelines section 15064.3, subdivision (b). d) As described in Section 9 (Hazards and Hazardous Materials) f), implementation of the CASE would not involve physical changes to the environment that physically interfere with adopted plans for emergency response and evacuation. In fact, it would improve emergency response and evacuation access in the city through, for example, CASE Policy 7.4, which requires that future substantial development in the city, including industrial, commercial, and institutional uses, multifamily housing, and projects

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CITY OF SAN LUIS OBISPO 26 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 with more than ten single-family dwellings, be allowed only where multiple routes of road access can be provided, consistent with other General Plan policies on development location and open space protection. Multiple routes include vehicle connections that provide emergency access only, as well as public and private streets. Implementation of CASE Policy 4.6 would also result in installation of access roads, where feasible, to ensure adequate access for emergency equipment and civilian evacuation during wildfires. In addition, CASE Policy 4.7 would restrict on-street parking in high wildfire risk areas during Red Flag Days to increase available roadway capacity for emergency response and evacuation.

Conclusion
Less than significant impact.

18. TRIBAL CULTURAL RESOURCES
Would the project cause a substantial adverse change in the significance of a tribal cultural resource, defined in Public Resources Code Section 21074 as either a site, feature, place, or cultural landscape that is geographically defined in terms of the size and scope of the landscape, sacred place, or object with cultural value to a California Native American tribe, and that is: Sources Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Listed or eligible for listing in the California Register of Historical Resources, or in a local register of historical resources as defined in Public Resources Code Section
5020.1(k)?
1, 6 ☐ ☐ ☒ ☐
b) A resource determined by the lead agency, in its discretion and supported by substantial evidence, to be significant pursuant to criteria set forth in subdivision (c) of Public Resources Code Section 5024.1? In applying the criteria set forth in subdivision (c) of Public Resources Code Section 5024.1, the lead agency shall consider the significance of the resource to a California Native American tribe.
1, 6 ☐ ☐ ☒ ☐
Evaluation
a), b) Archaeological evidence demonstrates that Native American groups (including the Chumash) have occupied the Central Coast for at least 10,000 years, and that Native American use of the central coast region may have begun during the late Pleistocene, as early as 9000 B.C., demonstrating that historical resources began their accumulation on the central coast during the prehistoric era. The City is located within the area historically occupied by the Obispeño Chumash, the northernmost of the Chumash people of California. Burial points and burial sensitivity areas are also located in the city.

On August 8, 2022, the following Native American tribes that have a cultural or traditional affiliation to the area were formally noticed pursuant to AB 52 (Public Resources Code Section 21080.3.1 subd. [d]) that an Initial Study of Environmental Review was being completed for the CASE. None of the noticed tribes requested consultation or identified a tribal cultural resource that could be affected by implementation of the CASE.
• Santa Ynez Band of Mission Indians
• Barbareno/Ventureno Band of Mission Indians
• Salinan Tribe of San Luis Obispo, Monterey, and San Benito Counties • Xolon-Salian Tribe
• Yak Tityu Tityu – Northern Chumash Tribe
• Northern Chumash Tribal Council
• Torres Martinez Desert Cahuilla Indians
• Chumash Council of Bakersfield

Page 824 of 1071 ends

CITY OF SAN LUIS OBISPO 27 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 • Coastal Band of the Chumash Nation
• San Luis Obispo County Chumash Council
Implementation of the CASE would result in minor physical changes to the city. For example, CASE Policy 2.1 regarding climate-informed flood management would increase the installation of green infrastructure improvements to manage stormwater runoff, including rain gardens, bioswales, detention basins, permeable parking lots, and permeable pavements. The features would typically be installed in the place of gray infrastructure such as gutters, drains, pipes, and ditches to manage runoff volumes generated by urban development. CASE Policies 3.2 and 3.3 regarding the city’s urban tree canopy and strategy to mitigate urban heat island effect would increase the number of trees planted and maintained in the city, and also increase the use of building and site design techniques that address urban heat island effect, including reflective roofing and placement of solar carports over surface parking lots. In addition, CASE Policy 3.5, which directs the City to update its building retrofit program to incorporate improvements that increase resilience to extreme heat events and wildfire risk, such as HVAC-systems, air filtration systems, weatherization and energy efficiency improvements, and home hardening against wildfire, would result in physical improvements to the interiors and exteriors of buildings in the city. These types of improvements could occur in areas where tribal cultural resources may be present. Because these types of improvements can involve minor ground disturbance (e.g., excavation to install stormwater improvements), there is potential for archaeological resources to be encountered In addition, implementation of CASE Policy 4.6 would result in installation of access roads, where feasible, to ensure adequate access for emergency equipment and civilian evacuation during wildfires. New access roads, if installed, would link existing residential developments in the city to the existing circulation network to facilitate emergency access and evacuation during emergencies. Depending on the location, installation of access roads can involve ground disturbing activities such as clearing and grubbing, grading, compacting, and laying of pavement or other impervious or all-weather surfaces, during which tribal cultural resources could be encountered. Existing regulatory requirements, including the National Historic Preservation Act, the City’s Historic Preservation Ordinance, Historic Program Preservation Guidelines, and Archaeological Resource Preservation Program Guidelines, the federal Archaeological Resources Protection Act and Native American Graves Protection and Repatriation Act, California Health and Safety Code Section 7050.5 regarding disturbance of human remains, as well as existing Conservation and Open Space Element policies and programs set forth procedures protecting cultural and archaeological resources from substantial adverse changes (e.g., 3.2, 3.3.1, 3.3.2, 3.3.3, 3.3.4, 3.3.5, 3.5.1 through 3.5-12, and 3.6.1 through 3.6- 10). Any potential tribal cultural resources encountered during ground-disturbing activities would be protected, reviewed, and handled in accordance with federal and State laws and local requirements. Therefore, implementation of the CASE would not result in substantial adverse changes to tribal cultural resources.

Conclusion
Less than significant impact.

19. UTILITIES AND SERVICE SYSTEMS
Would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Require or result in the relocation or construction of new or expanded water, wastewater treatment or storm water drainage, electric power, natural gas, or telecommunications facilities, the construction or relocation of which could cause significant environmental effects?
1, 10 ☐ ☐ ☒ ☐
b) Have sufficient water supplies available to serve the project and reasonably foreseeable future development during normal, dry, and multiple dry years?
1, 10 ☐ ☐ ☒ ☐

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CITY OF SAN LUIS OBISPO 28 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022 c) Result in a determination by the wastewater treatment provider which serves or may serve the project that it has adequate capacity to serve the project’s projected demand in addition to the provider’s existing commitments?
1, 10 ☐ ☐ ☒ ☐
d) Generate solid waste in excess of State or local standards, or in excess of the capacity of local infrastructure, or otherwise impair the attainment of solid waste reduction goals?
1 ☐ ☐ ☒ ☐
e) Comply with federal, state, and local management and reduction statutes and regulations related to solid waste? 1 ☐ ☐ ☒ ☐ Evaluation
The City of San Luis Obispo Utilities Department is the sole water provider within the city, provides potable and recycled water to the community, and is responsible for water supply, treatment, distribution, and resource planning. The City is served by four primary water sources, including the Whale Rock Reservoir, Salinas Reservoir, Nacimiento Reservoir, and recycled water (for irrigation), with groundwater serving as a fifth supplemental source. The City’s Water Treatment Plant is designed to produce up to 16 million gallons daily (mgd). The City Water Resource Recovery Facility (WRRF) treats all of the wastewater from the City, Cal Poly, and the County airport. The WRRF treated an average of 3.57 million gallons of wastewater per day in 2019. The WRRF has a design capacity of 5.1 million gallons per day and will have a design capacity of 5.4 mgd when the construction of upgrades are completed in 2023. Solid waste is disposed of at the Cold Canyon Landfill, Chicago Grade Landfill, and Paso Robles Landfill. Cold Canyon Landfill has adequate capacity to serve the City’s build-out population as identified in the General Plan.
a) Implementation of the CASE would not increase demand placed on utilities and service systems in the city, including water supply, wastewater, stormwater drainage, electric power, natural gas, or telecommunications facilities, because it would not increase the population or physical size of the city. It would result in the installation of stormwater management improvements pursuant to CASE Policy 2.1, such as rain gardens, bioswales, detention basins, and permeable pavements, and solar carports providing electric power pursuant to CASE Policy 3.5, the environmental effects of which are evaluated throughout this checklist.

As a result, implementation of the CASE would not require relocation or construction of new or physically altered utilities and service systems.
b) According to the General Plan Land Use Element, the City procures water supplies to serve the build-out population of the General Plan. Increasing the number of trees planted and maintained in the city pursuant to CASE Policies 3.2 and 3.2 would nominally increase water demand for irrigation, but because the CASE would not increase the population of the city, or result in other land use development (e.g., housing, retail, office, farming operations) that would increase demand for water, it would not interfere with the City’s ability to provide sufficient water supplies during normal, single-dry, or multiple-dry year scenarios. c), d), e) Implementation of the CASE would not increase the population of the city, or result in other land use development (e.g., housing, retail, office, farming operations) that would increase demand for wastewater treatment or generation of solid waste.

Therefore, the CASE would not adversely affect the existing adequate capacity of the WRRF or Cold Canyon Landfill, or fail to comply with federal, state, or local solid waste management and reduction statutes and regulations.

Conclusion
Less than significant impact.

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CITY OF SAN LUIS OBISPO 29 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

20. WILDFIRE
If located in or near state responsibility areas or lands classified as very high fire hazard severity zones, would the project:

Sources
Potentially
Significant
Impact
Less Than
Significant
with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Substantially impair an adopted emergency response plan or emergency evacuation plan? ☐ ☐ ☒ ☐
b) Due to slope, prevailing winds, and other factors, exacerbate wildfire risks, and thereby expose project occupants to, pollutant concentrations from a wildfire or the uncontrolled spread of a wildfire?
☐ ☐ ☒ ☐
c) Require the installation or maintenance of associated infrastructure (such as roads, fuel breaks, emergency water sources, power lines or other utilities) that may exacerbate fire risk or that may result in temporary or ongoing impacts to the environment?
☐ ☐ ☒ ☐
d) Expose people or structures to significant risks, including downslope or downstream flooding or landslides, as a result of runoff, post-fire slope instability, or drainage changes? ☐ ☐ ☒ ☐
Evaluation
a), b), c), d) As described in Section 9 (Hazards and Hazardous Materials) g), implementation of the CASE would not increase the exposure of people or structures in the city to a significant risk of loss, injury, or death involving wildland fires because it would not result in new development, including residents, workers, or students, in or near any wildfire hazard areas. In addition, the small-scale construction activity that would result from CASE implementation, for example, installation of green infrastructure improvements to manage stormwater runoff per CASE Policy 2.1, including rain gardens, bioswales, detention basins, permeable parking lots, and installation of access roads per CASE Policy 4.6 to, where feasible, ensure adequate access for emergency equipment and civilian evacuation during wildfires, would occur in existing developed areas of the city and are not anticipated to expose people or structures to increased risk of loss, injury, or death involving wildland fires, including downslope or downstream flooding or landslides, as a result of runoff, post-fire slope instability, or drainage changes.

In addition, the CASE includes several policies and programs to reduce exposure of people and structure to risks from wildland fires (e.g., Policies 4.1 through 4.10, and Programs 4.1 and 4.2) by continuing to implement fuel reduction projects identified in the City Vegetation Management Plan and perform roadside vegetation clearance, avoid new development in high and very high fire hazard severity zones and strengthen fire protection requirements for new development, locate critical public facilities outside of wildfire hazard areas, and allocate resources to property owners for implementation of defensible space and structure hardening improvements.

In addition, as described in Section 9 (Hazards and Hazardous Materials) f), implementation of the CASE would not involve physical changes to the environment that substantially impair adopted plans for emergency response and evacuation. In fact, it would improve emergency response and evacuation access in the city through CASE Policy 7.4 which requires that future substantial development in the city, including industrial, commercial, and institutional uses, multifamily housing, and projects with more than ten single-family dwellings, be allowed only where multiple routes of road access can be provided, consistent with other General Plan policies on development location and open space protection. Multiple routes include vehicle connections that provide emergency access only, as well as public and private streets. In addition, CASE Policy 4.7 would restrict on-street parking in high wildfire risk areas during Red Flag Days to increase available roadway capacity for emergency response and evacuation.

Conclusion
Less than significant impact.

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CITY OF SAN LUIS OBISPO 30 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

21. MANDATORY FINDINGS OF SIGNIFICANCE
Sources
Potentially
Significant
Impact
Less Than
Significant with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
a) Does the project have the potential to substantially degrade the quality of the environment, substantially reduce the habitat of a fish or wildlife species, cause a fish or wildlife population to drop below self-sustaining levels, threaten to eliminate a plant or animal community, substantially reduce the number or restrict the range of a rare or endangered plant or animal or eliminate important examples of the major periods of California history or prehistory?
☐ ☐ ☒ ☐
a) As described in Sections 4 and 5, implementation of the CASE would result in small-scale construction activities, such as green infrastructure improvements to manage stormwater and flooding, tree plantings, solar carports, home hardening against wildfires, emergency access roads, and improvements to building exteriors that would not adversely affect biological or cultural resources.

As a result, implementation of the CASE would not substantially degrade the quality of the environment, substantially reduce the habitat of a fish or wildlife species, cause a fish or wildlife population to drop below self-sustaining levels, threaten to eliminate a plant or animal community, substantially reduce the number or restrict the range of a rare or endangered plant or animal or eliminate important examples of the major periods of California history or prehistory.

Sources
Potentially
Significant
Impact
Less Than
Significant with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
b) Does the project have impacts that are individually limited, but cumulatively considerable? ("Cumulatively considerable" means that the incremental effects of a project are considerable when viewed in connection with the effects of past projects, the effects of other current projects, and the effects of probable future projects)?
☐ ☐ ☒ ☐
b) As described throughout this Initial Study checklist, the implementation of the CASE would result in minor physical changes in localized areas of the city. These changes would result from installation of green infrastructure improvements to manage stormwater and flooding, tree plantings, solar carports, home hardening against wildfires, emergency access roads, and improvements to building exteriors. These incremental effects of the CASE would be negligible when viewed in connection with the effects of part, current, and probable future projects implementing the General Plan, such as new residential and nonresidential developments, or infrastructure improvements (e.g., Circulation Element roadways, WRRF capacity upgrades).

Therefore, the impacts of the CASE would not be cumulatively considerable.

Sources
Potentially
Significant
Impact
Less Than
Significant with
Mitigation
Incorporated
Less Than
Significant
Impact
No
Impact
c) Does the project have environmental effects which will cause substantial adverse effects on human beings, either directly or indirectly?
☐ ☐ ☒ ☐
c) As described throughout this Initial Study checklist, the implementation of the CASE would not directly or indirectly cause substantial adverse effects on human beings. In fact, it would benefit human beings through implementation of policies that protect people from the direct and indirect effects of climate change and other natural and manmade hazards, including wildfire flooding, extreme heat, fire, earthquakes and other geological hazards, hazardous materials, and electromagnetic fields. The CASE would improve the long-term resilience of the city’s natural, physical, and social systems to climate and other hazards, and would not achieve short-term environmental goals to the disadvantage of long-term environmental goals.

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CITY OF SAN LUIS OBISPO 31 INITIAL STUDY ENVIRONMENTAL CHECKLIST 2022

22. EARLIER ANALYSES
Earlier analysis may be used where, pursuant to the tiering, program EIR, or other CEQA process, one or more effects have been adequately analyzed in an earlier EIR or Negative Declaration. Section 15063 (c) (3) (D). In this case a discussion should identify the following items:
a) Earlier analysis used. Identify earlier analyses and state where they are available for review.

Final Environmental Impact Report, LUCE Updates; available online at: https://www.slocity.org/government/departmentdirectory/community-development/planning-zoning/general-plan or at the Community Development Department, 919 Palm Street, San Luis Obispo, CA 93401.
b) Impacts adequately addressed. Identify which effects from the above checklist were within the scope of and adequately analyzed in an earlier document pursuant to applicable legal standards, and state whether such effects were addressed by mitigation measures based on the earlier analysis.

Resolution No. 10567 (2014 Series) summarizes the environmental impact, mitigation, monitoring and overriding considerations for the 2014 LUCE update:
http://opengov.slocity.org/WebLink/DocView.aspx?id=26033&dbid=0&repo=CityClerk. c) Mitigation measures. For effects that are "Less than Significant with Mitigation Incorporated," describe the mitigation measures which were incorporated or refined from the earlier document and the extent to which they address site-specific conditions of the project.

As described in the Initial Study Environmental Checklist, implementation of the CASE would not result in any potentially significant effects for which mitigation measures are required.

23. SOURCE REFERENCES

1. City of San Luis Obispo LUCE and Final EIR, 2014.

2. City of San Luis Obispo Zoning Map, 2022.

3. California Department of Fish and Wildlife. California Forests and Timberlands in the California Department of Fish and Wildlife Regions.

4. San Luis Obispo County Attainment Status, 2019.

5. San Luis Obispo Valley Groundwater Basin Groundwater Sustainability Agencies, San Luis Obispo Valley Basin Groundwater Sustainability, 2021.

6. City of San Luis Obispo Conservation and Open Space Element, 2006.

7. Climate Action Plan for Community Recovery, 2020.

8. City of San Luis Obispo Active Transportation Plan, 2021.

9. City of San Luis Obispo Multimodal Transportation Impact Study Guidelines, 2020.

10. City of San Luis Obispo Water and Wastewater Element, 2018.

Attachments

1. Draft CASE, City of San Luis Obispo, September 2022.

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Item 7b
Department: Finance
Cost Center: 2005
For Agenda of: 1/17/2023
Placement: Business
Estimated Time: 60 minutes
FROM: Emily Jackson, Finance Director
Prepared By: Debbie Malicoat, Accounting Manager/Controller SUBJECT: ACCEPTANCE OF THE ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR 2021-22

RECOMMENDATION
Review and accept the Annual Comprehensive Financial Report for Fiscal Year 2021-22.

POLICY CONTEXT
The City’s Charter under Section 810 requires the employment of an independent certified public account to examine the City’s financials.

REPORT IN BRIEF
The purpose of this item is to present the Annual Comprehensive Financial Report (ACFR) for the accounting period from July 1, 2021-June 30, 2022 consistent with City Charter Section 810 1. The ACFR fairly and accurately presents the City’s financial position and compliance with applicable standards. The independent auditor will present the report to the City Council and concluded that management has generally managed the City’s finances in a positive way, and as the year unfolded, the City’s major revenue sources continued to recover and grow, providing a much-improved fiscal outlook and the City’s ability to deliver on goals and objectives.

1 Section 810. Independent Audits.

The Council shall employ, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as may be specified by the Council, at least annually, shall examine the books, records, inventories, and reports of all officials, employees, departments, and agencies who receive, handle, or disburse public funds. As soon as practicable after the end of the fiscal year, a final audit and report shall be submitted by such accountant to the Council, one copy thereof to be distributed to each member, one each to the City Clerk, the City Treasurer, the City Manager, and City Attorney respectively, and three (3) additional copies to be placed on file in the office of the City Clerk where they shall be available for inspection by the general public for the period required by the laws of the State of California. Restricted and special assessment district funds shall be segregated in the audit report.

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Item 7b

DISCUSSION
The accompanying Annual Comprehensive Financial Report (ACFR) has been prepared as required by the City’s Charter and applicable State laws regarding financial reporting for municipalities. The ACFR provides a final and audited representation of the City’s financial condition across all funds for the fiscal year that ended June 30, 2021. The ACFR was published on the City’s website on December 21, 2022, and copies were provided to the City Council the same day.

In accordance with the City Charter, the City’s financial statements have been audited by independent certified public accountants from Badawi & Associates. The objective of the financial audit is to provide users of the financial reports with reasonable assurance from an independent source that the financial reports are reliable and represent a fair assessment of the City’s financial condition. The auditor issued the financial statements with an unmodified opinion which means that they are presented fairly and in conformity with generally accepted accounting principles (see pages 1-3 of the ACFR- Independent Auditors’ report).

The independent auditors are also reviewing the City’s Federal Single Audit Report and Transportation Development Act annual audit with both expected to be completed on January 31, 2023 and presented to Council in the second meeting of February. The deadline for submission to the Federal Government is March 31st. The Federal Single Audit includes the auditor’s opinion on internal controls, findings and questioned costs, if any. An auditor’s findings are written explanations and can range from errors, compliance, adverse conditions, or simply improvements that should be made. The auditor’s findings in this year are all continued improvements to City processes and controls. There are no questioned costs or instances of noncompliance.

New Government Accounting Standard Board (GASB) Statements As described more fully in Note 18 to the financial statements, the City implemented six new GASB statements for this fiscal year. The two most impactful to the City were Statement No. 87 and Statement No. 97.

Statement No. 87 relates to leases. The objective is to recognize in the financial statement certain assets and liabilities for leases that were previously classified as operating leases and recognized as inflows or outflows of resources, based on the payment provisions of the contract. Implementation of this Statement results in lease assets or liabilities, such as the 99-year ground lease with Garden Street SLO Partners to be reflected in the financial statements, not just when the lease revenue is received, but also as a long-term asset (lease receivable) and a corresponding recognition that the lease receivable will be paid in the longterm future (deferred inflows of resources). Note 6 to the financial statements now provides detailed information on leases.

Statement No. 97 amended certain accounting and reporting requirements for Internal Revenue Code Section 457 deferred compensation plans (457 plans). Under some circumstances, Section 457 plans meet the definition of a pension plan and have different accounting and reporting requirements.

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Item 7b
The City offers 457 plans to its employees, however the plans do not meet the definition that would require the City to report the plan as a fiduciary activity, due largely to the fact that the City is not required to make contributions to the plan; it is offered simply as a voluntary benefit to employees. Note 10 to the financial statements provides the required disclosure information.

Financial Results Highlighted in the ACFR
Within the ACFR, the Transmittal Memorandum and Management’s Discussion and Analysis (MD&A) summarize the City’s fiscal performance and provide an analysis by management of the influencing factors. They also provide information on the City’s fiscal policies, practices, and financial results. Key variances from projected ending balances for 2021-22 are highlighted in the Transmittal Memorandum. Both documents allow the reader to gain insight into the City’s fiscal year experiences that lead to the audited financials and provide context to the statements that follow.

Financial results for fiscal year 2021-22 were generally positive, however the ongoing pandemic continued to have some impacts. As the year unfolded, the City’s major revenue sources continued to recover and grow, providing a much-improved fiscal outlook and the City’s ability to deliver on goals and objectives. This allowed the City Council to significantly increase budgets at Mid-Year to address developing trends such as labor market challenges, supply shortages, and ongoing economic recovery efforts.

Revenues and expenditures in the General Fund came in favorably compared to budget estimates. Revenues were $4.2 million above the final budget, and expenditures, which include an additional discretionary payment to CalPERS of $10.2 million, were $6.9 million under budget. Net other sources and uses ended above budget by $3.8 million.

The result was an ending fund balance of $40.7 million, which was $7.3 million above budget estimates. As the chart below outlines, most of the ending balance is committed or assigned for future spending or reserve requirements, and not available for spending in conformance with GASB 54.

General Fund 2021-22 2021-22
Actual
Positive (Negative)
Variance
Revenues $ 102,188,180 $ 106,399,537 $ 4,211,357
Expenditures 93,440,299 86,545,247 6,895,052
Other sources (uses) (22,632,216) (26,474,501) (3,842,285) Beginning fund balance 47,365,717 47,365,717 -
Ending fund balance $ 33,481,382 $ 40,745,506 $ 7,264,124 Ending fund balance
Nonspendable - 90,797 90,797
Restricted - - -
Committed - 19,556,799 19,556,799
Assigned - 12,741,186 12,741,186
Unassigned - 8,356,724 8,356,724
Total ending fund balance $ 33,481,382 $ 40,745,506 $ 7,264,124

BUDGET - ACTUAL COMPARISON

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Item 7b
The unassigned balance of $8.3 million represents the amount available for additional spending, although the Council has already taken action in October 2022 to allocate $6.9 million of this balance as shown below.

Council Action on Unassigned General Fund Balance
A. Unassigned Fund Balance at Year End $ 8,356,724
B. Approved City Manager Carryover Budget per Council Policies $ 2,857,159 C. Revenue Stabilization Reserve (Council action) $ 2,000,000 D. Remaining Year End Fund Balance (A-B-C) $ 3,499,567
E. Projected Year End Fund Balance
(required for balanced budget) $ 2,095,000
F. Variance from Forecast (for consideration at midyear) (D-E) $ 1,404,567 Capital Outlay Fund
This year, the Capital Outlay Fund meets the definition of a major fund2 and is displayed separately on the financial statements. This is due, in large part to the current unexpended balance in the fund. Major capital projects are planned, but have been delayed, resulting in the fund balance. Staff expects to be able to significantly spend down this balance with upcoming capital investments.

Enterprise Funds
The City maintains four Enterprise Funds for its Water and Sewer utility, and the Parking and Transit enterprises. Enterprise Funds are business-type activities within government accounting and are reported separately.

The primary sources of revenue for the Water, Sewer, and Parking Funds are fees for sales and services. Most revenues in these funds exceeded budget assumptions however all funds continued to be impacted by the pandemic. While the Parking Fund is slowly recovering and parking activities return, the Utilities funds are experiencing the effects of supply shortages with steep increases experienced in chemical and utility charges.

However, all three funds finished the year in good financial standing.

The Transit Fund had a small reduction in net position, but saw a resurgence of ridership, which was indicative of the post-pandemic reopening.

2 Major funds are reported separately on the financial statements to ensure that the City’s most important funds are discretely presented. Relative size can make a given fund important to financial statement users, as can other qualitative and quantitative factors. The General Fund is always a major fund, as are the four Enterprise Funds. Other funds might be considered major if they meet certain criteria, such as comprising a significant portion of overall assets, revenues, or expenses. Nonmajor funds are aggregated into a single column on the financial statements.

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Item 7b
The two utility funds ended the fiscal year positively, both experiencing an increase in net position at year end. The Parking Fund experienced an increase in net position by just over $800,000 and the Transit Fund decreased by almost $62,000 (ACFR page 45).

ACFR Organization
In accordance with generally accepted accounting principles for state and local governments, the City’s ACFR is organized into three major sections: Introduction, Financial Reports and Statistical Tables. The following is a brief summary of the contents of each of these sections.

Introduction. The Transmittal Memorandum and other information of general interest are presented in this section, including directory of officials, advisory bodies, and organization chart.

Financial Reports. This section includes the City’s primary financial statements in five major parts:

1. Auditors’ opinion regarding the financial statements.

2. Management’s discussion and analysis providing a narrative overview of City-wide finances, influencing factors, and operations experiences throughout the year.

3. The basic financial statements presenting the government-wide year-end results combining the activities of the major funds (General, Capital Outlay and all four Enterprise Funds) and non-major funds into governmental and business-type categories; the fund financial statements; and the notes to the financial statements.

4. Required supplementary information presenting the General Fund actual results with both the original and final adjusted budgets.

5. Other supplemental schedules and financial statements providing financial information for each of the City’s non-major governmental and agency funds. This includes a financial schedule presenting Local Revenue Measure revenues and uses in 2021-22.

Statistical Tables. This section provides demographic and financial tables showing current and historical trend information for the City and is organized into six major parts:

1. Statistical overview. General information about the San Luis Obispo community.

2. General financial trends. Ten-year summary information on net assets, governmental revenues and expenditures and fund balances.

3. Revenue capacity. Ten-year summary information on property and sales tax trends.

4. Debt capacity. Ten-year summary information on debt service requirements.

5. Economic and demographic trends. Ten-year summaries of taxable sales, building permits and valuations, housing, population and other demographic trends.

6. Operating information. Ten-year trend information on operating indicators by function.

The City structures its statistical section to consider debt disclosure requirements including all relevant information so the ACFR can be used for submission to the Electronic Municipal Market Access (EMMA) system.

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Item 7b
Recognition for Excellence in Financial Reporting
Beginning in fiscal year 1983-84, all of the City’s ACFRs have been awarded the certificate of achievement for excellence in financial reporting from the Government Finance Officers Association of the United States and Canada (GFOA). This is a prestigious national award recognizing the City’s use of the highest standards in preparing its annual financial report.

The certificate for 2020-21 is included in the ACFR document and staff will submit the 2021- 22 ACFR for the award program.

Public Engagement
The City’s annual audit and issuance of the annual comprehensive financial report fulfills a legal requirement and does not have a public engagement component outside the required presentation before Council during a public session.

ENVIRONMENTAL REVIEW
The California Environmental Quality Act does not apply to the recommended action in this report, because the action does not constitute a “Project” under CEQA Guidelines Sec. 15378.

FISCAL IMPACT
Budgeted: Yes Budget Year: 202-23
Funding Identified: Yes
Fiscal Analysis:

Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund $75,000 $62,405 $12,595 $
State
Federal
Fees
Other:

Total $75,000 $62,405 $12,595 $
The City budgets the cost for the auditing firm annually. The cost is appropriated with the annual budget approval. The current fiscal year contains a budget of $75,000 for the previous fiscal year audit. Actual costs are anticipated to be $62,405 in accordance with the City’s contract with the auditing firm.

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Item 7b

ALTERNATIVES
The City Council could decide to revise or not accept the Annual Comprehensive Financial Report for fiscal year 2021-22. This is not recommended as the report has been prepared in conformance with a variety of accounting and other reporting requirements and represent the professional evaluation and analysis by the City’s independent auditors. The auditors have rendered an unqualified opinion which means that the reports are presented fairly and in conformity with generally accepted accounting principles.

ATTACHMENTS
A - Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022

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San Luis Obispo, California
Annual Comprehensive
Financial Report
Fiscal Year Ended
June 30, 2022

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1 “The Greys in Between”, the 3-legged sculpture at the center of the newly completed roundabout at Orcutt
and Tank Farm, was created by artist Anila Quayyum
Agha. The permanent public art installation was
commissioned by the City of San Luis Obispo’s Public
Art Program in partnership with the San Luis Obispo
Museum of Art. In exploring the intersections of race,
class, culture, and religion, “The Greys in Between”
celebrates minority and immigrant peoples’
contributions to our society and signifies San Luis
Obispo as a community committed to being a
welcoming place for all. Drawing from symbols found in
South Asian art and architecture, Agha used her large
lit sculpture to show the relationships that exist
between light and darkness, fact and fiction,
community and solitude. “The Greys in Between”
honors diversity and inclusion, while also inviting
viewers to reflect on these different states of being.

For more information about the City’s use of
roundabouts, visit www.slocity.org/roundabouts.

Photo credit: Steven Heraldo
About the Cover

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ANNUAL COMPREHENSIVE FINANCIAL REPORT
Fiscal Year Ended June 30, 2022
ERICA A. STEWART, MAYOR

CARLYN CHRISTIANSON, VICE MAYOR

MICHELLE SHORESMAN, COUNCIL MEMBER

ANDY PEASE, COUNCIL MEMBER

JAN MARX, COUNCIL MEMBER

DEREK JOHNSON, CITY MANAGER
Prepared by the Department of Finance
Brigitte Elke, Finance Director
Debbie Malicoat, Accounting Manager/Controller
Tavy Garcia, Senior Accountant
Traci Kawaguchi, Accountant

City of San Luis Obispo, California
www.slocity.org

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City of San Luis Obispo, California
Annual Comprehensive Financial Report
Fiscal Year Ended June 30, 2022
Table of Contents
Page
Introductory Section
Transmittal Memorandum ..................................................................................................................................................... vii-xxiii Report Purpose and Organization ............................................................................................................................................... vii Profile of the City of San Luis Obispo ........................................................................................................................................ ix Factors Affecting Financial Condition ........................................................................................................................................ xi Financial Condition Overview .................................................................................................................................................... xv Relevant Financial Policies ....................................................................................................................................................... xvii Major Initiatives ........................................................................................................................................................................ xxi Award for Excellence in Financial Reporting .......................................................................................................................... xxii Acknowledgments ...................................................................................................................................................................xxiii Directory of Officials and Advisory Bodies ................................................................................................................................ xxiv City Council ............................................................................................................................................................................. xxiv Advisory Bodies ...................................................................................................................................................................... xxiv Appointed Officials and Department Heads ............................................................................................................................ xxiv Mission Statement ........................................................................................................................................................................ xxv Organizational Values ....................................................................................................................................................... xxvi-xxvii Organization of the City of San Luis Obispo ............................................................................................................................ xxviii GFOA Certificate ....................................................................................................................................................................... xxix Financial Section
Independent Auditors’ Report .......................................................................................................................................................1-4 Management’s Discussion and Analysis ..................................................................................................................................... 5-31 Overview of the Financial Statements .......................................................................................................................................... 5 The Financial Year in Review ...................................................................................................................................................... 8 Overall Year-End Financial Statements ..................................................................................................................................... 21 2022-23 Budget Highlights......................................................................................................................................................... 29 i

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City of San Luis Obispo, California
Annual Comprehensive Financial Report
Fiscal Year Ended June 30, 2022
Table of Contents Page 2
Page
Basic Financial Statements
Government-wide Financial Statements:

Statement of Net Position ........................................................................................................................................................ 35 Statement of Activities ....................................................................................................................................................... 36-37 Fund Financial Statements:

Balance Sheet – Governmental Funds ..................................................................................................................................... 38 Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Position ...................................................................................................................... 39 Statement of Revenues, Expenditures and Changes in Fund Balance – Governmental Funds ...................................................................................................................................................... 40-41 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Government-wide Statement of Activities ................................................................................................... 42 Statement of Fund Net Position Business-Type Activities – Enterprise Funds .................................................................. 43-44 Statement of Revenues, Expenses and Changes in Fund Net Position Business-Type Activities – Enterprise Funds .................................................................................................................................................................. 45 Statement of Cash Flows Business-Type Activities – Enterprise Funds ............................................................................ 46-47 Statement of Fiduciary Net Position - Fiduciary Funds .......................................................................................................... 48 Statement of Changes in Fiduciary Net Position - Fiduciary Funds ....................................................................................... 49 Notes to the Basic Financial Statements ................................................................................................................................ 51-99 Required Supplementary Information Section
Budgetary Comparison Schedule – General Fund ............................................................................................................. 103-108 Schedule of the Changes in the Net Pension Liability and Related Ratios – Miscellaneous Agent Multiple – Employer Plan ................................................................................................................................... 110-111 Schedule of the Pension Plan Contributions – Miscellaneous Agent Multiple – Employer Plan ...................................... 112-113 Schedule of the City’s Proportionate Share of the Net Pension Liability – Safety Cost-Sharing Plan .............................. 114-115 Schedule of the City’s Pension Contributions – Safety Cost-Sharing Plan ....................................................................... 116-117 Schedule of the Changes in the Net OPEB Liability and Related Ratios ................................................................................. 118 Schedule of Employer OPEB Contributions ............................................................................................................................. 119 Notes to Required Supplementary Information ........................................................................................................................ 120 ii

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City of San Luis Obispo, California
Annual Comprehensive Financial Report
Fiscal Year Ended June 30, 2022
Table of Contents Page 3
Page
Other Supplementary Information and Combining and Individual Fund Statements and Schedules Local Transaction Tax Measure Funding Schedule ........................................................................................................... 123-125 Nonmajor Governmental Funds ........................................................................................................................................ 127-130 Combing Balance Sheet – Nonmajor Governmental Funds .............................................................................................. 132-137 Combining Statement of Revenues, Expenditures and Changes in Fund Balance - Nonmajor Governmental Funds ................................................................................................................................... 138-143 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual:

Downtown Business Improvement District Fund ................................................................................................................. 144 Transportation Development Act (TDA) Fund ..................................................................................................................... 145 Tourism Business Improvement District Fund ...................................................................................................................... 146 Gas Tax Fund ........................................................................................................................................................................ 147 Community Development Block Grant (CDBG) Fund ......................................................................................................... 148 Law Enforcement Grants Fund ............................................................................................................................................. 149 Public Art Contributions Fund .............................................................................................................................................. 150 SB1 Road Repair Fund ......................................................................................................................................................... 151 SB1186 ASP Certify ............................................................................................................................................................. 152 Debt Service Fund ................................................................................................................................................................. 153 Custodial Funds ................................................................................................................................................................. 155-159 Combining Statement of Fiduciary Net Position – Custodial Funds .............................................................................. 156-157 Combining Statement of Changes in Fiduciary Net Position – Fiduciary Funds............................................................ 158-159 Statistical Section
Statistical Section – Overview (Unaudited) .............................................................................................................................. 163 Financial Trends:

Net Position by Component – Last Ten Fiscal Years ............................................................................................................ 164 Changes in Net Position – Last Ten Fiscal Years ........................................................................................................... 165-166 Fund Balances of Governmental Funds – Last Ten Fiscal Years ................................................................................... 167-168 Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years ................................................................................................................................................. 169-171 General Fund Operating Expenditure Trends by Type – Last Ten Fiscal Years ................................................................... 172 iii

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City of San Luis Obispo, California
Annual Comprehensive Financial Report
Fiscal Year Ended June 30, 2022
Table of Contents Page 4
Page
Revenue Capacity:

Governmental Activities Tax and Franchise Revenues by Source – Last Ten Fiscal Years ................................................. 173 Assessed and Estimated Actual Value of Taxable Property – Last Ten Fiscal Years ........................................................... 174 Property Tax Rates – Last Ten Fiscal Years .......................................................................................................................... 175 Principal Property Taxpayers – Current Year and Nine Years Ago ...................................................................................... 176 Secured Property Tax Roll Levies and Collections – Last Ten Fiscal Years ......................................................................... 177 Schedule of Taxable Sales and Permits by Category – Last Ten Calendar Years ................................................................. 178 Historical Sales and Use Tax Rates ....................................................................................................................................... 179 Schedule of Business Tax Certificates Issued ....................................................................................................................... 180 Debt Capacity:

Per Capital Outstanding Debt by Type – Last Ten Fiscal Years ........................................................................................... 181 Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt per Capita Last Ten Fiscal Years ........................................................................................................................................................ 182 Direct and Overlapping Long-Term Debt – Fiscal Year Ended June 30, 2021 ..................................................................... 183 Computation of Legal Debt Margins – Last Ten Fiscal Years .............................................................................................. 184 Revenue Bond Coverage:

Water Fund – Last Ten Fiscal Years ..................................................................................................................................... 185 Parking Fund – Last Ten Fiscal Years .................................................................................................................................. 186 Demographic and Economic Information:

Demographic and Economic Statistics – Last Ten Fiscal Years ........................................................................................... 187 Principal Employers – Current Year and Nine Years Ago .................................................................................................... 188 Regular Authorized Positions – Last Ten Fiscal Years ......................................................................................................... 189 Operating Information:

Operating Indicators and Capital Asset Statistics by Function – Last Ten Fiscal Years ................................................ 190-193 Water System Statistical Data ............................................................................................................................................... 194 Water and Sewer Rates – Last Ten Fiscal Years ............................................................................................................ 195-196 Water System Ten Largest Users – Fiscal Year Ended June 30, 2021 .................................................................................. 197 iv

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INTRODUCTORY SECTION
v

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City of San Luis Obispo, Finance and Information Technology, 990 Palm Street, San Luis Obispo, CA, 93401‐3249, 805.781.7130, slocity.org
Date
TO: The Honorable Mayor and Members of the City Council and Citizens of the City of San Luis Obispo
FROM: Derek Johnson, City Manager
Brigitte Elke, Finance Director
SUBJECT: TRANSMITTAL MEMORANDUM FOR ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR FISCAL YEAR 2021-22
We are pleased to submit the City of San Luis Obispo’s 2021-22 Annual Comprehensive Financial Report (ACFR). Section 810 of the City’s Charter requires that an audit of the City financial records be conducted each year by an independent certified public accountant. Such an audit has been performed and this report is being published as part of the requirement for the fiscal year ended June 30, 2022, within applicable timelines.

Though the audit is conducted by an independent certified public account firm, City management assumes full responsibility for the completeness and reliability of the information contained in this report. We attest that, to the best of our knowledge, the data presented is accurate in all material respects and all statements and disclosures needed for the reader to obtain a thorough understanding of the City’s financial activities have been included.

To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control and review framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient and reliable information for the preparation of the City’s financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. However, it is critically reviewed by the auditors annually and Finance staff throughout the year to assure compliance with applicable GASB rules and best practices in government accounting. Additionally, the City’s governing body receives reports on a quarterly basis and additional reports in accordance with State requirements are posted online on the City’s website at www.slocity.org.

REPORT PURPOSE AND ORGANIZATION
Audited Financial Statements
The City’s financial statements were audited by Badawi and Associates, a firm of licensed certified public accountants currently under contract with the City. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2022, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and vii

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TRANSMITTAL MEMORANDUM
disclosures in the financial statements; assessing the overall accounting principles used and significant estimates1 made by management; and evaluating the overall financial statement presentation.

The independent auditor concluded that the City’s financial statements present fairly2 , in all material respects,
the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2022. They also fairly represent the respective changes in financial position, and, where applicable, cash flows in accordance with accounting principles generally accepted in the United States of America. The independent auditors’ report is presented as the first component of the financial section of this report beginning on page 1. “Single Audit” for Federal Grant Programs. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of Federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls3 and
compliance with legal requirements, with special emphasis on the administration of Federal awards (such as Transit funding). This audit has been completed and will be filed and distributed to appropriate agencies to meet Federal requirements and deadlines.

GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors beginning on page 5.

Organization of the Annual Comprehensive Financial Report The report is presented in three sections: introductory, financial, and statistical.

SECTION ONE - The Introductory section includes this transmittal memorandum and other information to familiarize the reader with the City, including a directory of officials and advisory bodies, the City's mission statement and organizational values, and charts.

SECTION TWO - The Financial section consists of six parts: 1) the independent auditors’ report; 2) Management’s Discussion and Analysis; 3) the basic financial statements including the government-wide financial statements; 4) fund financial statements; 5) notes to the financial statements; and 6) required supplementary information; and additional statements and schedules including the local transaction tax information, non-major governmental funds, and agency funds.

SECTION THREE - The Statistical section includes selected unaudited financial and demographic information generally presented on a multi-year basis. This information includes financial trends, revenue trends, debt capacity, demographics, and economic and operating information. This section also contains important information for the benefit of the required bond disclosures and rating agencies. 1 Significant estimates included in the financial statements are made in conformity with GAAP. 2 The Term “present fairly” means that the financial statements give a reasonable view of the financial results, financial position, and cash-flow of the reporting entity. 3 Internal controls are systematic measures instituted by an organization to conduct its business in an orderly and efficient manner; safeguard its assets and resources; deter and detect errors, fraud, and theft; ensure accuracy and completeness of its accounting data; produce reliable and timely financial and management information; and ensure adherence to its policies and plans. viii

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TRANSMITTAL MEMORANDUM
As required by GAAP, these financial statements present the City (the primary government) and its component units (entities for which the government is financially accountable). Blended component units (although legally separate entities) are in substance part of the government's operations, and so data from these units are combined with data of the primary government. The City has two component units, the San Luis Obispo Capital Improvement Board and the San Luis Obispo Public Financing Authority, both of which provide financing for the construction and acquisition of City facilities. The Board/Authority is comprised solely of members of the City Council. Activities of the Board/Authority are accounted for in the applicable City governmental or enterprise funds.

PROFILE OF THE CITY OF SAN LUIS OBISPO
With a population of 47,653, the City is located eight miles from the Pacific Ocean and is midway between San Francisco and Los Angeles at the junction of Highway 101 and scenic Highway 1.

The City serves as the commercial, governmental, and cultural hub of San Luis Obispo County. San Luis Obispo is the county seat and a number of Federal and State regional offices and facilities are located within the City and California Polytechnic State University and Cuesta College are in its sphere of influence.

One of California’s oldest communities, the City began with the founding of Mission San Luis Obispo de Tolosa in 1772 by Father Junipero Serra as the fifth mission in the California chain of 21 missions. It was first incorporated in 1856 as a General Law City and became a Charter City in 1876. As a Charter City, San Luis Obispo has more local authority than cities that incorporate under the general laws of the State of California.

The Charter is the City’s governing document, and any changes must be approved by the voters. The City’s Charter has been amended several times since its adoption, most recently in August 2011.

Form of Government
As set forth in the City Charter, the City operates under the “Council-Mayor-City Manager” form of government.

The City Council has the authority to make and enforce all laws and regulations with respect to municipal affairs, subject only to the limitations of the City Charter and the State Constitution. There are four Council members, who are elected at-large and serve overlapping, four-year terms. The Mayor is also elected at-large for a twoyear term and serves as an equal member of the Council. The City Council appoints the City Manager and City Attorney. All other department heads are appointed by the City Manager.

City Services
The City provides a wide range of municipal services, including police and fire protection, water and sewer utilities, street and parks maintenance, public transportation, parking, parks and recreation, planning, building and safety, and other general government services. Financial data for all funds through which services are provided by the City have been included in this report. Several municipal services are provided through other governmental agencies or private utility companies, including:

Service Agency
Courts, Health and Social Services County of San Luis Obispo Elementary and Secondary Schools San Luis Coastal Unified School District Community College San Luis Obispo County Community College District Solid Waste Collection and Disposal San Luis Garbage Company Gas, Electric and Telephone Private Utility Companies
ix

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TRANSMITTAL MEMORANDUM
The City is also a member of a Joint Powers Authority called Central Coast Community Energy (3CE) which sources clean and renewable electricity at competitive prices for the community and is delivered through the grid by PG&E. CCCE follows a Community Choice Aggregator or “CCA” model, a community-focused, “not-forprofit” model that allows for greater commitment to clean and renewable energy while supporting community reinvestment for affordable and fair rates and equitable access to clean-energy resources.

It is locally controlled and governed by board members who represent the communities served by 3CE.

Becoming a member of 3CE was an integral part of the City’s Major City Goal for Climate Action. For more information visit: www.3cenergy.org
Budgetary Policy and Control
Though the City adopts a two-year Financial Plan, annual budgets are legally appropriated by the City Council by resolution and are prepared for each fund in accordance with its basis of accounting. As provided under the City Charter, the City Manager is responsible for preparing the budget and for its implementation after adoption.

Financial reports are presented to the City Council and posted online on a quarterly basis. At mid-year, staff prepares a more in-depth status report for the City Council for the first six months of the fiscal year in addition to any fund balance information and long-term forecast based on the audited annual comprehensive financial report.

Since the City uses a two-year Financial Plan, operating appropriations not expended during the first year may be carried forward into the second year for specific purposes with the approval of the City Manager. When applicable, these amounts are shown as assigned for subsequent year expenditures in the financial statements.

At the end of the second year of the two-year plan, operating appropriations lapse unless they are committed by contract or purchase order. Multi-year budgets are adopted for capital projects as necessary but revert to fund balance after three years of non-activity.

The City Council has the legal authority to amend the budget at any time during the fiscal year. The City Manager has the authority to make administrative adjustments to the appropriated budget if those changes will have neither a significant policy impact nor affect budgeted year-end fund balances. The City's budgetary policies are more fully described in Note 1 of the financial statements.

Expenditure and budgeting details are maintained by the City for each fund and department by program area at the line-item level. Budgetary control is exercised through a computerized Enterprise Resource Planning (ERP) system, which interfaces with the City's general ledger. The system maintains an ongoing record of budget balances throughout the year based on actual expenditures and purchase order obligations. Open purchase orders at year-end are reported as assigned fund balance. The ERP system also maintains the City’s list of fixed assets.

It is the City's policy to maintain an operating reserve in the General Fund of at least 20% of operating expenditures which is reflected in the committed fund balance. This policy objective has been achieved for fiscal year 2021-22. The City maintains a similar policy for working capital balances in the water, sewer, and parking enterprise funds. The Fleet Replacement Fund reserve policy is $500,000 and the Information Technology (IT) Replacement Fund reserve policy is $400,000 which have been met for 2021-22. With the 2021-22 fiscal year, the City also adopted a capital reserve in its Capital Outlay Fund of 20% of budgeted capital investments from the Local Revenue Measure for the fiscal year. This reserve will be adjusted with each budget adoption, funded from the local transactions tax, and is reflected in the Capital Outlay Fund. x

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TRANSMITTAL MEMORANDUM

FACTORS AFFECTING FINANCIAL CONDITION
The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operated in 2021-22.

Ongoing Global Pandemic
Though a gradual re-opening began in Spring of 2021, the City Council adopted its two-year Financial Plan for 2021-23 and the 2021-22 budget considering the effects of the worldwide pandemic brought on by COVID-19.

Given the ongoing uncertainty regarding economic recovery, workforce reintegration and beginning issues with supply chain shortfalls, the budget approach, while cautiously optimistic based on better than anticipated results in 2020-21, remained relatively conservative in its forecasting.

However, the investments into the adopted major city goals remained strong and concentrated on assisting the community with the recovery from the depth of the pandemic as well as addressing emerging trends and needs.

The following goals were adopted, and specific work programs implemented to deliver on the community’s ambitions:
 Economic Recovery, Resiliency & Fiscal Sustainabiltiy  Diversity, Equity, Inclusion
 Housing and Homelessness
 Climate Action, Open Space, and Sustainable Transportation As the year unfolded, the City’s major revenue sources continued to recover and grow, providing a muchimproved fiscal outlook and the City’s ability to deliver on goals and objectives, as well as certain deliverables set forth in the adopted Fiscal Health Response Plan that stipulated significant additional payments toward the City’s unfunded pension liability. Several other factors played into the City’s financial condition throughout the year and at 2021-22 year-end:

1. Strong tax revenue including increased levels of Sales and Use Tax, Property Tax as well as record high Transient Occupancy Tax. The 2020 voter approved local transaction tax went into effect on April 1, 2021, and FY 2021-22 was the first full fiscal year with the increased tax rate. This local revenue measure has now become the City’s largest single tax revenue. The revenue picture forming during the first six months of the fiscal year allowed for significant adjustments at mid-year to address community needs and emerging issues in a timely fashion and as they were developing.

2. State & Local Fiscal Recovery Funds under the American Rescue Plan Act (ARPA). The Congressional American Rescue Plan Act approved $350 billion for state, local, territorial, and Tribal governments in form of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). As an entitlement city, San Luis Obispo received $13.5 million in funding directly from the U.S. Treasury.

The funding was received on July 6, 2021 and June 30, 2022, respectively. The City will use $10 million of the funding to replenish the revenue loss experienced in 2020 and pay for general government services. The remaining funding will be used in accordance with the U.S. Treasury Final Rule and was approved by the City Council via the 2022-23 Budget Supplement resolution in June 2022. None of the funding was used in FY 2021-22 and remains available for spending through 2026 per Council action which is as follows:
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3. Emerging Needs & Investment in Homelessness response and Diversity, Equity, and Inclusion The City’s two-year Financial Plan invested in response to homelessness and housing and well as Diversity, Equity, and Inclusion through Major City Goals and extensive work programs to fulfill the objectives adopted by the City Council. Due to the City’s fiscal outlook at mid-year, further investments were possible, and the adopted budget amended.

The following are examples of the investments with the full report available at: Mid-Year 2021-22 Downtown Safety Enhancements Capital $375,000
Crisis Communication Planning Operating $50,000
Mission Plaza Landscape & Lighting Capital $120,000
Convert Mobile Crisis Unit to Permanent4 Operating $-
Railroad Square Safe Parking Operating $64,633
Public Safety Customer Engagement Operating $17,000
Additional Pressure Washing Operating $25,000
Central Resident Inquiry Platform Operating $40,000
Additional Fire Inspection Personnel Operating $33,410
The total budget augmentation amounted to $8.3 million including a $3.9 million grant to the SLO Rep Theater for the new theater location on Monterey and Palm Street. Of the additions, $6.7 million were one-time investments and do not have an ongoing budgetary impact.

Throughout the 2021-22 Fiscal Year, the City organization was asked to remain flexible and adjust to the changing conditions that the pandemic and continued directives, as well as the re-opening of business and travel activities presented. The local colleges returned to in-person sessions; all indicating a “normalization” of economic and service activities.

Some of the programs implemented the previous year continued such as sidewalk dining, the tenant improvement program, shop local promotions, augmented childcare options, and virtual holiday activities. 4 The Mobile Crisis Unit was fully budgeted in FY2021-22 and this action integrated it into the budget ongoingly. xii

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For additional information regarding the City’s ongoing investments in the City’s economic vitality please visit:
https://www.slocity.org/business/economic-development.

Economic Indicators for San Luis Obispo in General
Local Economic Environment
Historically, and prior to the pandemic-driven conditions, the City has experienced a relatively stable economy, largely insulated from economic downturns in other parts of the State or the nation due to major State and federal employers such as the California Polytechnic State University (Cal Poly), California Men’s Colony, California Department of Transportation (Cal Trans) District 5 offices, the Regional Water Control Board, and Camp San Luis. It is also the County seat with significant county administrative offices and the regional courts.

Employment. Due to the local economic environment and a large government presence and diversity, employment in the San Luis Obispo County region has historically been relatively stable. As noted above, the State has a major university, correctional facility, and other regional offices located in the community. The County government and school districts are also major employers. Other major employers include two major hospital facilities, several engineering and software companies, and Pacific Gas and Electric. The announcement to prolong the use of the Diablo Canyon Nuclear Power Plan presents an opportunity to continue jobs for trained professionals in the region.

Of course, the historically solid base of employment in the County was not immune from the impacts of the pandemic; especially due to the full closure of Cal Poly and the change in the hospitality industry that relies on the student population. The California Employment Development Department (EDD) reported the unemployment rate in San Luis Obispo County at 11.5% in June 2020, down from a high of 14.8% in April 2020 and the height of the “stay at home” orders. However, after July 2020, the unemployment rate started to trend downward and with the gradual reopening, renewed travel activity, and the return of the colleges to on-campus teaching, the unemployment rate went from 5.5% in July 2021 to 2.6% at the end of the fiscal year according to the U.S. Bureau of Labor Statistics.

Key Revenue Sources. As the commercial, governmental, and cultural hub of San Luis Obispo County, the City is fortunate to attract a diverse array of strong revenue sources. The top three revenue sources for the City are Sales & Use Tax, Property Tax, and Transient Occupancy Tax (TOT). The 2020 voter approved local transaction tax of one-and-a-half cent (Local Revenue Measure) went into effect in April 2021 to provide for an array of City services including infrastructure. In just over one year, this Local Revenue Measure has become the largest single tax revenue to the City, growing from $12 million to over $29 million.

Of additional note in this fiscal year is the return of travel activity, especially for a drive-to market such as the City of San Luis Obispo. As people began enjoying time away from home, the City’s tourism industry bounced back and reached levels of activity not seen before. The related TOT ended the year well above the anticipated budget at its highest level to date at $10.6 million.

All in all, the City’s Sales Tax revenue, strengthened by the new Local Revenue Measure, ended the year well above the adopted budget. Property Tax remained strong and experienced a further increase over previous fiscal years. The City’s fee revenues mostly provided the budgeted cost recovery, but development activities, though still strong, lagged and had to be adjusted downward.
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Long-Term Financial Planning.

The City engages in a number of activities focused on long-term financial planning to gauge and adjust to current economic conditions and trends. Different scenarios are developed considering a multitude of information and resources. This effort was even more elaborate in FY 2021-22 due to the uncertainties surrounding the pandemic and gradual re-opening to pre-pandemic activity and assisted the City’s response to the unprecedented economic environment.

Long-Term Fiscal Forecast. Before the two-year Financial Plan and budget process begins, the City Council reviews long-term fiscal forecasts for the General and the Enterprise Funds to help set the stage for sustainable decision-making. The purpose of the forecast is to consider long-term fiscal health and to identify the funds’ ability – on an order of magnitude basis – to maintain current services and existing assets and look at the opportunity to fund new initiatives. The 2022-27 forecast was completed in April 2021, before the City Council considered the 2021-23 Financial Plan. The City continued its cautiously optimistic approach given the multitude of remaining uncertainties, but due to a much better fiscal standing was able to adjust the budget at mid-year with a multitude of efforts to address community needs and further investments to assist with economic vitality after the depth of the pandemic. For more information on the Council action at mid-year 2021-22, please visit:
2021-22 Mid-Year Report.

CalPERS and the City’s Unfunded Liability
With the 2018-19 three-year Fiscal Health Response plan, the City had prepared a path to pay-down the City’s pension liability over a 20-year term, shortening the duration of prescribed payments and saving around $19 million in payments due. It did so by aligning its expenditures with the revenue forecast that would allow for additional annual payments. A first payment of $4.2 million was made in April 2019 and a second payment of equal amount was scheduled for April 2020. Due to the state of the health emergency, the City Council decided to retain any unassigned fund balance until the fiscal situation could be better assessed. It did so again in February 2021 when the next payment of $3 million was scheduled and uncertainties with pandemic driven restrictions continued. Given the City’s commitment to the additional payments and the year-end results, the previously earmarked amounts for the past three fiscal years were paid through unassigned fund balance, making good on $10.2 million in additional funding toward the City’s pension liability. An additional $2.2 million was paid through the City’s four enterprise funds as well as the Whale Rock Reservoir custodial fund and Tourism Business Improvement District Fund.

In July 2021, CalPERS announced having ended the 2020-21 Fiscal Year with a 21.3% investment gain. This result triggered the previously adopted Risk Mitigation policy, lowering the future discount rate to 6.8%. The CalPERS board ratified the discount rate in November 2021, and it will become effective for the City with the 2023-24 fiscal year. Given this new reality, further influenced by a 6.1% investment loss at June 30, 2022, staff is reviewing its long-term strategy to gauge the appropriate level of additional payments moving forward and plans on including the strategy as a fiscal policy going forward.

FINANCIAL CONDITION OVERVIEW
Despite the background of economic uncertainty, changes in doing business, as well as new challenges stemming from the pandemic, the City ended the fiscal year 2021-22 in a better fiscal position than originally anticipated.

All major revenue sources recovered or exceeded pre-pandemic levels and service fees recovered with the reopening of venues and an immediate bounce back once restrictions were lifted. Though the Fiscal Health Contingency Plan was deactivated with the new Financial Plan, it assisted greatly in counter-acting the situation during the depth of the pandemic and allowed the City to invest in the community and situate it perfectly for an xiv

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immediate recovery. The ultimate fiscal result was greatly supported by the additional local transaction tax that was in effect for the first full year in FY 2021-22, generating an additional $19 million in General Fund revenue.

At June 30, 2022, the total General Fund balance was $40.7 million; a decrease of $6 million over 2020-21 despite the additional $10.2 million payment to CalPERS. This decrease was deliberate and funded a variety of one time costs such as pilot programs to address homelessness.

Additionally, the City continued investing heavily in the economic vitality of the community and made substantial investment at mid-year to address emerging needs as well as new challenges such as labor and supply chain shortages. The table below shows the levels of fund balance in accordance with GASB 54 and the City’s policy pertaining to fund balance assignments. Fund Balance & Reserve Policy General Fund – Fund Balance per June 30, 2022
Non-spendable $90,797
Committed
Contingency Fund – 20% policy level $12,014,000
General government programs $5,696,864
Risk Management $1,845,935
Assigned to:

Encumbrances
SLO Rep Theater grant
$4,270,529
$3,940,000
115 Trust Fund $2,000,000
CalPERS Payment $2,000,000
Development Services $530,657
Unassigned $8,356,724
Total Fund Balance $40,745,506
Continue to Focus on Sustainability and Long-term Fiscal Health With its Major City Goal for Economic Recovery, Resiliency & Fiscal Sustainability, the City continues its commitment to long-term fiscal health. The goal program aims to, in collaboration with local partners, continue to assist with economic recovery for all from the pandemic and sustain a thriving local economy by supporting local businesses, arts and culture, downtown vitality. It commits to practicing fiscal responsibility, paying down unfunded pension liabilities, and investing in critical infrastructure.

Revenue Base Growth. Since the Great Recession, the US had experienced an unprecedented long-term expansion that continued into the latter part of 2019-20. Sales tax (including the local Transaction tax), Property Tax and Transient Occupancy Tax (TOT) had accounted for 69% of all funding sources in the General Fund. All of these revenues showed slow but steady growth over the past several years with Property Tax seeing the largest increase. However, all of this came to an abrupt halt with the onset of COVID-19 and the resulting global pandemic that placed the national and local economy on temporary halt. The forecast was uncertain as the pandemic ultimately influenced the entire 2020-21 fiscal year.

However, quick action by Congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, and protection from rent and utility payments, lead to an accumulation of wealth that resulted in continued purchasing power and consumption. The beginning trends of xv

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the migration to online shopping were accelerated and sales tax revenue did not see the originally anticipated decline. Property tax remained strong as the real estate market continued to deliver. Tourism did clearly take a hit but continued to see activity and bounced back due to pent-up demand in the last quarter into the summer months. Development related fee revenue continued to see significant growth as development activity remained at unprecedented levels in the City, with two Community Facilities Districts beginning construction and housing continuing as a major City goal.

These trends largely continued to accelerate during FY 2021-22 with travel activities returning strongly, retail shopping re-discovered, and housing markets retaining momentum. Only development began to tighten due to inflationary pressures and resulting monetary policy from the Federal Reserve to counter-act inflation. Labor shortages as well as supply chain challenges began to take a toll in the third quarter of the Fiscal Year and will be influencing the second year of the Financial Plan greatly.

Containment of Operating Costs. The City’s efforts to control costs are ongoing while also addressing the need to remain an attractive employer and provide the services the community expects. The City has an extensive policy framework that allows immediate and nimble action to address adverse changes in economic and fiscal condition and will continue to activate as needed. The City’s implementation of a 2nd and 3rd tier retirement benefit program continues to change the City’s annual retirement contributions as 72% of the workforce is now enrolled in those retirement plan tiers. This is an increase of 15% over last year. These actions have been instrumental in helping the City contain current costs and long-term liabilities related to retirement benefit programs; furthermore, two of the City’s bargaining units as well as the Management & Confidential group pay additional contributions toward the City’s pension obligation.

Infrastructure and Facilities Maintenance. As a growing city, San Luis Obispo has seen the need for capital expenditures grow steadily over the past decade. The need to maintain, repair or replace its current infrastructure is met with the need to build amenities for the community at large and the City’s Local Revenue Measure plays a vital part. The City plans on using 75 to 85% of the revenue for infrastructure improvements and enhancements and the Public Works department is gearing up to deliver the projects. For a list of projects delivered in FY 2021- 22 see page 5 in the Management Discussion and Analysis.

The funding is allocated to projects in coordination of a number of adopted plans including the General Plan, Bicycle Transportation Plan, Downtown Concept Plan, and Mission Plaza Concept Plan. Each plan represents hours of community input and a vision to maintain and improve San Luis Obispo now and into the future.

Ongoing Commitment to Local Transaction Tax Measure Priorities (Local Revenue Measure) The City remains committed to the priorities for the use of the local transaction tax measure as identified by the community. They include public safety, senior services, code enforcement, neighborhood street paving, open space preservation, traffic congestion relief and flood protection. The following table summarizes how the local transaction tax measure funds were used during fiscal year 2021-22. The voter approved increase took effect on April 1, 2021, and the table below reflects the first complete year with the new level of Local Revenue Measure in place and revenue amounting to $29 million.

Total uses of the funding during 2020-21 amounted to $32.5 million, with an additional $2 million encumbered through purchase orders or contracts; the remaining balances of these resources are designated for future year expenditures. A more detailed schedule of local transaction tax measure sources and uses is provided in the Financial Section of this report beginning on page 123. xvi

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Local Sales Tax Measure Revenue & Uses Summary
2021-22
Revenues:

Sales and use tax - Measure G add-on tax $ 29,172,258
Use of money and property ($283,748)
Total Revenues $28,888,510
Uses:

Operating Programs ($6,912,660)
Capital Projects ($25,578,957)
Total Uses ($32,491,617)
Change in Fund Balance ($3,603,107)
Prior Sales Tax Measure Balance $9,299,971
Encumbered or designated for carryover for future year expenditures ($1,958,912) Net available for future year appropriations (note 1) $ 3,737,952 Note 1: Council took action on October 4, 2022 (R-11367) to allocate $2.1 million of the available fund balance * Detail of transfers and expenditures is included with other supplementary information in the financial statements, which can be found beginning on page 121.

RELEVANT FINANCIAL POLICIES
The City of San Luis Obispo has adopted a comprehensive set of budget and financial policies to provide guidance for all fiscal matters and resource allocations. The policies are reviewed, amended, and updated with each Financial Plan adoption and as needed throughout the year. The policies cover virtually every aspect of financial management but several of these policies are particularly relevant to the understanding of the City’s financial performance in 2021-22.

Debt Administration Policies
The City’s Capital Financing and Debt Management policies contain general guidelines for refinancing of outstanding debt. These guidelines call for periodic review of all outstanding debt to determine refinancing opportunities, particularly to create economic benefit such as lower debt service payment or reduction of principal. The City always evaluates various options when considering the issuance of debt in order to benefit from the best long-term terms and conditions.

Information on the City’s outstanding debt issues and other long-term liabilities is provided in Note 7 in the notes to the financial statements.

In February 2022, Fitch Ratings, a nationally recognized statistical rating organization, reviewed the City’s financials, its fiscal outlook, and the current rating. On February 22, 2022, Fitch Ratings subsequently concluded that there should be no change to the existing rating at AA+ with a stable rating outlook. Fitch Ratings’ long xvii

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term credit ratings are assigned on an alphabetic scale from AAA to D. The City’s AA+ bond rating means that the City’s investment grade is “quality”. Specifically, current lease revenue bonds (LRBs) issued by the San Luis Obispo Public Financing Authority remain at an 'AA’ rating and the LRBs issued by the City of San Luis Obispo Capital Improvement Board at an 'AA' rating. At this time, the City of San Luis Obispo has no general obligation debt.

Fitch Ratings’ analysts had previously commended the City’s ability to respond to the economic impacts of the COVID-19 pandemic, “budget management at times of recovery is very strong, leaving the city well prepared to manage the current period of economic stress. The city engages in thorough and conservative long-term financial planning with a focus on maintaining structural budget balance, maintaining the city's capital assets with minimal debt reliance, and proactive efforts to pay down its unfunded retirement liabilities above actuarially determined levels.”
Budgetary Policies
The City of San Luis Obispo has a policy that requires the adoption of a balanced budget over the two-year period of the Financial Plan. This means that operating revenues must fully cover operating expenditures, including debt service. Additionally, ending fund balance (or working capital in the enterprise funds) must meet minimum policy reserve levels. Under this policy it is allowable for total expenditures to exceed revenues in any given year but only when fund balance is used to pay for capital improvement plan projects or other “one-time,” non-recurring expenditures.

Fund Balance and Reserve Policies
The City’s policies recognize the importance of long-range planning in managing the City’s fiscal affairs in order to provide for stable operations, promote more orderly spending patterns, and assure the City’s long-term fiscal health. The reserves contained in the General Fund and Enterprise Funds play a pivotal role in this strategy. The reserve policies call for a minimum fund balance of at least 20% of operating expenditures in the General Fund and a working capital level of 20% of operating expenses in the Water, Sewer, and Parking Enterprise Funds.

The policies also require the Fleet Management and Information Technology Replacement Funds to provide for the timely replacement of vehicles and equipment as well as IT equipment and software and a reserve is retained in these funds to safeguard against unforeseen and unfunded issues. All reserve policies continue to be met.

To further strengthen the Water and Sewer fund against revenue fluctuations, both funds carry a Rate Stabilization reserve of 10% of sales revenue for Water and 5% of sales revenue for Sewer.

Long-Term Liabilities and Maintenance of Infrastructure With the 2017-19 Financial Plan, the City began to incorporate the use of one-time funds above policy reserve to unfunded pension liabilities and infrastructure into the City’s fiscal policies. Additionally, the City began addressing the long-term needs of its capital assets and categorizing asset maintenance, asset replacement, and new assets driven by new development. The City Council received a first presentation of the long-term needs of its infrastructure in early 2018 and the assessment continued into FY 2019-20 with the beginning stages of the SLOForward effort. It culminated in the City Council’s decision to place a measure on the November 2020 ballot for a 1.5 cent local transaction tax measure to supplant the 2006 enacted half-cent measure. The measure was successfully approved by 58% of the voters and the new local transaction tax went into effect on April 1, 2021.

The immediate increase in this revenue stream is part of the favorable financial condition of the City at fiscal year-end and greatly assisted in additional economic recovery efforts at the tail end of the COVID19 restrictions xviii

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and continued investment in the City’s extensive infrastructure. This Local Revenue Measure has now become the City’s largest tax revenue and the City remains committed to the majority of the funds being used to maintain, replace, and renew its growing infrastructure needs.

Pension and Other Post-Employment Benefits
The City contributes to the California Public Employees’ Retirement System (CalPERS), an agent multipleemployer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California.

Benefit provision and all other requirements are established by State statute and City ordinance. The amount of the City’s required annual contribution is determined actuarially and is reported to the City via the Annual Valuation Reports provided by CalPERS for each retirement plan.

It is the policy of the City to fully fund the annual contribution to ensure that the plan will fully meet its obligation to retired employees on a timely basis. Prepaying the City’s unfunded liability will also reduce overall annual cost depending on whether approved actuarial assumptions are realized and are not adjusted by the CalPERS Board.

As part of its cost reduction strategy, the City has implemented 2nd Tier and the state mandated 3rd Tier retirement benefit programs for new hires while also requiring all employees to pay at least the full amount of the member share of the annual retirement contribution. Beginning in 2018-19, and increasing in 2019-20, the City negotiated further concessions with employee groups to pay into CalPERS which will help lessen pension impacts to the City’s budget. The City continues to monitor legal developments and legislation that could positively or negatively impact the City’s finances and plans to counteract any adverse investment results with additional payments to CalPERS.

The City has also established a Section 115 Trust fund with the California Employer’s Pension Prefunding Trust (CEPPT), and based on the audited financials, plans on making its first contribution of $2.4 million in FY 2022-

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All employees currently pay the full employee contribution and the additional contributions agreed to are listed in the chart below:

Police (Sworn) Employee Contribution Levels to PERS
Retirement
(Percent of Salary)
Safety PERS Tier Jul-20
Tier 1 (3% @ 50) 15%
Tier 2 (2% @ 50) 15%
Tier 3 (2.7% @ 57) 16.75%
Police (Non-Sworn) Employee Contribution Levels to PERS Retirement
(Percent of Salary)
Miscellaneous PERS Tier Jul-20
Tier 1 (2.7% @ 55) 14%
Tier 2 (2% @ 60) 13%
Tier 3 (2% @ 62) 10%
Fire (Sworn) Employee Contribution Levels to PERS
Retirement
Safety PERS Tier Jul-20
Tier 1 (3% @ 50) 12%
Tier 2 (2% @ 50) 12%
Tier 3 (2.7% @ 57) 16.75%
Employee Contribution Levels (includes appointed officials, department heads, unrepresented management,
unrepresented confidential and non-sworn fire employees) to PERS Retirement
Miscellaneous PERS Tier Jul-20
Tier 1 (2.7% @ 55) 11%
Tier 2 (2% @ 60) 10%
Tier 3 (2% @ 62) 10%
Other Post-Employment Benefits (OPEB). The City’s primary OPEB cost obligation is for retiree health benefits under its election to participate in the CalPERS Health Benefit Program under the “unequal contribution option.”
When the City joined the CalPERS health plan in 1993, it immediately experienced an increase in the plan choices available along with a significant reduction in rates. Due to CalPERS purchasing power, the City continues to experience competitive health care rates. However, as a condition of joining the CalPERS health program, the City agreed to contribute the minimum monthly amount required by law towards retiree health care xx

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coverage for both active and retired employees. This allows retired employees to purchase health insurance at the same rate offered to active employees.

Additionally, the City had established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000. There is only one employee remaining who receives one-half of the retiree health insurance premiums paid by the City through the City's group health plan. This provision ceases upon the death of the retired employee or upon the retired employee reaching age 65. These OPEB benefits were financed on a pay-as-you-go basis in the past. As directed by Council in May 2008, the City began fully pre-funding the OPEB obligation via an irrevocable trust in 2008-09.

Additional information on the City’s retirement and post-employment benefits can be found in Note 8 in the notes to the financial statements.

MAJOR INITIATIVES
The City continued its efforts on a number of significant initiatives in 2021-22 as adopted with the 2021-23 Financial Plan. As such, the Major City Goals drive the City’s strategic direction while maintaining the established core services the community expects and is accustomed to. For additional information on the City’s strategic initiatives go to 2021-23 Financial Plan
Economic Recovery, Resiliency & Fiscal Sustainability
In collaboration with local partners, continue to support economic recovery for all from the COVID pandemic and support a thriving local economy by supporting local businesses, arts and culture, downtown vitality, practicing fiscal responsibility, paying down unfunded pension liabilities, and investing in critical infrastructure.

Housing and Homelessness
To expand housing options for all, continue to facilitate the production of housing, including the necessary supporting infrastructure, with an emphasis on affordable and workforce housing.

Collaborate with local non-profit partners and the county, the state, and federal governments to discover and implement comprehensive and effective strategies to reduce chronic homelessness.

Diversity, Equity, Inclusion (DEI)
In response to our commitment to making San Luis Obispo a more welcoming and inclusive city for all, continue to develop programs and policies to support diversity, equity, and inclusion initiatives and advance the recommendations of the DEI Task Force.

Climate Action, Open Space, and Sustainable Transportation To proactively address the climate crisis, continue to update and implement the Climate Action Plan for carbon neutrality, including preservation and enhancement of open space and the urban forest, alternative and sustainable transportation, and planning and implementation for resilience.
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GASB Pronouncements for FY 2021-22
GASB Statement No. 87 - Leases
This pronouncement became effective for fiscal years beginning after June 15, 2021 and was included in the City’s financial statements for the first time with FY 2021-22. As such, GASB 87 requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset.

Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about the governments’ leasing activities. More detail is provided under Note 6 in the Financial Statements that follow.

GASB Statement 97 – Certain Component Unit Criteria, and Accounting & Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans The primary objectives of this Statement are to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans.

As disclosed in Note 10, the City’s 457 plans do not meet the definition of a pension plan as they are voluntary contribution plans available to employees who choose to contribute and have no required City contribution.

AWARD FOR EXCELLENCE IN FINANCIAL REPORTING
The Government Finance Officers Association of the United States and Canada (GFOA) has awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its ACFR for the fiscal year ended June 30, 2021.

The Award Program
The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of State and local government financial reports.

In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized annual comprehensive financial report whose contents conform to program standards. This report must satisfy both U.S. generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. The City has received a Certificate of Achievement each year since 1984. Staff believe that the City’s current ACFR continues to conform to the Certificate of Achievement program requirements and will submit it to GFOA to determine its eligibility for another certificate.
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Value of Program Participation. There are benefits to participating in these programs beyond simply receiving recognition for the City’s efforts. For example, by striving to meet program standards and goals, the City produces better reports. Additionally, as part of the review process, comments for improvement from other municipal finance professionals who review the reports from a “fresh” perspective are received. Staff believes that this results in continuous improvements in reporting the City’s financial results to elected officials, staff, and other interested parties such as bondholders, credit agencies, and the public at-large.

ACKNOWLEDGMENTS
The preparation and development of this report would not have been possible without the year-round dedication of the Finance Department staff and their special efforts, working in conjunction with the City's independent auditors, to produce this document.

We would like to take this opportunity to compliment all those staff members within the Finance Department and in the other departments as well as our independent auditors who were associated with the preparation of this report. We would also like to thank the City Council for the continued support and dedication in planning and conducting the financial operations of the City in a fiscally responsible and progressive manner. xxiii

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DIRECTORY OF OFFICIALS AND ADVISORY BODIES

CITY COUNCIL
Erica A. Stewart Mayor
Carlyn Christianson Vice Mayor
Andy Pease Council Member
Jan Marx Council Member
Michelle Shoresman Council Member

ADVISORY BODIES
Active Transportation Committee
Administrative Review Board
Architectural Review Commission
Construction Board of Appeals
Council Compensation Committee
Cultural Heritage Committee
Housing Authority
Human Relations Commission
Investment Oversight Committee
Mass Transportation Committee
Parks and Recreation Commission
Personnel Board
Planning Commission
Promotional Coordinating Committee
Revenue Enhancement Oversight Commission
Tourism Business Improvement District Board
Tree Committee

APPOINTED OFFICIALS AND DEPARTMENT HEADS
Appointed Officials
Derek Johnson City Manager
J. Christine Dietrick City Attorney
Department Heads
Shelly Stanwyck Assistant City Manager
Greg Hermann Deputy City Manager
Michael Codron Director of Community Development
Brigitte Elke Director of Finance
Keith Aggson Fire Chief
Nickole Domini Director of Human Resources
Richard Scott Police Chief
Aaron Floyd Director of Utilities
Greg Avakian Director of Parks & Recreation
Matt Horn Director of Public Works
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MISSION STATEMENT

SAN LUIS OBISPO STYLE
Quality with Vision WHO ARE WE?
People Serving People
 A team that puts high value on each citizen it serves.  Providers of programs that meet basic service needs of each citizen.  Enhancers of the quality of life for the community as a whole.

WHAT DO WE STAND FOR?
Quality in all Endeavors – Pride in Results
 Service to the community – the best – at all times.
 Respect – for each other and for those we serve.
 Value – ensuring delivery of service with value for cost.  Community involvement – the opportunity to participate in attaining the goals of the City.

WHERE ARE WE GOING?
Into the Future with a Design
 Planning and managing for levels of service consistent with the needs of the citizens.  Offering skills development and organizational direction for employees in order to improve the delivery of municipal services.
 Developing sources of funding and establishing a sound financial management program which will result in fiscal independence and flexibility in the delivery of City services.  Providing the residents of the City with accurate and timely information on issues which affect them, and encouraging the full utilization of City services.
 Promoting the City as a regional trade, recreational and tourist center and improving the quality of life for residents and visitor.
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ORGANIZATIONAL VALUES
We, as an organization, embrace opportunities to improve our services and the quality and effectiveness of our relationships with the community and our teams. The following values guide and inspire our efforts.

Shared Vision, Mission and Goals
We have a sense of common purpose and direction pursued with passion and translated into concrete actions.

Service
We are dedicated to the best use of resources to fulfill identified community goals and needs.

Leadership and Support
We recognize that the ability to lead can be found at all levels and that to create an environment to succeed requires leading by example.

Communication
We foster open and clear discussion that encourages the willingness to speak up and to listen, within a framework of respect and understanding.

Team Players
We encourage effective working relationships within and between departments and the public to address issues and achieve valuable results.

Honesty, Respect and Trust
We honor commitments, acknowledge legitimate differences of opinion and accept decisions reached with integrity.

Initiative and Accountability
We take personal responsibility to do what needs to be done and report the results in a straightforward manner.

Innovation and Flexibility
We are open to change and willing to try new ways to fulfill the organization’s vision, mission, and goals more effectively.
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Employee Development and Recognition
We encourage and support each employee to improve relevant job skills and celebrate personal and team accomplishments.

Stewardship and Ethics
We promote public trust by using City resources wisely, and through consistent fulfillment of these values. xxvii

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Patrol Fire, Medical & Haz Mat Natural Resources Recruitment Assistant City Manager Traffic Safety Emergency Response Economic Development Labor RelationsInvestigations Hazard Prevention Cultural Activities Fair EmploymentNeighborhood Services Fire Inspections City Clerk Services Risk ManagementAnimal Regulation Disaster Planning General Administration Human Relations Information TechnologyGIS Management
Budget Recreation Programs Water Engineering Long Range Planning Purchasing Ranger Services Sewer Transportation Development ReviewAccounting & Revenue Park Planning Utilities Resource Creek & Flood Protection Building & Safety Support Services Golf Course Conservation Maintenance Services: CDBG Administration Finance Administration Public Art Whale Rock Reservoir Streets, Parks, Bldgs Housing Community
Development
Administration
Dept Reporting to the Assistant City Manager
Utilities
Human
Resources
Parks &
Recreation
Public
Works
Community Services

RESIDENTS

ADVISORY
BODIES
CITY

MANAGER

MAYOR &

CITY COUNCIL
Appointed by the City Council Appointed by the City Manager Dept CITY

ATTORNEY
Police Fire
Finance
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Government Finance Officers Association
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of San Luis Obispo
California
For its Annual Comprehensive
Financial Report
For the Fiscal Year Ended
June 30, 2021
Executive Director/CEO
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xxx Page 872 of 1071

FINANCIAL SECTION
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xxxii Page 874 of 1071
INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California
Report on the Audit of the Financial Statements
Opinions
We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the City of San Luis Obispo, California (City) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2022, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Responsibilities of Management for the Financial Statements The City’s management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

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To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California

Page 2 ends

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:
 Exercise professional judgment and maintain professional skepticism throughout the audit.  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, no such opinion is expressed.
 Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
 Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control– related matters that we identified during the audit.

Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information, pension plan and OPEB plan information on pages 5-31 and 103-120 be presented to supplement the basic financial statements. 2

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To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California

Page 3 ends

Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Supplementary Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The local sales tax measure funding schedule, combining and individual nonmajor fund financial statements and budgetary comparison schedules, are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The local sales tax measure funding schedule, the combining and individual nonmajor fund financial statements and budgetary comparison schedules on pages 123-159 are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the local sales tax measure funding schedule, the combining and individual nonmajor fund financial statements and budgetary comparison schedules are fairly stated in all material respects in relation to the basic financial statements as a whole.

Other Information
Management is responsible for the other information included in the annual report. The other information comprises the introductory and statistical sections but does not include the financial statements and our auditor's report thereon. Our opinions on the financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.
3

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To the Honorable Mayor and Members of the City Council
of the City of San Luis Obispo
San Luis Obispo, California

Page 4 ends

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 20, 2021, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

Badawi and Associates, CPAs
Berkeley, California
December 20, 2022
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Management’s Discussion and Analysis
Overview of the Financial Statements
The discussion and incorporated analysis in this document are intended to serve as an introduction to the City’s basic financial statements, which include the following components: (1) government-wide financial statements, (2) fund financial statements and (3) notes to financial statements. This report also contains required supplementary information (RSI) as well as other supplemental financial information.

Government-wide Financial Statements. This set of statements is designed to provide readers with a broad overview of the City’s finances, in a manner similar to private-sector business reporting.

The Statement of Net Position presents financial information on all the City’s assets/deferred outflows of sources and liabilities/deferred inflows of sources, with the difference reported as net position. In the private sector, it is similar to a balance sheet.

Over time, increases or decreases in net financial position may serve as a useful indicator of whether the financial position of the City is improving or declining. In conformance with GASB 68, the Statement of Net Position reported for fiscal year 2021-22 considers the City’s long-term pension liabilities, effectively decreasing the City’s net financial position.

The Statement of Activities presents changes in the government’s net position during the most recent fiscal year. All changes in net position are reported during the period when the underlying events giving rise to the change occur, regardless of the timing of the related cash flow. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods such as revenue pertaining to uncollected taxes.

The City’s government-wide financial statements distinguish the functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or a significant portion of their cost through user fees or that are required by grantor agencies or City policies to be accounted for in this fashion (business-type activities).

The governmental activities include: (1) public safety, (2) transportation, (3) leisure, cultural and social services, (4) community development and (5) general government support services such as legal services, elections, human resources, risk management, finance, and information technology. The business-type activities of the City include:
(1) water, (2) sewer, (3) parking operations and the (4) transit program.

As required by U.S. Generally Accepted Accounting Principles (GAAP), these financial statements present the City (the primary government) and its component units (entities for which the government is considered to be financially accountable). Blended component units, although legally separate entities, are in substance, part of the government's operations and data from these units are combined with data of the primary government.

The San Luis Obispo Capital Improvement Board and the San Luis Obispo Public Financing Authority are reported as blended component units in these statements. Both provide financing for the construction and acquisition of City facilities and consist of members of the City Council. Activities of both units are accounted for in the applicable City governmental funds. Separate financial statements are not prepared for the San Luis Obispo Capital Improvement 5

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Management’s Discussion and Analysis
Board or San Luis Obispo Public Financing Authority. The City has no component units that require discrete presentation in accordance with Governmental Accounting Standards Board (GASB) standards.

Pension Obligation. Pursuant to GASB Statement No. 68 (GASB 68), Accounting and Financial Reporting for Pensions, the City reports on the unfunded pension liability on the full accrual basis of accounting in the governmentwide financial statements. The reports also include note disclosure requirements and supplementary schedules as required by GASB 68. The measurement date for fiscal year 2021-22 pension liabilities is as of the fiscal year ended June 30, 2021. This date reflects a one-year lag and was used so that these financial statements could be issued in an expedient manner. Activity (i.e., contributions made by the City) occurring during fiscal year 2021-22 are reported as deferred outflows of resources in accordance with GASB Statement No. 71.

Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: (1) governmental funds, (2) proprietary funds, and (3) fiduciary funds.

Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information reflects financial resources available in the near future to finance the City’s programs.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financial decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The City maintains several individual governmental funds organized according to their purpose (general, special revenue, debt services, and capital projects). Information is presented in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances. The General Fund and Capital Outlay Fund are both considered major funds. Data from the non-major governmental funds are combined into one aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements in the supplementary information section in this report.

Of the major funds, the City adopts an annual appropriated budget for the General Fund. A budgetary comparison statement has been provided as required supplementary information to demonstrate compliance with the budget.

Budgetary information for non-major governmental funds with annual budgets has been provided with the fund financial statements in the supplementary information section in this report.

Proprietary Funds. Proprietary funds are generally used to account for services for which the City charges customers; either outside customers or internal units/divisions of the City. Proprietary funds provide the same type of information as shown in the government-wide financial statements, only in more detail. 6

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Management’s Discussion and Analysis
The only type of proprietary fund the City maintains is enterprise funds. The Water, Sewer, Parking, and Transit Funds are presented as business-type activities in the government-wide financial statements. The City considers all four of its enterprise funds to be major funds.

Fiduciary Funds. Custodial funds are the only type of fiduciary funds maintained by the City. These are used to account for resources held for the benefit of parties outside the primary government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. An example of a custodial fund may include donations provided to the City to be utilized for specific purposes as well as other funds held in trust of another entity to be utilized for a specific purpose. A specific example is the Hazardous Materials Task Force Fund, created to provide special fire services around the County, which is funded by multiple county and city agencies.

The accounting used for fiduciary funds is much like that used for proprietary funds. The Custodial Funds are presented with the fund financial statements in the supplementary information section.

Notes to the Financial Statements. The notes provide additional information that is essential to the reader for a full understanding of the data provided in the government-wide and fund financial statements.

Other Information. In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information including budgetary comparison schedules, reporting of the local transaction tax measure (Measure G and G-20) and more detailed information concerning the City’s net pension liability, schedule of contributions to the pension plan and progress in funding its obligation to provide other post-employment benefits (OPEB).

Statistical Information. The statistical section presents detailed information as a context for understanding what the information in the financial statements, notes disclosures, and required supplementary information indicates about the City’s overall financial health. This information has been adjusted over time to also serve as required bond disclosure information.
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Management’s Discussion and Analysis
The Financial Year in Review
The following information provides a narrative overview and analysis of the financial activities of the City of San Luis Obispo (City) for the fiscal year that ended June 30, 2022. It should be read in conjunction with the accompanying transmittal memorandum and the basic financial statements.

The 2021-22 City budget, representing the first of the two-year adopted Financial Plan, was prepared just when the gradual re-opening of the economy began to take shape. In many ways, FY 2021-22 therefore marked a transition year for the City organization. It restored the work postponed by the pandemic and allowed the City to reinvest in its core services and important Major City Goal efforts and strategic initiatives. The next several years will concentrate on transforming the City’s role in finding a balance between the delivery of service and programs and capital infrastructure to serve a growing community and remaining an attractive employer in a rapidly changing and dynamic labor market; all trends that have become a part of the recovery from the pandemic and its influence on worldwide all the way to City economics.

Year-End Expenditures – General Fund
Overall, the General Fund finished the year in a positive position and experienced about 8% in net expenditure budget savings. The savings can be associated mainly with staffing vacancies as the overall labor market experienced the great “resignation/reshuffle”. In addition to the increased turnover due to labor market trends, the City also approved over 60 new positions with the 2021-23 Financial Plan to meet growing needs of the community and challenges related to Major City Goals. While most of these new positions were approved to hire on July 1, 2021 many were not hired until much later in the year due to the time required for recruitment. In some cases, the salary savings were re-purposed to hire temporary or consultant staffing to assist with the workload in the interim. FY 2021-22 also included a very ambitious Major City Goal work plan, and many efforts were not fully achieved by year-end due to the staffing vacancies and emerging priorities that emanated from factors outside the City’s control.

While many factors account for annual budget fluctuations, the graph below provides a high-level illustration of the year-over-year growth in the General Fund Operating Expenditures. Prior to FY 2021-22, average operating budget growth hovered around 2.9% per year which was about 2.3% lower than the average annual CPI (Los Angeles Riverside) for the same period (5.2%). Growth spiked in FY 2021-22 due to a number of factors discussed below, thus increasing the six-year average to 4.8%.

1. The passage of Measure G-20 increased the local transaction tax from half to one-and-a-half cent. The local sales tax measure was approved to specifically offset increasing costs and the infrastructure needs of a growing city. While most of this new funding was allocated to the Capital Improvement Plan (CIP), there are also needs on the operating side to deliver the CIP and maintain the City’s growing infrastructure in addition to delivering a multitude of services and programs throughout the community.

2. A “catch-up” on costs of services. Over the 12 months ended June 2022, the Consumer Price Index for All Urban Consumers increased 9.1%. The 9.1% increase index was the largest 12-month increase since the 12- month period ending November 1981. FY 2021-22 includes some of these increases, but the base budget will increase even more significantly with the 2022-23 Budget.

Economic
Growth
Tax Revenue City
Expenditures
8

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Management’s Discussion and Analysis
Mid-Year Adjustments
Given the 2020-21 audited financial results and the better-than-anticipated revenue picture at mid-year, the City was able to immediately address emerging needs and make further investments in capital infrastructure and assets. The following adjustments need to be considered when looking at the Financial Statements and the required supplementary information and budgetary comparison schedules (page 103 – 108).

GENERAL FUND One-time Budget Appropriations 2021-22
SLO Rep Challenge Grant Operating 3,950,000
Vehicles for New Maintenance Positions Capital 210,000
Bob Jones Bike Trail Vegetation Management Operating 25,000 Downtown Safety Enhancements Capital 375,000
Crisis Communications Planning Operating 50,000
Transfer of Mitigation Fee Payment Operating 10,000
Litigation Support Operating 120,000
Council Hearing Room - Auto Tracking Camera Operating 30,000 Covid Tests Operating 30,000
Golf Course Pro Shop Flood Damage Repairs Capital 275,000 Reimbursement Agreement for 600 Tank Farm Capital 1,545,000 Mission Plaza Landscape & Lightning Improvements Capital 120,000 Total $ 6,740,000
Several of these one-time investments bridged immediate and emerging needs that turn into longer-term funding obligations. They will have to be carefully reviewed and ongoing funding could require trade-offs the City Council and City Management will have to consider with the new Financial Plan. 9

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Management’s Discussion and Analysis
General Fund Operating Budget Additions1 FY 21-22
One-time Contingency: Benchmark Study Adjustments One-time 250,000 Part-time Fire Inspector (0.5 FTE) (Revenue Offset) Ongoing 11,025 Housing/Homelessness Contract Position Operating $40,000 Increased Mission Plaza Maintenance Ongoing $27,000
Additional Pressure Washing Ongoing $25,000
Additional Pruning/Watering Ongoing $200,000
Additional Streets Maintenance Staff Ongoing $60,750
CAPSLO Programming – Safe Parking One-Time $64,633
Centralized Resident Inquiry Platform Ongoing $40,000
Public Safety Customer Engagement Ongoing $17,000
Mobile Data Computers One-Time $14,200
Additional Farmers’ Market Support Ongoing $15,000
Contract Volunteer Coordinator P&R One-Time $32,850
Emergency Manager Ongoing $38,627
Parks Maintenance Beautification Gardener Ongoing $48,600 $884,685
Detailed department information and variances explanations can be found in the year-end report that the City Council considered on October 4, 2022 , but overall, the General Fund departments ended the year within the appropriated budget at $66.5 million . As mentioned above, many departments ended the year with significant savings due to vacancies.

The overall expenditure actual of $87.3 million includes the CalPERS annual payment for unfunded liabilities as well as the Additional Discretionary Payment (ADP) of $10.2 million ($12.4 million when combining all funds) that was made in March 2022. This amount reflects three years’ worth of allocations as prescribed by the City’s Fiscal Health Response Plan. The payments were originally scheduled to be made annually but were delayed due to the onset of the pandemic and the ensuing uncertainties as to the revenue sources of the City to preserve liquidity to maintain its services to the community. The City Council therefore decided to leave the amounts earmarked annually in fund balance until such time that there was more certainty that the effects of the pandemic were largely mitigated, and the City’s overall financial condition allowed for the payment. Also included in the final expenditures are the contractual and purchasing commitments entered into in FY2021-22. This amount is subsequently marked as assigned fund balance as portrayed on page 38. Though the City Council could take action regarding these commitments, they are often tied to contractual obligations the City has or are connected to work efforts already under way. 1 The ongoing services and programs are fully integrated into the 2022-23 budget and the long-term forecast. 10

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Management’s Discussion and Analysis
* Shown separately in order to reflect a more accurate year-over-year comparison for departments. Line 17 includes the FY 2021-22 one-time $10.2 million additional down payment to CalPERS from the General Fund (R-11307). This cost is distributed annually between the departments based on calculated weights.

Year-End Revenue – General Fund
Sales and Use Tax Revenue: Sales and use tax revenue far exceeded the City’s (and its Sales Tax consultant’s) projections for the year. This is consistent with trends across the state. High consumer spending accelerated by savings accumulation and pent-up demand continued with the gradual opening of the economy, the return of students to inclass sessions, and renewed travel activity. High inflation through labor and supply chain issues intertwined with Federal Reserve monetary policy to counteract inflation and a war driving gas prices to all-time highs, all greatly impacted sales tax. A highly vulnerable revenue stream, sales tax remains a cautionary tale. Although unemployment rates remain low, fuel price instability, stock market woes, and rising consumer prices (as raw materials and components are more expensive) could further weaken consumer confidence and households will likely pull back on discretionary purchases as 2023 arrives. International supply chain issues show a steady recovery, but employee costs and labor shortages may impact future spending patterns, especially in the City’s tourism realm as household income realities catch up with pent-up demand from the pandemic lock-down.

The graph below shows the change in sales tax by major business group for Q1 2022 (January-March 2022). For the full report, visit slocity.org/finance.

FY 2020‐21 FY 2022‐23
Actual Budget Actual Funds Available  % Budget
1 Internal Services
2 Administration/IT $       7,060,343 $    9,758,782 $      8,720,808 $          1,037,974 11% $         9,620,216 3 City Attorney 897,198 $          $    1,395,133 $      1,357,168 $                37,965 3% $         1,132,935 4 Finance $       1,533,386 $    1,999,107 $      1,878,681 $              120,426 6% $         2,010,387 5 Non‐dept, Support Services 1,528,100 $       $    1,689,430 $          647,282 $          1,042,148 62% $         2,912,928 6 Human Resources 1,215,799 $       $    1,620,810 $      1,608,917 $                11,894 1% $         1,480,118 7 Public Safey
8 Fire $    11,621,200 $  12,192,029 $    12,082,810 $              109,219 1% $       11,585,358 9 Police $    13,902,407 $  15,394,812 $    15,180,032 $              214,780 1% $       16,324,782 10 Community Services Group (CSG)
11 CSG Administration 321,209 $          $        698,691 $          577,508 $              121,183 17% $             496,566 12 Community Development 5,941,116 $       $    7,563,761 $      6,621,942 $              941,818 12% $         5,968,524 13 Parks & Recreation 3,653,727 $       $    4,800,963 $      4,158,021 $              642,942 13% $         4,758,728 14 Public Works $    11,359,789 $  14,338,105 $    13,332,656 $          1,005,449 7% $       14,662,503 15 Solid Waste (Utilities) $          117,439 $        332,271 $          170,662 $              161,610 49% $             282,743 16 Total $         59,151,714 $  71,783,893 $    66,336,486 $          5,447,407 8% $            71,235,788 17 CalPERs Unfunded Liability* 9,586,928 $       $  20,837,422 $    20,837,422 0% $       11,815,513 18 Total $         68,738,643 $  92,621,316 $    87,173,909 $          5,447,407 6% $            83,051,301 Index Department
FY 2021‐22
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Management’s Discussion and Analysis
Local Transaction Tax (Local Revenue Measure): The local transaction tax largely mirrors the sales tax trends. FY 2021-22 marks the first full year that the City collected the additional 1% tax from Measure G-20. As a result, annual collection increased to about $29 million from this revenue source, making it the largest tax revenue for the City. For a more detailed account of the Local Revenue Measure, see pages 123 to 125.

Property Tax: Property tax revenue continues to increase, and the City recorded an all-time high in FY 2021-22, nearly 4% higher than the prior year due to an attractive and flourishing real estate market. The main reason for growth is the transfer of ownership and the increase in Taxable Assessed Value of homes in the community largely supported by record-low mortgage rates in 2021. As rates now increase, the housing market is beginning to cool, and sales prices begin to plateau. Data shows that number of home sales were down 30.3% in July 2022 compared to July 2021, but the median sale price was up 13.3%2
. The County Assessor’s Office anticipates an additional 4% growth in 2022-23 based on Proposition 13 increases and assessed valuations of homes.

Transient Occupancy Tax (TOT): Tourism along the central coast made a strong comeback in FY 2021-22 as the region reopened and benefited from being a drive-to destination. Monthly TOT receipts reached all-time highs largely driven by high room rates. The City received about $1.6 million more than its revenue projections for the year.

However, as inflation and gas prices increase and pent-up demand declines, the City’s tourism program together with the countywide tourism office expect to see a growth plateau and a possible decline in FY 2022-23.

Utility User Tax (UUT): UUT was slightly below the budgeted amount in FY 2021-22. Utility User Taxes have historically been considered a stable tax revenue source for local governments; however, that changed in 2017, when the Federal Communications Commission reclassified broadband internet, voicemail, and text messaging to a nontaxable classification of communication. The result has been declining or stagnant UUT revenue for telecommunications for most local governments. Increased taxes due to increased energy costs (particularly over the last year) have helped offset the decline in telecommunications taxes. As a result, the City collected nearly $200,000 more than what was collected in the previous year. The City has further benefited from its UUT Administration contract with a third-party vendor. Staff time has been reduced nearly tenfold on collection, enforcement, and other administrative duties required of this tax. Additionally, the vendor helped collect over $25,000 in penalties from delinquent businesses over the last fiscal year, neutralizing the cost of the contract. 2 “San Luis Obispo County Housing Market.” Redfin, 20 Aug. 2022, https://redfin.com/county/342/CA/San-LuisObispo-County/housing-market. 12

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Management’s Discussion and Analysis
Business Tax: Business taxes are collected at the beginning of the fiscal year and are based on the gross receipts of the previous calendar year. FY 2021-22 revenues were lower than the previous fiscal year because businesses remitted payment based on their 2020 gross receipts, the year most impacted by COVID-19 and the economic shutdown. Staff had anticipated the decline in revenue and the year-end result slightly surpassed the budgeted forecast.

Cannabis Tax: Cannabis tax revenues stabilized in FY 2021-22 now that two retail locations are operating in the City, Cal Poly is fully open, and tourism is returning to pre-pandemic levels. Interestingly, the monthly remittal amounts were nearly the same across the entire fiscal year, unlike sales and transient occupancy taxes which fluctuate seasonally. Staff will closely monitor this revenue during the next fiscal year to determine how variables such as new operators entering the market will impact total cannabis sales within the City. Audits and periodic inspections will continue to be a part of the City’s operations to ensure compliance with state and local regulations.

General Government: General Government revenue includes all of the City’s non-departmental revenue such as business licenses, interest earnings, and rent revenue. It also includes grant and subvention revenue which often fluctuates significantly from year to year. For example, in 2021-22 the City received over $1.0 million in Mutual Aid reimbursement. This revenue offsets the Fire Department’s overtime expenditures incurred from sending aid to multiple fires throughout the state. The most notable variance in this category was a negative $1.7 million Fair Market Value (FMV) adjustment. The FMV adjustment is essentially an accounting process that makes it possible to reassess the fair value of the City’s assets when there is a considerable difference between the market and the current book value of the City’s monetary assets.

General Fund Revenue compared to previous year and final budget *Gas Tax (SB1) is reflected in this schedule of revenues however it is recorded as a transfer from the Gas Tax Fund in the fund financial statements.

Development Review Revenue
Though high development activity continued into FY 2021-22, several of the fees collected in Community Development for Planning and Building services did not reach the anticipated budget. Most notably, Building Permits, 2021 Actuals 2022 Budget 2022 Actuals 2022 Variance % Received Tax and Franchise Revenue $ 72,785,610 $ 89,230,869 $ 96,491,194 $ 7,260,326 108.1% Tax and Franchise Revenue $ 72,785,610 $ 89,230,869 $ 96,491,194 $ 7,260,326 108.1% Local Revenue Measure G $ 12,779,713 $ 25,810,000 $ 29,172,258 $ 3,362,258 113.0% Sales Tax (Bradley Burns) $ 20,067,740 $ 20,790,779 $ 22,247,303 $ 1,456,524 107.0% Property Tax $ 19,858,530 $ 20,157,153 $ 20,711,004 $ 553,851 102.7% Transient Occupancy Tax $ 6,960,035 $ 9,051,000 $ 10,650,762 $ 1,599,762 117.7% Utility User Tax $ 5,225,979 $ 5,383,000 $ 5,338,325 $ (44,675) 99.2% Business Tax $ 2,937,176 $ 2,832,000 $ 2,823,163 $ (8,837) 99.7% Franchise Fees $ 1,796,829 $ 1,575,000 $ 1,978,295 $ 403,295 125.6% Gas Tax $ 1,038,124 $ 1,223,937 $ 1,130,063 $ (93,874) 92.3% Cannabis Tax $ 844,939 $ 1,000,000 $ 998,875 $ (1,125) 99.9% Gas Tax (SB1) $ 851,408 $ 915,000 $ 911,849 $ (3,151) 99.7% Safety Prop 172 $ 425,136 $ 493,000 $ 529,299 $ 36,299 107.4% Fees for Service and Other Revenue $ 15,897,980 $ 13,695,038 $ 11,855,961 $ (1,839,076) 86.6% Development Review $ 7,089,762 $ 6,971,140 $ 5,964,790 $ (1,006,350) 85.6% Parks & Recreation $ 1,616,445 $ 1,626,151 $ 1,694,241 $ 68,090 104.2% Fire $ 1,500,759 $ 1,443,440 $ 1,498,428 $ 54,988 103.8% Grants & Subventions $ 3,200,951 $ 1,274,368 $ 2,028,668 $ 754,300 159.2% Other Revenue $ 1,357,008 $ 1,184,751 $ (533,074) $ (1,717,825) ‐45.0% Police $ 600,406 $ 619,744 $ 577,441 $ (42,304) 93.2% Business Licenses (Incl Cannabis) $ 532,649 $ 575,443 $ 625,468 $ 50,025 108.7% 13

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while the second highest total for building permits in the City’s history and the highest total in FY 2020-21, began to notice the slow-down associated with supply chain issues, inflation, and increased interest rates. Infrastructure Plan Check and Inspections realized the most significant gap in the revenue projections as several anticipated projects did not complete the plan review process during the FY2021-22. In addition, there were approximately $1 million associated with future phases of the Avila Ranch project that were not submitted in FY 2021-22 as previously forecasted.

Other Revenue
This Revenue category includes rents & leases, fines & forfeitures, damage to City property, and miscellaneous revenues not easily categorized. It also reports on the City’s Interest on Investments which experienced large losses due to the largest Fair Market Value adjustments on investments experienced in 40 years. See Note 2 – Cash and Investments.

Detail for the Local Revenue Measure
The City’s Local Revenue Measure (half percent transaction tax) is a sub-fund of the General Fund. The activities reflected in the Financial Statements of this report are provided for information regarding the use of the Measure’s according to the community’s priorities and the recommendation of the Revenue Enhancement Oversight Commission, a City Council advisory body, overseeing the allocations. For FY 2021-22, the following revenues and expenditures were recorded:

General Fund Budgetary Highlights
A detailed budgetary comparison schedule for the year ended June 30, 2022, is presented as required supplementary information following the notes to the financial statements. The final budget amounts include changes that were approved by the City Council through June 30, 2022.

The following summarizes the original budget compared with the adjusted final budget for fiscal year 2021-22. The adjusted final budget includes Council approved adjustments as well as administrative budget adjustments in Budget Actual
Revenue
Transaction Tax 25,810,000 $ 29,172,258 $
Investment Income (283,748)
Total $ 28,888,510 25,810,000 $
Expenditures Budget Actual Encumbrances Carryover
Operating Programs 6,912,660 $ 6,912,660 $ -$ -$
Capital Programs
Community Safety and Emergency Preparedness 2,755,697 848,909 609,179 1,297,609 Creek and Flood Protection 1,074,772 741,423 119,342 214,007 Safe and Clean Public Areas 1,334,564 419,810 183,161 731,593 Economic Development and Business Retention 1,154,716 410,161 7,500 737,055 Youth/Senior Services and Recreation Facilities 3,996,965 1,775,775 41,997 2,179,193 Street Maintenance and Transportation 11,723,238 4,791,725 1,756,116 5,175,396 Open Space/Natural Areas Preservation and Maint. 1,819,605 1,190,577 98,057 530,971 Other Services and Projects 1,975,179 913,890 89,672 971,617 Total Expenditures $ 18,004,930 32,747,396 $ 2,905,024 $ $ 11,837,441 2021-22 Local Revenue Measure Budget to Actual
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Management’s Discussion and Analysis
accordance with the City’s adopted fiscal policies and procedures. As outlined on page 103, the City Council took action at mid-year to address emerging needs and community interest which resulted in significant budget adjustments for the fiscal year.

As discussed below, differences between the original budget and the final amended budget reflect the following key changes:
 Revenue budgets were increased by $9.4 million primarily for sales, transaction and transient occupancy tax.  Overall expenditure budgets were also augmented by $17.1 million for the General Fund. The increases were made to respond to emerging needs and community services as outlined above. Budgets were also increased for encumbrances and carryover of purchase commitments that had not yet been executed at the end of the prior fiscal year as well as the additional payment to CalPERS towards the City’s unfunded liabilities.

The following table compares the actual results for revenues, expenditures, and fund balance with the final budget for the General Fund. As the table shows, revenues exceeded the final budget by over $4.2 million, while expenditures ended below the final budget by approximately $6.9 million. The net other sources and uses ended above budget by $3.8 million resulting in an ending fund balance that was $7.2 million greater than anticipated.

BUDGETARY HIGHLIGHTS
General Fund Original Budget Final Budget Positive (Negative) Variance
Revenues 92,799,078 $ 102,188,180 $ 9,389,102 $
Expenditures 76,294,603 93,440,299 (17,145,696)
Other sources (uses) (18,937,662) (22,632,216) (3,694,554) Beginning fund balance 47,365,717 47,365,717 -
Ending fund balance $ 44,932,530 $ 33,481,382 $ (11,451,148) General Fund 2021-22 2021-22
Actual
Positive (Negative)
Variance
Revenues 102,188,180 $ 106,399,537 $ 4,211,357 $
Expenditures 93,440,299 86,545,247 6,895,052
Other sources (uses) (22,632,216) (26,474,501) (3,842,285) Beginning fund balance 47,365,717 47,365,717 -
Ending fund balance 33,481,382 $ 40,745,506 $ 7,264,124 $ Ending fund balance
Nonspendable - 90,797 90,797
Restricted - - -
Committed - 19,556,799 19,556,799
Assigned - 12,741,186 12,741,186
Unassigned - 8,356,724 8,356,724
Total ending fund balance 33,481,382 $ 40,745,506 $ 7,264,124 $

BUDGET - ACTUAL COMPARISON
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Management’s Discussion and Analysis
Year-End – Business-Type Activities
The City’s business-type activities are financed through rates for services and should be self-sufficient in covering their expenses with their sales and services revenue. Also called Enterprise funds, the City has four such entities with Water, Sewer, Parking, and Transit.

While two of the City’s four Enterprise funds fared well through the pandemic years and moved seamlessly back into the re-opening period, two of them remained subdued and only seeing a return to more normalized activity toward the end of the fiscal year. Following is an analysis of each fund and their fiscal standing at the end of 2021-22 and like the Governmental Funds, all of the Enterprise funds were affected by the Fair Market Value Adjustments indicated in Note 2 – Cash and Investments.

Water Fund
Water Revenue was $6.7 million more than budgeted primarily due to high development activity and the related impact fees. Staff continues to refine the methodology behind development impact fee projections; but the cyclical nature of development makes forecasting challenging. Water service charges surpassed budget by $1.1 million due to a dry winter which resulted in increased irrigation needs within the community. Additionally, staff had budgeted conservatively for water service charges in FY 2021-22 to account for uncertainties associated with continued COVID19 impacts.

Though the Water Fund began seeing the influences of supply chain issues related to raw material and chemicals as well as increases in utilties toward the end of the fiscal year, it was able to manage its expenses and remain under budgeted allocations. As inflation continues to remain at high levels further driving the factors influencing the Fund’s operation, the effects will be more pronounced in the coming fiscal year.

Budget Actual Variance %
Service Charges and Base Fees $            22,645,942 $   23,269,764 $          24,622,357 $             1,352,593 106% 24,123,079 $ Investment and Property Revenue 585,004                                 407,600                 (714,713)               (1,156,998) ‐175%                      50,000 Other Revenue                     414,589            339,780                   222,451                    121,316 65%                   209,000 State Grants                     326,440            256,395               1,621,599                 1,365,204 632% 1,395,000 Cal Poly Capacity & Resilience                     535,180            223,000                   114,317                   (108,683) 51%                   259,490 COVID Rate Relief Program                                   ‐                          ‐                 (225,016)                   (225,016)                                 ‐ Development Impact Fees                 4,746,439                          ‐               5,160,020                 5,160,020                                 ‐ Federal Stimulus Grants                                   ‐                          ‐                   226,994                    226,994                                 ‐ Total 29,253,595 $             $   24,496,539 $          31,028,009 $             6,735,429 127% 26,036,569 $ Water Fund Revenue FY 21 Actual FY 2021‐2022 FY 23 Forecasted Budget
Budget Actual Funds Available %
Staffing * 4,142,776 $             $    5,551,424 $      5,174,679 $              376,745 7% $              4,961,606 Contract Services 10,066,890                  11,620,462       10,700,008                 920,454 8%               11,393,356 Other Operating Expenses 770,887                           1,286,281             967,819                 318,462 25%                  1,449,507 Utilities 564,395                              676,872             531,769                 145,103 21%                     688,885 General Government 1,729,965                       1,722,409          ‐ 1,722,409                                0%                  1,535,175 TOTAL 17,274,913 $          $  20,857,448 $    19,096,684 $          1,760,764 8% $            20,028,529 *Exclusive of GASB 68/75 adjustments
FY 21 Actual
FY 2022‐23 Budget Water Fund Operating  Expenses
FY 2021‐22
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Management’s Discussion and Analysis
Sewer Fund
Sewer development impact fees exceeded budget by approximately $3.7 million, reflective of continued development in the City and changes associated with construction timelines. Sewer service charges and base fees were more than budgeted by $1.1 million as staff budgeted conservatively for Sewer service charges in FY 2021-22 considering ongoing pandemic influences and impacts and the moratorium for service shut-off due to non-payment was not lifted until December 2021.

As reflected in the Statement of Cash Flows, cash was impacted in the Sewer Fund due to the timing of debt proceeds received for the Water Resource Recovery Facility (WRRF) project reimbursements. Last fiscal year, debt proceeds were lower due to delays in funding related to the construction timeline and project costs carrying over to FY 2021-

22. In addition, State Grants was $4.6M below anticipated budget primarily due to the timing of WRRF construction and reimbursement requests associated with grant awards.

Like the Water Fund, the Sewer Fund began feeling the effects of inflation and related labor and supply chain issues toward the end of the fiscal year. However, staff had taken action early to make sure materials related to the WRRF upgrade were already on site and most of the work was able to proceed. Overall, the Fund was able to maintain within its allocated expense budget achieving an overall savings of $1.5 million with significant savings in staffing costs.

Parking Fund
As part of the mid-year budget process, the Parking Fund forecast was adjusted to estimate revised revenues for FY 2021-22 due to the economic impacts and parking activities following the height of COVID-19, and adjustments in parking operations. When preparing budget adjustments, staff used a conservative approach considering the limitations COVID-19, the re-opening of the economy and renewed travel activity may have on parking revenue.

Ultimately, Parking programs returned to pre-COVID activity levels quicker than anticipated and revenue actuals exceeded the revised projections by year-end by 10%. On-street parking revenue in June 2021 was nearly identical to revenue received in February 2020 prior to the COVID pandemic. Similarly, parking structure usage quickly returned to pre-COVID levels beginning in May 2021 when the Farmer’s Market was reestablished and non-city staff who work in the downtown area began to utilize the long-term parking program. These are positive indicators of a Parking Budget Actual Variance %
Service Charges and Base Fees 16,942,094 $             $   18,004,047 $          19,109,600 $             1,105,553 106% 18,634,189 $ Development Impact Fees                 3,836,955                          ‐               3,685,008                 3,685,008                                 ‐ Other Revenue                     541,862            382,000                   603,873                    223,981 159%                   291,000 Investment and Property Revenue                          9,607            401,514              (1,024,551)               (1,437,268) ‐258%                      50,000 Grants                     258,467        4,784,288                     97,413               (4,686,875) 2%                                 ‐ Cal Poly Capacity & Resilience                     243,568            243,568                   243,568                                  ‐ 100%                   243,568 Total 21,832,552 $             $   23,815,417 $          22,714,910 $            (1,109,602) 95% $          19,218,757 FY 2021‐2022 FY 23 Forecasted
Budget
Sewer Fund Revenue FY 21 Actual
Budget Actual Funds Available %
Staffing* $            4,424,073 $    5,775,389 $      5,183,631 $              591,758 10% $              4,889,494 Contract Services               3,517,931        1,999,295         1,574,248                 425,047 21%                     863,361 Other Operating Expenditures 1,182,999                       1,542,872         1,357,622                 185,250 12%                  1,741,111 Utilities                   540,553           790,227             539,357                 250,870 32%                     937,710 General Government               1,632,521        1,712,752         1,712,752                               ‐ 0%                  2,573,783 TOTAL 11,298,077 $          $  11,820,535 $    10,367,610 $          1,452,925 12% $            11,005,459 *Exclusive of GASB 68/75 adjustments
FY 2020‐21
FY 2022‐23
Sewer Fund Operating  Expenses
FY 2021‐22
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Fund moving toward fiscal sustainability into the new fiscal year. The Parking fund also experienced the effects from the Fair Market Value adjustments which is included under “Other Revenue” however, other miscellaneous revenues such as rents & leases were able to counteract some of the downward adjustments of $445,207.

Due to the revenue shortfall and gradual recovery to pre-pandemic levels, Parking managed its expenses while also grappling with labor market challenges influencing the re-staffing of its programs. It therefore ended the year within the allocated budget with savings stemming from salary savings that in turn necessitated the use of contract services to maintain the services.

Transit Fund
In FY 2021-22, the Transit Program looked to the Federal Urbanized Area Grant Funding program (5307 funds) to supplement the Transit Fund, paying for 50% of the operating costs while the remaining funds were state and local transit funds. The City secured Federal grant funding from the American Rescue Plan Act (ARPA) for 100% of operational costs beginning in FY 2022-23 for three fiscal years, and will address driver wages, allow for the purchase of additional zero emission buses, and support other capital projects. The reduction in service levels resulted in cost savings that helped to offset lost fare revenues. The unused balance of annual allocations of Federal 5307 and State Transit Development Act (TDA) Funds have been deferred for future use in FY 2022-23. The variance in the table below is due to both State and Federal grant disbursement timing where it is normal for full revenues to be realized in the Fall or based on receipts of reimbursements.

Budget Actuals Variance %
Parking Meters 1,265,085 $              $  1,940,863 $  2,210,191 $      269,328 114% 2,268,500 $ Parking Fines 654,284                             657,606         928,909         271,303 141% 793,500 Parking Structures                    346,300         835,294     1,109,187         273,893 133% 1,328,450 Long Term Parking                    422,381         547,795         623,639           75,844 114% 844,900 Other Revenue                    380,778         569,578         685,822         116,244 120% 595,400 Total 3,068,827 $              $  4,551,136 $  5,557,749 $  1,006,613 122% 5,830,750 $ FY 2021‐2022 Forecasted
Budget Parking Fund Revenue FY 21 Actuals
Budget Actual Funds Available %
Staffing* $            1,126,434 $    2,022,327 $      1,574,054 $              448,273 22% $              1,917,920 Contract Services                   847,922        1,129,895         1,008,835                 121,060 11%                     584,065 Other Operating Expenditures 200,385                              362,989             374,319                  (11,330) ‐3%                     401,525 Utilities                   117,581           211,301             170,905                    40,396 19%                     221,933 General Government                   710,211           869,887             869,887                               ‐ 0%                                   ‐ TOTAL 3,002,533 $             $    4,596,400 $      3,998,000 $              598,399 13% $              3,125,444 *Exclusive of GASB 68/75 adjustments
FY 2020‐21
FY 2022‐23 Parking Fund  Expenses
FY 2021‐22
Budget Actuals Variance %
Federal 2,805,689 $                   $   4,093,659 $  1,877,362 $  (2,216,297) 46% 7,248,297 $ Local (Bus Fare) 328,184                                   687,500         710,457             22,957 103% 850,000 Other Revenue/ Interest Revenue 4,047                                          30,826       (131,428)          ‐ (162,254) 426% 6,500 State 351,998                               2,743,064     1,332,876     (1,410,188) 49% 2,040,941 Total 3,489,918 $                   $   7,555,049 $  3,789,267 $  (3,765,782) 50% 10,145,738 $ Forecasted
Budget
FY 2021‐2022 Transit Fund Revenue FY 2020‐21 Actuals
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The Transit Fund operating costs are typically split equally between state and federal funding sources after deducting the mandated 20% farebox recovery. The state provides TDA funds based on the adopted budget and federal funds are based upon actual costs. When the Transit Fund has savings there will be a reduction in federal funds being reimbursed which shows as a reduction in revenues. The largest expense for the Fund is in contract services as the operation of the transit service as well as maintenance is contracted out.

Ridership Recovery

Budget Actual Funds Available %
Staffing* $ 313,020 $ 422,212 $ 334,738 $ 87,474 21% $ 298,896 Contract Services 2,611,522 3,788,402 2,666,078 1,122,324 30% 2,895,950 Other Operating Expenditures 220,003 496,424 353,858 142,566 29% 684,513 General Government 321,727 226,183 ‐ 226,183 0% 365,544 TOTAL 3,466,272 $ $ 4,933,221 $ 3,580,857 $ 1,352,364 27% $ 4,244,903 *Exclusive of GASB 68/75 adjustments
FY 2020‐21
FY 2022‐23
Transit Fund Expenses
FY 2021‐22
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Combined Program Expenses and Revenue for Business Type Activities Revenue Sources: Operating revenues for services increased by $6 million with Parking and Transit revenue beginning to normalize to pre-pandemic levels while Water and Sewer services remained strong throughout the year with the pandemic restrictions lifted in December 2021.

Program Expenses: As outlined in the prior section, the program expenses for the proprietary funds decreased from the previous year leading to a 10% increase in ending Net Position across all funds.

Summary of Changes in Net Position
2021-22 2020-21
Revenues:

Program Revenues:

Charges for services 59,140,271 $ 52,740,882 $
Operating grants and contributions 5,156,782 3,742,594
Investment earnings (1,207,118) 577,722
Miscellaneous and other 585,101 519,677
Total revenues 63,675,036 57,580,875
Program expenses:

Public utilities 33,468,921 36,534,518
Transportation 8,368,389 8,080,778
Total expenses 41,837,310 44,615,296
Increase (decrease) in net position
before transfers 21,837,726 12,965,579
Transfers (1,685,314) (1,992,911)
Change in net position 20,152,412 10,972,668
Net position - beginning of year 217,715,565 206,322,415 Prior year restatement 2,516,509 420,482
Net position - end of year 240,384,486 $ 217,715,565 $
Business-Type Activities
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Overall Year-End Financial Statements
When evaluating the overall Financials, several influencing factors should be considered. While GASB Statement No. 87 as well as the integration of the outstanding housing related loans will continue to be a part of the Financial Statements going forward, the Fair Market Value adjustments currently seen will likely adjust in the latter part of 2023 into 2024 as inflation begins to flatten and monetary policy counteracting it begins to ease.

GASB Statement No. 87
This pronouncement became effective for fiscal years beginning after June 15, 2021 and was included in the City’s financial statements for the first time with FY 2021-22. As such, GASB 87 requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about the governments’ leasing activities. Within the City’s Financial Statements, Note 6 lists the applicable lease receivables.

Housing Loans and Fee Deferrals
The City administers an extensive housing program for workforce and low-income housing. Through the program, it has extended loans and impact fee deferrals to low-income housing developers such as the Housing Authority of San Luis Obispo, Transitions Mental Health, and People’s Self-Help Housing (to name a few). The loans are long-term in nature, include a modest interest rate, and will become due in future years. The loans are disclosed in the City’s financial statement under the respective governmental funds as loans receivables and restricted within fund balance.

Detailed information can be found in Note 4 – Loans Receivables.

Fair Market Value Adjustments
The City follows the practice of pooling cash and investments for all funds under its direct daily control. Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund’s average quarterly cash balance. Investments are stated at fair value, based on quoted market prices in accordance with GASB standards and is adjusted to reflect any unrealized gains and losses resulting from the fair value adjustment annually.

Due to the worldwide pandemic brought on by COVID-19 and the subsequent effects on inflationary trends, the Federal Reserve’s monetary policy to counteract inflation has lead to the largest fair market value adjustment in 40 years. The City’s investments were not immune to the adjustments and the effects are reflected in the Financial Statements under “Use of money and property” in all funds based on the City’s mentioned practices. More information on the City’s investments can be found in Note 2 – Cash & Investments.

The following outlines financial highlights for the year which are detailed in the table on page 23 of the Management Discussion and Analysis.
 Per the City’s Statement of Net Position, total City-wide assets increased by approximately $136.1 million or

21.2%. The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows at June 30, 2022 by $418 million (net position). They include again the disclosure of the City’s net unfunded pension liability which decreased by $23.2 million to $66 million as of June 2021 largely due the 2021 interest gain of

21.3%. The City’s net pension liability is measured as the total pension liability of $243.8 million less the 21

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pension’s fiduciary net position of $177.8 million. This picture will likely change with the experienced losses at the end of June 2022 but will be counter-acted by the City’s additional discretionary payments made in FY 2021- 22 and anticipated in FY 2022-23.
 In governmental activities, amounts received from various sources were slightly below previous year-end results, but the City’s cash and investment balances increased by $24 million; prepaid expenses increased slightly as well and cash held with fiscal agent remained stagnant from 2020-21. Of note is the increase in Loans Receivables of over $4.5 million from the City’s Housing program.
 In business-type activities, total assets increased from $337 million to $435 million. Of note is the lease receivable amount of $37 million in the Parking Fund due to the reporting of leases under GASB 87. The Sewer Fund increased its construction in progress by almost $40 million as the upgrade of the Water Resource Recovery Facility is ongoing. This $140 million multi-year construction project is scheduled to be completed at the end of 2023.
 City-wide liabilities increased by $11.6 million during the fiscal year with the decrease in the Governmental funds being offset by an almost $40 million increase in the business-type activities. The decrease in governmental funds is mostly due to the decrease in net unfunded pension liabilities while the increase in the business-type activities reflects new long-term debt obligations.
 The City’s governmental funds altogether reported combined ending fund balances of $100.5 million. Roughly 78% or $87.5 million is not available for new spending and is reflected as restricted, committed or assigned in the Financial Statements.
 The total General Fund balance decreased by 15% to $40.7 million due to the additional $10.2 million payment toward the City’s unfunded pension liability with CalPERS (Note 8 – Pension Plans). The Fund balance combines the following levels as outlined in the City’s Fund Balance & Reserve Policy and in accordance with GASB 54:
non-spendable, restricted, committed, assigned and unassigned . 22

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Government-wide Overall Financial Analysis
Statement of Net Position Net position may serve over time as useful indicator of a government’s financial position.

The following is the condensed statement of net position for the fiscal years ended June 30, 2021 and 2022.

For the Fiscal Year ending on June 30, 2022, the City’s combined total assets and deferred outflows of resources were greater than its liabilities and deferred inflows of resources by $418 million. The largest portion of the City’s net position reflects its investment in capital assets in the amount of $351.7 million (e.g. land, buildings, infrastructure, machinery, and equipment), less any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

Just over $44.5 million of the City’s net position is subject to restrictions imposed by external parties and its use is determined by those restrictions and contractual obligations. The governmental and business-type activities each contributed $22 million to the combined net position resulting in a total net position of $418 million at June 30, 2022.

Information about changes in net position for fiscal years 2021-22 and 2020-21 is summarized below. Reasons for the changes are discussed in the following sections for governmental activities and business-type activities. 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21
Current and other assets 128,456,785 $ 100,429,898 $ 118,049,970 $ 95,663,836 $ 246,506,755 $ 196,093,734 $ Capital Assets 214,799,171 205,190,494 317,277,636 241,196,715 532,076,807 446,387,209 Total assets 343,255,956 305,620,392 435,327,606 336,860,551 778,583,562 642,480,943 Total Deferred Outflows of
Resources 36,401,908 25,815,578 6,080,805 4,088,384 42,482,713 29,903,962 Current liabilities 25,318,783 11,006,354 17,393,178 16,047,477 42,711,961 27,053,831 Noncurrent liabilities 161,634,631 123,973,399 140,126,065 106,481,087 264,099,464 268,115,718 Total liabilities 172,640,985 149,292,182 157,519,243 122,528,564 306,811,425 295,169,549 Total Deferred Inflows of Resources 52,069,013 3,053,401 43,504,682 704,806 95,573,695 3,758,207 Net position:

Net investment in capital assets 193,984,593 184,205,733 157,728,990 160,750,886 351,713,583 344,956,619 Restricted 41,770,187 35,137,179 2,684,781 2,493,859 44,454,968 37,631,038 Unrestricted (57,458,111) (63,601,328) 79,970,715 54,470,820 22,512,604 (9,130,508) Total Net Position $ 155,741,584 178,296,669 $ 240,384,486 $ 217,715,565 $ 418,681,155 $ 373,457,149 $

CONDENSED STATEMENT OF NET POSITION
Governmental Activities Business-Type Activities Total
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Management’s Discussion and Analysis
Governmental Activities. The City’s net position in the Governmental activities increased by $22 million to $178.3 million on June 30, 2022 based on very strong tax revenues and expenditure savings in all of its operation that were able to absorb the losses experienced by large fair market value adjustments seen under investment earnings.

Governmental Revenues: Revenues are divided into charges for services and general revenues including applicable taxes as listed in the following table. Charges for services are revenues directly related to service activity while operating and capital grants and contributions, and related investment earnings are a mechanism of cost recovery. The total governmental revenue increased from fiscal year 2020-21 by $12.7 million or 13% based on the re-opening of the economy, strong purchasing and a rapidly returning travel and tourism activities. This increase achieved despite the reduction in charges for services from development related activities and lower revenue from capital grants and contributions revenue3
. Fiscal Year 2021-22 saw the first full year of the local transaction tax at the augmented level, adding an additional $18 million to the revenue total.

Charges for services decreased from the previous year primarily due to a decline in development related activity.

Building and planning reviews, permits and inspection activity can vary significantly from year to year. Similarly, grant revenues, particularly for capital projects, such as the Marsh Street Bridge rehabilitation or the Taft to Pepper section of the Railroad Safety Trail were higher in the prior fiscal year. 3 Contribution revenue is grants, donations, transfers and other miscellaneous funding. 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21
Revenues:

Program Revenues:

Charges for services 18,920,886 $ 24,096,385 $ 59,140,271 $ 52,740,882 $ 78,061,157 $ 76,837,267 $ Operating grants and contributions 3,647,813 3,601,973 5,156,782 3,742,594 8,804,595 7,344,567 Capital grants and contributions 1,531,157 5,688,200 - - 1,531,157 5,688,200 General Revenues: - -
Sales taxes (Including local Sales Tax) 51,419,561 32,847,453 51,419,561 32,847,453 Property taxes 14,716,412 14,197,869 14,716,412 14,197,869 Transient occupancy tax 10,650,762 6,960,035 10,650,762 6,960,035 Utility users tax 5,338,325 5,225,979 5,338,325 5,225,979 Property tax in lieu of VLF 5,994,592 5,660,661 5,994,592 5,660,661 Other taxes and fees 5,800,333 5,578,944 5,800,333 5,578,944 Investment earnings (1,638,993) 435,243 (1,207,118) 577,722 (2,846,111) 1,012,965 Miscellaneous and other 1,213,401 1,019,626 585,101 519,677 1,798,502 1,539,303 Total revenues 117,594,249 105,312,368 63,675,036 57,580,875 181,269,285 162,893,243 - -
Program expenses: - -
Public safety 41,132,177 35,323,339 41,132,177 35,323,339 Public utilities 33,468,921 36,534,518 33,468,921 36,534,518 Transportation 10,395,516 8,040,919 8,368,389 8,080,778 18,763,905 16,121,697 Culture and recreation 12,407,720 11,122,003 12,407,720 11,122,003 Community development 15,506,092 11,918,019 15,506,092 11,918,019 General Government 20,982,321 17,276,491 20,982,321 17,276,491 Interest on long-term debt 699,284 731,045 699,284 731,045 Total expenses 101,123,110 84,411,816 41,837,310 44,615,296 142,960,420 129,027,112 - -
Increase (decrease) in net position
before transfers 16,471,139 20,900,552 21,837,726 12,965,579 38,308,865 33,866,131 Transfers 1,685,314 1,992,911 (1,685,314) (1,992,911) - - Change in net position 18,156,453 22,893,463 20,152,412 10,972,668 38,308,865 33,866,131 Net position - beginning of year 155,741,584 133,430,668 217,715,565 206,322,415 373,457,149 339,753,083 Prior year restatement 4,398,632 (582,547) 2,516,509 420,482 6,915,141 (162,065) Net position - end of year $ 178,296,669 $ 155,741,584 $ 240,384,486 $ 217,715,565 $ 418,681,155 $ 373,457,149

SUMMARY OF CHANGES IN NET POSITION
Governmental Activities Business-Type Activities Total
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Management’s Discussion and Analysis
General revenues are used to pay costs of providing program services such as public safety, parks and open space, streetlights and traffic signals, recreation opportunities, Diversity, Equity, and Inclusion (DEI) programs as well as economic development, and environmental sustainability.

Top Governmental Activity Revenue Sources. As shown in the graph below, the City’s top five tax revenues accounted for almost 75% of total revenues, with service charges accounting for another 16% and ancillary revenue making up the remainder. Despite ongoing pandemic condition and restrictions, most of the City’s main revenue sources performed well and above initial expectations. Next to the local transaction tax, Transient Occupancy Tax ended the fiscal year at record levels, surpassing $10 million in annual revenue. This is indicative of the City gaining from being a drive-to market and benefiting from the travel activity that followed the pandemic related restrictions.

Investment in tourism marketing and programs designed to bring people to San Luis Obispo paid dividends and continue to experience strong lodging and retail activity.

Governmental Activities Program Expenses: Program expenses increased from the prior fiscal year, ending 2021-22 at $101 million. As mentioned in the Fiscal Year in Review section above, FY 2021-22 marked a transition year for the City organization as it restored the work postponed by the pandemic and allowed the City to reinvest in its core services and important Major City Goal efforts and strategic initiatives. Increases happened across all programs with Revenues 2021-22 2020-21 Inc / (Dec) %
Charges for services $ 18,920,886 $ 22,090,479 $ (3,169,593) -14% Operating grants and contributions 3,647,813 3,626,087 21,726 1% Capital grants and contributions 1,531,157 7,093,611 (5,562,454) -78% General Revenues:

Sales taxes (Including local transaction tax) 51,419,561 32,847,453 18,572,108 57% Property taxes 14,716,412 14,197,869 518,543 4%
Transient occupancy tax 10,650,762 6,960,035 3,690,727 53% Utility users tax 5,338,325 5,225,979 112,346 2%
Property tax in lieu of VLF 5,994,592 5,660,661 333,931 6% Other taxes and fees 5,800,333 5,578,944 221,389 4%
Investment earnings (1,638,993) 219,611 (1,858,604) -846% Miscellaneous and other 1,213,401 1,366,458 (153,057) -11% Total governmental revenues $ 117,594,249 $ 104,867,187 $ 12,727,062 12%

GOVERNMENTAL ACTIVITY CHANGE IN REVENUE
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Management’s Discussion and Analysis
the most significant ones seen in Community Development, General Government with new initiatives regarding DEI and homelessness, and Public Safety with the new Emergency Management and Mobile Crisis Unit.

The following chart compares program fee revenues and expenses which is useful when reviewing the costs of various governmental activities:

Financial Analysis of Governmental Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The following funds have been classified as either governmental or proprietary fund types.

Governmental Funds. The focus of the City’s governmental funds is on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance serves as a useful measure of a government’s net resources available for spending at the end of the fiscal year.
 As of June 30, 2022, the City’s governmental funds reported combined ending fund balances of $100.5 million or an increase of $10 million compared to the prior fiscal year. The total fund balance of the governmental funds consists of the following:
o Non-spendable fund balance represents prepaid items. Approximately $100,000 was held in nonspendable at fiscal year-end. o Restricted fund balance of $34 million, including reserves for debt service or capital outlay, impact fees programs, general government programs, housing and the net balance of the local transaction tax that increased during the last quarter of the fiscal year once pandemic restrictions were lifted. 26

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o Committed fund balance amounted to $19.5 million accounting for the City’s reserve funds as prescribed by its Fund Balance and Reserve policies.
o Assigned fund balance of $16.7 million includes the amounts to be used for specific purposes of the City but do not meet the criteria to be classified as restricted or committed. Funds in this category include contingency funds (20% minimum reserve) and funds to be used for Development Services.as well as purchase orders and encumbrances that have been rolled over into fiscal year 2022-23 in accordance with the City’s budget policies. Fund balance has been assigned to an additional discretionary payment to CalPERS, the newly established Section 115 Trust Fund, and the contingency funds in the IT Replacement and Fleet funds amounting to $4.9 million. o Unassigned fund balance of $22 million of which $13.7 million are in the City’s Capital Outlay Fund for investments in the City’s expansive infrastructure. Some of the General Fund’s $8.3 million in unassigned fund balance was already appropriated for 2022-23 by the Council with the year-end report4
. Of the $8.3 million, $2.8 million was approved as carryover into the 2022-23 budget and $2 million was used to establish a Revenue Stabilization Reserve to help insulate the City from large fluctuations in tax revenue. These actions left $3.3 million truly unassigned; however, the five-year forecast relies on $2 million to remain in order to have a balanced five-year budget outlook.

Major Governmental Funds. In the fiscal year 2021-22 the City maintained two major funds: the General Fund and the Capital Outlay Fund. Changes in both are highlighted in the Financial Highlights section above.

Non-Major Governmental Funds. The City has numerous non-major governmental funds including the Debt Service Fund and various Special Revenue Funds or Capital Projects Funds. These funds are presented in the basic financial statements in the aggregate. A significant number of these funds represent activity for capital projects. On June 30, 2022, these funds had an aggregate fund balance of almost $46 million. Of this total, $34 million is restricted for payment of debt service or specific future capital projects and related funding needs.

More information about the aggregated non-major funds can be found in the combining and individual fund statements and schedules immediately following the required supplementary information.

Proprietary Funds. The City’s four enterprise funds provide the same type of information found in the governmentwide financial statements, but in more detail. Highlights of the annual activity for these funds have already been presented in the discussion of the business-type activities.

Capital Assets and Debt Administration
Capital Assets. Capital assets, including infrastructure, are those assets that are used in the performance of the City’s functions. As of June 30, 2022 the City’s investment in capital assets for its governmental and business type activities amounts increased to $490 million (net of accumulated depreciation).

The investment in capital assets includes things such as: open space, park improvements, buildings and associated improvements, vehicles and equipment, streets, bikeways, water, wastewater, and storm drain systems. 4 Council Agenda Item 6a, October 4, 2022 and Resolution No. 11367 http://opengov.slocity.org/WebLink/DocView.aspx?id=164377&dbid=0&repo=CityClerk 27

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Major capital asset5
expenditures during the fiscal year included the following:
 $37.7 million for the Water Resource Recovery Facility  Sewer lift stations: Airport, Buckley, Foothill, Calle Joaquin  $847,000 for Water Treatment Plant Energy Efficiency
 Waterline improvements
 Meadow Park Pathway Maintenance
 Orcutt/Tank Farm roundabout construction
 Parks & Recreation office rehabilitation
 Railroad Safety Bridge/Trail Taft to Pepper
 Parks and Recreation Interior Office Rehabilitation
 Emerson Park Fitness Court
Long-Term Debt. At June 30, 2022, the City’s long-term debt had increased by $40.7 million and $142.7 million outstanding. The increase is due to large debt finance projects in the Water and Sewer funds adding $46 million to the business-type activities long-term debt. Within governmental activities, several loans were paid off, lowering the debt burden by $1.3 million from the previous year.

The California Government Code provides for a limit on debt secured by real property of 3.75% based on market value. The City’s debt management policy, however, sets a lower debt limit of 2% of assessed valuation. As of June 30, 2022, 2% of the assessed valuation was $234 million6 . As of June 30, 2022, the City did not have any general obligation debt subject to the limit. Additional information about the City’s long-term debt can be found in Note 7 to the basic financial statements.
5 Additional information on the City’s capital assets can be found in Note 5 on page 67 to the basic financial statements. 6 Based on the San Luis Obispo County Assessor’s 2021-22 Annual Valuation report.

Capital Assets (Net of Depreciation)
2021-22 2020-21 2021-22 2020-21 2021-22 2020-21
Nondepreciable capital assets $ 43,547,370 $ 41,769,864 $ 91,238,405 132,025,105 $ $ 133,008,269 175,572,475 $ Depreciable capital assets (net of
accumulated depreciation ) 169,708,981 162,999,121 145,011,649 147,232,029 314,720,630 310,231,150 Total Capital Assets $ 213,256,351 $ 277,036,754 204,768,985 $ 238,470,434 $ 490,293,105 $ 443,239,419 $ Governmental Business-Type Total
Activities Activities
Long- Term Debt
2021-22 2020-21 2021-22 2020-21 2021-22 2020-21
Lease-revenue bonds 18,954,856 $ 20,038,779 $ 15,307,178 $ 16,772,171 $ 34,262,034 $ 36,810,950 $ Lease-purchase financing 390,420 734,673 - - 390,420 734,673 Claims & Liabilities - - - - - -
Installment sale agreement - - 4,257,343 4,919,407 4,257,343 4,919,407 Loans 139,961 232,111 99,918,648 56,229,546 100,058,609 56,461,657 Leases 125,003 - - 125,003 -
Compensated absences 3,104,605 3,016,523 526,111 613,247 3,630,716 3,629,770 $ 24,022,086 22,714,845 $ 120,009,280 $ 78,534,371 $ 142,724,125 $ 102,556,457 $ Governmental Business-Type Total
Activities Activities
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Management’s Discussion and Analysis
Pension Obligations and Outlook
With the development of the 2017-19 Financial Plan, it became apparent that the City was facing a structural budget gap due to increases in pension cost. Starting in 2018-19, it implemented an aggressive three-year Fiscal Health Response Plan to pay down the pension obligation. The plan included multiple one-time additional payments to CalPERS to reduce the unfunded liability payment term from 30 to 20 years and the City made it’s first $4.2 additional payment in April of 2019. At the onset of the pandemic, the City had successfully built-up sufficient fund balance in its General Fund to make the second scheduled payment of $4.2 million to CalPERS for 2019-20. However, the City Council decided to retain this funding to cover anticipated revenue shortfalls and to assist with economic recovery efforts as the shut-down of the economy and shelter-at-home directives had just taken place and the future looked precarious. With the prolonged duration of the pandemic and slow reopening of the economy, the third payment scheduled in Spring of 2021 was also postponed. However, due to the prudent approach to its expenditures, the investment in the recovery efforts for the community, and a strong revenue recovery in the 4th quarter, the City was able to catch up on the earmarked payments to CalPERS and improve the City’s funding ratio to 75%.

In July 2021, CalPERS reported a 21.3% net return on investments for the 12-month period that ended June 30, 2021.

Under the Funding Risk Mitigation Policy, approved by the CalPERS Board of Administration in 2015, the doubledigit return triggered a reduction in the discount rate used to calculate employer and Public Employees’ Pension Reform Act (PEPRA) members contributions. The discount rate, or assumed rate of return, has now dropped from 7% to 6.8% ongoing. The lowering of the discount rate will increase both employee and employer normal cost and also influence the unfunded liability. However, the double-digit gains should largely mitigate the impact of the lower discount rate on the unfunded liability. The City will see the effects of the change to the discount rate with the 2023- 24 contributions.
2022-23 Budget Highlights
As adopted in June 2022, the second year of the Financial Plan provides investments into Council adopted strategic initiatives and 74 established service programs while maintaining a carefully balanced budget. These ambitious work plans continue to bring new challenges. Several of the challenges that the City addresses with the second-year budget are some of the most pernicious issues facing society, but the solutions are neither easy nor inexpensive. In order to make progress and achieve meaningful outcomes, the organization must stay focused and disciplined.

Workforce – the Great Reshuffle
First dubbed the “Great Resignation” is now more accurately labeled the “Great Reshuffle.” Globally, millions of people are reconsidering and reconfiguring their careers and lives and leveraging the current labor market to find opportunities and positions that fit with their desired lifestyle. The City is not immune from this phenomenon and has seen record number of transitions.

The City of San Luis Obispo is committed to provide competitive compensation to continue to attract and retain talented, qualified, and experienced employees who provide the high-quality public services the community requires and expects. In order to do so, the City will need to prioritize competitive compensation.

To that end, the City Council received and filed the 2021 Benchmark Compensation Report for the San Luis Obispo City Employees’ Association (SLOCEA) and Unrepresented Management and Confidential Bargaining Units on February 1, 2022. Immediate action was taken to address compensation shortfalls found by the report on April 19, 2022 for confidential and unrepresented management. As of the writing of this message, the City has negotiated a tentative agreement with labor partners on the potential wage and benefit increases identified in the benchmark study in addition to cost of living agreements over three years. 29

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Management’s Discussion and Analysis
The increases in General Fund revenue forecasts allowed Council to quickly address this need and the Council approved negotiation parameters for equity adjustments and cost of living increases are now included in the 2022-23 Supplemental Budget. Moving forward, the City will need to be flexible and creative in order to attract and retain well-qualified employees. More broadly, there is a need region-wide for a concerted strategy to attract and retain employees and the absence of an effective strategy likely portends less than optimum growth and, in the case of the City, struggles to meet service demands.

Investment into the Community
The City’s ongoing services have been developed over many years with the input from the community, resulting in programs that provide the envisioned quality of life in San Luis Obispo. After years of “tightening the belt” to face challenges and pension obligations head-on, the 2021-23 Financial Plan allowed the City to allocate much needed resources back into ongoing services, programs and infrastructure and this effort continues with the Financial Plan Supplement and 2022-23 budget.

Capital
While the City has made considerable progress on delivering capital projects, it is constrained by unprecedented conditions that are affecting the entire nation. These obstacles include labor market shortages, significant construction activity in our area due to Federal stimulus monies (increasing local competition for design, inspection, and construction services), supply chain issues, and inflation.

While the construction phase of projects is often the community’s first view of the improvements that are being made, it is really the result of months and sometimes years of planning, outreach, study, and design work that must be completed prior to making visible progress on a project. In light of this, the City must ensure that operating resources are right sized to deliver projects and continue meaningful progress for the community in the maintenance and improvements to its infrastructure.

Long-Term Outlook and the Path Ahead
In many ways, the 2022-23 Supplemental Budget will mark a transition period for the City organization. The 2021- 23 Financial Plan restored the work postponed by the pandemic and allowed the City to re-invest in its core services and important Major City Goal efforts and strategic initiatives. The next several years will concentrate on transforming the City’s role as an attractive employer and finding a balance between the delivery of service and programs and capital programs.

Due to the current economic and geo-political circumstances, uncertainty continues to be the one certainty in economic forecasting. However, the updated long-term forecast considers many of the current trends and conditions and remains balanced but this and future Councils will need to be mindful that expansion of programs or new programs will likely require tradeoffs. The effect of uncertainty meant that for the 21-23 Financial Plan, the budget included $3.08 million of one-time General Funds in order to balance the budget for needed programs such as DEI Grant Funding, Mobile Crisis Unit and other services. Many of the services and programs likely require ongoing and dedicated funding to maintain services levels to achieve the intended impact and funding these one-time expenses should be carefully considered.

The City will need to remain agile and cautious as it moves through this challenging economic and fiscal climate. As we embark on another year of this “strange routine”, we will need to remain focused and committed to making San Luis Obispo the kind of resilient, dynamic, and sustainable community we want to live and thrive in and advance the key initiatives and tasks the Council set forth in the City’s Major City Goals. 30

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San Luis Obispo City CouncilJanuary 17, 2023

San Luis Obispo City Council
January 17, 2023