M E M O R A N D U M
CITY MANAGER’S OFFICE
1000 Gateway Avenue
San Pablo, CA 94806
Date: May 20, 2024
TO: MAYOR AND SAN PABLO CITY COUNCIL
FROM: Matt Rodriguez City Manager
Re: CITY MANAGER BUDGET MESSAGE FOR THE CITY’S FINAL BUDGET FOR FY 2024-25 & FY 2025-26 FOR STANDING COMMITTEE & CITY COUNCIL REVIEW _________________________________________________________________________________
To the Honorable Mayor and Members of the San Pablo City Council:
Please accept the City Manager’s Budget Message presented for the PRELIMINARY DRAFT GENERAL FUND (GF) OPERATING BUDGET for Fiscal Year 2025 – 2026 period.
Pursuant to San Pablo Municipal Code (SPMC) Section 3.04.230, the FINAL ADOPTED BUDGET document enclosed herein provides detailed financial information about the policies, expenditures and revenues forecasted for the City’s upcoming two-year (biennial) operational period beginning July 1, 2024 and ending June 30, 2026.
__________________________________________________________
BUDGET REVIEW AND ADOPTION PROCESS
In accordance with all budget preparation requirements listed under the San Pablo Municipal Code (SPMC) Chapter 3.04, the FINAL ADOPTED BUDGET was developed under the authority of the City Manager as the City’s Budget Officer, and presented for formal consideration, as follows:
1) Budget. Fiscal & Legislative Standing Committee (BFLSC): On April 29, 2024, the City Manager presented the PRELIMINARY DRAFT BUDGET for the FY 2025 - 2026 period for review to the members of the BFLSC consisting of: Mayor Ponce and Councilmember Pabon - Alvarado assigned by the City Council for the Calendar Year (CY) 2024 period.
2) City Council Scheduled Public Budget Hearing: Following the BFLSC review, the PRELIMINARY DRAFT BUDGET was recommended to be forwarded to the City Council for formal consideration and review during a scheduled public budget hearing set on Wednesday, May 1, 2024 (SPMC Sections 3.04.220, 3.04.240 and 3.04.250)
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
Scheduled Public Budget Hearing - Procedure
Following public comments received at the scheduled public budget hearing, and upon Council deliberation, the City Council directed the City Manager by majority vote via minute action all modifications to City expenses and revenues to the City Manager to finalize the PRELIMINARY DRAFT BUDGET for FY 2025 - 2026, for subsequent formal adoption by the City Council. The City Manager and the City’s Budget Team have prepared the enabling budget Resolutions for formal consideration and adoption on Monday, May 20, 2024 via Consent Calendar action.
Budget Adoption and Effective Date
Once the City Council acts by majority vote on the proposed budget enabling Resolutions, per SPMC Section 3.04.280 requirements, then the PRELIMINARY DRAFT BUDGET is deemed as the FINAL ADOPTED BUDGET which becomes effective July 1, 2024.
_______________________________________________________
BUDGET & FISCAL ISSUES OVERVIEW
Multi-Year Budget Planning
Previously, the City Council adopted an unprecedented four-year (Quadrennial) GF Operating Budget for the period FY 2017 - 2021 which concluded on June 30, 2021. Since then, due to the slow emergence from the COVID-19 pandemic and subsequent economic recovery period, a one-year GF Budget was adopted by the City Council for the FY 2021-22 period, effective July 1, 2021 through the end of June 30, 2022. In June 2022, the City Council adopted a Two- Year Bi-ennial GF Operating Budget for the July 1, 2022 through the end of June 30, 2024.
Following the City’s ongoing history and success at adopting multi-year budget expenditure plans, the City Manager is again recommending a multi -year budget expenditure plan for FY 2024- 25 and FY 2025-26 periods. This is to primarily coincide with the City’s adoption of current 5 -year multi-year employee represented MOUS which have fixed labor costs until June 30, 2027.
ONE-YEAR BUDGET vs. MULTI-YEAR BUDGET STRATEGY
In November 2023, when the new budget cycle was initiated by the City Manager, the development and progress on the city’s budget to date has been achieved in collaboration with the City’s Budget Team, and with all internal zero-base budgeting directive for all City Departments. All essential GF spending was reviewed and developed into two-year, Biennial FINAL ADOPTED BUDGET, with all GF expenses and revenues adjusted at City Manager direction to present a balanced multi- year budget for formal review and adoption by the City Council.
Casino Revenue Shortfall Impact
All previous actions taken to date to manage the fiscal impacts of COVID- 19 pandemic and the economic recovery period since FY 2021-22, with no significant GF revenue shortfalls to date, enabled the City to not have to address any significant budget issues. However, during FY 2022 -23, annual Casino contract revenue experienced an unforeseen revenue shortfall of ($348,000) for period ending CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
June 30, 2023 which was anticipated to compound for another revenue shortfall experienced during FY 2023-24 for period ending June 30, 2024, as follows:
CASINO SAN PABLO REVENUE SHORTFALLS (FY 2023 - 2024:
• CASINO REVENUE SHORTFALL FOR FY 2022-23 ($348,000)
• CASINO REVENUE SHORTFALL FOR FY 2023-24: ($350,000)* (est.)
*Note: Actual GF Revenue Shortfall not known until receipt of Casino Revenue distribution for April – June 2024 period (4th QTR of FY 2023-24.
FY 2023-24 Temporary Hiring Freeze
Since Salary and Benefit Costs are the single major cost factor for the City ’s GF Budget, the City Manager instituted a temporary FTE hiring freeze on all current FTE vacancies on August 1, 2023 until the end of January 31, 2024 as a PRECAUTIONARY MEASURE. This was to ensure that there was sufficient cost savings to counteract this loss of critical revenue to the City through period ending June 30, 2024.
However, despite this recent setback, there is sufficient operational justification to proceed with a multi- year budget expense plan for the upcoming FY 2025 – 2026 period, with a number of strategic budget measures implemented that were adopted by the City Council in December 2023 to present a balanced FINAL ADOPTED BUDGET.
NEW CITY FINANCIAL CONDITION AND LONG-RANGE FINANCIAL FORECAST PLAN
In August 2023, with the emergence of a GF revenue shortfall for the City’s GF Operating Budget in FY 2022-23 and projected to occur in FY 2023- 24, the City Manager recommended development and execution of a new Long- Range Financial Forecast Plan (LRFFP) by an independent, third- party financial services consultant ( i.e. PFM Financial Consultants) to analyze and interpret current City expense and revenue trends for future budget planning practices.
On December 13, 2023, the BFLSC and City Council were presented the independent LRFFP findings by PFM which indicated the following important findings if the City were to maintain STATUS QUO with no adjustments to current expense trends, and revenue projections in future years.
The City’s LRFFP included the following major findings:
• First-time experiencing annual Casino revenue “Tabling Off” (Pre-2023 10-year growth = 5.6% avg growth rate; Post-2023 10-year projected growth = 0.6% growth rate) • Need to re-adjust City expense and revenue projections FY 2024-2025, and future years • LRFFP indicated (-$40.1M) cumulative GF Operating deficit over next 10-year period • LRFFP indicated (-$ 8.7M) cumulative GF Operating deficit over next FY 2025-2027 period
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
COUNCIL APPROVED STRATEGIC BUDGET INITIATIVES FOR BUDGET BALANCING
As City Manager, following the findings made by the independent financial services consultant, proceeding with the development of the new Multi -Year (3-year) GF Budget for upcoming FY 2025 - 2027 period would require IMMEDIATE CONSIDERATION of strategic budget initiatives to be adopted by the City Council to address and eliminate said forecasted deficits. On December 13, 2023, the City Council adopted eight (8) Strategic Budget Initiatives to eliminate the forecasted a (-$8.7M) cumulative deficit for period FY 2025 – 2027 (CC Resolution No. #2023-067), as follows:
CITY OF SAN PABLO STRATEGIC BUDGET INITIATIVES:
CITY COUNCIL APPROVED ON 12/13/23
APPROVED BY ADOPTED RESOLUTION #2023-067
1) Implement a zero-based budget planning model for FY 2025-27 budget planning to optimize city service delivery and generate annual GF operating cost savings for all City Departmental expenses
2) Eliminate or substantially reduce all GF operating subsidies 3) Identify new gf annual revenue sources
4) No (0) FTE increased authorized during FY 2025-27 period (i.e. Zero-growth; status-quo) 5) Extend FTE hiring freeze on all FTE vacancies during FY 2025-2027 period 6) Re-tool & revise adopted fiscal resiliency policy requirements to reverse forecasted structural deficits as one-time balancing measures (for FY 2025-2027 period only) 7) Explore use of one-time funds from GFDR fund balance to reverse forecasted structural deficits as one-time budget balancing measures (for FY 2025-2027 period only) 8) Explore additional fiscal measures using forecast model to reverse forecasted structural deficits as recommended by the City Manager
(SUBJECT TO CHANGE AS RECOMMENDED BY THE CITY MANAGER)
CITY’S NEW FINANCIAL CONDITION:
(AS OF DECEMBER 13, 2023)
FY 2025-2027 GF STRUCTURAL DEFICIT FORECASTED
FY 2024-25 FY 2025-26 FY 2026-27 CUMULATIVE TOTAL:
(-$2.1M) (-$2.9M) (-$3.7M) (-$8.7M)
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
EMERGING U.S. ECONOMY CONCERNS AND ISSUES
Persistently high prices and rising labor costs are cutting into margins for some of the largest U.S. companies as inflation continues to weave its way through the economy. Inflation has been declining since its highs in 2022, but it’s still above the Federal Reserve’s target rate of 2% as reported by US economists following the end of 2023. A measure of inflation that is held in high regard by the Federal Reserve t icked up in January 2024, suggesting that prices continue to hold above levels that would warrant any immediate cut in interest rates until mid- 2024.
In January 2024, economists’ readings of the Cons umer Price and P roducer Price Indices (CPI/PPI) came in hotter than expected. That led U .S. markets to back off expectations of a Federal interest rate cut in March 2024. Now, June 2024 now looks like more likely scenario for the first cut in U.S. interest rates.
Various Federal officials have also reiterated recently the mantra of Federal Chairman Jerome Powell t hat it will take “sustainable” evidence that inflation is headed back toward the 2% annual target that the central bank follows. While there has been a measurable drop in the prices of goods, costs for services have been slower to come down. That matters a lot as services represent the bulk of U.S. economic activity.
In February 2024, the US government issued a slight downward revision to gross domestic product (G DP) for the fourth quarter, largely as a result of weaker inventory growth. However, other underlying components of GDP showed res ilience and the economy continuing to grow at the end of 2023.
“The job market is solid, and the country’s total wealth reached a record high due to stock market and home price gains,” said NAR Chief Economist Lawrence Yun. “This combination of economic conditions is favorable for home buying. However, consumers are showing extra sensitivity to changes in mortgage rates in the current cycle, and that’s impacting home sales.” Pending home sales reflect contracts signed to buy homes that then usually become final within 30 to 60 days.
The housing market remains constricted, with high mortgages and limited inventory of existing homes for sale as current homeowners hold onto houses that carry mortgage rates below the 4% level. “Buyers who were out home shopping at the beginning of the year did not see much favorable movement on mortgage rates,” said Lisa Sturtevant, chief economist at Bright MLS. “Mortgage rates were relatively stable, around 6.65% throughout the month, after coming down in November and December 2023. Some buyers might have been avoiding the snow and cold weather in January, while holding out hope for lower rates later this winter and spring.” Source: https://www.usnews.com/news/economy/articles/2024-02-29/key-fed-inflation-measure-rose-in-january CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
Bay Area Tech Industry Job Cuts
As a result of the latest Tech Industry layoffs during 2023-24, Bay Area employers have revealed plans to chop about 5,600 tech jobs in the Bay Area based on the disclosures for the first two (2) months of 2024 through recent 60-day Worker Adjustment and Retraining Notification (WARN) from the State of CA Employment Development Department (EDD). In comparison, during the first two (2) months of 2023, Bay Area tech companies revealed their intentions to eliminate slightly more than 8,500 jobs in the Bay Area, with more anticipated through the end of 2024.
Source: https://www.mercurynews.com/2024/03/04/jobs-layoff-tech-biotech-medical-health-sony-kaiser-marvell- economy/
Therefore, based on current U.S. economic indicators, the FY 2025-2027 is characterized has having a FISCALLY AUSTERE financial outlook as the City braces for forthcoming changes to the U.S. economic issues emerging in 2024, and in the near future, as follows:
1) Ongoing U.S. Government Gridlock/Shutdown Concerns
2) Ongoing U.S. Experiencing Moderate Inflation (Reducing since 2022) 3) U.S Interest Rates Cut in Spring/Summer 2024 (Undetermined) 4) Ukraine War Costs (Undetermined)
5) Israel and Palestine/Gaza Conflict (Undetermined)
6) Supply Chain Shock/Shortages
7) U.S. Election Year and Partisan Politics Wane
As part of the scheduled public budget hearing for May 1, 2024, the City Manager and staff will continue to monitor these U.S. economic indicators and their impacts in more detail with the City Council as it relates to minimizing annual GF expenses to be in close alignment with forecasted GF revenue growth over the next FY 2025-2026 period.
AMERICAN RESCUE PLAN ALLOCATION FUNDING
On April 4, 2022, following a City Council approved Community Needs Assessment in August 2021, and Final Rule issuance by the U.S Treasury in January 2022, the City Council adopted the American Rescue Plan Act (ARPA) Funding Allocation and Appropriation of Part I Eligible Expenses as Government Services under the Public Sector Revenue Loss Category which total ed $900,000 via Resolution #2022-055; and Part II Eligible Expenses as Government Services under the Public Sector Revenue Loss Category which totals $6,513,466 via Resolution #2022-056, for a combined total of $ $7,413.467 as a non-entitlement unit; and designated a Special Revenue Fund 120 into the City’s GF Budget. All former ARPA fund allocation is now contained in the GF Operating Budget using the under $10M Rule. All applicable financial compliance and reporting requirements pursuant to U.S. Treasury Final Rule Regulations must be adhered to with all former ARPA/Fund 120 allocations to be expended by December 31, 2026 per US Treasury Final Rule Regulations.
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
ANNUAL GROWTH FACTOR FOR FY 2025 - 2026
During the LRFFP presentation in December 2023, the City’s consultant indicated that there is a projected +0.6% annual revenue growth anticipated for annual Casino revenue growth for the FY 2025-2026 period. All other City revenue growth is relatively 0% or flat in future years.
This PRELIMINARY DRAFT BUDGET must be monitored with FISCAL CONTROLS AND FINANCIAL DISCIPLINE so that future projected revenues during FY 2025 - 2026 period remain intact , and thereafter, can be managed appropriately to ensure future City operating expenses do not experience substantial “budget creep” in subsequent future years until City fiscal and revenue capacity can be increased.
ONGOING USE OF FISCAL RESILIENCY RESERVES
The City’s ongoing use of Fiscal Resiliency Reserve Policies, first adopted in October 2013 and amended in March 2016, has enabled the City Council to maintain fiscal practice of allocating year-end audited fund balance (i.e. budget surplus) to the City’s General Fund Designated Reserves (GFDR) Fund for major capital and service level enhancement for the last nine (9) years.
Typically, year-end audited fund balance is allocated and appropriated by Resolution by the City Council for various project and programmatic needs during the course of the fiscal operating period.
Each January, these allocations have been approved by the City Council for financial progra mming following adoption of the Annual Comprehensive Financial Report (ACFR) for the preceding fiscal year period ending June 30
th.
Since FY 2018- 19, the City Manager has continued to warn the City Council during his previous Quadrennial 4-year FY 2017-21 CM Budget Message that continued depletion of one -time GFDR funds for ongoing operational or project expenses needed to be curtailed.
One of the important factors this upcoming FY 2023-24 period are the continual availability of budgetary resources available through the City’s ongoing fiscal practice and adherence to the Fiscal Resiliency Reserves Policy requirements for EMERGENCY USE ONLY. To be clear, the City’s Fiscal Reserve Funds should not be used for covering operating expenses which would trigger structural budget deficits due to the replenishment requirements for one- time use of the Catastrophic Reserve (must be replenished within three fiscal year periods), and one- time use of Budget Stabil ization Reserve funds (must be replenished within one-year fiscal year period).
The City’s GFDR funds generated from the Fiscal Resiliency Reserves Policy acts as a “buffer” by insulating the City from economic impacts, unforeseen financial crisis, litigation/settlement, or natural disasters. This Fiscal Resiliency Reserves structure was a critical balancing measure for dealing with dramatic, unforeseen GF Revenue shortfalls experienced during FY 2019- 20 due to the COVID -19 pandemic, and put into effective use by the City Manager when GF revenue shortfalls were truly realized by end of June 30, 2020 period.
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
Proposed Revision to Fiscal Resiliency Reserve Policy Framework (FY 2024-25 Only) Due to the City’s Financial Condition as of December 13, 2023, the City Manager recommended a one- time revision to the Fiscal Reserve Resiliency Policy (FRRP) which was reviewed by the BFLSC on February 26, 2024, and approved by the City Council April 15, 2024 via CC Reso. No. #2024-051.
By doing so, the City Manager is focusing on using one of the eight (8) Strategic Budget Initiatives adopted on December 13, 2023 via Resolution No. #2023-067 to assist in the elimination of the (-$8.7M) projected deficit during FY 2025 – 2027 period:
6) Re-tool & revise adopted fiscal resiliency policy requirements to reverse forecasted structural deficits as one-time balancing measures (for FY 2025-2027 period only)
Consideration of this one- time proposed revision to the FRRP framework will relieve pressure on the City’s GF Operating Budget, and allocate large, major capital expenses into newly -created Special Revenue Funds (now designated as Internal Service Funds or ISFs) for one-time future appropriation using “seed money” to pre-fund the ISFs based on a % percentage from GF Operating Funds from the City’s Undesignated Fund Balance for FY 2024-2025 period only , effective July 1, 2024. See Table below on proposed policy amendment to the FRRP:
CITY OF SAN PABLO FISCAL RESILIENCY RESERVE POLICY FRAMEWORK (PROPOSED SECOND AMENDMENT FOR FY 2024-2025 ONLY)
Effective: July 1, 2024
CATASTROPHIC RESERVE (FUND 150)
BUDGET STABILIZATION RESERVE (FUND 170)
50% of GF Operating Funds
5% of GF Operating Funds
NEW INTERNAL RESERVE FUNDS:
Allocated as a percentage of the adopted GF Operating
Budget (via ONE -TIME ALLOCATION for FY 2024- 25 only)
a). Building & Facilities Maintenance Reserve (Fund 130)
b). Asset & Vehicle Replacement Reserve (Fund 140)
c). City Manager Operating Reserve (Fund 190)*
Total:
NOTE: ALL FUTURE YEAR- END AUDITED FUND BALANCE
WILL BE ALLOCATED BY CITY MANAGER TO NEW INTERNAL
SERVICE FUNDS (i.e. Fund 130, 140 & 190) AS NOTED ABOVE.
(*Note: Removed as an annual, recurring GF Budget Annual Operating Expense)
3% of GF Operating Funds
2% of GF Operating Funds
1% of GF Operating Funds
__________________________________
= 61% of Adopted GF Operating Funds
CASINO REVENUE SHORTFALL RESERVE (FUND 180): NO CHANGES; DISCRETIONARY ACTION CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
The proposed allocations to the new ISFs will enable all large capital expenses associated with City Buildings and Facilities to be managed under designated ISFs for one-time appropriation to fund asset acquisition (i.e. IT computers) and vehicles for City Fleet Management to be moved from the City’s GF Budget into one designated ISF, and finally, move the City Manager’s Operating Contingency Reserve as an annual operating expense into one designated ISF using a one- time allocation based on percentages GF Operating Funds from the City’s Unassigned Reserves Fund Balance.
As previously noted above, the prop osed amendment to the FRRP was approved by the City Council at their April 15, 2024 meeting via Resolution No. 2024- 051 and becomes effective July 1, 2024 commensurate with budget adoption.
__________________________________________________________________________ CITY MANAGER FISCAL RISKS ADVISORIES FOR FY 2025 - 2026 GF BUDGET PERIOD
FISCAL DISCIPLINE AND EXPENSE CONTROL (MANDATORY)
Due to the City’s new financial condition as of December 13, 2023, the City Manager warns that increased FISCAL DISCIPLINE IS MANDATORY for the proposed FY 2025 – 2026 period until new fiscal and revenue capacity can be generated. By adopting a new 2-year GF Biennial Budget, this buys the City some critical time to explore and develop new fiscal and revenue capacit y to counteract the projected forecasted deficits looming from time of budget adoption over the next three (3) year period.
**CRITICAL POINT**
The City must explore new economic and revenue investment opportunities over the next 3 - year period to generate new fiscal and revenue capacity to extend beyond the City’s annual expenses, financial capabilities and annual debt obligation capacity.
PLAN FOR MAJOR UNFORESEEN CONTINGENCIES
The City Manager has always planned for major unforeseen contingencies that may impact the City Operating Budget and its ability to sustain City-wide programs and services . However, not all major unforeseen contingencies can be expected for during the economic recovery period. Budgetary resources were proposed in the FINAL ADOPTED BUDGET to sustain the City’s current operating levels and staffing resources levels, and to meet significant cost factors such as debt obligations and ongoing CalPERS a nd retiree health cost increases during this next two-year cycle. Ongoing labor, liability insurance, CalPERS pension (i.e. UAL liability), and retiree health are significant cost factors for the City going forward in future years.
New Section 115 Trust – Pension Rate Stabilization Program (PRSP) In December 2023, the City Council established a new Section 115 Trust Fund / Pension Rate Stabilization Program (PRSP) to enable the City to mitigate these fluctuations in unfunded retiree CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
liabilities which was established using a total of $1M in one-time funding via Resolution No. 2023-166.
This new Section 115 Trust / PRSP will provide additional assets to counteract against the rate fluctuations of CalPERS who recently announced changes in 2021 to directly affect unfunded liability amounts and employer c ontributions to local contract agencies while at the same time ensure compliance with IRS, GASB and State of CA Government Code regulations. Before the concept of pension prefunding, the only way to reduce retirement system unfunded liabilities was to send additional contributions in excess of annual required employer contributions via the City’s GF Budget which is a costly and unsustainable endeavor for most local cities and their GF Budgets.
FOCUS ON OPERATIONS AND MAINTENANCE (O&M)
Following budget adoption in June 2022, the City Manager will stress the need for long-term economic sustainability for the City. This means continued prudent management of all City GF revenues and the development of new revenue sources for new economic diversification. This will encourage new private investment through capital, economic development, housing and technology investments. Emphasis over the past ten (10) years has been to transition from the dissolution of redevelopment to a new economic development paradi gm using one- time audited fund balance as the financing mechanism .
This has been more prevalent in the last four (4) years where substantial capital investment in a number of new City facilities and public infrastructure investment from period 2017- 2021 has totaled nearly $60.9M in capital cost investment, and generated nearly +600 jobs during this period.
CITY OF SAN PABLO MAJOR CAPITAL PROJECTS
Period: 2018- 2024
City Investment Project Capital
Cost
Jobs
Created
CC County Women’s, Infant and Children’s Project
• Status: Completed 2018-2019
$3.7M
40 San Pablo Avenue Complete Streets (@ Rivers Ave)
• Status: Completed 2017-2019
$6M
($3M City)
65 New San Pablo City Hall Project
• Status: Completed 2019-2020
$18.2M
197
CC County Fire Station #70
• Status: Completed 2019-21
$13M
($4.5M City)
109
City Public Fiber Project (Phase I)
• Status: Completed 2020
$1.0M
50 Block E Housing Sub-Division Project
• Status: DDA/Planning Entitlements (May 2021)
Private
+/-50 (est.)
Mixed-Use Retail & Housing Project
• Status: DDA/Planning Entitlements (May 2021)
Private
+/-50 (est.)
Rumrill Blvd. Corridor Project
• Status: Bid Advertisement/Award (May 2021)
$19M
+/-150 (est.)
New San Pablo PD Headquarters & Regional Law
Enforcement Training Center Project
• Status: Advance Planning 2021-24
$35M
+/-200 (est.)
Total Public Investments: $95.9M +/-850
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
These public facilities and infrastructure investments have characterized most of the City’s short-term economic development, and the City Manager has programmed its development using a combination of public and private development strategies (i.e. Lease Revenue Bond Financing; GFDR One- time Fund Investment; Contra Costa County Public Investment; and Private Investment). The Table noted above summarizes a list of project economic development to date throughout the City completed and ongoing during the evaluation period (2021-2024), and going forward into FY 2024-25.
In summary, the City of San Pablo has continued to develop major community projects to enhance the quality of life and build amenities for its residents which has had a positive impact on encouraging future private investment opportunities within the City’s small 2.6 square miles for the future. Continued emphasis on the combination of capital, economic development, housing and technology investments will be need to be prioritize to achieve this long -term economic viability during FY 2022-24, and future years.
CAREFULLY MONITOR CITY REVENUE GROWTH
Projected Casino Revenue Growth
Following budget adoption, the City Manager stresses there needs to be strict adherence to managing the City’s future revenue growth so that all proposed City operational expenses due not exceed the forecasted +0.6% revenue growth for Casino annual contrac t revenue based on the recent LRFFP reported on December 13, 2023.
Compared to other small municipalities, the City’s revenue growth is flattening out while other local municipalities have zero (0) or no annual revenue growth for many years prior to and after the COVID- 19 pandemic period.
CITY FISCAL RISK WARNING!
The City must keep City operating expenses in alignment with projected GF revenues at all times to eliminate the potential for GF deficits or shortfalls in subsequent years. At the same time, there are no new potential revenue sources that have been identified for City economic diversification. The City must continue to exercise fiscal restraint within the current projected GF revenue growth anticipated.
On the expenditure side, health care, insurance and labor cost increases are anticipated to increase extensively, and the City must be managed accordingly. Additionally, there will need to be extensive evaluation of expenditure plans that result in internal FTE staffing investments during the FY 2025 – 2026 period to sustain current service delivery, focus on Operations and Maintenance (O & M) levels, with additional FTE staffing resources needed for program implementation, including but not limited to:
1) Fill current FTE vacancies to ensure public health and safety levels in City service delivery; and
2) Emphasis on future FTE investments in Community Development Department / Building CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
Inspections and Residential Health & Safety Program staffing levels; and
3) PW Department / Maintenance Division and Staffing Resources
USE OF ONE-TIME FUNDS FOR BUDGET BALANCING MEASURE RESTORATION
Prior to the COVID-19 pandemic, the City Council’s continued adherence to the Fiscal Resiliency Policy requirements adopted in October 2013 (Amended June 2016) have increased the financial stability of the City. One-time revenues that materialize after each fiscal year period labeled as “Year-end Audited Fund Balance” has been used strategically to build and develop a number of successful capital projects since 2018 to date period as noted above. However, p ost-COVID pandemic period is immensely different.
As annual City operational expenses increase they must be in alignment with available City revenue growth each year which is sound, fiscal discipline and practice. However, the City must rely less on one-time funding from the City’s GFDR Fund Balance for funding capital projects, programs, contract services, and equipment/vehicle replacement which should be exercised with CAUTION AND CONSTRAINT. Unfortunately, these one- time costs should be annual recurring in the operating budget. Unfortunately, they could not be accommodated in the FINAL ADOPTED BUDGET due to the City’s current revenue capacity for period FY 2025 - 2026, without triggering a substantial operating deficit/shortfall in future years.
__________________________________________________________ CITY MANAGER FINANCIAL GOALS FOR FY 2021-22
CAPITAL, ECONOMIC, HOUSING & TECHNOLOGY INVESTMENTS MUST BE FOCUS
The City is heavily dependent on annual Casino San Pablo revenues which represent 65% of City’s annual GF revenues projected for FY 2024-25 period. New economic and housing investments are needed to be cultivated over the next budget cycle with major capital investments in technology ( i.e. broadband/wireless) and EV infrastructure to create new economic development investments within the City’s geographic constraints.
Economic diversification and housing production are k ey to the City’s economic future. This is why emphasis needs to be made and to encourages private investment into in- fill developm ent sites throughout the City which are needed to contribute to the City’s economic tax base in future years. A key element to this new economic and housing investments will be continued focus and supporting public safety investments to keep spillover crime from occurring in San Pablo from surrounding cities.
Annual City Survey Results (August 2023)
During the Annual City Survey conducted in December 2023 – January 2024, the City’s consultant (SRI) surveyed the community at-large to determine the level of community support with regard to supporting public safety investments to encourage more economic and housing investments in San Pablo. Results from this recent survey indicated a +86% Support/Agree on this concept. (See excerpt slide below CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
from SRI’s Annual Survey presented to the City Council in February 2024)
New City Economic Development Strategy (EDS)
Due to the City’s Financial Condition, the City Manager’s Office embarked on a new City-wide Economic Development Strategy (EDS) Plan to determine new economic investment opportunities over the next FY 2025 – 2026 as the City explores additional fiscal and revenue capacity. After an RFQ/RFP process was completed during FY 2023-24, the City Council authorized the City Manager to execute a contract with Natelson Dale Group, Inc. in January 2024. A series of community and stakeholder meetings were initiated in February 2024 which will help shape the development of the City’s new EDS Plan to be adopted by the City Council by June 2024.
RHNA and Housing Investments
In November 2020, the City Council adopted a new Affor dable Housing Strategy which lays out a number of programs and policy strategies, identified new priorities to generate housing opportunities, and leverages existing City -owned properties to facilitate more additional affordable housing projects for the City over the next ten (10) year period. The Regional Housing Needs Allocation (RHNA) which has been in effect since 2015 as required by the State of CA HCD regulations has placed a huge daunting challenge for the City to reach affordable housing units as r equired by State HCD for RHNA Cycle 5 which ends in 2023.
However, during last 8-year period, the City saw steady progress toward RHNA Housing Compliance by permitting a total of 286 total housing units since C alendar Year (CY) 2015 through 2023 representing a total of 64% of the 449 total housing units required under RHNA, as follows:
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
Continued emphasis needs to be made as well as flexibility in the upcoming 2030 General Plan Update to enable developers to increase housing density and to accommodate additional housing uses in the City’s General Plan to facilitate housing production units in San Pablo to reach RHNA compliance in future years.
During the recent 2023 Annual Housing Report (AHR) presented in March 2024, the City had developed a cumulative 164 units out of a total of 449 units expected to be produced by 2023 under the 5th Cycle RHNA allocation. The 2023 AHR increased this number to 240, leaving 209 units remaining to be produced by the end of the eight-year cycle in 2023. Because State HCD has released the new 6th Cycle of RHNA Allocation for the upcoming 2023- 2031 period, San Pablo has a new target goal of 745 units by 2031, including 173 at the very low -income level, 100 at the low -income level, 132 at the moderate-income level, and 341 at the above moderate-income level. The new 6th Cycle accounts for the units permitted in 2023 as well as any units permitted during the Projection Period of June 30, 2022 to January 30, 2023. The total units permitted to date for the new 6th cycle is 137, and the total remaining RHNA is 609 units. In 2024, the City’s AHR will include information on progress for the new Housing Action Plan included within the updated 2023- 2031 Housing Element approved by the City Council on March 18, 20204, and awaiting certification by the State HCD.
AVOID FRIVOLOUS GF SPENDING
Due to the City’s Financial Condition reported on December 13, 2023, the City Ma nager STRONGLY WARNS the City Council that any frivolous GF spending would result in compounding forecasted deficits in future years. There is a delicate balance of expenses and revenues forecasted for FY 2025 - 2026 period. The City Council needs to refrain from elaborate or increasing GF spending unless a dedicated revenue source is identified (i.e. cost savings, grants or other alternative source) to mitigate any impacts on the GF operating budget including decreasing or eliminating any annual GF subsidies.
CITY OF SAN PABLO
RHNA HOUSING ALLOCATIONS
Period: 2018-2023
RHNA Cycle 5 (2015-2023):
Total Units Required: 449 units
CY 2018
CY 2019
CY 2020
CY 2021
CY2022
CY 2023
Total # Units Permitted:
+46 units
+9 units
+19 units
+25 units
+65 units
+76 units
Total # RHNA Units Remaining:
(403) Units
(394) units
(375) units
(350) units
(285) units
(209) units
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
All efforts must be made to decrease or minimize GF subsidies going forward in future years.
INVEST IN DEFERRED MAINTENANCE (CITY INFRASTRUCTURE, VEHICLES; IT
SYSTEMS) AS ANNUAL GF OPERATIONAL EXPENSES
The City Manager is concerned about ongoing funding availability to address deferred maintenance with includes large-capital City infrastructure replacement, city vehicles replacement. and enhanced IT Systems and asset computer replacement. These are ongoing annual operational costs which have been best managed over the years using annual GF expenses or one- time appropriations from the GFDR Fund Balance funds.
City infrastructure replacement for aging City facilities, and/or upgrades to existing City parks, lacks a consistent and dedicated funding source. City vehicles and IT replacement are essential items needed for City service delivery and for employee work productivity. All items must be continually budgeted operationally to be effective and resolute. As we all know, technology becomes obsolete year after year. Therefore, IT resources must be replaced periodically to maintain productivity and service levels for the City.
During FY 2025 – 2026 (as mentioned previously on pages 7-8 of this document), three (3) new Internal Service Funds (ISFs) will be recommended for establishment by a proposed amendment to the currently adopted Fiscal Resiliency Reserve Policy (FRRP) framework. These new Special Revenue Funds will have a total of 6% apportionment from Undesignated Fund Balance using the adopted GF Budget figure for FY 2024-25 to start these funds for FY 2024 -25 period only. Following their formal appropriation, the City Manager will be using one -time Year-end Audited Fund Balance to augment these S pecial Revenue Funds to address these critical operational needs each year thereafter.
MAINTAIN LONG-TERM EMPLOYEE LABOR GROUP MOUs
The City has always had long -term, multi-year employee labor group partnerships with representative units in the City, with exception to FY 2021-22 period when 1-year MOU extensions were needed to get through the COVID-19 economic recovery period. Typically, the City supports having long-term MOUs secured which has provided stability in managing labor costs in the City’s GF Budget since FY 2011-12 period, and has resulted in NO FTE LAYOFFS since FY 2011- 12 for all represented and non- represented groups which represents a 14- year consecutive period of no reductions to the existing City employee workforce through June 30, 2026.
Our City employees have greatly contributed to the economic stability of the City over the last t welve (12) years by assisting with sustained labor costs over time, and with more employee contributions to the pension costs through CalPERS. Currently, the City maintains 5-year employee labor group MOUs since July 1, 2022, with all MOUs set to expire on June 30, 2027. However, given the current economic outlook for the FY 2025 - 2026 period, these long-term MOUS are still being met to provide long-term fixed labor costs to future budget planning.
Salaries and benefit costs are the largest, single expenditure in the City’s GF Operating Budget. A total CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
of $33.6M in the General Fund is budgeted for FY 2024-25 Total Salary and Benefit Costs for 165 Total FTEs. For budget planning purposes in order to present a FINAL ADOPTED BUDGET, a +3% COLA was included for all City employees, effective July 1, 2024, with other COLAs planned for subsequent years until expiration of said MOUs on June 30, 2027.
ONE-TIME SALE PROCEEDS OF CITY PROPERTY AND RETURN ON INVESTMENT (ROI)
Due to the City’s new Financial Condition, the City Manager stresses that continued support for Return on Investment policies (ROI) must be an ongoing financial policy supported by the City Council when disposing of City surplus property, increasing City fees for services, and for generating one-time real estate sale proceeds. With limited new revenue opportunities, the City must take advantage of market considerations and the potential generation of future sale proceeds of City property for strategic investment and development opportunities given the City’s geographic constraints.
As of February 1, 2024, there are very limited number of City-owned property available to generate new sale proceeds at this time. In December 2023, the City sold and closed escrow on the sale of the City- owned parking lot adjacent to Casino San Pablo, with the Lytton Rancheria Band of Pomo Indians. Sale proceeds were allocated and appropriated into the City ’s FY 2023-24 GFDR Fund Balance for a total allocation of $ 3,045,137 to be used for future one-time budget balancing measure for FY 2025 – 2026 period (CC Resolution #2024-003).
Any future one-time sale proceeds and ROI proceeds should they be generated, must continue to be earmarked for future City Council allocation and appropriation in the City’s GFDR and GF Operating Budgets in future years to eliminate any forecasted GF Operating deficits or shortfalls, and enhance City service delivery, projects and services.
______________________________________________________________________
MEETING THE FISCAL CHALLENGES
BUDGET GOALS/STRATEGIES FOR FY 2022-24
As the City developed the FINAL ADOPTED BUDGET for FY 2025 - 2026, the following financial planning goal considerations were developed and established for the next two- year budget cycle, as follows:
Budget Planning Goals/Strategies for FY 2025 – 2026:
(1) City’s new Financial Condition: As of December 2023, the City must continue efforts at using all eight (8) Strategic Budget Initiatives to ensure that all forecasted operating deficits for FY 2025 – 2027 and for future years are curtailed and eliminated; and
(2) GF revenues must meet all GF expenditures to reduce the occurrence for GF operating deficits or shortfalls in future years; and
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
(3) Use “one-time funds” (i.e. Surplus or Real Estate Proceeds, Year- End Audited Fund Balance) must be used as a Budget Balancing Measure needed to present a balanced FY 2025 - 2026 FINAL ADOPTED BUDGET; and
(4) Achieve Multi-Year MOU agreements with all employee labor groups and continue this fiscal practice for future years; and
(5) On the City GF expenditure side, health care, insurance/liability, labor and U.A.L. cost increases are anticipated to increase steadily due to market or investment impacts , and the City must manage these annual expenses accordingly (i.e. Section 115 Trust / PRSP for pension liabilities)
(6) Conduct extensive evaluation of Department expenditure plans that result in internal investments during the FY 2025 – 2026 period to sustain City service delivery, with additional staffing resources needed for program implementation, including but not limited to the following:
(7) Reduce GF Subsides d uring FY 2025-2026 through full cost recovery, fee adjustments and potential future funding measures to reduce reliance on the City’s GF Operating Budget annually.
MAJOR EXPENSE FACTORS FOR FY 2025 – 2026 PERIOD
The FINAL ADOPTED BUDGET is built upon a series of assumptions needed to stabilize operating costs with forecasted GF revenues. There are major cost factors that need to be continually monitored.
Major cost increases in FY 2024-25 include the following:
• Employee Labor Costs: Effective July 1, 2024, a +3% cost-of-living increase (COLA) for all miscellaneous and safety employees will be implemented following collective bargaining with all representative and unrepresentative employee groups. Total estimated salary and labor cost factor for all City employees totals approximately $33.6M in FY 2024-25.
• CalPERS Pension Costs (“Normal” Costs v. “UAL”): Unfunded actuarial liability (UAL) addresses changes to normal assumptions: longer mortality rates, updated actuarial tables, lowered discount rate, CalPERS investment smoothing, etc. In FY 2023-24, UAL totals $3.86M which is a (-2.23%) increase from FY 2023-24. Based on the July 2022 valuation report, the UAL increased by + 19.3% in FY 2024- 25 compared to FY 2023- 24. NOTE: Using the prepayment option, City will budget at $4.6M in FY 2024-25 (a total net savings of $154K).
• Rising Healthcare Costs: In FY 2023-24, a total cost of $4.2M for all City employees plus an additional $550K for City Retirees. Premiums for employer -sponsored health plans increased by +11% in FY 2023-24.
• Workers’ Compensation Costs: A significant cost factor increase in the FINAL ADOPTED BUDGET. are workers compensation claims for FY 2024-25 budgeted at $959,481 which is a +16% Increase from FY period.
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
• MPA Insurance: MPA’s workers’ compensation claims volume has increased along with the severity of claims in the general l iability and vehicle programs. The overall estimated increase for all programs in FY 2024-25 is approximately +11% for property, general liability and worker’s comp. This follows a 14% rate increase that occurred for the 2024 plan year.
• Reduction in Services & Supplies Costs: An overall (- 5%) decrease in City -wide Departmental expenditures was directed by the City Manager as part of the zero-base budgeted directive implemented into FY 2025 – 2026 budget planning which resulted in $1.45M total City GF expense for FY 2024-25 which is a (-6%) decrease from FY 2023-24 funding levels.
• Community Grants/Special Events: In FY 2024- 25, under the City Council Departmental Budget, total estimated costs are $3.74M with a (- 7.6%) decrease from FY 2023- 24 funding levels. Major costs include: CCCFPD EMS Agreement at $1.78M; SPEDC Annual Operating Agreement at $562K; County Library Lease payments at $504K annually; County Library Services Agreement at $145K, County Animal Control Services Agreement at $342K)
• Debt Services Expenses: A decrease of (-$6,701K) to cover projected debt service obligations of $2.7M in FY 2024-25 for recent 2022 Lease Revenue Bonds (LRB) combined with 2015B LRB debt refinancing for the new PD HQ Project issued the third quarter (3QTR) of FY 2021-22
• Utilities/Fuel: City-wide expenses are proposed at $500,000 in FY 2024-25 with an additional +9.5% increase from FY 2023-24. Diesel and gasoline costs rose due to inflation factors during FY 2023-24. However, fuel expenses are being decreased for $226K to $200K based on actual expenses being realized.
• No FTE Layoffs: No FTE layoffs necessary as a budget reduction or cost savings strategy for FY 2024-25 and FY 2025- 26. Note: The last FTE reductions used for budget balancing purposes was incurred during FY 2011-12. This is a 14-year period of no FTE layoffs.
• FTE Vacancies: During FY 2023 -24 period, a total of 17.0 FTE positions (FTEs) that were allocated and budgeted during the FY 2022 – 2024 Two-Year GF Budget became vacant due to a number of issues (i.e. employee attrition, failed HR recruitments, unforeseen retirements, etc.) Due to budgetary concerns, the City Manager instituted a temporary hiring freeze on all FTE vacancies during FY 2023- 24 from August 1, 2023 through January 31, 2024 as a precautionary budget measure resulting from an unexpected GF revenue shortfall ( i.e. Annual Casino Revenue) experienced at the end of fiscal period ending June 30, 2023.
For FY 2025 – 2026 GF budget planning, a total of 11 of 17 FTEs are being incorporated into the FY 2025-26 FINAL ADOPTED BUDGET, and provided budget allocation at time of budget adoption before June 30, 2024. A total of six (6) FTE vacancies will be deferred until additional budget resources can be identified. Therefore, a total of ($750,000 - $1M) n cost savings may materialize at time of budget adoption for the remaining six (6) FTE vacancies being deferred to FY 2024-25.
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
MAJOR REVENUE FACTORS FOR FY 2025 – 2026 PERIOD
In preparing for General Fund revenue forecasts, the FINAL ADOPTED BUDGET includes conservative and practical projections to determine Total Revenues to coincide with projected GF revenue projections as noted above.
Many of the major GF revenue factors for FY 2024-25 include the following:
• Casino Revenue: Annual Casino Contract Revenue is budgeted at $31.5M and the P.I.L.O.T revenue budgeted at $2.2M with a combined total of $33.9M for FY 2024-25, and represents a +0.55% increase from FY 2023-24 period. T his comprises 65% of all total budgeted GF revenues annually. Due to the City’s new financial condition and Long- Range Financial Forecast Plan (LRFFP) presented on December 31, 2023, Annual Casino Revenue will have +0.6% annual growth rate in future years.
• Sales Tax Revenue: Total sales tax revenue (i.e. Bradley -Burns and Measure K, Q/S Measures) are projected at $5.065M for FY 2024-25 representing 9.5% of total budgeted GF revenues annually.
• Property Tax Revenue: Total General Fund property tax revenue is projected at $1.77M for FY 2024-25. Total property tax in-lieu revenue is projected at $3.6M for FY 2024-25. Property Tax in-Lieu Revenue from Vehicle License Fees (VLF) represents 6.8% of total budgeted GF revenues annually.
• Utility User Tax (7%) Revenue: Total utility users tax revenue is projected at $ 3.08M for FY 2024-25 representing 5.9% of total budgeted GF revenues.
• Franchise Tax Revenue: Franchise tax revenues is projected at $850K in FY 2024-
25. Franchise fee revenue is generally associated with the City’s Refuse and Franchise Fee with Republic Services, Inc. which represents a (-3%) decrease from FY 2023-24 funding levels.
• Rental Income: Lease revenue increases to $216K in FY 2024-25 due to the County WIC Building Agreement with Contra Costa County. A +2.8% increase over FY 2023-24 funding levels.
• Road Repair and Accountability Act (SB 1) Funds: SB1 Legislation , enacted in 2017, will yield $720K in GF revenue in FY 2024-25 which represents a slight decrease from FY 2023-24 funding levels, with higher summer gas prices projected to generate higher revenue.
ON-LINE BUDGET SURVEY RESPONSES
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
In early April 2024, the City Manager provided an On-Line Budget Survey to local residents during development of the new FY 2025 – 2027 3-Year Triennial GF Budget before the decision was made to present the FINAL BUDGET under a Two-year Biennial format.
The purpose of the on- line budget survey for local residents was to hear from community members about the budget priorities that are most important to local residents, businesses, and interested parties, with the goal of creating a new budget that ensures the City is financially sustainable into the future while also being able to continue to fund and provide the programs and services that our residents and businesses care about the most.
During the month of April 2024 (from April 4 – 21, 2024), the On-Line Budget Survey received a total of six (6) responses.
A summary of these responses allegedly made by local residents are included as an attachment to this CM Budget Message to assist the City Council with review and consideration of the FINAL ADOPTED BUDGET. The City’s On-Line Budget Survey will remain active until June 30, 2024. ____________________________________________________________________ FINAL BUDGET RECOMMENDATIONS & SUMMARY (FY 2025 - 2026 PERIOD)
The following table represents the balanced, FINAL ADOPTED BUDGET (Total GF Expenditures) for the period FY 2024-25 & FY 2025-26 as recommended by the City Manager for City Council review and consideration below:
One-Time Budget Balancing Measures Needed
In order to present a balanced budget for FY 2025 – 2006 period, the City Manager reports that application of the following Budget Balancing Measures was required to eliminate a projected BUDGET SHORTFALL for both FY 2024-25 and FY 2025-26 periods, as follows:
BUDGET BALANCING MEASURES FOR BIENNIAL BUDGET SHORTFALLS (FY 2025-2026) FY 2024-25 FY 2025-26
Budget (Surplus/Shortfall) (-$1,961,291) (-$3,415,335)
FY 2023-24 GFDR Fund Balance* $1,961,291 $3,038,709
Budget Stabilization Fund (Fund 170)** - $376,626
Budget Balanced: 0 0
FY 2024-25
FINAL ADOPTED BUDGET
(In Millions)
FY 2025-26
FINAL ADOPTED BUDGET
(in Millions)
Total Salary & Benefits $33.0 M Total Salary & Benefits
$ 34.3 M
Total Services & Supplies $14.5 M Total Services & Supplies
$ 15.1 M
Transfers Out $ 6.8 M Transfers Out
$ 6.9 M
TOTAL EXPENDITURES: $54.3 M TOTAL EXPENDITURES:
$ 56.3 M
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
Note: Biennial Budget Shortfall Balancing:
*(1) Use of One-Time Funding from FY 2023-24 GFDR Fund Balance ($5M) requires no replenishment of GFDR Fund Balance required (i.e. one-time funds). **(2) Use of Budget Stabilization Reserve Fund (Fund 170) must be replenished by FY 2026- 27 (before June 30, 2027) per Fiscal Resiliency Reserve Policy requirements.
Financial Guidelines to Manage Fiscal Challenges Ahead
There are many FISCAL CHALLENGES ahead for the City during FY 2024-25 and FY 2025-26. Any future fluctuations in GF revenues resulting from changes to Casino contract revenue will result in a DIRECT IMPACT to City’s projected revenues during the FY 2025 - 2026 period. There needs to be a critical focus on pursuing additional fiscal and revenues sources, and identifying new oper ating efficiencies over the next two (2) fiscal year periods to meet these future fiscal challenges.
Additionally, there needs to be constant monitoring of GF spending due to the FISCAL RISK WARNINGS outlined by the City Manager. Therefore, the City Manager recommends the following ten (10) financial guidelines to the City Council to be followed during FY 2025 – 2026 period:
CITY MANAGER FINANCIAL GUIDELINES
Guideline #1: Maintain STATUS-QUO on all City program and service delivery until new revenue sources can be identified; and
Guideline #2: Explore new efficiencies using new emerging technologies to minimize annual GF operating costs; and
Guideline #3: Promote capital, economi c, housing and technology infrastructure , and continued public safety investments to encourage future private investment in the City; and
Guideline #4: Exercise fiscal discipline and spend WITHIN appropriated GF revenue levels; and
Guideline #5: Managed restraint on any use of the City’s Unassigned Reserves for covering annual operating expenses; and
Guideline #6: Always strive for long-term employee labor MOU agreements to sustain multi- year budget planning goals; and
Guideline #7: Eliminate or substantially reduce all GF operating subsidies; and promote full- cost recovery efforts.
Guideline #8: AVOID creating GF structural deficits/shortfalls; and CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024
Guideline #9: Be prudent and strategic in managing new FTE staffing investments
Guideline #10: **CRITICAL POINT** The City must create NEW opportunities over the next 2- year period to generate new fiscal and revenue capacity to meet all City annual operating requirements, all City financial capabilities, and all annual City debt obligations.
____________________________________________________________________
CONCLUSION AND ACKNOWLEDGEMENTS
The City Manager wishes to thank the City’s Budget Team and all City employees who were involved in the budget planning process for the FY 2025 - 2026 period. A lot of tremendous effort and work was expended to develop a balanced, two- year budget spending plan for City Departments. Without their support, the City Manager would not be able to present a balanced, FINAL ADOPTED BUDGET for FY 2025 - 2026 for consideration and adoption by the City Council.
City Budget Team for FY 2025 – 2026 Period:
In closing, I also want to thank the City’s Budget Team comprised of the following members who SIGNIFICANTLY CONTRIBUTED their efforts in the preparation and timely delivery of this FINAL ADOPTED BUDGET for FY 2025 – 2026 period, which include:
• Charles Ching, Director of Economic Development, Housing & Sustainability • Heather Rowden, Interim Finance Director
• Cecilia Nguyen, Accounting Manager
Additionally, I wish to also recognize the following City staff members for preparation of the Proposed Capital Improvement Program (CIP) Budget for FY 2024-25 and FY 2025-26 period, as follows:
• Allan Panganiban, Public Works Director/City Engineer • Matt Brown, Senior Civil Engineer
Finally, I also want to thank the entire San Pablo City Council for their leadership and support of this City Administration. My staff and I look forward to working with you to set additional fiscal policy priorities during the FY 2025 - 2026 period, and for future multi-year budget cycles to follow.
Thank you for your time and consideration.
Respectfully submitted:
__________________________________ Date: May 20, 2024 Matt Rodriguez, City Manager
# # #
CITY MANAGER BUDGET MESSAGE:
FY 2025 – 2026 BIENNIAL GENERAL FUND OPERATING BUDGET (FINAL ADOPTED BUDGET) May 20, 2024