Attachment B
BACKGROUND:
On June 18, 2024, the City Council adopted two one -year budgets covering the period from July 1, 2024 to June 30, 2026. The Fiscal Year (FY) 2024 -25 budget was adopted as a balanced budget closing a very significant $21.3 million structural deficit for the General Fund (including Measure U) with a short -term strategy of drawing on undesignated General Fund and Measure U reserves in the amounts of $8.6 million and $4.4 million, respectively, in addition to cancelled reserves from the Local Economic Augmentation Fund (LEAF) in the amount of $8.3 million. The FY 2025 -26 budget was adopted as an unbalanced budget due to the anticipated depletion of the General Fund and Measure U unassigned reserves.
During the City Council’s deliberations on June 18, 2024, staf f was directed to return in the September 2024 timeframe with long-term budget strategy recommendations to close the ongoing budget deficit and avoid relying only on the use of one-time reserves.
Budget Balancing Analysis:
While the deficit for FY 2024 -25 amounted to $21.3 million, the ongoing budget gap, excluding expenditures classified as one-time, was determined to be $16.7 million, or 14 percent, of operational General Fund appropriations. In July and August 2024, City departments engaged in a budget balancing analysis to determine service level impacts if the potential reductions were taken across-the-board from all City operations. Revenue enhancement options were also explored. The summary of findings and further recommendations were summarized in t he reports presented to the City Council on September 17, 2024 and October 1, 2024.
Departmental analysis of potential reductions in operations were categorized into the following tiers:
Tier 1: Reductions having only a moderate impact to operations, Tier 2: Reductions having significant impacts to services offered or lead to departmental inefficiencies, and
Tier 3: Reductions resulting in significant service level impacts, including public safety as well as layoffs.
The identified Tier 1 and Tier 2 reduc tions amounted to $4.3 million on an annual basis.
The identified Tier 3 reductions amounted to $10.5 million on an annual basis.
On October 1, 2024, staff provided the City Council with an update on Citywide efforts to begin closing the budget gap in ali gnment with the City Council’s goal of attaining long - term financial sustainability. The report included a summary of the Tier 1, Tier 2, and Tier 3 reductions. Staff recommended further analyzing actions to be taken to effectuate Tier 1 and Tier 2 reducti ons and return to the City Council with specific budget reduction amendments with the FY 2024-25 Second Quarter Financial Report.
Following that meeting, the City Manager placed into effect a “hiring chill” policy requiring justification and analysis before any vacancy can be filled by a General Fund department, Attachment B
except for public safety departments. Through this process, the City continued to engage in analysis to seek efficiencies in operations and only fill positions identified as critical to perform ess ential functions. Staff continued to further analyze actions to be taken to effectuate Tier 1 and Tier 2 reductions.
On February 18, 2025, staff provided the City Council with an update as part of the FY 2024-25 Second Quarter Financial Report. Departments estimated savings of $3.7 million would be realized by holding positions vacant.