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An independent accounting firm recently published its assessment of Pleasanton’s 10-year financial forecast and the results show that while there are areas where the city could do better in terms of communicating information to the public, the overall assumptions in regards to the city’s ongoing budget deficit seem to be correct.
The accuracy of the city’s financial forecast — a model which uses revenue and expenditure assumptions to help cities plan out their long-term financial health — was one of the main criticisms residents had during last year’s Measure PP campaign as many people didn’t think it validated the city’s reasons for wanting residents to pass the half-cent sales tax increase measure.
However, as reported in the Feb. 4 Financial Forecast Peer Review conducted by Eide Bailly — an accounting firm based in Menlo Park — not only does the city’s financial forecast employ “an appropriate and standard methodology common in California local governments,” but it also serves as a first step in the city’s process in identifying significant long term funding needs.
“Although the city’s work is not yet complete to prepare a comprehensive financial forecast, based on the information available, we believe that the additional work to be completed in the near-term will only further illustrate that the city’s resources are constrained and that its long-term funding needs are significant,” according to the Feb. 4 peer review.
Over the past year, the staff has been telling residents that the city is facing a structural deficit averaging $10 million every year — that number could go as high as $22 million if a recession hits, staff previously said. In its general fund 10-year financial forecast, city officials have projected a yearly budget shortfall starting at $10,788,817 in 2026, with that number rising as high as $15,678,578 in 2030.
“In our assessment, the city’s financial challenges are not attributable to any single recent or historical decision,” the peer review report stated. “They are the cumulative result of a variety of factors including the city’s revenue mix, sales tax base, collective bargaining pressures for competitive salaries and benefits, long-term pension challenges at CalPERS, and other cost pressures that frequently outpace revenue growth such as utility rates, contractor wages, and materials pricing.”
One way the city wanted to address this structural deficit was by approving Measure PP, which would have generated roughly $10 million in revenue had residents approved the sales tax increase last November. However, various opponents of Measure PP argued that the city had been exaggerating things like its projected property tax revenues within the financial forecast.
In the end, Measure PP failed at the polls and the city must now find different ways to cut costs and make several reductions in its budget.
But during the Jan. 9 City Council meeting, Mayor Jack Balch led the initiative to have a third party consultant — in this case, Eide Bailly — assess the city’s financial forecast and evaluate its assumptions of Pleasanton’s financial health in order to “build trust,” with the public.
Councilmember Julie Testa was the lone dissenter during that Jan. 9 vote but in a statement to the Weekly following the meeting, she said she did not support the motion because “I don’t support funding a consultant.”
According to the Professional Services Agreement with the firm, the city paid up to $33,000 for the consultant’s services.
But if the goal of the peer review was to build trust with the public, then it seems to have done so.
“The more than $30,000 dollar cost of this independent report should not have been needed to validate the work done by our professional staff and experts but the outcome has value if the results restores our residents trust in city staff,” Testa told the Weekly on Saturday.
The consultant started off by praising the city’s work on implementing the financial forecast in the first place, which it said is a sign of good, long term financial management practices.
The report supported the city’s use of recognized consultants to prepare the existing short-term property tax and sales tax forecasts and found no reason for the city to “deviate from its recommendations relative to property tax and sales tax growth rates.”
In addition, the consultant also offered several recommendations for the city to implement in order to further improve its financial forecast.
Those recommendations include “incorporating the infrastructure funding plan and any other funding plans into the forecast as those are completed, to build a comprehensive financial forecast for the city.”
“Eide Bailly notes that the additional work to be completed in the near-term will only further illustrate that the city’s resources are constrained and that its long-term funding needs are significant,” according to the Feb. 20 City Council special meeting agenda report, which is when the council will review these findings and recommendations.
“Our assessment also indicates that adjustments can be made to the forecast to enhance its detail, particularly in the years beyond, for example, when existing consultant revenue forecasts or collective bargaining agreement information is available,” according to the consultant’s report. “This enhanced detail may or may not change the results of the forecast in those out years, but it will facilitate an additional understanding of how the assumptions in the forecast are determined and why the selected growth assumptions for individual categories of revenues and expenditures are utilized.”
Other recommendations that the consultants will be making at the Feb. 20 special council meeting include updating the forecast to reflect the consultants observations; presenting these complex financial issues in a more succinct manner to the public and the council and developing a long-term plan to complete remaining elements of the forecasts in order to address future funding needs.
Another recommendation of note is that the consultant believes the city should develop a plan to draw down from its Section 115 Pension Trust Fund specifically for pension and Other Post-Employment Benefits (OPEB) costs.
“As a component of the city’s broader long-term financial planning process, we recommend that the city evaluate an appropriate, measured approach to utilizing these funds to offset pension and OPEB costs as part of its baseline financial forecast,” the peer review report stated.
Proponents against Measure PP had previously called for the city to draw from this fund in order to offset some of the city’s structural deficit.
“This approach should be informed by an analysis generating a long-term plan to draw the funds down in consultation with the city’s actuarial consultants,” the consultant further stated. “It is worth noting that the period of time over which it is appropriate to gradually draw down on these funds will likely well exceed the ten-year period covered by the financial forecast. As these funds are currently and significantly exceeded by the city’s unfunded liabilities, continued focus on utilizing these funds only for funding long-term pension and OPEB costs related to the City’s unfunded liabilities is appropriate.”
Eide Bailly also recommended in its report that the city should revise its reserve policy at a future time in order to “reflect Internal Service Fund reserve minimum balances based on a cash flow analysis of future needs.”
The Budget Advisory Committee (BAC) has already reviewed the consultant’s report during its Feb. 13 meeting prior to discussing potential expenditure reductions as the city continues to work on developing its two-year budget.
According to the BAC agenda report, the independent financial peer review of the city’s forecast affirms the city’s deficit projections and “underscores the need for ongoing expenditure reductions to maintain long-term financial stability.”
“The assessment validates the City’s forecasting methodology and highlights increasing cost pressures, such as wages, utilities, pension obligations and infrastructure needs, that must be addressed through proactive budget balancing strategies,” City Manager Gerry Beaudin wrote in a Feb. 10 memorandum to the BAC.
According to the BAC report, staff have already identified a total of $14.7 million in potential reductions and will be working with the committee in prioritizing these proposed reductions.
“Without the needed revenue from the half cent sales tax measure, which was thwarted for political interests, we have a much more difficult job managing the budget shortfall,” Testa told the Weekly. “Our community will feel the impacts of loss of programs and services. Our city staff will continue to guide us in the best interests of our community.”
The council will primarily focus on reviewing the independent review of the financial forecast during its Feb. 20 special meeting.
However, the council will also be separately reviewing a staff presentation on the Fiscal Years 2025/26 and 2026/27 General Fund baseline budget and preliminary 10-Year Financial Forecast.
The baseline budget will be further refined, considering input from the City Council, the Budget Advisory Committee, the community and the final proposals submitted by city departments, to develop a proposed (fiscal year) 2025-2027 city budget which, along with an updated long-term forecast, will be presented to the City Council in May 2025,” according to the Feb. 20 staff report.
The special City Council meeting is scheduled to begin at 3 p.m. Thursday (Feb. 20). The full agenda can be accessed here.
Still waiting for the audited results from last fiscal year. Also it’s important to note the 115 pension trust fund should be drawn upon to help offset pension debt costs, just as the opponents of measure PP stated.
Pensions were always the issue behind PP and supporters of the tax measure didn’t do a good job communicating that. But Mayor Balch very much used the tax measure as a political wedge for his benefit. Our community will suffer because of his self-interested political calculus.
Mayor Balch played the community by casting doubt and innuendo on city staffs underlying assumptions. How much did this city spend on this peer review? In upwards of $100,000. Mayor Balch ought to own all of this. This audit tells us that stakeholder confusion is one of the key threats facing the city’s financials long-term. The mayor now has a lot of explaining to do. Mayor Balch needs to explain: to affected parents why the library must close for two days a week; to seniors why programming at the senior center will be slashed; to community members why the bathrooms in parks will be locked up; to the youth why the Dolores Bengtson Aquatic Center will be closed; to residents why the parks in their community look poorly maintained; to property owners why they must pay the cost to maintain the sidewalks next to their property; to those with mobility differences why the city does not have the money to fix pedestrian areas for walkability; to PUSD parents why the city will slash school resource officers and crosswalk funding.
Critical Thinker you seem to be stating the same fear mongering that was done during the election. None of the items stated are foregone conclusions. In discussion with many department heads there are alternatives, alterations, and possibilities not even discussed yet. As an example, the library used to use senior citizen volunteers, but they were all released. Why? The excuse is liability, however, there are a vast number of cities that use volunteers. If liability is a concern, workman’s comp for volunteers is possible and much less expensive than an FTE. Or, how about reducing the library from 68 hours to 50 or 55, there is a savings there too. We have to have critical thinking and not blame. The Mayor was right to question why the city has not dug deep enough, seems they came up with a possible 14 million in savings when pressed. Not all will be needed or even implemented, only those that should have been done prior to asking for a tax.
I’m confused–the article says the City paid up to $33,000 for the report yet critical thinker says the City paid in upwards of $100,000. Let’s get the facts straight unless you have inside knowledge!
The report highlights some areas for improvement by the City including a plan to draw down the 115 trust something the oponents of PP have been asking for.
I’d like to understand what’s changing that the City can go from a $10 million surplus to breakeven to a $10 million dollar deficit over 3 years. I think the citizens are owed a detailed explaination of what’s changing.
Critical thinker you sound like a disgruntled city employee worried about yourself. If this is so bad why don’t you find another job. Continually criticizing Mayor Balch yet offer no solutions yourself is not helpful.
@justwondering The reason is the comprehensive asset management plan. It didn’t exist under the former city manager.
To your point on criticizing the mayor- We should be expecting solutions from our leaders. The mayor is trying to build a narrative out of the stakeholder confusion that the city is wasting your money. Really he needs to spend time explaining to the public why we are better off with city manager’s comprehensive asset management plan in place. He’s not and it’s showing.
It still doesn’t exist. It has not been completed so saying we have an asset management plan in place is incorrect.
@justwondering: I am not a city employee and never have been. Corporations have been my world so I’m not looking at this through some lens you think YES supporters of PP use. I agree 100% with @critical thinker.
Also, the “solution” you request of @critical thinker has sailed. That was the passing of Measure PP. The fact that PP didn’t pass should weigh heavily on Mayor Balchs shoulders. Prior to the election, he did not indicate if he would vote YES or NO on the measure, yet he very clearly indicated a NO vote was needed and and an audit required. Talk about sounding the fire alarm. Nothing to backup his rhetoric and now the community has to pay (not in half pennies on the dollar, but in reduced services).
I’ll offer a solution for @critical thinker: sadly, cut Pleasanton services. We owe a BIG thank you to Mr. Balch. Yay! So happy to have our lovely community’s services cut.
The $10M surplus you speak of is needed to pay for outstanding and current bills the city owes. If you’ve been a part of or are listening to the Budget Advisory Committee meetings, cuts to our services ARE needed. The majority of citizens did not support Measure PP and now the writing is on the wall. our town will indeed suffer.
It’s important to educate oneself before making assumptions and blindly following a so-called “leader”.
Any thing done is only a patch up. Best thing for Pleasanton is to get more housing, so that there are more people, more kids to schools (and hence more funds), more people paying sales tax, more property tax etc. Let’s say we add 1500 new homes per year. What will be the revenue forecast ? There are number of ways where small projects can come up. Declare a 50% reduction in all fees for developments of 10 or less units, relaxed zoning and expedited permits etc to get more housing. Currently Pleasanton housing development can happen in either very high density or very high end luxurious market. Cost structures do not allow small developments..Thanks to building code, fees cost, IZ needs etc.