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While the city of Pleasanton is in the throes of developing its new two-year budget, recent public meetings provided residents with an affirmation on the accuracy of the city’s financial forecast, adjustments made to the midyear budget and the audited financial statements for last year’s budget.
However, a recent Budget Advisory Committee (BAC) meeting also provided a preview of some of the difficult budget-related discussions on the horizon as city staff explained how the committee will have to work over the next few months to identify $10 million in budget reductions that will eventually be presented to the council for approval.
“We’ve created a menu of options with about $14.7 million of potential reductions … we asked every department to contribute,” City Manager Gerry Beaudin said during the BAC meeting on Feb. 13. “Of that $14.7 million, we have identified about $3.3 million of … operational or administrative support. Those dollars are things that we will very likely be recommending and would start to eat into the $10 million.”
Staff have been warning residents and the City Council about a $10 million structural deficit the city is facing every year with the possibility of it going up to $22 million if a recession occurs. Those numbers were originally outlined in Pleasanton’s 10-year Financial Forecast, a model which uses revenue and expenditure assumptions to help cities plan out their long-term financial health.
In that general fund 10-year financial forecast, city officials 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 order to address the deficit, the previous City Council placed Measure PP — a half-cent sales tax increase — on last November’s ballot as a way to increase the city’s revenue by approximately $10 million every year. But during the last election cycle, many opponents of Measure PP criticized the accuracy of the financial forecast and the measure ultimately failed to pass.
The concerns raised by those against Measure PP prompted Mayor Jack Balch to lead the initiative at the Jan. 9 council meeting to have a third-party consultant assess the city’s financial forecast and evaluate its assumptions of Pleasanton’s financial health in order to build trust with the public.
The independent review by Menlo Park-based accounting firm Eide Bailly acted as an affirmation of the city’s bleak budget projections and “underscores the need for ongoing expenditure reductions to maintain long-term financial stability,” as noted in the Feb. 13 BAC meeting report.
“This independent study is one step forward,” Vice Mayor Jeff Nibert said. “We still have a lot of work to do and I think now is the time (to work) in concert with the community to get on with the work.”
At the Feb. 18 special council workshop, Balch said he appreciated the independent, professional review of the forecast and that he believed it did in fact help put to rest some of the distrust within the community.
“We had a divided community related to the sales tax measure and we needed to try and find a way forward for reconciliation between our community members,” Balch said during the Feb. 18 meeting. “I think the report is very valuable. It’s extremely transparent as to what we can still do, what options exist, what we should explore, how we can communicate better and open it up so that our community is aware.”
According to the presentation from Eide Bailly, the city’s financial forecast uses an appropriate and standard methodology common in California local governments. The consultants also did not find any reasons for the city to deviate from its short-term property tax and sales tax growth rate assumptions, which were another point of contention for residents who criticized the financial forecast.
According to the No on Measure PP campaign, the city has been exaggerating things like its projected property tax revenues.
Councilmember Julie Testa, who initially did not agree with the council’s decision to pay for the consultants to do this assessment of the forecast, had a change of heart on Feb. 18 when she saw how important the report was in showing residents that the city’s projections and assumptions were accurate.
“I wasn’t very supportive of another consultant to do this,” Testa said. “And yet, having the report I understand the value that it brings … it’s really a good tool, a valuable tool for our community to have that confidence (with the city).”
The consultants did make some recommendations in their report that they reviewed during the Feb. 18 meeting which largely centered on ways the city could better communicate the complex and moving parts of its budget challenges as the city continues building its 10-year financial forecast and two-year budget.
In short, the consultants thought the city could do a better job summarizing the key points of a budget-related discussion in their agenda reports for readers to quickly and easily digest the information while also providing full and detailed reports separately for those who want to spend the time looking at the details.
While the report further pointed out that the city’s resources are constrained and that its long-term funding needs are significant, it also recommends that the city should begin discussion on developing a plan to draw down from its Section 115 Pension Trust Fund specifically for pension and other post-employment benefits (OPEB) costs.
They suggested that city staff look at when it will be appropriate to draw from those funds and that the city include those trust fund withdrawals in its financial forecast.
Testa, however, clarified that the discussion will not be to use that money right now, but instead it will be about refining city policy to say when the city will plan to use it.
Staff said at the special workshop meeting that the city will be bringing an actuary to the March 4 meeting to discuss best practices for using the city’s trust fund.
In other business
* During the Feb. 18 regular council meeting the council approved staff’s midyear budget update, which included updated revenue and expenditure projections, and accepted several amendments to last fiscal year’s budget.
Finance director Susan Hsieh told the council following approval of staff’s recommendations, the city’s general fund revenue and expenditure totals will increase by $2.6 million and half a million dollars, respectively, which staff said will produce a “year-end revenue over expenditure net total of $6,832”.
Hsieh also said the city’s budget is currently balanced with $3.1 million in capital reserve.
According to her presentation, there has been a recent increase in property and hotel tax revenue which means the city’s total general fund revenue is projected to increase by 1.4% from fiscal year 2023-24 — the low number is correlated with slow growth in sales tax revenue.
Hsieh said despite the recent Costco opening, sales tax is expected to decrease by $200,000 from the budget that was approved back in May. However, she did say hotel tax and franchise fees are expected to go up by $700,000.
Expenditures, on the other hand, are projected to increase by 8.4% from fiscal year 2023-24 due to increase in salaries and benefits, Hsieh said.
She noted the $1.1 million in funds set aside for annual salary changes based on cost-of-living adjustments and performance reviews for the management and confidential employee group that were recommended to be removed, with no salary adjustments planned in fiscal year 2024-25.
Balch said the increase in unrestricted reserves, use of one-time money and offsetting expenses in the city’s capital improvement program — all of which were discussed during Hsieh’s presentation — were significant and he hopes the city could continue in this positive direction.
“I look at this update and I’m actually very encouraged for Pleasanton,” Balch said. “Revenues have exceeded initial expectations by $2.6 million … and our hotel tax is beginning to rebound. Let’s hope it sustains those legs.”
* The council unanimously accepted the city’s audited financial statements for 2024, which further delved into the city’s financials during the 2024 year.
“The general fund reserves are growing,” Balch said. “In 2019 our reserve was $29.6 million. Our general fund reserve is now $62 million — that is partially restricted — $33.9 million unassigned … so we’re having a good trend line there.”
Balch and Councilmember Craig Eicher were both on the audit committee and had reviewed the findings prior to the Feb. 18 meeting where Hsieh went over capital assets investments, pension and OPEB liabilities and how once again, the city produces a clean report — which Nibert said he thought was the most important aspect of the presentation.
Odd that there is such a capricious change of tone from Mayor Balch after the independent peer review and ACFR. Almost as if the finance department for the city, and Pleasanton’s city manager (you know, the ones who have been steering the ship) have been doing an excellent job all long.