Pleasanton Budget Update Highlights Financial Challenges and Strategic Actions

Pleasanton Budget Update Highlights Financial Challenges and Strategic Actions

• September 19, 2024

At the September 17, 2024 City Council meeting, City Finance Director Susan Hsieh presented a detailed budget update, underscoring key financial challenges and actions being taken to ensure long-term fiscal sustainability. The update outlined significant pressures on the City's budget and strategies taken to address the structural deficit.

Budget Overview and Financial Outlook

Pleasanton faces significant financial challenges in both the operating and capital budgets, as previously brought to light by a State agency through the review of local government's annual financial reporting for fiscal years 2017 through 2021. While the City works to maintain essential services, an in-depth financial forecast model completed in 2023 shows a substantial structural deficit in the General Fund, averaging $13 million per year for eight years starting in fiscal year 2025/26. Pleasanton's infrastructure needs have also outpaced funding, with a projected $900 million gap over the next decade for maintaining and upgrading community assets like streets, parks, and public facilities. At the same time, pension liabilities across the state/country continue to increase; Pleasanton's unfunded retiree medical and pension liabilities exceed $200 million.

Financial Challenges and Key Contributing Factors

Several key factors have contributed to Pleasanton's financial strain:

• Reduced Revenues: Declining retail activity and hotel tax revenue that has yet to recover to pre-pandemic levels have led to decreased revenues overall
• Rising Costs: Increased personnel, pension, and benefits costs are putting additional pressure on the City's budget. Inflation and rising contract service, supply and material, utility, and insurance costs have also contributed to the City's financial challenges.
• Expiration of Federal Aid: Temporary stimulus funds received during the COVID-19 pandemic are no longer available to bridge budget gaps.

These challenges, which have been building over several years, mirror issues faced by cities across the region and state.

Actions Taken to Address the Deficit

To address these financial concerns, the City has already implemented multiple measures:

• Cost Reductions: The City Council approved $2.5 million in budget cuts, including holding positions vacant, decreasing travel and training budgets, limiting professional services contracts, pausing new programs, and deferring purchases of supplies, materials, and equipment.
• Defunding or Postponing Capital Projects: $18.9 million in General Fund supported capital projects was defunded to be re-allocated to fund critical storm drain repairs, a $14 million Downtown Park Master Plan was abandoned, and renovation of Fire State 2 was delayed.
• Staffing Controls: Staffing levels have remained flat in recent years, with multiple positions being held vacant to reduce operational costs. Police/public safety staff is lower compared to comparable full-service cities.
• Revenue Generation: The City is currently analyzing and updating fee models such as development impact fees, user fees, and credit card fees. Bringing new businesses and jobs to Pleasanton continues to be a priority that will support economic growth.
• Rate Increases: In 2023, the City Council approved a water rate increase that allowed the City to issue $19 million in Water Revenue Bonds to fund certain improvements and the groundwater wells study to address PFAS. Funds from increased water rates will go to the Water Enterprise Fund and cannot be used to fund General Fund programs and services but will help right size the City's water system.

In addition, a contingency plan of future service reductions that may become necessary if revenues are not increased significantly has been developed as the City prepares for the upcoming two-year budget planning process.

Pension Liabilities and the Section 115 Trust

As part of the City's commitment to long-term financial stability, Pleasanton has been addressing its unfunded retiree medical and pension liabilities, which exceed $200 million. To help manage these obligations, the City established a Section 115 Pension Trust in 2018. The trust now holds $51.1 million, serves as a buffer for rising pension costs, and has been prudently managed to avoid depleting funds prematurely.

Financial advisors, including an actuarial consultant, have recommended the City refrain from using these funds in the near term to bridge the budget deficit as aggressive use of the trust could hinder the City's ability to meet future pension obligations, particularly during the peak contribution years that are still ahead. Maintaining a disciplined approach to this resource ensures the City will be better positioned to meet its long-term financial obligations without compromising essential services.

Looking Ahead

The City will continue to engage with the Pleasanton community as it develops the biennial budget for fiscal years 2025/26 and 2026/27. Along with cost reductions, new revenue sources will be a key focus. The outcome of Measure PP, which the City Council approved to be put on the November 2024 ballot back in July, will provide additional clarity as the City develops its fiscal strategy moving forward. The City has worked to contain costs that would cause minimal community impacts. More severe cuts will impact community-facing programs and services.

For more information, visit the City's Funding Our Future webpage for ongoing updates on the City's financial situation.

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