FY 2021 2122 ADOPTED OPERATING AND FY 2021 2526 CIP BUDGETS

Personnel The City’s full -time and part-time employees are the most important resources for the delivery of its high-quality services. Annual investments in personnel account for approximately $37.5 million or 24 percent of organization-wide expenses in FY 2020-21 and $38.9 million or 28 percent in FY 2021-22. Of this amount, 68 percent is related to salaries and the remaining 32 percent is attributed to benefits (health insurance, retirement, etc.). As a percent of total costs, the City continues to maintain its personnel expenses by continuing to work with other organizations to collaboratively deliver services; most notably, with the YMCA for recreation services, Cal Fire for fire/emergency medical services, HouseKeys for the Below Market Rate Housing program, and the City of Gilroy for wastewater treatment services. The Council’s Long - Term Labor Policy, Principles, and Strategies’ Principle No. 4 – Fiscal Sustainability and Economic Climate states that “all compensation commitments must be made consistent with principles of fiscal sustainability and to ensure the City’s long -term success in achieving its mission.” As part of this principle, “the City will strive to hire contract employees instead of full-time benefitted employees to allow for greater flexibility during periods of peak demand.” The City continues to adhere to this principle throughout the organization and especially in development services. The City has contracted to augment its team in the planning, building, and land development engineering services to ensure we have the necessary resources to satisfy the expectations of the development community. During the last recession, balancing the General Fund was accomplished by strategically reducing expenditures, establishing more efficient operating models, and working closely with employees to contain personnel expenses. The City reduced approximately 34 positions or over 17 percent of its workforce during the recession. In addition, during the current fiscal year, the City eliminated 5.5 FTEs. In addition, for FY 2020-21, a total of 5.0 FTE have been unfunded throughout the adopted budget and subsequent forecast years. These position include the Assistant City Manager for Development Services and the Community Services Supervisor (effective January 2021) and Municipal Services Assistant, Accounting Assistant I/II, and an Engineering Technician (effective immediately). The City’s current workforce continues to remain at a level of approximately 9 positions, or 4 percent, fewer than the pre-Great Recession level. During this same time, the number of residents has increased by approximately 23 percent from 37,107 in 2008 to 45,752 in 2019. Employee Pensions The City provides retirement benefits to its employees through the California Public Employee Retirement System (CalPERS). Like most California cities, Morgan Hill provides a defined benefit

ADOPTED BUDGET MESSAGE 23