Recommended FY 2022-2024 Operating Budget and CIP

scheduled pay increases per the City’s Memorandums of Understanding (MOU) with the three bargaining groups, as well as increases in health benefits and pension costs. For FY 23-24, salaries and benefits increase by 4%, or $1.1 million, compared to the FY 22-23 Recommended amount, primarily due to the aforementioned reasons. The non-personnel budget for the General Fund in the Recommended Biennial Budget increased 3%, or $0.6 million, for FY 22-23 compared to the FY 21-22 Amended Budget mainly due to the cost inflation factor. The non-personnel budget for FY 23-24 increased by 2%, or $0.6 million, mainly due to the cost inflation factor, including expected increases in CalFire contract from the general salary and benefits increases. The City is fortunate that its General Fund Reserves have accumulated to a healthy level despite the negative financial impacts caused by the Covid-19 pandemic. This is a result of prior City Council actions including the implementation of various cost containment strategies, better than expected revenue growth, and one-time fiscal stimulus received from the federal government to assist state and local governments with the impact from the revenue loss caused by the pandemic. However, the projected higher cost to provide City services as a result of high inflation factor as well as staffing the Third Fire Station and additional staffing for Police will undoubtedly use up a large portion of general fund reserves. As currently projected, the General Fund reserve is expected to dip below the long-term goal of 25% of revenues in the final year of the six-year forecast, FY 27 -28. As adopted by the City Council, General Fund reserves shall never be depleted below a minimum level of 15% of revenues which shall be maintained as an ongoing reserve for emergencies. If reserves do, or are projected to fall below the 25 percent long-term goal at any time, then policy action must be taken no later than the next budget cycle. During FY 22-23 and 23-24, the City may need to develop strategies to address shortfalls projected in the final year of the Forecast. The Forecast is not a budget and does not include any proposed balancing solutions. It is worth noting that the projected General Fund Reserve level includes the continuing policy of employees sharing in the employer share of the PERS cost increases. It is assumed that this increase will continue, and approximately 6.12% of all employee salaries will be paid by employees, to cover a portion of the increase in PERS employer costs. General Fund Reserves

22 BUDGET MESSAGE