Do we need to start a look?

No.

Okay.

You can do it.

Do you have to do any?

Okay, you're good to go.

Okay.

All right.

Then I will start in.

All right.

Good morning, everyone.

I will share my PowerPoint, which I had all ready to go, but now I can't.

But there we go.

All right.

And when I do the presentation, I probably won't be able to see you.

So please feel free to stop me.

It is not.

Sorry, it's having a moment.

It says I'm sharing.

You can see it, right?

And it's just not full screen.

There we go.

Okay.

Oh, I can still see you.

Okay.

But still, you're very tiny.

So if you have any questions, please do stop me along the way as we go through this.

So this is, as Grace mentioned, this is the annual audit plan discussion that we do.

You know, as you know, we do this at the planning stage of the audit and then also at the end with the audit results later later in the year.

So the city's audit is conducted in accordance with under auditing standards generally accepted in the United States of America, as well as government auditing standards issued by the comp controller of the US.

Then and what the the uh government auditing standards are often called yellow book.

You might hear reference to that.

And that's when there's the compliance component to it.

Like if you have a federal, when you have your federal grants and other compliance that you required, there's the two, you know, we have to follow the audit standards, and then also additional standards uh reply required by the yellow book.

So those stand those audit standards require us to discuss the audit process with you, including our responsibility, the planned audit scope, group audit considerations, audit timing, management representations, and then fraud considerations.

So before we get into uh those topics, just wanted to have the summary here of the reports that we audit.

These are the reports that'll be issued at the end.

We audit the the city as a whole, in which the results of that are included in the annual comprehensive financial report, then there's the measure I financial statements, and then we perform compliance testing and issue compliance reports on the measure A and W programs, and then federal award programs when you expend the threshold change this year.

It was 750,000 in the past, uh, and so now it's a million dollars or more in any one year.

And so that now that the ARPA money is exhausted, that's gonna you know come and go when you when you expend funds or not.

Excuse me, and then Transportation Development Act Fund reports uh when you have those audit, excuse me, grants can't talk this morning.

Those grants from TDA, excuse me, from MTC, like the bike path grants and those types of things, those audits are required when you expend funds and draw from MTC, then that triggers the need for an audit for an audit.

So that's why those those come and go from time to time.

And we don't anticipate that for this fiscal year that we will be required to have a single audit or a TDA.

Okay, so then we will stop at the measures.

Perfect.

Great.

All right, then so our responsibility um as described in the professional standards is to express opinions about whether the financial statements present prepared by management with your oversight are fairly presented in all material specs in accordance with generally accepted accounting principles or gap as we call it.

Uh our audit, however, does not relieve you or management of your responsibility.

So ultimately, management and you are responsible for the financial statements and we perform an audit about them being fairly stated and materially correct.

So we will consider the city's internal control over financial reporting, primarily to determine our auditing procedures for the purpose of expressing our opinions on the financial statements, however, not to provide assurance on the internal control over financial reporting.

We do perform tests of compliance with certain provisions of laws, regulations, contracts, and grant agreements.

But again, providing an opinion on compliance with those is not an objective of our audit.

But if we do run across a compliance issue, we will report on it, but it's not the overall uh primary primary objective.

So when the city is subject to a single audit, we do some international internal control testing.

I'll just breeze over this one since one is not anticipated.

And in years when you do have one, we'll dig into this a little more.

So we'll skip over this one as well.

Then uh included in the annual comprehensive financial report is required supplementary information.

So the annual comprehensive financial report is comprised of five, I believe, um items.

The first is uh our audit report, excuse me, the basic financial statements are in the middle of the report, which are preceded by our audit opinion and go all the way to the um last footnote.

Then in the front of the basic financial statements is the introductory section, such as the transmit a letter and chart of excuse me, uh org chart and things like that.

And then after the footnotes is required supplementary information, supplementary information, which is the combining statements, and then a statistical section.

So in the required supplementary information or RSI, there are three components.

There's one on your slide deck.

I, when I was prepping for the meeting, I forgot that we have a change this year.

So the budget actual statements that are in the report previously were right after the financial statements prior to the footnotes.

There's a change in a GASB statement that requires that they now be presented in required supplementary information.

So it's the same information, but they move to the back in the in the RSI.

So that's why I put the new, it's new for the year, and also it was not in your slide deck that one bullet there.

So RSI includes management's discussion and analysis, pension and OPEB schedules, those 10-year trend schedules, and then the budget actual statements now.

So this RSI supplements the basic financial statements.

We apply certain limited procedures in accordance with generally accepted auditing standards, but it's not audited, and because the limited procedures, you know, they don't provide us with sufficient assert assurance to issue an opinion, we will not express an opinion on the RSI.

Then after that, as I mentioned, the supplementary information.

So those are the combining fund statements in your case.

Uh, and it accompanies the financial statements, but it's not RSI.

So it which can get confusing.

You know, it's supplementary, it's in there, but it's not required.

It's because if you did not produce an ACFER, you would not be required to include the supplementary information.

Because you produce an ACFR, one of the requirements of that program is that the combining statements be included in the financial statements.

And so that's why it's considered supplementary supplementary information.

We do evaluate the presentation of the supplementary information in relation to the financial statements as a whole, and we do uh issue what's called an in relation to opinion on that information because it does feed into the basic financial statements.

It's those combining statements, they feed right into the uh the financial statements that we opine on.

A little confusing, but it's uh hopefully that helped a little bit.

Uh so I had all kinds of notes here and I haven't been flipping my pages, so um let's see.

So then uh we have not been engaged to perform.

So we do not opine on the introductory or the statistical sections that are in the ACFER.

It accompanies they're not RSI or SI.

We're no we have no responsibility for determining whether they're accurate, but we do read through them to make sure that there are no contradictions between what we, you know, what we experienced in the audit and what we learned through our audit work just to make sure it doesn't contradict anything within the report, but we don't provide any assurance or opine on that information.

So the planned audit scope uh for this year are it generally includes the following, but we adapt it and modify it as needed based on the activities for the city for the year and based on our risk assessment process that we go through.

So each year we have to perform a risk assessment brainstorming and planning.

We actually do it twice a year because we split the audit into an interim phase and a year-end phase.

The interim is when we do our control testing and a lot of the transactional testing, and the year-end phase is when we focus on the preparation and the auditing of the financial statements.

And so we do those brainstorming and planning in both phases just to make things sure things didn't change.

Our team is up to speed and we know what we need to do.

And so we create an audit plan tailored to the city and the sector, uh, through again overall and then on for each phase.

And uh our audit is scope, just so you know, also includes the audit of the separate entity, as you know, the Belmont San Carlos Fire Department is also included in our scope as well.

So there are certain transaction cycles and other areas that are subject to control testing and sampling, such as revenue receivables, disbursements, payroll, uh loans receivable when applicable, and journal entries, and then again federal ward and TDA when those are applicable as well.

So that's the cycle as a whole.

Now, transaction cycles, uh, we test control track controls over cash transaction and accruals.

When we select transactions, we trace them to the supporting documentation and we're trained chasing them to or from the general red ledger to or from bank statements all the way, you know, through the the cycle of the transaction, and we test information system application controls.

You know, we're testing that if we pick a transaction, it's been recorded properly, it's in the correct account, the account makes sense.

Uh and then we test accruals for those sections at year end, confirmations with third party banks, not banks, sorry, confirmations generally are not used for transaction cycles.

We use confirmations with third parties for balances, which you'll see on the next slide.

So certain transaction balances that we test in total include cash and investments, capital assets, debt and debt service, uh like cash on cash and investments.

We test via bank reconciliations and confirmation with the third party banks when uh capital assets we test via corroboration with capital outlay and council authorizations.

If we see something, because we read the minutes looking for financial impacts, things that impact the financial statements.

And if we see the approval for a project or project being accepted as complete, we expect to see that reflected in the capital asset records.

And then debt and debt service, we test via confirmation with uh the trustee and indenture terms, compensated absences.

We test via uh balances via the estimation process and claims and claims payable.

We test via gloss runs and confirmation from your insurance providers.

Net pension liability is tested via the reports that the city receives from CalPers, and then the net OPEB liability is tested via the report from Serbit and the actuary evaluation or roll forward that's received each year.

All right.

Then we also evaluate the overall duty assignment.

We're looking for conflict of duties.

We're looking for internal control structure and gaining an understanding of the internal controls with a focused attention to conflict of duties.

Employees with access to the assets and related, and then also having access to related records used to control and account for those assets.

Whenever there is a conflict, there should be what's called a mitigating or compensating control.

And so that means it can be take the form of uh review and approval by a second employee or some other mitigating control that mitigates that potential risk when there is a conflict, and we test those mitigations when we note them.

And then information systems application controls are tested via our uh transaction cycle testing.

So again, we perform compliance tests.

So single audit will be an NA this year, TDA will be an NA this year.

And as I mentioned, I do want to point out though for the single audit, the threshold changed this year from $750 to a million dollars, and that's across all grants.

It's a cumulative number for the fiscal year.

If you have 50 grants and they cumulatively are a million dollars in expenditures, then it triggers the need for a single audit, not just one particular grant.

Then we also test certain government code provisions applicable to cash and investments and new debt issues when it's applicable.

And then local policy compliance, typically including your investment policy, purchasing policy, local measure I, county measure A, and county measure W.

So something else we have to look at as part of the audit is uh the city is requested that we assist with the preparation of the financial statements.

So as I mentioned at the beginning, the financial statements are the responsibility of management.

So we do have to assess whether staff has the capability to perform this task themselves.

It has to be out of convenience and not necessity, and when uh in the event it is in necessity, then we have to have conversations that maybe they'd have to have someone, you know, with the capability to review it.

But we we've um we've assessed ourselves and we've satisfied ourselves that city staff have the capability of of performing that duty.

We provide the report drafts for review and based on our you know discussions and changes and things like that, we we've satisfied ourselves.

All right, then we use this term called group audit.

So group audit situation is when your financial statements include entities audited by different, I'm gonna say engagement partners, because a group audit also is uh exists when within our firm.

If I audit one entity and someone another partner audits an entity, it's a group audit situation because I'm the main auditor for the city of Belmont, but this other auditor is involved with it.

Uh, and so that was the case with Silicon Valley Clean Water prior to fiscal 25.

We were the auditors of that entity.

So you didn't see reference to Silicon Valley Water in our audit opinion.

You will see reference to it in this year in 26 because we're no longer SVCW's auditors, and so now we will have, you know, even though the situation was the same in the past, uh, it just gets treated differently because the firm was the auditor.

So now you'll see reference to both San Mateo Consolidated Fire Department's auditors and also Silicon Valley Clean Water Auditors in the financial statements.

And that's just related to the calculations of the investment and joint venture because there's significant numbers.

We're relying upon their audit work is what our opinion will say.

And then audit timing.

So we've met with city staff and agreed to the schedule of the interim field work, was um completed in March/slash April.

And the year-end field work, which will be again the focuses on the financial statements of the weeks of September 7th and September 14th, which it's not that far away, right around the corner now.

Uh, and the single audit field work.

Well, we're gonna just skip right over that one.

Um then as also as part of the audit, so management representation.

So we request representations from management that the data and assertions provided are complete and accurate.

We primarily rely upon our audit work, but management's assertions unavoidably can affect the data.

So that's why we why that's an audit process that's a normal audit pro required audit process to get the management representation letter.

Then the final component is about some fraud considerations.

Uh so audit standards require the consideration of fraud and financial statement audit.

Now, when we talk about fraud, it doesn't just mean fraudulent misappropriation of assets, it also means fraudulent financial reporting.

And then fraud is an intentional act that results in a material misstatement.

So the difference between fraud and error is intent.

You know, there could be a mistake and error, but the difference in is of the intent of the um the misstatement.

So it requires inquiry of the client areas to be discussed.

We have to talk about whether there are any known instances of fraud, any areas you believe are susceptible to fraud, and areas areas that the audit standards require that we automatically deem susceptible to fraud or improper revenue recognition and a management override of internal control.

And so when you think about audit standards, you know, um those are broad, that means any audit going on, and so that's why you think about why would revenue recognition be such a critical area because audit standards also apply to the audits of you know for-profit entities as well as nonprofit and governments, and so you know the risks can be can be different, but we still have to because it's in the audit standards, we still have to look at these things and consider them as they as required.

Uh and so it requires we address, we also also requires that we address our clients' fraud risk assessment and monitoring programs.

That's a really long way of saying internal control.

That's the more common term that we're all familiar with, including prevention deterrence and detection techniques when it comes to fraud.

Uh so uh I will be as um you may or may not remember.

So we usually follow up this meeting with an email to the two uh committee members just to follow up with a couple of questions on that.

But if you have any questions for me, I'm more than happy to answer anything you may have.

I don't have any questions, I think we're good.

All right, great.

And there was no public in attendance, so there were no public reports for public comments.

All right, thank you.

Sorry, I was very stumbling on my words this morning.

I was running around right before the meeting on taking care of something I thought was going on and it wasn't going on.

So I was a little little frazzled.

No worries.

Thank you so much, Amy.

All right.

Thank you.

Yes, definitely.

All right.

Thank you, everyone.

Bye-bye.

Okay, so uh you said there's no public comment on that agenda item.

So we're on um 5B fiscal year 26-27 budget review.

All right.

So you share yours.

Okay.

Okay, Josie will share the slides.

And um, you know, the purpose of this meeting is for us to you know go into some deeper dives in particular areas and you know, any um, and also just to open up for, you know, any uh discussions or things that we can, you know, want to talk about.

Um so Joanne's going to present today, our budget manager.

Um, and uh, you know, just want this to be um not so formal.

It's really intended, you know, to uh be a communication so chime in Scott and in you know um my budget team is um you know uh necessary I will do the same and uh we can kick it off before I continue tell me if I oh hi I'm Jackie I know Timmy Late I'm Jackie I'm the new budget analyst and yeah good yeah Jackie joined us uh in September last year so if you when you see all the cool graphic in the presentation that's her magic okay so let's dive in to dive in um I only have the PDFs so I think that might be the issue here but let's go to the next page comment there we go and keep going okay cool yeah so here is a brief overview of this year's budget uh which aligned with city council directive from the March strategic planning session uh we continued with fiscal prudence and staying focused on infrastructure and capital needs as well as taking into consideration of priorities identified by our communities so here's like a high level highlight on our budget um so uh city and fire district combined operation budget is at 82.9 million uh total CIP is at 12 million so the total citywide budget is 94.9 million and in terms of personnel count we budgeted at 143.75 FTE so that's a reduction of one FT due to um department restructure in parks and recreation so that's uh we take the take away one vacant position and then we classify the existing uh recreation coordinator to a recreation coordinator one slash two to align with operational needs okay so moving on to general fund so our resources is budgeted at 35.3 million um our requirement is 36.1 million which is 800 000 higher uh and given growing state fiscal pressure on BLF um we ask each department to identify one time saving doing project development this year uh primarily driven by delaying recruitment in certain we can position and that comes to about 300 thousand so that left us a gap of 5000 to be filled and we would draw from our unassigned fund balance to balance the budget and for the first time as you probably know for the first time the state reimbursed only two-thirds of our uh we have short four in the current FY26 budget compared to full reimbursement in prior years so that result in a direct revenue loss of about 600 000 to the city's general fund and in the governor's proposed budget in the May revision they did not include the outstanding uh FY25 VLF backfield obligation so we did not budget for that 1.8 million in um FY27 so in total that's a revenue impact of roughly 2.4 million um loss in revenue so we discuss more long term impact on general fund in a later slide okay so here is a composition of uh our general fund requirement and resources by type so on the left that's our uh requirement by type.

So you can you see mostly personnel uh comes at about 60 percent with salaries and benefit combined uh 24% for operating expense and 16% for transfer out.

So transfer out is like subsidizing other revenue funds such as development service, recreation, street maintenance funds.

So the resources in this fund, they are not uh enough to support the operation, so which requires subsidies from the drought fund.

Okay, so on the right is our resources by type.

So may uh primarily is our main revenue source is property tax at 39%, sales tax and TOT or hotel tax, they are each at 12%, 15% from service charge, 5% from franchise, and 12% from others.

So I do want to point out that the business license tax uh increase from 4% in FY26 to 5% in FY27.

That's it's mainly due to two cannabis business opening, and we completed review of our tax calculation with two larger business.

As we review tax calculation uh with larger business to ensure accuracy, so revenue collection may uh spend multiple tax periods causing some fluctuation.

Yeah, so I'll um time in a little bit here on the BLT.

Uh, you know, we've been doing a lot of deep reviews with the larger businesses in town, especially setting up what you know we call apportionment factors, because you know, many of them like national businesses would say, well, the gross receipts aren't in Belmont, right?

And so we have to really give them the education and apportioning.

Okay, what business activities are in Belmont, and that does then subject to the business license tax.

So a few large businesses that are ongoing have, you know, we've come to uh what's that apportionment factor would look like.

Um I've just confirmed this morning that we've collected payment um from a uh larger business in town.

And so for this fiscal year, we're gonna see a bump um in our BLT collections because that collection in this fiscal year spanned two tax years' worth, right?

So then, you know, what does the ongoing, what is our budget or projection of what the ongoing look like and what uh Joanne was um alluding to earlier, you know, we are seeing gonna project some increase because of these larger businesses and what um their apportionment factor and resulting tax um uh are um are going to look like.

And so in the previous model with the flat tax, where it doesn't matter what their activity is, it's just per employee, right?

Um, that's like a flat 1.2 million a year in the old model.

Um in this new uh gross receipt model, we're facing business activity, uh we're now estimating around 1.6 million that um uh on like a yearly uh basis that will then you know reflect you know what um uh uh uh business activities in Belmont will look like.

So uh we do you know see a little bump, right?

Now what we do see also is the majority of misses in Belmont, the smaller businesses were now they're now paying less.

So as we're really capturing more equitably now, um uh the tax from our uh larger businesses that have you know a lot more business activity in town.

And with the new tax structure, really now it can um uh uh go along with time, right?

Because the more gross receipts, the more business activity, then it's not a flat tax anymore.

It goes with whatever, you know, their category or per tax percentages or apportionment percentages are well.

Well, we already know, but you've got a couple of businesses that are um let's say very substantial in their total operations billions yeah can we say which ones or is that private information it's best to be generic about it um and we're and we're of course a very small percentage of their total operation of their revenue that's attributable to activity here but they actually are making up a fairly substantial amount of collection which means that we're our revenue that we're collecting that that rate of like 1.6 is a little volatile on the topic if we lost a business it would we could see a substantial drop yeah so think about revenue it's it's probably uh uh maybe two thirds of that is more stable than the last third of it is less stable yeah yeah I mean it's a really good point right um like the so one thing I really want to acknowledge first is um you know the council priority and approval of you know uh prioritizing modernizing the structure right now we can see you know really um uh how it can help us be more fiscally sustainable moving forward versus you know the older just flat rate type of tax so you know first of all like that just recognizing we are really addressing you know we're we are you know walking to talk right we always say um locally control you know um local control on local like local funding sources right like this is a prime example um and so there's you know um certainly deserve a lot of recognition there now what you know yes there's good now because you know there are you know the larger businesses there are few businesses in Belmont that are large now it's very dependent you know on those type of businesses um uh continuing to produce continuing to stay in town same can be said about sales tax right we have you know our auto industry is the largest sales tax producer in Belmont so again it kind of points to the fact of um uh where the majority of our collections come from and um sort of like the benefit and risk associated with that and that's something that you know we have to be really mindful of and so one of you know the initiatives that um I think aftion has mentioned is a study on like the economic development right of the city where are the opportunities where are the leakages and things like that so that's something that we um uh uh it's kind of like taking it step by step you know um in in addressing you know this this strategic focus area this fiscal sustainability area so more to come for sure so good about this well when we set out to modernize the BLT our intent was to diversify income streams but also to provide some more equitable opportun equip equitable circumstances for businesses that businesses would pay their fair share in the end so I'm I'm happy to see that our smaller businesses it really has panned out they really are paying less and our larger our larger businesses are paying more of their fair share has there been any pushback from the larger businesses saying that they are going to be moving as a result we haven't had those fade back really our the conversation you know over the past year with the new tax structure has been like what is the accurate and appropriate um uh tax apportionment with those businesses that will reflect um an appropriate uh uh business activity uh generated in Belmont and therefore, you know, the resulting tax uh required tax.

So it's really on that conversations and on those communications.

Now recognize like those are you know international, you know, type of businesses.

And so um relatively speaking, you know, to them, they they look at like while you know they do see they are now having to pay their fair share, and it's um an increase from their flat uh rate in the past, um, also because of you know, just the size of the international business, like relatively speaking, um, you know, we haven't really heard about like the uh uh the the um I'm you know this is this is uh uh uh not sustainable for them.

Like we haven't heard we haven't had that feedback.

Is there is there a formula that you use to determine the appropriate apportionment or is it a negotiation with the businesses?

It's both.

Um and that's partly why it sort of gets their attention up front because it's not a routine matter that and it ends up sort of thinking we've seen in both instances, it ends up bumping the elevating it, putting some light on the issue and in the business, so which I mean it may not necessarily be positive, but once we work it out, then it's uh so the way apportionment works is there's um standard accepted methods for apportioning.

Um these have been in the sort of in the tax arena for for many, many decades that are uh accepted uh the typical enforcement uh process uses three factors.

It uses sales, property and employees.

So it looks at where your sales are occurring, where your property is located, where your employees are located, and it uses those to say what portion of your activities occurring within the jurisdiction based on those three things and what the is occurring outside, and it can weight them evenly, it can um put um it could weight one factor more heavily than another, and it can use less than all three.

Some places actually go entirely with sales.

Um, and so uh it leaves room for negotiation as to what the appropriate way of coming to a number is so when we uh approach business, the number might be startling from what they're used to paying, and we talk it through and figure out what's the right level to get to the to the right number based upon the activity that they have here versus everywhere else.

And um sometimes it can be a channel, particularly with companies that are doing so much um in the cloud to allocate that because where employees are is changed sort of from a traditional uh sort of thing.

So we work through that with uh the several larger of our entities and um we believe we've come to be able to resolutions which should carry forward for several years with the.

Sorry, I had one other question on that, the second uh I chart or what are service charges.

Hmm.

Do you want to?

So those uh like um several kinds of well, one of the um major service charges are the ones that we collect from the REM fund for the service that uh we provided, uh the city provided, for example, um like finance or and uh city cloud, we provide service for other departments, or we collect that um uh uh charges from their uh, for example, recreation fund for the park um abortion, um, or the uh facility uh also is capturing the internal service charges as well.

Yeah, okay.

So I was thinking service charges like permits.

Yeah, that's what I was thinking about.

But you're saying it's more than permits, it's also you charges the internal mechanism, right?

Because for example, like our sewer fund, you know, um have a lot of activities, right?

And we'll, you know, there's staff that um gets paid from the sewer fund, or there are bills that we pay, right?

That the sewer you know for sewer projects that now um those processes of people's paychecks, those processes of people's invoices, those review of their staff reports and putting it on the agenda, those are service that the administration, you know, the general fund, because we are supported by the general fund, right?

Provide.

And so part of that mechanism is then is then, you know, hey, the general fund, us, you know, provide a type of service to you, you know.

That sewer fund pays for, and therefore, we are getting reimbursement or we we charge a service, you know, fee to um say the sewer fund for supporting you know those activities.

Nice.

I guess I'm not used to that structure because I work in schools, but I guess this is a pretty common business practice.

Yes, yes, very like in every city, you'll see this type of what we call admin allocations or admin charges.

So, like in sewer funds.

So even though we go out and we set rates, the council sets rates for sewer, and those rates are based on things like you know, a cost of purchasing supplies, the cost of building capital, but also the cost of the people necessary to operate, right?

And the and so we figure out what that cost is and uh and the ratepayers are paying it.

So they're taking in a number that's designed to pay for a little bit of my time, a little bit of Grace's time, a little bit of your time, a little bit of Josie's time, a little bit of the manager's time, overworks director's time, the engineers' time, and the way to capture that is with these service charges where they where the sewer fund for whatever special fund it is, we'll transfer for some from that fund into the general fund to account for that for that level of service provider.

Now, the another part we also the general fund also charge the fire fund, our fire district, right?

Because um, there are some fire mitigation um services that the parks folks provide, right?

And the parks folks are paid from the general fund, and so we charge the fire district like that service back, um, or when there are um uh uh dispatch calls or you know, public safety um uh responses related to uh fire prevention or fire mitigation.

So those, you know, is another type of service charge.

Okay.

Good question.

Yeah, so looking at our major revenue source property tax, um uh you can see that 90 over 96 percent are coming from our secure property tax, which is our uh residential property, and the rest of the four percent comes from supplemental and secure unitary and homeownable property tax would be and the next slide here, you see the component of the security property tax.

So that 19% is excess ERAP for the educational revenue augmentation fund, and now the 19% is the property tax in lieu of BLF, and we did not budget that 1.8 million um BLF back view.

So if we were to include that, uh assuming that we get full payback from the state, that would be one one-third of our secure property tax, so which is a significant portion.

So in other words, if we get back two thirds, which is what we got this year, that that's not included in the budget.

We didn't include a cent from of the backfill, right?

Like we didn't include anything from the 1.8.

Now, you know, what this pie chart shows is if we were to in if we were if the state were to pay us back all of the backfill, like BLF is 30% of then total, you know, secure property tax, right?

So it just kind of uh a graphically showing um how important, you know, it is and not budgeting a cent of that 1.8, like 10% of the pie is like not there, yeah.

But it also makes sense to do it because if we assume it's more I can budget for it.

There's no, you know.

Well we've kept us in a very good place.

Yeah, no, well, you know, it's a lot of different factors, right?

It's a whole organization.

I mean, it really comes from the top in the culture of like how we operate as an organization, um, in being really mindful of our expenditures.

And you'll you may note that the number of the other public entities in the county that are reliant on BLF, um, I think it's fair to say are in budgetary crisis right now.

Because without having it, they're gonna have to make substantial cuts to organizing service.

So here we see where how the 1% property tax gets allocated among different agencies.

So 42% goes to school and other 41% goes to the county, fire distray, ERAC and others.

So the city general fund only gets seven percent and we would fund for public safety parks, streets and community service.

And that's it all thanks to Prop 13 is already all been educated on.

I like this um visual for to share with people because you know they don't know right like they're like we pay too much in property taxes.

Yes you do.

But I get my yeah it's like we get our property tax bill and it's like oh yeah you know and you know I the the connecting that's like because you pay for many different things on your property tax and how much does it really go to the city you know and you know that was set back in like 1979 you know yeah.

So this slide shows the long term impact of the state take away of the VLF.

So on the green lines indicate a fully funded ELF, meaning the state will pay us back in full every year.

And the orange line uh we there's like no VLF backfield from the state so you can see that in the next 10 years the projected loss snowball to over 30 million cumulatively without the VLF funding from the state.

Yeah there's two factors I was like not only is this because the available funding is also shrinking year over year like the number of non BCA schools is also shrinking year over year.

And that's just unfortunately what the uh language in the slate legislative language indicates like this is your pocket of money this is your you know backup funding that you can draw from and so you know because of that like that shortfall is like we estimate the number of non-basic school districts going to reduce over time.

And so because of that the shortfall just grows over time.

Right.

I so I did have a brief conversation with um Senator Becker's office on Tuesday and essentially I think what they said that they're hearing from um the Senate pro time is like they are they have no incentive to backfill us because we're suing the state.

Yeah this is something that the OF is uh sort of done within this we're gonna have a conversation about it on Tuesday in closed session or brief one um the probably know the county the counties discussing and the cities are discussing dismissing the suit for that to put take away that argument um as I understand that right you know the DOF has been fighting us tooth and nail on any uh backfill on this um I understand they currently taking the position that they won't fight us but they're not gonna lift the finger to help us on it so it's gonna come down to wherever we are in the legislature um I think you probably know from the conversation that we're down to I think 200 billion dollars left to fight over for all of the people and all of the entities in the state that are getting shorter than and we'll find out Tuesday what if any of that is going to come to the county.

So this lie, you can see that our general fund revenue growth projection and how we compare to CPI growth so uh with the state takeaway in BLF revenue growth is projected to be less than two percent year over year, which is the orange line there uh and the average five years DVI in the Bay Area is about 3.6% for the last uh five years.

Actually, could I say one other thing about GLM?

So one of the difficulties of expecting help from the state on this is that the big beautiful bill has significantly defunded health care at the county level.

It's putting lots of stress on the counties to be able to provide uh services at the hospitals and the clinics.

And it's creating a multi-100 million dollar per billion dollar problem statewide, which is why and we're competing, and which is it's gonna make it a very difficult choice to um fully fund the county, but not fund the healthcare issue.

So the the that to me, and as long as as long as that's the policy of the federal government, that's gonna be a significant um uh competing uh part with us.

The moral dilemma is do we fund health care for people or services within a city?

So what's it within a relatively service-rich county?

Yeah, yeah.

We have zero sympathy, we get zero sympathy.

Yeah, so with the causing grief higher than our revenue growth, we you can't say we have like a one 1.6% gap year over year to view, and um that therefore we will need to draw from our reserve to fill the gap.

So what does it mean for our general fund balance?

Here you can see that.

Here we present the worst-case scenario here with no BLF backfield from the state, and uh with current spending assumptions and no cutback on service level, um, and no revenue, no new revenue source identified.

We uh projected our general fund balance to go below the target of 33% reserve uh by FY 32.

Can you remind me, is there a legal limit for the 33% target or is that just best practice?

It's a policy, you know, kind of a council policy that um we set uh some other cities have it at 25.

It very varies, right?

It really is dependent on um what each you know jurisdiction determines its cash flow needs might be.

So if you think about 33% is like a four months of of um cash flow, right?

Four months of uh services uh without with you know nothing, right?

So kind of like the um uh um emergency, you know, type of situation.

Um now previously we had like a minimum we want at like a flat, you know, five million type of deal, but um uh uh we decided to recommend to council, and council took that static dollar figure off because as we know, like cost isn't gonna stay the same.

That five million today isn't gonna mean anything, you know, 10 years from now.

And so what we did was we kept the percentage so that we have a better gauge of you know where what our fiscal health is.

Um like what Joanne said, you know, it's it's this is kind of like the snapshot, right?

No new revenue sources or additional revenue sources identified.

No cutbacks on services.

This is really like okay, what would it look like?

Um obviously, you know, like um we're gonna need, you know, like is this going to be reality?

Like would that we're that's what we're working on now, right?

Is to seeing, you know, the ship heading this way is making us do make do all these efforts now to make sure that we can, you know, steer the ship in another way.

Yeah.

And the 33 is more than really just a line on there.

It represents sort of an approach to fiscal constraint.

When I got here in 2011, 2012, the number the that line would have been, you see the 2033, that line would have been between the 2033 and the and the and the zero line.

That's out where we were on reserves.

Uh it was almost nothing.

Um we were literally like scraping the pennies.

Um, and having a target like that gives you the ability to deal with the graph that looks like this, it gives you some runway to try to figure out how to make changes, but it also tells you it tells you we need to it gives you the ability to say we need to act fiscally in a way where we can get to that line and then try to keep within it.

And so it's it's sort of a it's a whole it's more than just putting a line on the graph, it's sort of it's the whole thought process about what we as a city, how we approach fiscal planning to try to um weather the rainy days.

Before we move on to capital improvement planning, other comments?

Okay, so for next year, the IP's budget at 12 million.

Uh you can see the chart here, present the project by type.

Um mainly it's we focus on sewer and storm and street combined to be 95% of our CIP budget, the rest of the 5% for facility parks and open space and technology.

Okay, so here you can see some of the notable majors EIB project for next year.

First one we have the annual pavement project funded by Measure I, Measure W and RMRA at 3 million.

The second one is the uh pipeline replacement at 3.6 million funded by measure I and sewer collection.

And the third one, we have the pump station and I at Island Parkway at 600,000 next year.

They also plan another five to spend another 5 million in FY28.

So for the next five years, we plan for a total of 53.1 million in CIP project.

So if we got into like major dire streets, these kinds of capital improvement projects, are there ones that we'd have to do no matter what?

Or we could say, all right, we are now completely broke, we are gonna pause on all these things.

Yeah, I mean, it's always gonna be a balance, you know what I mean?

Then it really becomes, like you say, you know, what is the required regulatory required must do, and that's how we prioritize ICIP projects too, kind of like what is the um uh compliance regulatory requirements, then it's like what is the uh must do, you know, before it costs goes 6x, right?

Then it's the what is the like to do, you know.

So um like that kind of exercise is just going to become more and more important, you know, because to your point, it's gonna be like, okay, um, what can we like our household, right?

What can we live without, you know, in the meantime, but recognizing like, okay, you know, is that sustainable?

Like that type of exercise is gonna become more and more and more important, especially for council to prioritize.

Yeah.

And can you look at that slide that we just wanted?

You know, part of it too is that there's a lot of special fund in there, and and sometimes we have put general fund into projects to help push things along a little faster.

I think we were doing that with streets.

Um, you know, having special fund expenditures means that we it's not coming out of the general fund.

And we were talking a little bit about staff charges.

It creates actually a lifeline that to be able to do staff charges to support what the general fund can't support for maintaining the the organization by having the special fund money, but it does mean we can't stick general, we'll be at a much more difficult place to be able to put it in general fund money into pushing projects along.

So it will slow projects down, but projects will help keep actually keep us alive too the special fund projects to the extent that we're still out there.

Especially enterprise funds projects okay so next step so um up to today's audit committee review we'll bring your feedback uh and report back to council on Tuesday June 9 and then we recommend approval of FY27 budget for the city and fire district uh yeah and just one thing um with the budget adoption uh to council uh recommendation next tuesday in years past we've usually incorporated the master revenue uh schedule a master fee schedule uh we are uh under currently undergoing a comprehensive um citywide uh fee study update and so we plan to bring that to council um in july um and so that will not be a part of next tuesday's recommendation and action okay okay um maybe uh item six committee updates and staff items oh we do there there's oh sorry sorry we need we I need a motion to to uh recommend the budget to go to council for approval wait a minute before I do that um I was just thinking you know how you were saying the DLF one of the competing factors that we have is the state at the state level to approve the DLF is that healthcare thing would a slide something like that explaining the challenges of why the state would that be a good thing or is it best to just leave it?

Probably best not to try to articulate the state's reasoning on there um but I think just for our own purpose I think I think it's best that we put as little out there as well on that as we can I think for where we are with it at the moment.

It was hugely enlightening to me when you said that I was like oh gosh but I understand yeah so many indirect yeah but it still impacts that there's a it's multi-dynamic there's lots of different issues going on going on out there I mean I think the the one thing is validating the legislature hard is how to deal with the the fact that there's because of the current administration there's lots of other needs that are um showing up okay so you need a motion to move this on to the city council is okay so moved the second motion to present the audit report to council has been approved the budget.

Sorry the budget recommended to recommend the budget yes and I just have a comment on this thank you when I come to this meeting I go okay brain you're going to have to engage really hard this is really out of my wheelhouse right and you have to think so hard and then I don't have to think so hard because you explain it so well and so thoughtfully and carefully and your PowerPoint has graphs that I can understand.

So thank you for that my brain is like yeah much appreciative I really appreciate your feedback you know um and to Jackie and to Joanne you know they are uh green but mighty right like you know and so um it's it's really not one person's effort it really takes a village and this is a really prime example especially the cycle you know um uh Joanne and I each have our like little health issues to deal with and so like you know we I tell after we're a little broken this cycle and we are here.

And so I really do get wanna give a shout out, especially, you know, um, to Joanne to you know, like get this this.

This is really her first cycle bringing it, you know, um to what you see today, and then you know, Jackie is joined us, and so um, you know, much to um do together.

So appreciate it.

Yes, I I echo Robin's comments and fantastic job on the presentation today.

So um, yeah, finance is not my wheelhouse either, although I'm learning in my new job.

Uh but it it is you always make it so easy to comprehend and understand and it I I just really appreciate that that there's not a lot of um financial uh acronyms and jargon that we are not uh understanding.

So I appreciate and I appreciate answering the questions when we you know weren't sure of something, so yeah, yeah, thank you.

I forgot to mention um the uh presentation on the budget.

There are still no uh public attending, so there are no comments.

And then Grace, did you want to introduce Michael so that we know who Michael is online?

Michael, it's our county manager.

It was like we didn't see his face of the when Amy was presenting.

Yeah, so um you know, he's his busy season is coming up very, very soon with the year in and audit and um uh so that's like hello.

Hi everyone.

I met uh some of you in passing and uh in some other meetings, but yeah, just reintroducing myself.

I'm Mike Omini, the uh accounting manager at the city.

Nice to meet you all.

Nice to meet you as well.

Okay.

Now item six committee updates and staff items.

Anything.

No, okay, and I can adjourn us at 1103.

Thank you.

Thank you.

Thank you for your time.

Thank you so much for those.

I was so hungry, and yeah, no, I'm very thankful and so sorry about this.

I don't know.

We're working, it wouldn't be a problem.

And it's but the last day.

I'm actually gonna stay on another year.

I want to get the school school in a really solid place.

Which school is there?

It's Cabrillo in Pacifica.

And the other problem is I work so far away now that it's hard to make a quick classic.

Isn't it along with the school?

Yes.

Anyone want more drink?