All right.

All right.

So I am calling this meeting order at 1104.

Clerk, please call it roll.

Thank you, Council member Gatta.

Here.

Council member Vang.

Here.

Senator Tallahontes.

Here.

Please stand for the land collagement.

I will do it.

Please rise for the opening acknowledgments and honor of Sacramento's Indigenous people and tribal lands.

To the original people of this land, the Nissan on people, the Southern Mydo, the Ballon Plains,

me.

Collegiate honor of Native people who came before us and still walk beside us today on these ancestral lands by choosing to gather together today in the act of practice of acknowledgment and appreciation for Sacramento's Indigenous people's history, contributions and lives.

Thank you.

So let's pledge.

I pledge allegiance to the flag of the United States of America and to the Republic for which it stands, one nation under God in the visible liberty and justice for all.

Thank you.

All right.

Concentre calendar.

Item one and two.

I need a motion.

In a second.

I'll move consent on the chair.

Wonderful.

I will second.

Wonderful.

First and a second.

Clerk, is there any public comment?

I have no public comment on the chair.

Wonderful. Please call it roll.

Council member Gara.

Aye.

Council member Vang.

Yes.

And vice chair Tallahontes.

Yes.

Welcome back.

I'm Vang.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Thank you.

Good morning, ma'am.

Council members and members of the public.

I'm Pete Colletto, the city's finance director.

And we, it seems like we just passed the fiscal year 2425 budget.

But we are already gearing up for fiscal year 2526 budget development.

We've had our internal city kickoff.

And we wanted to provide the committee and the public an update on where we stand after,

a reminder of where we stand after the 2425 approved budget and the fiscal year 2526 budget

development process.

So just a reminder, our approved budget for this fiscal year, $1.6 billion total of around

$850 is the general measure U fund, supports over 5,000 FTEs.

And this year we closed a $66 million funding gap without eliminating any fill positions.

And just a quick reminder of our reduction plan.

You know, as you remember, the way we handled it this year, we asked all the departments to

give reduction strategies.

We also looked at city-wide strategies.

So these are kind of centrally looked at by city staff.

We ranked them based on their impact on services to the department.

We looked at the impact on city staffing.

And we came up with a reduction plan that closed the deficit.

So the reduction plan was roughly equally split between one time and ongoing balancing strategies.

So as you remember, we're still in a structural deficit.

So we see our expenses rising faster than our revenues.

So those ongoing strategies we adopted as part of this year's budget help address that structural deficit.

The one time strategies then need to be made up in the following fiscal year.

And so after the approved budget was passed, we updated our five year forecast.

So this includes the proposed budget, all of the amendments in the mayor's memo that council adopted.

And as you can see right now, we have roughly north of $77 million deficit forecast for fiscal year 26.

However, I want to point out this does not include state funding that were projected to receive from the state's HAP program.

And the reason we haven't included that funding is we'll find out more information from the state.

They're telling us in January on what that amount will be.

But any additional revenues we receive from the state will reduce that deficit.

And in prior years, it's been in the order of magnitude of just north of $20 million, $20 to $25 million.

This also what we'll do is update our revenue and expense projections.

And so we'll be coming back to the committee probably late February, early March with what we're projecting the deficit number to be.

In addition to our operating budget deficit, we reviewed these as part of the budget process this last year.

We have some other long term fiscal challenges.

So the biggest are really our unfunded pension obligations and our unfunded capital and deferred maintenance needs.

They total roughly $3 billion.

I also just want to highlight the fact that we used some, we didn't touch the economic uncertainty reserve to balance the budget.

But we did suspend some contributions to the EUR and that puts us below our 10% council policy minimum.

So how are we going to go about balancing for fiscal year 2526?

Well, we're going to have a similar philosophy.

So we're going to look at defining what our core services are rather than just saying, hey, we want every city program to take a haircut.

We want to focus on minimizing service impacts on our residents.

And we want to minimize staffing impacts because we provide our services through city staff.

So we've already kicked off our budget process internally.

The city manager has instructed his departments to produce strategies that total 15% reduction in net general measure you fund use.

And really to define the service and staffing impacts of each strategies.

And these strategies could be revenue increases or expense reductions.

And like last year, we're going to look centrally at citywide strategies and other budget reduction strategies that we can take.

And we want to present a menu of options to choose from.

So when we're looking at what is that 15% target look like by department.

Here, it's laid out and you can see the targets that the city manager departments are instructed to me.

And again, you know, there may be a whole host of strategies in any one department to hit that target.

So as far as the budget schedule, we really started back in September.

So one of the pieces of feedback we received from the community was, hey, last year you did a budget survey.

We liked the fact that you did a budget survey.

We would have rather you done it earlier in the process and had it open for longer.

So this year, last year we opened it in February.

This year, we opened it in September and kept it open for two months or through November.

And we've just gotten the data and we're analyzing it now.

In November, we held our internal budget kickoff with city fiscal staff.

As I mentioned in January, we're expecting to get our state hap allocation amount, which will help define what the gap is.

February is a very busy month.

So we'll be coming to the committee with our mid-year financial update, as well as the previous fiscal year year end numbers.

We'll be updating our revenue and expense projections and finalizing the budget gap.

And we have some updated financial policies that we'd like to bring to BNA for consideration to address some of those long term liabilities.

And we're also going to have just like last year, departments come and present to council on what are your operations, what has your performance been.

And really, especially the new council members who are coming on board with everything we do as a city.

So those would be really similar to those sets of presentations that council saw at those special meetings last January, February and March.

By charter, we need to release a balanced budget.

I'm going to be interested in a positive price I can't share.

So, as a city manager, last year when we did the presentations, we had the departments go over everything that they do in their role.

And then later on, they came back with like, hey, these would be the budget impacts on our departments.

But would there be a way for like when they're presenting to say, hey, this is our program if we had a cut.

This is how it would impact the program. So kind of combined the two.

I felt like they were kind of separated. We learned about the department and then we learned.

And then later on, we talked about the cuts. And so it didn't really connect.

I guess in my head.

Sure. I think that the issue is one of timing.

And.

We have not yet decided on what will be cut.

But I think that from the chart that's included in this report where you get a sense of magnitude, you can see that, you know, for example, the police department is $30 something million.

The fire department is $23 million.

And our goal is to have all the tools possible from a citywide perspective to offer you.

When we consider reductions. And again, this year we will share all of those things with you.

And what we did last year, if you'll recall.

And maybe we need to link it better together is we had each assistant city manager come up during the budget presentations and share the impacts of the actual reductions that are included in the proposed budget in May.

So I think that that's the difficult thing on the timing because development and decision making takes through February and basically through March.

Thank you.

And so by charter, we need to release about or propose a balanced budget by the end of April.

In May, we'll have budget deliberations.

The committee and council will see the five year capital improvement plan and citywide fees and charges.

And we're going to include additional departments in the budget equity analysis.

So that will be coming forward as well.

And then council will need to adopt a balanced budget by the end of June.

And just as the committee and council are considering the budget, there are some pending factors.

So the biggest is really getting our budget back into structural balance.

We want to address our unfunded liabilities.

Again, we haven't in our forecast included future labor agreement costs because we don't know what those are.

One other thing that we really want to highlight is this is a statewide trend.

We don't know what the future of the hap program is going to be.

We do know that we are going to receive hap funding for fiscal year 26.

But if you recall, the governor didn't include it initially in the budget this past year.

And with negotiations with the legislature, they did.

But we don't know long term what that's going to look like.

And again, all of our forecasts are assuming continued economic growth.

And so a recession would make all of our problems a lot harder to deal with.

But rather than ending on a negative note, I think the approach we're going to take again is going to be very similar.

It's going to be very transparent.

We're going to look at what the strategies are, what those service impacts are, and really try to look at what those strategies are.

And really try to come up with the best way forward.

And with that, that is the end of our presentation.

And happy to take any questions.

Thank you.

I was going to say chair tolamontist, but Mayor Pro Tem, thank you so much.

Pete, thank you for the high level overview of our budget for next year.

And the dire circumstance that we will be in next year in terms of balancing the budget and figuring out what we're going to need to do to ensure that we balance the budget.

I wanted to flag just one thing.

I know last year you had mentioned that we're going to be doing kind of similar to what we did last year.

And I wanted to highlight just the budget equity tool.

I know last year we apply this tool to some of the reductions.

And my understanding was that we didn't have the capacity to do this across all departments.

And I recall direction from last year that we want to begin facing this in so that we're prepared for this budget cycle.

And so I just wanted to get any updates on that as we're moving through the budget process.

I think it's going to, we know that these, when we balance the budget, it's going to hurt.

It's going to cut services.

And we want to make sure that we are not causing harm to our most vulnerable neighborhoods and families.

And so just making sure that we're applying the budget equity tool to the, when we get to the service reduction or even the generating revenue, right?

Because that can also cause harm as well in terms of like fees increases for most vulnerable families and communities.

And so wanting to make sure that I flag this up front and that as we begin this budget cycle, the budget, the budget equity tool is included.

Because my understanding was that our diversity of equity diversity, our office of diversity and equity did begin creating that tool.

And there were some departments and offices that started using it last year.

We'd love to see that implemented across all of our departments, especially police and fire, as we're engaging in these conversations.

Yes, so thanks councilmember.

We are, as you say, we're trying to phase it in to across all city departments.

So we'll have additional departments participate in the fiscal year 2526.

Three initially last year, if I remember right, we had fire, economic development and CCS.

And so we'll have additional departments this year.

On the inner team have been great.

They've, they've helped streamline it a little bit.

We've been able to integrate it into the process.

So it's not, you know, a separate kind of process like it was last year when we just launched it.

So it's going to be included and we'll be presenting the results as part of the budget process.

And I don't know if Lainey, you wanted to add anything.

No? Okay.

Okay.

Thanks, Pete. Thank you.

Councillor Marguerra.

Thank you very much, Chair.

First, you know, thank you, Pete.

And thank you to all of our finance staff here for, and I do support this framework of, again, identifying our core services,

making sure that we have the available services for our city residents and also honor the work and the impact of our city staff.

And for good reason, we spent a lot of time on how we make these choices and which reductions to make and how to make those 15% target reductions.

And so I'll talk about process later, but first I would say I would like to spend more time this year on and discussing and understanding better on the revenue side.

Last year I had asked to identify, you know, where we saw the changes, you know, the delta in our changes for the revenue side.

And obviously some of it was the court's decisions on the Bradley Burns tax, which we have no control over unless someone files a suit and changes it somehow or the legislature acts.

But on the other sales tax components, I'd like to understand better where those changes were.

Now my understanding was, at least from the testimony last year, was that some of it had to do with the ripple effect of the limited construction in both commercial and residential and all of the supply chain and everything associated with that.

I want us to dive in deeper and actually have some time on the budget committee to look at those.

And while even a decision that we make next year in this conversation won't fill a $77 million gap if we on the tax revenue side, the projection you showed over the next four years, we still have a structural problem.

So I do think that we need to have a conversation about, okay, where is that delta on the revenue side and what are the impacts happening to that revenue side.

Number one, that's the, I think the key thing that I want to have a better, a deeper conversation and what policies were entertaining to change to that trajectory.

So if we are growing in revenue and it's at a slower rate than our expenses, then what are the policy changes that we need to make to increase that revenue.

And the second piece there is on the insurance cost side, it's not a fair analysis or a fair comparison.

But I do want to highlight the work that the Sacramento Employment Training Agency has done recently on their insurance numbers.

And the tips and falls, big common thing with little kids and head start programs and workforce training centers.

But because of the practices and patterns that they've done, they actually saved money on their insurance. It almost sounds like a gaico commercial, you know.

But my point is, again, I think in this committee, I'd like to have a much more public discussion about what are the practices that we're doing to effectuate our insurance.

I do want to recognize and appreciate the work with the city's evoc program to help reduce the number of vehicle accidents on all departments.

But that's one example of figuring out, okay, what can we do to change the cost of insurance?

And should we be doing things that other agencies are doing that gave the insurance market a response to say, hey, you know what?

They're changing their practice. That that may be more financial to go with the city of Sacramento, make us more competitive even though the pool of insurance is small.

How can we do that? So that's the second piece. And the third piece is on process.

One, I want to make sure we have a mid-year budget to review and approve. Okay, I saw that was an update, but, you know, I don't want this to be a receiving file.

I'd like to make sure that if there are substance of changes to be made that that we go through the mid-year budget process as we look at the CAF for as well.

And then second, when we do our budget presentations, I'd like them, you know, again, this is a conversation, I guess, with the next council and how we want to do our procedures here.

But I think it'd be much more fruitful and beneficial to have those at the budget committee where we can do a deeper dive on costs and impacts to the budget rather than, you know, where it's one of 15 items.

You know, overall calendar of maybe 30 at the city council meeting. And maybe the two o'clock meetings might function as that, but there's a purpose where we have a committee structure.

And there's a purpose where we have a budget committee. And I think that gives the budget committee, I think an opportunity to really look at those, those, those points.

Not that it's not helpful for the public to learn and understand just the vast amount of work that each department does.

But I do think that it gets lost in the overall just work of the council. So that's where I think on process wise, I'd like that to occur here.

I was actually very frustrated with the way that the process ended last year where we had a budget hearing in the afternoon and then voted it, voted right in the, right in the evening.

That gives us no time for the staff to respond to the concerns and the questions that were brought up to have a fruitful conversation.

I do think that we've got some time to plan and I'd like to make sure that maybe it was spent some time in January on how we framed that calendar. That would work.

So those are my comments. I know this isn't receiving file. There's no easy solutions here. So I appreciate the staff for bringing this forward. And even if we are successful, which I knock on wood of gaining anywhere from 20 to 30, you know, I'm open 30, probably not.

Then we're still we're still looking at 40 plus million dollar deficit. So yeah, thank you, Councilor McGara. And I agree. Because last year we had like a 2 p.m. meeting that we had a drop at 5 p.m. So maybe we link the presentations and do the presentations once it's time to present the various proposals that we have to do reductions and do a 2 p.m. meeting or budget audit, you know, weekly.

But let's definitely look at the calendar to see and then, you know, just direction to all our charter officers like make sure that we can see what reductions we can do across all departments throughout the city's background.

Okay, sure. So we can definitely take a look at the calendar. So, but just to clarify, is that direction for the charter officers to also submit?

Yeah, yeah, I think we need to look citywide.

So we can communicate with the charter officers what their equivalent number would be. And then, yeah, we'll give us more options.

And then come back in January to budget and audit with the schedule. That works that, you know, where we hear staff presentations and the proposals for reductions. That way it's all like in one place, one conversation.

And if that's like 2 p.m. or 11, we'll figure out the schedule. Happy to work with you online.

Yeah, we'll work on this schedule, but yeah.

All right. Thank you. And that's all right.

We're at a agenda for today. So, Claire, is there any comments for matters not on the agenda? Madam Vice Chair, I have no public comment for matters not on the agenda.

Okay. Wonderful. This meeting is adjourned at 1128.

We're in comments for the committee.

Oh.

I don't have a comment.

I'll have a comment.