All set? Okay. We will call to order the Budget and Audit Committee meeting for February 3rd,

2026 and welcome to those of you who have joined us this morning. You are welcome to participate

and the committee's deliberations today. If you want to do that on any item on our agenda,

please fill out a speaker form and deliver that to the clerk here at the front of the chambers.

We'll make sure to recognize you on the item in which you are interested. Please remember that

you have two minutes for public comment on any item and you can see the clock tick down. So keep

your eye on the clock if you're commenting. So you make sure to finish your remarks within the

allotted time and get to say everything that you want to share with us. With that, I think we

probably need to call the roll, don't we? Council Member Talamantes? Here. Council Member Maple?

Here. Council Member Geta? Here. And Chair Dickinson? Here. We have a quorum. We have a quorum and

Council Member Vice Mayor, if you would lead us in the acknowledgement and the pledge. Please rise

Thanks for the opening acknowledgments and honor of Sacramento's indigenous people and

tribal land.

To the original people of this land, the Nisanon people, the Southern Maidu, Valley and Plains

Miwok, Patwin-Wintun people, and the people in the Wilton Rancheria, Sacramento's only

federally recognized tribe.

May we acknowledge and honor the native people who came before us today and still walk beside

us today on these ancestral lands by choosing to gather together today in the active practice

of acknowledgement and appreciation for Sacramento's indigenous peoples' history, contributions,

and lives.

salute. I pledge allegiance to the flag of the United States of America and to the republic for

which it stands one nation under God indivisible with liberty and justice for all someday. Thank you.

All right we have four items on our consent agenda.

Any member of the committee wish to speak on any of the consent items?

Second.

And do we have any members of the public who wish to address this on the consent items?

I have no members of the public to speak on consent.

All right.

In that case, we have a motion and a second to adopt the consent items.

All those in favor, signify by saying aye.

Opposed, say no.

And abstentions.

That's unanimous.

We're rolling now.

Okay.

We're going to go on to item five.

This is our auditor.

2425 baseline funding verification for the sacramento children's fund good morning welcome

all right so good morning members of budget and audit i'm farishta arari their city auditor

with me today is joe fleming who was the lead on this project but many as many of you guys know

this was a office-wide effort for our office.

The recommendation that is before you is to accept the city auditor's fiscal year baseline

funding verification for the Sacramento Children's Fund and forward it to the city council for

approval. This is our second year conducting the baseline funding verification and the city

charter requires that we conduct this analysis annually. Now I'm going to pass it over to Joe

to continue the presentation for our fiscal year 25 report and the next item as well.

Good morning, members of the Budget and Audit Committee.

My name is Jill Fleming.

I am a senior fiscal policy analyst with the Office of the City Auditor.

The Sacramento Children and Youth Health and Safety Act, also known as Measure L,

was passed by voters in 2022.

This established city charter section 120, the Sacramento Children's Fund, and required the city auditor to calculate and publish the baseline funding amount by December 31st, 2023.

The city auditor fulfilled this obligation and calculated the baseline funding amount to be $22.9 million.

Each year, the city auditor is required to verify whether the baseline funding amount

was expended in the prior fiscal year.

The objective of this project was to fulfill the requirement outlined in Section 120, subsection

E1C of the Sacramento City Charter by verifying that the baseline funding amount of $22.9

million dollars was expended in fiscal year 2425.

The scope of this project was city expenditures for fiscal year 2425 or those that were made

between July 1st, 2024 and June 30th, 2025.

To achieve our objective, we researched programs that departments identified as youth related.

To confirm that a program qualified toward the baseline funding verification, we conducted

an analysis to verify its compliance with the criteria that were laid out in the city

charter. We reviewed expenditures from those programs in fiscal year 24-25 net of program

revenues, confirming their source as unrestricted general fund revenue, aligning the program

with one or more fund goals, and verifying that expenditures did not fall into prohibited

categories. In certain situations, the most appropriate method for determining the correct

allocation of youth related expenditures was to rely on management estimates.

In specific cases, we employed management's estimations to determine the appropriate distribution

of administrative costs among the eligible youth programs.

Additionally, we depended on the management assessments of youth program participation

to isolate and allocate the youth related portion within those programs that had only

a partial youth component.

These estimates were based on available program attendance records,

and it's important to note that due to limited time and resources,

we did not conduct an independent audit to validate the accuracy

or completeness of the management's estimations.

After viewing the City of Sacramento's youth programs

and related expenditures for fiscal year 24-25,

we have verified that the city expended the baseline funding amount for the Sacramento Children's Fund.

This slide summarizes department's youth-related programs, the fund goals that were fulfilled by the program operations,

and the eligible program expenditures that counted towards the fiscal year 24-25 baseline funding verification.

In determining the eligibility of expenditures in accordance with the baseline funding criteria,

some expenditures from the youth related programs were excluded and the common

reasons for reducing the amount as eligible towards the baseline funding

verification include that program had an ineligible funding source the

expenditure fell into a prohibited category or a program had only a partial

youth component guidance from last year's presentation to City Council

dictated that in odd years the city auditor will publish an analysis of

expenditures up to the baseline funding amount and even years publish a full

accounting of the eligible youth related expenditures across all departments as

the current analysis is for the odd year of fiscal year 2425 we have published

the relevant eligible youth related expenditures from the departments only

needed to meet that baseline funding amount.

And for that reason, this table doesn't necessarily encompass all of the youth program offerings

in the City of Sacramento or all the youth programs listed within these seven departments.

As the City Auditor's responsibilities established by Measure L require two annual reports,

we have updated our webpage as a central location for the Council, management, and for the public

to have access to these reports.

As outlined in the charter,

our primary responsibility is to ensure

that the baseline funding requirement has been met.

And we want to reiterate that there are other expenditures

in other departments and within those departments

that were listed that would be considered as eligible

toward the baseline funding verification.

And next year's report will include

a more thorough analysis of expenditures

comprising all of the youth programs across departments and all of the eligible program expenditures.

Thank you for your time.

This concludes my presentation and I'm available to answer any questions you may have.

Okay, Joe, thank you for that.

For the committee, I don't have anyone signed up.

Anyone have any questions or comments?

Okay, you may skate on this one.

Okay, do we have any member of the public who wishes to address this?

I have no public comments on this item.

All right, the recommendation is to accept

the verification of the baseline funding

and send this to the full council for approval.

So moved.

Moved by council member Maple.

Seconded.

Seconded by the vice mayor.

If there's nothing further, all those in favor,

signify by saying aye.

Aye.

Opposed say no.

Any abstentions?

Motion carries unanimously.

Thank you.

And we'll go to item six,

which is the audited cannabis business operations tax amount for the Sacramento Children's Fund.

And it looks like you're ready to go, Joe.

Okay.

Back to you.

So good morning, members of the Budget and Audit Committee.

I'm Joe Fleming, a senior fiscal policy analyst within the Office of the City Auditor.

The recommendation that is before you is to accept the City Auditor's fiscal year 2425 audited cannabis business operations tax amount

for the Sacramento Children's Fund and forward to the City Council for approval.

This is our second year auditing the CBOT revenue,

and the city charter requires that we audit this number annually.

As I mentioned in my last presentation,

the Sacramento Children and Youth and Health and Safety Act,

also known as Measure L, was passed by voters in 2022.

This established city charter section 120, the Sacramento Children's Fund, and requires

the city auditor to publish an audited amount of CBOT each fiscal year.

The general fund equivalent of 40% of the audited amount of CBOT revenue is allocated

to the Children's Fund.

The objective of this project was to fulfill the requirement outlined in section 120, subsection

C2 of the Sacramento City Charter by publishing an audited amount of CBOT revenue for the

prior fiscal year. We determined that contracting with the City's external auditors would be

the most efficient use of resources to complete this audit. As such, the external auditors

completed the audit in accordance with the generally accepted auditing standards and

government auditing standards. The results of the audit show that for fiscal year 24-25,

the CBOT revenue came in at $22,609,932. And during the budget process each year, the

city makes an estimate of the CBOT revenues and budgets in amount equivalent to 40% of

the estimated CBOT revenue to be transferred from the general fund to the Sacramento Children's

Fund. During the fiscal year end process, the finance department performs a true up

to ensure that the contribution to the children's fund reflects 40% of the actual CBOT revenue

for that fiscal year. Numbers on the right side of the slide show an example of this

process. For fiscal year 24-25, the estimated CBOT revenue was approximately $23.3 million,

which was unchanged from the budgeted fiscal year 23-24 amount. Therefore, approximately

$9.3 million in general fund dollars was allocated to the children's fund. The audited amount

of the CBOT revenue was approximately 22.6 million,

coming in below estimates.

Therefore, the finance department did a true up

to reduce revenues by approximately 280,000

from the Children's Fund.

And the total amount contributed to the Children's Fund

for fiscal year 2425 was approximately $9.04 million.

This concludes my presentation

and I'm available to answer any questions that you may have.

Thanks again, Joe.

I don't have anyone looking to speak.

Any questions or comments?

Thank you, Chair.

Council Member Shea.

Maple.

Thank you.

Thank you for the presentation.

It's always really interesting to me.

Do we have a sense, I know you're looking at the actual numbers,

but do you get a sense of why we were below,

or are we just seeing that the industry is kind of just struggling a little bit,

or are there some reasoning behind that?

I don't think our office would be able to opine on the difference between budgeted and actuals.

That may be a question that finance may be able to answer.

Well, I think we're talking to them next, so maybe I'll reserve my question for them.

Thank you.

Any other questions or comments for Joe?

Okay.

We have a motion to accept the audit and send it on to the council.

We have a second as well.

Any public comment?

No public comment.

Boy, you are living right.

If there's nothing further, all those in favor signify by saying aye.

Aye.

Opposed, say no.

And any abstentions?

None.

Motion carries unanimously.

Thank you.

Thank you.

Okay.

The warm-up is over.

All right.

We're going to take items 7 and 8 together, the 25-26 budget update and proposed adjustments.

and the 24-25 Annual Comprehensive Financial Report.

So, Pete?

Great, thank you.

Good morning.

FOD, right?

You and the team.

The whole budget team here.

Yeah, okay.

Good morning, Chair, Councilmembers,

members of the public.

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

Joining me is Murthala Santizo, our budget manager.

And as the Chair mentioned,

we always live in three years in municipal finance,

the prior year, the current year, and the budget year.

And so we're going to talk about all three of those things today.

So we're going to start with our fiscal year 24, 25 year end results.

I have good news.

The results are positive.

So we kind of broke it down in the chart that you see in front of you.

So our operating results were positive by a little less than $3 million.

That next line you'll see is our investments fair market gain.

And, you know, we talked about this when we were doing year-end close last year as well.

And so what this is from is, you know, a few years ago when inflation spiked and interest rates spiked,

the value, the paper value of our investment portfolio went down.

And so governmental accounting standards say we need to recognize that unrealized loss at year-end.

But the treasurer's office has done a very good job managing the cash flow.

We haven't actually, we didn't actually sell those securities at a loss.

And the great thing about bonds is, you know, if you can hold on to them, you'll get your money back.

And so we've gotten our money back.

The treasurer's office has invested in new market rate securities, and we're able to pay ourselves back for those unrealized losses.

So that is the $12 million that you see up there.

So that was $14.8 million positive.

The next line you see there is $7.1 million negative.

And so what that is from is we had an arbitrated settlement with the SPOA, the police officers union.

And when council heard that item, they approved using prior year savings, if there was any, to move into this current year to pay for that increase.

And that was that $7.1 million.

and so that leaves us with a $7.7 million balance

of available general fund.

And we'll talk a little bit more about that at the end

with staff's recommendations.

So you all know this, but just always helpful to review.

Our current year budget is $1.7 billion all funds,

$872.5 million general fund,

and we closed a $62 million funding gap

for this year's budget without any layoffs.

Just a reminder, we brought,

council approved a very balanced plan

to address the budget deficit this year.

And so it was roughly 50-50 one time and ongoing.

Those one time solutions, they buy us time,

but they really begin our budget gap for the next year.

As we move into this year,

we do have, I have some good news.

I usually have bad news, but I have some good news.

When we were reviewing our revenues,

we are seeing better than budget projections for property tax,

utility users tax, transfer tax, and transit occupancy tax.

However, we're seeing our cannabis business operations tax come in below budget.

This is a chart showing the impacts for fiscal year 25-26

based on the latest forecast.

So you can see those positives for UUT,

property tax, transfer tax, TOT.

You see the negative for cannabis BOT,

but just as we heard before,

the general fund experiences 60% of that loss.

The children's fund, the other 40%.

So that measure L transfer amount out of the general fund

is less based on the lower projected cannabis BOT receipts.

And that's about $900,000.

and we just wanted to show some of the historic trends with some of our revenue sources

and actually I was waiting uh till council member maple got back to talk about cannabis bot so um

we are again uh you know unfortunately we're projecting uh below budget uh cannabis bot

for this year and you know this is something when we looked at across the different kind of lines of

business for cannabis, so dispensaries, cultivation, manufacturing, delivery, we're seeing every line

of business struggle. And, you know, we're hearing similar stories across the state. And, you know,

kind of our anecdotal understanding from what we're hearing from the industry across the state

is we've kind of seen demand flatline, but we're seeing pressure on prices as well and, you know,

more competition, and so a lot of businesses

up and down the state are struggling,

and that's showing up in their gross receipts,

which are coming in lower.

Pete, can I just?

Yeah.

Just a little bit, then, is the approach

with the Measure L, if you know this, grantees,

or from the city's point of view,

to try to smooth this over time,

rather than take it all in one year,

because these grantees have been awarded

certain amounts in grants.

So I assume at some point they have to absorb a reduction,

but is it phased in some way rather than all extracted in one year or

expected to be reduced in one year?

Yeah.

So, you know,

we're going to talk a little bit more about that when we come in in March

around what the measure L is looking like.

So as you all know,

there was a three year grant cycle.

there was a somewhat conservative approach to the amounts that we awarded.

And so we're,

we're going to take a look at that and look at some of the different options

and get, you know,

council feedback and direction on how we might want to approach that,

especially if we're going to start seeing, you know,

potentially more industry struggles on how, on how that,

and how that looks.

So we'll look, we'll go into a little bit more depth.

Okay.

We'll stay tuned.

All right.

So this shows historic property tax. You can see it continues to grow, continues to be strong, very stable revenue source.

On this chart, we showed both the 1% Bradley Burns sales tax, that's your point of sale, sales tax, and our 1% Measure U, our point of destination sales tax.

Both have the same trend. This is the same trend we're seeing up and down the state as well with sales tax.

And, you know, if you look back to fiscal 2021, fiscal 21, 22, you see that big jump.

And that I always, I call it kind of a sugar high.

And that was when inflation really started to kick in.

Prices went up.

People were still spending.

And we saw our sales tax numbers jump up.

But what typically happens with inflation is then people need to tighten their belts.

And so that's kind of what we've seen.

and we've seen sales tax just start to struggle, flatline, decline in some cases.

We are starting to get, I would put a lot of cautiously in there,

but cautiously, cautiously, cautiously optimistic, we might be starting to turn the corner.

Our sales tax consultants have seen a month or two of things,

I wouldn't say, you know, growing very fastly, but looking a little bit better. And so, you know,

we'll be meeting with them again in a couple of months to get another update and see if that's

continuing and if, you know, we could potentially look at making some adjustments. But for right now,

you know, we're not, we're really not seeing that growth. And I feel a little bit like

Lucy and the football because the last couple of years, you know, we've kind of started to see

that growth. We've increased our forecast only to have to pull it back because it hasn't arrived.

Let me ask another question since we're on this. Are you confident that we are

receiving as much as we should in terms of sales tax remitted for online purchases,

number one and number two

does it make any sense to contemplate

having

an outside auditor

a firm look at

one of these firms that examines these kinds of

things not like our auditor but

one of those kinds of

forensic examinations

to see if we're getting everything

we should? Yeah so we do we are

under contract with a firm who does

that and so they'll analyze our

sales tax receipts they'll

where they find errors from the state,

they'll work with us in the state

to correct those errors and get us our funding.

That question on the online sales

is a very complicated one.

And the reason I say that is,

if other jurisdictions build distribution centers,

especially if there are other jurisdictions in our county,

that benefits them in two ways.

Because one, they're more likely

to be the point of sale. So they'll get some point of sale sales tax, you know, that we would

otherwise potentially get. And number two, that advantages them in the county pools. And so what

happens is when things come from out of state or you have private party auto sales and things like

that, they go into these county pools, which then get distributed based on your percentage of point

of sale. So, you know, a jurisdiction that can have a lot of e-commerce warehouses kind of benefits

in both ways and potentially to our expense on the Bradley Burns side. You know, some of the,

some, to the extent we have projects locally that do that, that can help correct that. And,

you know, I know this is an issue that's being looked at statewide as well,

because so many jurisdictions kind of feel it.

And, you know, the kind of philosophy behind the sales tax is to fund local government,

and so you don't really want that to bleed out.

I just wonder, you want to go ahead?

Yeah.

I have two issues.

First, I have been deeply engaged in allocation of sales tax through the League of California Cities.

I was the co-chair three times now of the city manager's working group on sales tax allocation,

and we have come up with a formula relative to the fact where cities feel like they lose

when a neighboring city establishes a distribution center,

and all of a sudden the sales tax they were getting disappears.

It has to go through the Revin Tax Committee of the league,

and then it will require potentially a constitutional amendment,

so it has to go through the legislature.

But that notwithstanding, our audit firm does a great job representing us.

We've also learned how to represent ourselves when we have big projects.

We are working directly with those contractors.

If they are delivering contracts over $5 million, we can self-accrue back to the city.

So anytime we have a big, big construction project, we are, through economic development staff, taking advantage of that.

And then thirdly, we are actively, and I'm not going to say who, suing a city who we believe stole a vendor and set up a sham office where we used to accrue the sales tax here.

and we have gone after them both at the California Department of Tax and Fee Administration

as well as our own lawsuit.

Well, thanks, and that was part of, you anticipated part of where I was going to go,

which was changing state law regarding this issue,

but it sounds like the assessment, at least from the Lee's point of view,

is it would take a constitutional amendment.

Potentially, depending on what route actually gets chosen for the allocation.

maybe if that is if that is the case it would be nice if that were on the ballot in november

there's no way that it's going to make november i don't believe no i don't think the machinations

of the league and moving through the legislature can move that fast but i'll check in i think roger

knows the thinker to you about that i'll check in maybe internal league stuff first okay all right

We won't spend more time with this in the moment, but why don't you go ahead, Pete.

And so next we have a chart up with utility users tax.

And really historically that's been a tax that's kind of gone up and down without a very clear trend over really the long term.

And we've had this dynamic where we're seeing lower receipts on the cable side, on the landline side as people cord cut.

and we've seen higher taxes or higher receipts on, you know, electric, gas, as those rates have increased.

We're seeing more of what I would say overall growth trend now, which is a good thing.

And that's being driven by gas and electric.

So our five-year forecast, how are we looking?

So, you know, a lot of these assumptions will look familiar.

Some of them are a little bit different.

So we are forecasting kind of steady state growth.

so we're not putting in a recession scenario.

One thing that is different about this forecast

is we are incorporating costs for city proposals

with our labor unions that are on the table right now

during negotiations.

And we are in negotiations, as the committee knows,

with most of our labor groups.

So we're saying the forecast baked in the cake

is the city's proposals.

We're excluding HAP Round 7,

so the state homelessness funding.

And really what we're waiting for

is some more guidance from the state

on one, what will the timing of the funding be?

So historically, the state has appropriated the funds

and we've received them in the following fiscal year.

So what that would mean is,

the state is talking about appropriating

the funds for fiscal year 26, 27.

If they go by historic kind of patterns,

we wouldn't get them until 27, 28.

and we are in communication with the state.

We're spending our HAP dollars.

And so the sooner we can get them in, the better.

The other kind of factor we're waiting

to receive more information on

is what are these additional constraints

and requirements that the state may put on the funding?

So we've heard that those are going to happen.

We don't know what those are yet.

And so we're continuing to communicate with the state about that.

As we get more information, if the information is positive, then we would be able to budget for those funds.

The other thing that I'll just mention is HAP Round 6 was $1 billion.

HAP Round 7 is being proposed for $500 million.

So that would be a significant cut.

And as council members remember, we really got hurt in half round six for our success in reducing the point in time count.

So we received a 40 percent cut between half round five and half round six.

And, you know, based on what we're hearing so far, it might be another 50 percent cut from half round six to half round seven if the legislature and governor can't come to an agreement.

We're also excluding the 7.7 of one-time year-end savings from this forecast.

And again, we'll talk about that at the end.

So we wanted to show you what the forecast looks like and how it changed from the last forecast we did,

which was in June with the approved budget.

So you see the approved budget forecast.

That's the top line.

You see those expense and revenue updates that we went over.

You know, we have the ones in the current year.

That's 3.8.

but then in future years,

kind of as that growth trend continues

in some of these revenues, that helps us.

We have the cost of the current city labor proposals there,

and you can see how that all balances out.

So we're projecting to finish the current year

slightly positive,

but then we would have a $66.2 million gap

we would need to close to balance the budget year,

again, excluding potential HAP funding.

This just graphically shows the updated forecast, the chart we saw before.

The one thing that I'll point out here is those future years, those are if the city does nothing.

So if the city does nothing, then we would have a $102 million budget gap in fiscal year 29-2030.

But the city isn't going to do nothing.

Council will adopt ongoing revenue strategies, ongoing expense strategies,

and those ongoing strategies will improve those future years in the forecast.

And I'll hand it off to Murthala to talk about how we're going to balance.

Thank you, Pete.

Okay, so for the fiscal year 27 budget process,

we asked all departments and charter offices to submit reduction plans.

That was 15% of their general fund reliance.

This is the same process that we have been conducting over the last two years.

We're also looking at citywide strategies.

And so that includes projects that have been old or have monies left over in it and other ongoing budget reduction strategies that we will be discussing with the city manager.

The target this year is $85.3 million, which should provide more options than the projected deficit of $66.2 million.

And we're currently going through the review process with departments.

You'll see these options in the next like either later this month or in next month when we bring them to council

and

As we have done in the past couple years we've asked departments to take the following guiding principles in

Consideration while developing their priorities

departments to the best of their ability should preserve core services and minimize impacts to the public and staff.

Also departments should align their proposals with council priorities.

And of course, if there are other priorities that should be considered, please let us know.

Here's the budget schedule for the next five months.

So today we're presenting the updated forecast and budget gap.

Next month you'll hear from the departments.

Their presentations, like Pete mentioned, will be more focused on their reduction plans

and the impact to the community and their departments themselves.

At the end of April, the proposed budget will be released

and we will have budget hearings take place in May

and hopefully budget adoption will be conducted in early June.

And this is just the hearing calendar with the actual dates and times

for everybody to see.

All right.

We still have a few things that we just want to highlight

in regards to other budgetary concerns.

We still have an unfunded pension and capital needs balance.

And as Pete mentioned before,

it is unknown what the type of assistance

that we will receive from the state

and also in regards to the timing

of when we would receive those resources.

Potential cuts to federal programs

could impact our city programs as well.

We just won't know what that looks like

until the federal government passes their budget.

And then, of course, there's always the risk of recession.

So with our economic uncertainty reserve

being below the council policy minimum,

it does put the city in a bind if a recession does hit.

So and just a reminder that the budget deficit that the city has been working on closing for the last several years and also for this next upcoming year is structural in nature, which means that the city's expenses are more than what we bring in in revenues.

Okay.

So as requested from the fall, we are bringing back the topic of the two-year budget.

Now that we have the updated forecast we can provide real numbers to

What that budget year plus one deficit tolerance would look like

as

Just a reminder council was interested in exploring option two which is to determine a deficit percentage threshold for the second year budget

And what that means is that instead of attempting to balance the entire second year budget

there would be a percentage threshold that the deficit must be under.

So just based on our forecast, the fiscal year 28 expenditures are at $931 million.

So if council picks a threshold of 1% of that $931 million, that would be $9.3 million.

And so what that means is that all of the reductions in fiscal year 27 would have to be ongoing in nature.

So all $66.2 million would need to be ongoing.

And then in addition, in fiscal year 28, there would need to be an additional $6.3 million.

Now, if council picks a threshold of 5%, the amount that the threshold would be $46.6 million.

And what that means is that the amount of ongoing reductions would just need to be $35.2 million.

So depending on council's direction, we'll determine how much of the reductions will be ongoing in nature.

So the only comment I have is that this kind of formula presumes that all 66.2 million are ongoing.

So if you were to, say, have 10 million of one time and you were to choose the 1% threshold,

you would need to identify an additional 16 million in the following fiscal year to get to that 1% tolerance.

On the flip side, if you had unanticipated revenue, that would reduce the...

the deficit, which is something I want to talk about

in a moment when the presentation's finished.

But so it could go, I mean, you could go either way

depending on the various factors.

Correct.

Correct.

And I think that-

If you chose 5% as a tolerance, then roughly,

if we did that, roughly half of our reductions this year

would need to be ongoing and roughly half one time.

Correct.

Yeah, and as you're pointing out, Chair,

the policy decision here, if Council wanted to adopt this,

is how much do we want to take on now

as far as solving the structural problem?

How much ongoing?

That's really kind of at the heart of the policy question.

Okay.

Okay.

And so now we get to our recommendations.

So we are requesting for the Budget and Audit Committee move this forward to Council to approve our ACFER,

to approve the proposed revenue and expense adjustments,

to reserve the $7.7 million of one-time year-end savings for any additional labor negotiations cost and budget balancing,

and then also to provide direction on whether to set a budget year plus one deficit tolerance.

Yeah, and if I could just add, so the 7.7, it's because we don't know if there might be additional cost

to the current fiscal year with labor negotiations, and so we really want to hold that back so that's available.

And then if I can just take a moment of personal privilege, I do want to thank and recognize both the accounting team.

They've received an unmodified clean opinion on our ACFER,

implemented two new GASB standards this year,

as well as our budget team, who has just been working nonstop,

trying to get all these options together for council.

So I want to just thank and acknowledge both of them.

Is there anything else you want to say about the ACFER,

since we've also taken that item up?

Yeah, I mean, there's some more kind of detail behind how we ended the year.

But, yeah, I will say there were two new governmental accounting standards boards rules that we had to implement, one on compensated absences and the other on kind of risk disclosures.

So they implemented both of that.

We have an independent audit firm, MGO, review it.

Again, they offered or they issued a clean, unmodified opinion, which is just a testament to how Osvaldo and the team put it together.

Okay.

So that completes all you want to present?

Yes.

Okay.

We, as you might guess, have some questions and comments.

But I just wanted to start with one looking at the five-year forecast.

And correct me if I'm wrong, but it appears for your projection for 26-27 that more than half of that, the ultimate 66-plus million gap is a funding gap related to homeless services.

So it's actually probably a bit more than that.

And so the reason I say that is our homeless, our sheltering program, our homeless services costs, they're about $48 million.

You know, historically, how we funded it has been, you know, cobbling together a number of funding sources.

So HAP, state money, has always been really a cornerstone in how we funded it.

And in past years, we've had whole person care money.

We've had some other dollars that we've been able to layer on top of that state funding.

What's happened is those other funding sources have gone away and the state funding sources have gone down.

And so in the current year budget, you know, we have our $48 million roughly of costs and a little under $13 million of HAP funding that is supporting those.

In our forecast for 26-27, we have $0 of HAP funding in there now.

So that entire cost is being borne by the general fund.

And that's just exactly what I wanted to circle,

that you're showing almost $37 million in the homeless services gap

in the projection for $26, $27, and $11 million in resources,

which is all city money, is all general fund money, I gather.

So to the point we were having, as we talked about earlier, if there is HAP funding or any other state funding that accrues to us or federal, that may be on the margin in relative terms if it goes to $6 or $7 million, but it still would be an improvement.

Definitely, yeah.

We're hoping that we get those state dollars.

We can budget them for the coming year.

And, you know, we're hoping that maybe the legislature and governor could provide more.

Well, that's exactly the other point, which is it really underscores what we need to be talking to our legislative delegation about the kind of commitment the city has made to addressing homelessness.

And how the state's commitment, despite the rhetoric, is being reduced over time.

that exacerbates the challenge for us overall

in delivering what the people of the city expect

in the way of services and the level of services.

So I just, I think that's,

I'd put a big red circle around that in talking about this.

Okay.

If I can add to the list of things we need to talk to the legislative delegation about,

some cities have not spent their money in a timely manner.

We have.

And one of the conundrums we're facing is when we will actually get this money

because the cash may not come to us until the 27-28 fiscal year,

which means even though we get it, we can't accrue it into 26-27.

So we want to fight for those dollars to go to cities in real time who are using it.

And it's actually beyond that, it's the timeliness of the rounds of HAP, among other things.

So thank you for that additional point.

Okay, let's go to the Vice Mayor.

Thanks. Thank you, Chair.

let's see so I had a budget briefing and I asked these questions but wanted to

make sure I put it out in the open in terms of the budget presentation budget

presentations that we're going to be hearing at council the mayor and council

decided on our priorities of homelessness economic development public safety is

it possible or can you give us a glimpse of like what we can expect in the

presentations that come to the mayor and council because I think it'd be nice to

be able to categorize them by bucket of our priorities so that we can see how

much we're doing in each department based on that objective. Sure so thank

you. So this year we've as we've kind of promised you all the departmental

presentations are gonna look quite a bit different. So in prior years it's been

here are all the things that we're doing as a department. This year they're gonna

be much more budget focused and so departments are gonna go over their

budget. They're going to go over the impacts of kind of preliminary reduction strategies.

And then vice mayor, to your point, you know, one of the things we're going to talk with the

departments about is, you know, we want to kind of end with how are we going to deliver services?

How are we going to meet council priorities, even in this environment after our reductions?

And so we're going to talk with the departments about how to articulate that so that we can show

council and the public, even kind of with everything going on, how are we going to advance those

priorities? And then my second question is, Boston does their budget a little differently.

It's like a pie chart based on categories to show like a realistic example of how much money is

actually available. So for example, I mean, we have the $1.6 billion budget, but of that,

some of it is locked in because of unfunded liability.

Some of it is locked in because of healthcare.

Some of it is locked in, you know,

just different buckets of pensions

and things that are non-negotiable.

Like the city cannot touch it for any way, shape, or form.

I would like to see a budget where it's dissected.

So I want to know how much money is actually available

for us to work with.

I wanted to see if you have that.

Yeah, so we're thinking of some other ways to visualize things.

We're the finance people.

We're not always the best at the artistic representations.

And we do have some pie charts that we put together that I think we can do a better job of putting them native on the website

so people don't have to click through a bunch of our presentations.

But I did want to address some of what you had asked about around what I would call non-discretionary.

We can't not pay our unfunded pension liability payment.

Even if all the employees were to go away, we still need to make this payment.

These are for debts that were already incurred.

So we took a look in the general fund, and our general fund, a little under $875 million.

And roughly $110 million of that is for unfunded pension and unfunded OPEP benefits.

our debt service is about 16 and a half million our risk fund contribution is 47 and a half

our workers comp is 18 and a half so those total roughly 195 million that's probably not an

exhaustive list of things that that costs I can't go away because for we have mandates as well right

we have to produce an act for and some of those things are a little harder to quantify but if I

were to say here are the big ticket items that are just there. We can't not do these things.

It would be those things for around $195 million. Okay, that's perfect. If we can make that its own

category within the budget, I think that'd be great. Because I think it's like cutting 1.6 bill

minus that amount is how much we actually have. And then, I mean, if you want to include enterprise

funds, which I mean, those are also locked in, include those and then subtract it from that too.