Good morning, and welcome to the budget and government efficiency committee meeting of December 10th, 2025.

Our committee liaison, Sarah Jordan, will provide information and instruction for the public to participate in today's meeting.

Thank you, Chair Foster.

While members of the public are able to attend the meeting in person, this meeting is being televised and live streamed on the city's website, and council administration will continue to make arrangements for the public to comment using the Zoom webinar platform.

Members of the public who wish to provide virtual testimony must enter the virtual queue by raising their hand before before the virtual queue closes.

The queue will close when the last virtual speaker finishes speaking or five minutes after in-person testimony ends, whichever occurs first.

This will allow for better meeting management between the two platforms and ensure the committee is able to manage and conduct city business.

We appreciate the public's cooperation.

Chair.

Council President Pro Tem Lee.

Here.

Council Member Ila Rivera.

Chair Foster.

Present.

And also attending the meeting this morning is Charles Modica from the Office of the Independent Budget Analyst, Deputy City Attorney Marguerite Medow from City's Attorney's Office.

If you are in person, please complete a speaker slip located at the entrance of chambers and place it on the box indicated at the speaker's lecture near the public comment microphones.

Please do so in a timely manner to ensure proper meeting management.

In-person testimony will conclude before virtual testimony begins, and members of the public can also join the webinar by computer, tablet, or smartphone by accessing the link which is listed online in the preamble language of the agenda on the city's webpage.

If you need to participate by telephone, you may dial 1669-2545252.

Inputting webinar ID 161710317 pound.

This information is also available on the agenda and it will appear on the screen during the public comment period for each agenda item.

Please note that if you're watching via City TV channel 24 or online, there may be a delay.

After the consent agenda, we will hear items 6, 7, and 8, which are items on the information agenda.

Then we will hear items 2, 3, 4, and 5, which are the items on the discussion agenda.

So the order of items being heard today is 1678, then 2345.

Please unmute and begin.

Good morning.

As you may know, the recent federal spending bill signed by President Trump includes a ban on most consum consumable hemp products starting next November.

A new report from the nonpartisan Congressional Research Service said that no one yet knows how this will be enforced.

It is unclear whether the department will suddenly redirect resources towards these hemp derived products or continue its current practice of limited enforcement.

What that means for San Diego is that much of the immediate burden may fall on local governments.

Until Congress clarifies enforcement priorities or establishes an alternative regulatory framework, cities will be left to respond to market confusion, handle potential enforcement disputes, and manage litigation risks, especially as federal and state cannabis laws become more misaligned.

At the same time, these hemp derived THC products have been widely sold through convenience stores and gas stations, often without age controls or testing requirements.

This has already created significant regulatory pressure in other states.

And because these products have operated largely outside the regulated cannabis system, they have undercut taxable cannabis sales, reducing expected revenue, while shifting enforcement and compliance responsibilities onto cities without accompanying funding.

San Diego must prepare now for increased administrative, legal, and budgetary strain, monitoring market activity, mapping potential enforcement costs, and planning for regulatory realignment will protect our taxpayers from unexpected financial exposure as federal law shifts.

For the sake of budget efficiency and responsible planning, I urge this committee to begin assessing these impacts now before the federal deadline, forces reactive spending and emergency adjustments.

Thank you.

Thank you for your testimony.

Our next speaker is Blair Beekman.

Please unmute and begin.

Hi, uh Blair Beekman.

I'm on a bark train, so uh might hear some noise.

Sorry about that.

Um really uh heavy meeting last night.

Um it was uh a throat clearing, I think.

I think we um people got out some of their real deep feelings, how they're feeling about flock.

Council persons got out some of their feelings about data collection and how we can talk about it better.

Um we it sounds like we're trying to move into a new way to talk about our data collection and actually what are our rights as local as a local community of San Diego.

Uh we got uh official talk from police department things.

We want to improve upon that.

Uh the PAB is understanding the language that's going on, and that we we're we can be shifting uh ways of talking about data collection and what exactly is being collected.

Um, good luck in that conversation, that we can have more truthful conversations coming up soon.

Um, it takes work to practice how to do that.

I I want to be able to help in that.

I always try to.

And uh, like I um was saying in my own public comment last night.

We talked about a lot of stuff, but there's still a long way to go.

We still really can be addressing uh the future of leaving flock, and and on top of that, to limit the amount of technology we place in our neighborhoods and yet still doing the same amount of good public safety work.

Those conversations were not had last night.

When are we gonna start having those conversations?

In February, the youth policy will be coming up again for full review.

I think that's a time to really have that conversation.

And now is a time to prepare ourselves, all of us as a community for that conversation.

So good luck how we can be doing that.

It's really important we continue working on these things.

Good luck in our efforts.

Thank you.

Thank you for your testimony.

Our next speaker is Andrea Ebbing.

Please unmute and begin.

You will have two minutes.

Good morning.

Uh, last night was by far the most refreshing meeting we've had in I don't know, ever.

That was amazing.

And wow.

Thank you, Marnie.

Thank you, Henry.

Thank you, Ken.

I really appreciate your feedback, Sean.

You guys all did a very good job of uh holding feet to flame.

And I really hope we continue that to echo um Blair's comments there.

So we have momentum.

The community is watching everybody's involved right now.

And I couldn't have, there was no more like discomfort in the room than the entitled um dismissive defensive contractor who is obviously working with Jeff Jordan.

He definitely, Jennifer, he has access to every single item.

Absolutely without question at work.

So if they say he hasn't accessed it, they're only saying he hasn't accessed it, but of course he has.

And we can't kind of monitor that unless we get the CCT footage of the space.

Who else is sharing?

Summer Stefan.

Summer Stefan is our district attorney with the county.

She is absolutely without question sharing with her federal judge husband who oversees ICE, FBI, all the San Diego field offices.

If he doesn't oversee, they're all in bed together.

Um, literally.

So SB 34 becomes the null and void.

I think if we can continue the momentum that we have going now, we are gonna put ourselves in a very good position to find the right contractor who isn't uh, you know, doesn't have a rogue agent that was with SDPD um accessing the files and doesn't have a rogue district attorney sharing with her federal judge husband to carry out their agenda.

Um, I think this is the perfect time to take this, which you guys put.

You guys got that guy to agree that the contract can be null and void if there's evidence of this, you know, uh malfeasance.

It's gonna be very easy to find evidence of this malfeasance.

Uh, and just a note that Summer Stefan's Dina Sabro won't trigger the anomalous, so just check it out.

Thanks.

Thank you.

The five-minute timer has concluding what has concluded with one hand remaining in the queue.

Becky Rapp, please unmute and provide your comment.

Good morning, Chair and members of the budget and government efficiency committee.

My name is Becky Rapp, and I'm here to speak about the city's marijuana program and why the permitting of out-of-town delivery companies should not move forward.

Recently, the ED and IR committee discussed a proposal to permit out-of-town marijuana delivery services and to increase fines on illegal operators.

While those proposals focus on revenue, they also expose a much larger issue.

The city still has not provided the public or its own advisory bodies with a clear picture of how the existing marijuana department is functioning.

It's been years since we've seen a comprehensive report of operations, including how much tax revenue has been collected, and how much remains unpaid, and what enforcement actions taken against operators who violate laws.

Before the city even considers expanding any operations or bringing in new permit categories, we need to address the problem in front of us.

Expansion without accountability does not bring sustainable revenue.

It simply compounds problems.

So I'm asking this committee to make enforcement and oversight the priority.

Please direct staff to provide a full report of the marijuana department's operations, a transparent accounting of all marijuana-related tax revenue collected and a detailed report on outstanding penalties, non-compliant operators and enforcement actions that have been taken.

Strengthening oversight should be our primary priority, ensuring current operators are paying what they owe, and that public funds are actually being collected.

Thank you.

Thank you for that concluding statement.

And chair, this concludes.

Thank you so much.

We will now move to committee members, mayoral staff, city attorney, and IBA for comment.

Do we have any comments?

Having none.

We will now move to any requests for continuance.

Any requests for continuance.

Having none, we will now dispense with the approval of our consent agenda.

Sarah, please proceed with any public comment.

Thank you, Chair.

The public comment period for the consent agenda is now open and the consent agenda includes item number one, the approval of committee minutes from November 5th, 2025.

We've not received any speaker slips here in chambers and not seeing any hands up in the virtual queue.

Oh there's one hand up, so I'll begin that five-minute timer in case there's anybody else who provide wishes to provide comment on the past committee minutes.

Each speaker will have one minute.

Blair Beekman, please unmute and begin.

Hi, uh Blair Beekman.

Um I don't know if I quite saw on the per on previous meeting minutes uh work on park issues.

Uh just to quickly comment, uh good luck on tech accountability with park issues, and that uh we're working to make uh our tech clear, open, and understandable with the public uh with our park issues coming up in the future.

Thanks a lot.

Thank you.

And Chair, this concludes comment on item one.

All righty, thank you to all the members of the public for participating.

Uh we now turn it over to committee members for questions or comments and to entertain a motion.

Do we have a motion?

First by Vice Chair Moreno, second by council member Ilo Rivera.

We will now have each committee member register their vote.

And Chair Foster, item one passes unanimously 40.

All right.

Thank you, everyone.

As mentioned earlier, we will begin with our information agenda.

Sarah, please introduce item six.

Thank you, Chair.

Item number six, fiscal year 2026 first quarter budget monitoring report.

If you're watching City TV or the live stream online and you'd like to dial in to speak, please call 1669-2545252.

Inputting webinar ID 161710317 pound.

Chair.

Thank you for that.

Staff, please introduce yourselves for the record and let us know how much time you will need for your presentation and begin.

Thank you.

Good morning, Committee Chair Foster and Committee members.

I'm Chris Purcell, Financial Operations Manager with the Department of Finance.

With me is Ben Bataglia, Director of Finance, and Ambar Gutierrez, principal accountant.

We are here today to present the fiscal year 2026 first quarter budget monitoring report.

Chair, I have some opening remarks.

Please.

Chair Committee members, good morning.

Uh today we are presenting two critical reports: the first quarter budget monitoring report and the general fund five-year financial outlook.

Both reports set the foundation for our FY27 budget development process.

The first quarter determines the base for major revenues to which growth rates will be applied for FY27.

The five-year outlook carries over the FY27 revenue and expenditure projections based on current service levels.

The first quarter results in our updated five-year forecasts both reflect continued fiscal pressure driven by structural imbalances, or ongoing costs are its base outpacing our ongoing revenues.

In response, the administration has already moved from analysis to action.

Citywide budget mitigation directives are in effect now to project essential services and stabilize year-end results.

We're suspending discretionary spending, suspending non-essential overtime.

We're establishing a zero-based review on external contracts.

From which we'll be able to make uh decisions in a strategic cost reduction and efficiencies that may take longer to implement.

It's also underway where departments will be submitting uh memos uh in January on January.

Uh departments are incorporating the projected savings from these actions into the mid-year submission due to December 18th, so the committee and council will see the impacts on the next report.

In terms of the five-year outlook, I want to emphasize that this is a planning document and that the budget gap projected for FY27 will be addressed as we go through the budget process.

The mayor will present a balanced budget as three as is required by the city charter.

Thank you.

This report is limited in scope and primarily focused on major general fund revenues, significant revenue variances submitted by departments, public safety overtime, non-discretionary expenditures, and reserves.

Future quarterly budget monitoring reports will provide more comprehensive projections when more information is available.

I'll now turn it over to Ambar to walk through the specifics.

Thank you, Chris.

Here we have projections for major general fund revenues, which are projected 1.8 million below budget.

This decrease is primarily comprised of 2.9 million in transient occupancy tax and 393,000 in sales tax.

While the adopted budget assumed moderate growth for these revenue sources, the effects of persistent inflation, slowdown in the labor market, and tariffs continue to impact consumer spending as well as leisure and business travel.

These decreases are partially offset by an increase of 1.5 million in property tax, including motor vehicle license fees based on updates provided by the county in October, and 1% property tax collections based on updated assessed home values.

Our process requested updates on select budget items critical to balancing the budget and also asked departments to report significant known changes in revenues or expenditures.

Here we have a few updates on departmental revenues.

Combined, these result in a net decrease of 10.7 million.

This includes a projected decrease of 8.8 million in revenue from the bubble park parking program due to a shift in the implementation timeline from October to January and adjustments to the proposed fee structure.

Since the release of our report, the City Council has approved the final fee structure, and the projected revenue decrease is now estimated at $9.6 million.

Additional decreases include $8.1 million in reimbursements for prior year winter storm expenditures, pending state review, and $1.5 million in reduced cannabis business tax revenue, reflecting lower taxable gross receipts and a limited number of outlets expanding hours of operation.

These decreases are partially offset by the intended use of $5.9 million in FY2025 Measure C TOT revenue after litigation was recently resolved, as well as an increase of $1.8 million in police work performed on special events, grants, task forces, and other reimbursable work.

Additionally, the overall decrease in TOT major revenues noted in the previous slide is expected to reduce reimbursements of the general fund by $1.1 million.

Lastly, for revenues, subsequent to the release of this report, updated projections for on-street parking meter revenues indicate that reimbursements to the general fund may decrease by $5.6 million.

On the expenditure side, updates on public safety overtime show a combined increase of $7.6 million in the fire rescue and police departments, although both are projecting below FY2025 unaudited actuals.

Fire rescue's overtime increase, totaling $4.6 million, is primarily to maintain constant staffing, including backfill for annual leave and comp time taken, as well as industrial leave and light duty.

The department anticipates that this increase will be partially offset by reimbursements from current year deployments.

For police, the overtime increase, totaling $3 million, is to support higher activity at special events and parking enforcement.

The police department expects their increase to be partially offset by $1.8 million in reimbursements.

We will also note that there may be offsetting salary savings.

However, it will not be known until a comprehensive projection can be performed as part of the mid-year process.

Here we have the projected bottom line impact for all significant variances identified as part of this process.

Revenues are expected to be $12.4 million under budget, while expenditures are expected to be $10.5 million over budget, resulting in a net projected shortfall of $22.9 million.

It is important to note that this process is limited in scope and other factors or activities may partially or fully mitigate the shortfall.

We'll have a clearer picture once more comprehensive projections are prepared as part of the mid-year process.

One such factor includes the mayor's memorandum outlining fiscal year 2026 budget mitigation actions designed to immediately address spending in the current fiscal year and better position the city to navigate challenges in future fiscal years.

To conclude, this analysis is limited in scope and focuses on select revenue and expenditure updates.

The net impact to the general fund as of the this report's release is a $22.9 million shortfall, although there may be opportunities to partially or for fully offset this impact.

The Department of Finance will continue to monitor revenue and expenditures and will provide a comprehensive update with the release of the MIDI report on January 30th.

That concludes our presentation.

We're available for any questions.

Alrighty, we will now turn to the IBA for comment.

Thank you, Chair Foster, committee members, and thank you to the Department of Finance for the presentation.

Our office released a report reviewing and analyzing the first quarter on Monday evening.

We will give a full presentation of that report at council, but I do want to provide a summary of it this morning.

As you heard, the first quarter report really is a high-level look at the status of key select revenues and expenditures.

It does not present a full picture of where all city expenditures and revenues are.

We will get that fuller picture of when we get to the mid-year report that comes out at the end of January.

That said, the first quarter report does show a number of variances in both revenues and expenditures that taken together show a net negative of roughly $16 million.

The most significant positive expenditure is a recognition of $5.9 million in one-time measure C revenue that was collected in FY25 but not allocated due to the timing of one surrounding litigation was resolved.

That can provide some one-time resources moving forward.

There are also some smaller savings and IT costs in debt service for fire rescue and in overall energy costs.

Those positive variances, however, are offset by larger negative variances that total $25.3 million.

The largest of these variances is in revenues, where current projections are showing revenues will come in $11.7 million under budgeted amounts, largely due to an $8.8 million decrease in projected revenues from parking fees at Balboa Park.

On the expenditure side, select expenditures are projected to come in $12.1 million over budget.

That consists of 4.9 million dollars in public safety overtime, 4.1 million in the cost for water is paid by city departments, and 3.1 million for increased fleet costs.

On public safety overtime in particular, it is noteworthy that the police department's overtime is projected to have a net overage of 1.2 million dollars.

This is considerably better and closer aligned with budget amounts than we've seen in the last several years.

The fire department's overtime, however, is currently projected to end the year 4.6 million above budget amounts, largely due to a lack of full staffing that is not anticipated to be resolved until sometime in FY27.

It's worth noting that these projections will change over the year.

For instance, our most recent monthly sales tax distribution, which was received after the release of the first quarter report, actually came in higher than expected.

That'll push our year-end sales tax projections to 2.1 million above the adopted budget as opposed to the 393,000 below that you see in the first quarter report.

But that said, given the overall projected negative variance, which suggests that the city's revenues are insufficient to support its current year services without potentially tapping into reserves if no actions are taken.

It will be important to implement mitigations in the current year to help bring it into balance, especially as we are heading into the next year, facing a significant deficit that will have to be filled, as we will talk about in the next item.

As Rolando mentioned, the administration has again implemented mitigations in the current year, including a request of fill process for vacant positions, the suspension of non-discretionary spending, and any central overtime.

We'll expect to see any impacts of these medications reflected in the mid-year report, and we'll monitor them going forward.

Finally, our report also includes the status of various council modifications that were made during adoption of the budget.

Many of those modifications have been implemented, though some have not been.

Council may therefore want to follow up on those items.

Thank you so much.

As a reminder, this is an informational item, so no motion is required.

Sarah, do we have any public comment on this item?

Thank you, Chair.

Yes, we've got two hands raised in the virtual queue, so I'll begin the five-minute timer for all those that wish to speak to indicate if they want to provide comment at this time.

We will begin with Zoom user.

Please unmute and state your name for the record.

You will have two minutes to comment on item six.

Oh, Henry, okay.

Thanks for taking my call.

I noticed the sales tax revenues up because it's now illegal to steal things from stores during the Democratic uh state legislatures say it's okay to steal up to 950 bucks a day from like supermarkets and stuff.

So I think the sheriff said at least the guy said there was 900 more prisoners for shoplifting in the jail.

So that could be a source of revenue for now people have to pay for things in stores.

And then I I thought of another source of revenue, the great revenue stream.

If you guys have a rapid deportation committee on the on the city council, because you get ICE is now paying $750 if you call in on someone who needs to be deported.

So the city could make millions of dollars deporting people.

And it would help the budget.

We could have free parking back at Balboa Park and deport like 90,000 people that are taking up the homeless space in apartments and on the freeways and driving around with no insurance.

There'd be a big safety thing.

And then we could we wouldn't need so many of those security cameras.

And plus, we just keep you know, once you do one or two guys, they know what's going on and they'll probably just take the thousand dollars and self-deport.

Once we get really into that, we'll have the self-deporting uh 2.5 or 2500 for each kid who self-support with their family.

So family of four, you could get like 12 grand or something to move back to whatever country they're from.

And it would do the city of San Diego and the American citizens a favor if you would really address that uh how and form a new committee.

Your time has concluded.

Thank you.

Our next speaker is Blair Beekman.

Please unmute and begin.

You will have two minutes to speak to item six.

Hi, uh Blair Beekman.

Uh thanks for this item.

I'm in my last part.

Walking off the train now.

Yeah.

So I I understand that with overtime issues.

Um just the overall budget issues themselves.

Uh, we knew we were going to be at the space where we're gonna have to make more cuts, possibly.

Um you prepared us for that.

I'm prepared.

So with overtime issues, it's been coming up.

Um good luck how it you can be addressing that.

You you say some changes are taking place.

Good luck in the continuing efforts of that.

And I've really I've tried to continuously mention how there can be budget savings by uh reducing some of the numbers of ALPR tech that we have in the city currently.

And I suppose other surveillance tech too.

Um I think you guys really understand that we can take it down some of the tech and still have the same amounts of good public safety.

And that conversation is just not happening more.

And I'm kind of sad that it's not, and I hope you can start doing that.

I mean, you can be saving easily 100 and 200,000 that way.

And um it's important to look into those things.

Good luck what you can do, and good luck that I heard last night that um the police are willing to talk and have conversations.

Uh uh their speeches very clearly stated that, and it was nice to hear.

It's just a matter that we have to organize a good language and a good dialogue, and good luck how we can be doing that.

Thank you.

Thank you for your testimony, Chair.

This concludes public comment on item number six.

Thank you for that.

I'll now turn it over to committee members for questions and comments.

We will start with Vice Chair Moreno.

Uh well, first and foremost, thank you for the presentation.

I do appreciate the Department of Finance producing uh this um report in a timely manner, and also thank you to the IBA for your report.

Um, seeing a net projected shortfall of 23 million in the first quarter is certainly um very concerning.

Uh I do have some questions regarding some items included in the IBA's status of the city council's modification in fiscal year 26 adopted budget, which is attachment one to the IBA's report on the four first uh budget monitoring report.

Uh there were several items that have not been implemented, and according to the IBR IBA report, they will not.

Uh they include the following uh reduction of one program coordinator from the police department, which cost 196,000.

The I IBA report says that this position serves a critical IT role according to SDPD.

Uh the position is currently filled and is being carried by the department as an unbudgeted supplemental position in fiscal year 26th.

Um another one is the reduction of one deputy director from the compliance department, which costs 239,000.

Uh the IBA report says that despite the budgets reduction, despite the budget reduction, the position was filled in July of 2025 as a supplemental position to maintain a necessary separation uh in reporting structure for the Office of Labor Standard and Standards Enforcement and that administrative hearing program as part of a restructuring of compliance.

OLSC will be under the city treasurer's office.

Um the next one comes in um there was a reduction of one media service coordinator and one media service manager from the communications department, which costs $327,000.

The IBA report says that although these positions have been eliminated from the budget, the incumbents continue to serve in these roles as supplemental positions.

Um also the reduction of two deputy chief operating officers from the mayor's office, which costs uh eight hundred thousand dollars.

Uh the IBA report says that the mayor has indicated that no DCOs will be reduced despite the budget reduction.

Uh these collectively carry a cost of over 1.5 million dollars.

And I am confused about why these positions continue to be funded because they were uh reduced in the fiscal year 26 budget.

Uh can staff speak to as to whether this information is accurate, and if so, why the budgetary actions included in the fiscal year 26 budget as they relate to these positions have not been taken.

I can take that question, Councilmember Moreno.

Uh the information in the IBA's report is accurate for several of those positions that were listed in your comments.

Uh, the administration has identified them as uh critical to city operations uh in order to implement uh compliance strategies or in order for us to um ensure that there's a proper management structure uh to move forward with the city's critical priorities.

Uh for many of them, uh it's the mayor's intent to meet the uh the target amount reduction from the council's intent in their action while keeping the uh positions intact.

Um, as you noted in your comments, uh many of those um uh positions are already filled uh and have incumbents sitting in those positions.

Thank you for that answer.

Uh can the IBA speak to whether our budgetary principles allow for position elimination or reduction in the budget to simply remain filled and be classified as unbudgeted?

Sure.

So the budgetary principle state that the mayor needs to make a good face effort to fulfill the council's um adopted budget.

Uh I think that there's a little bit of kind of general practice when a position is eliminated in the budget if it's filled.

Um historically, whoever the incumbent in that position is wasn't necessarily going to be eliminated the next day, but when the person would eventually leave, that position would then not be filled again.

So there would be no vacancy to fill.

Uh on some of these, there were incumbents that are still in them, the media services coordinators, so that's kind of consistent with past practice, although whether or not that meets the council's intent is a question for council.

On others where positions were hired after the budget was adopted or where um positions were vacated and then refilled.

I think that that's potentially more problematic.

Um in terms of uh recourse, I would defer to the city attorney's office.

Wonderful, thank you.

And can the city attorney speak to what recourse the city council has when the budget is not being implemented as it was passed during the council budget hearing?

I'll ask Deputy City Attorney Brett Bartelada to respond.

Thank you.

Um the options are fairly limited under the charter uh as you're doing now under Charter Section 270.

The council has the ability to summon the mayor or department heads to come and answer questions.

Um if those answers are unsatisfactory, the next option is under Charter Section 301, um, under which city council members mayor may be removed for dereliction of duty.

That's an extremely high standard.

There would need to be court action affine of legal dereliction of duty for that to happen, and then a vote by the council to do so.

Wonderful, thank you.

I would actually request um that the city attorney's office actually uh give us a written statement uh on this matter, please, just so we could have it on file.

Thank you.

Um I would say that the city council and the public take a significant amount of time during our annual budget deliberations to figure out how the public's money is best spent in any given year.

Uh the result of these uh discussions, which I will add are extremely lengthy, and I think the council has taken um great steps to include the public and the IBA as well, I should note.

Um we don't have a king in San Diego, right?

We don't have a white insane.

We don't have a king.

The mayor is not the king in San Diego.

He's not omnipotent, he's he doesn't decide everything for the city of San Diego.

The mayor is the elected mayor of the city of San Diego, elected by a majority of voters.

Thank you.

That's why it is fundamental to our form of government that the action is respected and implemented as it's intended.

So I would urge this administration to implement the budget passed by the city council, including the positions highlighted in the IBA report that continue to be filled despite the fiscal year 26 budget not funding them.

This is extremely frustrating to see this happening.

And it's an insult.

It's an insult to the general public, and it's an insult to the mayor's colleagues, which were sitting here, the council.

Um I'm just I'm gonna leave it at that.

Um thank you.

That concludes my comments.

Thank you, Vice Chair.

Any other comments at this time?

Um not seeing any other uh members on the lights.

I guess just um the written um uh responses that the uh members looking for.

If you could share them with um the committee, that would be um good.

Um the other question I have is as we are identifying shortfalls here.

We know there's going to be potentially a long term impact as we move into fiscal year 27.

I think we started having conversations on mid-level management.

Um don't think we um have done enough work there.

Um Rolando, tell me if this is feasible as we are preparing um to really move into the budget um season, I guess, or budget development.

Is there a way that we can flesh out um positions and org charts and and what I'm looking for is for example, we talked about a deputy director position, right?

And I guess my concern is when we have positions at that level, what the reporting structure looks like, right?

Because we may have a deputy director where I think there needs to be a decision made, is it truly call for a deputy director versus a program manager versus a program coordinator, depending on how you have the department structured, but also what that re what that specific reporting structure looks like.

So if we have a deputy director that only has a one we have a deputy director that has one direct report, I would question do we need that deputy director?

So is there a way that we can go through and flesh out big picture wise what these specific reporting structures look like in the various departments to identify what type of potential movement we can have as we are looking at dealing with this structural deficit, if that makes sense.

Absolutely, Council Committee Chair Foster.

I think that that's one of the reasons why we're implementing a request of field process.

The intent is to the extent some of these unclassified positions become vacant for us to be able to analyze the org charts and to the extent possible, flatten out the organization and eliminate uh management positions uh that given our fiscal situation may not be uh optimizing the use of our fiscal dollar.

So, in terms of the compliance department uh example, I know that there was one position there, deputy director that was not uh eliminated.

However, the mayor has moved to eliminate the director position uh and consolidates those functions under the previous uh departments that had overseen those functions, treasurers, PNC, uh risk management.

Uh so we are already moving forward on that to the uh as soon as we see those some of those vacancies uh become open.

Obviously, we don't we don't want to impact uh employees when the positions are filled, but as they become open, um then that's an opportunity for us to really reassess these organizational charts.

Okay, and I'd like to have the Charles if you if your office would be involved.

I uh do you understand what what I'm looking for absolutely follow up in addition to with your office directly and so the department of fines to make sure we got that for you.

All right, thank you so much.

Um I think I will um conclude there.

Um it looks like we have Council President Pro Tem Lee on the lights.

Thank you, Chair.

Um, if I could make one additional request, and I think this is maybe more on the IBA side, uh in addition to Councilmember Moreno's request um from the city attorney's office.

I think it would be helpful for the council to also understand not the ramifications or the the measures of accountability that can be held from the charter, but from a fiscal perspective, um the the action points in which um the council does continue to have authority as the budget is implemented, um, especially as make your monitoring report and other um times will arise when actions are gonna be asked of the council um to help ensure that the budget and the finances match what we have asked for.

Yeah, happy to follow up and provide that as well.

I will say that largely council's main opportunity to have impact is during adoption of the budget.

Um obviously if there are amendments that are needed at the mid year, that's another opportunity.

Uh and then finally the one that you will see and see um a few items coming up later on this actual docket uh when there are exempt positions, there needs to be an exemption request that's kind of fulfilled and uh approved by council um, particularly when those exemption requests are for unbudgeted positions.

That's an opportunity to say no.

Um again I'll follow up with uh more detailed response to your question, sir.

Cool.

All righty.

Looks like um we have no other members on the lights, and that will bring item six to a conclusion.

We will now move to item seven.

Sarah, please introduce item seven.

Thank you, Chair Foster.

Item number seven is the fiscal year 2027 to 2031 five-year financial outlook.

Chair Thank you so much.

Staff, please introduce yourselves for the record and let us know how much time you need for your presentation and feel free to begin.

Rolanda Travel, Chief Financial Officer, we'll need about 10 minutes, Council uh committee chair.

Good morning, good morning, committee chair foster, committee members.

Uh, we're here to present the fiscal year 2027 to 2031 five-year financial outlook.

Uh this is a critical report as we move into the uh next uh phase of our budget process, which is to begin working on our FI27 uh proposed budget.

Um like I said before, this is a planning document.

It gives us an opportunity to see how the revenues and expenditures for FY26, as they are carried over and projected to FY27, what type of uh shortfall are we uh foreseeing, and then also being able to look at the outlook overall for the next five years and identify any structural issues uh in terms of our budget situation.

In terms of the outline of the report, uh the report includes several sections.

Uh we first start with a baseline projections, again, meaning FY26 service levels uh projected uh to FY27 without really any enhancements in terms of uh services.

We identify a couple of areas uh that we call uh beyond baseline, those are to the extent there are CIP projects that will open in the form of parks, libraries, fire stations.

Those will require uh for us to staff those um facilities as well as maintain them.

So those are projected uh as well.

Uh and we also include uh an analysis where we look at homelessness uh expenditures that have been relying on homelessness grants from the state or federal government, and to the extent uh those funds dry up, then the general fund could potentially have to kick in uh additional funds uh in order to be able to meet the current the current levels of service.

Obviously, that's subject to policy decision by both the mayor and the council.

We move on to discuss briefly some mitigation actions, potentially budget reductions or identifying efficiencies as well as uh any additional revenue generating activities as in order to be able to close the budget gap.

Uh we talk about some other large uh policy uh components of uh the the city's policies, for example, we talk about climate action plan and where some of those programs could impact um the def the the projected shortfalls as well, depending on policy decisions.

And really important is to clue to round out the report.

Well, I know this report typically focuses only on the operating side of the house, but uh obviously there's a very close relationship with the uh general fund funded infrastructure that is really uh putting a lot of pressure on the operating side as we continue to finance some of these projects and try to identify funding for stormwater emergencies and just basically maintaining our aging infrastructure.

Starting with the uh the numbers here, based only looking at baseline.

Uh we start with FI26, and you see we had a balanced budget in FY26 as required by the charter.

However, there was about 48 million dollars of ongoing expenditures that were funded with one-time dollars.

So we would expect that 48 million dollars to basically translate over to FY27 as a starting structural issue that we would need to resolve in FY27.

Beyond that, we've also seen uh that basically the growth in our revenues are not uh keeping pace with the growth in our expenditures, uh, and that is causing the uh structural deficit to grow uh to about 88.7 million dollars in 27, 106.7 million dollars in 28, and then to highlight that in FY29, we do have uh a bit of a break in terms of um uh our uh ongoing expenditures being reduced, and that's mostly as a result of our pension payment, a large portion of our pension obligation being uh paid uh in FY28.

Uh so we expect a lower pension payment in 29.

There's also the convention center bonds uh being satisfied in 28, fully paid off.

That's about 12 million dollars that we are assuming would be coming back to the general fund for eligible reimbursements.

In terms of the key assumptions, uh, like I said before, we basically look at FY26 service levels and project those out to the rest of the uh five-year outlook without really any service level enhancements.

We rely on historical data, our current information, as well as our consultants to develop growth rates for revenues.

We apply inflationary adjustments for supplies, contracts, and other uh components.

To the extent we know, for example, that there will be an SDGE uh rate increase or water sewer increase, those are incorporated into the utilities projections.

Uh and a very important component here is that we are assuming a 2.94 general salary increase across the board uh that is based on uh the last 15 years average uh consumer price index, and that's been consistent with uh prior reports that we have issued.

Um using the pension, the actuarial report that was released back in December of 2025, so it's almost a year old now.

That report contains projections for a pension payment.

Just a word of caution here that that report did not include the 5% salary increases that went into effect in July.

Uh so we should expect an increase in our pension payment.

However, there was also um investment returns above what the actuary projected at 9.4 percent, so there would be some offsetting um uh offsetting uh reduction to our pension payment.

So we'll need to wait and see in dec in January when that report is released, what type of impact it will have on the outlook.

Finally, just to say that the thus uh the projections include a transfer to the climate equity fund.

Um the based on the formula that's included in the charter for the infrastructure fund, there is no required contribution, so not none has been included.

And then as we continue to analyze reserves and work on our uh reserve policy amendments, there were no reserve contributions uh included in our um in our projections.

In terms of um how FY26 revenues compared to the FY27 baseline, you see that major revenues are growing by about 41 million, just to give some context here.

Normally in a in a given year with healthy growth, you would see major revenues growing by closer to 60 to 70 million dollars, so we are seeing some dampened growth, uh, especially when it relates to as it relates to TOT and sales tax, uh, property taxes continue to grow uh at a healthy pace.

Uh in terms of other revenues, we have adjusted uh for some of the known factors, for example, with Volvoa Park revenue coming in now under, as we was reported in the previous report, that those uh figures have been adjusted.

Uh we're also removing some of the one-time components that were included in other revenues.

Um you basically see a reduction in other revenues to about $13.4 million for a net increase in revenues to about $28.1 million.

In terms of baseline expenditures, when you look at FY26 and compare to FY27 baseline, you see personal expenditures growing by about $51 million.

Um, about $26 million of that is related to the general salary increase that I mentioned before.

The rest has to do with normal uh step increases, special salary adjustments, uh, and adjustments that typically are just part of our uh normal analysis.

Uh there's also increases to the pension payment, an increase to the workers' compensation, and fringe benefits.

So that accounts to that $51.1 million dollar increase that you see there on the non-personnel expenses side.

Uh you see that increase that's about that's some of the one-time components that have been removed from the uh from last year from the FY26 budget.

Uh, we're including, for example, the the transfer to the climate equity fund, increases in energy, water, sewage charges, the election costs that are expected for FY26 as we're going to be going into an election year, increases to the animal services contract, and increases in IT services.

So the bottom line, when you look at both personnel and non-personal expenditures, we're seeing growth uh about 116.8 million dollars when compared to FY26.

So with this, I'll hand it over to Ben and he'll cover the rest of the presentation.

So, in addition to the baseline forecast, this outlook includes costs that are associated with operating new and expanded facilities that are projected to open within this outlook period.

The library department is anticipating the expansion of the City Heights library annex in fiscal year 27, as well as the expansion of the Ocean Beach branch library, as well as the replacement of the Oak Park Branch Library in fiscal year 28.

Parks and Rec is anticipating 35 new and expanded parks and joint use facilities during this outlook period.

And the fire rescue department is anticipating opening two new fire stations, Black Mountain Ranch in fiscal year 28, as well as Otai Mesa Fire Station in fiscal year 29.

The total need to support the operations of these new planned and expanded facilities is an additional 42 positions and 6.8 million in fiscal year 27.

Homelessness programs and services are primarily funded by TOT revenue as well as a various state and federal grants.

The outlook assumes additional state HAP grant funding through fiscal year 28, but absent any additional grants, the general fund would need to provide additional support to maintain its current service levels.

And this is projected to be 15 million in fiscal year 27 and then up to about 28 million in fiscal year 31.

When operational costs for the new and expanded facilities, as well as the additional general fund support for homelessness programs and services are added to our baseline projections.

The projected shortfall increases in each fiscal year throughout this outlook, with the projected deficit in fiscal year 27 increasing from 88.8 million to 110.6.

Current available resources are not sufficient to mitigate the shortfall in fiscal year 27 or beyond.

The outlooks also identified the need for solutions to mitigate projected baseline shortfalls over the next five years, in addition to funding the operations of new and expanded facilities and current homelessness service levels.

Ongoing budget reductions will be necessary in fiscal year 2027 to address the structural budget deficit.

All general fund departments, as well as select non-general funds, have all been asked to prepare budget reduction proposals for consideration.

They've also been asked to consider additional revenue generating activities.

Other mitigation actions will be identified throughout the development of the fiscal year 27 budget.

The outlook also includes several other priorities that could significantly impact the city's general fund during the outlook period.

First, the maintenance backlog of general fund facilities continues to grow and is currently underfunded.

The Department of General Services is working on establishing annual funding goals, which will be included in next year's outlook.

Work also continues towards implementing the climate action plan, including upgrading uh the city's facilities from natural gas to electricity and converting the city's fleet to electric vehicles, and both of which are anticipated to require significant resources.

Additional investments are expected through grants, potential energy savings company solutions, and restricted sources outside of the general fund.

The cost of service residences that were deemed ineligible to receive trash and recycling services prior to transitioning to private holler service is currently being estimated, and that will need to be supported by the general fund.

And finally, the city's made some significant uh progress in addressing employee compensation over the past few years, and work continues to move all job classifications toward the market median for wages while focusing on the ability to recruit, retain, and engage highly qualified employees.

The outlook uh finally discusses general fund infrastructure needs in an effort to provide a more holistic view of the city's structural uh deficit and financial landscape, and also to um uh yeah, to better illustrate the scale of the structural budget deficit.

To reach the city's goal of an average street network pavement condition index of 65 in 10 years, that total cost is estimated to be about 1.7 billion.

Street light and sidewalk repairs continue to experience increased backlogs due to underfunding.

A significant funding gap is projected for the unfunded needs of stormwater infrastructure, and this was last estimated to be approximately $4 billion, though this amount has likely increased with the increasing cost of executing projects as well as the continued deterioration of these assets.

And finally, the capital backlog for the city's general fund facilities was estimated to be over 500 million with the last condition assessment, which was completed about a decade ago.

And it's been most recently estimated at over a billion.

These unfunded capital needs are not isolated challenges.

They also compete directly with the budget that's allocated towards general fund operations such as public safety and neighborhood services.

While the city has relied on restricted revenue sources, one-time allocations and debt financing to fund our CIP program, these funding sources are not sufficient to support the growing infrastructure needs of the city.

Additional general fund resources would that would otherwise fund operations will have to either be directed as one-time allocations to the CIP or committed from the general fund to support ongoing financing costs.

So this outlook, while it's not a budget, it is intended to provide the city council and the public with information to facilitate an informed discussion in advance of the fiscal year 2027 budget process.

As required by the city charter, the mayor will present a balanced budget by April 15th, 2026.

That concludes our presentation, and we're happy to answer any questions you may have.

Thank you for that.

We will now turn to the IBA for comment.

Thank you, Chair Foster, committee members.

Um again for the presentation.

As was the first quarter report, our office released a detailed analysis of the five-year outlook on Monday evening.

We'll provide a full presentation of that to council next week, but I'm also happy to provide some remarks and a summary of key takeaways this morning.

As you saw in the Department of Finance presentation, the outlook for the next five years is not positive.

And there are significant baseline deficits in each of the next five years, including a nearly $90 million deficit projected for the upcoming FY27 year that will need to be filled, and that does not take into account any new or expanded services that might be desired or necessary.

These projected deficits persist despite moderate growth that is steadily projected in major general fund revenues.

The structural imbalance that we've been talking about for years is hitting now, with the city's one-time resources largely tapped out, leaving ongoing expenses for the city's current services that we lack the ongoing funding for.

Our report highlights key drivers of projected shortfalls.

Revenue growth is expected to remain modest, with some FY27 estimates even appearing potentially optimistic in light of current performance and economic headwinds.

Major general fund revenues such as property tax, sales tax, and franchise fee show slowing growth or increased volatility.

Smaller revenues such as cannabis business taxes and parking revenues also carry uncertainty.

On the expenditure side, personnel costs, including annual assumed wage increases of 2.9% that represent just under $30 million in expenditure additions in FY27, represent significant upward pressure.

Non-personnel costs also show increases largely due to debt service for planned capital improvements, fleet replacement needs, and operational expenses for new and expanded facilities.

Homelessness programs also face growing funding gaps due to declining state support and shifting revenue streams.

And as you just heard, the city's capital infrastructure backlog continues to grow with no significant dedicated funding source.

This is a difficult outlook.

I do think it's worth taking a step back and recalling last year's outlook, which showed even larger deficits, including a projected $258 million deficit for FI26, our current year.

We were able to fill that hole not only through cuts, but also through one-time adjustments like pausing reserve contributions, as well as implementing significant new revenue streams such as TOT increases through Measure C, trash fees to offset costs that would otherwise be borne by the general fund, parking increases, and user fineness and fees.

Moving into 27, however, are additional near-term revenue opportunities that do not require a public vote are limited.

And one-time solutions that the city has relied on in recent years to balance its budget are no longer available, which means that we will be faced with difficult and painful cuts.

Absent major infusions of new revenue, the city will need to focus on constraining its costs and unfortunately pairing back services.

To determine where cuts should be made, the city will need to reassess the timing of new facilities, determine which services are particularly critical, and evaluate program effectiveness, particularly in areas that are dependent on unstable or declining revenues.

The city should also consider the importance of funding those services that it finds to be critical at levels that will clearly allow for success, as opposed to providing funding for a larger number of programs that ends up being inadequate or insufficient for program outcomes to be positive.

Moving forward, it will be critical to align our ongoing expenditures with our ongoing revenues to eliminate the structural deficit and really to move beyond this annual need to weigh cuts against each other year after year.

With that, I'm happy to wrap up now.

Again, we will have a full presentation at council next week.

We are also available for questions and discussion today.

All righty, thank you so much.

Um, just as um, I guess.

Oops, I'm sorry, hold on.

As a reminder, this is an informational item, so no motion is required.

Sarah, do we have any public comment on this item?

Thank you, Chair.

Yes, we have a couple hands raised in the virtual queue, so I'll start the five-minute timer for anybody else to indicate if they wish to provide comment on item seven.

Each speaker will have two minutes and we will begin testimony with Andrea Ebbing.

Please unmute and begin.

I Andrea Ebbing, and the um the report sounds somewhat dismal.

Um I think we really need to focus on driving revenue uh into San Diego, which actually should be a very easy and abundant um initiative.

It should be very, very easy.

This is America's fine city.

We have so much feeder traffic, um, feeder market traffic to capitalize on.

But I think people are acutely aware of the disaster that has become of our city, all the fees and all the mismanagement and all the corruption.

Um, and I think people just don't feel safe.

So I think um we really need to kind of campaign and find a way to drive revenue into the city.

Um fix the billboard situation.

We have Narcan Com on a Narcan billboards everywhere, workers comp, as if anybody like that's what the DA is focused on workers' comp.

Are you serious?

Like, no, we need to be public safety.

How about drug tests?

How about drug tests for the homeless?

Seriously, we need to stop coddling the homeless in the addicts.

People made very poor decisions, and it's time for them to make some good ones, like get a job and stop doing drugs.

I mean, that's it.

Like, I'm not these people's parents, and neither are you.

We don't need to spend our tax dollars on them.

We don't need more homeless funding.

Sure, be compassionate, but let's not be enablers.

You know what I'm saying?

Like the 10 city situation, it's really unfortunate.

But at the end of the day, it's a lot better than the encampments that are totally unmanaged.

At least somebody had the ability to kind of like stomach the whole situation and try.

But you know, when you're dealing with this level of addiction that our leaders, some of the leaders are actually fueling by giving dope dealers five million dollar contracts who are pretending to be rehab owners, they're driving the situation.

So it's not up to us to fix it, it's just up to us to drive revenue and stop pumping money into something a futile effort.

Thank you.

Thank you for that concluding statement.

Our next speaker is Zoom user.

Please unmute, state your name for the record and begin.

You will have two minutes.

Oh, Henry, again.

Hey, uh, this is cool, man.

Hey, uh, I know you guys are focused on uh the poor people, like all the people, the concerns of people in La Jolla right now if they're gonna take their little girlfriends and their kids to Paris.

Can I afford to go to Paris?

The guys then send you Cedar are focused on can I afford to buy a Christmas tree this year?

Christmas trees are 80 bucks.

It's a real problem.

And I think you should make most of your decisions based on how it's going to affect the people uh south of highway 94.

Uh look at those guys because I think that the business guy was talking about it.

I think it's gonna it looks more like blood on the streets to me than a concern because eventually over time with the pensions killing us.

That's basically what's going on here.

And then you're gonna give everybody a raise.

You just got through buying 750 million dollars in new cars.

We could have just bought used cars to at half price after a couple of years.

We could have done that, but and also I don't want to break your bubble, but we do have a king, and it's uh Todd Gloria is the king.

He goes on vacation for 450 in the Philippines.

All the other guys let the meet take while I'm on vacation.

And then he bought those uh parking meters in Balboa Park before they had the meeting, they're already purchased, so it's just letting people talk, I guess.

And then yesterday was a huge crowd against those things, and he he said on TV that he was gonna put them in no matter what.

He said they're going in a couple days before that's on YouTube on Channel A.

So he made that decision.

I'm sure you guys are somebody with him too, but it's um I think it's gonna get worse, man.

Thank you.

Your time has concluded.

Thank you for your comment.

And Chair, this concludes testimony on item seven.

All righty, thank you so much.

I will now turn it over to committee members for questions and comments.

Any questions or comments?

No.

Um, I will do the uh we have Councilmember Eloh Rivera.

Jeremy go ahead.

I mean it's such good news.

We're just you know tripping over each other to be able to speak to what a wonderful situation this is.

Um thank you.

Um and and thank you, Charles, as always for um the work that you're doing.

Uh obviously we were briefed, we've had conversations about this.

There's a couple things that um I want to dig into a little bit more.

The first is on homelessness spending.

A concern that we've had for years now is that we're not building we're not taking actions now to build a pathway to reduce need and therefore reduced spending.

And so less for you and and more for Matt Um Rolando, the you know I'm I'm are there changes being considered in the dependence on shelter versus some of the more effective upstream um interventions that the city has utilized um that do seem to be lower cost um uh or other tactics as well that that could help um us get to a situation where we're we're again reducing need and therefore reducing spending on this issue.

We believe we had some really productive conversations with the council over the last several budget cycles um via the council's funding of uh prevention-based efforts.

Um we know we've and last year and the year before in particular, we know those have been really robust conversations.

We know that have been led by you, Councilmember Ila Rivera and other members of the council.

Given the uh uh anticipated reduction of HAP funding from the state, um, we will be considering a whole variety of different options um as we put together budget development, and clearly if there are any uh suggestions from council members, um we saw the uh the last round of budget priority memos.

We know there's another round of budget priority memos as well.

Um administration is all years on that.

Thanks, Matt.

I I I think I do see that there's been um some progress made.

I think we've gotten got to a better place in terms of not having to fight for some of the prevention um dollars that we were having to fight for before.

Um but I I I do think that it'd be worth looking at some of the things that we've done in the past when we've had to wind down shelters.

We've been able to do that in a way where we have also not we've done that in a way that's not resulted in a bunch of folks ended up on the streets because nobody wants that, obviously.

Um but the the pressure, the the hard deadline of having to to close shelters, specifically Golden Hall, but others as well has forced us to pivot and when we've been forced to pivot, we've actually done that well and at a much lower cost than what it it was um costing to maintain those shelters and what it almost always costs to run a shelter um on a per person basis uh and in totality.

So you know there's a a huge structural issue here.

Um we are either going to need to make significant significant reductions in what we offer to the public, uh the things that we plan to do for the public, or we're going to need significantly more resources.

That part is clear, and this is a ever growing part of our budget.

It's an incredibly important issue.

I know it's not talked about as much publicly, but that doesn't mean that it's any less important in terms of the impact on the human beings who are experiencing homelessness.

So uh I I do hope that we can dig in even more to start to figure out real pathways to again um reducing need to reduce need and therefore reduce expense on on this front.

Just um quickly on the the kind of revenue versus reduction piece, and and maybe it ends up being a combination of both, we will see in order to balance things over the next several years.

Charles, you're you're if I'm hearing you correctly, you're basically saying if absent additional resources, the council is going to need to make decisions about not just what services to offer, but what planned for improvements in the city will not be able to happen.

Is that correct?

That's correct.

We are faced absent major new revenue with the need to cut services just to become balanced.

Um that's not even talking about adding or expanding any new services or additional services where they might be desired or needed.

Right.

And this is why I I think that the conversations around um revenue are so important.

We'll continue to continue to say it, and I understand that the way that that the public is feeling it is something I'm uncomfortable with.

Um certainly that there's increased frustration from the public with, which is to me why it's even more important that we got we're gonna have to make some choices of who's gonna pay their pay their fair share.

And I think everyday San Diegans have more than done that, and there are some people who are feasting while others are in a famine, and that's not right.

So the resources exist in this city for the city to be properly resourced, to be incredibly well resourced, for us to have the things that people want and need.

Unfortunately, the people who've taken the most for the longest um are becoming even more hostile to the idea of themselves of having to pay their fair share.

And I think we're just gonna have to push through that.

Um or we're gonna have to have some honest conversations with the public about what we're not gonna offer them.

Because tightening the belt, that's not real.

Like that's it, I mean it's real in that like we have to always be doing it.

There's no more belt left to tighten in this city in a in a meaningful way.

Um to that point, Rolando, the the pension payments that you referenced coming off the books.

When are those from?

When were those uh what are we paying for it's basically the liability that was generated because of the underfunding that happened back in the 90s?

So in 2007, all of that debt was restructured and basically paid over, I want to say maybe 20, 30 years.

It's probably 20 years.

And we're finally getting to the end of that payment that's north of 70 million dollars that will be fully satisfied in 2028.

So we will no longer need to make that payment.

And on an annual basis right now, about how much is that again?

It was north of 70 million dollars, and the general fund portion of that is uh set about 70 percent.

So I would say close to 50 million dollars.

Each year.

Each year, yes.

So right now we're taking 50 million dollars that could be spent on things that we need to do to cover the uncovered costs from 30 years ago.

That's correct.

Because elected officials then told the public that they could have things without actually paying for them.

That is right.

So I I just want us to keep be really clear with ourselves and on these on this dias when we're having these conversations about um when folks show up here and say that they want things and they they they need things, and oftentimes should absolutely should have them, and then we tell them that it's gonna happen through magic.

Uh we're there's no more tricks to use.

The magic trick was was was used 30 years ago, and we're paying the price now.

That 50 million dollars is equivalent to which departments.

I think it's probably the I think library 70 million.

Yeah, I think that's a good thing.

So we could almost fully fund the library department simply with by not having to pay the payments that were failed that were failed that were not paid 30 years ago.

Yeah.

So again, I I just I think that that part's important to mention uh we're not trying to shift blame here.

We're not trying to pretend like there's not a better job that we can always do in with this council and this administration in this moment.

Um again, I'm going to continue to say that we need people who are incredibly, incredibly um wealthy who are making extraordinary profits in our city to pay more of their fair share.

That is gonna have to happen, or we're gonna have to see reductions because the alternative is um to leave uh folks in the future holding the bag or to reduce things that folks simply do not want to see reduced.

Um thank you, Chair.

All righty, um thank you for that.

Um very good questions.

You actually touched upon.

I was going to ask questions regarding homelessness, and um you covered that quite well.

Any other questions or comments from members?

All right, having none, um thank you.

Um my sentiments on the five year um I do agree though, you know, Matthew, we do need to start looking at how we are making progress in homelessness and um looking at um how those costs will start to um come down as we are resolving what we need to resolve.

So um with that, that concludes um item seven, I believe, if I'm following my agenda correctly, and we will now move on to item eight.

Sarah, please introduce item eight.

Thank you, Chair.

Item eight, public utilities fiscal year 2027 to 2031, five-year financial outlook.

And if you're watching City TV or the live stream online and you'd like to call in to the meeting to speak, please dial 1669-2545252 in when prompted input webinar ID 161710317 pound.

Chair.

Thank you for that.

Staff, please introduce yourselves for the record and let us know how much time you will need for your presentation and feel free to begin.

Good morning, committee members.

I'm Lisa Salaya, executive assistant director for the public utilities department, and with me is Adam Jones, Deputy Director for Public Utilities.

And we'll need about seven minutes for our presentation.

So today's presentation is an informational item on public utilities five-year financial outlook for the water and sewer funds.

As a basis, our prior year financial outlook for 26 through 30 served as the basis for our recently approved rate case.

Since that time, we've taken the opportunity to update forecasts for actual results that occurred for fiscal year 25, revised estimates for the current fiscal year, and any reforecasting for 27 through 2031.

Because you just went through with the general fund.

We utilize similar methodology as the general fund for baseline assumptions.

However, we do have one exemption.

We do a little slightly higher for salaries and wages because of the level of positions that we have and the technical nature and the certifications that they are required to maintain this system.

This is something that we have worked with the IBA's office, and they concur with our approach on that.

In addition, our biggest change is that we do incorporate the San Diego County Water Authority's recently released 10-year forecast, which is their long-range financial plan and the impacts from that.

And we'll go through some details as it relates to limitations with that information.

The outlook acknowledges that there is a maximum rate authority that the public utilities department must operate within.

That said, one of the department's priorities is pursuing non-rate revenue opportunities.

If those are successfully identified and realized, those will be incorporated into future forecast.

As identified in the forecast, costs continue to increase.

Absent additional revenue, and the department will need to make strategic additional reductions and deferrals than those that had already been previously identified.

As Adam will detail in a few slides, the department has extended the two-year CIP to three years.

And it should be noted that programs and projects previously deferred are now forecasted to occur beginning in fiscal year 28 and beyond.

With that, I'll turn it over to Adam.

Thank you, Lisa.

Um context here from the cost of service that we just recently went to.

The city's second largest expense after the pension payment is our purchases of water from the San Diego County Water Authority.

Um, because San Diego lacks uh sufficient rainfall or local water sources, we are dependent on a lot on imported water.

So one of the things we spend a lot of time on is projecting what we think uh water purchases expenses are.

The document that most helped us in this outlook was the county water authority's long-range financing plan, which is about a 30-page document that details where they expect that they're going to be over the next 10 years.

One item that again was brought up during the rate hearing is the county water authority has several different charges that they do for water purchases.

Some are fixed, some are volumetric.

And so making the direct impact of how it's going to impact the city can be rather challenging.

One item that is forecasted and is included in the slide is what's called the acre foot cost for treated water.

So we take this information, we extrapolate it back into the inputs that we have.

One thing I would note is unlike many other areas, we primarily bought raw water that has not been treated, so our costs are not this high per acre foot.

But based on the information we were able to gather, we expected that the rates of water purchases are expected to be higher than what we anticipated.

So these items will be updated as more information comes along.

But generally, we have seen the forecast for water purchases exceed what we projected in the past, and we don't expect those to change given the committed resources applied to water, the security of that water that we do not have sales in the region to support.

The other item that's very well talked about in the report is our capital project prioritization.

As the council is aware, we maintain one of the largest water and wastewater systems in the state of California.

Because of that, we have hundreds of capital projects that are at different stages of development, planning, design, construction, post-construction.

And so, as part of the adoption of the rates, we did include a two-year delay for CIP that helped us mitigate some of the rate increases that would otherwise have been possible.

So 138 projects were identified in fiscal year 2025, and that had a savings of 67 million dollars.

This is primarily because those projects were in design, where most of our projects spend most of their money in construction.

As part of this outlook, we looked at an additional 62 projects for delaying through fiscal year 2028, which had a savings of 221.

Most of these projects are in our what we call our horizontal assets.

This is our pipelines that are going through the city's streets, going into neighborhoods and canyons.

And so this is also the area where we've seen the best return on our dollars in the last several years as we've seen pipeline breaks decrease across the entire system.

But again, the city still has a very robust capital budget with 1.7 billion dollars across 460 projects.

And so as we looked at all of these projects, we wanted to make sure we prioritize based on health and safety, regulatory compliance, the risk of failures, as well as construction readiness.

The last thing we wanted to do was to be halfway through construction, especially as we go come back for additional rate increases and have to stop a project because we don't have sufficient funds to complete it.

The two largest scale projects in our portfolio for the water system is our DANS safety program.

The city operates a vast network of reservoirs throughout the throughout the region that help us at certain points have between 10 and 15% of our water come from local safety local sources.

These dams are 80 to 90 to 100 years plus, and so they need some TLC to make sure that they last for another years, and this is another one of the big ones on our regulators lists.

The other one, major one, is monetizations at our pump stations one and two.

This is in our wastewater system.

These two facilities are the primary backbone that get wastewater from people's houses all the way to the Point Loma wastewater treatment plant for treatment.

They were designed in the 1960s, and their control rooms show something that you would expect from a period at that point.

These are massive pumps.

The one on the right here is multiple people height, and this is just the top of the pump.

So these are really huge infrastructure that that have been the sites of some of our spills in the past and really do need the uh the tender-loving care to continue moving forward into the next decade.

Moving to the wastewater system, what you are seeing here is generally the level of rate increases that you saw in the cost of service.

Um, because the wastewater does not have such a large external cost like water purchases, there's much less volatility.

Again, we'll continue to look at the system as costs move as capital projects come in just to consider this.

But based on this outlook, we expect this uh this uh these rates to be consistent with what you've been presented in the past.

Finally, as Lisa mentioned, there were no new strategic ads added as part of this outlook, but it does include initiatives that have been funded by this council in the past, including both phases of the pure water project, phase one in the North City and phase two that's going to serve the central area of the of the city, which has its planning plant uh operational in Point Loma, and we're very proud to admit is doing some first of its kind testing across the region to show uh direct and indirect potable uh treatment on wastewater.

So we're very excited for that.

Um again, as we've talked about in the past, regulatory compliance is hugely important to us.

We're one of the most regulated industries in the city, and so making sure that we have our systems in place and they're working correctly is a major drive driver of ours.

And then, of course, as this council is aware, we're continuing to do our investments into customer support.

And with that, that ends our presentation and uh we have one more slide with Lisa.

Just key dates is just we released the report last week, having our informational item discussion today.

We do anticipate that the IBA will be releasing the report after today, but in advance of the January 12th council discussion.

And with that, we will answer any questions.

Thank you for that.

As we are all eagerly awaiting your report, we will turn the mic over to you.

Well, with that reference to my office, I will turn it over to Jordan Moore, who will provide our initial comments on the outlook that was released for PUD last week.

Sure.

Good morning.

My name is Jordan Moore with the office of the IBA.

Uh, given the recent release of the PUD outlook only last week, our office has only just begun on our highly anticipated analysis of the updated outlook.

However, we do have some key insights that we would like to highlight today.

First, given the recent approval of rate cases for both the water and wastewater systems.

We would note that not much has changed as far as general expenditure and revenue assumptions in this outlook.

As noted in the staff presentation, their updates have been mostly been to account for recent actuals, implement implementing the strategic expenditure and CIP delays and updating water purchase cost assumptions with the latest data from the San Diego County Water Authority.

However, the thing that we would like to highlight for you today is that the rate increase assumptions that are built into this outlook have not changed from the prior outlook.

This is notable, particularly for the water system, where only the FY2027 rate increase has been approved.

All of the subsequent years are the same as what was contained in the prior outlook and in the rate case.

In some instances, despite increased costs during those years.

We would also note that we believe more work will still be done on the water purchase costs, the long-range plan that Adam mentioned from the County Water Authority is really is also a very rough plan of theirs, and there's the potential that with good leadership of the county water authority, that situation can improve, which would then also improve the financial situation of PUD itself.

Over the next month, our office will do our typical deep dive into this outlook, and we will present a comprehensive report for the council prior to the hearing of the item in January.

For now, we look forward to the discussion today and are ready to answer any questions the committee might have.

Thank you, Jordan, for those comments.

Sarah, do we have any uh public comment on this item?

Thank you, Chair.

We've not received any speaker slips in chambers.

So I'll begin the five-minute timer for all those to indicate if they wish to give virtual comment on item eight.

We have one hand up currently, so we will begin testimony with Andrea Ebbing.

Please unmute and begin.

You will have two minutes to speak to item eight.

Hi, my name is Andrea Ebbing, and I propose we uh really take a look at what's available to us to produce the water usage that's going into all these developments that are are now kind of very controversial.

The ADUs, the massive ADUs, um, these complexes, all the people that are giving kickbacks to uh Summer Stefan and Todd Gloria for these massive unnecessary projects to go through.

I think what we should do is um is charge uh I propose that we charge extra for any core day, so any concrete core day um for any project and utilize things like um holocore precast, like Orion Podium is an example.

Um doing a holocore precast reduces the need for a core day, um, which is a huge amount of water.

So I think that for every project that goes up, we need to kind of like maybe incentivize to use um a holocore pre-cast solution versus cast in place.

Um yeah, look at who's using what and like people of avocado farms, people with massive citrus groves, things like that.

They really really need to be uh paying more than their fair share.

They're benefiting off the water, and they're using the vast majority of it.

Um I also think we should look at uh all of that erroneous billing that took place and any extra revenue that was not redistributed back to the public um and apply those fees or extra fees that were paid toward uh this deficit.

Um that's about it.

Thank you.

Thank you for your testimony, and chair with no other hands up in the queue.

This concludes testimony for item eight.

All righty, thank you so much.

Um, with that, this is an informational item.

No motion is required.

I'll turn it over to committee members for any questions, um, comments or concerns.

Not seeing any on the lights.

Thank you for your presentation.

I'm sure we will um follow up as we always do with any questions or concerns.

Thank you so much.

All righty.

So now that will take us to our discussion agenda.

Sarah, please introduce item two.

Thank you, Chair.

Item number two, exemption of a program manager position in environmental services department from the classified service.

And if you're watching on City TV, the live stream online, and you'd like to call in to speak, please dial 1669-2545252.

Inputting webinar ID 161-710317 pound.

Chair.

Thank you so much.

Staff, please introduce yourselves for the record and let us know how much time you'll need for your presentation, and feel free to begin.

Good morning.

My name is Jeremy Caluco, Assistant Director for Environmental Services, and with me today is Franklin Cooper Smith, Deputy Director for Environmental Services, and we will need um three minutes for the presentation.

So environmental services is here today to request exemption of one program manager position from the classified service to support our clean SD operations.

The position was approved and budgeted by council in the FY26 budget, and the position has been reviewed and recommended for exemption from the classified service by the Civil Service Commission.

The position oversees the day-to-day operations of the Clean SD program.

It over has 48 FTEs in our field operations section, 41 code enforcement section, and then oversees an additional up to 60 FTEs of contractor support, which include Urban Core, Alpha Project, and Clean Harbor.

The division removes more than 20 million pounds of waste each year.

The division also conducts more than 6200 encampment abatements each year.

The key responsibilities for this position are to oversee our homeless encampment abatement programs as well as our illegal dumping program that manages homeless encampment abatements to ensure that they are in compliance with our unsafe camping ordinance and the Isaiah settlement, manages and provides direction on enforcement of solid waste codes and coordinates with other city departments, nonprofits, and government agencies such as Caltrans, the police department, and the fire department.

That concludes our presentation and we'll take questions.

Thank you so much.

We will move to public comment.

Sarah, do we have any public comment for this item?

Thank you, Chair.

We've not received any speaker slips here in chambers for item two, and I'm not seeing any hands go up in the virtual queue.

So this concludes comment on item two.

Thank you so much.

I will now turn it over to committee members for questions and comments and entertain a motion.

We will start with Council Member Ilo Rivera.

Thank you so much.

I do have a question.

And as we are this position has been filled for some time, correct?

And do we still do the hotspot routes throughout the districts on for for the illegal dumping?

Yeah, so we um have dedicated teams Monday through Friday that go around in every portion of the city five days a week, and then we do have a single weekend team that does um our uh around encampments around like known areas.

So we do have seven-day a week coverage.

Okay, and I understand we just recently had some things.

Um if we can fall back, Kirby.

Um, I know we're having some discussions with the SDPD on enforcement and so forth.

Um we can fall back and have some breakout meetings.

I'd like to understand what we're doing with enforcement, what we can do to improve that because at some point we have to get the illegal dumping more under control, right?

I think we do a good job in all of our districts um when we do dumpster days and certain things to uh provide some relief to our constituents, but the illegal dumping, it's a nuisance, and we need to look at what we can do there.

So with that, we have a first uh a motion by council member Ilo Rivera, a second by Chair Foster.

Um Sarah, please call for the vote.

Item two passes unanimously 40.

Thank you very much.

And that concludes item two.

We will now move to um item three.

Sarah, please introduce item three.

Thank you, Chair.

Item number three, exemption of one program coordinator position in the city of San Diego from classified service.

And if you're watching on City TV or the live stream online, you'd like to dial in to speak, please call 1669-2545252, inputting webinar 161-7710317 pound.

Chair.

Thank you so much.

Staff, please introduce yourself for the record and let us know how much time you'll need for your presentation and begin.

Good morning, council member.

My name is Jeremy Bauer, Assistant Director, Environmental Services Department, and I'm joined by my director, Kirby Brady, also ESD.

And we ask for about two or three minutes as well for this presentation.

So similarly, this is a request to exempt one position, a program coordinator in the collection services division.

The position was also approved and included in the budget for FY26 by council, and the position has been reviewed and recommended by the Civil Service Commission.

The position will oversee efforts to improve our efficiency of our operations, the delivery of services to our customers, and the formulation and administration of new policies and procedures for collection services.

It was, as we did the operational efficiency analysis as a part of our cost of service study, it was one of the recommendations that came out of that report that there was an opportunity for a position to look at holistically our division's operations and standard operating procedures, as well as how we look at data, how we collect data, how we use the data to inform decisions, and how we present the data and dashboards and reports.

It was also included in the cost of service study, and it was included in the rates.

So the rates the customers are paying, include funds to support this position.

Key responsibilities, including looking at holistically the opportunities for improvement projects in the division, identifying them, also facilitating their carry-through and implementing them.

Also looking at our existing standard operating procedures, many of which were last updated in the 90s, and developing improvements to those and then implementing them, as well as looking holistically at what data are we collecting, how can we improve that data collection, comprehensive data plan, presenting that data in dashboards and using that to inform our decision making, in particular things like managing our fleets and routing optimization.

And at the end of the day, the position is meant to improve the service we provide to the customer and improve the customer service experience.

And that concludes the presentation today.

Alrighty, thank you so much.

Sarah, do we have any public comment?

Thank you, Chair.

We've not received any speaker slips here in chambers and no hands have gone up in the queue.

So this concludes testimony for item three.

Very well.

I will now turn it over to committee members for questions and comments and entertaining motion on item three.

We will start with Council President Pro Tim Lee.

I'll move the item for approval.

Alrighty, seeing no others on the lights, I will second the motion.

Sarah, please call for the vote.

Item three passes unanimously 4-0.

Thank you very much.

This concludes item three.

Sarah, please introduce item four.

Thank you, Chair.

Item four is the authorization to enter into and sign a cooperative procurement contract with genuine parts company doing business as NAPA integrated business solutions for the purchase of vendor-managed inventory and logistics management solutions for fleets and facilities.

And if you're watching on City TV or the live stream online, you'd like to call in to speak, please dial 1669-2545252.

Inputting webinar ID 161-771-0317 pound.

Chair.

Thank you so much.

Staff, once again, please introduce yourself for the record and let us know how much time you will need for your presentation and feel free to begin.

Good morning, Committer Chair Foster and Committee members.

I'm Ashera Little, Director of the Department of General Services.

And with me today are Gina Delay, Deputy Director and Rex Raguos, program manager within the department.

We will need 11 minutes for the presentation.

Before you today is a cooperative contract for the purchase of parts and supplies for the city's fleet.

As you may already know, our fleet includes over 5,000 vehicles and equipment, and the fleet operations division completes over 40,000 work orders annually.

These work orders and this contract support frontline vehicles that are core to the city operations and perform essential work every day.

In recent years, our fleet has grown and our work orders have increased with completing over 45,000 work orders last fiscal year.

As you can imagine, managing such a large fleet and the associated work orders for preventive maintenance, inspections and repairs requires a contract that can handle the complexities and wide range of parts and supplies required to keep operations running efficiently.

The NAPA contract before you today is highly responsive to our needs and provides parts in a timely manner which minimizes vehicle downtime.

This contract is invaluable to our operations and our ability to maintain the fleet with the resources we currently have allocated.

I will now turn it over to Gina and Rex to walk you through the presentation to give you a comprehensive understanding of the contract and the terms set forward within that contract.

Good morning, Chair Foster and members of the budget and government efficiency committee.

My name is Gina Doulet.

I'm a deputy director in the Department of General Services, and joining me this morning is Rex Ragukos, Program Manager and Department of General Services.

We are seeking authorization to enter into a cooperative agreement with Genuine Parts Company, who I'll refer to as NAPA, for the purchase of an inventory and logistics management solution for auto parts and supplies for the city's fleet.

This is an as-nated contract.

As Director Little uh stated, the city has over 5,000 pieces of motive equipment.

This contract ensures that departments like transportation, public utilities, parks and rec, stormwater, and certainly police and fire remain operationally responsive.

The fleet operations division ensures city vehicles stay ready to deploy, supporting street repairs, trash removal, park and beach maintenance, and of course, emergency response.

At some point, each piece of motive equipment will need preventive maintenance and repair.

While fleet can prepare for vehicle maintenance, the timing of repairs is harder to predict, which is why it's critical to have a vendor that has quick access to inventory locally through a network of suppliers and retail storefronts, but also regionally and even nationally.

Since 2017, the city's fleet has grown by over 1,000 vehicles.

Fleet operations must be prepared to meet this need now and in the future.

In the graph shown here, you can see the number of fleet vehicles represented by the orange line overlaying the number of work orders.

Fleet operations is truly keeping the city in motion.

Over the last four years, the division has completed on average 42,000 work orders annually.

And in the last calendar year alone, over 110,000 parts were purchased to maintain and repair city vehicles.

Fleet size is rising while maintenance demand is accelerating, placing increasing pressure on parts availability, labor, and vehicle uptime.

A growing fleet equals a growing workload equals the need to provide necessary resources to our most critical employees, the dozens of fleet technicians who are mission critical to a functioning city.

Without a contractor that provides auto parts and supplies for over 40,000 vehicle work orders a year, there are tangible risks, such as increased vehicle downtime and higher costs for critical parts, which lead to reduced fleet availability.

We estimate that we would need at least a dozen individual contracts if we weren't able to leverage a contract with this breadth and depth of parts.

Vehicle downtime could be attributed to difficulty sourcing parts from multiple vendors than waiting for the parts to arrive.

With NAPA, we have access to local, regional, and national inventory through one vendor who delivers parts to vehicle maintenance facilities located at Choyas Operations Yard, Rose Canyon, Miramar Ops Yard, and other sites dedicated to police and fire vehicle maintenance and repair.

This cooperative agreement was issued through SourceWell, which is the national cooperative government purchasing agency that helps public sector organizations procure goods and services through competitively awarded pre-bid contracts.

Rather than each city, county, or public agency conducting its own full procurement process, source well completes that process once on behalf of all participating members.

Public agencies can then piggyback on those contracts, saving time, reducing administrative burden, and ensuring compliance with public procurement laws.

Source well participating entities include over 50,000 governmental, education, nonprofit, tribal government, and other public agencies located in the U.S.

and Canada.

The high number of participating entities increases administrative efficiencies and the power of combined purchasing volume that result in overall cost savings and that with better value than what vendors would ordinarily offer to a single government entity.

The RFP period was open for nearly two months.

Four out of six bidders qualified, and NAPA was ranked highest by a significant margin.

These are the criteria in order of weight that the bidders were evaluated on by a committee of four, comprised of one procurement manager and three procurement analysts.

Of the four qualified vendors, NAPA scored highest in all areas.

With pricing in particular, NAPPA offers an all-inclusive pricing model where the city pays only for the parts it uses at a fixed margin above NAPA's costs.

And NAPA absorbs all staffing, inventory, delivery, and operating expenses.

NAP provides convenience and rapid delivery, typically within two to four hours of an ordering, which is essential for emergency and time-sensitive repairs.

NAPA's distribution network allows us to get parts quickly, avoiding bogging down fleet techs and parts buyers with researching parts availability from multiple vendors, then having to drive to a storefront to pick up parts.

Our highly skilled technicians can spend time doing what they're trained and certified to do, maintaining and repairing vehicles.

Same goes for the second item, which is also a pretty high volume item.

On the retail market, it would be about $95.

The contract price would be around 77, leaving the city with a savings of about 19%.

For fiscal overview, I'll turn it over to Rex Regukos.

Thank you, Gina.

For this contract, a not to exceed amount of 56.9 million.

Thank you.

56.9 million is being requested.

The contingency is included to account for vehicle additions to the fleet and fluctuations in parts demand and pricing over the multi-year term, since fleet maintenance needs can vary year to year due to equipment failures and emergency repairs.

The contingency ensures we can meet operational requirements, reducing the need to return to council before the contract expires.

I'm sorry.

This will be funded by the Fleet Operations Fund, and the expenses are subject to the annual council appropriation.

The amounts reflected on this slide show the anticipated parts usage needed to support the city's fleet.

The 56.9 million projected expenses consists of the initial term from 2026 to 2028.

And the two optional renewal years, which total 27.3 million.

I'd like to highlight the 4.94.49 million for FY26.

With council's approval, this is the projected expense for the second half of FY26.

The subsequent amounts show our projected expenses for each fiscal year thereafter.

As mentioned previously by Gina, this is an as-needed contract where expenses will be incurred only when parts are purchased.

I would also like to note that the yearly amounts are budgeted in our fleet operations fund, which is appropriated annually.

This contract meets all requirements under the Muni Code 22.3208 and AR 35.11, which has been certified by the purchasing agent.

We are recommending the council to approve the cooperative procurement contract with NAPA to authorize the mayor or designee to execute the contract to authorize the CFO to appropriate and expand up to 56.9 million and for the contract execution through December 3rd, 2028, with two one-year options.

Overall, given the competitive process, the operational needs of our fleet, and the fiscal safeguards built into the pricing model, we respectfully request the committee's approval to proceed with the cooperative agreement.

And with that, we are happy to answer any questions or comments.

Thank you so much.

Sarah, do we have any public comment on item four?

Chair, we've not received any speaker slips here in chambers and no hands have gone up in the queue.

So this concludes testimony on item four.

Thank you so much.

I will now turn it over to committee members for questions and comments and entertain a motion.

We will begin with Council President Pro Tim Lee.

Um thank you for the presentation, and I appreciate the department bringing this forward uh with the contract uh agreement in advance.

Um I know we're looking at for fleet operations in particular, you know, some crucial services and support that allow city departments to work efficiently, and of course, the parts are going to be important to to ensuring that we have fewer service disruptions.

Um appreciate the NAPA, for example, is headquartered locally as well.

Um I did want to ask what is the benefit of NAPA supplying uh the 50 percent of our parts and supplies.

Um, if that's something that they're looking to achieve, is that something that you're also looking to see?

I'll take a stab at answering that question, Councilmember.

I think the benefit for us is I think Jenna mentioned mentioned this in her comments that if we did not have a contract this size, we would have to go out and procure 12 additional contracts to source the quantity of parts that we require for our fleet.

This contract gives us that in one uh contract and one source uh that we do not currently have uh additional contracting staff within our department that can handle a load of 12 additional contracts.

So uh that is one of the biggest benefits of this contract.

Uh Council President Protam, if I could also add uh one of the unique features about this contract is it's not just an auto parts contract.

This contract uh positions NAPA to dedicate a facility to the city.

Um and they are also carefully watching inventory, and so when they see that our inventory for fast moving parts, so parts that are used very frequently, particularly for maintenance, I use the oil filter as an example.

They can predict and see that they need to order more of those kinds of parts, and because they have a regional and also national network, they're able to keep us ready with inventory.

Um, and they're also uh less prone to supply chains issues because of their national presence.

Um so we we really are looking at NAPA to provide us with stability to increase our uptime.

Thank you.

Thank you.

And then the last thing is just that in regards to inflation and looking at costs.

I know I know in these discussions we've talked about tariffs a couple of times, and um we've seen that shift over and over again, and so um how do they remain as a concern in terms of any anticipated fluctuations.

So we have a 10% content contingency as part of the contract.

We anticipate that we would use that if there were to be shifts in the market.

Uh, but similar to when we brought the light duty and heavy duty items to council, the way that tariffs are being applied or not applied.

Uh it's inconsistent, and we think that the 10% will allow us that room.

Um, and if it doesn't, we will certainly have to come back to council to ask for more contract authority.

Thank you for that answer.

were to be shifts in the market uh but similar to when we brought the light duty and heavy duty items to council the way that tariffs are being applied or not applied uh it's inconsistent and we think that the 10% will allow us that room and if it doesn't we will certainly have to come back to council to ask for more contract authority thank you for that answer uh with that I'm happy to move the item thank you so much uh we will now go to council member Ilo Rivera thank you chair um I'll just uh thank Council President Pro Temli for uh asking this questions making sure that those uh details are clarified and with that I'm happy to offer second thank you so much so we have a motion by council president pro Tim Lee a second by councilmember Elo um Rivera just really quick I do have one quick question and you talk about NAPA's ability to forecast procure parts as they're getting low as they and I guess can you kind of elaborate on what type of guardrails are in place as they are almost creating the stores almost like a central stores for the city of San Diego if they go through and procure those additional items are we then obligated to pay for said items or is it once we are ordered and actually put you know how are we handling that what are we paying what are we not paying as we're giving that type of latitude thank you for your question.

So the contract does state that if we were to terminate the contract that we would have to purchase back the non-NAPA parts the thing that's really important to us and it kind of leads back to to the stability is that because NAPA is dedicated has a dedicated site to city business they're only ordering parts based on our needs so they're responding to our parts manager and you know his look at what needs to be done for preventive maintenance the work orders that are coming in for repair so the idea is that they are only stocking what the city needs based on the city fleet so in the uh in the event that we were to terminate the contract and we're left with inventory that we need to buy back we would gladly buy it back because their parts that we anticipate needing okay and I assume that our parts manager has full access into what their inventory is real time and can monitor what that is.

Yes sir he does and in fact he visits the Kearney Mesa facility multiple times a week.

Okay.

Yeah all right very good um thank you so much that concludes my questions um Sarah um please uh call for the vote item four passes unanimously 40 thank you so much and this concludes item four and we will now move on to item five Sarah please introduce item five thank you chair foster item five is the approval of contract with clear AI for a risk management information system software as a service solution and if you're watching City TV the live stream online and you'd like to call in to the meeting to speak please dial 1669 2545252 and when prompted input webinar ID 161710317 pound chair thank you so much staff please introduce yourself for the record and let us know how much time you will need for your presentation and feel free to begin hi good morning I'm Angelo Colton the risk management department director I think 10 minutes or less okay um before I get started into the PowerPoint I want to um introduce with me is David Heller who's our risk management department's IT program manager he will also be the project manager for implementation of this new system and on the Zoom we should have Leslie Sargent the VP of Solutions consulting with ClearAI in the event there are any questions specifically for the vendor all right so we're here to request authority to execute a contract with ClearAI for a risk management information system.

This is a software as a service solution it's a five year term with five additional one year options the total not to exceed amount for the 10 years is 3.9 million dollars and this comes from the risk management administration fund this system will support our continued administration of programs as required by federal and state laws our current system is IVOS it's the claim system that we've been using as a city since 2002 we use it to manage and administer workers compensation claims for all city employees public liability claims made by the public against the city long-term disability claims for city employees as well as loss recovery of monies owed to the city for damages caused to this by a third party to the city or getting insurance proceeds as well we have over 1000 active open claims in the system we have approximately 80 city employees that are in the system all day every day to do their jobs in addition to third party service providers in the city attorney's office that also use the system our current agreement with Risk Connect who is the vendor for IVOS expires in July of 2026 that's why we're here so we learned a couple years ago that we would no longer be able to extend our contract with IVOS as we've been using that system for over 20 years and we needed to do a new request for proposal before continuing that was direction provided by the city attorney's office because it had been

We have approximately 80 city employees that are in the system all day every day to do their jobs, in addition to third party service providers in the city attorney's office that also use the system.

Our current agreement with Risk Connect, who is the vendor for IVOS expires in July of 2026.

And that's why we're here.

So we learned a couple years ago that we would no longer be able to extend our contract with IVOS as we've been using that system for over 20 years, and we needed to do a new request for proposal before continuing.

That was direction provided by the city attorney's office.

Because it had been so long since the city had done an RFP, we were a little, I would say not up to date on what is currently available in the market.

We chose to start with doing a request for information in order to learn what's available in the market and inform our request for proposal.

So we did issue a request for information in April of 2024.

We had eight vendors that responded.

Of those eight, we chose six to provide two hour demonstrations regarding their systems capabilities, so we could kind of learn what to put into our RFP.

We then turned around and issued a request for proposal in April of 2025.

We had five vendors that responded.

I would like to note that our current vendor, Risk Connect, which provides IVOS did not respond to the RFP.

Of those top five, excuse me, of those five vendors, we evaluated them, rated their RFP response.

The top three ranked at that point, then provided two-day demonstrations each.

So we sat through six days' worth of demonstrations from the top three vendors, going over the same four areas of coverage that I mentioned earlier, in addition to occupational safety and health, risk analytics, insurance and policy management, as well as the technical functionality of the systems.

We had over 30 city employees participating in review of the RFP and those six days' worth of demonstrations.

In the end, ClearAI was selected as the top scoring bidder.

At this point, we're requesting to execute a contract with CLEARAI, and I want to provide a little bit of information about some of the advantages we're getting moving into a new system.

So, first of all, in our current IVOS system, we have the four modules that I previously mentioned, which are included workers' comp, public liability, loss recovery, and long-term disability.

With our new system with ClearAI, we will also be adding in occupational safety and health, insurance and policy management, and risk analytics.

These are currently manual processes, not centralized and not automating workflows.

We are also projecting a 7% cost savings by switching systems, going from what would have been $4.2 million over 10 years to $3.9 million over 10 years.

These system costs are already included in risk management department's annual budget as well.

So we're not anticipating a budget increase regarding ClearAI.

In addition, some other functionalities we're gaining with a newer system.

This system is mobile friendly mobile device friendly, which will streamline incident intake, it will allow staff to take photos in the field, automatically upload information.

We'll have improved customer experience with claimant self-service and new communication tools.

We'll have enhanced reporting, predictive analytics, real-time data sharing, automating workflows and team collaboration tools.

There's the ability to message back and forth with a claimant within the system, for example.

We'll have greater document management tools, search capabilities, the ability for the system to summarize lengthy medical reports if we need a quick summary.

We'll have a centralized database.

We'll be able to define departments' access to information.

So if another department wants to look up vehicle accident information, they'll have access to a database that will allow them to see that.

Right now, this is all extremely manual, requires asking somebody, takes weeks to produce the data.

This will all be ideally push of a button once we get there.

We'll have end-to-end claim cycle auditing operations, built-in compliance with state and federal regulations and mandates.

We'll have increased security, data protection, which includes single sign-on and multi-factor authentication, and expanded integration with existing city systems like Microsoft 365, Adobe, and Google Maps.

So the next steps in our process, as I had mentioned previously, our current contract for IVOS expires in July of 2026.

So as you might anticipate, I'm eager to get started with our new vendor to see how quickly we can start moving into the new system.

So we are requesting supplemental docketing for council next week to get the first reading going since this is a 10-year contract.

We do have two readings, so we're hoping to get to council next week, and then again in January, execute the contract in February and begin our implementation with ClearAI in March.

We are anticipating a phased approach focusing on moving our existing functions out of our current system first.

The development of the safety module, I expect will take a little bit longer, as that will be a citywide effort involving staff outside of risk management, whereas the other modules are in-house only.

I do need to note though that once we develop a more detailed implementation schedule with Clear AI.

If we are not able to get out of our current system by July, we will need to come back to council with a subsequent action to extend our contract with Risk Connect for IVOS for some amount of time in order to allow for that development and cut over and moving all of our data because all of our claims management for workers' comp and liabilities is legally required.

We can't go without a system.

So our goal is to have full use of the new system by the end of fiscal year 2027, if not sooner.

And with that, just the same ask as the first slide, executing a contract with Clear AI for a risk management information system, five-year term with five one year options not to exceed amount of 3.9 million dollars over that 10-year term coming from the risk management administration fund.

And with that, we're available for questions.

Thank you.

All righty.

Thank you for your presentation, just to make sure we have no IBA comments on this.

With that, Sarah, do we have any public comment?

Chair, we've not received any speaker slips here in chambers and no hands have gone up in the queue.

So this concludes testimony for item five.

Thank you so much.

I will now turn it over to committee members for questions and comments and entertain a motion.

We will start with Vice Chair Moreno.

I'll move staff's recommendation.

Thank you.

Thank you so much.

So we have a motion on the floor by Vice Chair Moreno.

We will now turn to Councilmember Ilo Rivera.

All right, thank you, uh Chair.

Um just a couple quick questions here.

Um the due process and safety ordinance of the council um considered uh in October.

Um it's still moving through the meet and confer process, but um I'm hopeful that that will be concluded and uh will be uh law here in the city uh in the relatively near future.

Can you um talk to us about provisions in place to ensure that there's no information shared outside the city?

Yeah, I'll actually turn that question over to Dave.

Okay.

Um thank you.

Yes, the um there are several um protocols in place.

Uh Clear AI, the vendor has uh SOC 1 and SOC 2 certification, which is an annual certification that's focused on system integrity, security, data protections.

Um we are um we have always been and need to be very uh diligent in terms of protecting our data.

We have a lot of HIPAA data, we have a lot of employee data, we have medical information, so this is not something new for us in terms of making sure it's secure as it could possibly can be.

Um based on that, when we were looking at these vendors, that was very much a high priority for us to verify that these vendors do have the systems in place to protect our data.

Thank you.

I appreciate that.

And and I I see that um the contract does not allow for even anonymous data for their own data and statistics.

Is that correct?

That's correct.

We we we do stress that you know a lot of vendors do want to take that data group of others so they can do their own performance metrics.

We make sure that we're not even included in that, um, even with in an anonymous fashion.

So I I appreciate that.

And what about learning in what ways can they learn from the data?

And then apply that to let me let me put it this way.

Um I won't be using the technical terms almost for sure.

But that that that information that's in there is going to tell the story about this the city and who lives here, who works here, who um interacts with the city, et cetera.

Um that city, even without that that that that information, that story has has value, could have value, could um make people make certain business decisions theoretically.

So um anonymize information, not just not necessarily necessarily the data, but the learnings of what's in that system.

Is that been considered at all discussed?

We do take that in consideration.

I think where you're going with that is you can take certain pieces of data, even when it's uh anonymous and draw conclusions from that, right?

Um so we do look into that.

Uh we did discuss that with the vendor, and like I said, that there is um these SOC2 and ISO compliance uh certifications, do look at that and take that into consideration.

And those are done annually by an independent uh auditing firm and reporters produced, and we have looked at their most recent report.

Sorry.

Yeah, just to well, I understand what you said.

I just want to make sure I dig a little bit deeper, people taken into consideration is good.

I appreciate that.

Um then what?

I mean, what what what is the conclusion that's reached?

That it's not what and what are we what are we trying, what are we assessing for when it's taken into consideration?

So you know, as an example, um first of all, access to our data is very controlled, it's very secured, role-based access measures.

Typically, no other client of Clear AI will have access to our data or our own database uh standing up on its own servers, et cetera.

Where you see my experience where you see you know, people being able to draw conclusions is typically with reporting, dashboards, things like that, where you think you've removed the name, removed an address, and no one can connect the dots.

So that's typically where those things come into play.

It's you know, say it's uh um employee injury, and you know, there's only so many employees that were 55 year old, 55 years old that are out of the office.

You can make a determination who that is, you know, in your team.

So we do have experience already making sure reporting and dashboard dashboards take that into consideration, and we're not divulging that information.

So we we have experience trying to keep it as tight as we possibly can.

Understood.

I I think I I I'm hearing that there's a lot of protections in place to protect folks at the individual level, which is super important and needs to be top of mind.

Uh what I'm what I'm getting at is is a slightly different question, which is the way that ClearAI can learn about San Diego as a place and use that information, take those learnings to profit off those, or potentially place the city at risk.

So the the sort of incidents that occur here.

Could it do you see where I'm getting at?

I think if Leslie's on the Zoom, why don't we ask her?

Thank you.

Can you hear me?

Yes.

I think part of the SOC too.

Um, one of the things that we are assessed for is the ability for clear AI employees to have access to the data to extract the data just for um for that risk.

And so we have strong security in place in order for to prohibit that from occurring.

Okay, so so in other words, they're not able to see this the sort of incidents that might be occurring with regularity here, and then take that information and use that as a as a source of uh uh to uh uh um use that information in in a way that is of value to them.

Correct.

Okay.

All right, thank you.

Appreciate that.

Um I believe we've got a motion on the floor.

I'll second the motion.

All righty, thank you.

Um we have a uh motion by Vice Chair Moreno, we second by council member Hilo Rivera.

Um just a couple of quick things.

Is this uh moving to this system?

Is this a um I guess I'll ask a pre-package type system, or is there or a configuration process where you go through and um help develop um per se the fields in the software to meet the needs of um what we're going what what we need it to do for us?

Somewhere in the middle.

Um it is a pre-packaged software, but we will have the ability to work directly with ClearAI, um, as you guys just met Leslie, and configure where we need to to make it work for us based on our operations, yes.

Okay, and and I think um what my concern is uh it's been my experience when we go through and buy certain software systems.

Um we can often find ourselves in a situation if we don't configure it correctly in regards to what we will need on the back end and reporting.

So I just want to make sure where we need a specific field, we have a specific field and things aren't buried in notes as we are trying to go through extrapolate data to where it's useful and we're operating efficiently.

So that's the basis of my question.

So I'd like to think we have that capability.

You're you're talking about exactly what makes me excited about getting a new system, is a 20-year-old system.

And it is very difficult for us to pull information out to do risk analytics to determine where we should be putting our resources to prevent future loss.

With this new system, we are going into it wide open, looking at where do we have opportunities to design that database differently so that we can pull that information out.

Okay.

And I do like the aspect of the dashboards and having information ready available.

I know we reach out to the risk department quite often to look at certain information, which is a task to receive that information and then go through and format it to where it's useful.

So appreciate these efforts.

One last question is in regards to as we talk about risk management.

The I guess I'll say your ergonomics, right?

Do we still, and I don't know if it lies within your department or HR, but just will this capture certain things as certain folks go through certain efforts?

So if they're getting certain tools, equipment that are to help say prevent carpetona to you know to do certain things.

Do we have a central place where we track all of that?

So I know Angela received a chair of footstool, uh uh a desk riser of this or that as we are looking at long-term risk management and laws in workers' comp type things.

I will admit I had not thought that far ahead about safety since it just joined my department a couple weeks ago.

But that's a really great point, and I will make a note of that because I yeah, that makes sense.

If it's not currently being tracked somewhere, it should be tracked in the new system.

Okay, um righty, we'll do.

I think we'll conclude um my um questions or comments, and we will now have Sarah um call for the vote.

And item five passes unanimously four zero.

All righty, thank you so much.

Um, I guess this brings us to the end of our agenda for today, and brings us to the end of the year for the budget committee.

Um, just really would like to thank the mayor, his team, um, Matt, um Rolando, all the directors, um, the members of the committee, the IBA's office.

Um, it does take a considerable effort to do um what we need to do for this committee and really look forward to working with my colleagues as we continue to move forward.

I think we've made some significant progress, but clearly we have more work to do, um, and I just look forward to um continuing those efforts.

So um, with that um please, um I hope everyone has a happy holiday.

Uh brings in the new year well and blessed.

Um, and so with that, um, I will now adjourn this meeting of the budget and government efficiency committee to our next regularly scheduled meeting, which is on Wednesday, January 14th, 2026 at 9 a.m.

I think the last bit of business we will be issuing a budget call memo for our memo that's due in January here shortly.

So um again, enjoy the holidays and we are adjourned.