Loading...
HomeMy WebLinkAbout2023-04-20; City Staffing and Compensation History (Districts - All); Rocha, LauraTo the members of the: CITY CO UNCIL Date~ CA / CC ✓ cM__0cM _ VDCM (3)U April 20, 2023 Council Memorandum To: Honorable Mayor Blackburn and Members of the City Council From: Laura Rocha, Deputy City Manager, Administrative Services Via: Geoff Patnoe, Assistant City Manager B.? Re: City Staffing and Compensation History (Districts -All) {city of Carlsbad Memo ID# 2023035 This memorandum provides information related to the city's staffing and compensation history. With the City Council meeting held on April 4, 2023 (Attachment E}, which included a discussion on the city's financial status, staff received comments regarding the increase in staffing levels over various time periods. Staffing levels have, in fact, increased and we believe it is critical to view the history of and reasons for staffing level changes beginning with fiscal year 2007-08. This memorandum details the city's annual full-time equivalent position figures, comparative analysis with the city's historical revenues and expenditures, as well as the functional reasoning for changes in staffing over this 15-year period. Background In fiscal year 2007-08, the city's General Fund stood healthy with $118.5 million in revenues and $101.5 million in expenditures. Citywide, there were 711 full-time employees and 140.34 full- time equivalents (commonly referred to as part-time employees} for a total of 851.34 full-time equivalents (FTE}. With a city population of 103,811, the FTE per capita was 122. In other words, for every 122 residents, there was one FTE. Another useful indicator is the ratio of revenues, or General Fund resources, in comparison with FTEs. With $118.5 million in General Fund revenues, for every FTE, there were $139,213 General Fund revenues. Following 2008 and until fiscal year 2012-13, the city implemented reductions to staffing levels to account for the economic downturn driven by the Great Recession. The following chart shows the level of General Fund revenues, expenditures and citywide FTEs during that 5-year period. Administrative Services Branch Finance Department 1635 Faraday Avenue I Carlsbad, CA 92008 I 442-339-2127 t Council Memo -City Staffing and Compensation History {Districts -All) April 20, 2023 Page 2 $130,000,000 ------- $120,000,000 $110,000,000 $100,000,000 1-I $90,000,000 $80,000,000 FY07-08 FY08-09 FY09-10 FYl0-11 FYll-12 I FY12-13 -General Fund Revenue -General Fund Expenditure Citywide Full-time Equivalents 900 850 800 750 700 650 600 The axes in the chart above have been condensed for illustrative purposes. We can see the Great Recession impacted General Fund revenues, while the reduction in staffing and General Fund expenditures contributed to maintaining healthy annual surpluses. Over this 5-year period, the year-over-year change in revenues totaled 1.3%, expenditures totaled -5.0%, and FTEs totaled - 5.3%. Baseline revenues in excess of expenditures totaled $92.2 million over the same period. The next 5-years-between fiscal year 2013-14 and fiscal year 2017-18-coincided with the recovery from the Great Recession and continued economic growth and expansion. $160,000,000 $150,000,000 $140,000,000 $130,000,000 $120,000,000 $110,000,000 $100,000,000 $90,000,000 $80,000,000 FY13-14 FY14-15 FY15-16 -General Fund Revenue -General Fund Expenditure 900 850 800 750 700 650 600 FY16-17 FY17-18 Citywide Full-time Equivalents Council Memo -City Staffing and Compensation History (Districts -All) April 20, 2023 Page 3 The axes in the chart above have been condensed for illustrative purposes. We can see General Fund revenues and expenditures increasing relatively proportionally while maintaining healthy annual surpluses. FTEs grew slowly but did not reach levels consistent with fiscal year 2007-08 until fiscal year 2017-18. Over the 5-year period, the year-over-year change in revenues totaled 27.3%, expenditures totaled 26.2%, and FTEs totaled 6.9%. Baseline revenues in excess of expenditures totaled $134.1 million over the same period. Between fiscal year 2018-19 and 2022-23, the city experienced continued economic growth and expansion. Even with the COVID-19 pandemic and its adverse fiscal impacts showing up in fiscal year 2019-20 through 2020-21, the city's revenues recovered in an accelerated fashion in fiscal year 2021-22 and operations normalized to pre-pandemic conditions by the end of the 5-year period. $220,000,000 1000 $200,000,000 950 $180,000,000 900 $160,000,000 850 I $140,000,000 800 $120,000,000 750 $100,000,000 700 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23 -General Fund Revenue -General Fund Expenditure Citywide Full-time Equivalents The axes in the chart above have been condensed for illustrative purposes and it is important to note that estimates have been applied for fiscal year 2022-23, as the year has not yet ended. Despite the impacts of COVID-19 where revenues declined in fiscal year 2019-20 and expenditures were reduced accordingly in fiscal year 2020-21, the General Fund was able to maintain healthy annual surpluses. Over the 5-year period, the year-over-year change in revenues totaled 29.0%, expenditures totaled 39.7%, and FTE totaled 13.7%. Baseline revenues in excess of expenditures totaled $143.3 million over the same period. Attachment A presents the previous three graphs in a consolidated format, and we can clearly see that revenues, expenditures, and FTEs have increased over the 15-year period. Comparing fiscal year 2007-08 to fiscal year 2022-23 estimates, the following statistics apply: Council Memo -City Staffing and Compensation History (Districts -All) April 20, 2023 Page 4 Revenues have increased from $118.5 million to an estimated $205 million, 73% in total, or 5% annually on average Expenditures have increased from $101.5 million to an estimated $180.0 million, 77% in total, or 5.1% annually on average FTEs have increased from 851.59 to 987.65, 16% in total, or 1% annually on average The amount of General Fund revenue per FTE was $139,213 in fiscal year 2007-08 and is projected at $207,563 in fiscal year 2022-23 (Attachment B) FTEs per capita was 122 in fiscal year 2007-08 and is projected at 117 in fiscal year 2022-23 (Attachment C) When comparing the start and end points, it is clear staffing levels have remained relatively proportionate, regardless of the metric. But a great deal of fluctuations occurred between those 15 years. Referring back to the first 5-year bar chart, we saw the reduction in staff and expenditures to account for the economic downturn driven by the Great Recession. And we saw that trend linger into the second 5-year period. It was not until about fiscal year 2017-18 that we began to see more significant increases in staffing and a return to pre-Great Recession levels. And that is where we want to focus in terms of the purpose and reasons behind the increases. Bargaining Unit Positions Below is a chart that summarizes the full-time position additions by bargaining unit. The bargaining units that experienced FTE growth in our time period are defined below. A full detailed list of added positions can be found in Attachment D. Management (MGMT) -employees in this unit are defined as those employees whose classifications are listed on the Management Salary Structure. Except as to those management employees subject to an applicable law, all management employees are considered "at-will" and have no property rights to their position. Additionally, these are ((salary" employees and do not receive overtime pay. It is commonly thought that all employees in the "Management" unit are managers; however, that's not always the case. Some distinguishing characteristics of a "Management" employee include, but are not limited to: • Demonstrates leadership, coaching and mentoring skills. • Leads project teams on complex projects/programs. • Applies and develops advanced solutions to complex opportunities or problems, using advanced principles, theories and concepts. • Expert on the city's policies and procedures. • Selects (and may design new) methods and techniques for obtaining solutions. • Represents the city in the community and at professional meetings. The following 13 positions added during our time frame are examples of ((Management" employees with the title of ((Manager" absent, but do hold the distinguishing characteristics mentioned above: Council Memo -City Staffing and Compensation History (Districts -All) April 20, 2023 Page 5 • Parks Superintendent • City Traffic Engineer • Smart City Innovator • Communications Coo rdinator • Community Arts Coordinator • Public Works Superintendent • Deputy City Attorney • SCADA Supervisor • Community Health Nurse • Management Analyst (4) Carlsbad City Employees' Association (CCEA) -Comprises city employees that are, contrary to the Management classification, not considered "at-will." These are also considered "hourly" employees who receive overtime and compensated time. Carlsbad Police Officers' Association (CPOA) -Comprises and represents the city's Police Officers, communications personnel, and Community Service Officers within the Police Department. Carlsbad Firefighters' Association (CFA)-Comprises and represents the city's fire employees within the Fire Department. Unrepresented (Unrep) -Comprises employees, specifically Emergency Medical Technicians, that are not formally represented by a bargaining unit. 25.00 20.00 15.00 10.00 5.00 0.00 -5.00 FY17-18 Position Additions by Bargaining Unit I I 111 I I • FY18-19 FY19-20 FY20-21 FY21-22 ■ MGMT ■ CCEA ■ CPOA ■ CFA ■ UN REP FY22-23 In total and from fiscal year 2016-17 to fiscal year 2022-23, full-time employees increased by 130.5 or 19%. Council Memo -City Staffing and Compensation History (Districts -All) April 20, 2023 Page 6 30 or 23% were part of the "Management" bargaining unit 51 or 39% were part of "CPOA," "CFA," or "Unrepresented" bargaining units 49.5 or 38% were part of "CCEA" bargaining unit 23 of the 130.5 were non-General Fund Program, Service, and Resource Expansion During this 6-year period, many new programs, expanded services, and regulatory requirements were implemented. Police Ranger Program Lifeguard Program Lagoon patrol Emergency medical response Boards & Commission transparency New parks and maintenance Traffic safety Homeless Response Program Environmental initiatives Public health Cybersecurity and data analytics Diversity, equity, and inclusion The items above are a non-exhaustive list, but since fiscal year 2018-19, they contributed to additional budgeted costs of approximately $50 million and 45 full-time employees. Changes to the city's staffing since fiscal year 2016-17 are discussed further below. It is important to note that referenced positions reflect the department to which they were added at that respective point in time. It does not reflect interdepartmental transfers in order to agree with City Council Adopted Budgets in each respective fiscal year. • The Fire Department's Standards of Cover evaluation was part of the fiscal year 2021-22 . City Council Goals Work Plan which was approved via City Council resolution on April 27, 2021. This effort included $21 million in one-time costs and $21.4 million in annual ongoing/future costs. In addition to temporary and permanent Fire Station No. 7, the Standards of Cover also called for the addition of 24 full-time employees. An additional 9 full-time employees were added during this period including, but not limited to, a Community Health Nurse, Paramedic Lifeguard Lieutenants, and Fire Prevention Specialists. A portion of these staff and budget increases serviced and funded additional ambulances and medical transports which resulted in increased ambulance fee revenues. • The Homeless Workplan, resulting from the fiscal year 2021-22 City Council Goals Work Plan, included $4.9 million in related costs in fiscal year 2021-22 and estimated annual costs of $1.7 million through fiscal year 2025-26. It also called for the establishment of a Housing and Homeless Services Department as well as the hire of a Police Sergeant and two Officers to staff the Homeless Outreach Team. During this period, and excluding the three Homeless Outreach Team employees added to the Police Department, 5 full-time employees were added to the Housing and Homeless Services Department. • The Carlsbad Police Department has added 24 full-time employees since fiscal year 2016-17 to ensure maintained levels of public safety service. Compared to other jurisdictions in San Diego County, Carlsbad is tied with the City of Chula Vista in terms of having the lowest amount of General Fund expenditures allocated to law enforcement each fiscal year (22%). The regional average is 32% and the highest allocation is the City of El Cajon at 48%. Council Memo -City Staffing and Compensation History (Districts -All) April 20, 2023 Page 7 • Recent legislation impacting environmental sustainability has required additional city resources. 2 full-time employees were added in fiscal year 2019-20 to achieve and maintain compliance with SB 1383 and AB1826 which requires a program to recycle organic waste. In fiscal year 2022-23, 6 full-time employees were added to implement the Sustainable Materials Management Plan and additional sustainability initiatives directed by the City Council, such as the single-use plastics ban. • As governments look to increase efficiency, collect and manage data, and safeguard its assets, they become more heavily dependent on technology. There are endless benefits of leveraging technology, but it does come at a cost and it also requires city staff to operate, maintain, and continue to innovate. 11 full-time employees were added to the Information Technology (IT) and Innovation & Economic Development (IED) Departments during this 6-year period. Six of these positions were requested to assist with internal operations and customers, including addressing demand at the Client Service desk and deployment of software/hardware and devices. One Senior Applications Analyst was added solely to address the increasing technology support needs for the city's Police Department. While the remaining added positions in IT were added to manage the city's investment in GIS technology, have someone dedicated solely to the city's IT operations security, and support the installation and maintenance of the city's voice, video and mobile device management. Lastly, the city converted two part-time jobs in Innovation & Economic Development into one full-time Strategic Plan Analyst position to support the work outlined in the Citywide Data Governance and Management Council Policy, along with having responsibility for analyzing data related to the Strategic Plan's five goals, 28 strategic objectives, and over 60 priority projects. • S full-time employees were added to the Utilities Department, most of which were recommended in the city's master plans. A SCADA Supervisor and Technician were added in relation to the city's 2019 SCADA Master Plan allowing the city to monitor water and wastewater infrastructure. The city's Asset Management Master Plan called for a Utilities Asset Management Program Specialist in order to move forward with the plan's projects, resulting in proactive rather than emergency repairs, and assistance on compliance with new regulations. Adding a Utility Locator enabled the city meet increasing markout needs with cost savings from reduced contractor use, greater efficiency, and better accuracy, and a new Management Analyst assisted with existing financial management demands. • 4 full-time employees were added to Human Resources, primarily to ensure timely and sufficient service continuity for receiving departments. The addition also included the city's first Senior Program Manager of Diversity Equity and Inclusion. The remaining three positions were added to assist primarily with compliance efforts, citywide training programs, and discipline and employee relations. • 2.5 full-time employees were added to the Library & Cultural Arts Department. Part of this represents the conversion of two part-time to full-time Circulation Supervisors to improve organizational alignment and address the gaps in staff development, connectedness and morale caused by the difficulty in retaining part-time staff. This conversion resulted in a net reduction in full,.time equivalent positions as well as savings Council Memo -City Staffing and Compensation History (Districts -All) April 20, 2023 Page 8 to the General Fund. Additionally, with an additional $100,000 in public art budget granted in fiscal year 2015-16, the department required a Community Arts Coordinator to design, implement, and maintain public art on an ongoing basis to ensure this budget appropriation is appropriately utilized. The addition of a Library Assistant also allowed the department to open its Library Learning Center on Saturdays-like Cole and Dove Libraries-to address unmet literacy learner needs and enable the center to use its endowment funds to supplement these efforts. • 9.75 full-time employees were added to the Transportation, Fleet & Facilities, and Construction Management and Inspection Departments, as described below. o Three positions were added to the Transportation Department to support storm drain engineering, act as the City Traffic Engineer with the important responsibility of overseeing the Traffic Safety Commission (now known as the Traffic & Mobility Commission) and a Director to better coordinate related activities across Transportation and serve as the City Engineer. o Facilities & Fleet required a new Superintendent to provide oversight when departments develop specifications and want to procure vehicles. The department also needed a Facility Specialist to serve the high demands of all user groups at the Safety Training Center, based on the results of an operational study deeming existing staffing levels insufficient. A limited term Senior Engineer was added to cover the anticipated workload for the next five years currently programmed in the CIP to significantly assist in project delivery of these important projects, some of which are also City Council priorities and/or involving public safety. Lastly, an operational study conducted in 2019 found the current staffing levels for custodial services to be inadequate; as a result, the city converted three part time custodians to full time to better preserve public health and safety by maintaining hygienic and cleanliness standards of city facilities for staff and the public. o Lastly, an Associate Contract Administrator was added to Construction Management & Inspection to handle additional workload and serve as backup performing revenue and contract management tasks related to CIP and private development projects. • 1.25 full-time employees were added to the Finance Department for additional treasury and accounting support. A new Accountant was necessary to ensure the Financial Reporting and Accounting Group can meet its obligations to Council, residents, regulators, and the organization, in part due to the increased number and complexity of accounting standards. • 1 full-time employee was added for City Council administrative support. • 4 full-time employees were added to the Communications Department for enhanced communications and public outreach through the conversion of 4 part-time to 2 full-time Community Relations Managers, a Communications Coordinator and a Media & Graphics Supervisor. Council Memo -City Staffing and Compensation History (Districts -All) April 20, 2023 Page 9 • 2 full-time employees were added to the City Attorney's Office for additional city prosecution and code enforcement support via a new Assistant City Attorney and Deputy City Attorney. • 2 full-time employees were added to the City Clerk's Office for assistance with the retention and destruction of paper and digital records citywide with a Records Technician as well as an additional Deputy City Clerk. • 1 full-time employee was added to the City Manager's Office for additional administrative support. This position was later transferred to the Community Development Department. • 1 full-time employee was added for increased legislative and intergovernmental efforts and collaboration. • 2 full-time employees enhanced efforts in the area of innovation and analytics, with the addition of a Smart City Innovator (now titled Chief Innovation Officer) and Business Intelligence & Analytics Manager, later transferred to the Office of Innovation & Economic Development. • 10 full-time employees were added to the Community Development Department to increase service levels for engineering and building permits and inspections and code enforcement monitoring and compliance. The positions can be broken down as follows: o One position add was administrative, working on bonds and agreements and other similar contracts and documents of the department. o Two positions were added in support of the city's housing division and homeless response plan, before later being transferred to the city's subsequently formed Housing & Homeless Services Department. o Four of the remaining seven position additions were conversions from limited term to permanent positions. These included an Associate Engineer to maintain current customer service levels for processing of development applications and engineering demands related to flood plain analysis and Transportation Demand Management programs, a Building Inspector to meet growing and increasingly complex service demands for building inspections, a Building Technician to maintain minimum staffing needs of the Community and Economic Development front counter at the Faraday Center to sustain quality customer service, and a Senior Program Manager dedicated to Carlsbad Village programs and projects. This Senior Program Manager position was later transferred to Housing & Homeless Services to support housing services. o Two of the remaining three added positions-an Engineering Technician and Code Enforcement Officer-were added to better address demands and case management. o Lastly, a Code Enforcement Program Manager was added to provide daily management of the code enforcement program; the department previously had a Manager before it had to reassign duties to address the new short-term vacation rental program enforcement needs. Council Memo -City Staffing and Compensation History (Districts -All) April 20, 2023 Page 10 •4 full-time employees (net} were added to the Parks & Recreation Department for 4 senior lifeguards. This action reduced the total FTE count by 2.6. These positions were provisionally approved during mid-year, and this budget request in fiscal year 2022-23 made them permanent FTEs. The city's aquatic centers were significantly impacted by the nationwide staffing shortages and lap swimming and aquatic programs were also reduced. Full time staff helps ensure dependability as opposed to the high turnover in part-time staff, as FT are more stable and provide the public with the greatest potential for regular hours of operations and programs at the pools. Management Compensation Staff have received comments about the number of new managers hired and number of employees making over $100,000 per year. In short, yes, new managers have been hired and there are employees making more than $100,000 per year. But it's important to look at the actual figures in the appropriate context. Of the 130.5 full-time position additions since fiscal year 2016-17, 30 or 23% were part of the "Management" bargaining unit. And of these 30 positions, 13 do not have the title of "manager" and may not operate or function as a "manager." On an adjusted basis, 17 managers were added in the 6-year period. The following chart shows the number and percentage of employees with budgeted annual salaries of more than $100,000 in each of the respective years. With fiscal year 2016-17 serving as the base year for the $100,000 threshold, we have applied the consumer price index (CPI) for San Diego in each of the future years to account for inflation. Fiscal year 16-17 17-18 18-19 19-20 20-21 21-22 22-23 CPI -San Diego 0.0% 3.0% 3.4% 2.4% 1.5% 5.2% 7.7% # of full-time employees 127 119 117 134 148 149 110 with a budgeted base salary of $100,000, CPI adjusted Total # of full-time 676.25 685.25 693.25 745.75 747.75 772.25 806.75 employees citywide % of full-time employees 19% 17% 17% 18% 20% 19% 14% with a budgeted base salary of $100,000, CPI adjusted Transparent California (https://transparentcalifornia.com) is an on-line database that provides comprehensive and easily searchable information on the compensation of public employees and retirees in California. It is provided by the Nevada Policy Research Institute which is a non­ partisan think tank that focuses on, among other things, empowering citizens and elected officials with information they need to make informed public policy decisions. Transparent California is a great tool for all users, but there are some limitations to be aware of when reviewing the information. The data used by Transparent California is based on a calendar year whereas the city's budget and financial data is based on a fiscal year (July 1-June 30). I II I I I I Council Memo -City Staffing and Compensation History {Districts -All) April 20, 2023 Page 11 Additionally, the timing of actual changes in personnel and compensation also may not be timely or accurately represented in the data published by Transparent California. For example, if a position becomes vacant halfway through the year and it is quickly filled, Transparent California's data might appear as though there are two positions instead of one. The city has changed significantly over the last 15 years. From forging through the Great Recession and COVID-19 pandemic to making strategic reductions and adding and expanding programs and services, the city's staff has been a steady constant and driving force in ensuring the community continues to receive excellent levels of service. Next Steps This memorandum is for informational purposes. Staff will be presenting the Fiscal Year 2023-24 Preliminary Budget on May 23, 2023, to receive input and direction from the City Council and community members before final budget adoption slated for June 13, 2023. Attachment: A. General Fund Revenue, Expenditures, and Citywide Employees B. General Fund Revenue per Full-time Equivalent C. Full-time employees and Equivalents per Capita D. Citywide Position Additions from FY 2017-18 to FY 2022-23 E. April 4, 2023, City Council Item #8 (Due to the size of Attachment E, a hard copy is on file in the Office of the City Council, as reference) cc: Scott Chadwick, City Manager Cindie McMahon, City Attorney Michael Calderwood, Fire Chief Mickey Williams, Police Chief Gary Barberio, Deputy City Manager, Community Services Paz Gomez, Deputy City Manager, Public Works Judy Von Kalinowski, Human Resources Director Zach Korach, Finance Director Attachment A General Fund Revenue, Expenditures, and Citywide Employees $250,000,000 --· --·-· ----·--------------•· -1200 1000 $200,000,000 --------------,.;-~ -I 800 $150,000,000 --------.._._.,;.-;;=~::::.:====:~==~;:: 1--~ ----ci I .- 600 $100,000,000 ---- , ______ _ 400 $50,000,000 I-.. - 200 $-0 FY07-08 FY08-09 FY09-10 FYlD-11 FYll-12 FY12-13 FY13-14 FY14-15 FYlS-16 FY16-17 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23 -General Fund Revenue -General Fund Expenditure -Citywide Full-time Employees Source: City of Carlsbad Adopted Budget and Annual Comprehensive Financial Report Notes: (1) Fiscal year 2022-23 is estimated until year-end close after June 30, 2023. Citywide Full-time Equivalents (2) General Fund expenditures exclude transfers and additional contributions to CalPERS for purposes of establishing a baseline trend. Attachment B General Fund Revenue per Full-time Equivalent $250,000.00 $200,000.00 $150,000.00 $100,000.00 --I $50,000.00 $- FY07-08 FY08-09 FY09-10 FYl0-11 FYll-12 FY12-13 FY13-14 FY14-15 FYlS-16 FY16-17 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23 Source: City of Carlsbad Adopted Budget and Annual Comprehensive Financial Report Attachment C Full-time Employees and Equivalents per Capita 180 160 140 -~---------------==-~~---~- 120 -------------- 100 80 60 40 20 FY07-08 FY0B-09 FY09-10 FYl0-11 FYll-12 FY12-13 FY13-14 FY14-15 FYl S-16 FY16-17 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23 -Full-time employee per capita -Full-time equivalent per capita ____ J Source: City of Carlsbad Adopted Budget and Annual Comprehensive Financial Report FULL-TIME POSITION ADDITIONS FROM FISCAL YEAR 2017-18 TO FISCAL YEAR 2022-23 AttachmentD 676.25 FY 2017-18 Parks & Recreation Park Maintenance Worker II CCEA General Budget -1.00 City Attorney Deputy City Attorney MGT General Budget 1.00 City Clerk Records Technician CCEA General Budget 1.00 Information Technology Service and Release Manager MGT Internal Service Budget 1.00 Information Technology Client Systems Associate Administrator CCEA Internal Service Budget 3.00 Information Technology Senior Applications Analyst CCEA Internal Service Budget 1.00 Information Technology Senior Network Engineer CCEA Internal Service Budget 1.00 Parks & Recreation Park Planner CCEA General Budget 1.00 Transportation Property and Environmental Management Director MGT General Budget 1.00 9.00 685.25 FY 2018-19 Parks & Recreation Maintenance Aide CCEA General Budget ·1.00 Parks & Recreation Park Maintenance Worker II CCEA General Budget -1.00 Parks & Recreation Parks Superintendent MGT General Budget 1.00 Transportation City Traffic Engineer MGT General Budget 1.00 Fleet&Facilities Facility Specialist CCEA General Budget 1.00 City Manager Smart City Innovator MGT General Budget 1.00 Police Police Officers (Sworn) CPOA General Budget 4.00 Police Ranger Community Service Officers (limited term conversio CPOA General Budget 2.00 8.00 693.25 FY 2019·20 Fleet&Facilities Administrative Secretary CCEA General Mid•year -0.25 Fire Paramedic lifeguard Lieutenant CFA General Mid•year 2.00 Police School Resource Officer CPOA General Mid•year 1.00 City Council Senior Office Specialist CCEA General Mid·year 1.00 Communication & Engagement Communications Coordinator MGT General Mid-year 1.00 Communication & Engagement Media & Graphics Supervisor CCEA General Mid-year 1.00 City Clerk Deputy City Clerk CCEA General Mid-year 1.00 Community Development Building Inspector 1/11 CCEA General Mid-year 1.00 Community Development Building Technician 1/11 CCEA General Mid-year 1.00 Community Development Senior Program Manager MGT General Mid-year 1.00 Community Development Associate Engineer CCEA General Mid-year 1.00 City Attorney Assistant City Attorney MGT General Budget 1.00 City Manager Administrative Secretary CCEA General Budget 1.00 City Manager Business Intelligence & Analytics Manager MGT General Budget 1.00 City Manager Intergovernmental Affairs Manager MGT General Budget 1.00 City Treasurer Assistant to the Treasurer CCEA General Budget 0.25 Community Development Engineering Technician II CCEA General Budget 1.00 Community Development Code Enforcement Officer II CCEA General Budget 1.00 Community Development Code Enforcement Program Manager MGT General Budget 1.00 Community Development Housing Assistant CCEA General Budget 1.00 Community Development Program Manager (Homeless Response Plan) MGT General Budget 1.00 Finance Accountant CCEA General Budget 1.00 Fire Business Systems Specialist CCEA General Budget 1.00 Fire Fire Captain Specialist CFA General Budget 1.00 Fire Fire Prevention Specialist CFA General Budget 0.75 Fire Fire Prevention Specialist ll CFA General Budget 2.00 Fire Senior Office Specialist CCEA General Budget 1.00 Human Resources Human Resources Technician CCEA General Budget 1.00 Human Resources Management Analyst MGT General Budget 1.00 Human Resources Senior Office Specialist CCEA General Budget 1.00 Information Technology Client Systems Administrator CCEA Internal Service Budget 1.00 Information Technology GIS Associate Administrator CCEA Internal Service Budget 1.00 Information Technology IT Operations Security Manager MGT Internal Service Budget 1.00 Library & Cultural Arts Community Arts Coordinator MGT General Budget 1.00 Library & Cultural Arts Library Assistant CCEA General Budget 1.00 Police Police Officers CPOA General Budget 8.00 Police Police Records Specialist II CCEA General Budget 2.00 Police Police Sergeant CPOA General Budget 1.00 Construction Management & Inspection Associate Contract Administrator CCEA General Budget 1.00 Environmental Sustainability Environmental Specialist 11 CCEA Enterprise Budget 1.00 Fleet& Facilities Public Works Superintendent, Fleet MGT Internal Service Budget 1.00 Utilities SCADA Supervisor MGT Enterprise Budget 1.00 Transportation Senior Engineer MGT General Fund Budget 1.00 Environmental Sustainability Senior Environmental Specialist CCEA Enterprise Budget 1.00 Community Development Senior Office Specialist CCEA General Budget 0.75 52.50 745.75 FY 2020-21 Police FY 2021-22 Housing & Homeless Services Housing & Homeless Services Housing & Homeless Services Housing & Homeless Services Human Resources Fire Fire Fire Community Development Police Police Fleet&Facillties Utilities Utilities FY 2022-23 Police Fleet&Facilities Utilities Fire Innovation & Economic Development Parks & Recreation Parks & Recreation Housing & Homeless Services Information Technology Utilities Fire Communication and Engagement Communication and Engagement Environmental Sustainability Environmental Sustainability Library&CulturalArts Total ADDITIONS BY BARGAINING UNIT CCEA MGT CPOA CFA UNREP TOTAL FULL-TIME POSITION ADDITIONS FROM FISCAL YEAR 2017-18 TO FISCAL YEAR 2022-23 AttachmentD Police Officers Director of Housing & Homeless Services Housing Services Manager Management Analyst Program Manager Senior Program Manager, Diversity Equity & Inclusion Paramedic Firefighters Emergency Medical Technicians Fire Prevention Specialist II (0. 75 to 1.0 conversion) Senior Office Specialist (0.75 to 1.0 conversion) Police Sergeant Police Officers Custodians (PT to FT conversion) SCADA Technician Utllltles Asset Management Program Specialist Management Analyst Senior Engineer (5-Year Limited Term) Management Analyst Emergency Medical Technicians Strategic Plan Analyst Senior Lifeguards Park Planner (5-Year Limited Term) Housing Assistant Client Systems Associate Administrator Utility locator Community Health Nurse Community Relations Manager Community Relations Manager Environmental Specialist Environmental Specialist Circulation Supervisors (0.75 to 1.0 conversions) 49.50 38% 30.00 23% 21.00 16% 15.00 11% 15.00 11% 130.50 100% CPDA MGT MGT MGT MGT MGT CFA UN REP CFA CCEA CPOA CPOA CCEA CCEA CCEA MGT MGT MGT UNREP CCEA CCEA CCEA CCEA CCEA CCEA MGT MGT MGT CCEA CCEA CCEA General Mid-year 2.00 2.00 747.75 General Budget 1.00 General Budget 1.00 General Budget 1.00 General Budget LOO General Budget 1.00 General Budget 9.00 General Budget 3.00 General Budget 0.25 General Budget 0.25 General Budget 1.00 General Budget 2.00 General Budget 3.00 Enterprise Budget 1.00 Enterprise Budget 1.00 25.50 773.25 General Budget 1.00 General Budget 1.00 Enterprise Budget 1.00 General Budget 12.00 General Budget 1.00 General Budget 4.00 General Budget 1.00 Special Revenue Budget 1.00 Internal Service Budget 1.00 Enterprise Budget 1.00 General Mid-year 1.00 General Mid-year 1.00 General Mid-year 1.00 General Mid-year 2.00 Enterprise Mid-year 4.00 General Mid-year 0.50 33.50 806,75 130.50 806.75 Notes: (1) Positions in this list are reflected as of a point in time and do not reflect interdepartmental transfers or reclassifications for purposes of agreeing with respective Adopted Budget documents. (2) 23 of the 130.S or 18% were non-General Fund CA Review CKM Meeting Date: April 6, 2023 To: Mayor and City Council From: Scott Chadwick, City Manager Staff Contact: Laura Rocha, Deputy City Manager – Administrative Services laura.rocha@carlsbadca.gov, 442-339-2415 Zach Korach, Director of Finance zach.korach@carlsbadca.gov, 442-339-2958 Subject: City Financial Status Update District: All Recommended Action 1.Receive a report on city finances, funding challenges and funding options. 2.Provide feedback and direction to staff. Executive Summary The City of Carlsbad has always prided itself on providing a high level of service to the community, responsibly managing public resources and working in partnership with the community to realize its vision for the future. As the city transitions from a time focused on building a great city to maintaining what has been created, the needs, priorities and revenue sources are changing. Carlsbad has been able to maintain strong financial health by planning ahead and using the best data available to make informed decisions. One tool used by the city’s Finance Department is a 10-year forecast of planned spending and expected revenues. Identifying potential future funding gaps between revenue and expenditures serves as an early indicator that spending needs to be modified, new revenues brought in, or both, to maintain long term fiscal sustainability. For example, during the 2008 recession, staff identified a funding gap, and the City Council adjusted the timing of certain projects and made other changes to the city budget that successfully closed the gap. Staff’s forecasts have identified a potential similar future funding gap that could occur in coming years. City staff are preparing to present the proposed budget for the coming fiscal year to the City Council next month. This report provides an overview of the city’s current financial status, longer-term forecasts and potential new revenue sources the City Council may want to consider to ensure the city’s ongoing fiscal health and its ability to continue to provide the high level of service our community has come to expect. April 4, 2023 Item #8 Page 1 of 13 Attachment E Explanation & Analysis Background When Carlsbad was being developed, the city’s goal was to build an excellent community while maintaining fiscal health to provide a high level of service. As cities approach a time when much of the new development is complete, the focus traditionally shifts to maintaining what has been created. As infrastructure ages, so do the investments needed to maintain it. Carlsbad’s water, sewer and storm drain system alone represents over $2 billion in assets that need to be maintained. The city also has more people to serve than it did in the past. This occurs at the very time that fees from building – the fees that originally paid for much of this infrastructure – are less than they were in those previous years. In addition, limits on certain taxes, such as property tax, mean that revenues may not keep pace with inflation, or with the increases in service costs. This is how maturing cities can face a structural deficit. And staff’s financial forecasts indicate that the city’s revenues will fall short of its spending in the next five to ten years. Cities have several options when determining how best to close a funding gap, including postponing major new projects, finding more efficient ways to deliver services, eliminating services that aren’t core to the city’s mission and expanding the revenue base. In 2021, the City Council approved a project to study potential new sources of revenue to better understand these options. A City Council Workshop was held on April 20, 2022, to discuss the results of the study. Although no further action was taken at that time, uncertainty in the economy remains. Current fiscal condition Following the Great Recession of 2007-09, the city has thrived through the longest recovery and expansionary period in United States history. Since 2012, proceeds from the city’s property, sales and transient occupancy taxes, the top three sources of the city’s general fund money, have increased approximately 53%, 80% and 120%, respectively. Below is a chart showing the General Fund’s revenues and expenditures since fiscal year 2012-13. Note: Transfers include financing district, storm water, golf course, workers’ compensation, risk, fleet, infrastructure replacement and general capital construction. Additional discretionary payments to CalPERS are not included. $- $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 General Fund Revenues General Fund Expenditures Transfers General Fund revenues, expenditures and transfers April 4, 2023 Item #8 Page 2 of 13 II. I. I. I. I ■ ■ ■ I I I '? ~ ~ <o '\ 'b °> ~ ',, ~ r>,e, ':I:',, '?"-; ~',, <-i "-; 'o',, '\:-; <ti..,, O{~ f::f "v ~"v ri:"" «..4.',, «..4.',, «..4."-; «4."' «..4."Y «..4.',, «..4."-; «4."" «_4-~ «..4."v «..4."v ■ ■ ■ Since fiscal year 2012-13, revenues have grown approximately 5.3% on average each year. Excluding transfers out, expenditures have outpaced the growth of revenues by increasing 6.9% on average each year. The increase in expenditures over the last ten years was partly the result of the city adding staff to maintain its high level of service while meeting meet new and changing community priorities, but it has also been driven by new requirements imposed by the state and federal governments that cost the city money but are not eligible for reimbursement. For example, the city is responsible for reducing greenhouse gas emissions by state deadlines, which requires a multi-year comprehensive effort involving nearly every city department. New/expanded city services 2017-2022 The city has also added several new or expanded city operations and services in recent years. Here is a partial list, which includes new investments in public safety, community services, sustainability and city administration. Public safety • Homeless Response Program • Policy body worn cameras • Beach lifeguard program • Trail ranger program • Lagoon patrol (on-water) • Citizens Police Academy • Expanded public health role (due to pandemic) Community services • New community special events • New and expanded park amenities • Intergenerational Parks & Recreation programs • Expanded city arts and culture programs • Mobile library program • Age-friendly cities initiative Sustainability • Community Choice Energy electrical service • New environmental initiatives • Sustainable Mobility Program Administration • Internal audit program • Innovation and data analytics • Diversity, equity and inclusion program • Enhanced cybersecurity program • New citizens committees • New City Council subcommittees: Legislative and Economic Development April 4, 2023 Item #8 Page 3 of 13 Steps already taken to safeguard financial health Consistent with the city’s well-established track record of prudent financial management, staff and the City Council have taken the following steps in recent years to support the City of Carlsbad’s ongoing fiscal sustainability: 1. Strong general fund reserve policy The City of Carlsbad maintains a healthy general fund reserve, sometimes called a rainy-day fund, to protect against unanticipated changes that could negatively affect city finances. The General Fund Reserve Guidelines established in City Council Policy No. 74 requires the city to hold in reserve an amount equivalent of 40% of the annual General Fund operating budget. Even with the expanded services approved by the City Council, the city has been able to build up our general fund reserve to record levels. The chart below shows that the city has been able to maintain a reserve account that is higher than the 40% required by City Council policy. Strategic use of reserves On June 18, 2019, the City Council adopted revisions to the city’s General Fund Reserve Policy (City Council Policy No. 74). These changes narrowed how General Fund reserves could be used to three purposes: 1. To mitigate financial impacts resulting from a natural disaster or other catastrophic events 2. To respond to the challenges of a changing economic environment 3. To continue demonstrating prudent fiscal management and creditworthiness This new policy provided greater City Council control over how reserves are spent and opened the door to using General Fund reserves to strategically put the city in a better long-term financial position. 0% 10% 20% 30% 40% 50% 60% 70% Healthy General Fund reserves Reserve Percentage Reserve Policy Amount of money required to be held in reserve for emergencies, fiscal sustainability and to withstand economic downturns Actual amount of money the city has in reserve April 4, 2023 Item #8 Page 4 of 13 ■ ■ • For example, in FY 2016-17 and FY 2020-21, approximately $30 million was used to fund the City’s General Capital Construction Fund, Infrastructure Replacement Fund, and to reduce the city’s CalPERS pension debt, its unfunded liability, which helps save the city money in the long run. • These investments mean that the city has money set aside to keep its major infrastructure well-maintained, thus avoiding costly emergency repairs. 2. Putting money away for future needs The city has consistently allocated the equivalent of 6% of estimated General Fund revenues each year to an infrastructure replacement fund. This enables the city to keep up with maintenance, to prolong the useful life of approximately $1.2 billion worth of city infrastructure and to be in a position to replace infrastructure as needed. On June 8, 2021, the City Council approved City Council Policy No. 91, the city’s Long Term General Fund Capital Funding Policy, which formalizes not just setting funds aside funding each year for infrastructure replacement but also for general construction needs and investments in technology, which has become a costly yet critical part of efficient and effective city operations. 3. Reducing pension debt In recent years, unfunded liabilities, or pension debt, have caused cities in California to cut back on public services. Three cities have declared bankruptcy. Pension debt is the difference between how much money is available to pay for the pensions city employees receive when they retire and the money needed to pay for the actual benefits. Pension debt is an estimate because it’s not possible to know exactly how well the pension fund investments will perform nor how many employees will retire, at what age they will retire and how long they will live. The City of Carlsbad has long recognized the financial uncertainty caused by the state’s pension system. That’s why Carlsbad was one of the first cities in the region to enact pension reform, pre-dating state reforms in 2013. This and other strategies have reduced the city’s pension debt considerably compared to most other cities in the state. What is the problem? In the early 2000s, CalPERS, the state agency that manages pensions for cities, anticipated that investment returns would be higher than the investments actually performed. This resulted in less money than expected in the overall pension fund, thus increasing the pension debt for cities. Since this time, CalPERS has taken several steps to improve transparency and the financial health of its fund: • In December 2016, CalPERS reduced the assumed rate of return for investments, from 7.5% to 7.0% over three years, from FY 2018-19 to FY 2020-21. • In February 2018, CalPERS decreased the amortization period for new pension liabilities from 30 years to 20 years effective July 1, 2019. • In FY 2020-21, CalPERS reported an investment return of 21.2% which, under CalPERS’s Funding Risk Mitigation Policy, triggered a reduction in the discount rate used to calculate contributions from employers and those employees who joined CalPERS since 2013, when the Public Employees’ Pension Reform Act was passed. April 4, 2023 Item #8 Page 5 of 13 • This reduction from 7.0% to 6.8% will affect contributions starting in FY 2023-24. While these changes will provide long-term benefits to the pension plan, they will also increase the city’s required pension contributions. One way to reduce the city’s long-term pension costs is by making early payments to reduce the pension debt. • In 2019, the City Council adopted a Pension Funding Policy (City Council Policy No. 86). This policy states that the city will strive to maintain an 80% funded status. Said another way, the goal of this policy is to keep Carlsbad’s pension debt at no more than 20% of the total liability. • Since FY 2016-17, the city has contributed $56.4 million to CalPERS to reduce the city’s unfunded liability and thereby achieve interest savings. • These contributions were in addition to the annual required contributions set by CalPERS. • Even though CalPERS is continuing to take prudent measures to manage the pension liability for its participants, the annual costs paid by participating members will continue to increase. In fiscal year 2021-22, CalPERS experienced a 6.1% investment loss, which largely offset the positive gain from the previous year and will have a significant impact on the city’s future costs. Staff will continue researching and developing a proposed funding plan for the establishment of a Section 115 Trust and will present this item for the City Council’s consideration as part of the fiscal year 2023-24 preliminary budget. (A Section 115 Trust is a pension prefunding tool whereby contributing city assets to the trust can provide benefits such as improving local control, increasing investment diversity, potential increase in investment return and mitigating risk and volatility.) 4. Strategic use of general fund surpluses By taking a conservative approach to estimating revenues and by actively managing spending, the City of Carlsbad often ends the year with a General Fund surplus. This means the city has spent less General Fund money than the amount of General Fund revenues coming in. On Aug. 27, 2019, the City Council approved City Council Policy Statement No. 87, which provides greater City Council oversight and a strategy for allocating surplus money each year. Among the allowed uses of General Fund surplus money are ensuring the General Fund’s reserve is at or above its target amount and reducing pension debt. Once those two goals are met, surplus money may be carried forward to the next budget year to fund one- time expenses associated with City Council goals and other needs, as approved by the City Manager or City Council, depending on the amount. 5. New internal budget policies and practices In addition to supporting the City Council in developing and enacting the new budget policies described in this report, the City Manager immediately upon appointment put new budget practices in place at the organizational level. These include: • Eliminating the automatic cost of living increase to department budgets. Instead, departments must demonstrate with objective data the need for any year-over-year increase to their budgets. April 4, 2023 Item #8 Page 6 of 13 • Eliminating the ability of departments to automatically carry forward up to 10% of unspent budget to the following year. • Recommending additional staff positions only under three conditions: 1. Needed to comply with new legal and regulatory requirements 2. To support a City Council priority 3. To address a critical public safety need • In 2022, challenging all departments to reduce their annual maintenance and operations budgets by 2%. • In 2023, challenging all departments to reduce their annual budgets by 3%. Fiscal forecast Even though these combined actions have greatly improved the city’s financial sustainability, the long-term financial forecast shows a future gap in funding if the city continues to maintain and build the public safety, infrastructure, parks, recreation and other services that contribute to the quality of life expected by Carlsbad residents. A financial forecast is a planning tool that helps identify trends and anticipate the long-term consequences of budget decisions. The forecast is instrumental in modeling the effects of retirement costs, employee compensation, on-going maintenance and operations, as well as revenues for the city’s budget. The forecast is not a budget nor a plan but rather a model based on cost and revenue assumptions updated regularly as new information becomes available. Of these components, cost projections which are based on known costs are relatively reliable. However, revenue forecasts are based on assumptions related to future economic conditions, which are inherently more uncertain. Economic forecasts change frequently and demonstrate the difficulties of committing to a particular prediction of the future. For this reason, the city’s forecast is updated regularly. Changing conditions Looking ahead five years, several conditions point to the need to identify new ongoing sources of revenue: • Economic conditions, inflation, housing, and the impacts to the city’s primary revenue sources (sales, property and transient occupancy tax). • More demand for city services due to increases in population, including residents, employees and visitors. New state housing laws in particular are expected to result in increases to the city’s population greater than current service models anticipated. • As the city approaches a time when most of the major new development has occurred, revenue from development fees will decrease significantly. City infrastructure, originally funded by those fees, is now aging and needs maintenance or replacement. o The FY 2022-23 Adopted Capital Improvement Program Budget included $42.6 million in new appropriations, with $695 million in projected projects over the next 15 years. o Many of the city’s capital projects will require annual operating expenditures upon their completion. Notable projects with anticipated significant operating April 4, 2023 Item #8 Page 7 of 13 impacts include, but are not limited to, Veteran’s Memorial Park, Fire Station No. 7, Orion Center, City Hall and Monroe Street Pool. • Expenditures increasing at a faster rate than the city’s revenues o Although we predict revenues will exceed expenditures on an annual basis for the next few years, we are expecting this excess to diminish which results in an ever-increasing budget deficit. The forecast presented above represents the city’s baseline forecast and applies consistent methodology as forecasts presented in the past. Revenues, particularly sales, property and transient occupancy tax, are forecasted relatively conservatively given their sensitivity to economic changes. Expenditures are generally easier to predict because their increases are driven by contracts or inflationary indices. Over the next 10 years, revenues are expected to increase on average by 2% annually while expenditures are expected to increase on average by 3.7% annually. Expenditure growth continuing to outpace revenue growth results in a projected annual operating deficit beginning in fiscal year 2026-27. Because financial forecasts are built upon assumptions at a point in time with inherent uncertainty, it is important to understand the assumptions driving the revenues and expenditures, as well as the budget line items that are included and those that are not. The city has historically budgeted and forecasted revenues relatively conservatively. This increases the likelihood of realizing a budget surplus at the end of the year and also allows for sufficient funding for unanticipated one-time or ongoing budget items. It is important to note that the city’s standard forecast does not include any one-time or ongoing costs associated with capital improvement program projects that are expected to be started and/or completed in the future. $- $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000 General Fund five-year forecast Revenues Expenses April 4, 2023 Item #8 Page 8 of 13 - Applying more moderate or optimistic revenue assumptions improves the General Fund’s projected fiscal outlook. In other words, the timing for which expenditures are projected to exceed revenues is pushed out further into the future. For example, assuming the city’s sales tax, property tax, and transient occupancy tax revenues increase at an annual rate of one percentage point higher than in the model presented above, expenditures would not be projected to exceed revenues until fiscal year 2027-28, a postponement of two fiscal years. While more moderate or optimistic revenue assumptions improve the fiscal outlook, we must also consider the potential risks and challenges that may be associated: • First, we must consider the revenue growth in recent years and understand that much of it resulted from inflationary increases. For example, the price of goods increased substantially and, because demand was not as adversely impacted, the city’s sales taxes benefitted. This is particularly important when determining whether the same level of growth and inflationary increase will persist for the next 5-10 years. • Secondly, we must think about future operating costs associated with the completion of capital projects and maintaining again infrastructure and equipment. These costs are difficult to estimate and are not included in the city’s forecast. With the current recessionary risk and economic uncertainty, aging infrastructure, and anticipated additional operating costs coming online in the future, applying more conservative estimates and assumptions helps to mitigate possible revenue shortfalls. It also enables the city to make fiscally responsible and informed decisions, ultimately positioning itself with its best fiscal foot forward. Budget savings strategies As discussed above, the city has taken many prudent steps to continue pushing the “crossing of the lines” out into the future. This has included eliminating department contingency budgets and reducing department budgets based on historical savings and implementing more efficient and cost-effective ways of providing services. Through these efforts, the city has achieved better alignment between budget and actual expenditures and staff will continue to explore innovative ways to reduce budgeted costs. However, it is becoming increasingly difficult to absorb costs associated with new budget items, unanticipated needs and operational impacts from completed capital projects. To ensure sufficient funding exists, staff may have to recommend further budget reductions that could have significant service level impacts. Revenue enhancement Cities have several options to consider in determining how best to close an anticipated funding gap, including postponing major new projects, finding more efficient ways to deliver services, eliminating services that aren’t core to the city’s mission and expanding the revenue base. In 2021, the City Council approved a project to study potential new sources of revenue so they could better understand these options. City staff hired a firm specializing in municipal revenue studies and strategy to identify and assess revenue enhancement options for the City of Carlsbad, Terris Barnes Walters Boigon April 4, 2023 Item #8 Page 9 of 13 Heath Lester Inc., or TBWBH Props & Measures. The firm’s findings and recommendations were presented to the City Council on April 20, 2022. The report’s key findings, observations and recommendations are: • The majority of Carlsbad voters support a 1 cent-on-the-dollar sales tax measure. • Reducing the tax rate to less than 1 cent does not significantly improve a measure’s chance for passage. • Voters’ priorities include maintaining parks, open spaces and recreation facilities, maintaining streets and roads, keeping trash and pollution out of waterways and off beaches, keeping public areas and facilities clean and graffiti free, 911 emergency response, and fire protection and prevention. • If the City Council wants to pursue a sales tax measure, the next step would be to expand the conversation with the community to build awareness and understanding of the city’s needs and consensus on a proposal. • An effort totally independent from the city, would be needed to campaign for the measure’s approval. Tax measures Cities considering options to enhance General Fund revenue often look to the criteria below: • Adequacy and certainty – Does the option sustainably generate annual needed revenue? Is the option subject to significant variation? • Equity and fairness – Is the fiscal burden appropriately spread and proportionate to surrounding communities? Does the option avoid highly skewed economic incentives? • Transparency – Is information on revenue and the tax system and how it operates easy to find and understand • Simplicity – Does the option require multiple ballot measures (potentially causing voter confusion and fatigue)? Would the option be highly burdensome, costly, or complicated to administer (by the city of payors)? The city’s General Fund receives approximately $52 million (as of FY 2021-22) in sales tax annually which represents approximately 24% of the total revenues in the General Fund each year. A general sales tax measure requires a simple majority vote. If approved, the city would begin receiving the new revenues approximately six months after the election. April 4, 2023 Item #8 Page 10 of 13 Carlsbad current 7.5% tax rate is one of the lowest among those assessed by cities in San Diego County. Sales tax rates in North County cities Sales tax rates outside of North County Carlsbad 7.75% Coronado 7.75% Encinitas 7.75% Lemon Grove 7.75% Escondido 7.75% San Diego 7.75% Poway 7.75% Santee 7.75% San Marcos 7.75% El Cajon 8.25% Oceanside 8.25% La Mesa 8.50% Vista 8.25% Chula Vista 8.75% Del Mar 8.75% Imperial Beach 8.75% Solana Beach 8.75% National City 8.75% Average 8.08% Average 8.22% The table below shows incremental estimates of additional sales tax revenues across sales tax categories. An increase of one cent on the dollar, if approved, would generate approximately $40 million in additional revenue for the city annually. Incremental tax rate percent* Category 1/4 1/2 3/4 1 General retail $ 2,239,811 $ 4,479,622 $ 6,719,433 $ 8,959,245 Food products $ 1,835,560 $ 3,671,121 $ 5,506,681 $ 7,342,241 Transportation $ 1,815,146 $ 3,630,292 $ 5,445,437 $ 7,260,583 Construction $ 125,893 $ 251,787 $ 377,680 $ 503,573 Business-to-business $ 166,725 $ 333,450 $ 500,175 $ 666,900 Miscellaneous $ 28,284 $ 56,568 $ 84,852 $ 113,136 subtotal $ 6,211,419 $ 12,422,840 $ 18,634,258 $ 24,845,678 County pool† + growth $ 4,231,002 $ 8,462,003 $ 12,693,006 $ 16,924,007 total $ 10,442,421 $ 20,884,843 $ 31,327,264 $ 41,769,685 * All amounts are estimates based on calendar year 2021 actual sales tax and standard industry forecasting methods. † A substantial portion of local use tax collections are allocated through a countywide pool to the local jurisdictions in the county Additional revenue enhancements could also be considered by the city, including but not limited to increasing the transient occupancy tax and the parcel tax as well as the establishing of financing districts. These options are explained below. Transient occupancy tax Transient occupancy taxes are assessed on occupants of hotels and short-term rentals within the city. These revenues comprise approximately 15% of the city’s General Fund revenues. The transient occupancy tax has been called a “painless” tax in that is generally paid by non- residents, but it can impact future hotel growth if it is disproportionate. April 4, 2023 Item #8 Page 11 of 13 The current transient occupancy tax rate in the City of Carlsbad is 10%. A 2% Carlsbad Tourism Business Improvement District assessment also applies to hotel businesses within the city, including short-term vacation rental businesses. If a 2% increase was placed on the ballot and approved by a majority vote, the city could generate an additional $5 million to $6 million in General Fund revenue annually. Below is a look at comparative rates assessed throughout the county. Transient occupancy tax rates in North County cities Transient occupancy tax rates outside North County Carlsbad 10.00% Lemon Grove 6.00% Encinitas 10.00% Coronado 10.00% Escondido 10.00% Imperial Beach 10.00% Poway 10.00% National City 10.00% Vista 10.00% El Cajon 10.00% Oceanside 10.00% La Mesa 10.00% San Marcos 11.00% Chula Vista 10.00% Del Mar 12.50% San Diego 10.50% Solana Beach 13.00% Santee 10.50% Average 10.72% Average 9.67% Parcel tax A parcel tax is a non-ad valorem or non-value based tax on parcels of property; either a flat rate per parcel or a variable rate depending on the size, use, or number of units on the parcel may be applied. This allows for different rate schedules for residential and commercial property so long as the methodology is the same. Parcel taxes may also include inflationary increases to ensure the revenue stream keeps pace with rising costs. A parcel tax, unlike a sales tax or transient occupancy tax measure, requires a two-thirds vote of the public and the funds are restricted to specific purposes. The amount of additional revenue generated from a parcel tax is largely dependent on the methodology of a flat versus a variable rate and the amount of tax assessed per parcel type. For context, the city has approximately 40,000 parcels of property (excluding timeshares). If a $100 parcel tax were assessed, approximately $4 million in additional revenue would be generated in the General Fund. If the City Council’s direction was to pursue a parcel tax measure, staff would present multiple methodologies to be considered. Revenue bonds Lease revenue bonds are issued by local governments and paid from the lease payments of the public facilities or assets that were financed by the bonds. They can be used to finance various public projects. Assuming $50 million of bonds are issued with a city credit rating of AA+, an interest rate of 4.75% and a 20-year term, the city’s average annual debt service would be approximately $4 million. While this would provide an immediate funding source for a number of the city’s significant capital projects, the General Fund would be responsible for funding the annual debt service payments. As a potential option for funding debt service, the city could consider amending City Council Policy Statement No. 91 to reduce the amount of estimated General Fund revenues April 4, 2023 Item #8 Page 12 of 13 that are transferred to fund future capital projects. For example, reducing the annual transfer from 6% to 4% would result in approximately $4 million in annual savings. Fiscal Analysis There is no fiscal impact at this time. Options Staff are requesting that the City Council consider the city’s financial outlook and consultants’ findings, observations and recommendations and provide feedback and direction on next steps, either at this meeting or at a future meeting. Options for City Council direction include: 1. Take no further action at this time. 2. Direct staff to gather additional information. Next Steps Staff’s next steps will be determined by City Council direction. Environmental Evaluation In keeping with California Public Resources Code Section 21065, this action does not constitute a project within the meaning of the California Environmental Quality Act in that it has no potential to cause either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. Exhibits None April 4, 2023 Item #8 Page 13 of 13 Tammy Cloud-McMinn From: Sent: . To: Subject: -----Original Message----- Council Internet Email Tuesday, April 4, 2023 10:11 AM City Clerk FW: Sales tax increase meeting comment From: Max Moegling <max@moegling.com> Sent : Monday, April 3, 2023 7:36 PM To: Council Internet Email <CityCouncil@carlsbadca.gov> Subject: Sales tax increase meeting comment Dear Council members, All Receiye -Agenda Item # 8 For the Information of the: :SIT;S OUNCIL Date '!f..!f/g3cA v cc ✓ --CM v ACM ~DCM (3) v I read on the Carlsbad citizen Facebook page that you plan to increase the sales tax. I oppose such matter and will not support any council member in support. Instead, levy fees or taxes from high density housing developers. Sincerely, Max Moegling CAUTION: Do not open attachments or click on links unless you recognize the sender and know the content is safe. 1 Tammy Cloud-McMinn From: Sent: To: Subject: Council Internet Email Tuesday, April 4, 2023 10:11 AM City Clerk FW: Sales Tax Increase From: Dee Forsberg, Global Hire <dee@globalhire.org> Sent: Monday, April 3, 2023 9:24 PM To: Council Internet Email <CityCouncil@carlsbadca.gov> Subject: Sales Tax Increase Hello, My name is Dee Forsberg and I am writing to oppose the sales tax increase of 1 %. Things are bad enough right now and everyone is having to tighten their belts and so should the city. Thank you for your service. Dee@GlobalHire.org -(760) 214-7458 Licensed and Insured CAUTION: Do not open attachments or click on links unless you recognize the sender and know the content i 1 Tammy Clo ud-McMinn From: Council Internet Email Sent: To: Tuesday, April 4, 2023 10:17 AM City Clerk Subject: FW: Item $8 City financial status From: Kris Wright <kriswrt222@gmail.com> Sent: Tuesday, April 4, 2023 9:59 AM To: Council Internet Email <CityCouncil@carlsbadca.gov> Subject: Item $8 City financial status Dear Council, I read the agenda packet and saw for Item #8 that the issue of a sales tax increase was mentioned. I looked up the survey that stated that "most of Carlsbad voters would pass an increase in the sales tax" and was appalled at the consultant who only interviewed 894 people. I am against any sales tax increase. The worrisome issue is the increased hiring of more city employees making over $100,000 (not including benefits). Yesterday I compiled a comparison of employee salaries from 2017 and from 2021, I found over 46 new employees that either were rewarded a huge salary increase and a very large increase in the number of new employees making over $100k. I counted +/-46 employees making over $1 00k since 2017. I used the site: https://transparentcalifornia.com/agencies/salaries/?fbclid=lwAR06VU93Gzl0GpMar8RSqMgqgc22EMyn mUZ4tbyiSxQELLQ8SROKJJdxLRQ#cities-c to compare salaries. I attended the April 20, 2022 Special Council meeting last year. As we all know, the City is liable for a portion of the variable CalPERS state pension system. As you may know the Council adopted a pension funding policy in 2019. So having such a large number of employees and the strain on the City's General fund over the next coming decades can certainly create a problem with our expenditures. I would suggest instead, as there are other obvious issues to cut back on spending, to reexamine the .cost of projects within the City and to consider the increased salaries of long time employees. As this is a public letter, I won't mention names but I found several employees getting an increase of ~%50k per year with a job reclassification. This is clearly wrong, IMO. Meople are just making ends meet in our City. With the high cost of rent as well as our inflation of ~8% per year, and some still struggling with the economics of the pandemic, I ask you to decline the increased sales tax as an alternative to the increased expenditures. We need to tighten our belts so to speak and consider the people who live in Carlsbad. Thank you, Kris Kris Wright kriswrt222@gmail.com en attachments or click on links unless ou reco nize the sender and know the content i 1 Tammy Cloud-McMinn From: Sent: To: kelly.leberthon 12@gmail.com Tuesday, April 4, 2023 1 :06 PM City Clerk Subject: Agenda Item 8 During times of abundance, it is difficult to successfully argue against virtue signal spending. For example: The council had no problem virtue signaling on ending the use of styrofoam products -putting the financial burden on the local small businesses who would lose money on inventory already paid for and new money to have to spend on new products. The council had no problem virtue signaling on Equity -which is NOT E:lquality of opportunity but the inherently unfair dictation of equal outcomes -creating a new and totally unnecessary department within the city and spending tens of thousands of dollars on that staff. The council had no problem spending tens of thousands of dollars on a tree stump that maybe could be art. How many hundreds of thousands of dollars spent on the Tamarack Valley intersection design debacle? And how many hundreds of thousands of dollars have been spent on a new Homeless Department staff, homeless programs, homeless housing -and to what end? Has the homeless problem been solved? Has the money even made a dent in the problem? Of course not. It's not meant to be solved -it's meant to be endlessly invested in so that it can be a political issue which politicians to justify spending more money -OUR money-the People's money -to virtue signal for the unhoused. So, millions of dollars are spent to ignore those who don't want help -the ones who are drug addicted, alcohol addicted and mentally ill. No, instead we the people finance their addictions and pathologies, so politicians can falsely say they are helping the unhoused. But all these programs plus council's gift to self-aka pay raise -and so many more -were put forth during times of abundance. Now is not a time of abundance. Now is a time of belt tightening. Now is a time to cut back on spending. NOW is a time to CUT OUT wasteful spending, wasteful programs. Do not be hypocrites and say you want to protect our citizens -when you are increasing the financial burden on us by increasing taxes. Do not be hypocrites and pretend that Carlsbad citizens are plenty wealthy and can afford to absorb your rapacious spending. Stop passing the buck to the hardworking middle class and start taking some responsibility for your decision making on spending and make some CUTS. Start by cutting the Equity Department. Start by cutting the massive increase of staff positions in the city ove~ the last 3 years. Start by acknowledging the money you voraciously crave is not Monopoly money, but the people's money. You work for the people. Stop crushing Carlsbad citizens with your spending proclivities and show some restraint and respect. 1 4/20/2023 1 City Financial Status Scott Chadwick, City Manager Zach Korach, Finance Director April 4, 2023 TODAY’S PRESENTATION •Lead‐in to budget discussions •Steps taken to date •Financial forecast •Options to close the gap ITEM 8: FINANCIAL STATUS 1 2 {city of Carlsbad {city of Carlsbad 4/20/2023 2 CHANGING NEEDS Create Maintain 1952 2023 Establish policies Establish financing strategy Plan communities Build infrastructure Manage growth Create an excellent quality of life Repair, replace infrastructure Redevelop as needed Adapt to new needs Develop new financing strategy Maintain an excellent quality of life ITEM 8: FINANCIAL STATUS HOW CITIES RESPOND Decrease services Ask voters to raise revenue Charge true cost of servicesIncrease efficiency 3 4 4/20/2023 3 5 6 4/20/2023 4 Increased fiscal  discipline Increased fiscal  discipline Reduce pension debt Reduce pension debt Increase transparency Increase transparencyNew budget policiesNew budget policies 5‐Year Strategic Plan5‐Year Strategic Plan NEW FOUNDATION Budget policiesBudget policies 7 8 Q Tech funding Surplus policy Reserve policy Pension policy 4/20/2023 5 Fiscal disciplineFiscal discipline Pension debtPension debt 9 10 Reduced spending • Grant writer Budget transformation o·····o ·(i)· . . . . . . . . 0 ..... 0 Pension reform .. • • ~al auditor ~(A. X Infrastructure Staffing Eliminate plan scrutiny discretionary funds 1$1 Pension trust Lowest in region $56Ma Made extra payments Saving on interest 4/20/2023 6 Strategic planStrategic plan TransparencyTransparency 11 12 @) ® °' Community Increase Reduce changes Increased prioirites focus in direction efficiency w • i~ ~ More budget Staffing Public Share documentation practices reports forecast 4/20/2023 7 13 14 ------ 4/20/2023 8 CITIES AT MIDLIFE COSTS Infrastructure  getting old More people  to serve Inflation REVENUES Less new  development Property tax cap ITEM 8: FINANCIAL STATUS 15 16 ~ C ~ l· • ·i •• • •• ttt ~ ~ 4/20/2023 9 NEW ONGOING COSTS 2019           2020        2021       2022          2023 CARLSBAD CPI INCREASES 17 18 8.00 6.00 4.00 2.00 0.00 4/20/2023 10 2019                  2020                  2021                 2022 FUEL & UTILITIES INCREASES NEW CAR PRICE INCREASES 2019                   2020                   2021                    2022     19 20 4/20/2023 11 21 22 t36% 4/20/2023 12 23 24 9100.000 4/20/2023 13 25 26 4/20/2023 14 27 28 4/20/2023 15 29 30 4/20/2023 16 $137,000 31 32 4/20/2023 17 33 34 4/20/2023 18 35 36 4/20/2023 19 SUMMARY Increased efficiency Squeezed more out of our budget Will present a balanced budget Now looking for policy guidance 37 38 e e ------• --------------------------- 4/20/2023 20 FINANCIAL FORECAST GENERAL FUND GROWTH ITEM 8: FINANCIAL STATUS 39 40 $250,000,000 General Fund revenues, expenditures and transfers $200,000,000 $150,000,000 $100,000,000 $50,000,000 $-I. I. I. ■ I I ■ I I I FY12-13 FY13-14 FY14-15 FYlS-16 FY16-17 FY17-18 FY18-19 FY19-20 FY20-21 FY21-22 FY22-23e ■ General Fund Revenues ■ General Fund Expenditures ■ Transfers 4/20/2023 21  $‐  $10,000,000  $20,000,000  $30,000,000  $40,000,000  $50,000,000  $60,000,000  $70,000,000  $80,000,000  $90,000,000 FY19 FY20 FY21 FY22 FY23 Sales Tax Property Tax Transient Occupancy Tax 4.7% average 6.5% average 5.9 % average TAX  REVENUE HISTORY 42 GENERAL FUND RESERVES 0% 10% 20% 30% 40% 50% 60% 70% FY07‐08 FY08‐09 FY09‐10 FY10‐11 FY11‐12 FY12‐13 FY13‐14 FY14‐15 FY15‐16 FY16‐17 FY17‐18 FY18‐19 FY19‐20 FY20‐21 FY21‐22 FY 22‐23 Est 40% is the goal ITEM 8: FINANCIAL STATUS 41 42 - --------- 4/20/2023 22 FINANCIAL FORECAST •Developed at a certain point in time •Only as good as the assumptions that drive it •Forecasts are not plans nor budgets, they are a  tool to assist in making informed decisions •Important to consider alternative models ITEM 8: FINANCIAL STATUS FORECAST ASSUMPTIONS Revenue Category Conservative Moderate Optimistic Property tax 2.8%2.8% 3.8% Sales tax 1.4%2.5% 2.5% Transient occupancy tax 1.0%1.5% 2.0% Expenditure Category Average Growth Growth Assumption Compensation 5.4% Negotiated and step increases,  CalPERS, Health, Workers’  Compensation Maintenance &  operations 3.8% CPI –average state and county  (UCLA Forecast) Transfers 2.1% Total revenue growth ITEM 8: FINANCIAL STATUS 43 44 {city of Carlsbad 4/20/2023 23 CONSERVATIVE FORECAST  $150,000,000  $160,000,000  $170,000,000  $180,000,000  $190,000,000  $200,000,000  $210,000,000  $220,000,000  $230,000,000  $240,000,000  $250,000,000 Revenues Expenses $9.9 M deficit ITEM 8: FINANCIAL STATUS MODERATE FORECAST  $150,000,000  $160,000,000  $170,000,000  $180,000,000  $190,000,000  $200,000,000  $210,000,000  $220,000,000  $230,000,000  $240,000,000  $250,000,000 Revenues Expenses $6.1 M deficit ITEM 8: FINANCIAL STATUS 45 46 - - 4/20/2023 24 OPTIMISTIC FORECAST  $150,000,000  $160,000,000  $170,000,000  $180,000,000  $190,000,000  $200,000,000  $210,000,000  $220,000,000  $230,000,000  $240,000,000  $250,000,000 Revenues Expenses $600k deficit ITEM 8: FINANCIAL STATUS WHAT’S NOT IN THE FORECAST ITEM 8: FINANCIAL STATUS FY24 FY25 FY26 FY27 FY28 INFRASTRUCTURE $3,800 $88,000 $122,000 $865,000 $50,000 TECHNOLOGY $277,000 $837,000 CAPITAL OUTLAY  (one‐time) $40,000 $1,212,000 $180,000 $88,000 $1,922,000 TOTALS $320,800 $2,137,000 $302,000 $953,000 $1,972,000 47 48 - 4/20/2023 25 FUND BALANCES ITEM 8: FINANCIAL STATUS REVERSING A DEFICIT Decrease services Ask voters to raise revenues Charge true cost of servicesIncrease efficiency 49 50 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $- Gen. Capital Construction (GCC} FY24 FY25 FY26 FY27 -Beginning Fund Balance -Budget Request FY28 4/20/2023 26 LEVEL OF SERVICE ITEM 8: FINANCIAL STATUS $40 M$6 M $4.2 M REVENUE OPTIONS Sales tax            Hotel room tax         Parcel tax ITEM 8: FINANCIAL STATUS 51 52 4/20/2023 27 CALIFORNIA CITIES/TOWNS 75% increased sales tax California Department of Tax and Fee Administration 1,785 California cities and towns (unincorporated areas) SAN DIEGO CITIES 50% have increased sales tax California Department of Tax and Fee Administration 53 54 12% 10% 8% 6% 4% 2% 0% 10.00% 9.50% 9.00% 4/20/2023 28 SALES TAX •Requires simple majority vote •City of Carlsbad current sales tax rate = 7.75% •Average rate in North County = 8.08% •Additional “1%” generates approximately  $40 million annually ITEM 8: FINANCIAL STATUS CARLSBAD VOTER SUPPORT 58% yes33% no 55 56 DK/NA, 1.20% Definitely no, 20.60% Probably no, 12.80% {city of Carlsbad Definitely yes, 24.70% Probably yes, 33.70% 4/20/2023 29 TRANSIENT OCCUPANCY TAX •Requires simple majority vote •City of Carlsbad current rate of 10% •Average rate in North County = 10.72% •Additional “2%” generates approximately  $6 million annually ITEM 8: FINANCIAL STATUS PARCEL TAX •Requires 2/3 vote •Either flat rate per parcel or variable rate  depending on the size, use, or number of units  •Inflationary increases can be applied •Additional revenue dependent on methodology •41,853 parcels @ $100 = $4,185,300 annually ITEM 8: FINANCIAL STATUS 57 58 {city of Carlsbad {city of Carlsbad 4/20/2023 30 REVENUE BONDS •Issue by local governments •Used to finance various public projects •$50 million issuance would require ~$4  million in annual debt service  ITEM 8: FINANCIAL STATUS CANNABIS TAX •Cannabis tax popular with voters (generally) –156 out of 176 passed  –Lemon Grove, Oceanside, La Mesa, Vista (2x),  City of San Diego –Local policy changes would be needed –Carlsbad voters did not favor the concept ITEM 8: FINANCIAL STATUS 59 60 {city of Carlsbad {city of Carlsbad 4/20/2023 31 0%10%20%30%40%50%60%70%80% Chula Vista: Cannabis City of San Diego: Cannabis Encinitas: Cannabis La Mesa: Cannabis Lemon Grove: Cannabis Oceanside: Cannabis Vista: Cannabis Chula Vista: Sales Chula Vista: Sales County of SD: Sales Del Mar: Sales El Cajon: Sales Escondido: Sales Imperial Beach: Sales San Diego: Sales Solana Beach: Sales Lemon Grove: Sales National City: Sales Oceanside: Sales Coronado: TOT City of San Diego: TOT Imperial Beach: TOT San Diego: TOT Santee: TOT TAX  MEASURES PASSED TAX  MEASURES PASSED 61 62 Tourism e Sales Cannabis 4/20/2023 32 KEY POINTS •City remains financially healthy today •Future forecasts show a deficit •Our stage of life, revenue sources, maintenance needs and other  factors require new strategies •This is not an emergency; we have time for a thoughtful approach ITEM 8: FINANCIAL STATUS RECOMMENDED ACTION ITEM 8: FINANCIAL STATUS 1. Receive a report on city finances, funding challenges and  funding options.  2. Provide feedback and direction to staff 63 64 {city of Carlsbad {city of Carlsbad 4/20/2023 33 QUESTIONS & DISCUSSION 65