City Council

LODI CITY COUNCIL - AGENDA - Special Meeting Date: February 26, 2025 SPECIAL Time: 4:00 p.m. Carnegie Forum 305 W. Pine Street Mayor Cameron Bregman Mayor Pro Tempore Ramon Yepez Councilmember Lisa Craig-Hensley Councilmember Mikey Hothi Councilmember Alan Nakanishi Notice Regarding Public Comments Public Comment may be submitted in the following ways: • In-person • Email – councilcomments@lodi.gov > Received no later than two hours prior to the meeting • Mail – City Clerk’s Office, P.O. Box 3006, Lodi, CA 95241 • Hand delivered to: City Clerk’s Office, 221 W. Pine Street, Lodi, CA 95240 > Received no later than two hours prior to the meeting Public comment received via email, mail, or hand delivery will be provided to the City Council and included in the official minutes record of the meeting, but will not be read aloud at the meeting. A. Call to Order / Roll Call B. Regular Calendar B.1 Study Session on the City Long-Range Financial Forecast (CM) Attachments: Attachment - PowerPoint Presentation C. Adjournment Pursuant to Section 54954.2(a) of the Government Code of the State of California, this agenda was posted at least 24 hours in advance of the scheduled meeting at a public place freely accessible to the public 24 hours a day. ______________________________ Olivia Nashed City Clerk Page 1 of 2 1 City Council - Special AGENDA February 26, 2025 ----------------------------------------------------------------------------------------------------------------------------------------------------- All staff reports or other written documentation relating to each item of business referred to on the agenda are on file in the Office of the City Clerk, located at 221 W. Pine Street, Lodi, and are available for public inspection. Agendas and staff reports are also posted on the City’s website at www.lodi.gov. If requested, the agenda shall be made available in appropriate alternative formats to persons with a disability, as required by Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in implementation thereof. To make a request for disability-related modification or accommodation contact the City Clerk’s Office as soon as possible and at least 24 hours prior to the meeting date. Language interpreter requests must be received at least 24 hours in advance of the meeting to help ensure availability. Contact Olivia Nashed at (209) 333-6702. Solicitudes de interpretación de idiomas deben ser recibidas por lo menos con 72 horas de anticipación a la reunión para ayudar a asegurar la disponibilidad. Llame a Olivia Nashed (209) 333-6702. ----------------------------------------------------------------------------------------------------------------------------------------------------- Meetings of the Lodi City Council are telecast on SJTV, Channel 26. The City of Lodi provides live and archived webcasts of regular City Council meetings. The webcasts can be found on the City's website at www.lodi.gov by clicking the meeting webcasts link. Members of the public may view and listen to the open session of this meeting at www.facebook.com/CityofLodi/. ----------------------------------------------------------------------------------------------------------------------------------------------------- Page 2 of 2 2  AGENDA ITEM B.1 COUNCIL COMMUNICATION AGENDA TITLE: Study Session on the City Long-Range Financial Forecast (CM) MEETING DATE: February 26, 2025 PREPARED BY: Bobby Magee, Interim Assistant City Manager RECOMMENDED ACTION: Study Session on the City Long-Range Financial Forecast. BACKGROUND INFORMATION: In October 2024, the City Council authorized an Agreement with Baker Tilly Advisory Group, LP, to provide Long-Range Financial Forecasting services. The purpose of this Council Study Session is to provide information about the City’s General Fund financial forecast and demonstrate this powerful tool. Staff and Baker Tilly developed a presentation to discuss the current budget, potential budget updates, and the financial opportunities and risks facing the City. STRATEGIC VISION: 3A. Fiscal Health: Promote City transparency & fiscal fluency. FISCAL IMPACT: There is no fiscal impact to receiving and filing the verbal report. FUNDING AVAILABLE: Not applicable. _______________________________________ Scott R. Carney City Manager City of Lodi Page 1 of 1 Printed on 2/20/2025 powered by Legistar™ 3  City of Lodi Long-Range Financial Forecast Lodi City Council Study Session February 26, 2025 Baker Tilly Advisory Group, LP Bob Leland, Special Advisor Baker Tilly Advisory Group, LP Model ver. 1.11 (2/14/25) 4  Extensive Forecasting Experience City retained Baker Tilly to (1) prepare a long-range forecast model to demonstrate impact of various financial scenarios on the General Fund, for ongoing use by the City, and (2) provide outside perspective on City financial assumptions and budgeting • Our Firm’s Experience • Our Consultant’s Experience • Baker Tilly is the 10th largest • 50 years in state and local government accounting/consulting firm in U.S. finance • Public Sector practice works • Finance Director for City of Fairfield exclusively with local governments (26 years) nationwide, including all the 20 • Consultant with Management Partners largest California cities and Baker Tilly (13 years) • We’ve developed long-range fiscal • Major projects include Stockton models for over 40 California cities in bankruptcy, Town of Paradise recovery the last 10 years • 43 years of hands-on experience with • Basis for our modeling approach was long-range forecasting (created fiscal developed during the extensive models for 42 different local agencies bankruptcy litigation in City of involving over 125 separate forecasts) Stockton’s Chapter 9 proceeding 5 2  Background • Lodi was far-sighted in establishing a Sec. 115 Pension Trust • Provides added interest earnings, overall reserves much higher than most cities • Pension Trust an important level of security to employees that their benefits will ultimately be paid • Lodi has managed its fiscal affairs conservatively • However, there are service improvements that should be considered for promoting quality of life, boosting local tax base, and improving accountability and productivity • Revenues have typically come in over budget, but by a lesser amount than expenditures have come in under budget • Thus, ending balances have typically been higher than originally projected, but realistic estimates would give a clearer picture for fiscal planning purposes going forward • New forecast model is a powerful tool for long-range planning • Provides outside perspective and validation for key forecast assumptions, and reasonable expectation of resources available to the City over time • Many alternative scenarios can be examined; provides empirical rationale for important revenue decisions • Use forecast model to determine timing and magnitude of major policy decisions about new cost commitments and funding mechanisms 6 3  Budget versus Actual • Revenues have historically come in an • Expenditures overall have historically come average of 4.8% over budget, but in an average of 7.0% under budget, with revenues were actually very close to more volatility in recent years budget from FY13-20, but less so since • Personnel costs have been more accurate, FY21; only in FY22 were revenues under at an average of 3.4% under budget, while budget non-personnel costs have been an average CAGR=Compound Annual Growth Rate of 11.8% under budget Includes Funds 100, 101, 103 7 4  Forecasting Model Process + = • Baseline Budget • Potential Budget • Forecast Model shows Forecast shows future Augmentations the resulting revenue, inflated costs of identified by staff to expense and fund continuing current level address unfunded balance trends, and of service, and needs of the City are can easily show the projections of existing incorporated into the impact of alternative revenue sources, using model and can be assumptions and realistic assumptions switched on and off scenarios 8 5  City’s 5-Year Forecast in FY25 Budget ($ in millions) Bud Bud Proj Proj Proj Proj Proj Extension based on growth to FY30 Lodi FY25 Budget FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 • City forecast ended Property Tax/VLF 21.6 22.9 23.6 24.3 25.0 25.8 26.6 27.4 28.2 29.0 29.9 Sales Taxes 25.9 26.0 26.7 27.5 28.4 29.2 30.1 31.0 31.9 32.9 33.9 in FY30 Other Taxes EU PILOT 5.9 7.6 6.2 7.7 6.4 7.7 6.5 7.8 6.7 7.8 6.9 7.8 7.2 7.9 7.4 7.9 7.6 8.0 7.8 8.0 8.1 8.0 • For comparison CFD Special Tax 0.9 1.0 1.0 1.1 1.1 1.2 1.2 1.2 1.2 1.2 1.3 purposes Baker Tilly Other Revenues* 6.6 7.1 7.3 7.4 7.6 7.7 7.9 8.0 8.2 8.3 8.5 Transfers In 7.7 9.0 9.5 9.9 10.3 10.7 11.2 11.6 12.1 12.6 13.1 extended this to Total Revenue 76.2 79.8 82.2 84.6 87.0 89.4 91.9 94.5 97.1 99.9 102.7 FY34 Personnel 53.7 55.8 58.3 59.7 61.2 62.8 64.3 66.0 67.6 69.3 71.0 Operations 9.0 10.7 11.5 12.3 13.1 14.0 14.9 15.9 17.0 18.1 19.3 • City forecast omitted Debt Capital 1.2 - 1.2 - 1.2 - 1.2 - 1.2 - 1.2 - 1.2 - 1.2 - 1.2 - 1.2 - 1.2 - peaker plant related Transfers Out** 12.1 12.1 12.3 12.4 12.6 12.8 13.0 13.1 13.3 13.5 13.7 transactions Total Expenditures 76.1 79.8 83.2 85.6 88.1 90.7 93.4 96.2 99.1 102.1 105.3 Net Annual 0.2 - (1.0) (1.0) (1.2) (1.3) (1.5) (1.7) (2.0) (2.2) (2.6) • Annual shortfall of Reserves (16%) Pension Trust 12.2 17.4 12.8 16.8 13.1 15.4 13.5 14.0 13.9 12.4 14.3 10.7 14.7 8.8 15.1 6.6 15.5 4.2 16.0 1.5 14.9 - $1-1.5 million, with Other Restricted na na na na na na na na na na na $6M cumulative Available Balance Total Fund Balance - na - na - na - na - na - na - na - na - na - na - na shortfall through *Excludes $2.8M in DWR rent FY24-27 and $11.2M peaker plant purchase in FY28; excludes interest income FY30 **Operating transfers out to PRCS and Library counted as operations rather than Transfers Out Funds 100, 101, 103 9 6  Revised Baseline Forecast: Major Assumptions • 2.0% COLAs plus 0.25% net merit increase offset by turnover savings (w/o labor market adjustments) • 3% vacancy rate (comparable to past experience) • Maintain current FY25 staffing levels (does affect ability to respond to future workload increases) • Pension scenarios per CalPERS Pension Outlook, assumes 6.8% discount rate but lower average return of 6.2% (more conservative than CalPERS actuarial assumptions) • O&M expense grows at 2.5% • Interest is 1.5% return on fund balance, 5% on Pension Trust portion • Moderate recessions starting FY27 on 7-year cycle thereafter • Property tax growth averages 4.3% per County assessed values • Sales tax averages 2.2% per 3Q24 HdL sales tax forecast • Transfers In from other funds grows from FY25 base; assumes no GF intrafund transfers in/out • FY26 GF capital outlay at $500K, starting FY26 transfer to Capital Improvements per historical average, $11.2M for peaker plant purchase in FY28; $2.8M rent payments from FY23-27 only • Debt service per debt maturity schedules • Transfers to PRCS, Library and Comm Development as needed to maintain 10% balance in each fund 10 7  Revised Baseline Forecast (Baker Tilly, Feb 2025) ($ in millions) Act Est Proj Proj Proj Proj Proj Proj Proj Proj Proj What has changed? Forecast Model FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 Property Tax/VLF 22.9 24.7 25.8 27.0 27.7 28.7 30.3 31.9 33.7 35.2 36.7 • FY24 actuals and FY25 Sales Taxes 25.2 24.5 24.5 24.0 24.0 25.3 26.6 28.0 28.8 29.5 28.9 midyear adjustments Other Taxes 6.1 6.5 6.7 6.8 6.9 7.1 7.4 7.6 7.8 7.9 8.0 (before new FTE) EU PILOT 7.6 7.7 7.7 7.8 7.9 7.9 8.0 8.0 8.1 8.2 8.2 • Higher property tax and CFD Special Tax 0.9 1.0 1.1 1.2 1.4 1.5 1.6 1.8 1.9 2.1 2.2 CFD, but lower sales Other Revenues 13.2 12.0 10.7 10.8 7.7 7.5 7.4 7.4 7.5 7.7 7.8 tax, higher personnel Transfers In 10.6 10.0 9.2 9.4 9.6 9.7 9.9 10.1 10.3 10.5 10.8 cost, operations, capital Total Revenue 86.6 86.4 85.8 86.9 85.0 87.7 91.1 94.9 98.1 101.1 102.5 and transfers out Personnel 51.0 58.4 59.2 61.5 63.1 65.3 66.7 68.2 69.7 71.1 72.1 Operations 10.9 14.8 13.1 13.5 13.8 14.1 14.5 14.9 15.2 15.6 16.0 • Includes recession, Debt 2.3 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 higher pension costs Capital 7.1 0.6 1.6 1.7 12.9 1.7 1.8 1.8 1.9 1.9 1.9 • Revised forecast Transfers Out** 12.9 12.6 9.1 11.8 11.9 12.2 12.6 13.0 13.3 13.6 13.8 includes DWR rent, Total Expenditures 84.2 87.6 84.3 89.7 102.9 94.6 96.7 99.1 101.4 103.4 105.0 accumulation of Net Annual 2.4 (1.2) 1.5 (2.7) (17.9) (6.8) (5.6) (4.2) (3.3) (2.4) (2.5) restricted reserves, Reserves (16%) 13.2 13.8 13.7 13.9 13.6 11.6 6.2 2.0 - - - ultimate purchase of Pension Trust 19.4 16.8 16.4 10.7 4.3 - - - - - - peaker plant for Other Restricted 5.4 6.8 9.0 11.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1 $11.2M Available Balance 7.1 6.6 6.3 6.9 6.9 6.4 6.2 6.2 4.9 2.5 0.0 Total Fund Balance 45.2 44.0 45.5 42.8 25.0 18.1 12.5 8.3 5.0 2.6 0.1 • Starting FY27 shortfalls *Includes $2.8M in DWR rent FY24-27 and $11.2M peaker plant purchase in FY28; includes interest income are higher than City 5- **Includes operating transfers out to PRCS and Library (City 5-year forecast included these under Operations) year forecast Funds 100, 101, 103 11 8  General Fund Revenue Forecast Comparisons Revised baseline includes inflator, transfers, Revised baseline reflects HdL short-term Revised baseline reflects historical growth new construction; FY25 Assessor value as base projections and future recession Forecasts are very close, revised baseline Revised baseline assumes new housing units Revised baseline includes interest, ARPA includes recession impacts are annexed to CFD, with 2% rate growth 12 See Appendix A for more information on revenues 9  General Fund Expenditure Forecast Comparisons No significant change between forecasts Baseline assumes more conservative CalPERS FY25 budget includes one-time items rate of return, uses CalPERS Pension Outlook Baseline includes buying peaker plant in FY28 No significant change between forecasts Baseline forecast uses updated estimates based on forecast of PRCS and Library funds 13 See Appendix B for more information on expenditures 10 Comparison of City 5-Year Forecast to Revised Baseline Forecast City’s 5-Year Forecast in FY25 Budget Baker Tilly’s 10-Year (Extended to FY34) Revised Baseline Forecast • Revised Baseline Forecast has initial higher balances, but larger shortfalls over long-term • Both forecasts are before budgetary changes relating to peaker plant acquisition, labor market adjustments, midyear adjustments for new positions, and the Access Center 14 11  Forecast Risks and Uncertainties Favorable Impacts Unfavorable Impacts • Higher vacancy rate reduces near-term • Earlier or greater magnitude of recession personnel costs • Will adversely affect cash flow in near-term • Most likely source of improvement, but even with subsequent recovery also reduces productivity and ability to • CalPERS experiences lower than projected deliver services returns, thus increasing UAL costs • Higher revenues in any given year • Pension costs are volatile and thus subject to • Is revenue one-time or ongoing? worse outcome despite more conservative • Revenue related to timing of development, assumption in forecast than used by CalPERS or more pronounced economic cycle, just • UAL will still be paid down over long-run, but shifts from one year to the next, and is not costs may be higher in near-term and for longer an increase in base recurring revenues period than in forecast • If higher rate of new development occurs, • City adds staff or negotiates COLAs higher ultimately costs may increase higher than than 2.0%, thus increasing costs in forecast • City experiences emergency or other cost • CalPERS experiences higher than increases beyond its control projected returns, thus reducing • Are such costs one-time or ongoing? unfunded accrued liability (UAL) costs 15 12 Key Economic Variables Recessions Pension Investment Returns New Housing 16  Why We Include Recessions in Long-Term Forecast • Recessions have occurred on average • Recession causes vary but key issues are every 6.8 years since 1927 timing and magnitude • High correlation between recessions and • Impacts estimated using CA State Controller unemployment rate data on city taxes, permits, licenses • Adverse budget impacts to local • Covid pandemic was shortest economic governments often lag term of “official” downturn at only two months, but very recession period sharp impact due to nationwide shutdown 17 14  Why We Plan on Lower CalPERS Investment Return • Discount rate is investment rate of return assumed • CalPERS investments are volatile, and have been on by CalPERS slow overall downward trend over past 30 years • Discount rate has been lowered several times over • When returns are lower, unfunded accrued liability past 45 years, from high of 8.75% to current 6.8% (UAL) costs increase to compensate for the loss; • Following the 45-year linear trend of discount rates, when returns are higher, UAL costs are reduced over in 20 years discount rate would theoretically be 6.0% time; rates are recomputed annually by CalPERS • However, forecast assumes the current 6.8% rate is • CalPERS plans to leverage its investments in private maintained; if discount rate is lowered, City costs will equity (carries greater risk & volatility of return) to be higher in near-term, and lower in long-term achieve 6.8% return; forecast assumes 6.2% returns to be conservative 18 15 Pension Forecast: 6.8% Discount Rate/6.2% Average Return • If returns are lower than the discount rate, UAL balance is reduced by about two-thirds before it begins to increase again • Composite pension plan funded status projected to exceed 80% starting FY34 • Pension Trust eligible uses: • Prepayment of UAL debt to CalPERS (which reduces pension costs over next 8- 23 years), or • Reimbursement of General Fund pension cost (which increases available balance immediately, freeing up funding for other purposes) 19 16 Pension Forecast: 6.8% Discount Rate/6.8% Average Return • If return equals 6.8% discount rate, UAL balance is fully eliminated in FY45 • This is the current CalPERS goal • Composite pension plan funded status projected to exceed 80% starting FY33 • Under this scenario it does not make sense to continue to contribute to the Pension Trust, or to prepay additional UAL, as the UAL would be paid off within 20 years in any event (and such funds could be used to meet other City needs) 20 17 Rationale for Projected Housing Growth Regional Housing Needs Allowance • New housing is a major factor in property tax growth • Charts compare historical new units compared to current Regional Housing Needs Allowance (RHNA) goal for Lodi (3,909/9 years=460/year) • Forecast assumes 250 units per year, which is 54% of RHNA goal 21 18 Potential Budget Changes Resulting Impact on Baseline Budget Forecast 22  Peaker Plant Purchase & Rent • The existing contract between the City and the Dept of Water Resources (DWR) pays the City $2.8M a year for five years (FY23-27); $560K is paid to PRCS annually and the remaining $2.24M is retained in restricted reserve until reaching $11.2M in FY27, where it is available to purchase the peaker plant in FY28; City long-range financial forecast excludes all peaker plant-related rent and purchase, but model baseline forecast includes rent through FY27 and the purchase cost • Alternative is to have Electric Utility pay for the plant purchase and thus free up General Fund (GF) resources; EU would then continue to pay rent to the GF at $2.8M plus CPI (assumes 2.5% growth) and any energy sales would go to EU, with no risk to the GF Major improvement in fund balance, pension trust largely preserved NET GENERAL FUND COST IMPACT ($ in 000) FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 Operating Cost - - - (11,200) - - - - - - Transfers Out - - - - 283 201 5 (45) 13 23 Transfers In (CAP) - - - - - - - - - - Rev Loss/(Gain) - - - (2,870) (2,942) (3,015) (3,091) (3,168) (3,247) (3,328) Interest Loss/(Gain) - - - (211) (496) (718) (780) (782) (818) (862) Total Net Chng - - - (14,281) (3,155) (3,532) (3,865) (3,996) (4,052) (4,168) Black= loss of resources (lower revenue/higher expense), Red=gain in resources (higher revenue/lower expense). Transfers vary depending on the amount needed to keep PRCS, Library and Community Development funds at 10% reserve 23 level, and changes in Pension Trust (which affects all these funds). 20  Labor Market Adjustments • Gallagher compensation study has been prepared • Desire is to move salary structure to median of comparison agencies to help retain and recruit employees in a tight labor market; impact varies by position, and thus by bargaining unit and fund • Assumes $1.1M cost to General Fund starting FY26 including increased support of PCRS and Library funds); costs partially offset by higher cost allocation plan (CAP) transfers starting in year #2 (CAP based on prior year actuals so one year delay in higher CAP revenues) Balance drops to just above reserve goal NET GENERAL FUND COST IMPACT ($ in 000) FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 Operating Cost - 714 779 795 812 830 847 865 884 903 Transfers Out - 670 590 612 673 687 551 682 672 711 Transfers In (CAP) - (341) (348) (355) (362) (369) (377) (384) (392) (400) Rev Loss/(Gain) - - - - - - - - - - Interest Loss/(Gain) - 16 75 129 152 175 327 384 463 520 Total Net Chng - 1,059 1,096 1,181 1,274 1,323 1,348 1,547 1,627 1,734 Black= loss of resources (lower revenue/higher expense), Red=gain in resources (higher revenue/lower expense). Transfers vary depending on the amount needed to keep PRCS, Library and Community Development funds at 10% reserve 24 level, and changes in Pension Trust (which affects all these funds). 21  Additional Support Staff Positions • City Manager has identified several positions to reorganize the Internal Services Department and to increase accountability and productivity (costs below are approximate and may vary based on ultimate job descriptions and step at which position is filled); all are General Fund except as noted, with cost split 31% GF and 69% from other funds • 2nd Assistant City Manager • Finance Director • Human Resources Director • IT Deputy Director (replaces IT Manager position) • Procurement Officer • Customer Service Reps (2 Part-time positions) Balance drops below reserve goal, • Two Planners (Community Development Fund) Pension Trust depleted NET GENERAL FUND COST IMPACT ($ in 000) FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 Operating Cost 81 428 461 472 482 493 504 515 527 539 Transfers Out - (4) (17) (17) (1) (7) (59) (18) 43 16 Transfers In (CAP) - - - - - - - - - - Rev Loss/(Gain) - - - - - - - - - - Interest Loss/(Gain) - 11 34 58 68 84 143 169 145 144 Total Net Chng 81 435 478 513 549 569 588 666 714 698 Black= loss of resources (lower revenue/higher expense), Red=gain in resources (higher revenue/lower expense). Transfers vary depending on the amount needed to keep PRCS, Library and Community Development funds at 10% reserve 25 level, and changes in Pension Trust (which affects all these funds). 22  Access Center Emergency Shelter • Access Center will provide extensive wraparound services in addition to overnight shelter, meals, and hygiene facilities; revised single-building plan to serve 100 (2022 point-in-time homeless count was 208) • Forecast assumes facility is operational by FY26, with grant funding left over for half-year operation • Assumes $1.4M new City cost in FY26, $2.8M in FY27, with 2.5% growth thereafter (may be affected by timing of construction and remaining grant funding) • City should seek potential Medi-Cal reimbursements to reduce need for GF contribution, in which case net City cost would be less than $2.8M/year Balance drops steadily, in deficit by FY32 NET GENERAL FUND COST IMPACT ($ in 000) FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 Operating Cost - - 1,400 2,835 2,906 2,979 3,053 3,129 3,208 3,288 Transfers Out - - - (65) (3) (259) 211 105 11 - Transfers In (CAP) - - - - - - - - - - Rev Loss/(Gain) - - - - - - - - - - Interest Loss/(Gain) - - 21 118 167 431 307 229 210 199 Total Net Chng - - 1,421 2,888 3,069 3,151 3,570 3,464 3,429 3,487 Black= loss of resources (lower revenue/higher expense), Red=gain in resources (higher revenue/lower expense). Transfers vary depending on the amount needed to keep PRCS, Library and Community Development funds at 10% reserve 26 level, and changes in Pension Trust (which affects all these funds). 23  City Lacks Sufficient Resources to Fund All Desired Budget Augmentations Options for Additional Resources 27  New Revenue Options • Reimpose Business License Tax • Loss of lawsuit is costing City $2.0M in FY25 dollars • Lodi currently ranks 219th out of 319 CA cities reporting Business License revenue • Requires majority voter approval to reinstate original tax • Revenue gain equivalent to 71% of Access Center operating cost • Increase Transient Occupancy Tax • Current tax rate of 6% ranks among lowest in the state; median rate is 10% • Going to a 10% rate would raise $2.4M, while a 12% rate would raise Lodi @6% $3.8M, on an ongoing basis • Requires majority voter approval • Revenue gain of 10% rate equivalent to 100% of Access Center operating cost 28 25  New Revenue Options (continued) • Impose Added Local Sales Tax Rate San Joaquin County Sales Tax Rates Stockton 9.00% • Current total sales tax rate levied in Lathrop 8.75% Lodi 8.25% Lodi is 8.25%, with City receiving the Manteca 8.25% 1% uniform tax rate plus 0.5% for Tracy 8.25% Escalon 7.75% Measure L; the statewide median rate Mountain House 7.75% is 8.75% Ripon 7.75% San Joaquin County 7.75% • Requires majority voter approval • Adding a 0.25% rate would raise $4.35M annually (FY26 dollars pre- median @8.75% recession), while a 0.5% rate would raise $8.7M Lodi @8.25% 29 26 $2M BLT + 10% TOT Roughly Comparable to 0.25% Sales Tax • New $2M Business License Tax and increase in TOT to 10% • Requires two separate ballot measures • Taxes not paid by general public • Charts assume both approved on June 2026 ballot -- versus -- • Added 0.25% Sales Tax • Charts assume approval on June 2026 ballot • Assumes half-year collection in first FY • Recession impact starts in FY27 • Tax paid by general public, but generally good success at the ballot 30 27  Next Steps Regarding Revenues • Business License Tax is a staple of local govt finance in CA and Lodi should take steps to replace its lost BLT with a voter-approved measure as soon as possible • Likewise, a Transient Occupancy Tax rate of at least 10% is considered standard in CA and Lodi should consider a voter-approved increase to this level as soon as possible • These two steps would simply bring Lodi in line with State local government norms, and would stabilize the City’s fiscal position even with augmentations through FY34, and beyond that time additional fiscal capacity will be realized as pension costs level off and then begin to drop as UAL is repaid • Alternatively, the City could consider a voter-approved increase in the Sales Tax as the current rate is below the statewide median and considerably below that in neighboring Stockton • Additional revenues would be required to generate sufficient fiscal capacity to pay for additional staff to meet increasing workload demands; for example, adding two miscellaneous positions and one safety position annually would cost $5.6M a year by FY34, requiring an additional $2.5M in annual revenue starting FY28, to stabilize City reserves at ~$30M 31 28  Thank You! Questions & Answers Brief Demonstration of Live Model 32 33 30 Appendix A General Fund Ten-Year Forecast of Major Revenues Revenue Categories Determines Likely Available Resources 34 General Fund Revenue Forecasts Property Tax • 27.2% of General Fund revenue in FY24 • Actual revenues have averaged 3.4% over budget historically • FY25 based on County assessed values ($24.7M) • Future growth assumes 2% Prop 13 inflator, 4% of parcels transfer ownership at 30% average growth, 250 housing units/year plus $7M non-residential value (new construction); average 4.5% growth • Trend is just below short-term trend of last 4 years (green line) Sales Taxes • 30.9% of General Fund revenue in FY24 (1% statewide uniform rate, Measure L’s 0.5% rate, Prop 172 Public Safety Sales Tax) • Chart reflects receipt of Measure L revenues starting FY19 • Actual revenues have averaged 5.7% over budget historically • FY25 based on HdL forecast ($24.5M) • Future growth assumes HdL forecast with moderate recession impacts in FY27 and every 7 years thereafter; average 1.8% growth FY25-34, but ongoing baseline growth (absent recessions) is 2.72% • Trend is close to short-term trend (green line); long-term trend not relevant due to impact of Measure L 35 32 General Fund Revenue Forecasts Electric Utility Payment in Lieu of Tax • 9.1% of General Fund revenue in FY24 • Actual revenues have equaled the budget historically • Revenue is very consistent, controlled by City • FY25 per City budget • Annual growth of 0.8%, follows long-term trend Franchise Fees • 3.5% of General Fund revenue in FY24 • Includes gas/electric, cable TV, waste removal • Actual revenues have averaged 6.6% over budget historically • Boost in FY24 due to higher waste removal franchise fee • FY25 per City budget • Overall annual growth of 2.2%, parallels long-term trend 36 33 General Fund Revenue Forecasts Business License Tax • 0.2% of General Fund revenue in FY24 • Actual revenues have averaged 1.7% over budget historically • Loss of lawsuit over establishment of BLT eliminated tax in FY23; replaced with an administrative fee • FY25 per City Budget • Annual growth of 2.0% with recession impact CFD Special Tax • 1.0% of General Fund revenue in FY24 • Assumes all new housing units are added to CFD, plus 2% annual rate increase; revenue will vary based on new housing annual construction and extent to which any new housing units are not annexed into the CFD • Actual revenues have averaged 1.0% over budget historically • FY25 per City Budget 37 34 General Fund Revenue Forecasts Other Taxes • 3.0% of General Fund revenue in FY24; includes Transient Occupancy Tax, Real Property Transfer Tax, Card Room fee • Actual revenues have averaged 9.2% over budget historically • RPTT is volatile source; TOT experienced change in operators, no business during pandemic • FY25 per City Budget • Overall average growth rate of 2.4% Intergovernmental (excluding VLF In-Lieu) • 1.5% of General Fund revenue in FY24 • Revenues can be volatile and often are not anticipated in budget • FY25 based on budget • Assumes ongoing $126K revenues from State sources 38 35 General Fund Revenue Forecasts Police/Fire Dept Revenues • 2.2% of General Fund revenue in FY24 • Revenues have been volatile historically • Actual revenues have averaged 8.6% under budget • FY25 per City Budget • Decline in FY26 reflects one-time Fire grant received in FY25; ongoing growth thereafter averages 2% • Growth parallels long-term trend Public Works/Community Improvement Dept Revenues • 1.5% of General Fund revenue in FY24 • Revenues have been volatile historically • Actual revenues have averaged 11% over budget • FY25 per City Budget • Future growth averages 2% 39 36 General Fund Revenue Forecasts Rental Income • 4.5% of General Fund revenue in FY24 • Actual revenues have averaged 14.8% over budget historically • Includes $2.8M/year in FY23-28 from DWR for peaker plant • FY25 per City Budget • Future growth averages 2.0% after end of rent from State Interest Income • 5.1% of General Fund revenue in FY24 • Volatile source depending on investment yields; omits negative market value adjustment in FY22 as loss was not realized • FY25 uses conservative estimate (interest not budgeted), but $1.0M has been received as of January • Forecast is 1.5% return on non-Pension Trust balance and 5% on Pension Trust balance; assumes no future market value adjustments 40 37 General Fund Revenue Forecasts Other Revenue • 2.2% of General Fund revenue in FY24 • Includes fines, nondepartmental charges for service and miscellaneous revenue • Actual revenues have averaged 2.6% under budget historically • FY25 per City Budget • Future growth averages 1.5% Transfers In • 12.6% of General Fund revenue in FY24 • Transfers in consist primarily of charges to other funds under the cost allocation plan, and other reimbursements; previously CAP amounts were paid primarily by utility funds, but in FY25 the CAP was updated to apply to additional funds • Actual revenues have averaged 1.4% over budget historically • FY25 per City Budget • Future growth averages 2.5% growth after initial decline in FY26 41 38 Appendix B General Fund Ten-Year Forecast of Major Expense Categories Expenses Determines Likely Future Costs of Continuing Current Service Levels 42 General Fund Personnel Expense Salary/Part-time/Overtime/Labor Credits/Vacancy Savings • 35.7% of General Fund expense in FY24 • Actual expense has averaged 3.3% under budget historically, which is basis for long-term vacancy savings assumption • FY25 per City Budget except for salaries, which are based on revised personnel cost projections for funds 100 & 103 • Future growth averages 2.4%, near long-term trend Pension • 13.8% of General Fund revenue in FY24 • Includes normal costs and unfunded liability • Actual expense has averaged 2.7% under budget historically • FY25 and future based on CalPERS’ Pension Outlook model using projected salaries and more conservative return (6.2%) than CalPERS projection of 6.8% • 2.1% average future growth in expense, higher in near-term but leveling off by early 2030’s 43 40 General Fund Personnel Expense Health • 4.9% of General Fund expense in FY24 • Actual expense has averaged 7.7% under budget historically • FY25 based on revised personnel cost projections for funds 100 & 103 • Future growth averages 3.0% (same as historical growth), slowing from recent trend • Higher vacancies will result in lower cost than projected Other Personnel Cost • 6.0% of General Fund expense in FY24 • Actual expense has averaged 0.9% under budget historically • FY25 based on revised personnel cost projections for funds 100 & 103 • 2.5% average future growth in expense, near long-term trend 44 41 General Fund Other Expense Contract/Professional Services • 3.7% of General Fund expense in FY24 • Actual expense has averaged 15.3% under budget historically • Major increase in FY25 is one-time expenses per City Budget; previously expense was relatively consistent • After decline in FY26 reflecting one-time expenses in FY25, future years grow at average 2.5% Other Recurring O&M Expense • 9.1% of General Fund revenue in FY24 • Actual expense has averaged 9.4% under budget historically • FY25 per City Budget • 2.3% average future growth in expense, near long-term trend 45 42 General Fund Other Expense Non-Recurring O&M/Capital/Debt Service (including Transfers) • 11.4% of General Fund expense in FY24 • Actual expense has averaged well over budget historically • FY25 per City Budget • Future amounts assume debt service per maturity schedules, and capital of $1.65M/year with 2.5% growth All Other Transfers Out • 14.3% of General Fund revenue in FY24 • Actual expense has averaged well under budget historically • FY25 per City Budget • Includes transfers to PRCS and Library funds, street projects, vehicle replacement, and intrafund transfers within the General Fund • 1.4% average future growth in expense 46 43 Transfers Out by Receiving Fund Note that scales of these charts differ 47 44