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HomeMy WebLinkAboutItem 6b. Jackson and Kuhn - Staff Agenda CorrespondenceCity of San Luis Obispo, Council Memorandum City of San Luis Obispo Council Agenda Correspondence DATE: March 3, 2026 TO: Mayor and Council FROM: Emily Jackson, Finance Director Prepared By: Riley Kuhn, Principal Budget Analyst VIA: Whitney McDonald, City Manager SUBJECT: ITEM #6B - FY 2026-27 BUDGET SUPPLEMENT PREVIEW AND DISCUSSION OF OPERATIONAL INITIATIVES Staff received the following questions regarding the FY 2026-27 Budget Supplement Preview and Discussion of Operational Initiatives. The questions are below with staff’s response shown in italics: 1) On page 567 of the packet, it talks about staff’s recommendation to make permanent the once-temporary $1 million “shift” of funding from CIP to operating. Are we to assume that this is LRM revenue we would be shifting from CIP to operating? The $1 million shift (reallocation) of funding from the Capital to Operating budget included in the 2025-27 Financial Plan was made with Local Revenue Measure (LRM) dollars. This reallocation was recommended as a one-time measure to balance the budget in the 2025-27 Financial Plan. Staff is recommending that this reduction in capital expenditures be made ongoing due to the minimal observed impact to the Capital Improvement Program and a desire to mitigate the impact of operating budget reductions to the community and staff to the greatest extent possible. However, staff have not identified a funding source for this change as specific to the Local Revenue Measure because it is not the only source of funds for Capital Expenditures. 2) Are you looking for direction from us in this item about discontinuing the FHCPs that are currently still in existence from 2023 and 2025? It doesn’t seem like it, but just want to make sure. Staff is not seeking Council direction on termination of the 2023 and 2025 Fiscal Health Contingency Plans (FHCP). That section of the report is included for Council’s awareness and transparency for the community. ITEM #6b – FY 2026-27 Budget Supplement Preview & Discussion of Operational Initiatives Page 2 3) On page 598 of the packet, it shows a revised forecast table and says that we forecast that the new fire station is going to cost $2 million more annually at some point in the future with the first expenditures occurring sometime in 2027-28. Where does that $2 million of expenditures show up in the table? Staffing? Capital? The City has full responsibility to fund ongoing operations of the new fifth fire station, currently estimated to cost $2M a year. The budget for Fire Station 5 operations is forecasted in the operating budget and is largely made up of staffing expenditures, but also includes other costs including but not limited to equipment, training, utilities and other costs associated with running a fire station. 4) Will the disposition of the unallocated fund balance be decided during this meeting? Staff is not recommending use of the $369,804 of unallocated FY 2024-25 unassigned fund balance as a part of this item. That funding will remain unallocated until the Council allocates that funding for a specific purpose. 5) Would there be a conflict of interest if Council made a grant to the San Luis Obispo College of Law’s start up Center for Dispute Resolution project and they later submitted a bid in response to our RFP? City Attorney staff has evaluated this question from the last Council meeting and has not identified any potential conflict of interest related to either the City’s award of a grant or any involvement of Center for Dispute Resolution (CDR) staff in the development of an RFP for community mediation services, that would preclude such action. 6) Why is provision of meditation services not identified as a potential new program in the staff report? The provision of mediation services is not identified in the staff report, as the report was finalized prior to Council’s discussion about mediation services as part of the FY 2025-26 Second Quarter Budget Report on February 17, 2026. As discussed on February 17, 2026, the Police Department currently budgets $15,000 per year for mediation services which can be used for ongoing services when a new provider is selected. Staff is continuing to work with Cal Poly and Cuesta on a joint RFP for ongoing mediation services and have identified a draft scope of services that includes additional proactive elements. This will likely result in additional costs for the City and for partner agencies, which are currently being evaluated as well as the funding formula for each agency. Any recommended increase, beyond the City’s current $15,000 funding, will be proposed as a part of the Supplemental Budget on June 2, 2026. ITEM #6b – FY 2026-27 Budget Supplement Preview & Discussion of Operational Initiatives Page 3 The Council also received additional correspondence from CDR with the requested information on one-time funding to establish the center and respond to future RFPs for ongoing services. Should Council wish to provide this support, $10,000 is available from the current fiscal year budget for mediation services ($5,000 is being used to provide interim services) which could also be combined with funding from the remaining FY 2024-25 unassigned fund balance, if desired. 7) Besides the draft budget reductions identified in the staff report, are there any other “pots” of allocated but unutilized funds? Are there allocated but not utilized CDBG funds? There is not any allocated but unutilized funds in the City’s General Fund. Static funding sources include the General Fund’s operating reserve, the balance within the Insurance Fund held to reserve against future claims, and the Infrastructure Investment Fund balance. These funds are all intentionally held for various reasons, including to hedge against unexpected revenue declines, unanticipated expenditures, or to plan for known major expenditures like the Prado Interchange project. The City’s CDBG funding is entirely allocated through the 2026-2027 program year. This funding is allocated to specific projects meeting the eligible uses set by the U.S. Department of Housing and Urban Development (HUD), including Administration and Capacity Building, Public Services, and Housing and Public Facilities, per the funding priorities set by City Council. The City’s funding allocations are then incorporated into the County’s final Action Plan sent to HUD, per the terms of the subrecipient agreement between the City and County. Staff has not received any information from the City’s CDBG applicants indicating that they will not utilize the funding allocated towards their projects. Since the County is the actual recipient of CDBG funding from HUD and executes funding agreements directly with the approved applicants for the City’s funding allocation, it is not possible for the City to re-allocate this funding after Action Plan approval and submission, which has already occurred for the 2026-27 program year. 8) If Council decides to terminate contingency plans which were activated in 2023 and 2025, would the City need to reactivate such plans in the near future? Staff is not seeking Council direction regarding termination of the Fiscal Health Contingency Plans (FHCP) that were activated in 2023 and 2025. Discussion of the FHCPs is included in the report to provide an update and inform the Council of the City Manager’s intent to terminate both, pending direction from the Council to incorporate draft budget reductions into the FY 2026-27 Supplemental Budget for adoption during the Budget Hearing on June 2, 2026. The City Manager’s determination to terminate the 2025 FHCP is based upon the improved long-term forecast discussed in the Council Agenda Report, as well as implementation of recommended expenditure reductions also included in the report. The City Manager may reactivate the FHCP if conditions change. ITEM #6b – FY 2026-27 Budget Supplement Preview & Discussion of Operational Initiatives Page 4 Per the Fiscal Health Contingency Plan, the purpose of the plan is to establish a framework and general approach in responding to adverse fiscal circumstances. The FHCP identifies circumstances that may trigger the activation of a FHCP, including: • Adverse fiscal circumstances as determined by the City Manager, such as: o Natural or human-made disasters o State budget takeaways o Large, unexpected costs o Economic downturns. • Whenever there are two consecutive quarters of adverse fiscal results in one or more of the City’s top five General Fund revenues: o Sales tax o Property tax o Transient occupancy tax (TOT) o Utility users tax o Vehicle license fee (VLF) “swap” • Adverse results include: o Actual declines in revenues o Significant variances from projected revenues 9) Besides allocating money for Fire station #5 from the General Fund, are there grant possibilities, development impact fees, bond funding or other cost sharing sources available? Staff will apply for and utilize all available funding sources to offset the cost of operations. Staff intend to apply for the Federal Emergency Management (FEMA) Staffing for Adequate Fire and Emergency Response (SAFER) grant. This grant provides funds to help organizations increase the number of trained firefighters on staff. FEMA Assistance to Firefighter Grant (AFG) is another opportunity that could potentially offset one time equipment expenditures. Because funding under these programs is not guaranteed, the forecast assumes the full cost of operations will be paid for by the City, including the Community Facilities Districts where allowable. ITEM #6b – FY 2026-27 Budget Supplement Preview & Discussion of Operational Initiatives Page 5 10) Is the City identifying alternate funding sources for CAT and MCU services? If yes, from which entity? The City has participated in five national opioid settlements since 2021 and has used settlement funds to support the cost of two Licensed Psychiatric Technicians (LPTs) contracted through the County of San Luis Obispo. The LPTs are assigned to the City’s Community Action Team (CAT) and Mobile Crisis Unit (MCU) programs, operated by the Police Department and Fire Department, respectively. As noted in the September 2, 2025 Council Agenda Report, the City’s opioid settlement funds are decreasing and beginning in FY 2027-28, the annual cost of the contracts with the County will exceed the ongoing opioid settlement revenue. The City does not have alternate funding sources, apart from the General Fund, to support the LPTs for the CAT and MCU and it is unlikely that another entity would take on this cost, as the City’s opioid settlement funds are currently used to support programs that benefit the City-specific programs. As part of development of the 2027-29 Financial Plan, staff will seek direction from Council on whether or not the General Fund should support the cost of the LPTs, in the absence of sufficient opioid settlement funds. 11) How could the City simplify budgeting for the CalPERS liability paydown additional discretionary payments (ADPs)? Would eliminating the 115 Trust allocation help in this regard? Why has the City “forecasted” but not actually budgeted ADPs in the past? The City has made some progress in simplifying the paydown of its pension debts. Ideally the forecast and budget should be aligned, but the previous Financial Plan incorporated a difference in how these payments would be made. They were forecasted, or had funding set aside, but were not budgeted, so could not be made without additional Council action, typically with the Second Quarter Budget Report. With the 2025-27 Financial Plan they were removed from the forecast, simplifying the paydown in line with the discretionary nature of the payments. Going forward and in line with policy, CalPERS ADPs will remain a priority for use of unassigned fund balance. Elimination of the amount assigned for deposit into a 115 Trust would have little impact on ongoing payments to CalPERS since such an action would be one-time in nature.