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Page 1 of 9 Item #15.a CITY COUNCIL AGENDA REPORT March 19, 2024 Finance TITLE: RECEIVE A PRESENTATION ON SALES TAX AND FINANCIAL FORECAST ASSUMPTIONS AND PROVIDE DIRECTION REGARDING PROPOSED REDUCTIONS TO DISCRETIONARY FUNDING SUMMARY Over the past several months, staff has been working on the revenue measure feasibility project, for which the City is soliciting input from the community regarding the viability of a small, ½ cent sales tax increase. To provide additional information, staff will be joined for a presentation on sales tax by auditing, operations, and revenue solutions firm HdL Companies to provide an overview of taxable and non-taxable items, revenues generated from different sales tax categories, and per capita sales tax trends. In addition, staff will present the assumptions that were used to develop the General Fund long-term forecast and discuss alternative forecast scenarios. To plan ahead for the Fiscal Year 2024/25 mid-term budget update, staff will solicit direction regarding proposed reductions to certain/timely discretionary funding as part of a cost containment strategy. RECOMMENDATION • Receive a presentation on sales tax and financial forecast assumptions. • Receive direction regarding proposed reductions to discretionary funding. BACKGROUND At its March 21, 2023, meeting, the City Council directed staff to begin exploring viable revenue options to sustain vital City services and maintain community infrastructure, as well as ensure that resources are available to keep pace with the service needs expected by the community in future years. Delayed development activity, the decline in sales activities at the Stoneridge Shopping Center, and increases in insurance, pension, personnel, and contract service costs, as well as mandates from the State, have all contributed to the City’s current financial challenges. The financial impacts of the pandemic exacerbated the situation, as American Rescue Plan Act (ARPA) stimulus funds are no longer available for the City after Fiscal Year 2022/23, and now inflation coupled with reduced hotel tax revenue puts further pressure on the General Fund budget. At the same time, many City infrastructure assets such as fire stations and park systems that were constructed or renovated during a significant growth period in the 1980s and 1990s are aging and in need of reinvestment to remain fully operational. The City has been prudent in managing its finances. However, as the City continues to transition from a growing to mature community, double-digit increases in property tax and sales tax are no longer being realized. The City is always actively seeking outside funding Page 212 of 228