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Page 5 of 9 Occupancy Tax and Business License Tax, are projected to decrease by 0.7 percent in FY 2025/26 and by an additional 1.0 percent in FY 2026/27 before rebounding to grow at 2.0 percent annually starting in FY 2028/29. Recreation fees are not projected to experience any growth in FY 2025/26 and FY 2026/27 before growing again at 3.0 percent annually starting in FY 2027/28. Other revenues are projected to grow at 2.0 percent annually. Expenditure assumptions for this scenario are the same as the baseline scenario to effectively compare the level of change in the fiscal gap when the City’s major revenues are impacted from an economic slowdown/recession. Under this scenario, the annual deficit on average grows to approximately $22.8 million. With previously mentioned shortfall reduction measures (i.e., utilizing the Section 115 Pension Trust and reducing non-personnel budget), the average annual deficit goes down to $14.7 million. It should be noted that reduced revenues estimated in this scenario only assumes a mild economic downturn or short recession; while it is not likely that any near future economic downturn or recession will be as severe as during the Great Recession, any type of economic downturn will have a major impact on the City’s primary revenues. During the Great Recession, the City’s property tax revenue decreased by as much as 5.0 percent and took five years to recover, finally returning to $50.4 million in FY 2013/14 after initially reaching that number in FY 2008/09. Sales tax took even longer - taking more than seven years to recover - returning to $22.4 million in FY 2014/15 after initially reaching $22.0 million in FY 2006/07 and its revenue decreasing as much as 27.0 percent during this seven-year period. The Great Recession officially lasted 18 months from December 2007 to June 2009, and the only other downturn in recent history was the COVID-19 Recession, which only lasted two months. Unprecedented actions taken by Congress with a series of stimulus measures, combined with quantitative easing by the Federal Reserve, helped quell the recession quickly but also fueled economic growth. While most economists are not predicting a recession in the near term, it is highly likely that some type of economic downturn or even recession will occur during the forecasted period from FY 2025/26 to FY 2032/33. Alternative Scenario 1: Property Tax Revenue With the Tri-Valley's real estate market remaining strong, the City’s property tax revenue grew at a healthy pace in recent years: during the last three years, this revenue grew each year with annual growth ranging from 3.2 percent to 7.3 percent. Assuming this level of growth continuously is not realistic, especially with the supplemental property tax from real estate transactions expected to decrease as the region continues to deal with historically low inventory and decreasing affordability. Compared to the baseline scenario in which a 3.5 percent annual growth is assumed, if a 4.0 percent annual growth is assumed, an additional $19.6 million in property tax revenue between FY 2025/26 and FY 2032/33, or an annual additional revenue of $2.5 million, is projected. Using 4.5 percent, these amounts go up to $39.7 million over 8 years, or $5.0 million per year. Alternative Scenario 2: Labor Costs and Unfunded Pension Liabilities As mentioned above in the baseline scenario, personnel costs (excluding pension costs) are assumed to grow at 3.0 percent annually, but when factoring in pension costs and using projections from CalPERS, the overall personnel budget numbers are projected to grow by an average of 3.3 percent annually. However, 3.3 percent may be slightly lower than actual Page 216 of 228