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Page 6 of 9 growth in the near term due to several factors: firstly, inflation was one of the main factors in recent labor negotiations; and secondly, the City’s unfunded pension liabilities are dependent on CalPERS’ investment performance compared to the discount rate that it sets. If the CalPERS annual rate of return is lower than the established discount rate - which is at 6.8 percent currently - additional contributions are required. For example, for FY 2022/23, CalPERS’ investment return was 6.1 percent - 0.7 percent lower than its 6.8 percent target - so the City’s contribution numbers are expected to increase in future years. Compared to the baseline scenario, where an average annual growth of 3.3 percent is projected, if an additional 0.5 percent is assumed, that will increase overall personnel costs by $22.1 million from FY 2025/26 to FY 2032/22, or $2.8 million annually. If an additional 1.0 percent is assumed, costs are $46.0 million over eight years or $5.7 million annually. With staffing costs accounting for more than 70.0 percent of the General Fund’s total expenditure budget, excluding transfers, even a slight increase in staffing cost can have a major impact. Proposed Reductions to Discretionary Funding The General Fund currently supports a number of community programs and organizations. The support is directed toward highly valued community partners such as the Pleasanton Unified School District (PUSD), various non-profit organizations, business groups, and community groups. These investments are estimated to be approximately $2.5 million annually. The most significant support ($1.8 million) flows toward schools and students through the School Resource Officer (SRO), Crossing Guard, and Tobacco Education Programs, and other programs such as after- school programs and notable time from the Alternative Response Unit (ARU) Program. The Memorandum of Understanding (MOU) for the SRO Program and the contract for the Crossing Guard Program will expire in June 2024 and July 2024. The City and PUSD will be discussing and re-negotiating these documents over the coming months. Currently, the City covers 100% of the costs for both the SRO and Crossing Guard programs; however, given the City’s financial challenges, staff recommends that both agencies share the costs for the SRO Program, Crossing Guard Program, and Tobacco Education Program starting in FY 2024/25. Staff is not recommending any change in the funding for the ARU Program at this time. The proposals presented below are specific only to cost-sharing for direct costs for the SRO, Cross Guard and Tobacco Education Programs, and so do not include costs such as for the supervisor that oversees the SROs and/or other indirect overhead costs. With MOU and contract discussions coming quickly, staff is seeking Council input. Staff recommends Proposal #1, in which PUSD will start paying 25.0 percent of the costs starting in FY 2024/25 (year 1). The cost sharing percentage will increase by 10.0 percent in years 2 and 3, and a 5.0 percent increase in year 4 to get to 50.0 percent cost sharing for the SRO, Crossing Guard, and Tobacco Education programs. Understanding that both the City and PUSD are experiencing financial challenges as this time, an alternate proposal noted as Proposal #2 is to have PUSD share 25.0 percent of the costs starting in fiscal year 2024/25 (year 1), and the cost sharing percentage will increase by 5.0 percent every year for five years; in year 6, the cost sharing percentage will be at 50.0 percent. The estimated costs presented below reflect FY 2023/24 budgeted expenditures and costs are expected to increase over time. Page 217 of 228