Let's Do it! - the Fiscal Health Response Plan explained
Fiscal Health Response Plan
Information and dates accurate as of June 2019: In the next 12 months, we must jointly figure out how we continue to balance the City’s checkbook and solve long-term funding needs. We will need long-term solutions to ensure the high quality of life and services for the city of Monterey. Unlike the Federal government, which can run a deficit, the City of Monterey must have a balanced budget. Without long-term funding solutions, we will not be able to afford the current programs and services provided by the City. Our Fiscal Health Response Plan will be the guiding plan which focuses on the CORE strategy.

We will analyze our service levels and adjust where appropriate; look at our internal processes to streamline and optimize; adjust our workforce, compensation and benefit structure as well as pension obligations; and, lastly, we look at our revenues. The CORE strategy is as follows:

• Change the way we do business to be more streamlined.
• Operational reductions or services provided by someone else, where appropriate.
• Revenue enhancements through economic development, fees, taxes, cost recoveries.
• Employee contracts that attract and retain talent and are financially sustainable.

The FHRP public outreach includes a monthly publication series on budget highlights that focuses on specific areas of revenue and expenditure. Being transparent about the City finances will help us plan, implement and maintain fiscal sustainability. The first and second in this series are facts about TOT revenue and facility upgrade needs, and future highlights will include property tax, sales tax, staffing and pension and more.

5-year Outlook
The General Fund 5-year forecast shows operating deficits that will increase in magnitude over time. Specifically, the estimated budget deficits include FY18/19 of ($0.8) million, FY19/20 of ($0.6) million, FY20/21 of ($2.8) million, FY21/22 of ($3.8) million and FY22/23 of ($5.2) million.

Projected costs outpace projected revenues. There are various reasons including rising costs for staffing (minimum wage, pension), utility, insurances, contract services, equipment and vehicles. Staying on this course will erode City reserves and services. We will need to continue to balance the City’s checkbook by aligning our income with our expenses.

Once again: This forecast scenario is OPTIMISTIC because it assumes a continuing growth economy and annual operating costs kept below consumer price index (CPI%) trends. Moreover, it does not include a long list of outstanding service needs such as deferred maintenance, facility needs (i.e., upgrades, expansions), outstanding liabilities costs and unfunded City initiatives.

Revenue assumptions include historical trends (i.e. 4% for TOT and 3% for Property Tax). Expenditure assumptions are generally 2.5% overall with adjustments in specifics areas, such as increases in pension liability payments, general liability and worker’s compensation premiums and contract services.

Unfunded Services and Needs
In addition to balancing the operating budget, there are many other unfunded services and needs exceeding $200 million – which are essential to our community in the long-term. These areas focus on the Monterey quality of life, fiscal and organizational health and infrastructure and equipment investments.

Quality of life includes public safety, recreational programs, parks, beaches, trails, environmental sustainability, affordable housing, homeless solutions, Fort Ord property development, The Old Capitol Site, and Monterey 250 celebration.

Fiscal and organizational health includes CalPERS (California Public Employees Retirement System) pension funding ($140 million liability), staff morale and succession planning, revenue generation, updated parking fees, technology, performance management, and updated service fee structure.

Infrastructure funding requirements exceed $100 million to upgrade and repair many of our aging infrastructure assets. The average age of city facilities is 55 years. These include the library, police station, fire stations, parks, trails, open space, community centers, sports center, conference center, parking garages, storm water system, tunnel, harbor office, seawall, and wharves. Also, we need transportation demand management, NCIP project sustainability for long-term maintenance costs, and sustainable water supplies.

Equipment investments exceed $10 million for fire engine purchases, on-going fleet replacement, and on-going technology investments. Five (5) fire engines need to be replaced in the next five years, but only one (1) is included in the FY19/20 budget while the next four (4) will require debt financing to purchase.



PENSION FACTS

• What is the median retirement age for General Employees (GEM), Fire, Police Miscellaneous (Misc) (GEM & Management) is 59.1, Fire is 53.85, Police is 51.15
• What is the median retirement benefit per month per retiree for Monterey? Average benefit is $2,191 for Misc; Safety data unavailable for Monterey specifically; average monthly benefit for PERS Safety Pool, in which Monterey participates along with other cities, is $3,185 as of 6/30/16 (latest valuation)
• How many retirees do we have on our books? 605
• How much does an employee contribute towards their retirement? 11% of salary for Misc. Classic, 6.25% for Misc. PEPRA (Public Employees’ Pension Reform Act), 12% for Classic Police, 13% Classic Fire, and 11.5% for Safety PEPRA
• What is the total unfunded liability for Monterey? $140,223,837 as of 6/30/16 (latest valuation)