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HomeMy WebLinkAbout2025-12-02 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 12 Regular Meeting December 2, 2025 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 5:30 p.m. Present In-Person: Burt (Chair), Lythcott-Haims, Reckdahl Absent: None Call to Order Chair Burt called the meeting to order. The clerk called roll declaring all present. Public Comment 1. John M. wanted to understand how the community could promulgate quick action on finding funds for collide zones and quad gates. Agenda Items 1. Discussion and Recommendation to the City Council to Accept the Macias Gini & O'Connell's Audit of the City of Palo Alto's Financial Statements as of June 30, 2025 Kate Murdock, City Auditor, provided a slide presentation including the purpose and results of the audit. Ben Lau, Assurance Partner, Macias, Gini & O’Connell, joined the presentation with slides including scope of services, MGO audits and FY 2024-2025 audit results. Councilmember Reckdahl inquired if there is anything that was not incorrect but could be clearer. Mr. Lau replied for this year there is not specific improvement recommendation for the City. Councilmember Reckdahl asked about the restatement involving paid time off. Mr. Lau stated the City follows government accounting standards. On a periodic basis, new accounting standards are provided. For this year, the City has implemented GASB 101 and 102. Because of that change, the City's compensated absence liability increased by $9.5 million for the beginning balance. SUMMARY MINUTES Page 2 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 Councilmember Reckdahl asked about the PTO balance. Kiely Nose, Assistant City Manager, replied there is a percentage of PTO on reserve. That liability is maintained in the general benefits fund. As compensation is paid out that results in actuals that are expressed in the department where the employee is leaving and that liability is trued up on an annual basis. Lauren Lai, Chief Financial Officer/Administrative Services Department Director, added that money is invested actively but because of the vested benefit the City has an obligation to pay. From a standards practice perspective, so much money has to be held on the books to have certain funds available. The GASB pertains to what is represented as a liability on the balance sheet and does not necessarily change the obligation of what is or is not vested. The underlying terms are governed by labor contracts. Mr. Lau said it is similar to the change in pension and OPEB. Before the implementation of GASB68 and 75, those balances were not on the books at all. The number relative to the City's budget or annual costs is a fairly significant difference. The liability is significantly higher and that is basically for actuarial calculated numbers for retirees. These numbers are a reference point for example. Councilmember Lythcott-Haims wondered why the pedestrian bike facilities grant included a statement of no material weakness or significant deficiencies in internal controls of financial reporting whereas the others did not. Mr. Lau explained the reason for the second letter is because there is specific requirement from the state for auditors to look at the compliance of the usage of TDA funds. Assistant City Manager Nose added Council allocated $7 million for operating expenses associated with the Homekey site. It is $1 million a year over the course of 7 years. Staff expected Measure K would cover that. There has been some usage of some of the funds for some of the unexpected costs that previously came up a year ago associated with the Homekey site. The city manager's office in collaboration with the Council allocated some of those funds associated with the unhoused work that Council recently approved in mid-October. Chief Financial Officer Lai stated there is a business tax transparency report on the website that shows the spending and revenue each year. Councilmember Reckdahl asked about the $700,000 listed on business tax. Chief Financial Officer Lai answered there is a labor component. In the implementation year, it is the administration of the new tax. HdL helps to administer it on a renewal basis. In the first year, there was a lot of collection effort due to noncompliance. The tax payers that have not paid will get a collection fee. The hope is that will taper off. Councilmember Reckdahl suggested putting the underlying trend and the transition in the charts and had questions about net position and depreciation. Ms. Kollings replied there is a section for depreciation. Councilmember Reckdahl asked if the net position includes assets that have zero value. Chief Financial Officer Lai stated if it has zero value it is net zero. Councilmember Reckdahl had a question about transfer to capital on packet page 98 staff report 32. Chief Financial Officer Lai stated this adjustment enables Staff to put the unspent amount back into the BT reserve to have better controls over the business tax balances. Business tax flows into the general fund but because there are three buckets of spending per the advisory, there is certain accounting to make sure it is properly reserved and traced as it is SUMMARY MINUTES Page 3 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 being spent. If it's unspent, it is returned back to the reserve. The purpose is to intentionally not comingle the business tax revenue to adhere to the Advisory Committee's direction in these three discrete priorities. Chair Burt asked about projects PL 24,000 and 24,001. Assistant City Manager Nose explained PL 24,000 is Meadow Drive and Charleston Road. Churchill Avenue is PL 24,001 and for rail grade separation. They are funds that were allocated specifically for investment in specific CAPEX projects. One option could be to leave the funds there because the project has been delayed a year. Staff is reflecting the return of the funds to business tax but they will be returned back next year or the following year when the project happens. Chair Burt asked about the term net position. Assistant City Manager Nose explained there is more than just the isolated incident. That is what is reflecting this including some of the GASB pronouncements. On the enterprise fund side, it is full accrual accounting. The full pension liabilities are booked there. When the pension liabilities fluctuate, it will fluctuate there as well. That is unique to enterprise funds. The general fund is different but is looking at kind of the other funds, which include those enterprise funds. Certain funds have certain rules and those ones are on a full accrual basis. Chair Burt advised relooking at the policy for the formula for what to do with the budget stabilization reserve above the mean and have the policy reflect what has become the practice. Assistant City Manager Nose recalled there was a referral to realign the policy with the practice to recognize the importance of the mutual decision. The retiree benefit policy says that is one of the funding sources for the retiree benefit trust funds. The other half in the BSR financial policies say that 50 percent would go to the infrastructure reserve. Chair Burt stated the process side and the policy on how it is allocated should reflect looking at the future budgetary forecast and considering whether a portion of that surplus should go toward offsetting future shortfalls. Assistant City Manager Nose said it is a Council call on whether or not the Committee would like to make a referral to the Council to revisit the baseline policy allocation of excess funds. Chair Burt thought the Committee might want to refer that. Chair Burt wanted to know which utilities are covered under the UUT. Assistant City Manager Nose replied it is water, gas, electricity, and telephone/VOIP. Chair Burt wanted to correlate the 7.5 percent increase in UUT to the rate increase for utilities. Item 1 Public Comment - None MOTION: Councilmember Reckdahl moved, seconded by Councilmember Julie Lythcott-Haims, to recommend the City Council accept the City of Palo Alto's audited financial statement for the fiscal year ended June 30, 2025, and accompanying reports provided by Macias Gini & O'Connell LLP. MOTION PASSED: 3-0 SUMMARY MINUTES Page 4 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 2. FY2025 Annual Comprehensive Financial Report (ACFR) and the Year-End Budget Adjustments in Various Funds on the schedule Yvonne Kollings, Finance Manager, provided a slide presentation including an overview, financial statements overview, fund financials – governmental funds, history of general fund revenues, business tax revenue and expenses, fund financials – general fund department expenditures, fund financials – enterprise funds net position, government-wide – net position, government-wide statements – statement of activities, fund financials – general fund budget stabilization reserve, FY 2025 year-end budget adjustments (attachment B), and recommended actions. Councilmember Reckdahl inquired about the difference between BSR and unassigned. Ms. Kollings responded the difference is recording the investment loss. When the books are recorded, the investments in the ACFR are fair market value. When accounting for the budget, if there are any unrealized gains or losses, they are adjusted out during the budget process. They are excluded from the calculation in the BSR. Councilmember Reckdahl observed there are $6 million in unrealized losses in the BSR. Chief Financial Officer Lai stated it is because the investments are held to maturity. Councilmember Lythcott-Haims asked what the increase in investment returns by having outsourced the function to Chandler is projected to be. Chief Financial Officer Lai did not think there was a projection of the impacts of the investment firm. Growth will take time as the portfolio is corrected. As a part of this budget development, work will continue with Chandler to get projections so they can be incorporated into the fiscal year 2027 budget. Councilmember Lythcott-Haims asked for an explanation of the ERAF. Chief Financial Officer Lai explained there is a property tax collected in the county that comes back to the City. A portion of that goes to the state to fund schools. Once that funding is met, the excess portion comes back to the county and the local jurisdiction. Generally, that money is recognized as revenue; however, there is a dispute as to whether or not the calculation is correct. For that reason, about 18 percent is held back and reserved for that contingency. There are a couple of emerging situations being monitored having to do with an audit and legal disputes between the state and county. Chair Burt asked if it is a one time dispute. Chief Financial Officer Lai said it is an ongoing concern. About $7 million has been on hold since about 2020. Councilmember Lythcott-Haims queried if any of the affordable housing and unhoused services funds toward any current or projected project has been earmarked. Chief Financial Officer Lai replied they have to some degree. Ms. Kollings said it is listed as Homekey Facilities and for admin expenses. Assistant City Manager Nose stated of the recent work that the Council just approved associated with unhoused support, 157,000 of the funding that was just allocated in October was funded by the business tax and affordable housing reserve funds. The 157,000 is for the policy work associated with developing unhoused policies programs in the city SUMMARY MINUTES Page 5 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 manager's office. Councilmember Lythcott-Haims did not recall money being spent on that side. Assistant City Manager Nose explained that will likely result in either consultant services or staffing to help do the program implementations. Chair Burt asked what utilities are covered under the UUT. Assistant City Manager Nose replied water, gas, electricity, and telephone/VOIP. Chair Burt wanted to correlate a 7.5 percent projected increase in the UUT with the rate increases for utilities and had questions about the business tax rates. Assistant City Manager Nose stated there was a one-year retro so it is all conflated. The first year of collection was two years' worth of collection at a half rate. Chair Burt asked about the 5.7 projected revenue on table 6. Assistant City Manager Nose stated that is FY25. Councilmember Reckdahl commented the current yield was 2.46. If they were in the short bond strategy suggested by Chandler, the current yield to maturity would be 4 percent if the yield curve does not change. The market value is $541 million. Chief Financial Officer Lai added they allocate the earnings back to different funds based on portfolio holdings. The general fund is about 20 percent. Item 2 Public Comment - None MOTION: Councilmember Julie Lythcott-Haims moved, seconded by Councilmember Reckdahl, to recommend the City Council accept: 1. The City’s Fiscal Year (FY) 2025 Annual Comprehensive Financial Report (ACFR) 2. Amendments to the FY 2025 Budget Appropriation for various funds as identified Attachment B. 3. Recommend that Council support a review of the formula and process for use of excess BSR funds MOTION PASSED: 3-0 3. Review and Recommend the City Council Accept the FY 2027- 2036 Long Range Financial Forecast and FY 2027 Annual Budget Development Guidelines Chief Financial Officer Lai started a slide presentation including financial planning cycles and conversations. The presentation was continued by Jonathan Rewers, Budget Manager, with a summary overview, economy, FY 2027 – 2036 long range financial forecast (LRFF), LRFF revenues, revenue groupings – major tax, LRFF revenue details, LRFF expenditures, LRFF expenditure detail, balancing "sandbox" options, budget stabilization reserve, FY 2027 budget development guidelines (Attachment A), and the recommendation. SUMMARY MINUTES Page 6 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 Councilmember Reckdahl asked what assumptions have to be extrapolated. Chief Financial Officer Lai responded it should be clarified in the long-range financial forecast it is only the general fund and it is based on existing service level so additional headcount is not added. Councilmember Reckdahl inquired if there would be any value to plotting the LRFF revenue details with inflation taken out. Chief Financial Officer Lai responded that could be done. It can be an arduous exercise because sometimes there are grants or programs that drive cost increases. It goes back to how the exercises inform the decision and policy-making process. Councilmember Lythcott-Haims wanted explanation of lines one through four on the balancing sandbox options slide. Chief Financial Officer Lai explained the line above $6 million fiscal year 26 through 28, the staff report should read $6 million, $6 million, $4 million, and then $4 million. That's the $6 million that Council approved in September as a part of fiscal 26. That was to balance 26. The next row is to balance 27 and onwards. Additional budget cuts need to be made. That is the next row, $7 million and likely the capital. Chair Burt observed the $6 million that was reduced last year would continue. It is already in the budget so it doesn't show up as an additional balancing item confirmed by Chief Financial Officer Lai. It is ongoing. It is in the base as $6 million in 26, 27, and 28. That is why there are dashes. It was already included in the base assumption. Because of the magnitude of the deficit in 29 and 30, that $6 million will continue beyond the 3-year estimation but at a lower amount. A couple million dollars of services might be added back so instead of $6 million continuing to be an ongoing reduction, only $4 million might be needed. Those two lines illustrate that the level of reduction in the budget and in these outer years might restore a little bit depending on the financial condition. Chair Burt suggested to leave FY26, $6 million the same across the board and do adjustments in the next row. Item 3 Public Comment – None Councilmember Lythcott-Haims asked how the projected deficit is higher than it was forecast. Chief Financial Officer Lai stated in prior budget development, there was a multi-year strategy. When the budget was adopted last year, they knew there was a deficit that would have to be addressed with the hopes that some of it could be shored up with one-time resources. The sales tax dynamic exacerbated that. The deficit going into this year should not be a surprise. The degree of it is more difficult because of the timing of the sales tax decline. Chair Burt advised to put the cards on the table that the primary reason the deficit has jumped is the sales tax change and the principal part of that is a change in state policy or franchise tax board policy. Chief Financial Officer Lai called it a practice on allocation of revenues. Chair Burt said if they do not say that, everybody thinks the base sales tax has declined from selling fewer goods. Chief Financial Officer Lai said there is an element in those two sectors of actual decline in sales because of the economy as well. It was Chair Burt's understanding it is not the primary part of the decline in the sales tax. The primary part is the change in state franchise tax board practice. It needs to be said to the degree it can to avoid people misconstruing what is SUMMARY MINUTES Page 7 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 happening. Chief Financial Officer Lai stated that will be emphasized when going back to Council. Councilmember Lythcott-Haims wanted detail on what the revenue expansion ideas are. Chief Financial Officer Lai said they might be looking at some fee categories, interest income given the new portfolio manager, and new fees. Councilmember Lythcott-Haims wanted to know why increase in revenues is not higher than $800,000 on slide 11. Chief Financial Officer Lai said it can be higher and is hoped to. At this junction of forecasting, a preliminary analysis is being done while going through the budget development process. They will true up all revenues and expenditures for all funds. This is a policy document that is a broad brush right now. Chief Financial Officer Lai agreed that number for revenue needs to be stronger but she wanted to present to the Committee a forecast that is fairly moderate. Councilmember Lythcott-Haims asked for a sense of where quiet zones and quad gates fit into the forecast. Chief Financial Officer Lai stated that in the budget process, that is when Council is asked if there are certain initiatives or priorities that rise to the level of funding given the financial position. Councilmember Lythcott-Haims asked if other assistance could be obtained for quiet zones or quad gates. Chair Burt replied there are several potential buckets that could be pursued for funding. Measure B does not pay for quiet zones but the potential of whether that the board could authorize that to be included either under grade separation dollars or the CalMod dollars and the way in which the $300 million in CalMod dollars will be allocated. There are other potential grants. Councilmember Lythcott-Haims asked when the question should be posed if there are things being done as a City that should be stopped. Chief Financial Officer Lai stated Staff went through this conversation in the summer when the $6 million compilation of reduction proposals was put together. They will go through it again. The department heads are already thinking of different reductions. This reduction is on top of the other reduction so they are getting to a point where certain programs and services may need to be laid down because it is not functional anymore. Departments already have to triage based on their critical duties, missions, and charter what stays and what in the peripheral might have to stop. When they come back and size up the reductions for the Council, they will try to explain those areas. Assistant City Manager Nose stated this will come up as they look at Council priorities next year. Chief Financial Officer Lai added if a project, initiative, or priority is not in the current service level, it will not be added and funded unless Council gives direction. There are other funding sources. This policy document is important to show where they project the general fund financial position. Chair Burt added Attachment E lists things as if there are not funding resources. Grade separation funding requires matching local funds. Measure B is being treated as a local funding source for purposes of qualifying for the state and federal dollars. Councilmember Reckdahl asked about discrepancies on slide four about deficits and surpluses. Chief Financial Officer Lai said prior forecasts showed a deficit through 2030. The slide protracted it out to 2032. When the budget was adopted for fiscal 26 in June, going into 2027 there was a net deficit of $8 million. The sales tax made it worse and emphasized that. The SUMMARY MINUTES Page 8 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 degree of it in prior years was in the order of magnitude where they kept borrowing from prior year savings, using some fund balance, using some uncertainty reserve, added some new services. That is being reckoned now especially given the timing of the sales tax decline. Councilmember Reckdahl observed adding up the deficits was $70 million on the bottom line. Chief Financial Officer Lai stated plans are being proposed to reduce this problem on an ongoing basis. Councilmember Reckdahl had questions on slide 9 about expenditures and head count. Chair Burt commented when that report went to Council on trying to compare the pattern, the one data point being anticipated was the 2019 actual headcount but has not been provided. Chief Financial Officer Lai replied it was difficult to reconcile the information coming out of SAP historically due to complex cost centers. Staff will continue to work on that and endeavor to bring it back soon. Councilmember Reckdahl asked about property tax on packet page 137. Chief Financial Officer Lai responded the 2026 adopted budget is based on a set of estimates. At that time, a certain level of growth in property tax had been estimated. Whatever the tax role is is the stated revenue. Now they have the tax role from the county, the budget projection is trued up based on that tax role. That is the revised 2026 number. From there, a 4.8 percent growth is estimated. Councilmember Reckdahl asked if the 73.6 and 72.3 are both for 2026. Chief Financial Officer Lai confirmed that information. One is the adopted budget and one is the projection once they trued up based on the actual county tax role. It happens because budget is a set of estimates. During the year, they get actuals that are reliable. For property tax, because of the teeter plan, which means whatever the tax role is for the county is the revenue that will be received. Now that the tax rule has been published, that tax bill in the aggregate is the tax role so the projection has been revised. That becomes the new baseline for property tax. From there, 4.8 percent growth is estimated for 2027. Councilmember Reckdahl wanted to know why it did not grow as much as projected. Chair Burt stated it was projected to go to 73.6 and it actually came in at 72.3. It went from 69.4 to 72.3 rather than from 69.4 to 73.6. Yeah. In the body, it says that the FY27 forecast is a 1.8 percent growth. Chief Financial Officer Lai responded it is because adopted budget for 2026 was being measured in comparison with the 2027 projected. The downward trend in 2026 creates this anomaly. From that revision, a 4.8 percent growth is estimated. Robert Valentukonis, Budget Manager, explained for the estimate for 2027 going from the forecast of 2026 would be a 3.6 percent increase. In the out years, there is a 4.2 percent. Comparing that to the adopted budget of 73 going to 74 would be the 1.8. Chair Burt asked if this is a significantly lower projection than they have been using on the annual increase. Chief Financial Officer Lai did not have that number. In consultation with HdL who follows the property tax, they are more comfortable in the mid 4s because that is what is being experienced now. Chair Burt commented historically the two main drivers have been the increases in assessed value and the turnovers when properties get reassessed. Primarily the residential properties get reassessed because commercial properties have a workaround to the reassessment. Chair Burt wanted to understand if there is a significant downward projection in SUMMARY MINUTES Page 9 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 property tax going forward and if so, what are the assumptions going in to that downward projection. Last year's projection was projected in the low sixes going forward and are now in the mid fours. Mr. Rewers answered the assumption was right. A key component to that is interest rates are higher so the amount of sales that are occurring and in turn the reassessments are now way down. In those years where the average might have been 6 percent ongoing was during almost a decade of near zero, 2 percent, 3 percent interest rates for mortgages. That is not anticipated in the next five to six years. With interest rate increases and stabilization in interest rates, just the number of sales that will be occurring and in turn those reassessments are going to go down for a significant period of time. The 4.8 percent is a reflection in the adjustment down from the prior projection and is already reflecting that interest rates most recently had gone up very quickly, which in turn resulted in fewer and fewer sales, which in turn hits that exact reassessment that will increase the overall property tax average. That interest rate adjustment and restatement of the economy have been included in the forecast. Chair Burt understood the assumption that a modest decline might be seen in residential property sales. Much of that was driven by the increase in interest rates. There will not be a return to the previous rates but there is an anticipated trend of gradually declining rates modestly. When there is an extended period of fewer sales, the market adjusts and returns to an equilibrium. The anticipation of not returning to historic interest rates means there will continue to be a depressed rate of residential property sales. Chair Burt wanted to know the assumptions. Chief Financial Officer Lai replied in the most recent quarterly meeting, HdL advised using a mid 4 percent range in the long-term forecast. Chair Burt wondered if the consultants factored in the low end of what was projected on new units that are all assessed at market. Chief Financial Officer Lai agreed that would have an impact. New development gives the ability to forecast and control the timeline. The report to Council can notate that is not assumed. The odds are that it will not impact the next couple of years relative to budget balancing. There could be an uptick in revenue a few years out but that will not impact the conversation in this budget cycle. Chair Burt expressed need to acknowledge that it will also impact the expense side. Chief Financial Officer Lai agreed there was a service level that grows because of the service demand relative to housing. For transparency, it will be made more clear in the long range that while the assumption is made on the property tax side, it does not exclude this variable. Councilmember Reckdahl inquired what goes into the calculation of TOT. Chair Burt recalled reading in the report that there is an increase in the ADR, which was surprising because the occupancy went down. Chief Financial Officer Lai explained room rates and occupancy have gone up. Chair Burt said a possible explanation was that new hotels are higher end than some of the baseline. They skew the ADR even as occupancy has gone down. Chief Financial Officer Lai stated typically the room rates go up more than the 2 or 3 percent being experienced 5 percent happens regionally. The transient population relative to hotel is more focused on business travel unlike other communities that are focused on tourism. That is a point of consideration in the forecast. Chair Burt observed the region is experiencing a decline in demand for hotels. The City is not experiencing that. ADIR is going up in the opposite direction SUMMARY MINUTES Page 10 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 from the occupancy because it is new product that is higher rates but there is new supply on the market. The demand has not increased. Therefore, the occupancy level has declined which is different from the number of occupied rooms. To understand what is happening, the number of rooms needs to be looked at and what has changed. When looking historically at the increases in TOT, the last 15 years since the zoning changed to incentivize hotels and increased it to a 2.0 FAR, there are a lot of new hotels. Because of the state housing mandates, the default FAR for housing exceeds this high FAR for hotels. There will not be a continuation of that trend of increased hotel rooms until the FAR is increased for hotels and there might be strategic locations where that might happen. If the current policy on density is kept in place, because of the state law, there will be a reversal in what had been deliberately set up as incentives to create hotels. If the FAR for hotels is elevated, a parcel that would get built for a hotel would be at the expense of it potentially becoming housing but the revenue received from the City to meet these demands is exceptionally high from the TOT because it is among the highest in the state. Other than property tax, this is how the capital improvement plan has been funded. The incremental increase in TOT was dedicated to the capital and the incremental amount from the new hotels was dedicated to the capital. Chair Burt queried why expenditures continue to simply track inflation. Chief Financial Officer Lai responded it is the degree of reduction done in September. There is no reason the projection would not be that the expenses would track closely to CPI. The $14.9 million deficit showing for 2027 does not take into effect these reduction strategies. Chair Burt wanted to understand why state trends are focused on regarding unemployment. Chief Financial Officer Lai replied it is for expediency. Chair Burt inquired about the basis for saying the long-term CPI increase would be 4 percent. Mr. Valentukonis explained the assumptions of three and four were primarily for contractual services rather than the CPI of how much revenue would be earned from other categories and expenses. From an expense perspective, several buckets in different layers were added on in terms of assumptions. Chair Burt said better context to what that paragraph is about would be helpful. Chair Burt felt there could be a better word than sandbox. Chair Burt wanted to make sure when looking at fees, it was not only the full recovery being looked at. Chair Burt did not recollect the $6 million reduced last year to be ongoing. Chief Financial Officer Lai stated it was capital program deferral for at least three years. Some of that was shown in the reductions. There were specific projects being reduced in 2026 and the transfers are being reduced as well. It should be at least three years. Chair Burt asked about the salary expenses vacancy rate. Chief Financial Officer Lai said the rate was moved from three to five. Mr. Rewers stated the current vacancy is just over 10 percent based on the last quarter. Chief Financial Officer Lai added the impact of public safety had to be pulled out. SUMMARY MINUTES Page 11 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 Chair Burt wanted to know about the four utility categories covered in the utility users tax. Mr. Valentukonis replied they are looking at about a 9 percent proposal for 2027. Going forward, there is an 8, 7, 6, 6 through 2031. Mr. Rewers added as of October the vacancy rate across all funds was 11.6 percent. In the general fund, it was 9.6 percent. Enterprise funds made up 15 percent. The vacancy rate not including public safety vacancies was 6.3 percent. MOTION: Councilmember Lythcott-Haims moved, seconded by Councilmember Reckdahl, to recommend the City Council accept the General Fund Long Range Financial Forecast (LRFF) for Fiscal Years 2027-2036 and the FY 2027 annual Budget Development Guidelines (Attachment A). MOTION PASSED: 3-0 4. Accept the Fiscal Year 2026 First Quarter Financial Status Report Councilmember Reckdahl wanted a description of interim security services. Assistant City Manager Nose replied there was a lapse in the security contract. A holdover provision was done for a few months. It is part of the normal security costs at MSC. Councilmember Reckdahl asked why there was a change in cost. Assistant City Manager Nose supposed it was the timing of payments. Councilmember Reckdahl asked about the big changes between 2025 and 2026 on table 4. Ms. Kollings would have to look into that. Chief Financial Officer Lai said there is a paragraph underneath each of the enterprise funds that explains the change in the net position. Chair Burt queried if there is anything in reporting that explains the comparisons on the transient occupancy tax. Ms. Kollings said it is a delay in payments. Item 4 Public Comment - None MOTION: Councilmember Lythcott-Haims moved, seconded by Councilmember Reckdahl, to recommend the City Council accept the Fiscal Year 2026 First Quarter Financial Status Report. MOTION PASSED: 3-0 Future Meetings and Agendas SUMMARY MINUTES Page 12 of 12 Finance Committee Meeting Summary Minutes: 12/2/2025 Chief Financial Officer Lai reported the Finance Committee has the rest of December off. They will come back in early January as exception to work on updating the investment policy. Assistant City Manager Nose stated the Committee's first meeting in theory would be February 3. Staff will review having an earlier meeting. Adjournment: The meeting was adjourned at 8:30 p.m.