 Thank you. We are live well and welcome to the long-term financial policy and audit subcommittee. Today is September 14th 2023. It is now for p.m. Seeing the quorum. Maybe team. May we please take roll. Thank you. Chair Rogers. Present. Member staff. Here. Member McDonald. Here. Let the order reflect that all subcommittee members are present. And Madam hosts, may we please take care of the housekeeping. Thank you chair Rogers. Welcome to our meeting. We are formatted as integrated with members of the public via zoom members of the public who are using zoom may view and listen to the meeting as noted on the city's website and on the agenda. Your camera will not be active and your microphone will be muted. We'd like to welcome the subcommittee members and the members of the public and thank you for your participation today. I will be the coordinator for the comments from the public and assist during the meeting and take notes for any follow-up needs. 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We will now continue to item two our public comment on non agenda matters. Yes, thank you. My name is Dwayne Dewitt on Roseland. I have been trying to follow the financing of the city for a few decades. I had remembered in the past. Folks came forward and wanted to talk about public banking. I'm trying to get the city of Santa Rosa to be supportive of a public bank. I'm hoping that you folks are still looking into that type of situation. One of the things that I had also wanted to talk about was 30 years ago, the rural county representatives of California representing 18 counties put together a joint powers authority and formed the Golden State finance committee to help to fund home ownership for various people of low and moderate income. Obviously, in those 30 years, it's become more difficult for people of low income, especially to be able to housing any public employees in the past that even complain that they could not afford to have housing here in Sonoma County. So a press Democrat article was printed in 2002, pointing out that there was an effort of foot with the county and other agencies to find ways to help public service employees, finance homes that also have mentioned teachers back then. I didn't follow through on what exactly has happened since then. And I've saved the article should have brought it here today to share but the main point of all this is that there are a number of people in financial difficulty right now. And it may worsen. If they raise the minimum wage to $20 an hour, which is being talked about in some places, that's still only $38,000 a year wages. And that's before taxes, and after your taxes and things come out. You could be in a difficult way, especially if you're trying to raise children as a single parent, trying to deal with perhaps elderly folks things of this nature. So my hope is that as you look at the future financing of the city and its general fund and you try to raise extra revenue enhancements there, you also look at ways in which the city and its investment capabilities could be helping in the long term. If I remember from the past correctly, we had an extremely large investment portfolio, and that portfolio did relatively well due to the good work of the city staff. So whatever you're talking about in terms of the future activities, I'm hoping that you'll look into it with the ideas of the public bank approach that would cost less from what's been presented in previous meetings. That's what it said, that you could have that public bank approach and not be paying as much as you do on the other parts of the investment portfolio. And then look at perhaps being a part of one of these joint powers authority situations in which you could help our lower income city employees, such as those parks, maintenance people, people who are on the lower end of the wage structure. I believe you can do good things. I can't stay for the full meeting because 430 is the planning commission, but I'll stay for a while and I'll leave quietly. Thank you. Thank you, Mr. Dewitt. Are there any additional? We have no other hands raised at this time. Thank you. We'll now continue to item 3 approval of the minutes. We have one set of minutes and that is dated July 13, 2023. Looking at my colleagues here. Does anyone have any corrections or edits? Alright, so seeing none. We will approve the minutes pass a minute. Next, going to item 4.1. Employee home loan assistance program. And that will be presented by Scott Wagner, deputy director finance. Thank you. Chair Rogers members of committee. I am Scott Wagner, deputy director of finance. I'm pleased to bring item 4.1 today to talk about employee loan, loan assistance program. Next slide please. So, I want to want to kick it off and talk about as we all know, he's talked about a lot. But I want to add some context right off the bat on how that's increased over the past five years and give some numbers towards that context. These numbers for transparent, they were from when this presentation was put together and each every month. If you were to look at them today, you would see that the median home price has actually gone down a little bit, but interest rates have gone up. But for the purpose of this presentation, actually, this all remains true. When we look at the median home price in Santa Rosa, it's increased about 20% over the past five years. A lot has happened within the county within the past five years and in Santa Rosa, but overall, we've seen a 20% increase. What's also really powerful about affordability for housing right now, those interest rates. So over that same time, you know, we've experienced historic lows of interest rates interest rates around 2.5% on home loans. Towards now, you know, we're around 6.8%. If you looked at them today, they're a little higher, they're actually over 7%. When you put those two together, what it really means is that if I was going out and as a first time home buyer or purchasing home, I would expect to have about a 60% increase in my monthly payment towards that house than I would have five years ago for the same exact house. So it is a dramatic increase in how much housing is actually costing on home ownership basis. And I think as we all know for as being, you know, longtime members of this community, even five years ago, folks were very upset about how expensive it was. So we're talking about already a number that was very high, a 60% increase and it really is challenging. When we look at it as a city, affordability for housing is one of our greatest challenges here for our employee base on a retention basis, on a recruitment basis that is often the first thing that gets talked about with high recruiting from out of the area. Where am I going to be able to live? What can I afford on what I'm going to be offered? And that's a real challenge. And again, to put some numbers towards that, if we just look at the numbers, if we talk about the median home price in Santa Rosa, and if I look at the salary structure of the city, and who would qualify for that median home price, it's about 3% of staff. 3% of staff, if you think about it is, is basically upper middle management, higher, a very small sliver who can actually afford a median home price. When we look at, well, not everyone's buying the median lower home price, let's say 20% lower, let's say around $600,000, which we all know is extremely hard to find. Well, that number bumps up to about 12% of employees. It's still a very small subset of our employee base here at the city can afford to own home. I will note here, because it was a great note from earlier, in that the city has no current program for helping our employees towards home ownership. There have been programs in the past that have helped cities. None of them were direct towards my knowledge going back a long way. CalPERS ran a small program a long time ago that helped city employees with a down payment. I went away in the 2000, actually, right about the great recession time that went away, I want to say. But to be clear, there is no program right now helping employees on a loan basis or anything like that. Next slide, please. There it goes. So, as staff, what we've done is there are current home loan assistance programs out there at different agencies. And so, like anything here at the city, we want to take a look at how other agencies do things to understand if we have any capability of seeing how what they've done is successful, leveraging it here, what's capable for us to do. And there certainly are those types of programs out there. The way that they all kind of conceptually work is that the city essentially kind of acts like a bank. They're going to loan their employees money towards the purchase of a home. The agency goes on to the deed of trust with the county. Again, it acts very much like how a normal home loan would work, just like how your mortgage would work. You can see the employees going to payments on an agreed upon amortization schedule to the city and pay the city back towards what was loaned out it very much again, it acts kind of how you think it would from an employee basis like this works just like a normal mortgage. Next slide. So there's two, what I'll call two major types of programs. The first one I want to talk about is the executive level. And this is the far far far more common program. This is typically for city managers. When we look at it, and it's part of the negotiation of the city managers MOU where an agency may offer a program to give them a down payment towards a house towards living within their agency, or up to even 100% of the purchase price. It makes a lot of sense for a lot of agencies because they want to incentivize their chief executive living within the city. Clearly all agencies get a great benefit from that having that person in your city, much more than they would be if they lived outside of the city. The second type of program is much more rare. And that is the citywide all employees can qualify for assistance program. These are typically going to be a down payment assistance to a set dollar. So, for example, $60,000 is an assistance towards your down payment on the house. As we all know, having a down payment assistance can make a huge difference on whether or not someone is holding a holiday. This last point here is key, though, in that when I looked at the program and I did a deep dive and let's say it does an agency, and what they offered, each of them is very different. None of them are the same. I only really found a couple of agencies that did an all employee program, much more of the city manager level, but each of them, none of them was the same on a broad basis. So we're all very, very different. I want to talk about those differences later. But there's one key thing that all of them have to consider. And that is the market affordability of where they are. I'm going to talk about that more in a second. The reserve status of that agency, how much money they have, what are their capabilities for actually funding a program like this, and the level of subsidy and how much risk they're willing to assume in the program. The market affordability here is a tricky one, because the best example I had was I have a professional relationship with accounting manager in the peninsula that offers a program that's citywide. And you can offer a benefit to all of your employees, but especially in this agency on the peninsula, even though our cost of housing here is very high, there's this astronomical. It's much, much higher. So they can offer a $60,000 assistance program to all their employees, but at this agency, a total of six employees have actually taken advantage of it. So there is a huge barrier towards that program where it sounds great, but there's essentially haves and have nots through the program that I think is problematic. Next slide, please. So one of the broad concepts that gets brought up here a lot for these programs is that, well, the interest rate on the private market is so high. But you, the city, you have much lower interest rate, whether through your treasury return, etc. So there's a natural, what I'll call the technical term arbitrage, there's a difference. Okay, city, you only make 0.86% off of your portfolio. So if we offer our employees a 1% loan, it's kind of a win-win. And as the finance expert at the city, I want to add a huge asterisk there, because the city does not have one interest rate. We have many. We have many different contexts for those interest rates. We can't ever just look at the city's overall portfolio return of 0.86% and say, that's our cost of capital, it's not. There's many different ways to look at it, because our overall portfolio has many different dynamic factors in it. We have to carry a lot of cash to pay our payroll to pay our vendors to pay whatever. That brings our interest rate to virtually zero. But then also we have a lot of shorter term notes at the city. Our debt structure is factored in a way that that is to minimize risk in many ways for our liquid assets. And that's just not an apples apples to comparison to a 30 year mortgage on some other ways to look at it is that when the city takes their money and they give it to life, which is the state program. For basically not liquid, but almost a liquid asset, we get 3% yield to maturity. I can probably spend the rest of the hour explaining that, but in really big layman's term, the real return we're seeing right now on medium term assets within our portfolios around that it's around 5%. 30 year federal treasury rate around 4%. That's what we would just get a risk free federal federal asset. The applicable federal rate here is important one I will talk about that briefly. That is the amount that anything lower than that the city would would offer. The employee would need to talk to a tax professional to understand what the income benefit is of the city providing that benefit. Any agency is not going to do that for their employees. Whenever on and I are asked for tax advice, we give a very simple answer. We do not give tax advice. That is between the employee and what they would do, but any program that would or to happen that lower rate than that, it's going to cause some consternation for employees on a tax basis. And I'll add one more because I'm the, I'm the CalPERS guy and I was so embarrassed that I put this on here. CalPERS is another great way to think about the city's rate. When we give a dollar to CalPERS, we expect to see 6.87% back. So again, there's, we don't have one interest rate. We have many, and I just want to ask or is anyone that would say, well, you only make 8.86% on your money. Well, we need to qualify that better than that and understand and that more apples to apples comparison of interest rate. Can I ask a quick question? If we don't have the interest rate high enough, would it be considered a gift of public funds? Is that why we have to be cautious around that? And that's why there's a tax implication. I do think I can answer that in saying that because this is a compensation, because this is a benefit, because this is a compensation matter, it is not a gift. It is part of essentially like any other benefit we may offer an employee. They may take it. They may not, but it's up to them. If they were not to claim it on their taxes, well, then that's, I think, where things would get complicated. So we could have the rate as low as we wanted as a benefit to the employees and it's not considered anything like that. At this time, again, I think when we were, if we were to get farther down this road on this, those are the some of the things that need to get hashed out. I'm going to talk about policy stuff in a minute, but yeah, there's going to be a heavy lift on really getting into all those details or I can really give guidance on it. Next slide. Oh, here we are. So like I said, all of these programs are very different amongst all the agencies and what that really means is that there is a lot of decision making to happen. What kind of interest rate would we do? I can't answer that. I don't know. It can be, it can be anywhere from zero to your helper's rate or anywhere in between, whatever you decide. Like I said, keeping it above the applicable federal rate makes things a lot easier for everyone involved. That said, that comes at the cost. Who qualifies for the loan and how much? How do you figure out which employees you're going to be able to give credit to and which ones you can't? Again, I can't answer that today. Are you going to make the loan amount a set amount or a percentage of pay? How do you do that? What are the repayment terms at employee termination or sale? This one, I really struggle to understand how we manage. How does, how do we go to an employee that may have left the city and demand the full principal of a loan back when potentially they may have just lost their income. I don't know how we set policy that is enforceable and we can more or less in a moral way enforce as an employer. Do we even have the capability to run? I mean, that sounds like a whole department that we don't have. I very much appreciate that comment. I'm going to talk about that in our challenges. Absolutely. Let me circle back on that one in a moment. This next point, I'll talk about it a little bit more in a minute, but how does it work? Part of that policy is how's it going to work when a house gets sold? And I think this one's more applicable towards the executive level program or we're learning 100% of it. What happens at sale? What happens with the appreciation on any profit that may have been made from the sale? And we'll also talk about what if there was a loss? Next slide, please. So the fiscal impact of any program like this, I want to make sure is very clear. And I don't want this is not bragging. This is just the truth and that we are accounting standards here at the city are of the highest level. And what that means is that when dollars go out our door, we cannot program those dollars. We cannot budget a dollar twice here. And what that means is that if we loan out, if we have a $5 million program for home loans, well, that's $5 million coming out of reserves. It is not, we can't treat it as a, well, we'll get paid back eventually. It is a true use of resources that is gone. When I looked into some other agencies, I thought that their approach on an accounting or fiscal basis on some of them was questionable on how they treated it on an available resource basis. But this is the only treatment that we would be comfortable with here. You can't spend a dollar twice. I'm not saying that any other agency does. I'm just saying that that is the laws of nature here. It's really hard the second program but looking at it and looking at how the other agencies worked on a on a employee by basis. I just, in general, they had about a 10% participation rate. And so I can do some really easy math and say, well, if you had $60,000, 10% participation rate the city, that's around $5 million. One of the things that would give us a lot of concern is that we don't know what the participation level will be. Again, it's very hard for me to compare a program here versus a program on the peninsula. We are going to have way more participation in the program on the peninsula did with a much higher housing rate. I don't know what that is, and that would make budgeting very challenging. Knowing, hey, we set up this program. It would just be one of those things that I would just be telling you, I don't know how much this is generally going to cost. It doesn't mean yes, but it could be a lot. Next slide. So all of these programs, the benefit is clear. We all can appreciate giving employees an assistance on getting into homes here, and that's all hugely positive. But there's some big barriers to when we talk about a large and potentially very expensive benefit for the city. And we're talking about it only benefiting in the example I gave 10% of employees. It sets up a has and has not basis where you have employees with the same positions sitting next to each other, one of them has received this amazing benefit and the other one hasn't. And not only have they not received the benefit, but maybe they can't. So, even if we give in a down payment assistance to an employee that isn't making anywhere near enough income to qualify for a 20% below number, it's really not a benefit to them because they can't qualify. Well, at the same time, the people who are going to qualify. It's, it's a, it's a, it's a, it's a regressive benefit. And that's what it is. The people that are going to benefit are the ones that are going to be higher income, which there's nothing wrong with that. But when we talk about having equity amongst our employees, I think this a programs like this fall flat messaging to the community. I think if the city were a serious error for, for our council and for this board. They were considered as I think it's worth Googling these programs and understanding how they've been received in other communities. The messaging around this is challenging. Regardless, it's a citywide employee program or to be frank, especially an executive program. There's been a lot of bad history to other agencies in these programs. I'll bring up a few in that it, the best example is the appreciation and the loss concept. And that you have a city employee who has either made a significant amount of money off of a 100% funded city home loan, and they are walking away with the capital appreciation on that. Or the other way, which is during, especially during the great recession when home prices fell so dramatically, there absolutely were city managers within California that decided to walk away from their city funded home loan. And the city was just there on hook for it. So the city ended up paying for it. I think that that's a big concern for these programs. I think loan forgiveness is a big concern of these programs in that the negotiation of the MOU is going to happen where you offer this program, but future council actions can essentially forgive the loan. And I think that if we're to move forward, it's important to be transparent about how that may work. Because that that has happened for different agencies and I think that we should consider it. And how that looks to the community. Again, I think is a messaging challenge. And again, like I said, it's easy to pull up the news reports through national news or through local news stations and they will run, they will run segments on it. As Chair Rogers mentioned, a major concern for us as administration, you know, when some of some of the agencies I looked at, you know, they have a total of three loans. Well, the citywide program here is going to have over 100. And once we start talking about those kind of numbers, I'm going to need employees to administer it and finding accounting employees is extremely challenging. It took us years to follow our last spot. So the idea that we can turn on a program like this on a dime and get it staffed out. Very, very challenging. And as far as I know, finding any third party to administer it. I couldn't find any that specialize in something like this. The budgetary uncertainty and strain on available resources like we just talked about. In the finance department, we'd like to have a very comfortable understanding of how much programs cost what we're getting ourselves into. We wouldn't have this here it really would be a learning as we go towards how much participation we would have and how much would end up costs. The current public down payment assistance program that we have right now are city employees exempt from that or can they also participate in that program? That's a good question. I, you know, it was meant for low income folks in the in the area. I think I think it was along low payment or. Yeah, low income. I guess if there was a city employee that the qualified, then I don't think we have anything that restricts anybody other than their income qualification. Okay. So, and then. What were some of the cities that you were able to locate that. So, the best example of the city wide program was San Bruno. They had the best or they have the most thorough city wide one available. Some of the executive programs I looked at. Milpitas, corn auto was one I took a long look at. I'm sorry some of the other ones are escaping me those are the first ones that come to mind. Okay. And I had, we had direct interaction with Milpitas and San Bruno talking with them about their programs. Oh, that's nice that they actually talked to you. You know, we're, we're, we're, I always, we always like to help each other. Well, we're all facing the same thing. It seemed like that program was a little iffy, like people, like you said it can go real bad or it can be like good. And then you said a 5.2 million, but really you said you don't know how many people would want to participate in the program. So, I think you asked the question to and I'm asking you and I know we're the policymakers and we will make the decision but would there be like a cap like we're only going to do 6 million or only going to like I think that's what's so challenging from this from a development basis because how, how do you, how do you launch a benefit program like that where either a you're, you're not clear on how much you're going to give them and say well we have to figure out how many people we get, or if we leave it open and say well everyone gets 60 grand, everyone get in line well as the back of the line not going to get this a key in the front of the line did. So, so there's just there's a lot of really important questions that would need to be fleshed out and I think that is part of what I'm trying to share in this presentation is that this is an overview, but I think the in the weeds policy making of this is going to be extremely challenging. And I guess these are my last couple of questions, and I'll just do them all what, what constitute an employee that would be able to do it like can I work 20 hours and still with that still be a benefit. If I don't make that much money but I have a spouse or someone that's going in on the loan with me could we just go in together and I can still get the assistance because I'm an employee and technically it still is my house. So for the second part, of course, your household income, who is going to be out indeed a trust with the kept with the county and us can have multiple parties. Absolutely all that can be true. The first part for the, for the second part for the first part. That kind of comes back to my last answer which I'm sorry is just yeah that would that would be just another point and how do we treat part time employees today when they qualify for the full benefit when they normally with our part time employees. It is that percentage if you're 50% you qualify for 50% of the benefit. So, was it did any of the cities have You have to be with the city for so long or can I start and then on my second day, we're in the money. Yes, there was a couple agencies that had specifically vesting programs called out. But again, most of what we're talking about the city why programs very, very, very few examples, really only two that I was really to look at and say this is how they did. And again, those were such small programs, very little exposure for those agencies very well reserved agencies where five, six employees getting a $60,000. And that is not a big deal to them. I shouldn't speak for them but it much different than a larger program for us who will have currently some more ongoing budgetary issues. But, but yes, Understood. Thank you. You have to go. Do you have any questions. I have just a couple questions. So, if you're looking at $60,000 in the median house price range, it's, you know, if somebody bought a $600,000 house it's not it's like 10%. So if you're looking for qualifications, I don't think that not everyone's going to be able to participate in it might not just be the factor of can they qualify for the other part of the loan, but it could be a credit or or whatever. So do we have one and outside agency that runs all of that data and information that would administer the program for us, or is it fully an internal program and is there a way to do it. Sort of like the public employee or the other program that we're doing is our way to outsource it where we're the money part of it but that that part of the collection and the data and running the credit so that it's done in a fair process. Sure. And really, like, to get towards how that would play out. The way this works is they're, they're going to partner with a, with a mortgage company for their whole mortgage right especially for just a down payment. They're already going through a mortgage company and more there are mortgage companies that work through other assistant programs that are used to doing exactly what you said. Hey, we're the ones running all the qualifications. We're the ones saying what you qualify for really the city just being the money person exactly the way you said it handing over the money. As far as that's concerned. Yes, that's going to follow a pretty standard normal way of qualification through their lender for the overall loan. When we talk about administration, it really is the back end of keeping those loan schedules keeping how the monies come in and then dealing with the issues that are going to rise from because issues will arise. Well, and even though we give a down payment we're still charging interest so it's still considered 100% loan. So if you're looking at it from a lending point of view, I mean it's, it sounds great that we can do this for folks but the qualifications in a mortgage company may be so difficult that yes we're offering it but but overall it's still not a great benefit unless our rate is so low that it doesn't infringe on their monthly payment that much. Right. All of these programs are still going to impact the the applicants don't debt to loan ratio. Right. It's still going to apply towards hey what are this person's monthly expenses. How they're paying back this is absolutely going to be included on there just like how car loan would etc. If we are to move forward. I do like the thought that employees should be here a certain amount of time so that we can see like that. Commitment to longevity. I think that makes me more comfortable or less likely to have an employee who's been here 510 years just bail on the city because now they're pretty vested as far as the retirement and things go. So I think that that might be something for council to consider. I would want to know the rate that we would need to be at so that we would be not completely taking all of our money out and not being able to at least play flat on that money in some way. So if there's a targeted number on an interest rate. I do think in times where we have budget deficits. Sometimes it's smart to have programs like this so that our employees do feel valued and that they can see that we're trying to make sure that you know they can live here and have a quality of life. For the debt forgiveness or forgiveness on a loan. I think that you're getting into a whole another can of worms that I wouldn't want to on that because I do think that that goes back to the have and have not so I don't I don't think that that's any. I wouldn't be interested in forgiving it and I would want to see if they were to sell the house. What's the three point repayment. If the house was to foreclose or they were to go bankrupt or something along those lines. Do we get paid back prior to the main being paid back and how is that set up because that could be problematic as well. I think I think the city could absolutely anticipate those situations that we are going to be eating. Somehow language that would get us paid first versus we're second but sorry I bought too many houses please. But we're second on the lean so the major the one that does the majority of the money there first so they get paid first and then if there's anything left over then we would get whatever is left over but in most cases. There's nothing left over and I would say in a market like this. This would be more concerning because of the high rates on everything because housing is probably going to go down over time. So and I don't want to set our employees up for any type of failure. But that said I do think that it's something worth even talking to our employees about so that we can gain some insight as to you know what are you missing out for a home loan. Are you missing 20 or 30 grand. Maybe they don't need 60 maybe there's a way for us to fill the gap at a little bit less amount and then they actually can move to home ownership. And then as far as the payment back and all of that. The one thing about government is the programs that on assistance don't typically help with just building generational wealth. So I would want to look at it as the employee is actually able to get something from it to so you know typically they if you sell the house and it's increased in cost that government gets some of that right on some of those repayments I've seen those plans. That I don't think is helpful for our employees we want them to be able to take that capital payback us and then go forward. And then my last question is how many times can they do this. If they were to buy a house and in five years their rate goes up their circumstances change. Can they repay that loan and then apply for it again if we're continuing the program. I share that same question and that way. I've seen. Well I shouldn't say that with all employees. The real only stipulation especially when it comes to the executive level is that it's your primary residence. I haven't seen like hey you sell your house and you buy a new one and I haven't seen that but again it just speaks to the point of there is a lot of details on a policy basis to flush out on how the program would work. So I was just going to add on to that. So I think the bottom line from this is that there's not a lot of examples to to draw from. So these are all great questions and policy direction that we would need to to flush out. And there's not a very good way for us to flush out in terms of what's best what's not. We would probably say you know you're looking at you're you're going to you're going to take money out of your general fund reserves. It's is that the wisest way to take the wisest course. It's a it can have benefits but it can also have huge impacts. And it was five million. Absolutely. So those are the things that this is an overview and and we're we're kind of telling you what's out there and absolutely trying to dive in into a more granular level but it's it's basically we're we're kind of writing this on our own. I want to say thank you for all that you did even to prep for this meeting because it's so hard to find information on something like this. I'd love to see their reserves and what their sales tax income is. I'd say it's probably a little different than ours. So yeah I just I think I love the idea of doing this for the employees. I'm not sure with our deficit right now impending if it's a good idea for us to pull reserves if it has to backfill something in an interim where would where would we be on something like that. So but it would be the will of the three of us you know I think to see if that's something we want to move forward and get more information and bring it to the full council. But I really do like the idea of being able to help people work for us. Yeah and I think that the point made earlier as far as engaging with employees. I think when that engagement happens though it's really critical to under to frame it properly as far as saying if we were to launch a $5 million benefit program. What kind of benefit program would you like to see. One idea would be how the home assistance the other would be just a broad bonus or etc. There's there's different ways that we can take our general fund reserve and make a way that's going to potentially benefit employees in different ways. I think to my point earlier in the slides. I do want to underline again the equity issue on a problem on a program like this and that you're only affecting a small number of employees, regardless of the program. And I think that that can be problematic for your entire workforce. I think the key point for me for a very large and complicated difficult to manage program like this is the ROI. And I don't know if you got any sense from the other communities as to whether or not they typically with programs like this is that you're increasing employee retention. You know you get the stats where every time you lose an employee it costs the organization 20,000 bucks or whatever it is, and you multiply that out. You know if if other cities or other organizations were seeing great ROI with programs like this where they were saving millions of dollars because they they had significantly decreased employee retention. Sure, then I could see waiting into the complexities of self managing a program like this and budget risk. But it sounds like from the data points you've got from some of the other cities, it's not clear that that ROI is there. You know you're you're helping out a few employees but not enough to really warrant the huge overhead costs and the budget risks. Am I am I reading that correctly or some are some cities like right working wonders with with retention. Sir, I think back to Alan's point they're just there isn't into your point there's not enough data to be able to really pull a trend out. Yeah, that's first and foremost. Secondly, what I would just say though is even amongst those small, small data points. What is clear is that the participation is not broad. It's small. And so that is a key data point to just say well what is the benefit here and is it is it made in a way that's inequitable amongst all of these. Yeah, my guess would be from and and I don't want to speak for them, but I will. Just from my experience from the last labor negotiations is that if we put forth a $5 million program to say that this go to a home loan. Yeah, down payment assistance or a bonus. You can probably guess which way they went. Yeah. And by the way, it cost about that much too because everyone can participate in that. Absolutely. It was that would go to everyone. It was an employee wide city wide employee. Yeah, benefit you had no winners and losers. You had everybody getting the same thing and that would either help the morale of the situation going through a contentious labor that did last time, or it and and that might lend to more of a retention. ROI, then, then a more smaller program. That's that's helpful. So I guess I guess my my heads around there. I mean, you've laid out that you laid out the complications and the potential risks really nicely and there are many of those. If there was some if there was some ROI, hypothetical ROI out there, like I could be I would be more eager. But it's not seeing that. Thank you. Yeah. I don't know. I think it would be another way to help employees and to help the public in general is to make housing that is more affordable that people can have like starter homes would be my opinion. But that's another policy thing. So, and that isn't on the agenda, but that's just something that I think is that we can build differently. Oh, sorry. I should build differently within the city so that people can afford to get into. I think your point is so well taken that we're looking at many different tools in this. This is certainly a tool. Is it the right tool for our overall goals as an organization? I don't know ROI that mark was speaking about. I guess my question is on that is when we lose an employee. What does it cost the city to then put somebody new in their place? Is it 10,000? Is it 15,000? So going back to that same thought processes. When we are losing folks, is there a way to retain them through this and almost and thus that same amount of money. So, just as when you're punching the numbers for ROI, that would be. Well, my thought process is do we actually have an idea of how much it costs us when we lose certain employees and we can look at that and I can tell you that depending on the type of an employee and the certification. It can be significant and it's not only in dollars, but it's in time because some of those certifications take a number of years to get. They're required. It is you lose that person. You're back to square one. It is a huge issue for the city. So, yes, absolutely. And that's something that we can't. I think one other impact though of the return on investment is you do get to an administration part of it. And while we are only dealing with reserves when talking about loan dollars, we're talking about general fund operating when we're talking about administrating it. So now you have that that diminishes your ROI right because you've got to you've got to figure that in and that nets down. So, again, a we are, we will look more into this dig more in I think that there are some where we can answer questions we will look at that. But I think on the broader scale, we need to look at the city as a whole and the benefit as a whole and and some of those other kind of indirect costs and pull that out a little underline what Alan just said. I think it's critical and that when we look at the ROI on our programs, we always need to look at what the ongoing cost is going to be and whether or not we can more wholly put that those dollars into areas where we get a full return on the dollar where the dollar doesn't get cut by the personnel that I'm going to need to hire to administer it and the ongoing cost by it. So, absolutely. Are there any additional questions from the subcommittee members. Yes, no, no, seeing none. Mass the host to conduct or facilitate public comment. We have no hands raised at this time. Perfect. Thank you very much for the presentation. Now we will go to item 4.2 the general fund revenue options. Mr. Alan Alton chief financial officer will take it away. Thank you. And all in the interest of time, I'll go quickly. This is a this is a broad overview anyway and you've seen a lot of our options. I'm just diving down into a little bit more details with it. But this is just a preliminary report out to the committee. So next slide please. In some context, where we are is, you know, our general fund has a budgetary structural deficit, as you're aware. We're currently in a deficit situation that only expands out grows larger over the next five years of our forecast, just on its own. But there are some ARPA programs and potentially more that could go into the general fund that could exacerbate that problem. We have not figured in new labor contracts, which of course will then add even more to that. And as we've just talked about before we are doing anything we can find to try to be competitive in the workplace. And currently right now, I don't think we are. So, you know, how do you correct the deficit. I don't think that we can put everything on the backs of expenditure reductions. Nor can we put everything on the back of enhanced revenue. It's just a combination of of all of those things. But we are here to talk about revenue enhancements just one small part. As we move closer to our, the kickoff of our budget season will probably be back talking more about the other things we can do on the expenditure side. I will say this though we did put out our budget guidelines already because we pretty much know the situation that we're in to all departments. The direction for the general fund is not only a flat budget but a true flat budget. So excluding permanent salaries and the benefits tied to those permanent salaries. Any other increases need to be absorbed within the city's their own budget. This is going to be a challenge for departments. I don't know that that at the end of the day that we can fully commit to that. But that's our initial guidance, our initial directive. And if it becomes to draconian to departments to be able to handle that then the exact team and the city manager's office myself will come up with with other measures we do have our fiscal stability reserves that are there to help soften the blow. So what we're trying to do is is guide ourselves into reduced budgets and and being more more efficient from that standpoint and not just dropping us off a cliff. Next slide please. I just want to let you know I have to leave. I know I'm sorry. I apologize. Can I just ask one question. Absolutely. Yes. Potential revenue enhancements. Can you tell me which ones have to be voter approved and how many can be done through council policy. They are all voter approved. All of them. Yes. That would be my main question on that. So I apologize for having to go. I know I wanted more information. Is there a way it can come circle back with just you on this. Absolutely. Yeah, I'm available at all times. And in terms of voter approval, these are all general. It's 50 plus one. Oh, simple majority on these. They're all general taxes. And what's the timeline on that. 2024 would be the soonest that we could go. And we can talk more about that. That's kind of a little bit later in the day. I apologize for interrupting the presentation. I appreciate it. Absolutely fine. So on this slide is an overview of the general fund taxes that could be addressed. It's important to note that these taxes do not go to a specific purpose. They're meant to pay for general city services. Provided to the community as a whole. These tax ordinances aside from sales tax. So the transient occupancy tax utility users tax. And the business tax. I have been on the books for decades. They have not been updated in. As long as I can tell, I think some in the 70s, maybe. We have the city. Contracts with a firm to provide business tax administration. And as a part of that service, they're able to analyze. The, the ordinance. The current ordinance and the revenue impacts. So they're doing that right now. Also as part of our. Our general revenue consultants that we have. They are doing the exact same thing for utility users tax. So just going through this really quickly transient occupancy tax. Actually, in the matter of time, we can just move forward because some of this gets redundant. So next slide, please. Thank you. So the transient occupancy tax. We are. In addition to that, we have a, we have two. Business improvement assessments for tourism. One is a, is a local one, which is the Santa Rosa tourism. BIA. So that's a 3% assessment. And the funds for that goes to Santa Rosa tourism. And it goes to the economic development. Fund within the city. So it goes out of the general fund. It's in the economic development fund. And then 70% of that goes to Santa Rosa tourism. And then the second one is the Sonoma County tourism BIA, which is a 2% assessment. And a hundred percent of that goes to Sonoma County tourism. So that gives us a total amount of funding. So that gives us a total TOT plus BIA rate of 14%. And as you can see on this chart, I've tried this shows the, the county and the jurisdictions in the county that have TOT. We are the lowest in terms of TOT itself. And we come in, you know, pretty much right in the middle when it talks about total TOT and BIA. A 1% of TOT based off of just revenue that we received this past fiscal year would be about $600,000 a point. And this would impact visitors that are going to hotels, motels, short-term rentals, all of those. The next slide please is utility users tax. And so what I call out here specifically is telephone. This is what we tried to do in 2014 was put out a modernization ordinance. Our current ordinance really only affects landlines. So in 2014, we tried to modernize it to include mobile devices and prepaid wireless and all of that. We failed in that, in that election. We have a 5% UUT with a $1,000 cap. And that applies to every one of our UUT areas. So that's gas, electric, telephone and cable. So what we would look at is modernizing the telephone one. We are not looking at doing anything with the cap or anything with the rate. Right now we're just looking at rewriting the ordinance to make it available to mobile devices and prepaid wireless. I will say that there are a very small number of communities or cities in California that charge UUT for telephone but do not have the modern ordinance. The folks that we use, our revenue folks, actually have a website that summarizes all this for the 158 cities that they represent that are their clients. And of that, only 15% of those cities that do not have a modern ordinance. So we are in a very distinct minority of cities that do not have a modern ordinance. I think it's safe to say that this unfairly impacts one demographic. I can say that with confidence that while I do not pay the UUT for telephone because I don't have a landline, my mother-in-law does. And it doesn't seem fair. So these are one of the things that we would want to look at. And as a fairness issue, if anything, it would also expand the base of tax that would come in and that would have a revenue increase to us. We are currently doing the analysis of what that would look like. Another potential of what we did in 2014 was we actually lowered the rate. The idea is that we lower the rate but we modernize and increase the base and then that in itself would kind of balance things out to where the city stays roughly the same, probably gains in revenue, but it makes us more nimble for future changes that come up. That's how these modern ordinances are written to be able to be able to move to the changes in the industry. So one other way that we would look at, and this is what our consultants talked about and what they're looking at, is that could this also apply for our cable folks? As you know, there's a trend of cutting the cord with cable and using more streaming services. And there are some cities that are now looking at that and capturing the UUT off of those streaming services because they're losing the UUT with cable. I think if we're going to change it, we just need to do it all at one time. Yeah. Well, and we would. We would get just for purposes of illustration. We're looking at telephone, but the cable part was a new wrinkle that just came up. Next slide please. So business tax and here we're getting into where most cities charge a business tax or a business license fee. They're all over the place in terms of who does what and is there any type of apples to apples comparison? There really isn't. What I've shown here is what I could tell that cities do in Sonoma County. It's kind of all over the map. What we do is we tax based on the type of business group. We divided up into four groups and we have a $3,000 cap on the amount of gross receipts that our tax is based on gross receipts. The $3,000 cap is the amount of tax that one would pay. So to make that even more muddy. But on the next slide. I present you with those four groups, the tax, and I even tried to back in to how much gross receipts somebody would have to have in order to come up against our cap. What we're really trying to do though with this is look at a way to make this more fair in the industry. So I, you know, I would not be for raising any rates on small businesses or even medium size businesses. But it's not fair if you have a large business like Costco say that maxes out they hit that cap. And then you have some smaller business that comes up close to it. But if you have those two folks paying the same, it is not adequately it's out. It's unfair. I'll just put it that way. Yes. Tangential question. Yeah. Was there a number here? Was there a total for the business tax that we're currently bringing in? Yeah. It's $4.6 million. Sorry. It's not on the slide, but I have the note for it. That's helpful. Thank you. Yeah. Sorry, I was just wondering, I mean, if you have any estimates, if we went in and let's just say for ease of service and this is not what we're proposing to do, but just as, as an example, if we say remove the cap altogether, right? So you're just tax on your grocery seats by a certain amount. And there is no cap to it. So therefore somebody that doesn't have a lot of grocery seeds, same. Those that do hit the cap, it means that they would pay more. The very, very preliminary estimates on that could be an additional three to five million dollars coming in. In addition, above the 4.6 above the 4.6. So those those are the types of things that that we would be looking at. And then we would could be coming back to the committee and with after we've done polling and kind of seeing where we go before we make any type of decisions on where we would go later. And I can get into those next steps in a second. And then finally, on the next slide, we have we have the big guy, which is sales tax. So what I've done here is I've broken out we have a 9.25% sales tax in Santa Rosa. That is made up of the California sales tax, which is 7.25%. And then we have 2% of local district taxes. And that's not just Santa Rosa, but that's county taxes and all those that go in. Relative to just Santa Rosa of that 9.25% sales tax, Santa Rosa directly receives revenue from about 1.75%. So that's our 1% Bradley burns. Plus we have a half cent general sales tax in a quarter cent special sales tax. So the total is 1.75 in the general fund, we're only receiving, we receive the 1% Bradley burns, we get about 4.9 million or 49 million, excuse me, of revenue from that. There is the public safety allocation that comes to us from Prop 72. And if I remember correctly, that is a per capita allocation that comes to us. We get about $1.5 million in that. And our measure Q district tax is almost $24 million. The point to all this is that $24 million is a lot of money and our general fund can't survive without it. So that's something we have to be looking to extending in the future. We need to look internally. And I know that there are some things on there's a half cent sales tax on the on the ballot in March for the fire safety sales tax. We need to see what those different measures are going to be to getting us up to the cap. Local jurisdictions are not allowed to have more than 3% above the the state sales tax. So state sales tax is 7.25%. That allows for 3% additional of of district taxes that puts a cap at 10.25%. There are ways to get around that, but it's through legislation in Sacramento. And we would if we went that route, it would take us some time. So it would push the date that we could possibly get a sales tax measure on the ballot out to probably 2026. And we would want to partner with other jurisdictions that are in the same boat we're at. That's easier for the state legislature legislators to write up a bill that accommodates a number of jurisdictions. So that those are things that we're looking at. So that was a very quick overview of where we're at. What I'm looking for. No action on this, but just general thoughts or concerns of any of these where the way we would go about is is we already have a revenue ballot consultant online or under contract. Part of that contract is also to do opinion surveys. We are doing revenue impact analysis right now on business tax and UUT. We would come back to you with that. I think we would need it to develop survey questions anyway. And it kind of gives you a sense of what we would look at. We need to internally figure out what the timing would look like. Like I said, I can I can pretty much look at 2026 in terms as the earliest you could come in for sales tax. Would it make sense to deal with a TOT in 2024 where you could potentially add $1.2 million or so to the general fund if we if we raised it 2% to get to where Healdsburg is. Healdsburg is is at the top in the county at 16%. If we raised our TOT by 2%, our total amount would equal that would be 16 would be the same as Healdsburg. That only affects visitors, right? So that is is what we would look at is something that would have minimal impact on on our residents. TOT would be one of it. The other one would be looking at UUT as as a fairness to expand out to include cell phones, mobile devices and potentially streaming services just with a modern ordinance. It just has a back of the envelope calculation for that. So I did some quick googling and it looks like cell phones are about two thirds to 70% of the market. So when you made you mentioned how we have to figure out how we structure that tap that that tax. But even if you if you kept in the simple terms that it is today, and suddenly had two thirds more, more people as part of your tax base that bumps us up another was it between one and two million? Good. That usually that a rough estimate. Yeah, I would think that we would be close to that. And then you see depends on how we did it again, if we lowered the rate, then maybe you're probably looking at that if we kept it the same and just and just captured all of that extra base tax revenue and probably be more than that. You're looking at sort of one ish million for TOT one ish million for the UUT than the business tax. It was three to five. Do you said is that what I remember? Yeah, but that's just one scenario. And I don't know that that makes sense. And I don't know that that's would even be palatable. So that's true. So let's let's assume let's say let's say three just be conservative for the moment. So we're talking five with the relatively with relatively straightforward changes, those three tax, leaving aside sales tax, we're looking at additional additional $5 million a year with the budget gaps. I mean, depending on labor negotiations with the budget gaps over the next couple of years that buys us that buys us a little more time with the structural deficit like another year or two, less, less like one. It barely dents it. All right. You have $10 million not doing anything. You're going to pass labor. I guess I'm not I was thinking with with the reserves above minimum when that because those cover those cover this year's deficit and next year's deficit and like part of the third year depends on it may stretch out your your fiscal stability reserves. Maybe another year. It's not going to do a significant change to to where we are. It basically it may buy you another year. Let me put that that that makes sense. I guess I'm just trying to buy enough time for Scott to kick in and save us from having to make any tough decisions. That's ultimately going with this. So I don't know what there's lots of scots. I'll underline here where they're Scott. Sorry. Thank you. I'll I'll underline Alan's point and that when you made originally it's a this problem. Yeah. We are talking about multi approaches. Yeah, no. Like he said in the beginning, it is we can't have one of the other. It is both. Look at the message received. Yeah. Yeah. And it all helps. I don't mean to diminish that. I'm just I'm I'm you're getting dour CFO now. You're getting the that's what we need right now because it is serious. And I do I do realize that you're going to get more of me than you want. Keep it. Keep it coming. Schedule it. Schedule it. Yeah. But and and let me just say this. What we would do is I think we should continue this conversation and more earnest in November. I should have some some decent numbers. When did they come back? When does the firm come back with estimates in October? Okay. So it won't be in time for our October meeting. But we'll we'll have it on the November meeting. Okay. I'll give you an update then and we'll have we'll have regular updates. Yeah. As as we go through this is important. And and what this was meant to do was to start giving you the picture of where we are. What those different ordinance is what we could do. Yeah. And now you'll get another piece in November of okay. Now these are really the kind of dollars that we're looking at under different scenarios. And then you know and then we could talk about about strategy because I think what you're looking at is is multi ballot years going. This isn't something that that is going to be solved in 2024 or 2026. It's going to be a a chipping away at a problem. A looking at what we're able to do from the expenditure budget side. And and all that and how we can you know okay well maybe we can ease off one of these others. Maybe maybe we don't need business tax. We can leave that but we can hit these other ones sell taxes and no brainer. We have to do that. We also just have to generate more that like it's the economic development. Absolutely. And but those things just to be very clear with that. Those those take much longer time. So that's the year looking way down the line. I'm trying to give you and what and and I probably should have articulated this better. What we are doing is we're looking at we're traveling down a road in probably five year increments. Yeah. So each each year is a mile. So we're just trying to get past mile one and here's what we do. We we we're going flat budget. We are we're going to start pulling and seeing what what makes sense that we can put in from revenues. Then we're going to we're going to hit labor contracts and then we're going to have to regroup and go again. But what we're trying to do from the finance team and through this committee is to show you what our long term plans and goals are. So that's that roadmap that we're trying to deal with. It's extremely helpful. Thanks for being as consistent and clear as as you have been. Thank you. I don't think we have we have a choice. But I think it's always good to modernize what it's not up to up to date. So yeah. So that would be like my take is that we have to act on those because the longer we just leave it. Yeah. We're just kicking the can. So we'll continue what we're the way we're going. We'll continue to work with our with our consultants and and my next step will be talking with them early next week and looking at what we need to start doing opinion surveys. I would guess that would probably be going out to the street on that maybe in November. But we'll we'll be back and give regular updates. I'll probably put a standard item on that is just a general revenue measure update. And if I don't have anything it'll be a real short one. But yeah. Anything else? No. No. Thanks again. I'm still trying to figure out which Scott is going to do it. But only one Scott Scott a lot of stuff. And then it's going to be a budget line item 30 or 40 million a year to help us to help us balance. And then we can spend and then we can pass it over to the other Scott to get it together. All right. So can we take public comment? We have no hands raised. That is exactly what we'd like to hear. Are there any future agenda items that you we know you have a lot? Well I have two that I want to that I just want to so next next meeting. I know we put it in the thing here as October 26. We're actually well our regularly scheduled meeting is October 12. We're going to cancel that and we're going to have a special meeting on October 19. And on that one hopefully that works for everybody. If not let us know and we can push that that what that will do right now is that would be great because I got a look. I'm good on 19th. It'll be all right. Awesome. It'll be one item. It'll be well other than if I have any update on this stuff which will be very brief. But the main thing that we're going to tackle is our fiscal year in general fund budget performance. So that will be the first point that we'll have that. And then in November whenever the regular meeting is for November we're going to do an update on our other employee our OPEP other employee. What is it? We are going to do other post employment and what that really means is retirement healthcare for our safety folks which is I won't throw more acronyms at you but that's what it is. But we'll also do the we'll also do a CalPERS presentation. Yeah. I think maybe the best is two items or one. Yeah two items. So it'll be a CalPERS item and then the OPEP item and I don't know if this is appropriate to ask but for the CalPERS item my thought would be a kind of ground up presentation kind of starting with kind of a CalPERS history how our CalPERS program works the basics of it the definitions and then build into past this past year's performance and how it impacts the city is where it really gets to that. We can touch on the 115. Yeah that'll be part of it. Yeah so this group so the past iteration of this this committee heard probably more about CalPERS than they ever wanted to hear and on John and Tom's last day in the committee we did a big CalPERS presentation just as a send-off. Okay we're givers but so I think that there is good information to be had there Scott um is is is literally the expert in the city of CalPERS. I don't think anybody knows it better than him. We we can also touch on the the things that we have done to mitigate the impacts to the general fund reserves or the general fund operating budget due to the performance issues that CalPERS has and our rates so I think it's all very good for you to know if it flows into the impacts that we have with the budget going forward so having that that kind of base information he can make it sound very technical stuff make very very easy to understand. I benefit from that greatly it is hard to wrap your head around CalPERS but I'll try so that'll be that'll be November yeah and then but like I said my goal would be to start at the absolute bottom and build a knowledge like what Alan said yeah our prior committee members had a lot of experience and we want to kind of build that again great. So perfect CalPERS we're going to talk about the pension and obligation bonds? Well we're gonna we're gonna we're gonna cover a lot yeah absolutely I'll absolutely be covering that as well and and how all the different parts of what the city's we're gonna cover history with with the city we're gonna cover history with CalPERS we're gonna build some kind of understanding of basic terms and how it's worked and how the history and and most importantly tell us like where we're going because we knew where we were going 10 years ago we're there I think we know where we're going in another 10 years we're gonna get there so it's all good doesn't sound great all right so drink coffee before yeah yes no not the presentation when he's like we knew where we were gonna go in 10 years and we know where we're gonna be in 10 years all right so with nothing else we will adjourn the meeting thank you guys so much thank you