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6.A. - Page 18 of 191 The City has been assigned an Aa1 issuer rating by Moody's Investor Services. The rating reflects the City's sizeable and primarily residential tax base that is poised for moderate growth, strong wealth indicators, a healthy financial position supported by strong reserve and liquidity levels, and a very modest debt burden. Maintaining a sustainable budget and prudently planning for the City's current and long-term needs is a top priority for the City Council. The City continues to focus strategically on appropriate funding strategies for annual operations, a robust capital improvement program, and future liabilities. Each fiscal year, the City prepares a ten-year General Fund forecast to project revenue and expenditure trends. This forecast is an integral part of the annual budget process as the City seeks to establish and implement its priorities in a fiscally sustainable manner. The forecast also assists in providing a long-term road map to guide the financial planning of the City as it addresses rising pension costs and unfunded liabilities. The City reviews major cost drivers to anticipate and control expenses to the maximum extent possible and makes fiscal decisions within the framework of the forecast. The City also monitors its revenue sources to identify and plan for trends. Financial planning also takes the form of continuous review and refinement of fiscal policies and forecasts, and an understanding of the citywide initiatives underway. During FY 2017-18, the City began the process of reshaping service delivery for the future in order to fund upcoming costs and long-term liabilities. Strategic elements to this process included: • Addressing unfunded liabilities and preparing for dramatic increases in pension costs • Implementing operating efficiencies through reorganization and best management practices • Seeking outside funding and exploring options for new revenue • Exploring shared services and partnerships with outside agencies to reduce costs • Paving the way for new and innovative service approaches • Continuing to invest in employees and our organizational culture Building on the strategic elements above, the City implemented the following strategies during FY 2018-19: • Developed a ten-year General Fund forecast (formerly a five-year forecast) for the first time • Analyzed and recommended an accelerated payoff timeframe for the City's pension obligations • Continued to focus on cost containment citywide by identifying numerous efficiencies, innovations, and partnerships • Streamlined the development of the Capital Improvement Program to provide a more realistic financially viable projection of the City's capital needs and revenue sources Placed two revenue measures on November 2018 ballot, including a half -cent sales tax increase (Measure RR) and a cannabis excise tax (Measure DD). Both measures passed, with 68 percent of voters supporting Measure RR, and 79 percent of voters supporting Measure DD. A summary of major revenue sources and other significant financial planning items is below. Sales Tax Sales tax is an important source of General Fund revenue as it accounts for 16.7 percent of total General Fund revenues. When compared to the FY 2018-19 budget, actual revenues generated approximately 2.2 percent more revenue than the amount budgeted in the General Fund. Sales tax revenue in the General Fund increased by 16.8 percent when compared to the prior fiscal year. This increase is primarily due to the passage of Measure RR, a half -cent sales tax increase, in November 2018, which became effective April 1, 2019. The City was able to collect $2.4 million for taxable sales occurring April through June 2019. The City has budgeted $8.7 million of this new revenue source to be collected in FY 2019-20. Staff will analyze this new revenue during the mid -year budget review process to determine if a budget amendment is needed. If the new half -cent sales tax revenue was excluded from the FY 2018-19 actual amount, the increase in sales tax revenue would be 6.1 percent. iv 25