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Pleasanton has always championed the idea of being the city that carefully plans for its future — especially when it comes to its budget.
But as city leaders and staff have come to learn over the past year and a half, Pleasanton’s financial future is not as secure as it has been.
“I was always under the impression that we always had money if we needed it,” Mayor Karla Brown said at the Sept. 17 council meeting. “I learned over this past year that was not the case.”
Pleasanton is facing a significant structural deficit that could cost the city tens of millions of dollars each year, according to the city. In its general fund 10-year financial forecast, city staff have projected a yearly budget shortfall starting at $10,788,817 in 2026, with that number rising as high as $15,678,578 in 2030.
Throughout the year, staff have attributed the deficit to the city’s expenditures outpacing its revenues — in other words, the city is spending more than it is making — which can be seen in the city’s yearly budgets.
According to the 2019-20 and 2020-21 operating budget report, the city’s major revenue streams — property, sales and hotel taxes — had been steadily increasing. One good example was the hotel tax, or transient occupancy tax, which went from generating $2.7 million in fiscal year 2009-10 to $6.8 million in the 2019-20 fiscal year.
But as noted in the 2023-24 and 2024-25 operating budget report, after the pandemic all of those tax categories generated a lot less revenue. And while sales and property taxes began recovering over the last few years, the hotel tax experienced the sharpest decline and the slowest recovery.
Apart from the loss of revenue from hotel taxes and the city’s pandemic funds being depleted, staff have also attributed the structural deficit to other factors like rising personnel costs, inflation, slow real estate development and more.
Those notable other reasons include unfunded liability pension costs that remain at over $200 million and a $900 million infrastructure funding gap over the next decade to maintain community assets like buildings, parks, roads and pipes.
That’s why the Pleasanton City Council majority voted to place Measure PP — a sales tax measure slated to bring in roughly $10 million every year in revenue exclusively for the city, if passed by a simple majority of voters — on the November ballot this year.
City officials have repeatedly said the half-cent sales tax increase, which would bring Pleasanton’s sales tax up from 10.25% to 10.75%, is the best way the city can be positioned to balance its budget and maintain its essential services during these next few years. Another option that staff are holding onto as a backup plan is making further cuts across various departments — including essential services such as police and fire — that staff say will impact the daily lives of residents.
The council has not voted on the backup list of reductions and cuts across departments as it is contingent on Measure PP not passing.
Some vocal residents, however, are still not convinced that the city needed to place the revenue measure on the ballot in the first place and said more work should have been done before determining that a sales tax increase was the best solution to the deficit.
Doug Miller, chair of the No on Measure PP campaign, said he didn’t think council has done a good job in communicating the need of the measure and questioned why the city didn’t look into adjusting development fees sooner. He also didn’t like the fact that the city hasn’t released its current budget, which adds to the lack of trust some might feel toward the city and how it balances its budget.
“Our city leaders have not done the work required to create a balanced budget,” longtime resident Vicki LaBarge said during last week’s council meeting. “Instead, you’ve taken the easy way out by coming to us, the taxpayers, and asking us to solve the problem for you when that should have been done in the first place.”
One thing LaBarge said the city should have looked into more was drawing money from the city’s Section 115 Pension Trust Fund — which, according to the trust fund’s withdrawal policy guidelines, is something the city could do if the city’s General Fund has a structural deficit that needs to be addressed.
Pleasanton city finance director Susan Hsieh said during the Sept. 17 meeting that the total market value for the trust fund at the end of the 2023-24 fiscal year was $51.1 million.
LaBarge said the city could draw from that fund, which was originally created as an investment to help Pleasanton pay down its pension liabilities in the future, at a rate of $5 million per year over the next 15 years, which along with other moves, could significantly help.
This could be seen in an alternative “General Fund 10-Year Financial Forecast” that was shared with the Pleasanton Weekly.
According to the document, if the city drew down as little as $4 million and as high as $9 million each year for present-day pension payments and combined that with other budget reductions such as the $2.5 million that the council recently approved that have minimal impacts on residents, the city’s annual shortfall wouldn’t go over $5 million until 2032, which instead projects a $8,798,134 deficit.
But as Hsieh told the Weekly in a recent sit-down interview, creating a balanced budget has its limits and using savings such as the trust fund, while it is an option, won’t help address the deficit in the long run.
“When it comes to balancing budgets when there is a deficit … it’s appropriate to use one-time money temporarily to bridge the budget,” she said. “But ongoing use of the money to balance a structural deficit is not recommended.”
“This is not a one-time budget problem,” she added.
She said using one-time funds will hurt the city in the long run and it would go against the whole point of the fund, which is to help pay the city’s growing pension costs.
She even noted that the chart, which shows the projections with the adjusted shortfalls, was a chart that staff used to demonstrate how despite drawing down from the trust fund and taking other measures to address the shortfall, the city will still be short millions of dollars.
That’s why she said the goal is to smoothen out the city’s revenues and expenditures. And according to the council majority, the only way to do so is by voters passing Measure PP or by making drastic cuts and reductions — staff previously said a fire station could close and police services could be reduced.
“We’ve (made) significant cuts,” Brown said. “The next round of cuts will hurt, but if that’s what the voters decide, that’s what we’ll do.”
Councilmember Jack Balch, who voted against placing the measure on the ballot, said he still wanted to look at other options — even if it is small reductions or cuts which could add up over time.
He brought up the fact that he didn’t vote to approve the last couple of budget adoptions because he hasn’t agreed with the city’s spending decisions but he still wanted to come together to address the deficit as a community.
“There is no doubt we have a structural challenge amongst us,” Balch said. “There’s no doubt that these are challenging times for Pleasanton’s future.”
While LaBarge brought up the idea that residents were mad at things like the Ken Mercer Sports Park skatepark and Century House renovation projects taking up hundreds of dollars for designs that were inevitably shelved and defunded, among other things, spending wasn’t the only criticism the community had on the city’s dire budget assumptions and projections.
According to the No on Measure PP campaign, the city has been exaggerating things like its projected property tax revenues. The 10-year financial forecast assumes property tax revenues will grow over the next decade by an annual average of 3.5%.
However, according to Pleasanton’s annual comprehensive financial report, which was conducted by an external audit firm, at the end of the 2023 fiscal year audited property tax growth for the past 10 years averaged 5.5%.
And according to a March 18 staff report, each 0.5% increase translates into an additional $2.5 million in projected revenues.
But as Hsieh explained, it’s best practice for a city to be conservative when calculating a 10-year financial forecast. She said they are conservative when it comes to revenue projections and they are not aggressive when coming up with expenditure projections for many reasons.
One of the reasons being that just like sales taxes, property tax revenues fluctuate every year.
She also said it was important to note that the 10-year financial forecast does not cover all of the city’s underfunded departments, deferred maintenance needs and other funding needs, which is why she again said no matter how much the city draws down from its other funds, the structural deficit won’t be solved without new revenue sources.
And as City Manager Gerry Beaudin noted during the Sept. 17 meeting, even if residents approve the half-cent sales tax increase, the city will still have to make further cuts and reductions in order to fully address the deficit.
John Huk, however, said that if the sales tax increases in Pleasanton, the city might be metaphorically shooting itself in the foot and could even make the deficit worse.
Huk, a longtime resident and a certified public accountant who has been working in the field of sales and use tax for 42 years, said increasing the sales tax to 10.75% would not only place Pleasanton in an elite club of cities with alarmingly high sales taxes in the state, but it would deter people from purchasing goods in the city.
He said especially with the Costco that is set to open its doors next month, people like him will probably end up driving to other surrounding cities in order to avoid the high prices.
“It drives business away,” Huk told the Weekly. “It could hurt business.”
He said it could specifically hurt businesses with fixed assets and supplies because now those companies will have to pay more for those types of things due to the higher sales taxes in Pleasanton.
“They’re going to recognize that Pleasanton is a very expensive place to do business,” Huk said. “And now they want more for the sales tax.”
Similarly, he said it would burden the school district and even the city offices because each entity has fixed assets that, if bought in Pleasanton, would be raised due to the sales tax increase.
And despite the city’s claim that Measure PP would sunset in 10 years, Huk said he doesn’t believe that will happen in reality.
That’s why Huk, like other residents, wants the city to tighten its budget instead of raising taxes.
But as Hsieh explained to the Weekly, while the city is still looking at other ways to save money and has reduced or cut services that minimally affect residents as much as possible, there is no getting around the fact that even the state auditor confirmed the city’s at-risk financial status.
According to her presentation on Sept. 17, the State Auditor’s Office showed that in 2021, Pleasanton was listed as being at high risk in revenue trends — out of over 430 cities in California, Pleasanton placed 61, which according to Hsieh the lower the ranking the higher the financial risk.
“We have been open and direct about the city’s financial challenges,” Hsieh said. “We don’t want to kick the can down the road. We want to find solutions to address our challenges.”
