Hemet staff presents budget adjustments and three fiscal forecasts as pension, insurance costs rise

Tiffany Barnett, Hemet administrative services director, told the council at a work study session Tuesday that staff has cut or reallocated spending and identified new revenues to reduce a previously projected $14.6 million general‑fund gap for fiscal year 2025–26.

Barnett said staff found about $925,000 in additional recurring revenue adjustments — including higher estimates for motor vehicle and property tax growth recommended by the city’s consultant HDL, modest cannabis receipts, transient occupancy tax (TOT) audit recoveries and incremental sales tax — and has identified $3.5 million in expenditure reductions and one‑time uses of fund balance that together reduce the gap to about $3.4 million.

The presentation explained why the city faces sustained pressure: large increases in pension costs and insurance/liability premiums are major drivers. Barnett said CalPERS employer costs have risen sharply over the last decade, and the city’s projected pension cost for next year would increase from roughly $6.7 million (2015) to about $17.4 million. She also described an expected increase in liability and excess‑claims costs and a planned 3% cost‑of‑living adjustment proposal for employees that will add to expenditures.

Key adjustments explained

Barnett and principal accountant Kalina Beasley outlined steps staff has proposed to reduce the gap. On the revenue side, staff used consultant HDL’s higher growth assumptions for vehicle license and sales taxes, added $200,000 in conservative cannabis revenue, built in $180,000 expected from transient occupancy tax audit findings, assumed $100,000 in billboard receipts and anticipated modest gains from short‑term rental collections. Those items combined for the roughly $925,000 revenue increase.

On the expenditure side, staff moved a $1,026,000 CityNet contract line, pushed a $500,000 general plan update out of the general fund, reduced non‑public‑safety maintenance and operations by about $523,000, cut recruitment and background investigation budgets in police and fire, reduced on‑call planning contracts, deferred a roughly $860,000 equipment replacement program for one year and lowered police and fire overtime budgets. Staff also proposed using available internal‑service fund balances to smooth charges to the general fund.

Barnett noted the city budget still assumes a one‑time transfer into a Pension 115 trust (roughly $1.5 million is under consideration) and a number of one‑time items (kitchen grants, façade improvements, library sign repair, a comprehensive fee study and other strategic investments) that together are part of the $2.196 million of planned one‑time fund‑balance uses.

Three scenarios for the future

Barnett presented three forecasts. Scenario 1 assumes flat revenues and modest inflationary expenditure growth and shows the city’s fund balance declining into future years and becoming structurally deficit prone by 2028–29. Scenario 2 applies a recessionary model (historical revenue declines) and produces a much deeper structural shortfall — staff projected an approximate $40 million cumulative deficit by 2028–29 under that scenario. Scenario 3 uses a more optimistic outlook (an 8% revenue inflator and local dealership revenue sharing arrangements) that still runs a near‑term deficit but shows recovery and modest surpluses by 2027–28 if revenues materialize and cost pressures are controlled.

Why it matters

Barnett told the council the largest uncontrollable drivers are legacy pension obligations and insurance costs; she urged the council to weigh the one‑time investments against longer term structural risk and to provide policy direction on the level of risk it is willing to accept. Council members asked about assumptions for TOT audit recoveries, the treatment of short‑term rentals, impacts of full staffing on vacancy factors and the timing for bringing a pension trust recommendation back to council.

Next steps and schedule

Barnett said staff will bring the Measure U Citizens Oversight Committee updates (meetings scheduled late April and May 20), and tentatively scheduled budget adoption for June 10 (with June 24 as a fallback). She asked council for feedback on discretionary items (including $20,000 proposed for Hemet Beautiful) and noted staff will return with additional workshops and a formal budget adoption schedule.

Ending

Councilmembers praised the presentation and asked for the slide deck to be distributed. Barnett and staff will return with additional detail on insurance‑bid results, the proposed Pension 115 contribution and any recommended changes to one‑time spending before final adoption.