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City finance officials present 5-year forecast showing revenue volatility and rising pension costs
Summary
Finance staff told the Carmel-by-the-Sea City Council that tourism- and construction-related revenues are volatile, operating costs (notably pensions) are rising, and the city risks operating deficits in later years unless the council adopts revenue, expenditure or financing measures.
Finance Manager Jamie Fields presented a five‑year strategic financial forecast and told the council the model is a planning tool, not a precise prediction. “The forecast is a tool,” Fields said, adding it is “a kind of a stress test” to highlight vulnerabilities and help the council make decisions ahead of the budget cycle.
Fields and council members identified three primary pressures: potentially declining tourism-related transient occupancy tax (TOT) and sales taxes as room demand and local construction slow; rising operating costs driven by salaries, benefits and negotiated wage increases; and significantly increasing employer contributions to CalPERS (the city’s pension system). Fields said industry estimates foresee a possible 3% decrease in TOT in fiscal year 2025–26 and cautioned that price inflation had temporarily increased receipts but may not be sustainable.
The forecast includes estimated capital projects for the next five years; when capital spending is layered onto projected operating results the model shows potential operating deficits in later years unless the council adopts revenue enhancements, expenditure reductions, or long‑term financing. Fields noted the city has accumulated fund balance in recent years that can be applied to capital needs; auditors’ balance‑sheet schedules show roughly $30 million in various fund balances and restricted amounts, of which $11 million is in capital reserves and $4.5 million is in an operating reserve (per council direction).
Council discussion focused on three items: (1) how conservative the current budgeting assumptions are — council members asked staff to provide scenario runs showing outcomes if the council reduced the “conservative cushion” in revenue estimates; (2) the projected rise in the city’s CalPERS unfunded actuarial liability (UAL) contributions, which Fields said rise from roughly $2.2 million now toward a mid‑range peak and then decline in longer projections; and (3) whether to treat a large, potential police/public‑works facility differently in the forecast because funding method (cash vs. debt) materially changes near‑term results.
Council asked staff to (a) present alternative forecast scenarios that separate out the police/public works building from the base CIP so council can see the forecast with and without that large project; (b) show sensitivity of the forecast to pension assumptions and one‑time grants; and (c) prepare the proposed budget materials as scheduled for May 6 with an additional preparatory workshop planned for the week of May 19 if the council wants more time for CIP review.
Fields emphasized that the forecast is intended to prompt policy decisions now — on revenue measures, expenditures and financing approaches — rather than to be read as a fixed five‑year operating plan.
