Sausalito drafts budget amid rising cost pressures

City officials anticipate the general fund will have a deficit of around $2 million by the end of the next fiscal year.

Sausalito officials are grappling with increased insurance costs and pension expenses as they draft a budget for the next fiscal year.

The City Council discussed the preliminary budget for 2024-25 at its meeting Tuesday. Council members expressed concern over increasing expenses, specifically the loss of a long-term insurance provider, and suggested that staff look into more resilient revenue sources.

“In these kinds of times especially, it’s really important to focus on what moves the needle,” Mayor Ian Sobieski said.

Four main funds account for 92% of the city’s revenues and expenses, but much of the conversation focused on the general fund. The fund has a balance of $15 million and is projected to have a surplus of $1.5 million by the end of this fiscal year.

The draft budget projects the general fund to be closer to $14 million by the end of June 2025. However, the general fund is facing significant stressors in the upcoming fiscal year: an increase in insurance costs and unfunded liability payments, and a decrease of $550,000 in sales tax revenue because of the economy and business shipping changes. The draft budget anticipates the general fund will have a deficit of around $2 million by June 2025.

Chad Hess, the financial director for the city, said the city could choose workers’ compensation coverage from the State Compensation Insurance Fund. The city has $780,000 in the workers’ compensation internal service fund, and officials believe $500,000 could be transferred to the general fund. He recommended the city also increase its transfer from the parking fund by $300,000.

Additionally, in the 2022-23 fiscal year, the city contributed its surplus of $1 million to a Section 115 trust. Hess recommended taking the $1 million back and putting it toward the city’s projected $3 million unfunded accrued liability payment to CalPERS in the upcoming fiscal year.

The city has more than $35 million in pension-related debt, according to Hess. Unfunded accrued liability payments will increase $470,000 from the previous fiscal year.

These recommendations would bring the deficit down to about $200,000 in the general fund.

“I’m really worried about drawing down on the trust, as tempting as it is to get more interest on our general fund balance, because that trust was built and added to for a specific purpose, which is so that we don’t go bankrupt, as some cities have in the past, over pension obligations,” Vice Mayor Joan Cox said.

One increase in the city’s expenses is insurance, which includes general liability, property and workers’ compensation. The city was recently dropped from its provider, the Bay Cities Joint Powers Insurance Authority, because of a poor 10-year loss history and events that resulted in large claims. The city’s contract with the insurer will terminate, following more than 30 years of membership, on June 30.

While insurance and premiums are still in negotiation, quotes show total insurance costs increasing by $2 million to $4 million. The draft budget estimates a cost of around $2.5 million. Some measures to reduce these costs, like a new sidewalk repair program and allocating funds for a risk manager staff position, have already been taken.

Hess said a review of all employee handbooks, policies and procedures is underway.

“We have to bring down our insurance costs,” Hess said. “What we are presented with by the private market is very unsustainable.”

Councilmember Jill Hoffman said future requests and presentations to the City Council should focus on risk reduction measures. She said the unfunded pension liability is the biggest financial risk to the city.

Councilmember Janelle Kellman suggested looking into new revenue streams for the long-term health of the city’s finances. She said, for example, a watersports center or water taxis could be an untapped market in Sausalito.

“This seems like we’re moving money around but we’re not really addressing the core, which is we potentially need more resilient revenue sources,” Kellman said.

Hess said the budget will be brought back to the City Council at the next three meetings. The budget must be adopted by June 30.