Grand Jury Grand Jury Response from City of Watsonville 3 messages

RISK ASSESSMENT: As the Auditor’s Office is an authoritative source of studies and assessments for the State Legislature, we find that the risk assessment methodology used by the Auditor’s Office is a valid and valuable approach to assessing financial risk for all SCC city jurisdictions and communicating that risk to stakeholders. AGREE X PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The City of Watsonville agrees that the assessment methodology used by the Auditor's Office is a valid and valuable data point in assessing financial risk but does not find it to be authoritative or all inclusive. It contains useful data points and a way to compare across jurisdictions, but each jurisdiction has unique profiles, revenue and expenditure characteristics, and ability to change or modify those characteristics that is not captured by this methodology. Without this important context, the methodology is flawed and produces misleading findings. Furthermore, we find the tool to be heavily focused on pension obligations and risks. It also heavily focuses on factors that are often beyond the control of the jurisdiction, like pension assets or liabilities. Moreover, it does not include other forms of “risk” that each city faces and needs to balance, like maintenance of facilities or capital improvements, revenue mix, and service needs of the community. These types of risks/ liabilities are less easily quantifiable but are known by the professionals working in their communities.

RISK ASSESSMENT: All SCC Cities did not fully consider the calculated high risk indicators from the Auditor’s Office and their potential impacts on city operations, services, and capital assets/infrastructure. AGREE PARTIALLY DISAGREE – explain the disputed portion X DISAGREE – explain why Response explanation (required for a response other than Agree): The City of Watsonville’s high risk indicators from the Auditor’s Office are General Fund Reserves, Future Pension Funding, and OPEB Funding. The City has made deliberate and concerted efforts over the past few years to increase its level of General Fund Reserves including adopting an official General Fund Reserve policy with a goal of achieving 20% of general fund expenditures in reserves. Watsonville met and exceeded that goal in FY 2019-20. Future pension obligations are always at the forefront of financial planning conversations and modeling. For example, through the last several cycles of labor negotiations, the City has worked with its employees to increase the employee share of pension contributions. Watsonville again has made concerted efforts to pay down our obligation in a way that yields the greatest impact during recent years, and CalPers is always discussed in the City’s budget and 5 year planning processes. Managing our CalPERS future obligation is also a stated strategic goal of the City Council as stated in the City’s most recent strategic plan adopted on June 12, 2018. https://www.cityofwatsonville.org/DocumentCenter/View/10736/Strategic- Plan_2018_20-final?bidId= To say we do not consider the risk of pension costs is inaccurate. Finally, we disagree with the auditors assignment of a high risk to Watsonville’s funding of our OPEB obligations. As can be seen by the OPEB obligations indicator, Watsonville has a very low OPEB obligation compared to most cities, and; therefore a funding plan has not been prioritized due to the City’s low level of risk. The CGJ report incorrectly listed Watsonville as being high risk in the areas of revenue trends and pension funding. Those areas are listed by the State Controller as areas of moderate risk.

RISK ASSESSMENT: The state of risk determined for all SCC Cities by the Auditor’s Office in 2017 remained largely unchanged through 2019. X AGREE PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree):

RISK ASSESSMENT: Pension costs contribute a higher level of financial risk to all SCC Cities than is accounted for by city documents. AGREE PARTIALLY DISAGREE – explain the disputed portion X DISAGREE – explain why Response explanation (required for a response other than Agree): City documents report pension contributions and liabilities as required by GASB. In some ways the delayed impact of losses or market shocks to City costs allow for planning time and are therefore, a comparatively reduced risk.

RISK ASSESSMENT: Financial Risk Indicators alone are not adequate to effectively understand the risks facing all SCC Cities. X AGREE PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree):

RISK ASSESSMENT: All SCC Cities do not fully identify, assess, track, and report key risk indicators that reflect the state of strategic, financial, operational, or hazard risk. AGREE X PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The City of Watsonville identifies, assesses and manages risk in several ways. Financial risks are imbedded in the City’s annual budgeting process, long term financial plan development, City Council Strategic Plan, as well as independent comprehensive annual financial reports (CAFR). Collectively, these financial planning tools clearly identify areas of short and long-term financial risks and liabilities, as well as strategies for preparing for, and mitigating such risks. Furthermore, the City utilizes several approaches to manage operational and hazard risks. These include the City’s Local Hazard Mitigation Plan, which identifies potential local natural hazards and then identifies and prioritizes vulnerable areas in the local community. Another example is the recent completion of Master Plans for the City’s Solid Waste, Wastewater and Water System utilities, which identifies and prioritizes operational risks and infrastructure needs over a 30 year planning horizon. As another example, the City’s Climate Action Plan also identifies natural hazards and environmental threats due to climate change and includes greenhouse gas (GHG) emissions reduction strategies, metrics and detailed actions the City can take to help meet those goals. The plan also includes additional components such as resilience strategies, clean energy targets, and economic and social goals. In summary, the City deploys a variety of risk assessment tools to identify, track, manage and mitigate the broad range of risks that are associated with the operations of a full service City and the community that we serve. It is true that these assessment tools may be structured or organized than the risk models used in the Grand Jury report, but that does not necessarily mean they are any less effective.

RISK ASSESSMENT: All SCC Cities do not adequately evaluate the possible interactions between risks that may inhibit or enhance the objectives of each city. AGREE X PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): Adequately is a subjective term. Could we do better, perhaps, but we believe we are properly evaluating interactions between risks. A reading of this report seems to assume that departments and managers work in silos which is not true. Department heads meet at least once every two weeks to discuss what is happening in their departments and how it may affect the others. Our budget and Capital improvement planning processes are all about weighing the risks of making one funding decision versus another. Our staff reports to Council all include an item about what the alternative options might be so our Council can understand and weigh the options.

RISK ASSESSMENT: All SCC Cities either do not maintain or do not publish a report card on the state of key infrastructure that can be used to set funding priorities and manage operational and hazard risk. AGREE PARTIALLY DISAGREE – explain the disputed portion X DISAGREE – explain why Response explanation (required for a response other than Agree): The City of Watsonville has completed extensive assessments of its infrastructure over many years, and is constantly evaluating and preparing for replacement of key infrastructure, including long-term capital improvement planning, financial planning for emergencies, and hazard assessment. While the City may not present these findings through a specific “report card,” we spend a significant amount of effort to inform the community about the state of our infrastructure, the projects that are being planned, and the projects that are in construction. We have received significant positive feedback from the community about our outreach and education efforts in this arena. City Strategic Plan. Every two years, the City Council updates its Strategic Plan, setting forth a vision and priorities for the City organization and the community of Watsonville. This document: • Articulates the Council’s priorities and guides its policy decision • Enables staff to develop feasible, actionable strategies to address the Council’s priorities, implement policies, and allocate resources effectively • Can focus the City’s efforts to engage community members and agency partners in achieving the City’s Mission and Vision • Enables the city to prioritize time and resources in alignment with the council priorities The City’s Strategic Plan can be found at: https://www.cityofwatsonville.org/DocumentCenter/View/10736/Strategic- Plan_2018_20-final?bidId= Water and Wastewater Master Plans. Last year the Department of Public Works completed both a Water Master Plan and a Wastewater Master Plan that evaluated the conditions of the water and wastewater systems for the entire City. These plans included recommendations for replacement of key infrastructure over the next 30 years, identifying over $200 million in projects that we hope to complete over that timeframe. The studies also evaluated risks associated with earthquakes, climate change, tsunamis, and wildfire. These results we shred with the community through multiple newsletters and social media over the past year. Local Hazard Mitigation Plan (LHMP). In addition, over the last year the City has completed a draft Local Hazard Mitigation Plan, including a very thorough risk assessment. This Risk Assessment includes (1) a description of the LHMP Planning Committee’s hazard selection process, (2) hazard descriptions of selected primary and secondary hazards, (3) hazard profiles for primary hazards, and (4) a vulnerability assessment that includes a summary of the risk primary hazards pose to the City’s built, social, and natural environment and a discussion of secondary hazards. These four sections address Element B requirements, which appear in the following Risk Assessment as headings B1–B3, described in the Federal Emergency Management (FEMA) LHMP Review Guide. The LHMP process included extensive public outreach and participation, and the community has been kept well-informed about both the types of risks that could happen in our community, and the steps needed to reduce the impacts of those risks. To see the extensive list of LHMP community outreach efforts, meetings, and the plan itself, please see our website at: https://www.cityofwatsonville.org/1858/Local-Hazard- Mitigation-Plan. Climate Action and Adaptation Plan (CAAP). The City of Watsonville is embarking on an important effort for climate action, adaptation, and restoration over the next decade. The Watsonville 2030 Climate Action and Adaptation Plan will chart a clear path for the City, including residents and businesses, to reduce its greenhouse gas (GHG) emissions; combat the impacts of climate change; and explore realistic options for restoring and repairing its natural environment. The State of California supports local action on climate change by providing guidance for local jurisdictions to develop climate action plans or plans to reduce GHG emissions for projects. The State also requires climate change adaptation strategies to protect communities and critical infrastructure from climate impacts. To comply with existing legislation, the CAAP will have three focus areas: Climate Action, Climate Adaptation, and Repair and Restoration. 1. The Climate Action component will be based on the City’s 2017 GHG inventory compiled by the Association of Monterey Bay Area Governments (AMBAG). The outcome of this analysis will be a set of emission reduction targets for meeting the City’s stated GHG reduction goals. Staff will work across City departments to identify a broad array of mitigation strategies with clear performance metrics. Mitigation actions will be characterized by their potential to reduce GHG emission, implementation timeframe, cost, community support, and ability to provide additional community benefits. Example mitigation strategies include installation of EV charging stations, promoting active transportation, and energy efficiency improvements. 2. The Climate Adaptation component will be based on the City’s recent 2020 Local Hazard Mitigation Plan (LHMP). It will also consider additional risks, including agricultural impacts, grid reliability, and potential influxes of short-term or long-term climate migrants. Staff will categorize potential adaptation strategies by their risk- reduction potential (effectiveness), implementation timeframe, cost, community support, and ability to provide additional community benefits. Some example adaptation strategies include installing emergency generators, designating community cooling centers, developing distributed energy systems, and increasing tree canopy and green infrastructure. 3. The Repair and Restoration Component is planned to be undertaken in 2021. The results and actions from this initiative will be integrated into the CAAP as a 2021 plan update to the initial draft, which is scheduled for completion in November 2020. To learn more about the City’s Climate Action Plan and community outreach efforts, please see our website at: https://www.cityofwatsonville.org/1764/Learn-About-Climate- Action-Plan. City Receives $200,000 Climate Resiliency Grant. The Department of Public Works recently applied for a Bay Area Council Foundation Climate Resiliency Challenge grant. Through a competitive grant process, the City was awarded $200,000 as one of the 12 grant awardees out of 85 applications. The City will utilize this funding to develop a Green Infrastructure Implementation Plan (GIIP) that will integrate multiple City planning initiatives, such as the Urban Greening Plan, Downtown Specific Plan, Local Hazard Mitigation Plan and Stormwater low impact design that will be part of the larger Climate Action and Adaptation Plan. Through the GIIP, the City will look for opportunities to reduce impacts of climate change to our community by increasing water quality supply, reducing flooding, combating urban heat island effect, and improving neighborhood vitality and overall community aesthetics. Transportation Infrastructure. The Department of Public Works inventories the quality of the roads each year and develops a Pavement Maintenance Index for each street. All streets are prioritized for improvements, and sealing, repair, or reconstruction projects are planned many years in advance, reducing the financial risk of having to suddenly fund major infrastructure projects. These projects reduce risk and increase safety of travelling in the community, and keep the community prepared for responding to natural disasters. Our residents are kept well-informed of these projects through newsletters and social media outreach. Parks Master Plan. Through a community survey, focus groups, questionnaires, and community workshops, the Department of Parks and Community Services engaged residents and stakeholders in order to learn about the community’s needs with respect to the development of parks and recreational facilities. The community’s profile and existing parks and recreation resources were researched and analyzed. This information was compared to community feedback and reviewed for consistency with the City’s Draft General Plan. The resulting document is the City of Watsonville’s Parks and Recreation Facilities Master Plan, a plan that is addressed to the prioritization of possibilities within a cohesive vision. Vision for Parks and Recreation Facilities. Watsonville provides a system of well- designed parks and facilities that contribute to the vitality of the community and promote health, well-being and enjoyment for all residents. The community’s vision for the future, as well as the Department’s mission and the community’s core values, guides the goals and recommendations of this plan. Goals and Recommendations. The following is a brief summary of the

RISK MANAGEMENT: Although all of the cities of SCC are preparing for increased pension costs due to current amortization schedules, they are not adequately preparing for risk associated with significant or sustained investment shortfalls in CALPERS due to economic shocks (e.g. caused by Coronavirus) or a recession. AGREE X PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The City of Watsonville has spent several years deliberately building up reserves and making extra payments toward pension UAL to be better prepared for if / when we are impacted by CalPERS shock and or other types of shocks. Our emergency reserve calls out specifically CalPERS shocks as one of four allowable triggers for the use of that reserve. We also included a CalPERS shock scenario in language with one of our bargaining groups as trigger language on whether or not to allow a contracted increase. Furthermore, and as stated above, the two-year delay in CalPERS returns and their impacts on City finances allows Cities time to plan and adjust in the case of a shock.

RISK MANAGEMENT: Except for the area of hazard (i.e. loss) risk management, in all SCC Cities, there is no formal method to define, track, manage, and communicate risks at the enterprise level of SCC city government. X AGREE PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree):

GOVERNANCE: All SCC Cities do not have a publicly articulated pension Unfunded Actuarial Accrued Liability (UAAL) funding policy that recognizes potential pension cost risks and community expenditure/revenue priorities. X AGREE PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree):

TRANSPARENCY: All SCC Cities do not adequately meet key requirements for transparency as defined by the GFOA. _ AGREE X PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree): The City of Watsonville meets many of the elements of financial transparency as defined by the GFOA. The City is only missing access to live detailed data along with context and policies to help the public understand the data. These types of reports are often not used and they are frequently misunderstood. The public can easily get all financial information of the City through a public information request. The City has been developing a budget summary document that will provide increase access to budget changes and financial information of the City.

TRANSPARENCY: All SCC Cities do not provide standard and understandable reporting with regard to: Pension Costs and Associated Impacts (past, current, and projected); Service Level Performance Metrics; State of Key Infrastructure; Risk Assessments and Mitigation Plans for Finance, Operational, and Hazard Risks. X AGREE PARTIALLY DISAGREE – explain the disputed portion DISAGREE – explain why Response explanation (required for a response other than Agree):