Hello Gilroy! This month we share the work and responsibilities of our Finance Department. Finance Director Harjot Sangha will join me, and you, at the next Conversation and Coffee with the Mayor on Saturday, April 9, at 9:30am in Council Chambers. Please note the change in date this month only, from the first to the second Saturday, due to my daughter’s college graduation ceremony that is replacing the one she lost in 2020. I hope many of you will come out and join the conversation on April 9 as we focus on this very important function of the city and the department that handles all our money.

See you on April 9th!

Mayor Marie Blankley, CPA

Harjot Sangha was appointed as the Finance Director for the City of Gilroy on April 1, 2021. He has a bachelor’s degree in Business Administration – Concentration in Accounting from San Francisco State University and is in process of completing his master’s degree in Public Administration. Harjot has worked in the municipal public sector all his career and has over 10 years of municipal finance experience having served in various finance and accounting, and management positions. He currently serves on the Board of Association of Government Accountants – Silicon Valley Chapter and is an active member of the Government Finance Officers Association, and the California Society of Municipal Finance Officers.

Gilroy’s Finance Department, with a team of 13 employees, provides a variety of quality services to internal City departments, employees, and the public. The Department manages and protects the City’s financial resources and taxpayer dollars in a prudent and responsible manner.

The Finance Department is responsible for functions such as preparing and monitoring budgets, financial reporting, business licenses, payroll, general ledger accounting, cash and treasury management, debt and investment management, utility billing, permit payment processing, and accounts payables/receivables. In addition, the City’s Finance Department provides these same financial services to the South County Regional Wastewater Authority (SCRWA), a joint authority formed by the cities of Gilroy and Morgan Hill. The financial reporting that comes from the Finance Department tells us how much we receive in revenues and from what sources, and also tells us where we spend it in any given year. The City’s budgeting process is not unlike what we do for our own households. We all need to know the amount of income we have before we can decide where and on what we spend, and how to prioritize our spending on the things most important to us. There’s never a shortage of ways to spend money, but as in our own households, the City is limited by the income we have and the essential services we must provide first.

I am honored to be a part of the Gilroy team and am proud of how much we’ve accomplished as a department, an organization, and a community over the last year. The Finance team is a group with a strong sense of camaraderie and cohesion. The team strives to provide excellent customer service to customers inside and outside of the organization. I look forward to developing and leading our Finance team by ensuring we have the right tools and training to continue providing quality services.

The City Council and the City Administrator have made some tough yet prudent decisions in recent years, such as implementing the General Fund Fiscal Recovery Plan to ensure the financial sustainability of the city when the pandemic hit. My goal is to build upon and further the Council’s goal to develop a financially resilient and fiscally responsible organization for years to come. Together, we will address challenges such as rising pension costs and other post-employment benefits, ensure the City is able to recover costs for services it provides, and develop financial policies that ensure funds maintain adequate balances/reserves and continue to allocate available resources to further Council’s strategic priorities.

What follows are highlights of some of the current workplan items of the Finance Department.

An ERP is an integrated system of software/s that organizations use to manage day-to-day activities, such as budgets, accounting, procurement, payroll, human resources, and project management, typically all under one umbrella. In recent years, City Council authorized significant investments to modernize the City’s antiquated technology across various departments, including the current ERP system -Sungard (20+ years old). The Finance Department is tasked to implement the ERP system in three phases, a multi-year process with coordination across all departments. Phase 1 (Finance) went live in October of 2021, Phase 2 (Human Capital Management and Payroll) is scheduled to go live this summer, and Phase 3 (Utility Billing) is scheduled to go live this fall. Although this is an internal process enhancement and not visible to the public, the project is a significant undertaking by the staff as the implementation occurs in addition to performing their regular tasks. As a result, the City expects to automate tasks, eliminate manual and paper-based processes, and make more services for the public available online.

The ARPA included direct allocation of funds to state and local governments to compensate for lost revenues and to help stabilize the budgets. Gilroy is slated to receive $10.9 million. The City Council authorized use of these funds for pavement rehabilitation, for ending the previously instituted employee furlough, to restore deleted positions, and to address homelessness and housing challenges. The much-needed funding has indeed helped to stabilize the City’s budget while the local economy continues its recovery from the pandemic induced recession.

Rising pension costs are one of the most pressing financial issues facing California public agencies today, including the City of Gilroy. The Unfunded Accrued Liability (UAL) represents the Actuarial Liability minus Actuarial Value of Assets or “how much we currently have vs. how much we should have.” Since 2014, the City’s UAL for pension has grown from $58.5 million to $99 million. As such, the City Council included in its strategic plan to analyze the reduction of unfunded pension liabilities by refinancing the pension obligations at lower interest rates via pension obligation bonds. In January 2022, the Council granted initial authorization to proceed with the issuance of pension obligation bonds and the related judicial validation process. The use of Pension Obligation Bonds has several objectives:

Preliminary analysis projects that refinancing our total current pension obligations can provide an average annual savings of $1.7 million to $2.3 million. However, these savings are subject to reinvestment risks. Ultimately the actual savings will depend on two factors: 1) actual interest rates at the time of pricing/issuing the bonds; and 2) future CalPERS returns, which is an unknown at the time of bond issuance. The City Council will decide at a public hearing on a future agenda whether or not to actually refinance, taking into account the risks. The general rule of thumb is that the City will be better off if CalPERS earns above the POB interest rate (3.00-3.50%) over the term of the debt. While past performance doesn’t guarantee future results, CalPERS historical returns are 6.9% on average over the last 20 years and 8.4% over the last 30 years. Assessing and mitigating reinvestment risk will be a key objective as the City evaluates and refines the bond structuring options.