Item No. 1
Town of Atherton
CITY COUNCIL STAFF REPORT – STUDY SESSION
TO: HONORABLE MAYOR AND CITY COUNCIL
GEORGE RODERICKS, CITY MANAGER
FROM: ROBERT BARRON III, ASSISTANT CITY MANAGER/FINANCE
DIRECTOR
DATE: FEBRUARY 4, 2026
SUBJECT: RECEIVE AND FILE THE MID-YEAR BUDGET REPORT FOR FY 2025/26
RECOMMENDATION
Receive and file the Mid-Year Budget Review for the General Fund for FY 2025/26.
BACKGROUND
The FY 2025/26 Mid-Year Budget Report provides the Council with an overview of the Town’s fiscal condition at the midpoint of the Fiscal Year. The Report presents a high-level summary of the current-year expenditures, projected year-end results, and identifies notable issues that may affect the upcoming budget cycle. Any recommended adjustments will be incorporated into a Mid-Year Budget Adjustment Resolution to be considered by the Council at the February Regular Meeting.
At mid-year, total FY 2025/26 revenues are projected at $27.72m, representing an increase of $515,774 over the $27.2m in the Adopted Budget. This increase is primarily attributable to higherthan-anticipated ERAF revenues, charges for services, and other miscellaneous revenues.
Projected expenditures for FY 2025/26 total $22.74m, an increase of $322,500. Following adoption of the original $22.13m budget, the Council added several additional appropriations, including $2,000 for a Senior Task force mailing, acceptance of $240k in donations for the Police Department health wellness program and perishable skills training, and $50,000 for audio-visual upgrades at the Pavilion in Holbrook Palmer Park, bringing the adjusted base to approximately $22.4m. The additional $322,500 increase reflected in the mid-year projection is primarily associated with one-time operational and maintenance needs.
Overall, the Mid-Year Budget Report reflects a net positive fiscal position, with projected revenues exceeding expenditures by $193,274. Based on current projections, the Town is expected to close the fiscal year with a Year-End Fund balance of $10.52m, inclusive of reserves.
FY 2025/26 Mid-Year Budget Staff Report
February 4, 2026
FINDINGS | ANALYSIS
FY 2025/2026 Mid-Year Revenue Summary
FY 2025/2026
Adopted Budget
FY 2025/2026
Year End Estimate
FY2025/26 YearEnd Variance% Change
Revenues
Property Taxes $17,384,500 $16,965,500 ($419,000) (2.4%) ERAF $2,500,000 $3,058,034 $558,034 22%
Sales Taxes $529,000 $529,000 $0 0%
Franchise Fees $943,000 $943,000 $0 0%
Intergovernmental $47,900 $52,980 $5,080 10.6%
Business License $298,000 $298,000 $0 0%
Planning $520,300 $560,300 $40,000 7.6%
Building $2,437,400 $2,647,400 $210,000 8.6%
Police $540,450 $545,450 $5,000 .9%
DPW $882,500 $882,956 $456 .05%
Park Program $79,700 $87,700 $8,000 10%
Miscellaneous $1,049,516 $1,157,720 $108,204 10.3%
Total Revenue $27,212,266 $27,728,040 $515,774 1.89%
As shown in the preceding table, the FY 2025/26 Adopted Budget projected total property tax revenues of $17,384,500. Updated estimates now project total property tax revenues of $16,965,500, reflecting a decrease of $419,000. This variance is primarily attributable to lowerthan-anticipated Property Tax in Lieu of Vehicle License Fee (VLF) revenues.
VLF in Lieu revenues continue to be closely monitored due to recurring shortfalls in State payments. For FY 2025/26, staff now anticipates a reduction of approximately $524,000 in VLFrelated revenues. The Adopted Budget assumed receipt of State backfill payments to address projected shortfalls for both FY 2023/24 and FY 2024/25. However, the State’s FY 2025/26 budget provided funding for only two-thirds of the remaining FY 2023/24 shortfall.
The Town’s total VLF shortfall for FY 2023/24 was $704,567, of which $471,909 was received in August 2025. This leaves an outstanding balance of $232,658. The FY 2025/26 Adopted Budget includes $1,836,000 in VLF in Lieu revenue, consisting of a $424,698 backfill for the remaining FY 2023/24 shortfall and $740,511 related to the FY 2024/25 shortfall and partial FY 2025/26 VLF revenues.
Based on the FY 2025/26 update provided by San Mateo County, the Town continues to experience a cumulative Vehicle License Fee (VLF) shortfall totaling $973,168. This amount consists of a $232,658 shortfall from FY 2023/24 and a $740,511 shortfall from FY 2024/25.
FY 2025/26 Mid-Year Budget Staff Report
February 4, 2026
In addition, the Town anticipates a further shortfall in FY 2025/26 VLF revenues. To date, the Town has received $422,436 in December and anticipates receiving an additional $422,436 in April 2026, for a total of $844,872. This amount represents approximately one-half of the estimated FY 2025/26 VLF allocation.
A summary of the Town’s current and outstanding VLF shortfalls is provided below.
VLF in Lieu Projected/Amount
Due
Received/due to
receive
Shortfall that is
Due
FY 2023/24 $1,651,448 $1,418,790 $232,658
FY 2024/25 $1,758,734 $1,018,223 $740,511
FY 2025/26 $1,819,000 $844,872 $974,128
Total $5,229,182 $3,281,885 $1,947,297
Vehicle License Fee (VLF) in Lieu revenues are funded through Educational Revenue Augmentation Fund (ERAF) resources and property taxes from non-basic aid school districts. In FY 2024/25, the number of non-basic aid school districts declined to five, reducing the overall pool of property tax revenues available to fund VLF in Lieu payments and increasing the reimbursement amounts owed to cities and counties.
For FY 2025/26, the Town’s ERAF revenue is projected at $3,058,034, representing an increase of $558,034 over the budgeted amount of $2,500,000. In FY 2024/25, the Town received $2,771,578 in ERAF revenue. The FY 2025/26 projection reflects an increase of approximately $286,000 over the prior year.
Consistent with past practice, the Town treats ERAF revenue as one-time funding and applies it toward long-term debt reduction and capital improvement projects. The Council reviews ERAF allocations annually. As part of the FY 2026/27 budget development process, staff may recommend increasing the ongoing ERAF revenue assumption to approximately $2.7 million.
At mid-year, Planning Department revenues are projected to increase by approximately $40,000.
Building Department revenues reflect a more significant increase of $210,000, bringing total projected Building revenues to approximately $2.6 million. This increase is supported by a modest uptick in construction permit applications.
Police Department revenues are projected to increase slightly by approximately $5,000. Parks Program revenues are also projected to increase due to a modest rise in park and facility rental reservations. In addition, staff anticipates the onboarding of a Park Event Management contractor in spring 2026, which may further support future program revenues.
Miscellaneous revenues are projected to increase by $108,000 at mid-year. This increase is attributable to Heritage Tree damage fees and insurance settlement proceeds. These revenues are considered one-time in nature.
All other Town revenue categories remain consistent with the Adopted Budget projections.
FY 2025/26 Mid-Year Budget Staff Report
February 4, 2026
FY 2025/2026 Mid-Year Expenditure Summary
FY 2025/2026
Adopted Budget
FY 2025/2026 Year
End Estimate
FY2025/26 YearEnd Variance% Change
Expenditures
City Council $59,200 $76,200 $17,000 28%
Administration $1,496,288 $1,496,288 $0 0%
City Attorney $310,000 $310,000 $0 0%
Finance $944,442 $944,442 $0 0%
Planning $1,257,350 $1,257,350 $0 0%
Building $1,811,371 $2,054,371 $243,000 13%
Interdepartmental $1,215,162 $1,215,162 $0 0%
Police $11,379,509 $11,379,509 $0 0%
Public Works $3,952,933 $4,015,433 $62,500 1.5%
Total $22,426,255 $22,748,755 $322,500 1.4%
Several adjustments to the FY 2025/26 Operating Budget are required at mid-year. Collectively, these adjustments total $322,500.
Within the Administration Department, computer equipment and system backup upgrades were implemented to improve operational resiliency and meeting functionality. A budget amendment is required to fund an uninterruptible power supply (UPS) back up upgrade for the City Council Chambers and the purchase of a NEAT Board to support City Council Study Sessions and Town Committee meetings. The NEAT Board enhances presentation capabilities and improves video and microphone functionality for hybrid meetings. These upgrades require an additional appropriation of $17,000.
The Building & Life Safety contract is structured as a revenue-based agreement, with contractual costs increasing as building revenues increase. At its January meeting, the City Council approved a contract amendment extending the Interwest/Safebuilt agreement and increasing the compensation rate to 65 percent of building fees collected by the Town. Due to an increase in building revenues and the revised compensation structure, an additional expenditure appropriation of $243,000 is required. Under the prior contract terms, the comparable budget amendment would have totaled approximately $334,070 (inclusive of the additional fee waiver application work).
Under the amended agreement, the required adjustment is $242,386.
The Town maintains Holbrook Palmer Park, its sole recreational park, which requires ongoing landscape and mature tree maintenance. The Public Works Department is currently evaluating the removal of eucalyptus trees in a specific area of the park following incidents in which falling branches damaged the roof of the Corporation Yard building. The associated tree removal and maintenance require an additional appropriation of $50,000 in the contract tree maintenance account. In addition, a NEAT Board was purchased for the Pavilion at Holbrook Palmer Park to FY 2025/26 Mid-Year Budget Staff Report
February 4, 2026
support the increasing number of meetings and private events hosted at the facility. Similar to the NEAT Board installed in the City Council Chambers, this equipment improves audio and video capabilities for hybrid meetings and will be incorporated into the larger audio-visual improvements in the Pavilion. This purchase requires an additional appropriation of $12,500.
Combined, the Holbrook Palmer Park-related adjustments total $62,500.
No other operating budget adjustments are proposed for FY 2025/26. The table below summarizes the resulting Budget Fund Balance projections.
FY 2025/2026
Adopted Budget
FY 2025/2026
Year End Estimate
FY2025/26 YearEnd Variance
Excess (Deficiency) Revenues
over Expenditures
$4,786,011 $4,979,285
Transfers out:
COP Debt Service ($861,871) ($861,871)
CIP Future Projects ($5,555,000) ($5,555,000)
Net Change Fund Balance ($1,630,860) ($1,437,586) $193,274 Beginning Fund Balance $11,950,138 $11,950,138
FY 2025/26 Estimate Ending
Fund Balance
$10,319,278 $10,512,552
FY 2025/26 Projected Year End Balance $10,512,552
15% Emergency Reserve Requirement ($3,412,313)
15% Contingency Reserve Requirement ($3,412,313)
FY 2025/26 Projected Unallocated Fund Balance $3,687,926 The FY 2025/26 beginning total Fund Balance was $11,950,138, inclusive of all mandatory reserves. At the conclusion of FY 2025/26, after accounting for transfers for debt service, the departmental budget adjustments described above, and transfers to fund future capital improvement projects, the projected Year-End Fund Balance is $10,512,552, inclusive of all mandatory reserves.
POLICY CONSIDERATIONS
The Mid-Year Budget Report provides an opportunity to make operational adjustments and course corrections in response to unanticipated changes and to align resources with the goals and priorities of the City Council. If the Council wishes to advance additional projects or priorities at mid-year, this process provides the appropriate mechanism to do so. The Mid-Year Budget Report reflects all budget changes to date for the fiscal year. Staff will return to the Council at the February Regular Meeting with a Budget Amendment Resolution incorporating the adjustments outlined above.
FY 2025/26 Mid-Year Budget Staff Report
February 4, 2026
FISCAL IMPACT
Discussed above, the overall fiscal impact on the General Fund due to Mid-Year adjustments is a General Fund Net expenditure increase of $322,500 (1.4%) against a General Fund (plus ERAF) revenue increase of $515,774 (1.8%).
GOAL ALIGNMENT
Goal A- Maintain Fiscal Responsibility
PUBLIC NOTICE
Public notification was achieved by posting the agenda, with this agenda item being listed, at least 72 hours prior to the meeting in print and electronically. Information about the project is also disseminated via the Town’s electronic News Flash and Atherton Online. There are approximately 1,200 subscribers to the Town’s electronic News Flash publications. Subscribers include residents as well as stakeholders – to include, but be not limited to, media outlets, school districts, Menlo Park Fire District, service provides (water, power, and sewer), and regional elected officials.
ATTACHMENTS
None.