Capitola City Council
May 6, 2026

REVISED 5/4/2026 AT 12:00 PM
City of Capitola
Special City Council Meeting - Budget
Agenda
Wednesday, May 06, 2026 – 6:00 PM
City Council Chambers
420 Capitola Avenue, Capitola, CA 95010
Mayor: Margaux Morgan
Vice Mayor: Gerry Jensen
Council Members: Joe Clarke, Melinda Orbach, Susan Westman Special Meeting of the Capitola City Council – 6 PM

1. Roll Call and Pledge of Allegiance
Council Members Joe Clarke, Melinda Orbach, Susan Westman, Vice Mayor Gerry Jensen, and Mayor Margaux Morgan

2. Additions and Deletions to the Agenda

3. Additional Materials
Additional information related to an agenda item on this agenda and submitted to the City after distribution of the agenda packet pursuant to Government Code §54957.5. All correspondence received prior to 5:00 p.m. on the Tuesday preceding a Council Meeting will be distributed to Councilmembers to review prior to the meeting. Information submitted after 5 p.m. on that Tuesday may not have time to reach Councilmembers, nor be read by them prior to consideration of an item.

A. Item 5A - Staff Memorandum with Updated Attachment

4. Oral Communications by Members of the Public
Oral Communications allows time for members of the Public to address the City Council on any topic within the jurisdiction of the City that is not on the “General Government/Public Hearings” section of the Agenda. Members of the public may speak for up to three minutes, unless otherwise specified by the Mayor. Individuals may not speak more than once during Oral Communications. All speakers must address the entire legislative body and will not be permitted to engage in dialogue. A maximum of 30 minutes is set aside for Oral Communications.

5. General Government / Public Hearings
All items listed in “General Government / Public Hearings” are intended to provide an opportunity for public discussion of each item listed. The following procedure pertains to each General Government item: 1) Staff explanation; 2) Council questions; 3) Public comment; 4) Council deliberation; 5) Decision.

A. Presentation of the Proposed Fiscal Year 2026-27 Budget Recommended Action: Receive the proposed budget, provide staff direction, and continue budget deliberations to the next budget hearing scheduled for May 21, 2026. 1 Special City Council Meeting - Budget Agenda – May 06, 2026 City of Capitola Page 2

6. Adjournment
The next regularly scheduled City Council meeting is on May 14, 2026, at 6:00 PM. _____________________________________________________
How to View the Meeting
Meetings are open to the public for in-person attendance at the Capitola City Council Chambers located at 420 Capitola Avenue, Capitola, California, 95010.

Other ways to Watch:

Spectrum Cable Television channel 8
City of Capitola, California YouTube Channel
How to Provide Comments to the City Council
Members of the public may provide public comments to the City Council in-person during the meeting.

If you are unable to attend in-person, please email your comments to [email protected] and they will be included as a part of the record for the meeting.

Notice regarding City Council: The City Council regularly meets on the 2nd and 4th Thursday of each month at 6:00 p.m. in the City Hall Council Chambers located at 420 Capitola Avenue, Capitola.

Agenda and Agenda Packet Materials: The City Council Agenda and the complete Agenda Packet are available for review on the City’s website and at Capitola City Hall prior to the meeting. Need more information? Contact the City Clerk’s office at 831-475-7300.

Agenda Materials Distributed after Distribution of the Agenda Packet: Pursuant to Government Code §54957.5, materials related to an agenda item submitted after distribution of the agenda packet are available for public inspection at the Reception Office at City Hall, 420 Capitola Avenue, Capitola, California, during normal business hours.

Americans with Disabilities Act: Disability-related aids or services are available to enable persons with a disability to participate in this meeting consistent with the Federal Americans with Disabilities Act of 1990. Assisted listening devices are available for individuals with hearing impairments at the meeting in the City Council Chambers. Should you require special accommodations to participate in the meeting due to a disability, please contact the City Clerk’s office at least 24 hours in advance of the meeting at 831-475-7300. In an effort to accommodate individuals with environmental sensitivities, attendees are requested to refrain from wearing perfumes and other scented products.

Si desea asistir a esta reunión pública y necesita ayuda - como un intérprete de lenguaje de señas americano, español u otro equipo especial - favor de llamar al Departamento de la Secretaría de la Ciudad al 831-475-7300 al menos tres días antes para que podamos coordinar dicha asistencia especial o envié un correo electrónico a [email protected].

Televised Meetings: City Council meetings are cablecast “Live” on Charter Communications Cable TV Channel 8 and are recorded to be rebroadcasted at 8:00 a.m. on the Wednesday following the meetings and at 1:00 p.m. on Saturday following the first rebroadcast on Community Television of Santa Cruz County (Charter Channel 71 and Comcast Channel 25). Meetings are streamed “Live” on the City’s website by clicking on the Home Page link “Meeting Agendas/Videos.” Archived meetings can be viewed from the website at any time. 2 Memo
To: Julia Gautho, City Clerk
From: Jim Malberg, Administrative Services Director
Date: May 4, 2026
Re: Proposed Fiscal Year 2026-27 Budget – Additional Materials Good morning,
Please see the attached Proposed FY 2026-27 Budget with updates. Some updates were inadvertently missed in the proposed budget distributed on Friday May 1st. All updates that have been made to the Proposed Budget, distributed April 17th, include:

1. Page 5: Cliff Drive Resiliency Project – corrected project area description.

2. Pages 14 & 15: Capital Improvement Fund – corrected actuals for prior fiscal years and budget and estimated amounts for FY 2025-26; removed amounts from FY 2026-27 and FY 2027-28, pending City Council direction on May 21st.

3. Pages 43 & 44: updated amounts for Community Grant program. 3 Item 3 A.

PROPOSED BUDGET
FISCAL YEAR 2026-27

CITY OF CAPITOLA
Capitola, California
Revised May 4, 2026
4 Item 3 A.

CITY COUNCIL
Margaux Morgan, Mayor
Gerry Jensen, Vice Mayor
Joe Clarke
Melinda Orbach
Susan Westman
Jamie Goldstein, City Manager
Sarah Ryan, Chief of Police
Jessica Kahn, Public Works Director
Jim Malberg, Administrative Services Director / Treasurer Katie Herlihy, Community & Economic Development Director Nikki Bryant, Community Services & Recreation Director
Chloe Woodmansee, Assistant to the City Manager
Julia Gautho, City Clerk
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California Society of Municipal
Finance Officers
Certificate of Award
Operating Budget Excellence Award
Fiscal Year 2025-2026
Presented to the
City of Capitola
For meeting the criteria established to achieve a CSMFO Award in Budgeting.

February 5, 2026
Jennifer Wakeman James Russell-Field, Chair 2025 CSMFO President Recognition Committee Dedicated to Excellence in Municipal Financial Reporting 7 Item 3 A.

TABLE OF CONTENTS
Mission Statement ............................................................................................................. 1 City Manager’s Budget Message ..................................................................................... .3 Summary Information ……………………………………………… ............................ …….10 General Fund Revenues ................................................................................................. 21 General Fund Expenditures…………… .......................................................................... 30 Department Overview ................................................................................................... 47 City Council ......................................................................................................... 48 City Attorney ........................................................................................................ 49 City Manager ....................................................................................................... 50 Administrative Services……………………………………………………………….52
Police……………………………………………………………………………………55
Public Works…………………………………………………………………………...60
Community & Economic Development .................. ………………………………...67 Community Services and Recreation ............................... ………………………...69 Capitola Museum ................................................................................................. 71 Internal Service Funds .................................................................................................. 72 Stores Fund ......................................................................................................... 74 Information Technology Fund .............................................................................. 75 Equipment Replacement Fund ........................................................................... 76 Self-Insurance Liability Fund ............................................................................... 77 Workers’ Compensation Fund ............................................................................. 78 Compensated Absences Fund ............................................................................ 79 Special Revenue Funds ................................................................................................ 80 Supplemental Law Enforcement Services ........................................................... 83 Restricted Transient Occupancy Tax (TOT) ........................................................ 84 Road Maintenance & Rehabilitation Act (SB1). ................................................... 85 RTC Streets.………………………………………………………………… .............. 86 Gas Tax……………………………………….………………………… ............. . ….87
Wharf ………. ...................................................................................................... 88 General Plan Update and Maintenance .............................................................. 89 Green Building Education ................................................................................... 90 Public Art ............................................................................................................. 91 Parking Reserve … ............................................................................................ .92 Technology Fee .................................................................................................. 93 Public Education & Government Cable TV Access ............................................. 94 Capitola Village & Wharf BIA .............................................................................. 95 Community Development Block Grants (CDBG) ................................................ 96 CDBG Program Income. ...................................................................................... 97 Library………….……………………………………………… ................................. 98 HOME Program Reuse ...................................................................................... 99 Housing Trust ................................................................................................... 100 Permanent Local Housing Allocation (PLHA) .................................................... 101 Capitola Housing Successor ............................................................................. 102

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Reserves……. .............................................................................................................. 103 Emergency Reserves ........................................................................................ 105 Contingency Reserves ...................................................................................... 106 PERS Contingency Reserves ............................................................................ 107 Facility Reserves ............................................................................................... 108 Multi-Year Assets & Obligations ................................................................................ 109 City and Joint Powers Authority ......................................................................... 112 Pacific Cove Lease Financing ........................................................................... 113 Beach and Village Lot II Lease Financing ......................................................... 115 9 Item 3 A.

Mission and Values
Mission - Why we’re here
We are a vibrant coastal community committed to delivering dependable, accessible services that foster connection and belonging through participatory governance.

Vision - Where we’re going
The City of Capitola is a thriving, family-friendly community that prioritizes resident needs while fostering a healthy balance between sustainable tourism, economic growth, and coastal environment and lifestyle.

Values – The Capitola Way
 Collaborative Engagement
 Dynamic Innovation
 Fiscal Sustainability
 Resilient Community
 Respectful Service
 Responsible Growth
Strategic Priorities:

1. Accountable Government

2. Attainable Housing

3. Community Safety

4. Economic Opportunity

5. Healthy Families, Community, and Environment

6. Sustainable Infrastructure
Approved March 2025
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TO: City Council
FROM: City Manager
SUBJECT: FY 2026-27 Proposed and FY 2027-28 Planned Budget.

CITY MANAGER’S MESSAGE - STATE OF THE CITY
On behalf of City staff, I am pleased to submit the proposed budget for Fiscal Year (FY) 2026-27.

Staff was tasked with developing a budget that continues to deliver the high-quality of services the community is accustomed to while also allocating available resources to City Council goals and strategic priorities. The result is a balanced budget, however the projected ending General Fund balance of $125,445 is well below the typical minimum target general fund balance of $500,000.

The fund balance in the General Fund is projected to remain positive for the next fiscal year, however, based on known increases related to CalPERS pension costs and current assumptions regarding inflation, the General Fund will become structurally imbalanced in FY 2028-29. With overwhelming voter approval, Measure Y became a new revenue stream in early 2025. That revenue is critical in the proposed FY 2026-27 budget to avoid deep service level cuts. Without the Measure Y revenue, the City would have likely had to reduce staffing by approximately 6% this fiscal year, eliminate all discretionary contracts and eliminate funding for nonprofit service providers. More significant cuts would likely have been necessary in 2027, which the expiration of Measure F.

The budget provides resources to maintain a high level of service for Capitola residents this coming fiscal year. Nevertheless, the City must also remain focused on the long-term budget picture, which not only includes a great deal of uncertainty around general fund revenues but must continue to address increasing pension costs. The erratic revenue data, uncertain economic stability at the national level, and projected rising pension costs will likely result in very challenging budgetary decisions for several years. In the coming fiscal year, staff will continue to closely monitor general fund revenues, paying extra attention to sales and transient occupancy tax performance, and continue to report to the City Council on a regular basis. Additionally, staff will develop options for Council consideration to balance the near- and longer-term budgets as well as focus on the long-term structural budget issues.

Storm damages from 2023 and 2024 were categorized into fifteen projects of which FEMA and Cal OES have approved fourteen for reimbursement totaling $291,918 with the City is responsible for matching funds of $8,360. To date, we have received $291,918 with $962,069 still outstanding for wharf repairs.

Staff recommends the City hold off on allocating any additional FEMA/Cal OES reimbursement until those funds are received. One potential use for these funds is to replenish reserve funding used to respond to the recent series of emergency events. 3 12
Item 3 A.

The Capitola Mall remains a major funding source for the City, however long-term national and local trends have put significant pressure on existing brick-and-mortar retailers to remain competitive with internet options. The Mall was purchased in 2016 by Merlone Geier Partners, which also acquired the old Sears building in 2018. In FY 2019-20 the new owners initiated a public process, including a public meeting and regional survey of residents to begin evaluating options to redevelop the Mall.

City staff remains actively engaged with Mall ownership to help them navigate the development review processes, however, the pandemic put the project on pause. Obviously, the long-term fiscal health of the City is closely related to a successful Mall that meets the community’s needs.

As the outcome of any potential Mall redevelopment is unknown at this time, the site remains a major opportunity, and challenge, as the City evaluates its long-term fiscal position.

In 2016 voters passed Measure F to extend a temporary quarter percent local sales tax for an additional 10 years. The primary purpose of Measure F was to utilize the funding to protect City infrastructure from storms and rising sea levels. The City completed Measure projects , including rebuilding the wharf, flume and jetty earlier than anticipated. In response to early project completion, the City put Measure Y on the ballot in 2024 to repeal Measure F and replace it with a new half percent local sales tax for 10 years. Voters passed Measure Y with 67% approval. The City implemented salary adjustments for most of city staff in January as a result of this tax measure passing to maintain competitive salary ranges.

BUDGETARY GOALS AND PRINCIPLES
The FY 2026-27 General Fund budget was developed with an emphasis on financial stability and maintaining core programs and services for Capitola residents and visitors. As a first step in developing the Budget, the City Council had adopted the 2025-2029 Strategic Plan in the previous year. Budget highlights and proposed changes are presented in consideration of the six priorities included in the plan:
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Item 3 A.

OTHER BUGETARY HIGHLIGHTS AND PROPOSED CHANGES
While the budget was largely prepared to maintain core services and keep expenditures at the lowest level possible.
41st Avenue Pavement Rehabilitation and Multimodal Improvements This project rehabilitates pavement and implements multimodal safety improvements along 41st Avenue, a key regional corridor serving residential neighborhoods, commercial areas, and access to State Route 1. The project includes pavement rehabilitation along 41st Avenue, bicycle and pedestrian safety improvements, curb ramp upgrades, and updated pavement striping and signage
Stockton Avenue Bridge
The Stockton Avenue Bridge is a critical connection within Capitola and serves as a primary access route to Capitola Village and the surrounding coastal areas. On August 24, 2023, the City Council accepted $500,000 in grant funding from the California Department of Water Resources for the Stockton Bridge Debris Mitigation Project. The adopted FY 2022–23 budget also allocated $350,000 for the initial phase of the project, bringing total available funding to approximately $850,000.

Cliff Drive Resiliency Project
In January 2023, major storm events caused significant erosion along the bluff southwest of Hooper Beach, undermining a retaining wall originally installed in the mid-1990s. Following this damage, the City received approval from Caltrans and the Federal Highway Administration (FHWA) to pursue permanent improvements through the Emergency Relief (ER) program. The Cliff Drive Resiliency Project aims to stabilize the roadway and protect the critical infrastructure it contains, while also improving public access and pedestrian safety along this important coastal segment in Capitola. The project area extends along cliff drive from the parking area where Portola Drive becomes Cliff Drive to the staircase leading to the beach near the base of the Capitola Wharf—an arterial roadway serving residents, utility infrastructure, and coastal visitors.

Esplanade Park
The project, currently in the design phase following an award of $275,000 from the State Coastal Conservancy, will evaluate sea level rise, coastal flooding, and storm impacts at Esplanade Park and develop conceptual design alternatives to improve long-term resilience and maintain public coastal access.

Monterey Park
The FY 2025-26 provided initial seed money to begin conceptual planning for a small play structure at Monterey Park. Staff plans to begin initial neighbor outreach in Spring.

Countywide Radio Project
FY 202-2 Budget proposes using general fund and restricted SLEF funding to fund the City’s portion of the major countywide public safety radio upgrade project known as RING. The project will facilitate high-quality radio frequency across Santa Cruz County and increase interagency law enforcement collaboration. The project includes significant new radio infrastructure in the City, 5 14
Item 3 A.
compliant with new DOJ standards. The County, which is leading this effort, plans to enter into a contract with all the public safety organizations in the County and a vendor this fall. While final costs to the City have not yet been established, staff anticipates the cost will be roughly $45,000 a year for the next 10-years.

Measure S
Measure S is a special tax on all developed property within the Santa Cruz Public Libraries District boundary (all of Santa Cruz County except the City of Watsonville); it was approved by voters in 2016 for a 30-year period. Tax funds are restricted to repair, upgrade, and modernize the local library facilities. The Santa Cruz Libraries Financing Authority Community Facilities District was formed for the purpose of levying the special tax to each of the four members: Cities of Capitola, Santa Cruz, and Scotts Valley and the County of Santa Cruz.

The City of Capitola completed the $16.5 million Capitola Branch library in 2022 using $10,476,529 in Measure S funding, funds from the County Library Fund, former Redevelopment Agency Funds, and $856,000 in City general fund.

Recent projections indicate that Measure S will generate more revenue than initially anticipated, with the City expected to receive approximately $165,000 annually for eligible library expenditures. The FY 2026–27 Budget proposes allocating this amount to the General Fund to continue repaying the $856,000 previously advanced for the construction of the Capitola Library.

General Fund Balance
The general fund balance is estimated to end FY 2025-26 below the minimum target of $500,000.

Additionally, both the Contingency and Emergency reserves are currently below their target balance amounts pending reimbursements from FEMA and Cal OES. The FY 2026-27 Proposed Budget currently does not return the general fund to the $500,000 target balance, staff will be updating year end estimates once the Jan. – Mar. sales tax is received at the end of May.

Current revenue and expenditure projections show revenues not keeping pace with expenditures, requiring usage of Measure Y revenues to structurally balance the budget in the 5-year forecast.

Staff will continue to closely monitor revenues, expenditures, and fund balance throughout FY 2026-27 and will report to the Council during the mid-year budget report.

PRIOR YEAR ACCOMPLISHMENTS
In FY 2025-26 the City completed several significant projects, which provided residents and visitors with increased recreational and public art opportunities, while continuing to strengthen public safety and community development activities. Some of the City’s accomplishments include:
 Redesigned the City’s website to enhance user experience, improve accessibility, and modernize digital engagement.
 Completed the Community Center Renovation project.
 Completed the Treasure Cove Playground project.
 Completed Jade Street Park restroom renovation
 Completed the Rispin Park project.
 Completed the FY24/25 Pavement Management Program
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Item 3 A.
 Updated and amended zoning code and general plan to facilitate housing production on the Capitola Mall Site.
 Completed Housing Element-required rezones of multi residential sites in the City  Worked with Kings Plaza property owners to bring Tesla dealership to Capitola  Implemented a system that allows the public to pay for business licenses and other city services such as permits through online.
 Received more than $1,200,000 in grant funding for key projects such as Esplanade Park redesign, traffic and sidewalk improvements and key public safety efforts.  Bid and awarded the 41st Avenue Pavement Rehabilitation and Multimodal Improvements project contract, construction begins summer 2026.

Goal Setting
On March 26, City Council received a presentation regarding ongoing projects and future potential projects, programs and goals, and identified potential new goals. At that meeting, the following ongoing CIP projects were identified by staff.

Project Current Phase Status / Key Milestone
Stockton Bridge
Rehabilitation
Assessment / Design Structural evaluation underway; results expected Spring 2026.

Community Center
Complex
Construction Construction underway; opening
scheduled for Summer 2026.

Cliff Drive Planning / Engineering Technical studies underway; advancing toward environmental clearance and
funding for construction phases.

Park at Rispin
Mansion: Landscaping
and Additional
Elements
Implementation Park open; funding needed for additional landscaping; community fundraiser
identified for additional elements (MOU in
April). Measure Q grant for restoration and
interpretive signs submitted.
41st Avenue Pavement
Rehabilitation and
Multimodal
Improvements
Construction Bids
Received
Council contract approved
Pavement
Management
Ongoing Program Annual street resurfacing and pavement
preservation program (FY 2025-26: 41st
Avenue Rehab & Multimodal; FY 2026-27:
residential street project)
Esplanade Park
Design
Concept Planning /
Design
$275,000 Coastal Conservancy grant
award. RFP for design team issued.

Grand Avenue
Pathway (Depot Hill)
Feasibility / Alignment
Study
4/9: Council action: funding could be
considered during Budget process
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Bay Avenue Corridor
Improvements
Design Development Corridor study and design underway with RTC funding. Council review of draft
design scheduled in April.

Five-Year Capital
Improvement Program
Program Development Draft FY 2026-31 CIP anticipated for Council review in Spring 2026.

Capitola Wharf Master
Plan
Project Planning Design presentation scheduled for Council review in April.

Climate Action Plan
Update
Project Planning Update underway; completion anticipated within ~6 months.

Active Transportation
Plan (ATP)
Project Planning Planning and community outreach to begin May 2026.

The following projects and programs were proposed by staff at the City Council Goal setting meeting.

Department Draft Goals
City Manager Election: three Council seats
Employee contract negotiations
Beach Lifeguard Service Organizational Study
Police Anti Human Trafficking Ordinance
Countywide records management system rollout
Continued funding for: Drone Program, RING, Body
Worn Cameras
Community & Economic Development Continue working with Mall, Village hotel owners and other economic development opportunities.

Ordinance updates: Community Benefits, ADUs,
Bicycle Parking, Hotel Incentives
Review Outdoor Dinning Program
Development impact fees - 41st Avenue
Housing Element Implementation: Down payment
assistance program, update nexus study for rental
housing.

Community Services & Recreation Update Community Center rental package Explore and develop new opportunities related to
renovated facilities
Administrative Services Improve fiscal transparency
Transition to paperless HR Division
Return TOT administration to internal staff
Also during the goal setting session City Council identified the following potential new goals for next fiscal year. The table below notes if a majority of the members mentioned the item at the meeting as a goal, and if the item would require funding or just staff time. 8 17
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Funding
Required
Goal Majority of
Council
Notes
Yes Evaluation opportunity to use
Trestle
✔
Yes Seek funding for sidewalk infill
Projects
$125k funding from RTC
obtained in FY 25/26
Yes Examine if bike-detection
technology can help with bike
safety

No Look at rent control costs/risks
No Report back on Economic
Development opportunities

No Options to manage PERS costs
No Review options for revenue-neutral
programs in

No Ensure CS&R balance of programs
for youth and seniors

No Community engagement (fun facts)
Yes Ebike safety plan Program initiated 2026
No Parking rate evaluation Rates last updated in 2024
Yes Village clean up & new trashcans
No Work with community groups to
help fund projects

No Tree maintenance near street lights
Yes Funds to match private donation at
Rispin Park

Yes Improved bike facilities on
38th Avenue

No Present info about GF spend by
geographic area

No Study Citywide vacation rental zone
revenue

Yes Additional sidewalk cleaning when
weather is nice, off season

CONCLUSION
The development of the annual budget takes a great amount of staff time and effort and must be completed in a compressed timeline. I sincerely appreciate all the department directors and departmental budget liaisons for their contributions. Special recognition is extended to the Finance Department for its efforts in coordinating the budget process and preparing the annual budget document.

As the new fiscal year approaches, I wish to express my thanks and appreciation to the Mayor, and members of the City Council for their leadership and support in planning and conducting the financial operations of the City in a responsible and progressive manner. I know that with continued citizen participation, City Council leadership, and ongoing efforts of dedicated employees, Capitola will continue to be a great place to live, work, and enjoy. 9 18
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SUMMARY INFORMATION
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Budget Process Overview
Each year the City of Capitola prepares an Operating Budget, a Successor Agency Budget, and a fiveyear Capital Improvement Program (CIP) budget. The Operating Budget contains the summary and detail information for revenue and expenditure appropriations for the fiscal year (beginning July 1st and ending June 30th) for several funds as well as a projection for the second fiscal year. The information from the CIP is incorporated, in summary form, in the City’s annual budget. The Successor Agency budget is included in its entirety in the City’s annual budget.

Capitola municipal code (3.200.010 E.) defines a balanced budget as one in which “financing uses including expenditures, inter-fund transfers out, reserves and contingencies should equal financing sources including beginning available fund balance, revenues and inter-fund transfers in.” A key concept in the developmental process for the General Fund Budget revolves around City fiscal policy that current year expenditures are balanced with current year revenue.

The City’s budget process continues throughout the year, with quarterly financial updates published on the Finance Department website and at weekly department head meetings with the City Manager. An outline of the on-going budget process is listed below:

Month Responsibility Budget Function
December Finance Budget Cycle Begins
Finance Finance prepares mid-year calculations
January City Manager / Departments Review accomplishments related to prior year Budget Principles Finance / Departments Provides year-end estimates
Finance Publishes quarterly reports for October - December Finance / City Manager Presents mid-year report to Council and FAC February City Council Establishes Budget Principles
Finance Projects non-departmental revenues and position costs Departments Prepares budget and CIP
March Finance / Departments Continue budget projections Finance Advisory Committee FAC discusses elements of the budget City Manager Reviews departments budget requests
April Finance Adjusts proposed budget based on City Manager review Planning Commission Reviews CIP
Finance Publishes quarterly reports for January - March Finance Advisory Committee Distributes proposed budget
May Finance / City Manager Presents proposed budget and CIP to City Council Finance Advisory Committee Provides recommendations to Council Community Organizations Provides funding request information to Council June City Council Deliberates
City Council Adopts Budget
July Finance Publishes quarterly reports for April - June October Finance Publishes quarterly reports for July - September 11 20
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Financial Policies
Basis of Accounting
The City’s operating budget consists of governmental funds that include the General Fund, Special Revenue Funds, Internal Service Funds, Debt Service Funds and Capital Project Funds for both the City and the Successor Agency. Governmental fund types and agency fund budgets are developed using the modified accrual basis of accounting. This method is consistent with the presentation of the City’s Annual Financial Statements. Under this basis, revenues are estimated for the fiscal year under the condition that they are identifiable and will be collected within sixty (60) days, and sales tax within ninety (90) days, of the close of the fiscal year. Principal and interest on general long-term debt are budgeted as expenditures when due, whereas other expenditures are budgeted for liabilities expected to be incurred during the current period or shortly thereafter.

Level of Budget Control
Both the City and the Successor Agency appropriate (control) the budget at the Budget Unit level. The Budget Unit level is defined as “department, fund, or other organizational unit whose financial activities are accounted for separately.”
Expenditures for the General Fund are considered a Budget Unit at the Department level, with Community Grants controlled at the grantee level. The Successor Agency are considered Budget Units to be at the category level as defined in the budget document.

Budget Adjustments
After the budget is adopted, any supplemental appropriations of fund balance, or budget transfers over $25,000 within a Budget Unit will require Council approval. Budget adjustments that are less than $25,000 and within the same Budget Unit may be approved by the City Manager.

All requests for budget adjustments will include an explanation for the change along with a discussion of fiscal impact. This information will also be documented on a Budget Adjustment Form, which will be reviewed by the Finance Department for fiscal impact, correct account coding, and policy consistency prior to receiving City Council or City Manager approval.

Financial Committees and Boards
The following committees and boards assist the City in the budget review and development process:

Finance Advisory Committee
The Finance Advisory Committee (FAC) works closely with the Finance Director/Treasurer to make recommendations on financial projections or policies identified by the City Council or City Manager. The Committee consists of four Council-appointed members, the Mayor, and a Council Member. The FAC meets several times throughout the year and operates in an advisory capacity with the overall fiscal wellbeing of the City serving as its guiding principle. 12 21
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General Fund Summary
The General Fund balance remained steady during FY 2025-26. The projected General Fund FY 2025- 26 ending budgetary fund balance totals $133,704. The FY 2026-27 Proposed Budget is estimating the general fund to have an ending balance of $125,445.

The chart below summarizes projected and historical General Fund revenues, expenditures, and fund balances. The table illustrates the effects the improving local economy has had on general fund revenue.

Revenue variances primarily include an increase in sales and property tax revenues.

An overview of district taxes (Measure O and F), reserves, and internal service funds are provided within this summary section.
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Revenue Summary
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Expenditure Summary
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Emergency, PERS Contingency and Contingency Reserves
In 2000 the City adopted Financial Management policies, establishing a fifteen percent Contingency and a ten percent Emergency Reserve Fund. The Contingency Reserve provides a prudent level of financial resources to protect against temporary revenue shortfalls or unanticipated operating costs, and/or to meet short-term cash flow requirements. The Emergency Reserve protects against significant one-time costs, which might arise from major unpredictable emergency events.

As the 2011 pipe failure demonstrated, a sufficient Emergency Reserve Fund is needed to respond quickly to local disasters, as well as sustain low debt ratios. Due to the City’s location in an active geologic region, adjacency to the ocean, and proximity to a major creek and highway, the City chose to also increase the Emergency Reserve funding level to ten percent of operating expenditures. In FY 15/16 the City implemented a PERS Contingency Reserve Fund to ensure future funding availability for potential CalPERS contribution increases.

The City was able to navigate the fiscal impacts associated with the COVID-19 Pandemic without utilizing reserve funds, however, the atmospheric river storms on Jan. 5, 2023, caused the City to utilize funds from the Emergency Reserve to make emergency repairs. Additionally, as the City made storm damage repairs the general fund balance has been drawn down and therefore the FY 2026-27 Proposed Budget does not include any general fund transfers into the reserves. As storm damage repair costs are reimbursed through FEMA and Cal OES the City anticipates returning reserves to minimum target balances.
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OPEB and PERS Trust Funds
The City has been proactive in planning for future liabilities. The City has established two trust funds for future retirement costs. The two trust funds are the OPEB (Other Post-Employment Benefits) Trust Fund, which is used for retiree health premiums, and the PERS Trust Fund, which is used for future PERS retirement costs.

OPEB Trust Fund:

Balance 6/30/2025 $853,759
FY 2025/65 Contributions 67,050
Estimated Interest Earned 5,000
Estimated Balance 6/30/2026 $925,809
FY 2026/27 Contributions 67,050
Estimated Interest Earned 5,000
Estimated Balance 6/30/2027 $997,859
PERS Trust Fund:

Balance 6/30/2025 $1,561,142
Estimated Interest Earned 30,000
FY 2025/26 Contributions 0
Estimated Balance 6/30/2026 $1,591,142
Estimated Interest Earned 30,000
Estimated Balance 6/30/2027 $1,621,142
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General Fund Resources
General Fund resources include reserve funds (Emergency, Contingency, PERS Contingency, Facilities) and Internal Service Funds designated for funding equipment purchases, risk management, workers’ compensation, and compensated absences. The reserve funds have specific purposes and require a vote of the Council to expend.

The following table shows the estimated General Fund available resources:

The corresponding chart and graph illustrate internal service fund expenditures and the impact of transfers on the affected funds.
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Fund Balance Summary
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Fund Balance Summary
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GENERAL FUND REVENUES
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General Fund Revenues
Revenues for the FY 2025-26 General Fund operating budget total $22.4 million, an increase of approximately $1.2 million or 5.7 percent above FY 2025-26 estimated revenue. Property tax revenues remain strong as assessed values (basis for property tax levies) continue to increase with changes in ownership and an additional 2% CPI increase per Prop 13 provisions. Staff anticipates sales tax revenue to increase around 2% over FY 2025-26 with as the economy shows signs of slowing.

Transient occupancy tax is expected to increase approximately 3.5%.

A summary of major revenue changes between the FY 2025-26 proposed and FY 2026-27 proposed budgets is listed below:
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Item 3 A.

General Revenue Information
The City does not receive General Fund revenues in equal monthly increments. While the City receives some revenue regularly throughout the fiscal year, some is received quarterly or annually.

The variable nature of these revenues results in an uneven cash flow. For example, the City of Capitola’s lowest cash balances occur in April and again in mid-December prior to property tax revenue being received. The City developed a cash flow model to assist with on-going cash flow variability and to identify reserve requirements. While monitoring the City’s cash flow has always been a priority, the need to identify patterns became more critical during the disaster recovery period when reserves were nearly depleted. In FY 2012-13 the City approved increasing the Contingency Reserve balance from 10 percent to 15 percent to assist in covering potential cash flow deficits.

Projections for each source of revenue include a review of historical trends, the local economy, new business development, and pending legislation. Due to significant changes, the City is closely monitoring the following five core revenues, which represent over 80 percent of the General Fund:
 Sales Tax $10,010,195
 Transient Occupancy Tax 2,300,000
 Parking Meters 1,166,000
 Parking Fines 850,000
 Property Taxes 3,613,050
$17,939,245
Additional information related to the five core revenues is detailed within this section. In addition, fiveyear trends for each revenue source are provided in the Revenue Summary.

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Sales Tax
The City of Capitola sales tax consists of one percent Bradley Burns, a half percent Capitola District Tax (Measure Y), and a permanent quarter percent Capitola District Tax (Measure O). In FY 2025-26 annual sales tax revenue is estimated to be $10 million, with approximately $3.4 million in revenues contributed by Measure O, and Measure Y.

The Finance Department works closely with HdL, the City’s sales tax consultant, on tax recovery, statistics, and projections. Sales tax projections are based on a combination of “most likely” estimates provided by HdL, internal quarter over quarter analyses, and the impact of one-time events. In FY 2026-27, Bradley Burns sales tax revenue is anticipated to increase by approximately 2 percent, or $294,318 above the FY 2025-26 estimated sales tax receipts. The City’s sales tax collections are heavily dependent on the top five generators.

The chart below illustrates sales tax performance including the sunset of Measure D and end of Measure F and start of Measure Y.
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Transient Occupancy Taxes (TOT)
Hotel tax, also known as the Transient Occupancy Tax (TOT), charges rental accommodation of less than 30 days a 12 percent tax of which 0.75% is restricted for local business groups and early childhood and youth programs. In FY 2025-26 TOT tax generally accounts for approximately 13% of General Fund operating revenues. The City’s TOT revenues come from the following sources:
 Hotels, Motels and Inns
 Other Rentals
o Bed and Breakfasts
o Vacation Rentals
TOT revenues are anticipated to increase during FY 2026-27. For the last several years, hotels have experienced high occupancy rates leaving little room for increased TOT revenues. As the industry slows down little revenues are expected to continue to grow slightly as has been the case for the last couple of years.

The following chart illustrates TOT revenues within the City. Due to Capitola’s seaside location, proximity to regional attractions, and continued signs of economic recovery, the City is continuing efforts to attract another hotel to the area.
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Parking Meters and Parking Fines
In FY 2026-27 parking meter and parking fine revenues are estimated to contribute approximately $2.0 million to the General Fund. Revenue sources include fees collected from the meters and fines resulting from expired meters and improper parking. Factors affecting these revenues include tourism and seasonal trends. During the summer, the City offers shuttle bus service from the parking lots to the Village, beach, and Capitola Wharf. Projected revenues for each location are estimated below:

The following chart illustrates parking meter revenue and parking citation revenue trends within the City. Overall, the revenue trend reflects the previously mentioned parking meter rate increase while showing citation revenue remaining flat. In FY 2015/16 the City implemented 3-hour parking in the Village. The change has had a positive impact on meter revenue while decreasing citations. 26 35
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Property Taxes
Property Taxes, an Ad Valorem Tax imposed on real property and tangible personal property, are levied at one percent of the assessed value of the property. The City receives 7.47 percent of each one percent, or 75 cents per $1,000 of assessed property value.

In FY 2026-27 property tax revenue is estimated to be $3.6 million, representing a five percent increase over the estimated collection amount from FY 2025-26. The City’s collections are slightly higher than the information from the County Auditor-Controller’s Office due to the increased cost of housing and a robust housing market.

In the FY 2026-27 proposed budget, base property tax revenues are projected to increase approximately five percent. The City based the projection on information from the Auditor-Controller’s Office, historical trends, and a review of the current housing market.

Property taxes are received based on the following distribution schedule:
 December: 50%
 April: 45%
 June: 5%
Property Taxes in-lieu-of Vehicle License Fees
Property Tax in-lieu-of Vehicle License Fee revenue has increased an average of six percent per year over the last several years. This increase continues to be consistent with the rising property values outlined by the Auditor-Controller’s Office. Due to the relatively flat history associated with these revenues, conservative estimates of four percent have been applied to the upcoming fiscal years. 27 36
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Revenue Summary
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GENERAL FUND EXPENDITURES
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General Fund Expenditures
The total FY 2026-27 General Fund expenditure budget proposes an increase of approximately $978,000 from the FY 2025-26 Amended Budget as existing resources are programmed towards City Council Goals.

Increases have been programed in most major categories as inflation continues to impact City expenditures. Key differences between the two fiscal years include:
o Total personnel costs (salary and benefits) are estimated to increase $527,000 from the FY 2025-26 Amended Budget due to significant increases in the annual Cal PERS Unfunded Actuarial Liability payment, cost of living adjustments, increased employee health care contributions, scheduled step increases in 2026.
o Salary costs are estimated to be $45,000 higher.
o Salary – Seasonal/Temp increased $53,000 as summer recreations programs remain at full capacity.
o Overtime is anticipated to decrease $20,000 primarily in the Police. This past year was higher than normal due to several felony crime investigations. o Specialty Pay – decreased 13,400.
o Benefits – increased $462,000 as a result of CalPERS rates increasing.  Contract services are slightly above the prior year.

The following chart provides an overview of expenditures for FY 2023-24 to FY 2027-28. A complete description of major changes will follow in the related expenditure detail pages. 31 40
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The following chart provides an overview of expenditure trends, excluding transfers. Expenditures are trending down as we complete several City Council goals utilizing one-time funding.

A chart displaying the percentage of expenditures by category is also provided for reference. Personnel costs are estimated to increase $1.3 million from the prior fiscal year causing the ratio of personnel services to total expenditures to increase from 67.5 percent to 69.2 percent. Other notable changes were in contract services, which decreased from 18.6 percent to 17.5 percent. 32 41
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General Fund Department Expenditures
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General Fund Expenditures

SALARIES & BENEFITS
All positions listed in the General Fund are fully funded with full benefit costing. Fully benefited positions are budgeted at their current step plus an assumption that they will move to the next step unless they are already at the top step of their classification. Specialty pays are budgeted as a separate line item.

Positions budgeted for in FY 2025-26 include the addition of two maintenance workers in the public works department and the reorganization of the City Manager and Finance Departments.

The table below summarizes the total FTE count by department, and the following page provides a detailed summary of the staffing budget changes.
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General Fund Expenditures

SALARIES & BENEFITS
City services are primarily staff delivered; therefore, staffing is the most significant expenditure. The FY 2026-27 proposed budget estimated staffing costs total $15 million. This represents a 3.63% increase from the prior year’s amended budget. This is primarily due to significant increases in the Cal PERS Unfunded Actuarial Liability annual payment, estimated cost of living adjustments, and scheduled step increases.
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General Fund Expenditures
Salaries & Benefits - Salary Assumptions
There are five bargaining groups in the City. Management employees are hired by the City Manager pursuant to a City Council approved compensation plan. Hourly employees are not included in any of these groups and are not represented by a union. The following table lists the different groups and the start and end dates of their current agreements.

Group Current Agreement Expiration Date
Assoc. of Capitola Employees/Gen. Govt. 6/23/2024 6/30/2027 Confidential 6/23/2024 6/30/2027
Mid-Management 7/7/2024 6/30/2027
Police Captains 7/7/2024 6/30/2027
Police Officers Association (POA) 6/7/2021 6/30/2027
Overtime
The following table provides the details for the overtime budget. The overtime budget for the Police Department increases this year in anticipation of additional special events.

Specialty Pay
The FY 2026-27 proposed budget includes the following specialty pays in the calculation of staffing costs, which are also included in overtime calculations: education, longevity, bilingual, motorcycle, detective pay, senior officer, canine, and shift differential pay.

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General Fund Expenditures
Salaries & Benefits – Retirement Assumptions
Benefits – Post Retirement Medical Benefit
The City of Capitola contributes the minimum amount toward retired employees’ health insurance premiums in accordance with Government Code Section 22892 of the Public Employees’ Medical and Hospital Care Act (PEMHCA). This expenditure is accounted for in the City Manager’s personnel department budget. Below is a table showing the PEMHCA minimum over the last 10 years.  January 1, 2017 $128
 January 1, 2018 $133
 January 1, 2019 $136
 January 1, 2020 $139
 January 1, 2021 $143
 January 1, 2022 $149
 January 1, 2023 $151
 January 1, 2024 $157
 January 1, 2025 $158
 January 1, 2026 $162
Benefits – Public Employee Retirement System (PERS)
The City offers various defined benefit retirement plans to safety and miscellaneous employees. These retirement plans are administered by the California Public Employee Retirement System (“CalPERS” or “PERS”). The safety plan benefit formula is 3% @ 50, and the miscellaneous plan is 2.5% @ 55 for “classic” PERS members. For employees hired after January 1, 2013, who are subject to the Public Employees’ Pension Reform Act (PEPRA), the safety benefit formula is 2.7% @ 57, and the miscellaneous plan is 2% @ 62. A CalPERS member becomes eligible for retirement benefits upon reaching the age of 50 with at least 5 years of service credit (total service across all CalPERS employers).

The City’s retirement costs are defined as a percentage of payroll, along with a fixed dollar amount to address the City’s Unfunded Actuarial Liability (UAL), which is actuarially determined annually by CalPERS. The UAL in FY 2025-26 was $2,895,386 and is increasing to $3,271,340 (12.98%) in FY 2026-27. The most recent CalPERS actuarial reports estimate the UAL through FY 2030-31 at an amount of $3,789,000 which equates to an increase of approximately 176% over ten years from FY 2020-21.

PERS Rates. The FY 2026-27 PERS total rate for classic safety members is 39.7%, with employees paying 15% and the city 24.7%. Safety PEPRA members are responsible for 13.75% and the city pays

13.99%. For classic miscellaneous members, the total contribution rate is 24%, with employees paying

13.4% and the city 10.6%. Miscellaneous PEPRA employees pay 7.75% and the city pays 7.96%.

The FY 2025-26 PERS total rate for classic safety members was 39.6%, with employees paying 15% and the city 24.6%. Safety PEPRA members are responsible for 13.75% and the city pays 13.76%. For classic miscellaneous members, the total contribution rate was 23.9%, with employees paying 13.4% and the city 10.5%. Miscellaneous PEPRA employees pay 7.75% and the city pays 7.87%.

Public Employees’ Pension Reform Act (PEPRA). On September 12, 2012, Governor Brown signed the California Public Employees' Pension Reform Act of 2013 (PEPRA) into law. PEPRA became effective on January 1, 2013, and requires all employees who are not previously members of the PERS reciprocal system to be placed in an alternate retirement plan. The City’s PEPRA plan for Safety employees is 2.7% at 57 and 2% at 62 for Miscellaneous employees. This new plan requires that the City and plan members contribute an equivalent share of retirement costs. The rates for public safety and miscellaneous employees are 13.75% and 7.75%, respectively. 37 46
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Retirement Costs Summary
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General Fund Expenditures - Contract Services (4 pages) 39 48
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Community Based Social Service Providers
Community Based Social Service Providers are funded by the General Fund and restricted Transient Occupancy Tax (TOT) revenue. Each year a determination is made regarding funds available and allocation. Due to COVID-19 the Community Grant program continues to be funded in FY 2026-27 with a combination of general fund, restricted TOT, and federal grants. The table below shows the general fund and restricted TOT funding while the federal grant funding is highlighted in the Community Development Block Grant Special Revenue funds.
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GENERAL FUND EXPENDITURES

SUPPLIES
The following table provides a history of the supply budgets by department. Additional information is available in the General Fund Department section.

TRAINING AND MEMBERSHIPS
The following table provides a history of the training and memberships budgets by department. Refer to the General Fund Department section for additional information. 45 54
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INTERNAL SERVICES
Internal Service Funds finance special activities and services performed by one City department for another on a cost and reimbursement basis. These funds share costs, designate targeted reserves levels, and allocate costs to all departments benefiting from the activities and services. The methodology for cost allocation for each Internal Service Fund is described in the Internal Service Fund section.

The FY 2026-27 proposed budget provides funding for increased insurance premiums as well as equipment purchases for equipment funded in prior years.

GENERAL FUND TRANSFERS
General Fund Transfers move funds from the General Fund to a specific fund for a designated purpose.

The CIP is detailed in a separate section and debt issuances are detailed in the Multi-Year Assets and Obligations section. Below is a summary of the transfers from the General Fund to other funds/reserves. 46 55
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DEPARTMENTAL BUDGETS

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CITY COUNCIL

GENERAL GOVERNMENT

DEPARTMENT PURPOSE
The City Council is composed of five generally elected Council Members, serving four-year staggered terms. Council members select a Mayor and Vice Mayor annually. In 2002, the voters approved a consecutive term limit of two terms for Council Members. The City's Municipal elections are held the first Tuesday of November in even-numbered years. The Council meets regularly twice monthly, on the second and fourth Thursday.

The City Council establishes local law, sets policy, approves programs, allocates funds, and provides direction to the City Manager and staff to implement its policy. Council also appoints members to local and regional committees, commissions, and boards. Capitola is a General Law City, organized under the general laws of the state. Local laws are established by ordinance, compiled in the Municipal Code, and enforceable by the City. Other directives and policies of the City Council are implemented through Council Resolutions and recorded in Council Minutes.

ESTABLISHED PRINCIPLES OF THE CITY
 Fiscal Policy – practice sound financial management
 Public Service – uphold the public trust.
 Public Improvement – maintain a safe and healthy environment.

FISCAL YEAR ACCOMPLISHMENTS – 2025/26
 Provide services, staff, and equipment to ensure public safety and trust  Develop projects and programs to maintain and enhance the quality of life in Capitola  Collect public input and determine path forward for Capitola Wharf Master Plan  Review and update, if necessary, the City Council Code of Conduct FISCAL YEAR GOALS - 2026/27
 Balanced budget while using resources for public improvements  Provided services, staff, and equipment to ensure public safety and trust  Approved projects and programs to maintain and enhance the quality of life in Capitola 48 57
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CITY ATTORNEY

GENERAL GOVERNMENT

DEPARTMENT PURPOSE
The City Attorney represents the City as primary Counsel in all legal matters. The City Attorney is appointed by the City Council. The City Attorney provides legal analysis and advice on interpretation and application of municipal code, State law, and Federal law, drafting legal documents, and laborrelated issues. The City Attorney is currently a contract position with the firm Burke, Williams & Sorensen

KEY CHANGES
Marc Tran of Burke, Williams & Sorensen is Capitola’s City Attorney FISCAL YEAR ACCOMPLISHMENTS – 2025/26
 Advised City on matters associated with pending legal actions.  Advised City on legal matters related to City policies and procedures.  Represented the City in litigation.

FISCAL YEAR GOALS – 2026/27
 Advise Council on potential and pending litigation.
 Assist and advise staff on contracts, labor relations, and other legal assessments.  Resolve existing litigation.
 Assist City in labor negotiations with all employee groups. 49 58
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CITY MANAGER

GENERAL GOVERNMENT

MISSION STATEMENT
The mission of the City Manager’s Office is to ensure that all City programs and services are provided effectively and efficiently.

DEPARTMENT PURPOSE
The City of Capitola is a Council-Manager form of government, under which the City Council appoints a City Manager who serves as the City's chief administrative officer and is responsible for implementing Council policies. The purpose of this department is to implement the policies of the City Council and provide leadership and direction to the city departments. Core services of the City Manager’s Office are administrative direction and leadership for City departments, programs, and services to ensure the community receives a high level of service.

KEY CHANGES
The City Manager Department internally promoted the former Office Coordinator to the Deputy City Clerk position and hired a new Office Coordinator.

The FY2025/26 Budget includes a proposed organizational change, shifting Human Resources and Information Systems from the City Manager Department into the newly titled Administrative Services Department, along with Finance services (formerly the Finance Department). With this new structure, the City Manager remains the Personnel Officer, with the ability to designate these duties to other staff as needed. The City Manager Department will keep the Assistant to the City Manager position, now allocated to the department 100% rather than 50% with 50% Personnel, to support expanding public outreach and community engagement efforts, managing special projects and contracts, such as the Annexation Feasibility Study, and providing support to the City Manager and all City departments.

FISCAL YEAR 2025/26 ACCOMPLISHMENTS
 Successfully facilitated a well-attended civic-engagement program, Discover Capitola  Completed annexation feasibility study and partnered with LAFCO to modify the City’s sphere of influence
 Expanded following of City social media platforms and subscriptions to the City digital newsletter
 Prepared content for and facilitated positively received Town Hall meeting  Partnered with County Park Friends on the Treasure Cove Playground project.

FISCAL YEAR GOALS – 2026/27

FISCAL POLICY
 Evaluate potential revenue ballot measures.
 Continue city-wide Economic Development efforts including working with the Capitola Mall to improve the mall facility.
 Continue to work to create a safer work environment and reduce employee injuries.  Review and prioritize City services.
 Support economic development.
 Debut new City website.
 Seek opportunities to partner with other agencies for greater outcome or savings. 50 59
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PUBLIC SERVICE
 Increase public outreach
 Support election: three Council seats up for election this Fall  Continue to improve public meeting access.
 Use dedicated funds for youth programming.

PUBLIC IMPROVEMENT
 Work with community partners to enhance public serving spaces, like the fundraising partnership with Capitola Cares
 Continue increased street and facility maintenance through use of Measure D resources. 51 60
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ADMINISTRATIVE SERVICES - PERSONNEL

GENERAL GOVERNMENT

MISSION STATEMENT
To provide excellent internal and external customer service and assist departments in recruiting and retaining exceptional employees.

DEPARTMENT PURPOSE
Personnel functions are the responsibility of the City Manager. Functions include employee recruitment and selection, benefits coordination, insurance and retirement programs, labor negotiations, compensation plan maintenance, regulatory training, and risk management. 52 61
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ADMINISTRATIVE SERVICES – FINANCE AND INFORMATION TECHNOLOGY

GENERAL GOVERNMENT

MISSION STATEMENT
The Finance Department’s mission is to present timely, accurate and transparent financial information to the public while providing City Management with financial data to facilitate informed decision-making on the allocation of City resources. The department strives to provide excellent customer service to the public, elected officials, and all departments within the City.

DEPARTMENT PURPOSE
The Finance Department oversees all financial transactions of the City to ensure legal and accounting policies are adhered to. The Department maintains all City funds and oversees budget development, the Comprehensive Annual Financial Report, accounts payable, payroll, accounts receivable, cash receipts, banking, business licenses, and transient occupancy tax. The Department provides quarterly and annual financial reports to the City Council and the public.

The FY2025/26 Budget includes a proposed organizational change, shifting Human Resources and Information Systems from the City Manager Department into the newly titled Administrative Services Department, along with Finance services (formerly the Finance Department). With this new structure, the City Manager remains the Personnel Officer, with the ability to designate these duties to other staff as needed. The new structure will allow for the personnel, finance, and information technology divisions to improve communications and efficiencies as the City continues to implement more and more technology solutions personnel and finance.

FISCAL YEAR ACCOMPLISHMENTS – 2025-26
 Continued TOT vacation rental audit and enforcement program.  Implemented new bail schedule
 Implemented transition of IT to a contracted service
 Provided analytical support to operations departments.

FISCAL YEAR GOALS – 2026-27
 Prepare and maintain a balanced budget.
 Plan for and meet future PERS increases.
 Work with the Finance Advisory Committee to identify future revenue opportunities and address increasing costs.
 Meet regulatory financial reporting requirements and provide reports on the City website.  Develop long term financial plan for Measure Y
 Continue partnerships with departments to maintain financial accountability and transparency.  Continue to improve City financial transparency to the public. 53 62
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POLICE SUMMARY
POLICE

MISSION STATEMENT
The Capitola Police Department prides itself in providing the highest level of safety and service to enhance the quality of life of our community through professional, engaged, and empowered employees.

VISION STATEMENT
The Capitola Police Department is comprised of professional and dedicated members who strive to demonstrate high character, fairness, compassion, and the non-biased delivery of policing services.

CORE VALUES
We pride ourselves on representing the City of Capitola and providing policing services based upon these values:
 Human Life - Nothing is more valuable than the preservation of life  Loyalty - Simple loyalty to our best convictions
 Honesty - The essence of moral character
 Respect - Our success is measured by how we treat others  Integrity - Values, and morals that represent our sincerity and commitment  Diversity - We value differences
 Ethics - Our commitment to principles that govern behavior FISCAL YEAR ACCOMPLISHMENTS – 2025-26
 Converting CSO to MSO
 Filling PEO positions
 Successful PO recruitment ongoing
 Axon interview room
 EOP- almost complete
 Grants:
 Cannabis
 Body armor
 Pay station replacement plan completed
 Ecite technology rolled out for use
FISCAL YEAR GOALS –2026-27
 Build a realistic budget for the new technology and upgraded technology used at PD  Axon
 Drones
 RMS
 RING
 ALPR
 MSO trained and embedded in NBMS and community outreach  Bring on new Chief Advisory Committee members
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LAW ENFORCEMENT
POLICE
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PARKING ENFORCEMENT
POLICE

DEPARTMENT PURPOSE
The Parking Enforcement Unit enforces California Vehicle Code regulations and Municipal Parking Ordinances to minimize parking problems, reduce traffic congestion, and maximize access to parking by visitors and residents alike.

FISCAL YEAR ACCOMPLISHMENTS – 2024/25
 Maintain existing pay stations.
 Begin upgrading pay stations with a new payment interface.  Explore hybrid vehicle options for parking enforcement vehicles.

FISCAL YEAR GOALS –2025/26
 Continue upgrading the pay stations with a new payment interface.  Evaluate the cost of hourly parking and the bail schedule for parking citation violations. 58 67
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ANIMAL SERVICES
POLICE

DEPARTMENT PURPOSE
The Animal Services Unit (ASU) promotes and protects public safety and animal care through sheltering, pet placement programs, education, and animal law enforcement. Our purpose is to provide responsive, efficient, and quality animal control services that preserve and protect the public and promote animal safety.
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PUBLIC WORKS SUMMARY

PUBLIC WORKS

MISSION STATEMENT
The Capitola Department of Public Works, through our valued employees, develops, maintains, and operates the City’s infrastructure and natural resources and provides environmental stewardship for the benefit of our residents, businesses, and visitors.

DEPARTMENT PURPOSE
Public Works stewards Capitola’s public infrastructure. We are dedicated to providing safe, functional and sustainable systems improving the quality of life for the residents, businesses and visitors of the City of Capitola in a responsive and cost-effective manner and in accordance with local, state and federal regulations.

To provide this stewardship, the department has three divisions.

The Maintenance Division is responsible for the day-to-day operations, maintenance, and repair of the public infrastructure and facilities including streets and medians, streetlights and traffic signals, street trees, sidewalks and pathways, parks, public buildings, and maintains the City's fleet of vehicles and equipment.

The Engineering Division designs and oversees the construction of all capital improvement projects for the City’s public infrastructure systems and public buildings/facilities; prepares technical studies/reports; regulates construction activities within the public right-of-way by private entities and utility companies; and maintains infrastructure records. The Engineering Division also works closely with the Community Development Department and Building Division to perform plan review and inspection services of tract/parcel maps for subdivisions and grading and drainage improvements on private property; provides technical support to the Public Works Maintenance Division.

The Environmental Division provides environmental support services to Public Works and other City Departments to ensure compliance with federal, state, and local environmental laws, regulations, and policies. The Environmental Division also manages the City's Storm Water Management Program and Solid Waste Franchise Agreement which includes industrial, construction, and municipal activities and operations within the City; staffs the Commission on the Environment.

FISCAL YEAR ACCOMPLISHMENTS – 2025-26
 Completed Community Center Renovation
 Completed Treasure Cove Playground
 Completed Jade Street Restroom Renovation
 Completed 41st Avenue Multimodal Improvements
 Advanced Bay Avenue Corridor Project through planning and concept development  Advanced Cliff Drive Resiliency Project through preliminary design  Secured grant funding for Esplanade Park Improvement development 60 69
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FISCAL YEAR GOALS – 2026-27
 Complete Citywide Active Transportation Plan (ATP)
 Complete update of the Climate Action Plan
 Advance Esplanade Park Improvements into design and implementation phases  Advance Cliff Drive Resiliency Project into final design  Advance additional capital improvement projects
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STREETS

PUBLIC WORKS
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STORMWATER

PUBLIC WORKS
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FACILITIES

PUBLIC WORKS
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FLEET

PUBLIC WORKS
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PARKS

PUBLIC WORKS

MISSION STATEMENT
The Public Works Parks Department is committed to developing and maintaining the City parks and other landscaped areas in such a manner as to allow all members of our community to enjoy these jewels. Using professional staff and technologies to maintain top-rated playing surfaces, beautiful landscaping and safe facilities are top priorities for this department.

DEPARTMENT PURPOSE
To maintain City parks and landscaped areas throughout the City in a safe manner while conserving water and other resources.

KEY CHANGES
Maintaining the status quo.
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BUILDING, PLANNING, AND ECONOMIC DEVELOPMENT

BUILDING, PLANNING, AND ECONOMIC DEVELOPMENT

MISSION STATEMENT
The Building, Planning, and Economic Development Department (BPED) promotes development which supports attainable housing, economic opportunities, community wellbeing, and the environment. The Department provides responsive, high-quality services and programs which enhance the quality of life for the City’s residents, businesses, and visitors within the built and natural environment.

DEPARTMENT PURPOSE
The BPED administers the City's land use policies and standards adopted by the City Council including Zoning Code (Title 17), Housing and Development Administration (Title 18), General Plan, Housing Element, Local Coastal Program, and other regulations. The Department’s key functions include review of development applications, application of CEQA, maintenance of regulatory and long-range planning documents, implement economic development strategy, building plan check and inspection services, code compliance, administration of the affordable housing programs, and grant administration related to planning, housing, economic development, public facilities, and public services. The Department provides staff support to the Planning Commission and City Council.

KEY CHANGES
During the past fiscal year, the department focused implementation of the Housing Element related to the Capitola Mall redevelopment, the 41st Avenue Corridor Plan, the Wharf Master Plan, and recruitments for the Building Official and Senior Planner. Priorities for FY2026-27, include ongoing collaboration toward redevelopment of the Capitola Mall, implementation of the Wharf Master Plan, implementation of the 41st Avenue Corridor Plan, and ongoing housing element implementation.

FISCAL YEAR ACCOMPLISHMENTS – 25/26
 Rebrand the department as the Community and Economic Development Department and realign priorities toward housing and economic development initiatives.  Promoted economic growth through place making and branding initiatives of commercial corridors and adopted zoning incentives to catalyze redevelopment of the Capitola Mall.  Implementation of the 6th Cycle Housing Element including objective standards for Mall Redevelopment and amendments to the Multifamily Residential zoning.  Adopted the Capitola Wharf Master Plan and solicited proposals for development.  Adopted the 41st Avenue corridor study incorporating Clares Street and Capitola Road.  Issued occupancy for a 36-unit 100% affordable development at 4401 Capitola Road.  Administered CDBG Grant of $300,000 to nonprofit for low-income food and transit services.  Administered CDBG Grant of $3.3 million for renovation of the Jade Street Community Center and $3.3 million for Treasure Cove Park.
 Initiated rehabilitation program with Habitat for Humanity. 7 applications received, 2 completed  80 planning and 407 building permit application submitted July 1, 2025, through April 15, 2026.

FISCAL YEAR GOALS – 26/27
 Engage property owners of economic development opportunity sites including Capitola Mall, Redtree’s 1 Bay Avenue, and Swenson’s 120 Monterey.
 Issue building permits for new 52-unit affordable housing development at 1098 38th Ave.  Issue occupancy of Tesla Dealership at 1601 41st Avenue  Provide training opportunities for building staff to bring building plan review in as an internal staff function to encourage growth and job satisfaction while providing savings to the City.  Apply for 2026 CDBG grant for Community Facilities or Public Infrastructure for up to $5 million
 Issue building permits for new hotel at 720 Hill Street and affordable housing at 1098 38th Ave.  Issue occupancy of 36-unit, 100% affordable housing at 4401 Capitola Road. 67 76
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 Complete Capitola Wharf Master Plan and research funding opportunities for implementation.  Complete 41st Avenue corridor study.
 Administer grants to support Capitola residents with food services and housing production.  Provide training opportunities for all staff to encourage growth, job satisfaction, and longevity. 68 77
Item 3 A.

COMMUNITY SERVICES AND RECREATION

CULTURE & LEISURE

MISSION
The City of Capitola Community Services and Recreation Department is dedicated to providing safe, affordable, and enjoyable recreational opportunities that enrich the quality of life for residents and visitors of all backgrounds and abilities. Committed to excellence and public safety, the Department continuously strives to enhance its programs, services, and operations to best serve the evolving needs and interests of the community.

DEPARTMENT PURPOSE
The Community Services and Recreation Department enhances the quality of life for Capitola residents and the broader community by offering a wide range of recreation and leisure services. These include Cityrun programs such as Junior Lifeguards, Camp Capitola, and community events, as well as over 500 classes provided by contracted instructors. Youth programs serve more than 2,000 children annually. The Department also manages key community assets, including the Capitola Community Center, Jade Street Park, and Monterey Park. From Memorial Day weekend through the end of October, the Department operates a USLA-certified Lifeguard Division to ensure the safety of beachgoers at Capitola Beach. The Department represents the City through its staff, instructors, seasonal hires, and the condition of its facilities. It also fosters youth development through job training programs like the Junior Lifeguard Captains Corps and Camp Capitola Junior Leader Program and promotes access through scholarships for underresourced youth.

KEY CHANGES
With the Community Center remodel project complete, the Community Services and Recreation Department will return offices and programs.

FISCAL YEAR ACCOMPLISHMENTS – 2025/26
 Provided Lifeguard services to event organizers and maintained tower services at Capitola Beach through the end of October.
 Sustained a robust schedule of Classes for Adults and Youth with minimal disruption during Community Center remodel.
 Provided Wharf programming with fun, family friendly activities by hosting a new “Boogie on the Wharf” dance event series.
 Modified Camp Capitola in response to the Community Center remodel while maintaining the program’s high quality at the temporary location
 Celebrated the 10th annual Plein Air event with new artist engagement opportunities for the public and record exhibition attendance.
 Introduced two new music events: “New Music Sundays” featuring local youth bands, and “Dueling Pianos” offering a fresh and interactive community opportunity.  Enhanced Junior Guard youth development by redistributing age division throughout the session providing smaller group sizes for effective instruction.

FISCAL YEAR GOALS –2026/27
 Strengthen partnerships with county recreation agencies to expand regional initiatives such as Park Rx, Family Fun Day, and other collaborative programs.  Develop a new Community Center Rental package incorporating new use opportunities provided by the Community Center Remodel.
 Enhance structure of the Beach Lifeguard Service and Junior Guard program.  Provide Camp Capitola with an increased capacity and utilize the new Jade St Park features and Treasure Cove Playground.
 Utilize lessons learned for new music events “Dueling Pianos” and New Music Sunday’s” and provide an improver series for residents.
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MUSEUM

CULTURE & LEISURE

MISSION
The Capitola Historical Museum preserves and promotes the history of Capitola through creating exhibitions, maintaining a collection of historic photographs and artifacts, conducting oral histories, and participating in special events.

DEPARTMENT PURPOSE
To promote, through the establishment and maintenance of a museum and allied projects, a program that will bring a better understanding and appreciation by the Capitola community of its history, architecture, culture, technology, and its creative and natural environments.

FISCAL YEAR ACCOMPLISHMENTS – 2025/26
 Installed “Multiple Personalities: the stories behind Capitola’s historic buildings” exhibition  Installed rotating exhibits at the Capitola Library.
 Increased visitation to museum
 Increased volunteer count for continuous museum open hours  Installed Whard model in City Council Chambers for public viewing  Increased donations with advent of online payments and QR Code deployment FISCAL YEAR GOALS – 2026/27
 Continue exhibition “Multiple Personalities: the stories behind Capitola’s historic buildings”  Recognize the Museum’s 60th anniversary
 Continue to scan images to digitize collections
 Review collections to reduce storage need
 Continue to develop Museum Membership
 Shift museum newsletters to digital platform
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INTERNAL SERVICE FUNDS

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INTERNAL SERVICE FUNDS
Stores (City Manager): The Stores Fund accounts for general supplies, postage, and rental of office equipment.

Information Technology (City Manager): The Information Technology Fund provides funding for the replacement and upgrade of the existing computer network. The number of personal computers, laptops, printers, and servers each department uses forms the basis for department allocations.

Equipment Replacement (Public Works): The Equipment Replacement Fund provides funding for the replacement of city vehicles, including passenger cars, parks maintenance vehicles, police vehicles and other specialty vehicles. Departments contribute to this replacement fund based on the depreciation expense of existing vehicles. This fund also receives the revenue received from the sale, or trade-in, of surplus vehicles.

Self-Insurance Liability (City Manager): The Self-Insurance Liability Fund collects funding from departments to pay for self-insured liability and property protection insurance premiums provided through the Monterey Bay Area Self Insurance Authority (MBASIA) joint powers authority.

Workers’ Compensation (City Manager): The Workers’ Compensation Fund collects funding from departments to pay for Workers’ Compensation coverage through the MBASIA.

Compensated Absences (Finance): The Compensated Absences Fund accumulates money to pay future employee benefit costs, such as vacation and sick leave payouts, at termination or retirement.

The City Council sets the policy to ensure the City can fulfill future obligations. 73 82
Item 3 A.

STORES FUND
The Stores Fund accounts for general supplies and postage. This also includes the rental of the postage machine and the repair and maintenance of shared office equipment. 74 83
Item 3 A.

INFORMATION TECHNOLOGY FUND
The Information Technology Fund collects and designates funds for the future replacement of citywide hardware and software. Annual on-going information technology costs are allocated based on the distribution of resources.

Contract services: on-going technology licenses
Supplies: replacement technology equipment

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EQUIPMENT REPLACEMENT FUND
The Equipment Replacement Fund is designed to provide funding for replacement of City vehicles, including passenger cars, maintenance vehicles, police vehicles and other specialty vehicles.

Departments contribute to this replacement fund based on the depreciation costs of existing vehicles.

This fund receives revenue from trade-ins and surplus equipment sales. The General Fund charges for services based on the prior year fleet depreciation costs adjusted by the CPI index.

During the annual budget process, the Public Works and the Police Department review the current vehicle inventory listing and make recommendations for vehicle acquisitions and replacements, considering on-going maintenance costs.

FY 2025-26 CAPITAL OUTLAY
PD Patrol vehicles $ 75,000
Gem Car 25,000
FY 2027-28 CAPITAL OUTLAY
Depreciation $ 200,000
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SELF-INSURANCE LIABILITY FUND
The Self-Insurance Liability Fund accumulates funds for deductible expenditures and excess incidents above the City’s liability coverage. The fund pays for the following expenses:
 Excess Insurance Premiums - The City belongs to the Monterey Bay Area Self Insurance Authority (MBASIA) joint powers authority. MBASIA covers all liability expenses, fire, property protection, and general liability claims up to $10,000 per occurrence.  Property Insurance – The City receives property insurance through the Public Entity Property Insurance Program and is insured by Lexington. The City’s premium is $100,000.  Vehicle and Equipment Insurance Coverage - Coverage for vehicles and equipment with a purchase value of $25,000 or more. The annual premium is $7,500 with a $2,000 deductible.  Unemployment Insurance - The California Employment Development Department (EDD) defines the City as a “State Unemployment Insurance Reimbursement Client.” The City does not pay unemployment insurance premiums to the State. When an employee files for and receives unemployment benefits from the State, the City is responsible for that benefit.

Charges for services are allocated to each General Fund department based on their percentage of the total operating budget from the prior fiscal year less the budget for unanticipated events. 77 86
Item 3 A.

WORKERS’ COMPENSATION FUND
The Workers’ Compensation Fund satisfies the requirements of Capitola municipal code section

3.24.030, which states, “The City Manager and City Treasurer shall establish a reserve fund for purposes of paying future workers’ compensation claims and shall, hereafter, make such annual deposits into that fund as the city is advised are actually necessary to provide a suitable reserve.” This program also covers City volunteers.

The City belongs to a Joint Powers Authority (JPA), Monterey Bay Area Self Insurance Authority, composed of several local agencies: Del Rey Oaks, Gonzales, Greenfield, Hollister, King City, Marina, Sand City, Scotts Valley, and Soledad. The City retains exposure to temporary disability payments as long as the injured worker remains an employee of the City. MBASIA purchases excess coverage beyond $500,000 per occurrence up to statutory requirements.

The annual premium that is assessed to each of the participating cities in the JPA is based on three primary factors: the number of employees in each of the two major categories (Safety & Miscellaneous), the experience rate (cost incurred) of each participating agency, and debt service allocation.

When an employee files a claim, the City pays the employee’s salary portion directly from the general fund based upon the standard workers’ compensation formula, for the “temporary” claim. The formulas for employees receiving workers’ compensation are as follows:

1. Public Safety: Compensation is 100% of salary, non-taxable.

2. Miscellaneous: Compensation is 2/3 of salary with a cap of $840 per week, non-taxable.

For non-safety staff, City policy allows that accruals (i.e., sick, vacation, etc.) may be used to supplement workers’ compensation payments. If the person becomes “permanently disabled” then the JPA picks up the salary portion. The JPA pays all other costs including legal and medical. While on workers’ compensation status, the safety and non-safety staff continue to accrue sick and vacation leave balances.

Distribution to General Fund Departments:

The allocation methodology for workers’ compensation charges to the General Fund Departments corresponds closely to the cost allocation method used by the JPA. The City divides employees into three classifications: Sworn, Non-Sworn and Volunteers, with cost per FTE calculated. A fund balance accommodates future premium fluctuations, deductibles, and excess liability. 78 87
Item 3 A.

COMPENSATED ABSENCES LIABILITY FUND
The Compensated Absences Liability Fund accumulates reserves to pay for employee cash-outs, such as accumulated sick leave and vacation, due to employees upon termination or retirement. The following is an itemized description of the various liabilities of this fund.

Vacation > 360 hours: An employee who has accumulated more than 360 hours (504 hours for POA) as of the last pay period in April of any year shall be paid in cash at a rate equal to 100% of his/her current hourly rate for hours exceeding 360 (504 for POA). The hourly rate includes specialty pays.

Vacation - Voluntary Cash Out: In accordance with various memoranda of understanding between the employee bargaining groups and the City of Capitola, employees may elect voluntary cash outs up to 80 hours of vacation.

Police Captain Cashable Sick Leave: Refer to contract.

Final Pay: Upon resignation, employees are eligible for vacation cash outs.

Severance Pay: The City provides the following severance payout packages:

City Manager 12 months
Police Chief 6 months
Public Works Director 4 months
Community Development Director 4 months
Finance Director 4 months

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SPECIAL REVENUE FUNDS

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SPECIAL REVENUE FUNDS
Supplemental Law Enforcement Services (Police): Funds provided by a State of California COPS grant to provide funding for Community Oriented Policing & Problem Solving (COPPS) programs.

Restricted Transient Occupancy Tax (TOT) (City Council): Capitola voters passed Measure J in 2018 increasing the TOT from 10% to 12% and restricting 0.4% for local business groups and 0.35% for early childhood and youth programming.

Road Maintenance and Rehabilitation Act (SB1) (Public Works): Funds received from the state and used for road maintenance, rehabilitation, and critical safety projects on local streets and roads.

Regional Transportation Commission (RTC) Streets (Public Works): Santa Cruz County voters passed a 0.5 percent user sales tax to fund local roads. The RTC Streets fund will be utilized to increase the City’s Street program.

Gas Tax (Public Works): Funds received from gasoline tax revenue from the state and used for new construction, maintenance, and the reconstruction of City streets.

Wharf (Public Works): Accounts for rental income generated from wharf operations and expended on operations and major repairs and improvements.

General Plan Update and Maintenance (Community Development): Funds received as General Plan Maintenance Fee to support future updates to the City’s General Plan, implementing ordinances and plans.

Green Building (Community Development): Green Building funds are solely for program management, training, publications, public educational purposes, incentive programs, materials, and supplies to promote sustainable development, water conservation, storm water pollution prevention, and climate action planning.

Public Art (City Manager): This fund accumulates money received as public art fees to acquire works of art to be displayed in or about public places within the city.

Parking Reserve (Public Works): In 2009 the Council authorized a special reserve fund from the Village parking meters for parking-related projects.

Technology Fee (Community Development): 5% of building permit fee funds permit processing technology.

Public Education & Government Cable TV Access (City Manager): This special revenue fund accounts for PEG cable television fees. The expenditures are restricted to PEG access-related activities.

Capitola Village & Wharf Business Improvement Area (Finance): Established to generate revenue for the exclusive purpose of promoting business in the Capitola Village and Wharf Business Improvement Area.

Community Development Block Grants (Community Development): This fund accounts for active CDBG reimbursement grants that are awarded to the City on a project-by-project basis.

Community Development Block Grant Program Income (Community Development): This fund accounts for income from housing loans that are funded with Community Development Block Grant funds. Loans and interest repaid to the fund are restricted to CDBG approved uses.

Library (City Manager): The new Capitola Branch Library opened in June 2021. The Friends off the Capitola Branch Library raised over $600,000 of donations for project enhancements with approximately $50,000 remining in the Library fund.
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HOME Program Reuse (Community Development): This fund accounts for housing loans due to the City from the recipients of previous HOME Program grants. Receipts in the Home Program Reuse Fund are restricted to affordable housing activities in accordance with the federal HOME program re-use guidelines.

Housing Trust (Community Development): The City Council adopted an Inclusionary Housing Ordinance in November 2004, which created an Affordable Housing Trust Fund. It is funded from in-lieu fees, which can be used for new affordable housing and rehabilitation of existing affordable housing.

Permanent Local Housing Allocation (PLHA): In 2017, Senate Bill 2 (SB 2) established a $75 recording fee on real estate documents and created the Permanent Local Housing Allocation Fund (PLHA). PLHA funds are allocated to local governments for eligible housing and homelessness activities and provide a permanent, on-going source of funding for housing-related projects and programs that address the unmet housing needs of communities.

Capitola Housing Successor (Community Development): When the Capitola Redevelopment Agency dissolved, the City elected to become the Housing Successor to the former Low- and Moderate-Income Housing Fund of the RDA.
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SUPPLEMENTAL LAW ENFORCEMENT SERVICES
POLICE
In 1996, California's state legislature (AB 3229) established the Citizens Options for Public Safety (COPS) program, allocating $100,000,000 annually to local governments for front-line law enforcement. These funds are administered through the Supplemental Law Enforcement Services Fund (SLESF) program. The COPS program received its initial funding in the 1996-1997 California state budget and has been consistently funded since then. Section 30061 (c) (1) of the Government Code outlines the future funding details for the COPS program through SLESF.

SLESF funds are grants, and the legislation requires that each municipality receive annual funds to be used for "front-line law enforcement services." These funds cannot be used to replace existing resources but must be used to enhance them. Eligible expenses include salaries, services, supplies, equipment, and administrative costs.

Furthermore, SLESF funds cannot be redirected to a municipality's general fund but must be exclusively used for front-line law enforcement services. The total award to each recipient entity is based on population size, with a minimum annual award of $100,000 for all entities. For example, the Capitola Police Department receives an annual award of $100,000. Fund distributions are made regularly throughout the year.

Contract Services – Utility services – Gas & Electric
Supplies – Front line law enforcement
Capital Outlay – Online report writing, electronic ticket writing. 83 92
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RESTRICTED TRANSIENT OCCUPANCY TAX (TOT)

CITY COUNCIL
This fund accounts for the 0.75% of restricted Transient Occupancy Tax (TOT) as approved by Capitola voters in 2018. The Restricted TOT Fund is used to receive and distribute half of the 0.40% of restricted TOT revenues for local business groups with the other half going directly to the Capitola Village & Wharf Business Improvement Area fund and the 0.35% of restricted TOT revenue dedicated to early childhood and youth programming.

ECYP Enrichment
 Field Trips and similar activities
Community Grants – Early Childhood & Youth Community Grants - $60,000 Other financing uses – payment to Capitola-Soquel Chamber of Commerce - $35,000  Equal amount distributed directly to Capitola BIA fund. 84 93
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ROAD MAINTENANCE & REHABILITATION ACT (SB1)

PUBLIC WORKS
This fund accounts for receipt and expenditure of revenue as provided by state law. The Road Maintenance & Rehabilitation Act Fund is primarily used to cover the expenses related to street maintenance and rehabilitation projects on City roads and streets.

Capital Outlay – Annual pavement management plan.
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REGIONAL TRANSPORTATION COMMISSION (RTC) STREETS

PUBLIC WORKS
This fund accounts for receipts and expenditures of money received from the Santa Cruz County Regional Transportation Commission. A description of proposed projects is listed in the summary section of this budget.

Capital Outlay – Annual pavement management plan.
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GAS TAX

PUBLIC WORKS
This fund accounts for receipt and expenditure of gasoline tax revenue as provided by state law. The Gas Tax Fund is primarily used to cover the expenses related to maintenance and operation of the City’s traffic signals and streetlights. Other Gas Tax Fund programs include street maintenance patching and striping project, street sweeper lease payments, and engineering.

The Gas Tax funds must be spent within 5 years of receipt. Future Gas Tax funds cannot be pledged for current projects with future repayment; therefore, the funds can only be spent once they have been received.

Contract Services:
 Admin & Engineering - $50,000
 Streetlights & traffic signals - $140,000
 Street & sidewalks - $35,000
 Street painting - $30,000
 Street sweeper maintenance - $30,000
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WHARF

PUBLIC WORKS
The Wharf Fund accounts for rental income generated from Capitola Wharf operations and is used to cover ongoing maintenance, operating costs, and periodic repairs. Revenues accumulate in the fund to help meet expenditure needs; however, major repairs—typically required on a 3–5-year cycle—have occasionally required General Fund support to keep the facility safe and accessible.

Following the passage of Measure F, the City reconstructed and reopened the Wharf in September 2024.

Measure F revenues are managed through the Capital Improvement Fund (CIP) and supported the design and construction of the improved Wharf. The Wharf Fund continues to be used for maintenance and repair of the now-rebuilt facility.

Contract Services:
 Utilities - $36,500
 Janitorial services - $7,000
 Property & Equipment repairs & maintenance - $4,500
 Rentals (portable toilets) - $10,000

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GENERAL PLAN UPDATE & MAINTENANCE

COMMUNITY DEVELOPMENT
In 2002, the State Legislature passed AB 2936 to enable cities to collect fees “reasonably necessary to prepare and revise the plans and policies that a local agency is required to adopt before it can make any necessary findings and determinations”. The General Plan Maintenance Fee is currently 0.5% of the total building valuation with a cap of $100,000 to cover the cost of a future comprehensive update of the City’s General Plan.

Valuation is calculated on a cost per square foot basis. The City of Capitola uses $200/square foot valuation for the average house, and $300/square foot for houses with increased values.

The City adopted a comprehensive update to the Zoning Code which was certified by the California Coastal Commission in 2021. The 6th Cycle Housing Element Update was certified by the state in 2024. The adopted budget provides adequate resources to fund consultant contracts and staff time to finalize the Housing Element implementation efforts in FY 25/26.

Contract services:
 RRM - $10,000 – Housing Element
 Update Housing Impact Fee – Rental - $30000
 City Staff time – Housing Element - $30,000
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GREEN BUILDING

COMMUNITY DEVELOPMENT

The Green Building Ordinance (Chapter 17.10 to the Capitola Municipal Code) was adopted in May 2008 and later amended in November 2014. The Green Building Ordinance establishes the Green Building Fund, which provides funding for the administration and implementation of the Green Building program and related sustainability initiatives. The intent of the Green Building fund is to provide resources for programs and initiatives which promote environmental sustainability, resource conservation, greenhouse gas emission reductions, and solid waste reduction. The fund is utilized for the City’s participation in regional climate action planning as a member of the Resilient Central Coast, fund a consultant contract to update the Climate Action Plan, and implement the Green Halo construction waste tracking system.

Application and Use of Funds (per City municipal code): The Capitola Green Building Regulation applies to non-residential additions and/or exterior remodels totaling 1,000 or more square feet and residential additions and/or remodels totaling 350 square feet or more. Building permits which are required to comply with the Green Building Regulations shall be assessed a fee of 0.0025 times the overall valuation of the project.

Revenues collected shall be maintained by the Finance Department as a revolving Green Building Fund and shall be used only for program management, training, publications, public educational purposes, incentive programs, materials and supplies necessary to promote sustainable development, water conservation, storm water pollution prevention, and climate action planning activities.

Contract services:

Resilient Coast California Working Group - $5,000
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PUBLIC ART

CITY MANAGER
The City established a Public Arts fee in 2004. The purpose is to ensure that 2% of the cost of eligible municipal capital improvement, renovation, or restoration projects are funded in whole or in part by the City of Capitola or any private, non-residential development project with a total building permit valuation of $250,000 or more is set aside for the acquisition of works of art to be displayed in or about public places within the City. For a private development, there is an in-lieu option to contribute 1% of the total budget to the Public Art Program. As part of the program expenses, up to 20% of the art allocations may be expended on program administration, project management and community outreach activities.

Projects completed in 2024/25
 Begonia Festival Commemorative Public Art Project
Projects for 2025/26
 Monterey Ave Railing Public Art Project-in contract
Contract services: Contracts with artists on various projects - $85,000 91 100
Item 3 A.

PARKING RESERVE

PUBLIC WORKS
In 2009, as part of a parking meter rate increase, the City Council established the Parking Reserve Fund.

Revenues deposited into this fund represent 16% of parking meter revenues from the Village area (Parking Meter Zone A1). The fund was established to fund parking improvement projects throughout the Village. As part of the FY 2023-24 City Council Goals this debt was paid off. 92 101
Item 3 A.

TECHNOLOGY FEE

COMMUNITY DEVELOPMENT
On November 12, 2009, the City of Capitola adopted a resolution establishing the Technology Fee. The fee is 5% of the Community Development and Public Works permit fees. The City has updated building, planning, and public works permitting software. The system better coordinates plan review activities among departments and will allow the public to inquire and search records and monitor progress of applications through the internet. The City will continue to make changes to the system in order to provide better service to the public and to improve internal processes. The zoning update process and its implementation will also benefit from the system’s data resources and enhanced reporting capabilities.

Contract Services:
 iWorQ annual fee – Public Works - $3,500
 iWorQ annual fee – Community Development - $12,500
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Item 3 A.

PUBLIC EDUCATION/GOVERNMENT CABLE TV ACCESS (PEG)

CITY MANAGER
This Special Revenue Fund accounts for Public, Education & Government (PEG) cable television fees. The PEG Access fee from all cable service providers is 64 cents per subscriber and is due to the City concurrent with the Franchise Fee Payments. The City is required to segregate PEG access fees and related purchases.

The funds received through PEG fees are retained by the City and utilized for capital equipment purchases in support of PEG access only. PEG channels are set aside for the following purposes:
- Public - available for use by the public
- Education - available for use by educational institutions for educational programming - Government – available for programming by local governments Capitola Outlay – Technology upgrades – City Council Chambers 94 103
Item 3 A.

CAPITOLA VILLAGE/WHARF BUSINESS IMPROVEMENT AREA (BIA)

FINANCE
In June 2005, the City of Capitola adopted Ordinance No. 889, which added Chapter 5.10 to the Capitola Municipal Code establishing the Capitola Village and Wharf Business Improvement Area (BIA). It was established to generate revenue for the sole purpose of promoting business in Capitola village and on the wharf. State law requires certain annual actions and public hearing to continue this assessment district. The program is run with the assistance of a BIA Board of Directors, which provides city council with an annual budget proposal.

Contract services and supplies: Capitola Village & Wharf Business Improvement Area annual report to be submitted to the Capitola City Council in late May or early June.

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Item 3 A.

COMMUNITY DEVELOPMENT BLOCK GRANTS (CDBG)

COMMUNITY DEVELOPMENT
The Community Development Block Grant (CDBG) program is a flexible program that provides communities with resources to address a wide range of unique community development needs. The program is funded though the Federal Department of Housing and Urban Development (HUD) and Capitola participate in the competitive Small Cities Grant Program administered by the California Department of Housing and Community Development.

In recent years, the City has been awarded CDBG grants to fund the City’s Local Hazard Mitigation Plan (LHMP), Safety Element of the General Plan Update, and CARES Act funding in response to the pandemic.

In 2021, the City was awarded with a $497,000 CDBG grant for public food assistance and transit including funds for Second Harvest Food Bank ($119,840), Meals on Wheels/Lift Line ($299,720), Grey Bears ($52,950), and administration of the grant. In 2024, the City was awarded $3.3 million to assist in the rehabilitation of the Jade Street Community Center.
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COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM INCOME

COMMUNITY DEVELOPMENT
This special revenue fund accounts for issuance and repayment of CDBG-funded housing loans made by the City to income-qualifying households. These funds are referred to as CDBG Program Income. CDBG Program Income must be used for CDBG-approved purposes. The three primary sources of CDBG Program Income are the payoff of Loma Vista Mobile Home Park resident loans, CDBG-funded First Time Homebuyer Program loans, and CDBG-funded Rehabilitation Program loans.

If the total amount of Program Income received in any fiscal year is less than $25,000, the funds received are not subject to Federal CDBG regulations. If the amount exceeds $25,000, all Program Income received during that fiscal year is restricted to CDBG-approved Federal spending guidelines. 97 106
Item 3 A.

LIBRARY

CITY MANAGER
This special revenue fund accounts for revenue and expenses related to the design and construction of the new Capitola Branch Library. The former Redevelopment Agency contributed $2.6 million to the County of Santa Cruz which was held in a trust fund for the future construction of a new branch library.

The Voters of Santa Cruz County authorized the Santa Cruz Libraries Facilities Financing Authority to issue general obligation bonds in an aggregate principal amount not exceeding $67 million. The City of Capitola will receive $10.0 million from the bonds to be used towards the construction of the new branch library, bringing the City’s total available funds to $12.6 million.

The City started utilizing the County Trust Fund money in FY 2016/17 to hire a project manager to oversee the development of plans and ultimately the construction of the Library. Under the trust fund agreement, the City can utilize 15 percent of the funds for pre-construction activities.

In addition to the funding sources mentioned above, the Friends of the Capitola Branch Library (Friends) conducted a fundraising campaign raising over $600,000. The funds donated to the Friends were utilized for enhancement projects throughout the Library. The City completed construction of the new Library in June 2021, however, there remains approximately $50,000 of donated funds that the Friends are evaluating for the best use of those remaining funds.

Additionally, Capitola is scheduled to receive approximately $165,000 annually for the next 20 years as a result of additional Measure S revenues. The first $855,000 will be used to repay the general fund for contributions to the Library project.
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Item 3 A.

HOME PROGRAM REUSE

COMMUNITY DEVELOPMENT
This special revenue fund accounts for revenue from the repayment of Federal Home Investments Partnership Program (HOME) loans. Expenditures in this fund must be used for affordable housing activities in accordance with the Federal HOME Program Reuse Guidelines, including first-time homebuyer loans, owner-occupied rehabilitation projects, and affordable housing assistance projects. As loans are paid off, those funds are returned to the Home Program Reuse Fund and become available for affordable housing activities.

Annual revenue represents principal and interest payments on the 30-year $238,000 Wharf Road Manor Mobile Homeowners Association Acquisition and Rehabilitation Project loan from 2004 as well as other HOME loan payoffs.

In January 2009, the City of Capitola entered a Standard Agreement with the California Department of Housing and Community Development for a HOME grant in the amount of $2,000,000 for rehabilitation expenses related to the 109-unit Bay Avenue Senior Apartments Project. Construction of the project was completed in May 2011. The grant was provided to First Community Housing, the Bay Avenue Senior Apartments project developer, as a residual receipts loan at 3% interest. In May 2011, the HOME program increased the grant award by $1.2 million dollars to cover additional costs related to required rent level revisions, which are lower than estimated in the original pro-forma. The grant funds have been received and dispersed. In recent years, multiple loans have been paid off creating a healthy fund balance for future HOME projects.

The adopted budget provides adequate resources to apply for a larger rehabilitation project for the Dakota Apartments in FY25/26. The 25-unit, 100% affordable housing development is approaching 30 years in age and in need of upgrades for the roof, heating system, and main lobby area. The budget also covers longterm monitoring of the Bay Avenue Senior Apartments. 99 108
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HOUSING TRUST

COMMUNITY DEVELOPMENT
In November 2004, the City Council adopted an inclusionary housing ordinance as part of the City’s ongoing efforts to provide affordable housing. This ordinance created the Affordable Housing Trust Fund to use as a flexible local source of funding for the creation of new affordable housing, rehabilitation of existing affordable housing, funding of local programs to assist lower and moderate-income buyers purchase affordable housing, or as leverage of local funds for larger State and Federal grants. This housing activity is funded through inlieu fees collected from development projects and does not impact on the General Fund.

The Affordable Inclusionary Housing Ordinance refers to a City Municipal Code Section that requires that fifteen percent (15%) of the units in a new for-sale residential construction project be made available to low or moderate-income buyers. Condominium conversion projects are also covered under this ordinance. As outlined in the ordinance, project developers provide affordable set-aside units or under certain conditions can pay an in-lieu fee.

The City’s Housing Trust Fund allows for up to $75,000 per year to be spent on affordable housing program administration. This includes working with developers on fee collection, administration of the Housing Trust Fund, and implementation of the Inclusionary Ordinance.

The adopted budget provides adequate resources to initiate a housing rehabilitation grant program, a down payment assistance program, and administration.

Contract Services: Down Payment Assistance
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PERMANENT LOCAL HOUSING ALLOCATION

COMMUNITY DEVELOPMENT
In 2017, Senate Bill 2 (SB 2) established a $75 recording fee on real estate documents and created the Permanent Local Housing Allocation Fund (PLHA). PLHA funds are allocated to local governments for eligible housing and homelessness activities and provide a permanent, on-going source of funding for housing-related projects and programs that address the unmet housing needs of communities.

On May 10, 2023, the City of Capitola was awarded $481,732 in PLHA funds for the first three years of the allocation (2019-2021) and a total five-year estimate of $630,557. The City anticipates additional funding on an annual basis. The first PLHA activity approved is for predevelopment costs related to affordable housing developments. The second activity is to fund the very low income homeless through an annual contribution of $35,000 to the Housing for Health Partnership to support year-round emergency shelter operations in Santa Cruz County. A portion of the funding will cover administrative expenses.

The Adopted budget proved adequate resources to support the development of the 52-unit 100% affordable housing development project at 1098 38th Avenue.

Contract services: Affordable housing and homelessness program development and activities. 101
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CAPITOLA HOUSING SUCCESSOR

COMMUNITY DEVELOPMENT
In 2011, the California State Legislature passed ABX1 26 to dissolve redevelopment agencies. The legislation was contested and upheld by the California Supreme Court. It requires a number of actions to be taken by the city in the winding down of the RDA. Among other things, it allows cities to elect to retain the former RDA Low- and Moderate-Income Housing Fund. The Capitola City Council elected to retain the former RDA Housing with the following new city special revenue fund, the Capitola Housing Successor.

A further requirement of the legislation is the establishment of a program income fund to segregate loan payoffs received by the Housing Successor after the dissolution of the Redevelopment Agency. These funds were initially restricted in their use, repayment, and reuse and the Housing Successor continues this restriction. As payments are received on loans associated with the original RDA Low- and Moderate-Income Housing Fund or the Capitola Housing Successor will be applied to the Capitola Housing Successor.

Newly implemented SB341 requires annual reporting on the Housing Successor Assets to be included with the Annual Financial Statements and the Housing and Community Development (HCD) Annual Progress Report on the Housing Element of the General Plan.

The Adopted budget provides adequate resources to continue supporting security deposit assistance, emergency rental assistance, administration of the City’s affordable housing program, and the MidPen loan to help fund the preconstruction and construction for the 52-unit 100% affordable development at 1098 38th Avenue.

Contract Services: Homeless Action Plan
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RESERVES
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RESERVES
Emergency Reserves (Finance Department): The City Council established the Emergency Reserve Fund to accumulate funds to meet future unanticipated needs. The City of Capitola Administrative Policy III-3, Financial Management Policy, amended on February 28, 2013, to increase the required level of emergency reserves from five to ten percent of operating expenditures.

Contingency Reserve (Finance Department): The City Council established the Contingency Reserve Fund to accumulate a prudent level of financial resources to protect the City against temporary revenue shortfalls or unanticipated operating costs, and/or to meet short-term cash flow requirements. The City of Capitola Administrative Policy III-3, Financial Management Policy, amended on February 28, 2013, to increase the level of contingency reserves from 10 to 15 percent of operating expenditures.

PERS Contingency Reserve (Finance Department): The City Council established the PERS Contingency Reserve Fund in FY 2015/16. The Council discussed possible uses of a General Fund positive ending balance and wanted to set aside funds for future PERS increases. In FY 2022-13 an additional $500,000 was deposited into the Trust to add to the previously deposited $800,000.

Facilities Reserve (Finance Department): The City Council established the Facilities Reserve Fund to serve as a resource to fund capital improvements and major repairs on City facilities. Based on the National Research Council Stewardship of Federal Facility guidelines, the City’s goal is to provide annual contributions equal to two percent of the facility replacement values. This annual contribution will be determined each budget year.

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EMERGENCY RESERVES
The City of Capitola adopted an Emergency Reserve Policy as part of the City’s Financial Management Policies. This reserve protects against significant one-time costs that arise from major unpredictable emergency events. In FY 2012/13, the City amended the Financial Management Policies to increase the funding level of Emergency Reserves from five to ten percent of the General Fund budgeted expenditures, or approximately $1.6 million in FY 2024-25.

The Emergency Reserve fund was nearly depleted in March of 2011 due to an underground storm drain failure that flooded Capitola Village and the surrounding area. The City was required to recognize a $1.4 million extraordinary loss on the FY 2010/11 and FY 2011/12 financial statements. An additional $200,000 was needed to fund a related retaining wall project. In FY 2012/13, a settlement was reached with the City’s insurance carrier to pay $1.35 million in damages to the City.

The March 2011 pipe failure repairs were paid from the City’s Emergency Reserve Fund. As funding in the Emergency Reserve Fund fell short of the flood-related costs, additional funding to respond to the flood event was provided through interfund loans from the Contingency Reserve Fund and Capital Improvement Fund. In FY 2011/12, the Emergency Reserve Fund balance was $410,000 lower than the targeted balance. In FY 2012/13, funds were transferred from the internal service funds, Measure O revenue receipts, and the General Fund operating balance to assist in replenishing the reserves.

In FY 2014/15 and FY 2015/16, $465,100 and $213,000, respectively, were budgeted for transfer to the fund to prepare for any unforeseeable emergencies and to meet the new Emergency Reserve targeted levels. As the chart below shows, the reserve balance is currently below the target level for FY 2024-25 in part due to the transfer of $80,000 for damages from the Jan. 2023 storms. The City anticipates receiving reimbursements from FEMA and Cal OES and plans to fund reserves to target balances once received.
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CONTINGENCY RESERVES
The City of Capitola adopted a Contingency Reserve Policy as part of the City’s Financial Management Policies. This reserve was established to provide a prudent level of financial resources to protect against temporary revenue shortfalls, unanticipated operating costs, and/or to meet short-term cash flow requirements. In FY 2012/13, the City amended the Financial Management Policies to increase the Contingency Reserve target from 10 to 15 percent of General Fund budgeted expenditures, or approximately $2.6 million in FY 2024-25.

Due to the expenses associated with the March 2011 pipe failure, a loan was made from the Contingency Reserves Fund to the Emergency Reserves Fund. As a result, Contingency Reserves were $727,000 below their Financial Management Policy funding goal in FY 2011/12. In FY 2012/13, funds were transferred from the Internal Service Funds, Measure O revenue receipts, and the General Fund operating balance to assist in replenishing and building the reserves.

In FY 2014/15 and FY 2015/16, a total of $182,600 and $89,400 were transferred to the fund to meet the new Contingency Reserve targeted levels. As the chart below shows, the reserve balance is currently estimated to be below the target level for FY 2024-25. The City anticipates receiving reimbursements from FEMA and Cal OES and plans to fund reserves to target balances once received. 106
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PERS CONTINGENCY RESERVES
The City of Capitola established a PERS Contingency Reserve as part of the FY 2015/16 Budget process. The fund was set up to help stabilize the City’s finances and help manage future increases in PERS contributions.

The PERS Contingency Fund was initially funded with a $300,000 transfer from the General Fund. The $300,000 allows for two years of PERS projected increases and time to evaluate options to address the larger unfunded liability and yearly obligations.

In December 2016, $300,000 was invested in a moderately conservative trust fund with Public Agency Retirement Services (PARS). The FY 17/18 budget transferred an additional $500,000 into the PERS trust fund to offset rising pension costs. During the FY 2022-23 goal setting session the City Council allocated $500,000 of existing fund balance to the PERS Trust reserve. 107
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FACILITIES RESERVES
The Facilities Reserve Fund was established in FY 2014-15 to serve as a resource to fund capital improvements and major repairs on City facilities. The National Research Council Stewardship of Federal Facilities recommends setting aside two to four percent of building replacement costs to preserve or extend the life of facilities. The estimated replacement value of the City’s facilities is $17.5 million.

The Facilities Reserve is used to fund future facility needs of the City. The Proposed FY 2024-25 Budget does not include nay funding for the Facilities Reserve. 108
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MULTI-YEAR ASSETS & OBLIGATIONS

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MULTI-YEAR ASSETS & OBLIGATIONS
City & Joint Powers Authority (JPA) Multi-Year Obligations: The City of Capitola has six multiyear obligations, two of which are part of a Joint Powers Authority. The obligations are paid from various funding sources.

Pacific Cove Lease Financing: In March 2011, a pipe failure flooded the City-owned Pacific Cove Mobile Home Park. The City of Capitola entered into a $2,390,000 lease/sublease agreement to finance the relocation of mobile home residents and close the park.

Beach and Village Parking Lot II: The City of Capitola initiated a $1,372,500 California Infrastructure and Economic Development Bank (I-Bank) loan to fund the development of a parking lot and related improvements at the site of the former Pacific Cove Mobile Home Park. 111
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CITY/JOINT POWERS AUTHORITY MULTI-YEAR ASSETS & OBLIGATIONS

GENERAL GOVERNMENT
The City of Capitola has seven multi-year obligations, three of which are part of a Joint Powers Authority. The obligations are paid from various funding sources. All obligations are shown in the budgets of the applicable funds and all payments are current.

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PACIFIC COVE LEASE FINANCING

DEBT SERVICE
The City of Capitola owns 426 Capitola Avenue, which formerly housed the 41 mobile home Pacific Cove Mobile Home Park. On March 24, 2011, a 72” storm drain that carries Noble Gulch Creek water from Bay Avenue to Soquel Creek catastrophically failed following a heavy rain storm. This resulted in flooding of the Pacific Cove Mobile Home Park, City Hall and village residences and businesses.

The initial estimate to bring the park up to code was $1.33 million. Due to the high cost and potential for future liability, Capitola City Council approved a Relocation Impact Report (RIR) for the closure of Pacific Cove Mobile Home Park in January 2012. The RIR provided a cost estimate for relocating residents and professional relocation consultants to help displaced residents find suitable replacement housing. The City executed a $2.39 million lease/sublease agreement using the existing City Hall site and adjacent upper parking lot as the pledged property. The City verified income status as part of the relocation process and determined that a percentage of Housing Trust Fund monies could be used to repay the debt service at a proportion no greater than the number of low income mobile home occupants that were relocated. The funding sources for debt service payments will be determined annually. Any General Fund monies for the share of allowable costs from other funding sources may be reimbursed in subsequent years as funds become available.

At the time the loan was issued, there was some uncertainty as to whether the property would be developed for public or private use. This resulted in the City entering into a 20–year taxable lease/sublease agreement at an interest rate of 5.14%. In FY 12/13, the City determined that the site would be converted to a public parking lot, now named Beach & Village Parking Lot II (BVPL II). This public use allows the City to refinance the existing debt at a 3.25% tax-exempt interest rate with a 10- year Treasury Bill reset + 1.5% in year 10. As a result of the refinancing, annual loan payments were reduced by approximately $28,000, with an estimated nine-year interest savings of approximately $350,000. In FY 12/13 the City reached a $1.35 million insurance settlement related to the pipe failure. This resulted in a principal reduction of $476,200, with a prepayment penalty of $23,800.

During the FY 2023-24 City Council Goal setting the Council allocated $725,000 to pay off the outstanding balance saving approximately $150,000 of interest costs over the next several years. 113
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Payment
Date Principal
Interest
/Prepmt
penalty Total Fiscal Year
9/1/2012 30,815 $ 53,893$ 84,708$
3/1/2013 35,871 60,632 96,503
6/28/2013 476,200 23,810 500,010 $ 681,221
9/1/2013 42,440 22,843 65,283
3/1/2014 53,207 29,326 82,533 147,816
9/1/2014 46,196 36,337 82,533
3/1/2015 46,947 35,586 82,533 165,066
9/1/2015 47,710 34,823 82,533
3/1/2016 48,485 34,048 82,533 165,066
9/1/2016 49,273 33,260 82,533
3/1/2017 50,074 32,459 82,533 165,066
9/1/2017 50,887 31,645 82,533
3/1/2018 51,714 30,819 82,533 165,066
9/1/2018 52,555 29,978 82,533
3/1/2019 53,409 29,124 82,533 165,066
9/1/2019 54,277 28,256 82,533
3/1/2020 55,159 27,374 82,533 165,066
9/1/2020 56,055 26,478 82,533
3/1/2021 56,966 25,567 82,533 165,066
9/1/2021 57,891 24,641 82,533
3/1/2022 58,832 23,701 82,533 165,066
9/1/2022 59,788 22,745 82,533
3/1/2023 21,773 60,760 82,533 165,066
9/1/2023 61,747 20,786 82,533
3/1/2024 62,751 19,782 82,533 165,066
9/1/2024 63,770 18,763 82,533
3/1/2025 64,807 17,726 82,533 165,066
9/1/2025 65,860 16,673 82,533
3/1/2026 66,930 15,603 82,533 165,066
9/1/2026 68,017 14,515 82,533
3/1/2027 69,123 13,410 82,533 165,066
9/1/2027 70,246 12,287 82,533
3/1/2028 71,387 11,145 82,533 165,066
9/1/2028 72,548 9,985 82,533
3/1/2029 57,304 7,887 65,191 147,724
9/1/2029 - - -
3/1/2030 - - - -
9/1/2030 - - -
3/1/2031 - - - -
9/1/2031 - - -
3/1/2032 - - - -
TOTAL 2,390,000 $ 897,681$ 3,287,681$ $ 3,287,681
Pacific Cove Financing Lease Debt Service
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BEACH & VILLAGE PARKING II – LEASE FINANCING

DEBT SERVICE
In April 2013, the City of Capitola received $1,372,000 in funding from the California Infrastructure and Economic Development Bank (I-Bank) for development of a parking lot on the former Pacific Cove Mobile Home Park site. The funding was used to create the 226 space Beach & Village Parking Lot II. The project included grading, pay station installation, shuttle bus stops, landscaping, pedestrian walkways, and pay stations for the upper parking lot. The I-Bank loan is 2.26% tax exempt reimbursement financing.

This project improved parking capacity for Capitola Village, Capitola Beach, and Capitola Wharf, and is especially helpful during peak seasons. The additional parking spaces are also anticipated to facilitate the development of a hotel. The parking lot contributes about $62,500 annual revenue to the General Fund and the I-Bank annual debt service of $87,116 is paid with funds transferred from the General Fund.
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Payment
Dates Principal Interest Total
Fiscal
Year
8/1/2014 55,040 $ 15,922 70,962
2/1/2015 14,887 14,887 $ 85,849
8/1/2015 56,284 18,840 75,124
2/1/2016 14,251 14,251 89,375
8/1/2016 57,556 18,035 75,591
2/1/2017 13,601 13,601 89,192
8/1/2017 58,857 17,212 76,069
2/1/2018 12,936 12,936 89,004
8/1/2018 60,187 16,370 76,557
2/1/2019 12,256 12,256 88,812
8/1/2019 61,547 15,509 77,056
2/1/2020 11,560 11,560 88,616
8/1/2020 62,938 14,629 77,567
2/1/2021 10,849 10,849 88,416
8/1/2021 64,360 13,729 78,089
2/1/2022 10,122 10,122 88,211
8/1/2022 65,815 12,809 78,624
2/1/2023 9,378 9,378 88,002
8/1/2023 67,302 11,868 79,170
2/1/2024 8,618 8,618 87,788
8/1/2024 68,823 10,905 79,728
2/1/2025 7,840 7,840 87,568
8/1/2025 70,379 9,921 80,300
2/1/2026 7,045 7,045 87,344
8/1/2026 71,969 8,915 80,884
2/1/2027 6,231 6,231 87,116
8/1/2027 73,596 7,886 81,482
2/1/2028 5,400 5,400 86,881
8/1/2028 75,259 6,833 82,092
2/1/2029 4,549 4,549 86,641
8/1/2029 76,960 5,757 82,717
2/1/2030 3,680 3,680 86,396
8/1/2030 78,699 4,657 83,356
2/1/2031 2,790 2,790 86,146
8/1/2031 80,478 3,531 84,009
2/1/2032 1,881 1,881 85,890
8/1/2032 82,297 2,380 84,677
2/1/2033 951 951 85,627
8/1/2033 84,156 1,204 85,360 85,360
Total $ 375,736 1,372,500 $ 1,748,236 $ 1,748,236 $
Beach & Village Parking Lot II Lease Financing
Debt Service
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Capitola City Council
Agenda Report
Meeting: May 6, 2026
From: Administrative Services Department
Subject: Presentation of the Proposed Fiscal Year 2026-27 Budget Recommended Action: Receive the proposed budget, provide staff direction, and continue budget deliberations to the next budget hearing scheduled for May 21, 2026.

Discussion: The City of Capitola proposed Fiscal Year (FY) 2026-27 and FY 2027-28 Budget is a two-year financial plan. This plan incorporates the use of available resources programmed toward City Council goals and key projects. The proposed budget was prepared based on a combination of known factors, such as increases in CalPERS (Public Employees’ Retirement System) costs, and conservative estimates for both revenues and expenditures.

The budget is the City’s operating plan and a primary mechanism by which the Council’s goals and vision for the City are transmitted to staff for implementation.

The document is organized to present information in several ways. General Fund revenues and expenditures are shown to provide information about longer-term patterns and overall fiscal stability, then revenues and expenditures for the City’s various departments are shown to provide additional detail and information about the City’s programs and projects.

Overall, the FY 2026-27 proposed budget is structurally slightly out of balance, with expenditures exceeding revenues by approximately $8,300; however, current projections show the FY 2027- 28 planned budget as structurally balanced. Current financial forecasts show that the budget becomes unbalanced beginning in FY 2028-29, primarily due to increases in the City’s CalPERS Retirement Unfunded Actuarial Liability (UAL). Since the passage of Measure Y, the annual CalPERS UAL has increased $1,132,149 vs. the estimated Measure Y revenue of $1,144,584.

The FY 2026-27 proposed budget maintains services for residents of Capitola and considers the recently adopted Strategic Plan’s six priorities. Nevertheless, the City must also remain focused on the long-term budget picture, which includes unpredictable CalPERS costs and a challenging economy in the coming years.

Staff is presenting a proposed FY 2026-27 Budget that is slightly out of balance however, the budget becomes structurally balanced in FY 2027-28 based on current projections. During this first budget meeting, some of the key discussion points are as follows:
 Parking citation revenue: Recommend increasing revenue from $450,000 in the current fiscal year to $850,000 now that the division is fully staffed and to account for the recent increase in parking citation fee amount.
 Multi-Service Officer vacancies: The two Multi-Service Officer positions have been vacant for most of FY 2025-26, and staff is proposing to fill one position and freeze the other, representing a salary savings of approximately $100,000. 126
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 Salary savings: In FY 2024-25, the City experienced a vacancy rate of 3.28%, representing salary savings of approximately $384,000. The proposed budget includes salary savings from regular vacancies of $93,000 or 25% of the amount realized in FY 2024-25.
 Training & Membership: Departments eliminated all discretionary training, representing savings of approximately $46,000 from the prior year.

The General Fund balance is estimated to end FY 2026-27 below the minimum target of $500,000. Additionally, both the Contingency and Emergency reserves are currently below their target balance amounts pending reimbursements from FEMA, Cal OES and additional insurance claims. The FY 2026-27 Proposed Budget, as presented, does not return the General Fund to the $500,000 target balance; staff will update year-end estimates once the January – March sales tax data is received at the end of May.

Current revenue and expenditure projections show revenues not keeping pace with expenditures in the 5-year forecast. Given positive CalPERS returns over the last two years, it is possible the projected UAL will decrease. However in prior years when CalPERS returns have exceeded expectations there has been minimal downward adjustment on projected UAL payments. Staff will continue to closely monitor revenues, expenditures, and fund balance throughout FY 2026- 27 and will report to the Council during the mid-year budget report.

An updated draft budget (Attachment 1) has been distributed and is available for public viewing on the City’s website. The attached draft budget, updated on May 1, 2026 includes several corrections to typographical errors in the April 17 draft budget.

Attachments:

1. FY 2026-27 Proposed Budget – Revised May 1, 2026
Report Prepared By: Jim Malberg, Administrative Services Director Reviewed By: Julia Gautho, City Clerk
Approved By: Jamie Goldstein, City Manager
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PROPOSED BUDGET
FISCAL YEAR 2026-27

CITY OF CAPITOLA
Capitola, California
Revised May 1, 2026
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CITY COUNCIL
Margaux Morgan, Mayor
Gerry Jensen, Vice Mayor
Joe Clarke
Melinda Orbach
Susan Westman
Jamie Goldstein, City Manager
Sarah Ryan, Chief of Police
Jessica Kahn, Public Works Director
Jim Malberg, Administrative Services Director / Treasurer Katie Herlihy, Community & Economic Development Director Nikki Bryant, Community Services & Recreation Director
Chloe Woodmansee, Assistant to the City Manager
Julia Gautho, City Clerk
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California Society of Municipal
Finance Officers
Certificate of Award
Operating Budget Excellence Award
Fiscal Year 2025-2026
Presented to the
City of Capitola
For meeting the criteria established to achieve a CSMFO Award in Budgeting.

February 5, 2026
Jennifer Wakeman James Russell-Field, Chair 2025 CSMFO President Recognition Committee Dedicated to Excellence in Municipal Financial Reporting 131
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TABLE OF CONTENTS
Mission Statement ............................................................................................................. 1 City Manager’s Budget Message ..................................................................................... .3 Summary Information ……………………………………………… ............................ …….10 General Fund Revenues ................................................................................................. 21 General Fund Expenditures…………… .......................................................................... 30 Department Overview ................................................................................................... 47 City Council ......................................................................................................... 48 City Attorney ........................................................................................................ 49 City Manager ....................................................................................................... 50 Administrative Services……………………………………………………………….52
Police……………………………………………………………………………………55
Public Works…………………………………………………………………………...60
Community & Economic Development .................. ………………………………...67 Community Services and Recreation ............................... ………………………...69 Capitola Museum ................................................................................................. 71 Internal Service Funds .................................................................................................. 72 Stores Fund ......................................................................................................... 74 Information Technology Fund .............................................................................. 75 Equipment Replacement Fund ........................................................................... 76 Self-Insurance Liability Fund ............................................................................... 77 Workers’ Compensation Fund ............................................................................. 78 Compensated Absences Fund ............................................................................ 79 Special Revenue Funds ................................................................................................ 80 Supplemental Law Enforcement Services ........................................................... 83 Restricted Transient Occupancy Tax (TOT) ........................................................ 84 Road Maintenance & Rehabilitation Act (SB1). ................................................... 85 RTC Streets.………………………………………………………………… .............. 86 Gas Tax……………………………………….………………………… ............. . ….87
Wharf ………. ...................................................................................................... 88 General Plan Update and Maintenance .............................................................. 89 Green Building Education ................................................................................... 90 Public Art ............................................................................................................. 91 Parking Reserve … ............................................................................................ .92 Technology Fee .................................................................................................. 93 Public Education & Government Cable TV Access ............................................. 94 Capitola Village & Wharf BIA .............................................................................. 95 Community Development Block Grants (CDBG) ................................................ 96 CDBG Program Income. ...................................................................................... 97 Library………….……………………………………………… ................................. 98 HOME Program Reuse ...................................................................................... 99 Housing Trust ................................................................................................... 100 Permanent Local Housing Allocation (PLHA) .................................................... 101 Capitola Housing Successor ............................................................................. 102

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Reserves……. .............................................................................................................. 103 Emergency Reserves ........................................................................................ 105 Contingency Reserves ...................................................................................... 106 PERS Contingency Reserves ............................................................................ 107 Facility Reserves ............................................................................................... 108 Multi-Year Assets & Obligations ................................................................................ 109 City and Joint Powers Authority ......................................................................... 112 Pacific Cove Lease Financing ........................................................................... 113 Beach and Village Lot II Lease Financing ......................................................... 115 133
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Mission and Values
Mission - Why we’re here
We are a vibrant coastal community committed to delivering dependable, accessible services that foster connection and belonging through participatory governance.

Vision - Where we’re going
The City of Capitola is a thriving, family-friendly community that prioritizes resident needs while fostering a healthy balance between sustainable tourism, economic growth, and coastal environment and lifestyle.

Values – The Capitola Way
 Collaborative Engagement
 Dynamic Innovation
 Fiscal Sustainability
 Resilient Community
 Respectful Service
 Responsible Growth
Strategic Priorities:

1. Accountable Government

2. Attainable Housing

3. Community Safety

4. Economic Opportunity

5. Healthy Families, Community, and Environment

6. Sustainable Infrastructure
Approved March 2025
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TO: City Council
FROM: City Manager
SUBJECT: FY 2026-27 Proposed and FY 2027-28 Planned Budget.

CITY MANAGER’S MESSAGE - STATE OF THE CITY
On behalf of City staff, I am pleased to submit the proposed budget for Fiscal Year (FY) 2026-27.

Staff was tasked with developing a budget that continues to deliver the high-quality of services the community is accustomed to while also allocating available resources to City Council goals and strategic priorities. The result is a balanced budget, however the projected ending General Fund balance of $125,445 is well below the typical minimum target general fund balance of $500,000.

The fund balance in the General Fund is projected to remain positive for the next fiscal year, however, based on known increases related to CalPERS pension costs and current assumptions regarding inflation, the General Fund will become structurally imbalanced in FY 2028-29. With overwhelming voter approval, Measure Y became a new revenue stream in early 2025. That revenue is critical in the proposed FY 2026-27 budget to avoid deep service level cuts. Without the Measure Y revenue, the City would have likely had to reduce staffing by approximately 6% this fiscal year, eliminate all discretionary contracts and eliminate funding for nonprofit service providers. More significant cuts would likely have been necessary in 2027, which the expiration of Measure F.

The budget provides resources to maintain a high level of service for Capitola residents this coming fiscal year. Nevertheless, the City must also remain focused on the long-term budget picture, which not only includes a great deal of uncertainty around general fund revenues but must continue to address increasing pension costs. The erratic revenue data, uncertain economic stability at the national level, and projected rising pension costs will likely result in very challenging budgetary decisions for several years. In the coming fiscal year, staff will continue to closely monitor general fund revenues, paying extra attention to sales and transient occupancy tax performance, and continue to report to the City Council on a regular basis. Additionally, staff will develop options for Council consideration to balance the near- and longer-term budgets as well as focus on the long-term structural budget issues.

Storm damages from 2023 and 2024 were categorized into fifteen projects of which FEMA and Cal OES have approved fourteen for reimbursement totaling $291,918 with the City is responsible for matching funds of $8,360. To date, we have received $291,918 with $962,069 still outstanding for wharf repairs.

Staff recommends the City hold off on allocating any additional FEMA/Cal OES reimbursement until those funds are received. One potential use for these funds is to replenish reserve funding used to respond to the recent series of emergency events. 3 136
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The Capitola Mall remains a major funding source for the City, however long-term national and local trends have put significant pressure on existing brick-and-mortar retailers to remain competitive with internet options. The Mall was purchased in 2016 by Merlone Geier Partners, which also acquired the old Sears building in 2018. In FY 2019-20 the new owners initiated a public process, including a public meeting and regional survey of residents to begin evaluating options to redevelop the Mall.

City staff remains actively engaged with Mall ownership to help them navigate the development review processes, however, the pandemic put the project on pause. Obviously, the long-term fiscal health of the City is closely related to a successful Mall that meets the community’s needs.

As the outcome of any potential Mall redevelopment is unknown at this time, the site remains a major opportunity, and challenge, as the City evaluates its long-term fiscal position.

In 2016 voters passed Measure F to extend a temporary quarter percent local sales tax for an additional 10 years. The primary purpose of Measure F was to utilize the funding to protect City infrastructure from storms and rising sea levels. The City completed Measure projects , including rebuilding the wharf, flume and jetty earlier than anticipated. In response to early project completion, the City put Measure Y on the ballot in 2024 to repeal Measure F and replace it with a new half percent local sales tax for 10 years. Voters passed Measure Y with 67% approval. The City implemented salary adjustments for most of city staff in January as a result of this tax measure passing to maintain competitive salary ranges.

BUDGETARY GOALS AND PRINCIPLES
The FY 2026-27 General Fund budget was developed with an emphasis on financial stability and maintaining core programs and services for Capitola residents and visitors. As a first step in developing the Budget, the City Council had adopted the 2025-2029 Strategic Plan in the previous year. Budget highlights and proposed changes are presented in consideration of the six priorities included in the plan:
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OTHER BUGETARY HIGHLIGHTS AND PROPOSED CHANGES
While the budget was largely prepared to maintain core services and keep expenditures at the lowest level possible.
41st Avenue Pavement Rehabilitation and Multimodal Improvements This project rehabilitates pavement and implements multimodal safety improvements along 41st Avenue, a key regional corridor serving residential neighborhoods, commercial areas, and access to State Route 1. The project includes pavement rehabilitation along 41st Avenue, bicycle and pedestrian safety improvements, curb ramp upgrades, and updated pavement striping and signage
Stockton Avenue Bridge
The Stockton Avenue Bridge is a critical connection within Capitola and serves as a primary access route to Capitola Village and the surrounding coastal areas. On August 24, 2023, the City Council accepted $500,000 in grant funding from the California Department of Water Resources for the Stockton Bridge Debris Mitigation Project. The adopted FY 2022–23 budget also allocated $350,000 for the initial phase of the project, bringing total available funding to approximately $850,000.

Cliff Drive Resiliency Project
In January 2023, major storm events caused significant erosion along the bluff southwest of Hooper Beach, undermining a retaining wall originally installed in the mid-1990s. Following this damage, the City received approval from Caltrans and the Federal Highway Administration (FHWA) to pursue permanent improvements through the Emergency Relief (ER) program. The Cliff Drive Resiliency Project aims to stabilize the roadway and protect the critical infrastructure it contains, while also improving public access and pedestrian safety along this important coastal segment in Capitola. The project area extends along cliff drive from the parking area where Portola Drive becomes Cliff Drive to the staircase leading to the beach near the base of the Capitola Wharf—an arterial roadway serving residents, utility infrastructure, and coastal visitors.

Esplanade Park
The project, currently in the design phase following an award of $275,000 from the State Coastal Conservancy, will evaluate sea level rise, coastal flooding, and storm impacts at Esplanade Park and develop conceptual design alternatives to improve long-term resilience and maintain public coastal access.

Monterey Park
The FY 2025-26 provided initial seed money to begin conceptual planning for a small play structure at Monterey Park. Staff plans to begin initial neighbor outreach in Spring.

Countywide Radio Project
FY 202-2 Budget proposes using general fund and restricted SLEF funding to fund the City’s portion of the major countywide public safety radio upgrade project known as RING. The project will facilitate high-quality radio frequency across Santa Cruz County and increase interagency law enforcement collaboration. The project includes significant new radio infrastructure in the City, 5 138
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compliant with new DOJ standards. The County, which is leading this effort, plans to enter into a contract with all the public safety organizations in the County and a vendor this fall. While final costs to the City have not yet been established, staff anticipates the cost will be roughly $45,000 a year for the next 10-years.

Measure S
Measure S is a special tax on all developed property within the Santa Cruz Public Libraries District boundary (all of Santa Cruz County except the City of Watsonville); it was approved by voters in 2016 for a 30-year period. Tax funds are restricted to repair, upgrade, and modernize the local library facilities. The Santa Cruz Libraries Financing Authority Community Facilities District was formed for the purpose of levying the special tax to each of the four members: Cities of Capitola, Santa Cruz, and Scotts Valley and the County of Santa Cruz.

The City of Capitola completed the $16.5 million Capitola Branch library in 2022 using $10,476,529 in Measure S funding, funds from the County Library Fund, former Redevelopment Agency Funds, and $856,000 in City general fund.

Recent projections indicate that Measure S will generate more revenue than initially anticipated, with the City expected to receive approximately $165,000 annually for eligible library expenditures. The FY 2026–27 Budget proposes allocating this amount to the General Fund to continue repaying the $856,000 previously advanced for the construction of the Capitola Library.

General Fund Balance
The general fund balance is estimated to end FY 2025-26 below the minimum target of $500,000.

Additionally, both the Contingency and Emergency reserves are currently below their target balance amounts pending reimbursements from FEMA and Cal OES. The FY 2026-27 Proposed Budget currently does not return the general fund to the $500,000 target balance, staff will be updating year end estimates once the Jan. – Mar. sales tax is received at the end of May.

Current revenue and expenditure projections show revenues not keeping pace with expenditures, requiring usage of Measure Y revenues to structurally balance the budget in the 5-year forecast.

Staff will continue to closely monitor revenues, expenditures, and fund balance throughout FY 2026-27 and will report to the Council during the mid-year budget report.

PRIOR YEAR ACCOMPLISHMENTS
In FY 2025-26 the City completed several significant projects, which provided residents and visitors with increased recreational and public art opportunities, while continuing to strengthen public safety and community development activities. Some of the City’s accomplishments include:
 Redesigned the City’s website to enhance user experience, improve accessibility, and modernize digital engagement.
 Completed the Community Center Renovation project.
 Completed the Treasure Cove Playground project.
 Completed Jade Street Park restroom renovation
 Completed the Rispin Park project.
 Completed the FY24/25 Pavement Management Program
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 Updated and amended zoning code and general plan to facilitate housing production on the Capitola Mall Site.
 Completed Housing Element-required rezones of multi residential sites in the City  Worked with Kings Plaza property owners to bring Tesla dealership to Capitola  Implemented a system that allows the public to pay for business licenses and other city services such as permits through online.
 Received more than $1,200,000 in grant funding for key projects such as Esplanade Park redesign, traffic and sidewalk improvements and key public safety efforts.  Bid and awarded the 41st Avenue Pavement Rehabilitation and Multimodal Improvements project contract, construction begins summer 2026.

Goal Setting
On March 26, City Council received a presentation regarding ongoing projects and future potential projects, programs and goals, and identified potential new goals. At that meeting, the following ongoing CIP projects were identified by staff.

Project Current Phase Status / Key Milestone
Stockton Bridge
Rehabilitation
Assessment / Design Structural evaluation underway; results expected Spring 2026.

Community Center
Complex
Construction Construction underway; opening
scheduled for Summer 2026.

Cliff Drive Planning / Engineering Technical studies underway; advancing toward environmental clearance and
funding for construction phases.

Park at Rispin
Mansion: Landscaping
and Additional
Elements
Implementation Park open; funding needed for additional landscaping; community fundraiser
identified for additional elements (MOU in
April). Measure Q grant for restoration and
interpretive signs submitted.
41st Avenue Pavement
Rehabilitation and
Multimodal
Improvements
Construction Bids
Received
Council contract approved
Pavement
Management
Ongoing Program Annual street resurfacing and pavement
preservation program (FY 2025-26: 41st
Avenue Rehab & Multimodal; FY 2026-27:
residential street project)
Esplanade Park
Design
Concept Planning /
Design
$275,000 Coastal Conservancy grant
award. RFP for design team issued.

Grand Avenue
Pathway (Depot Hill)
Feasibility / Alignment
Study
4/9: Council action: funding could be
considered during Budget process
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Bay Avenue Corridor
Improvements
Design Development Corridor study and design underway with RTC funding. Council review of draft
design scheduled in April.

Five-Year Capital
Improvement Program
Program Development Draft FY 2026-31 CIP anticipated for Council review in Spring 2026.

Capitola Wharf Master
Plan
Project Planning Design presentation scheduled for Council review in April.

Climate Action Plan
Update
Project Planning Update underway; completion anticipated within ~6 months.

Active Transportation
Plan (ATP)
Project Planning Planning and community outreach to begin May 2026.

The following projects and programs were proposed by staff at the City Council Goal setting meeting.

Department Draft Goals
City Manager Election: three Council seats
Employee contract negotiations
Beach Lifeguard Service Organizational Study
Police Anti Human Trafficking Ordinance
Countywide records management system rollout
Continued funding for: Drone Program, RING, Body
Worn Cameras
Community & Economic Development Continue working with Mall, Village hotel owners and other economic development opportunities.

Ordinance updates: Community Benefits, ADUs,
Bicycle Parking, Hotel Incentives
Review Outdoor Dinning Program
Development impact fees - 41st Avenue
Housing Element Implementation: Down payment
assistance program, update nexus study for rental
housing.

Community Services & Recreation Update Community Center rental package Explore and develop new opportunities related to
renovated facilities
Administrative Services Improve fiscal transparency
Transition to paperless HR Division
Return TOT administration to internal staff
Also during the goal setting session City Council identified the following potential new goals for next fiscal year. The table below notes if a majority of the members mentioned the item at the meeting as a goal, and if the item would require funding or just staff time. 8 141
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Funding
Required
Goal Majority of
Council
Notes
Yes Evaluation opportunity to use
Trestle
✔
Yes Seek funding for sidewalk infill
Projects
$125k funding from RTC
obtained in FY 25/26
Yes Examine if bike-detection
technology can help with bike
safety

No Look at rent control costs/risks
No Report back on Economic
Development opportunities

No Options to manage PERS costs
No Review options for revenue-neutral
programs in

No Ensure CS&R balance of programs
for youth and seniors

No Community engagement (fun facts)
Yes Ebike safety plan Program initiated 2026
No Parking rate evaluation Rates last updated in 2024
Yes Village clean up & new trashcans
No Work with community groups to
help fund projects

No Tree maintenance near street lights
Yes Funds to match private donation at
Rispin Park

Yes Improved bike facilities on
38th Avenue

No Present info about GF spend by
geographic area

No Study Citywide vacation rental zone
revenue

Yes Additional sidewalk cleaning when
weather is nice, off season

CONCLUSION
The development of the annual budget takes a great amount of staff time and effort and must be completed in a compressed timeline. I sincerely appreciate all the department directors and departmental budget liaisons for their contributions. Special recognition is extended to the Finance Department for its efforts in coordinating the budget process and preparing the annual budget document.

As the new fiscal year approaches, I wish to express my thanks and appreciation to the Mayor, and members of the City Council for their leadership and support in planning and conducting the financial operations of the City in a responsible and progressive manner. I know that with continued citizen participation, City Council leadership, and ongoing efforts of dedicated employees, Capitola will continue to be a great place to live, work, and enjoy. 9 142
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SUMMARY INFORMATION
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Budget Process Overview
Each year the City of Capitola prepares an Operating Budget, a Successor Agency Budget, and a fiveyear Capital Improvement Program (CIP) budget. The Operating Budget contains the summary and detail information for revenue and expenditure appropriations for the fiscal year (beginning July 1st and ending June 30th) for several funds as well as a projection for the second fiscal year. The information from the CIP is incorporated, in summary form, in the City’s annual budget. The Successor Agency budget is included in its entirety in the City’s annual budget.

Capitola municipal code (3.200.010 E.) defines a balanced budget as one in which “financing uses including expenditures, inter-fund transfers out, reserves and contingencies should equal financing sources including beginning available fund balance, revenues and inter-fund transfers in.” A key concept in the developmental process for the General Fund Budget revolves around City fiscal policy that current year expenditures are balanced with current year revenue.

The City’s budget process continues throughout the year, with quarterly financial updates published on the Finance Department website and at weekly department head meetings with the City Manager. An outline of the on-going budget process is listed below:

Month Responsibility Budget Function
December Finance Budget Cycle Begins
Finance Finance prepares mid-year calculations
January City Manager / Departments Review accomplishments related to prior year Budget Principles Finance / Departments Provides year-end estimates
Finance Publishes quarterly reports for October - December Finance / City Manager Presents mid-year report to Council and FAC February City Council Establishes Budget Principles
Finance Projects non-departmental revenues and position costs Departments Prepares budget and CIP
March Finance / Departments Continue budget projections Finance Advisory Committee FAC discusses elements of the budget City Manager Reviews departments budget requests
April Finance Adjusts proposed budget based on City Manager review Planning Commission Reviews CIP
Finance Publishes quarterly reports for January - March Finance Advisory Committee Distributes proposed budget
May Finance / City Manager Presents proposed budget and CIP to City Council Finance Advisory Committee Provides recommendations to Council Community Organizations Provides funding request information to Council June City Council Deliberates
City Council Adopts Budget
July Finance Publishes quarterly reports for April - June October Finance Publishes quarterly reports for July - September 11 144
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Financial Policies
Basis of Accounting
The City’s operating budget consists of governmental funds that include the General Fund, Special Revenue Funds, Internal Service Funds, Debt Service Funds and Capital Project Funds for both the City and the Successor Agency. Governmental fund types and agency fund budgets are developed using the modified accrual basis of accounting. This method is consistent with the presentation of the City’s Annual Financial Statements. Under this basis, revenues are estimated for the fiscal year under the condition that they are identifiable and will be collected within sixty (60) days, and sales tax within ninety (90) days, of the close of the fiscal year. Principal and interest on general long-term debt are budgeted as expenditures when due, whereas other expenditures are budgeted for liabilities expected to be incurred during the current period or shortly thereafter.

Level of Budget Control
Both the City and the Successor Agency appropriate (control) the budget at the Budget Unit level. The Budget Unit level is defined as “department, fund, or other organizational unit whose financial activities are accounted for separately.”
Expenditures for the General Fund are considered a Budget Unit at the Department level, with Community Grants controlled at the grantee level. The Successor Agency are considered Budget Units to be at the category level as defined in the budget document.

Budget Adjustments
After the budget is adopted, any supplemental appropriations of fund balance, or budget transfers over $25,000 within a Budget Unit will require Council approval. Budget adjustments that are less than $25,000 and within the same Budget Unit may be approved by the City Manager.

All requests for budget adjustments will include an explanation for the change along with a discussion of fiscal impact. This information will also be documented on a Budget Adjustment Form, which will be reviewed by the Finance Department for fiscal impact, correct account coding, and policy consistency prior to receiving City Council or City Manager approval.

Financial Committees and Boards
The following committees and boards assist the City in the budget review and development process:

Finance Advisory Committee
The Finance Advisory Committee (FAC) works closely with the Finance Director/Treasurer to make recommendations on financial projections or policies identified by the City Council or City Manager. The Committee consists of four Council-appointed members, the Mayor, and a Council Member. The FAC meets several times throughout the year and operates in an advisory capacity with the overall fiscal wellbeing of the City serving as its guiding principle. 12 145
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General Fund Summary
The General Fund balance remained steady during FY 2025-26. The projected General Fund FY 2025- 26 ending budgetary fund balance totals $133,704. The FY 2026-27 Proposed Budget is estimating the general fund to have an ending balance of $125,445.

The chart below summarizes projected and historical General Fund revenues, expenditures, and fund balances. The table illustrates the effects the improving local economy has had on general fund revenue.

Revenue variances primarily include an increase in sales and property tax revenues.

An overview of district taxes (Measure O and F), reserves, and internal service funds are provided within this summary section.
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Revenue Summary
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Expenditure Summary
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Emergency, PERS Contingency and Contingency Reserves
In 2000 the City adopted Financial Management policies, establishing a fifteen percent Contingency and a ten percent Emergency Reserve Fund. The Contingency Reserve provides a prudent level of financial resources to protect against temporary revenue shortfalls or unanticipated operating costs, and/or to meet short-term cash flow requirements. The Emergency Reserve protects against significant one-time costs, which might arise from major unpredictable emergency events.

As the 2011 pipe failure demonstrated, a sufficient Emergency Reserve Fund is needed to respond quickly to local disasters, as well as sustain low debt ratios. Due to the City’s location in an active geologic region, adjacency to the ocean, and proximity to a major creek and highway, the City chose to also increase the Emergency Reserve funding level to ten percent of operating expenditures. In FY 15/16 the City implemented a PERS Contingency Reserve Fund to ensure future funding availability for potential CalPERS contribution increases.

The City was able to navigate the fiscal impacts associated with the COVID-19 Pandemic without utilizing reserve funds, however, the atmospheric river storms on Jan. 5, 2023, caused the City to utilize funds from the Emergency Reserve to make emergency repairs. Additionally, as the City made storm damage repairs the general fund balance has been drawn down and therefore the FY 2026-27 Proposed Budget does not include any general fund transfers into the reserves. As storm damage repair costs are reimbursed through FEMA and Cal OES the City anticipates returning reserves to minimum target balances.
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OPEB and PERS Trust Funds
The City has been proactive in planning for future liabilities. The City has established two trust funds for future retirement costs. The two trust funds are the OPEB (Other Post-Employment Benefits) Trust Fund, which is used for retiree health premiums, and the PERS Trust Fund, which is used for future PERS retirement costs.

OPEB Trust Fund:

Balance 6/30/2025 $853,759
FY 2025/65 Contributions 67,050
Estimated Interest Earned 5,000
Estimated Balance 6/30/2026 $925,809
FY 2026/27 Contributions 67,050
Estimated Interest Earned 5,000
Estimated Balance 6/30/2027 $997,859
PERS Trust Fund:

Balance 6/30/2025 $1,561,142
Estimated Interest Earned 30,000
FY 2025/26 Contributions 0
Estimated Balance 6/30/2026 $1,591,142
Estimated Interest Earned 30,000
Estimated Balance 6/30/2027 $1,621,142
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General Fund Resources
General Fund resources include reserve funds (Emergency, Contingency, PERS Contingency, Facilities) and Internal Service Funds designated for funding equipment purchases, risk management, workers’ compensation, and compensated absences. The reserve funds have specific purposes and require a vote of the Council to expend.

The following table shows the estimated General Fund available resources:

The corresponding chart and graph illustrate internal service fund expenditures and the impact of transfers on the affected funds.
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Fund Balance Summary
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Fund Balance Summary
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GENERAL FUND REVENUES
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General Fund Revenues
Revenues for the FY 2025-26 General Fund operating budget total $22.4 million, an increase of approximately $1.2 million or 5.7 percent above FY 2025-26 estimated revenue. Property tax revenues remain strong as assessed values (basis for property tax levies) continue to increase with changes in ownership and an additional 2% CPI increase per Prop 13 provisions. Staff anticipates sales tax revenue to increase around 2% over FY 2025-26 with as the economy shows signs of slowing.

Transient occupancy tax is expected to increase approximately 3.5%.

A summary of major revenue changes between the FY 2025-26 proposed and FY 2026-27 proposed budgets is listed below:
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General Revenue Information
The City does not receive General Fund revenues in equal monthly increments. While the City receives some revenue regularly throughout the fiscal year, some is received quarterly or annually.

The variable nature of these revenues results in an uneven cash flow. For example, the City of Capitola’s lowest cash balances occur in April and again in mid-December prior to property tax revenue being received. The City developed a cash flow model to assist with on-going cash flow variability and to identify reserve requirements. While monitoring the City’s cash flow has always been a priority, the need to identify patterns became more critical during the disaster recovery period when reserves were nearly depleted. In FY 2012-13 the City approved increasing the Contingency Reserve balance from 10 percent to 15 percent to assist in covering potential cash flow deficits.

Projections for each source of revenue include a review of historical trends, the local economy, new business development, and pending legislation. Due to significant changes, the City is closely monitoring the following five core revenues, which represent over 80 percent of the General Fund:
 Sales Tax $10,010,195
 Transient Occupancy Tax 2,300,000
 Parking Meters 1,166,000
 Parking Fines 850,000
 Property Taxes 3,613,050
$17,939,245
Additional information related to the five core revenues is detailed within this section. In addition, fiveyear trends for each revenue source are provided in the Revenue Summary.

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Sales Tax
The City of Capitola sales tax consists of one percent Bradley Burns, a half percent Capitola District Tax (Measure Y), and a permanent quarter percent Capitola District Tax (Measure O). In FY 2025-26 annual sales tax revenue is estimated to be $10 million, with approximately $3.4 million in revenues contributed by Measure O, and Measure Y.

The Finance Department works closely with HdL, the City’s sales tax consultant, on tax recovery, statistics, and projections. Sales tax projections are based on a combination of “most likely” estimates provided by HdL, internal quarter over quarter analyses, and the impact of one-time events. In FY 2026-27, Bradley Burns sales tax revenue is anticipated to increase by approximately 2 percent, or $294,318 above the FY 2025-26 estimated sales tax receipts. The City’s sales tax collections are heavily dependent on the top five generators.

The chart below illustrates sales tax performance including the sunset of Measure D and end of Measure F and start of Measure Y.
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Transient Occupancy Taxes (TOT)
Hotel tax, also known as the Transient Occupancy Tax (TOT), charges rental accommodation of less than 30 days a 12 percent tax of which 0.75% is restricted for local business groups and early childhood and youth programs. In FY 2025-26 TOT tax generally accounts for approximately 13% of General Fund operating revenues. The City’s TOT revenues come from the following sources:
 Hotels, Motels and Inns
 Other Rentals
o Bed and Breakfasts
o Vacation Rentals
TOT revenues are anticipated to increase during FY 2026-27. For the last several years, hotels have experienced high occupancy rates leaving little room for increased TOT revenues. As the industry slows down little revenues are expected to continue to grow slightly as has been the case for the last couple of years.

The following chart illustrates TOT revenues within the City. Due to Capitola’s seaside location, proximity to regional attractions, and continued signs of economic recovery, the City is continuing efforts to attract another hotel to the area.
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Parking Meters and Parking Fines
In FY 2026-27 parking meter and parking fine revenues are estimated to contribute approximately $2.0 million to the General Fund. Revenue sources include fees collected from the meters and fines resulting from expired meters and improper parking. Factors affecting these revenues include tourism and seasonal trends. During the summer, the City offers shuttle bus service from the parking lots to the Village, beach, and Capitola Wharf. Projected revenues for each location are estimated below:

The following chart illustrates parking meter revenue and parking citation revenue trends within the City. Overall, the revenue trend reflects the previously mentioned parking meter rate increase while showing citation revenue remaining flat. In FY 2015/16 the City implemented 3-hour parking in the Village. The change has had a positive impact on meter revenue while decreasing citations. 26 159
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Property Taxes
Property Taxes, an Ad Valorem Tax imposed on real property and tangible personal property, are levied at one percent of the assessed value of the property. The City receives 7.47 percent of each one percent, or 75 cents per $1,000 of assessed property value.

In FY 2026-27 property tax revenue is estimated to be $3.6 million, representing a five percent increase over the estimated collection amount from FY 2025-26. The City’s collections are slightly higher than the information from the County Auditor-Controller’s Office due to the increased cost of housing and a robust housing market.

In the FY 2026-27 proposed budget, base property tax revenues are projected to increase approximately five percent. The City based the projection on information from the Auditor-Controller’s Office, historical trends, and a review of the current housing market.

Property taxes are received based on the following distribution schedule:
 December: 50%
 April: 45%
 June: 5%
Property Taxes in-lieu-of Vehicle License Fees
Property Tax in-lieu-of Vehicle License Fee revenue has increased an average of six percent per year over the last several years. This increase continues to be consistent with the rising property values outlined by the Auditor-Controller’s Office. Due to the relatively flat history associated with these revenues, conservative estimates of four percent have been applied to the upcoming fiscal years. 27 160
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Revenue Summary
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GENERAL FUND EXPENDITURES
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General Fund Expenditures
The total FY 2026-27 General Fund expenditure budget proposes an increase of approximately $978,000 from the FY 2025-26 Amended Budget as existing resources are programmed towards City Council Goals.

Increases have been programed in most major categories as inflation continues to impact City expenditures. Key differences between the two fiscal years include:
o Total personnel costs (salary and benefits) are estimated to increase $527,000 from the FY 2025-26 Amended Budget due to significant increases in the annual Cal PERS Unfunded Actuarial Liability payment, cost of living adjustments, increased employee health care contributions, scheduled step increases in 2026.
o Salary costs are estimated to be $45,000 higher.
o Salary – Seasonal/Temp increased $53,000 as summer recreations programs remain at full capacity.
o Overtime is anticipated to decrease $20,000 primarily in the Police. This past year was higher than normal due to several felony crime investigations. o Specialty Pay – decreased 13,400.
o Benefits – increased $462,000 as a result of CalPERS rates increasing.  Contract services are slightly above the prior year.

The following chart provides an overview of expenditures for FY 2023-24 to FY 2027-28. A complete description of major changes will follow in the related expenditure detail pages. 31 164
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The following chart provides an overview of expenditure trends, excluding transfers. Expenditures are trending down as we complete several City Council goals utilizing one-time funding.

A chart displaying the percentage of expenditures by category is also provided for reference. Personnel costs are estimated to increase $1.3 million from the prior fiscal year causing the ratio of personnel services to total expenditures to increase from 67.5 percent to 69.2 percent. Other notable changes were in contract services, which decreased from 18.6 percent to 17.5 percent. 32 165
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General Fund Department Expenditures
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General Fund Expenditures

SALARIES & BENEFITS
All positions listed in the General Fund are fully funded with full benefit costing. Fully benefited positions are budgeted at their current step plus an assumption that they will move to the next step unless they are already at the top step of their classification. Specialty pays are budgeted as a separate line item.

Positions budgeted for in FY 2025-26 include the addition of two maintenance workers in the public works department and the reorganization of the City Manager and Finance Departments.

The table below summarizes the total FTE count by department, and the following page provides a detailed summary of the staffing budget changes.
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General Fund Expenditures

SALARIES & BENEFITS
City services are primarily staff delivered; therefore, staffing is the most significant expenditure. The FY 2026-27 proposed budget estimated staffing costs total $15 million. This represents a 3.63% increase from the prior year’s amended budget. This is primarily due to significant increases in the Cal PERS Unfunded Actuarial Liability annual payment, estimated cost of living adjustments, and scheduled step increases.
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General Fund Expenditures
Salaries & Benefits - Salary Assumptions
There are five bargaining groups in the City. Management employees are hired by the City Manager pursuant to a City Council approved compensation plan. Hourly employees are not included in any of these groups and are not represented by a union. The following table lists the different groups and the start and end dates of their current agreements.

Group Current Agreement Expiration Date
Assoc. of Capitola Employees/Gen. Govt. 6/23/2024 6/30/2027 Confidential 6/23/2024 6/30/2027
Mid-Management 7/7/2024 6/30/2027
Police Captains 7/7/2024 6/30/2027
Police Officers Association (POA) 6/7/2021 6/30/2027
Overtime
The following table provides the details for the overtime budget. The overtime budget for the Police Department increases this year in anticipation of additional special events.

Specialty Pay
The FY 2026-27 proposed budget includes the following specialty pays in the calculation of staffing costs, which are also included in overtime calculations: education, longevity, bilingual, motorcycle, detective pay, senior officer, canine, and shift differential pay.

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General Fund Expenditures
Salaries & Benefits – Retirement Assumptions
Benefits – Post Retirement Medical Benefit
The City of Capitola contributes the minimum amount toward retired employees’ health insurance premiums in accordance with Government Code Section 22892 of the Public Employees’ Medical and Hospital Care Act (PEMHCA). This expenditure is accounted for in the City Manager’s personnel department budget. Below is a table showing the PEMHCA minimum over the last 10 years.  January 1, 2017 $128
 January 1, 2018 $133
 January 1, 2019 $136
 January 1, 2020 $139
 January 1, 2021 $143
 January 1, 2022 $149
 January 1, 2023 $151
 January 1, 2024 $157
 January 1, 2025 $158
 January 1, 2026 $162
Benefits – Public Employee Retirement System (PERS)
The City offers various defined benefit retirement plans to safety and miscellaneous employees. These retirement plans are administered by the California Public Employee Retirement System (“CalPERS” or “PERS”). The safety plan benefit formula is 3% @ 50, and the miscellaneous plan is 2.5% @ 55 for “classic” PERS members. For employees hired after January 1, 2013, who are subject to the Public Employees’ Pension Reform Act (PEPRA), the safety benefit formula is 2.7% @ 57, and the miscellaneous plan is 2% @ 62. A CalPERS member becomes eligible for retirement benefits upon reaching the age of 50 with at least 5 years of service credit (total service across all CalPERS employers).

The City’s retirement costs are defined as a percentage of payroll, along with a fixed dollar amount to address the City’s Unfunded Actuarial Liability (UAL), which is actuarially determined annually by CalPERS. The UAL in FY 2025-26 was $2,895,386 and is increasing to $3,271,340 (12.98%) in FY 2026-27. The most recent CalPERS actuarial reports estimate the UAL through FY 2030-31 at an amount of $3,789,000 which equates to an increase of approximately 176% over ten years from FY 2020-21.

PERS Rates. The FY 2026-27 PERS total rate for classic safety members is 39.7%, with employees paying 15% and the city 24.7%. Safety PEPRA members are responsible for 13.75% and the city pays

13.99%. For classic miscellaneous members, the total contribution rate is 24%, with employees paying

13.4% and the city 10.6%. Miscellaneous PEPRA employees pay 7.75% and the city pays 7.96%.

The FY 2025-26 PERS total rate for classic safety members was 39.6%, with employees paying 15% and the city 24.6%. Safety PEPRA members are responsible for 13.75% and the city pays 13.76%. For classic miscellaneous members, the total contribution rate was 23.9%, with employees paying 13.4% and the city 10.5%. Miscellaneous PEPRA employees pay 7.75% and the city pays 7.87%.

Public Employees’ Pension Reform Act (PEPRA). On September 12, 2012, Governor Brown signed the California Public Employees' Pension Reform Act of 2013 (PEPRA) into law. PEPRA became effective on January 1, 2013, and requires all employees who are not previously members of the PERS reciprocal system to be placed in an alternate retirement plan. The City’s PEPRA plan for Safety employees is 2.7% at 57 and 2% at 62 for Miscellaneous employees. This new plan requires that the City and plan members contribute an equivalent share of retirement costs. The rates for public safety and miscellaneous employees are 13.75% and 7.75%, respectively. 37 170
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Retirement Costs Summary
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General Fund Expenditures - Contract Services (4 pages) 39 172
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Community Based Social Service Providers
Community Based Social Service Providers are funded by the General Fund and restricted Transient Occupancy Tax (TOT) revenue. Each year a determination is made regarding funds available and allocation. Due to COVID-19 the Community Grant program continues to be funded in FY 2026-27 with a combination of general fund, restricted TOT, and federal grants. The table below shows the general fund and restricted TOT funding while the federal grant funding is highlighted in the Community Development Block Grant Special Revenue funds.
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GENERAL FUND EXPENDITURES

SUPPLIES
The following table provides a history of the supply budgets by department. Additional information is available in the General Fund Department section.

TRAINING AND MEMBERSHIPS
The following table provides a history of the training and memberships budgets by department. Refer to the General Fund Department section for additional information. 45 178
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INTERNAL SERVICES
Internal Service Funds finance special activities and services performed by one City department for another on a cost and reimbursement basis. These funds share costs, designate targeted reserves levels, and allocate costs to all departments benefiting from the activities and services. The methodology for cost allocation for each Internal Service Fund is described in the Internal Service Fund section.

The FY 2026-27 proposed budget provides funding for increased insurance premiums as well as equipment purchases for equipment funded in prior years.

GENERAL FUND TRANSFERS
General Fund Transfers move funds from the General Fund to a specific fund for a designated purpose.

The CIP is detailed in a separate section and debt issuances are detailed in the Multi-Year Assets and Obligations section. Below is a summary of the transfers from the General Fund to other funds/reserves. 46 179
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DEPARTMENTAL BUDGETS

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CITY COUNCIL

GENERAL GOVERNMENT

DEPARTMENT PURPOSE
The City Council is composed of five generally elected Council Members, serving four-year staggered terms. Council members select a Mayor and Vice Mayor annually. In 2002, the voters approved a consecutive term limit of two terms for Council Members. The City's Municipal elections are held the first Tuesday of November in even-numbered years. The Council meets regularly twice monthly, on the second and fourth Thursday.

The City Council establishes local law, sets policy, approves programs, allocates funds, and provides direction to the City Manager and staff to implement its policy. Council also appoints members to local and regional committees, commissions, and boards. Capitola is a General Law City, organized under the general laws of the state. Local laws are established by ordinance, compiled in the Municipal Code, and enforceable by the City. Other directives and policies of the City Council are implemented through Council Resolutions and recorded in Council Minutes.

ESTABLISHED PRINCIPLES OF THE CITY
 Fiscal Policy – practice sound financial management
 Public Service – uphold the public trust.
 Public Improvement – maintain a safe and healthy environment.

FISCAL YEAR ACCOMPLISHMENTS – 2025/26
 Provide services, staff, and equipment to ensure public safety and trust  Develop projects and programs to maintain and enhance the quality of life in Capitola  Collect public input and determine path forward for Capitola Wharf Master Plan  Review and update, if necessary, the City Council Code of Conduct FISCAL YEAR GOALS - 2026/27
 Balanced budget while using resources for public improvements  Provided services, staff, and equipment to ensure public safety and trust  Approved projects and programs to maintain and enhance the quality of life in Capitola 48 181
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CITY ATTORNEY

GENERAL GOVERNMENT

DEPARTMENT PURPOSE
The City Attorney represents the City as primary Counsel in all legal matters. The City Attorney is appointed by the City Council. The City Attorney provides legal analysis and advice on interpretation and application of municipal code, State law, and Federal law, drafting legal documents, and laborrelated issues. The City Attorney is currently a contract position with the firm Burke, Williams & Sorensen

KEY CHANGES
Marc Tran of Burke, Williams & Sorensen is Capitola’s City Attorney FISCAL YEAR ACCOMPLISHMENTS – 2025/26
 Advised City on matters associated with pending legal actions.  Advised City on legal matters related to City policies and procedures.  Represented the City in litigation.

FISCAL YEAR GOALS – 2026/27
 Advise Council on potential and pending litigation.
 Assist and advise staff on contracts, labor relations, and other legal assessments.  Resolve existing litigation.
 Assist City in labor negotiations with all employee groups. 49 182
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CITY MANAGER

GENERAL GOVERNMENT

MISSION STATEMENT
The mission of the City Manager’s Office is to ensure that all City programs and services are provided effectively and efficiently.

DEPARTMENT PURPOSE
The City of Capitola is a Council-Manager form of government, under which the City Council appoints a City Manager who serves as the City's chief administrative officer and is responsible for implementing Council policies. The purpose of this department is to implement the policies of the City Council and provide leadership and direction to the city departments. Core services of the City Manager’s Office are administrative direction and leadership for City departments, programs, and services to ensure the community receives a high level of service.

KEY CHANGES
The City Manager Department internally promoted the former Office Coordinator to the Deputy City Clerk position and hired a new Office Coordinator.

The FY2025/26 Budget includes a proposed organizational change, shifting Human Resources and Information Systems from the City Manager Department into the newly titled Administrative Services Department, along with Finance services (formerly the Finance Department). With this new structure, the City Manager remains the Personnel Officer, with the ability to designate these duties to other staff as needed. The City Manager Department will keep the Assistant to the City Manager position, now allocated to the department 100% rather than 50% with 50% Personnel, to support expanding public outreach and community engagement efforts, managing special projects and contracts, such as the Annexation Feasibility Study, and providing support to the City Manager and all City departments.

FISCAL YEAR 2025/26 ACCOMPLISHMENTS
 Successfully facilitated a well-attended civic-engagement program, Discover Capitola  Completed annexation feasibility study and partnered with LAFCO to modify the City’s sphere of influence
 Expanded following of City social media platforms and subscriptions to the City digital newsletter
 Prepared content for and facilitated positively received Town Hall meeting  Partnered with County Park Friends on the Treasure Cove Playground project.

FISCAL YEAR GOALS – 2026/27

FISCAL POLICY
 Evaluate potential revenue ballot measures.
 Continue city-wide Economic Development efforts including working with the Capitola Mall to improve the mall facility.
 Continue to work to create a safer work environment and reduce employee injuries.  Review and prioritize City services.
 Support economic development.
 Debut new City website.
 Seek opportunities to partner with other agencies for greater outcome or savings. 50 183
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PUBLIC SERVICE
 Increase public outreach
 Support election: three Council seats up for election this Fall  Continue to improve public meeting access.
 Use dedicated funds for youth programming.

PUBLIC IMPROVEMENT
 Work with community partners to enhance public serving spaces, like the fundraising partnership with Capitola Cares
 Continue increased street and facility maintenance through use of Measure D resources. 51 184
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ADMINISTRATIVE SERVICES - PERSONNEL

GENERAL GOVERNMENT

MISSION STATEMENT
To provide excellent internal and external customer service and assist departments in recruiting and retaining exceptional employees.

DEPARTMENT PURPOSE
Personnel functions are the responsibility of the City Manager. Functions include employee recruitment and selection, benefits coordination, insurance and retirement programs, labor negotiations, compensation plan maintenance, regulatory training, and risk management. 52 185
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ADMINISTRATIVE SERVICES – FINANCE AND INFORMATION TECHNOLOGY

GENERAL GOVERNMENT

MISSION STATEMENT
The Finance Department’s mission is to present timely, accurate and transparent financial information to the public while providing City Management with financial data to facilitate informed decision-making on the allocation of City resources. The department strives to provide excellent customer service to the public, elected officials, and all departments within the City.

DEPARTMENT PURPOSE
The Finance Department oversees all financial transactions of the City to ensure legal and accounting policies are adhered to. The Department maintains all City funds and oversees budget development, the Comprehensive Annual Financial Report, accounts payable, payroll, accounts receivable, cash receipts, banking, business licenses, and transient occupancy tax. The Department provides quarterly and annual financial reports to the City Council and the public.

The FY2025/26 Budget includes a proposed organizational change, shifting Human Resources and Information Systems from the City Manager Department into the newly titled Administrative Services Department, along with Finance services (formerly the Finance Department). With this new structure, the City Manager remains the Personnel Officer, with the ability to designate these duties to other staff as needed. The new structure will allow for the personnel, finance, and information technology divisions to improve communications and efficiencies as the City continues to implement more and more technology solutions personnel and finance.

FISCAL YEAR ACCOMPLISHMENTS – 2025-26
 Continued TOT vacation rental audit and enforcement program.  Implemented new bail schedule
 Implemented transition of IT to a contracted service
 Provided analytical support to operations departments.

FISCAL YEAR GOALS – 2026-27
 Prepare and maintain a balanced budget.
 Plan for and meet future PERS increases.
 Work with the Finance Advisory Committee to identify future revenue opportunities and address increasing costs.
 Meet regulatory financial reporting requirements and provide reports on the City website.  Develop long term financial plan for Measure Y
 Continue partnerships with departments to maintain financial accountability and transparency.  Continue to improve City financial transparency to the public. 53 186
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POLICE SUMMARY
POLICE

MISSION STATEMENT
The Capitola Police Department prides itself in providing the highest level of safety and service to enhance the quality of life of our community through professional, engaged, and empowered employees.

VISION STATEMENT
The Capitola Police Department is comprised of professional and dedicated members who strive to demonstrate high character, fairness, compassion, and the non-biased delivery of policing services.

CORE VALUES
We pride ourselves on representing the City of Capitola and providing policing services based upon these values:
 Human Life - Nothing is more valuable than the preservation of life  Loyalty - Simple loyalty to our best convictions
 Honesty - The essence of moral character
 Respect - Our success is measured by how we treat others  Integrity - Values, and morals that represent our sincerity and commitment  Diversity - We value differences
 Ethics - Our commitment to principles that govern behavior FISCAL YEAR ACCOMPLISHMENTS – 2025-26
 Converting CSO to MSO
 Filling PEO positions
 Successful PO recruitment ongoing
 Axon interview room
 EOP- almost complete
 Grants:
 Cannabis
 Body armor
 Pay station replacement plan completed
 Ecite technology rolled out for use
FISCAL YEAR GOALS –2026-27
 Build a realistic budget for the new technology and upgraded technology used at PD  Axon
 Drones
 RMS
 RING
 ALPR
 MSO trained and embedded in NBMS and community outreach  Bring on new Chief Advisory Committee members
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LAW ENFORCEMENT
POLICE
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PARKING ENFORCEMENT
POLICE

DEPARTMENT PURPOSE
The Parking Enforcement Unit enforces California Vehicle Code regulations and Municipal Parking Ordinances to minimize parking problems, reduce traffic congestion, and maximize access to parking by visitors and residents alike.

FISCAL YEAR ACCOMPLISHMENTS – 2024/25
 Maintain existing pay stations.
 Begin upgrading pay stations with a new payment interface.  Explore hybrid vehicle options for parking enforcement vehicles.

FISCAL YEAR GOALS –2025/26
 Continue upgrading the pay stations with a new payment interface.  Evaluate the cost of hourly parking and the bail schedule for parking citation violations. 58 191
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ANIMAL SERVICES
POLICE

DEPARTMENT PURPOSE
The Animal Services Unit (ASU) promotes and protects public safety and animal care through sheltering, pet placement programs, education, and animal law enforcement. Our purpose is to provide responsive, efficient, and quality animal control services that preserve and protect the public and promote animal safety.
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PUBLIC WORKS SUMMARY

PUBLIC WORKS

MISSION STATEMENT
The Capitola Department of Public Works, through our valued employees, develops, maintains, and operates the City’s infrastructure and natural resources and provides environmental stewardship for the benefit of our residents, businesses, and visitors.

DEPARTMENT PURPOSE
Public Works stewards Capitola’s public infrastructure. We are dedicated to providing safe, functional and sustainable systems improving the quality of life for the residents, businesses and visitors of the City of Capitola in a responsive and cost-effective manner and in accordance with local, state and federal regulations.

To provide this stewardship, the department has three divisions.

The Maintenance Division is responsible for the day-to-day operations, maintenance, and repair of the public infrastructure and facilities including streets and medians, streetlights and traffic signals, street trees, sidewalks and pathways, parks, public buildings, and maintains the City's fleet of vehicles and equipment.

The Engineering Division designs and oversees the construction of all capital improvement projects for the City’s public infrastructure systems and public buildings/facilities; prepares technical studies/reports; regulates construction activities within the public right-of-way by private entities and utility companies; and maintains infrastructure records. The Engineering Division also works closely with the Community Development Department and Building Division to perform plan review and inspection services of tract/parcel maps for subdivisions and grading and drainage improvements on private property; provides technical support to the Public Works Maintenance Division.

The Environmental Division provides environmental support services to Public Works and other City Departments to ensure compliance with federal, state, and local environmental laws, regulations, and policies. The Environmental Division also manages the City's Storm Water Management Program and Solid Waste Franchise Agreement which includes industrial, construction, and municipal activities and operations within the City; staffs the Commission on the Environment.

FISCAL YEAR ACCOMPLISHMENTS – 2025-26
 Completed Community Center Renovation
 Completed Treasure Cove Playground
 Completed Jade Street Restroom Renovation
 Completed 41st Avenue Multimodal Improvements
 Advanced Bay Avenue Corridor Project through planning and concept development  Advanced Cliff Drive Resiliency Project through preliminary design  Secured grant funding for Esplanade Park Improvement development 60 193
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FISCAL YEAR GOALS – 2026-27
 Complete Citywide Active Transportation Plan (ATP)
 Complete update of the Climate Action Plan
 Advance Esplanade Park Improvements into design and implementation phases  Advance Cliff Drive Resiliency Project into final design  Advance additional capital improvement projects
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STREETS

PUBLIC WORKS
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STORMWATER

PUBLIC WORKS
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FACILITIES

PUBLIC WORKS
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FLEET

PUBLIC WORKS
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PARKS

PUBLIC WORKS

MISSION STATEMENT
The Public Works Parks Department is committed to developing and maintaining the City parks and other landscaped areas in such a manner as to allow all members of our community to enjoy these jewels. Using professional staff and technologies to maintain top-rated playing surfaces, beautiful landscaping and safe facilities are top priorities for this department.

DEPARTMENT PURPOSE
To maintain City parks and landscaped areas throughout the City in a safe manner while conserving water and other resources.

KEY CHANGES
Maintaining the status quo.
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BUILDING, PLANNING, AND ECONOMIC DEVELOPMENT

BUILDING, PLANNING, AND ECONOMIC DEVELOPMENT

MISSION STATEMENT
The Building, Planning, and Economic Development Department (BPED) promotes development which supports attainable housing, economic opportunities, community wellbeing, and the environment. The Department provides responsive, high-quality services and programs which enhance the quality of life for the City’s residents, businesses, and visitors within the built and natural environment.

DEPARTMENT PURPOSE
The BPED administers the City's land use policies and standards adopted by the City Council including Zoning Code (Title 17), Housing and Development Administration (Title 18), General Plan, Housing Element, Local Coastal Program, and other regulations. The Department’s key functions include review of development applications, application of CEQA, maintenance of regulatory and long-range planning documents, implement economic development strategy, building plan check and inspection services, code compliance, administration of the affordable housing programs, and grant administration related to planning, housing, economic development, public facilities, and public services. The Department provides staff support to the Planning Commission and City Council.

KEY CHANGES
During the past fiscal year, the department focused implementation of the Housing Element related to the Capitola Mall redevelopment, the 41st Avenue Corridor Plan, the Wharf Master Plan, and recruitments for the Building Official and Senior Planner. Priorities for FY2026-27, include ongoing collaboration toward redevelopment of the Capitola Mall, implementation of the Wharf Master Plan, implementation of the 41st Avenue Corridor Plan, and ongoing housing element implementation.

FISCAL YEAR ACCOMPLISHMENTS – 25/26
 Rebrand the department as the Community and Economic Development Department and realign priorities toward housing and economic development initiatives.  Promoted economic growth through place making and branding initiatives of commercial corridors and adopted zoning incentives to catalyze redevelopment of the Capitola Mall.  Implementation of the 6th Cycle Housing Element including objective standards for Mall Redevelopment and amendments to the Multifamily Residential zoning.  Adopted the Capitola Wharf Master Plan and solicited proposals for development.  Adopted the 41st Avenue corridor study incorporating Clares Street and Capitola Road.  Issued occupancy for a 36-unit 100% affordable development at 4401 Capitola Road.  Administered CDBG Grant of $300,000 to nonprofit for low-income food and transit services.  Administered CDBG Grant of $3.3 million for renovation of the Jade Street Community Center and $3.3 million for Treasure Cove Park.
 Initiated rehabilitation program with Habitat for Humanity. 7 applications received, 2 completed  80 planning and 407 building permit application submitted July 1, 2025, through April 15, 2026.

FISCAL YEAR GOALS – 26/27
 Engage property owners of economic development opportunity sites including Capitola Mall, Redtree’s 1 Bay Avenue, and Swenson’s 120 Monterey.
 Issue building permits for new 52-unit affordable housing development at 1098 38th Ave.  Issue occupancy of Tesla Dealership at 1601 41st Avenue  Provide training opportunities for building staff to bring building plan review in as an internal staff function to encourage growth and job satisfaction while providing savings to the City.  Apply for 2026 CDBG grant for Community Facilities or Public Infrastructure for up to $5 million
 Issue building permits for new hotel at 720 Hill Street and affordable housing at 1098 38th Ave.  Issue occupancy of 36-unit, 100% affordable housing at 4401 Capitola Road. 67 200
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 Complete Capitola Wharf Master Plan and research funding opportunities for implementation.  Complete 41st Avenue corridor study.
 Administer grants to support Capitola residents with food services and housing production.  Provide training opportunities for all staff to encourage growth, job satisfaction, and longevity. 68 201
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COMMUNITY SERVICES AND RECREATION

CULTURE & LEISURE

MISSION
The City of Capitola Community Services and Recreation Department is dedicated to providing safe, affordable, and enjoyable recreational opportunities that enrich the quality of life for residents and visitors of all backgrounds and abilities. Committed to excellence and public safety, the Department continuously strives to enhance its programs, services, and operations to best serve the evolving needs and interests of the community.

DEPARTMENT PURPOSE
The Community Services and Recreation Department enhances the quality of life for Capitola residents and the broader community by offering a wide range of recreation and leisure services. These include Cityrun programs such as Junior Lifeguards, Camp Capitola, and community events, as well as over 500 classes provided by contracted instructors. Youth programs serve more than 2,000 children annually. The Department also manages key community assets, including the Capitola Community Center, Jade Street Park, and Monterey Park. From Memorial Day weekend through the end of October, the Department operates a USLA-certified Lifeguard Division to ensure the safety of beachgoers at Capitola Beach. The Department represents the City through its staff, instructors, seasonal hires, and the condition of its facilities. It also fosters youth development through job training programs like the Junior Lifeguard Captains Corps and Camp Capitola Junior Leader Program and promotes access through scholarships for underresourced youth.

KEY CHANGES
With the Community Center remodel project complete, the Community Services and Recreation Department will return offices and programs.

FISCAL YEAR ACCOMPLISHMENTS – 2025/26
 Provided Lifeguard services to event organizers and maintained tower services at Capitola Beach through the end of October.
 Sustained a robust schedule of Classes for Adults and Youth with minimal disruption during Community Center remodel.
 Provided Wharf programming with fun, family friendly activities by hosting a new “Boogie on the Wharf” dance event series.
 Modified Camp Capitola in response to the Community Center remodel while maintaining the program’s high quality at the temporary location
 Celebrated the 10th annual Plein Air event with new artist engagement opportunities for the public and record exhibition attendance.
 Introduced two new music events: “New Music Sundays” featuring local youth bands, and “Dueling Pianos” offering a fresh and interactive community opportunity.  Enhanced Junior Guard youth development by redistributing age division throughout the session providing smaller group sizes for effective instruction.

FISCAL YEAR GOALS –2026/27
 Strengthen partnerships with county recreation agencies to expand regional initiatives such as Park Rx, Family Fun Day, and other collaborative programs.  Develop a new Community Center Rental package incorporating new use opportunities provided by the Community Center Remodel.
 Enhance structure of the Beach Lifeguard Service and Junior Guard program.  Provide Camp Capitola with an increased capacity and utilize the new Jade St Park features and Treasure Cove Playground.
 Utilize lessons learned for new music events “Dueling Pianos” and New Music Sunday’s” and provide an improver series for residents.
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MUSEUM

CULTURE & LEISURE

MISSION
The Capitola Historical Museum preserves and promotes the history of Capitola through creating exhibitions, maintaining a collection of historic photographs and artifacts, conducting oral histories, and participating in special events.

DEPARTMENT PURPOSE
To promote, through the establishment and maintenance of a museum and allied projects, a program that will bring a better understanding and appreciation by the Capitola community of its history, architecture, culture, technology, and its creative and natural environments.

FISCAL YEAR ACCOMPLISHMENTS – 2025/26
 Installed “Multiple Personalities: the stories behind Capitola’s historic buildings” exhibition  Installed rotating exhibits at the Capitola Library.
 Increased visitation to museum
 Increased volunteer count for continuous museum open hours  Installed Whard model in City Council Chambers for public viewing  Increased donations with advent of online payments and QR Code deployment FISCAL YEAR GOALS – 2026/27
 Continue exhibition “Multiple Personalities: the stories behind Capitola’s historic buildings”  Recognize the Museum’s 60th anniversary
 Continue to scan images to digitize collections
 Review collections to reduce storage need
 Continue to develop Museum Membership
 Shift museum newsletters to digital platform
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INTERNAL SERVICE FUNDS

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INTERNAL SERVICE FUNDS
Stores (City Manager): The Stores Fund accounts for general supplies, postage, and rental of office equipment.

Information Technology (City Manager): The Information Technology Fund provides funding for the replacement and upgrade of the existing computer network. The number of personal computers, laptops, printers, and servers each department uses forms the basis for department allocations.

Equipment Replacement (Public Works): The Equipment Replacement Fund provides funding for the replacement of city vehicles, including passenger cars, parks maintenance vehicles, police vehicles and other specialty vehicles. Departments contribute to this replacement fund based on the depreciation expense of existing vehicles. This fund also receives the revenue received from the sale, or trade-in, of surplus vehicles.

Self-Insurance Liability (City Manager): The Self-Insurance Liability Fund collects funding from departments to pay for self-insured liability and property protection insurance premiums provided through the Monterey Bay Area Self Insurance Authority (MBASIA) joint powers authority.

Workers’ Compensation (City Manager): The Workers’ Compensation Fund collects funding from departments to pay for Workers’ Compensation coverage through the MBASIA.

Compensated Absences (Finance): The Compensated Absences Fund accumulates money to pay future employee benefit costs, such as vacation and sick leave payouts, at termination or retirement.

The City Council sets the policy to ensure the City can fulfill future obligations. 73 206
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STORES FUND
The Stores Fund accounts for general supplies and postage. This also includes the rental of the postage machine and the repair and maintenance of shared office equipment. 74 207
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INFORMATION TECHNOLOGY FUND
The Information Technology Fund collects and designates funds for the future replacement of citywide hardware and software. Annual on-going information technology costs are allocated based on the distribution of resources.

Contract services: on-going technology licenses
Supplies: replacement technology equipment

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EQUIPMENT REPLACEMENT FUND
The Equipment Replacement Fund is designed to provide funding for replacement of City vehicles, including passenger cars, maintenance vehicles, police vehicles and other specialty vehicles.

Departments contribute to this replacement fund based on the depreciation costs of existing vehicles.

This fund receives revenue from trade-ins and surplus equipment sales. The General Fund charges for services based on the prior year fleet depreciation costs adjusted by the CPI index.

During the annual budget process, the Public Works and the Police Department review the current vehicle inventory listing and make recommendations for vehicle acquisitions and replacements, considering on-going maintenance costs.

FY 2025-26 CAPITAL OUTLAY
PD Patrol vehicles $ 75,000
Gem Car 25,000
FY 2027-28 CAPITAL OUTLAY
Depreciation $ 200,000
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SELF-INSURANCE LIABILITY FUND
The Self-Insurance Liability Fund accumulates funds for deductible expenditures and excess incidents above the City’s liability coverage. The fund pays for the following expenses:
 Excess Insurance Premiums - The City belongs to the Monterey Bay Area Self Insurance Authority (MBASIA) joint powers authority. MBASIA covers all liability expenses, fire, property protection, and general liability claims up to $10,000 per occurrence.  Property Insurance – The City receives property insurance through the Public Entity Property Insurance Program and is insured by Lexington. The City’s premium is $100,000.  Vehicle and Equipment Insurance Coverage - Coverage for vehicles and equipment with a purchase value of $25,000 or more. The annual premium is $7,500 with a $2,000 deductible.  Unemployment Insurance - The California Employment Development Department (EDD) defines the City as a “State Unemployment Insurance Reimbursement Client.” The City does not pay unemployment insurance premiums to the State. When an employee files for and receives unemployment benefits from the State, the City is responsible for that benefit.

Charges for services are allocated to each General Fund department based on their percentage of the total operating budget from the prior fiscal year less the budget for unanticipated events. 77 210
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WORKERS’ COMPENSATION FUND
The Workers’ Compensation Fund satisfies the requirements of Capitola municipal code section

3.24.030, which states, “The City Manager and City Treasurer shall establish a reserve fund for purposes of paying future workers’ compensation claims and shall, hereafter, make such annual deposits into that fund as the city is advised are actually necessary to provide a suitable reserve.” This program also covers City volunteers.

The City belongs to a Joint Powers Authority (JPA), Monterey Bay Area Self Insurance Authority, composed of several local agencies: Del Rey Oaks, Gonzales, Greenfield, Hollister, King City, Marina, Sand City, Scotts Valley, and Soledad. The City retains exposure to temporary disability payments as long as the injured worker remains an employee of the City. MBASIA purchases excess coverage beyond $500,000 per occurrence up to statutory requirements.

The annual premium that is assessed to each of the participating cities in the JPA is based on three primary factors: the number of employees in each of the two major categories (Safety & Miscellaneous), the experience rate (cost incurred) of each participating agency, and debt service allocation.

When an employee files a claim, the City pays the employee’s salary portion directly from the general fund based upon the standard workers’ compensation formula, for the “temporary” claim. The formulas for employees receiving workers’ compensation are as follows:

1. Public Safety: Compensation is 100% of salary, non-taxable.

2. Miscellaneous: Compensation is 2/3 of salary with a cap of $840 per week, non-taxable.

For non-safety staff, City policy allows that accruals (i.e., sick, vacation, etc.) may be used to supplement workers’ compensation payments. If the person becomes “permanently disabled” then the JPA picks up the salary portion. The JPA pays all other costs including legal and medical. While on workers’ compensation status, the safety and non-safety staff continue to accrue sick and vacation leave balances.

Distribution to General Fund Departments:

The allocation methodology for workers’ compensation charges to the General Fund Departments corresponds closely to the cost allocation method used by the JPA. The City divides employees into three classifications: Sworn, Non-Sworn and Volunteers, with cost per FTE calculated. A fund balance accommodates future premium fluctuations, deductibles, and excess liability. 78 211
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COMPENSATED ABSENCES LIABILITY FUND
The Compensated Absences Liability Fund accumulates reserves to pay for employee cash-outs, such as accumulated sick leave and vacation, due to employees upon termination or retirement. The following is an itemized description of the various liabilities of this fund.

Vacation > 360 hours: An employee who has accumulated more than 360 hours (504 hours for POA) as of the last pay period in April of any year shall be paid in cash at a rate equal to 100% of his/her current hourly rate for hours exceeding 360 (504 for POA). The hourly rate includes specialty pays.

Vacation - Voluntary Cash Out: In accordance with various memoranda of understanding between the employee bargaining groups and the City of Capitola, employees may elect voluntary cash outs up to 80 hours of vacation.

Police Captain Cashable Sick Leave: Refer to contract.

Final Pay: Upon resignation, employees are eligible for vacation cash outs.

Severance Pay: The City provides the following severance payout packages:

City Manager 12 months
Police Chief 6 months
Public Works Director 4 months
Community Development Director 4 months
Finance Director 4 months

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SPECIAL REVENUE FUNDS

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SPECIAL REVENUE FUNDS
Supplemental Law Enforcement Services (Police): Funds provided by a State of California COPS grant to provide funding for Community Oriented Policing & Problem Solving (COPPS) programs.

Restricted Transient Occupancy Tax (TOT) (City Council): Capitola voters passed Measure J in 2018 increasing the TOT from 10% to 12% and restricting 0.4% for local business groups and 0.35% for early childhood and youth programming.

Road Maintenance and Rehabilitation Act (SB1) (Public Works): Funds received from the state and used for road maintenance, rehabilitation, and critical safety projects on local streets and roads.

Regional Transportation Commission (RTC) Streets (Public Works): Santa Cruz County voters passed a 0.5 percent user sales tax to fund local roads. The RTC Streets fund will be utilized to increase the City’s Street program.

Gas Tax (Public Works): Funds received from gasoline tax revenue from the state and used for new construction, maintenance, and the reconstruction of City streets.

Wharf (Public Works): Accounts for rental income generated from wharf operations and expended on operations and major repairs and improvements.

General Plan Update and Maintenance (Community Development): Funds received as General Plan Maintenance Fee to support future updates to the City’s General Plan, implementing ordinances and plans.

Green Building (Community Development): Green Building funds are solely for program management, training, publications, public educational purposes, incentive programs, materials, and supplies to promote sustainable development, water conservation, storm water pollution prevention, and climate action planning.

Public Art (City Manager): This fund accumulates money received as public art fees to acquire works of art to be displayed in or about public places within the city.

Parking Reserve (Public Works): In 2009 the Council authorized a special reserve fund from the Village parking meters for parking-related projects.

Technology Fee (Community Development): 5% of building permit fee funds permit processing technology.

Public Education & Government Cable TV Access (City Manager): This special revenue fund accounts for PEG cable television fees. The expenditures are restricted to PEG access-related activities.

Capitola Village & Wharf Business Improvement Area (Finance): Established to generate revenue for the exclusive purpose of promoting business in the Capitola Village and Wharf Business Improvement Area.

Community Development Block Grants (Community Development): This fund accounts for active CDBG reimbursement grants that are awarded to the City on a project-by-project basis.

Community Development Block Grant Program Income (Community Development): This fund accounts for income from housing loans that are funded with Community Development Block Grant funds. Loans and interest repaid to the fund are restricted to CDBG approved uses.

Library (City Manager): The new Capitola Branch Library opened in June 2021. The Friends off the Capitola Branch Library raised over $600,000 of donations for project enhancements with approximately $50,000 remining in the Library fund.
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HOME Program Reuse (Community Development): This fund accounts for housing loans due to the City from the recipients of previous HOME Program grants. Receipts in the Home Program Reuse Fund are restricted to affordable housing activities in accordance with the federal HOME program re-use guidelines.

Housing Trust (Community Development): The City Council adopted an Inclusionary Housing Ordinance in November 2004, which created an Affordable Housing Trust Fund. It is funded from in-lieu fees, which can be used for new affordable housing and rehabilitation of existing affordable housing.

Permanent Local Housing Allocation (PLHA): In 2017, Senate Bill 2 (SB 2) established a $75 recording fee on real estate documents and created the Permanent Local Housing Allocation Fund (PLHA). PLHA funds are allocated to local governments for eligible housing and homelessness activities and provide a permanent, on-going source of funding for housing-related projects and programs that address the unmet housing needs of communities.

Capitola Housing Successor (Community Development): When the Capitola Redevelopment Agency dissolved, the City elected to become the Housing Successor to the former Low- and Moderate-Income Housing Fund of the RDA.
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SUPPLEMENTAL LAW ENFORCEMENT SERVICES
POLICE
In 1996, California's state legislature (AB 3229) established the Citizens Options for Public Safety (COPS) program, allocating $100,000,000 annually to local governments for front-line law enforcement. These funds are administered through the Supplemental Law Enforcement Services Fund (SLESF) program. The COPS program received its initial funding in the 1996-1997 California state budget and has been consistently funded since then. Section 30061 (c) (1) of the Government Code outlines the future funding details for the COPS program through SLESF.

SLESF funds are grants, and the legislation requires that each municipality receive annual funds to be used for "front-line law enforcement services." These funds cannot be used to replace existing resources but must be used to enhance them. Eligible expenses include salaries, services, supplies, equipment, and administrative costs.

Furthermore, SLESF funds cannot be redirected to a municipality's general fund but must be exclusively used for front-line law enforcement services. The total award to each recipient entity is based on population size, with a minimum annual award of $100,000 for all entities. For example, the Capitola Police Department receives an annual award of $100,000. Fund distributions are made regularly throughout the year.

Contract Services – Utility services – Gas & Electric
Supplies – Front line law enforcement
Capital Outlay – Online report writing, electronic ticket writing. 83 216
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RESTRICTED TRANSIENT OCCUPANCY TAX (TOT)

CITY COUNCIL
This fund accounts for the 0.75% of restricted Transient Occupancy Tax (TOT) as approved by Capitola voters in 2018. The Restricted TOT Fund is used to receive and distribute half of the 0.40% of restricted TOT revenues for local business groups with the other half going directly to the Capitola Village & Wharf Business Improvement Area fund and the 0.35% of restricted TOT revenue dedicated to early childhood and youth programming.

ECYP Enrichment
 Field Trips and similar activities
Community Grants – Early Childhood & Youth Community Grants - $60,000 Other financing uses – payment to Capitola-Soquel Chamber of Commerce - $35,000  Equal amount distributed directly to Capitola BIA fund. 84 217
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ROAD MAINTENANCE & REHABILITATION ACT (SB1)

PUBLIC WORKS
This fund accounts for receipt and expenditure of revenue as provided by state law. The Road Maintenance & Rehabilitation Act Fund is primarily used to cover the expenses related to street maintenance and rehabilitation projects on City roads and streets.

Capital Outlay – Annual pavement management plan.
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REGIONAL TRANSPORTATION COMMISSION (RTC) STREETS

PUBLIC WORKS
This fund accounts for receipts and expenditures of money received from the Santa Cruz County Regional Transportation Commission. A description of proposed projects is listed in the summary section of this budget.

Capital Outlay – Annual pavement management plan.
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GAS TAX

PUBLIC WORKS
This fund accounts for receipt and expenditure of gasoline tax revenue as provided by state law. The Gas Tax Fund is primarily used to cover the expenses related to maintenance and operation of the City’s traffic signals and streetlights. Other Gas Tax Fund programs include street maintenance patching and striping project, street sweeper lease payments, and engineering.

The Gas Tax funds must be spent within 5 years of receipt. Future Gas Tax funds cannot be pledged for current projects with future repayment; therefore, the funds can only be spent once they have been received.

Contract Services:
 Admin & Engineering - $50,000
 Streetlights & traffic signals - $140,000
 Street & sidewalks - $35,000
 Street painting - $30,000
 Street sweeper maintenance - $30,000
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WHARF

PUBLIC WORKS
The Wharf Fund accounts for rental income generated from Capitola Wharf operations and is used to cover ongoing maintenance, operating costs, and periodic repairs. Revenues accumulate in the fund to help meet expenditure needs; however, major repairs—typically required on a 3–5-year cycle—have occasionally required General Fund support to keep the facility safe and accessible.

Following the passage of Measure F, the City reconstructed and reopened the Wharf in September 2024.

Measure F revenues are managed through the Capital Improvement Fund (CIP) and supported the design and construction of the improved Wharf. The Wharf Fund continues to be used for maintenance and repair of the now-rebuilt facility.

Contract Services:
 Utilities - $36,500
 Janitorial services - $7,000
 Property & Equipment repairs & maintenance - $4,500
 Rentals (portable toilets) - $10,000

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GENERAL PLAN UPDATE & MAINTENANCE

COMMUNITY DEVELOPMENT
In 2002, the State Legislature passed AB 2936 to enable cities to collect fees “reasonably necessary to prepare and revise the plans and policies that a local agency is required to adopt before it can make any necessary findings and determinations”. The General Plan Maintenance Fee is currently 0.5% of the total building valuation with a cap of $100,000 to cover the cost of a future comprehensive update of the City’s General Plan.

Valuation is calculated on a cost per square foot basis. The City of Capitola uses $200/square foot valuation for the average house, and $300/square foot for houses with increased values.

The City adopted a comprehensive update to the Zoning Code which was certified by the California Coastal Commission in 2021. The 6th Cycle Housing Element Update was certified by the state in 2024. The adopted budget provides adequate resources to fund consultant contracts and staff time to finalize the Housing Element implementation efforts in FY 25/26.

Contract services:
 RRM - $10,000 – Housing Element
 Update Housing Impact Fee – Rental - $30000
 City Staff time – Housing Element - $30,000
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GREEN BUILDING

COMMUNITY DEVELOPMENT

The Green Building Ordinance (Chapter 17.10 to the Capitola Municipal Code) was adopted in May 2008 and later amended in November 2014. The Green Building Ordinance establishes the Green Building Fund, which provides funding for the administration and implementation of the Green Building program and related sustainability initiatives. The intent of the Green Building fund is to provide resources for programs and initiatives which promote environmental sustainability, resource conservation, greenhouse gas emission reductions, and solid waste reduction. The fund is utilized for the City’s participation in regional climate action planning as a member of the Resilient Central Coast, fund a consultant contract to update the Climate Action Plan, and implement the Green Halo construction waste tracking system.

Application and Use of Funds (per City municipal code): The Capitola Green Building Regulation applies to non-residential additions and/or exterior remodels totaling 1,000 or more square feet and residential additions and/or remodels totaling 350 square feet or more. Building permits which are required to comply with the Green Building Regulations shall be assessed a fee of 0.0025 times the overall valuation of the project.

Revenues collected shall be maintained by the Finance Department as a revolving Green Building Fund and shall be used only for program management, training, publications, public educational purposes, incentive programs, materials and supplies necessary to promote sustainable development, water conservation, storm water pollution prevention, and climate action planning activities.

Contract services:

Resilient Coast California Working Group - $5,000
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PUBLIC ART

CITY MANAGER
The City established a Public Arts fee in 2004. The purpose is to ensure that 2% of the cost of eligible municipal capital improvement, renovation, or restoration projects are funded in whole or in part by the City of Capitola or any private, non-residential development project with a total building permit valuation of $250,000 or more is set aside for the acquisition of works of art to be displayed in or about public places within the City. For a private development, there is an in-lieu option to contribute 1% of the total budget to the Public Art Program. As part of the program expenses, up to 20% of the art allocations may be expended on program administration, project management and community outreach activities.

Projects completed in 2024/25
 Begonia Festival Commemorative Public Art Project
Projects for 2025/26
 Monterey Ave Railing Public Art Project-in contract
Contract services: Contracts with artists on various projects - $85,000 91 224
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PARKING RESERVE

PUBLIC WORKS
In 2009, as part of a parking meter rate increase, the City Council established the Parking Reserve Fund.

Revenues deposited into this fund represent 16% of parking meter revenues from the Village area (Parking Meter Zone A1). The fund was established to fund parking improvement projects throughout the Village. As part of the FY 2023-24 City Council Goals this debt was paid off. 92 225
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TECHNOLOGY FEE

COMMUNITY DEVELOPMENT
On November 12, 2009, the City of Capitola adopted a resolution establishing the Technology Fee. The fee is 5% of the Community Development and Public Works permit fees. The City has updated building, planning, and public works permitting software. The system better coordinates plan review activities among departments and will allow the public to inquire and search records and monitor progress of applications through the internet. The City will continue to make changes to the system in order to provide better service to the public and to improve internal processes. The zoning update process and its implementation will also benefit from the system’s data resources and enhanced reporting capabilities.

Contract Services:
 iWorQ annual fee – Public Works - $3,500
 iWorQ annual fee – Community Development - $12,500
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PUBLIC EDUCATION/GOVERNMENT CABLE TV ACCESS (PEG)

CITY MANAGER
This Special Revenue Fund accounts for Public, Education & Government (PEG) cable television fees. The PEG Access fee from all cable service providers is 64 cents per subscriber and is due to the City concurrent with the Franchise Fee Payments. The City is required to segregate PEG access fees and related purchases.

The funds received through PEG fees are retained by the City and utilized for capital equipment purchases in support of PEG access only. PEG channels are set aside for the following purposes:
- Public - available for use by the public
- Education - available for use by educational institutions for educational programming - Government – available for programming by local governments Capitola Outlay – Technology upgrades – City Council Chambers 94 227
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CAPITOLA VILLAGE/WHARF BUSINESS IMPROVEMENT AREA (BIA)

FINANCE
In June 2005, the City of Capitola adopted Ordinance No. 889, which added Chapter 5.10 to the Capitola Municipal Code establishing the Capitola Village and Wharf Business Improvement Area (BIA). It was established to generate revenue for the sole purpose of promoting business in Capitola village and on the wharf. State law requires certain annual actions and public hearing to continue this assessment district. The program is run with the assistance of a BIA Board of Directors, which provides city council with an annual budget proposal.

Contract services and supplies: Capitola Village & Wharf Business Improvement Area annual report to be submitted to the Capitola City Council in late May or early June.

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COMMUNITY DEVELOPMENT BLOCK GRANTS (CDBG)

COMMUNITY DEVELOPMENT
The Community Development Block Grant (CDBG) program is a flexible program that provides communities with resources to address a wide range of unique community development needs. The program is funded though the Federal Department of Housing and Urban Development (HUD) and Capitola participate in the competitive Small Cities Grant Program administered by the California Department of Housing and Community Development.

In recent years, the City has been awarded CDBG grants to fund the City’s Local Hazard Mitigation Plan (LHMP), Safety Element of the General Plan Update, and CARES Act funding in response to the pandemic.

In 2021, the City was awarded with a $497,000 CDBG grant for public food assistance and transit including funds for Second Harvest Food Bank ($119,840), Meals on Wheels/Lift Line ($299,720), Grey Bears ($52,950), and administration of the grant. In 2024, the City was awarded $3.3 million to assist in the rehabilitation of the Jade Street Community Center.
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COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM INCOME

COMMUNITY DEVELOPMENT
This special revenue fund accounts for issuance and repayment of CDBG-funded housing loans made by the City to income-qualifying households. These funds are referred to as CDBG Program Income. CDBG Program Income must be used for CDBG-approved purposes. The three primary sources of CDBG Program Income are the payoff of Loma Vista Mobile Home Park resident loans, CDBG-funded First Time Homebuyer Program loans, and CDBG-funded Rehabilitation Program loans.

If the total amount of Program Income received in any fiscal year is less than $25,000, the funds received are not subject to Federal CDBG regulations. If the amount exceeds $25,000, all Program Income received during that fiscal year is restricted to CDBG-approved Federal spending guidelines. 97 230
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LIBRARY

CITY MANAGER
This special revenue fund accounts for revenue and expenses related to the design and construction of the new Capitola Branch Library. The former Redevelopment Agency contributed $2.6 million to the County of Santa Cruz which was held in a trust fund for the future construction of a new branch library.

The Voters of Santa Cruz County authorized the Santa Cruz Libraries Facilities Financing Authority to issue general obligation bonds in an aggregate principal amount not exceeding $67 million. The City of Capitola will receive $10.0 million from the bonds to be used towards the construction of the new branch library, bringing the City’s total available funds to $12.6 million.

The City started utilizing the County Trust Fund money in FY 2016/17 to hire a project manager to oversee the development of plans and ultimately the construction of the Library. Under the trust fund agreement, the City can utilize 15 percent of the funds for pre-construction activities.

In addition to the funding sources mentioned above, the Friends of the Capitola Branch Library (Friends) conducted a fundraising campaign raising over $600,000. The funds donated to the Friends were utilized for enhancement projects throughout the Library. The City completed construction of the new Library in June 2021, however, there remains approximately $50,000 of donated funds that the Friends are evaluating for the best use of those remaining funds.

Additionally, Capitola is scheduled to receive approximately $165,000 annually for the next 20 years as a result of additional Measure S revenues. The first $855,000 will be used to repay the general fund for contributions to the Library project.
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HOME PROGRAM REUSE

COMMUNITY DEVELOPMENT
This special revenue fund accounts for revenue from the repayment of Federal Home Investments Partnership Program (HOME) loans. Expenditures in this fund must be used for affordable housing activities in accordance with the Federal HOME Program Reuse Guidelines, including first-time homebuyer loans, owner-occupied rehabilitation projects, and affordable housing assistance projects. As loans are paid off, those funds are returned to the Home Program Reuse Fund and become available for affordable housing activities.

Annual revenue represents principal and interest payments on the 30-year $238,000 Wharf Road Manor Mobile Homeowners Association Acquisition and Rehabilitation Project loan from 2004 as well as other HOME loan payoffs.

In January 2009, the City of Capitola entered a Standard Agreement with the California Department of Housing and Community Development for a HOME grant in the amount of $2,000,000 for rehabilitation expenses related to the 109-unit Bay Avenue Senior Apartments Project. Construction of the project was completed in May 2011. The grant was provided to First Community Housing, the Bay Avenue Senior Apartments project developer, as a residual receipts loan at 3% interest. In May 2011, the HOME program increased the grant award by $1.2 million dollars to cover additional costs related to required rent level revisions, which are lower than estimated in the original pro-forma. The grant funds have been received and dispersed. In recent years, multiple loans have been paid off creating a healthy fund balance for future HOME projects.

The adopted budget provides adequate resources to apply for a larger rehabilitation project for the Dakota Apartments in FY25/26. The 25-unit, 100% affordable housing development is approaching 30 years in age and in need of upgrades for the roof, heating system, and main lobby area. The budget also covers longterm monitoring of the Bay Avenue Senior Apartments. 99 232
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HOUSING TRUST

COMMUNITY DEVELOPMENT
In November 2004, the City Council adopted an inclusionary housing ordinance as part of the City’s ongoing efforts to provide affordable housing. This ordinance created the Affordable Housing Trust Fund to use as a flexible local source of funding for the creation of new affordable housing, rehabilitation of existing affordable housing, funding of local programs to assist lower and moderate-income buyers purchase affordable housing, or as leverage of local funds for larger State and Federal grants. This housing activity is funded through inlieu fees collected from development projects and does not impact on the General Fund.

The Affordable Inclusionary Housing Ordinance refers to a City Municipal Code Section that requires that fifteen percent (15%) of the units in a new for-sale residential construction project be made available to low or moderate-income buyers. Condominium conversion projects are also covered under this ordinance. As outlined in the ordinance, project developers provide affordable set-aside units or under certain conditions can pay an in-lieu fee.

The City’s Housing Trust Fund allows for up to $75,000 per year to be spent on affordable housing program administration. This includes working with developers on fee collection, administration of the Housing Trust Fund, and implementation of the Inclusionary Ordinance.

The adopted budget provides adequate resources to initiate a housing rehabilitation grant program, a down payment assistance program, and administration.

Contract Services: Down Payment Assistance
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PERMANENT LOCAL HOUSING ALLOCATION

COMMUNITY DEVELOPMENT
In 2017, Senate Bill 2 (SB 2) established a $75 recording fee on real estate documents and created the Permanent Local Housing Allocation Fund (PLHA). PLHA funds are allocated to local governments for eligible housing and homelessness activities and provide a permanent, on-going source of funding for housing-related projects and programs that address the unmet housing needs of communities.

On May 10, 2023, the City of Capitola was awarded $481,732 in PLHA funds for the first three years of the allocation (2019-2021) and a total five-year estimate of $630,557. The City anticipates additional funding on an annual basis. The first PLHA activity approved is for predevelopment costs related to affordable housing developments. The second activity is to fund the very low income homeless through an annual contribution of $35,000 to the Housing for Health Partnership to support year-round emergency shelter operations in Santa Cruz County. A portion of the funding will cover administrative expenses.

The Adopted budget proved adequate resources to support the development of the 52-unit 100% affordable housing development project at 1098 38th Avenue.

Contract services: Affordable housing and homelessness program development and activities. 101
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CAPITOLA HOUSING SUCCESSOR

COMMUNITY DEVELOPMENT
In 2011, the California State Legislature passed ABX1 26 to dissolve redevelopment agencies. The legislation was contested and upheld by the California Supreme Court. It requires a number of actions to be taken by the city in the winding down of the RDA. Among other things, it allows cities to elect to retain the former RDA Low- and Moderate-Income Housing Fund. The Capitola City Council elected to retain the former RDA Housing with the following new city special revenue fund, the Capitola Housing Successor.

A further requirement of the legislation is the establishment of a program income fund to segregate loan payoffs received by the Housing Successor after the dissolution of the Redevelopment Agency. These funds were initially restricted in their use, repayment, and reuse and the Housing Successor continues this restriction. As payments are received on loans associated with the original RDA Low- and Moderate-Income Housing Fund or the Capitola Housing Successor will be applied to the Capitola Housing Successor.

Newly implemented SB341 requires annual reporting on the Housing Successor Assets to be included with the Annual Financial Statements and the Housing and Community Development (HCD) Annual Progress Report on the Housing Element of the General Plan.

The Adopted budget provides adequate resources to continue supporting security deposit assistance, emergency rental assistance, administration of the City’s affordable housing program, and the MidPen loan to help fund the preconstruction and construction for the 52-unit 100% affordable development at 1098 38th Avenue.

Contract Services: Homeless Action Plan
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RESERVES
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RESERVES
Emergency Reserves (Finance Department): The City Council established the Emergency Reserve Fund to accumulate funds to meet future unanticipated needs. The City of Capitola Administrative Policy III-3, Financial Management Policy, amended on February 28, 2013, to increase the required level of emergency reserves from five to ten percent of operating expenditures.

Contingency Reserve (Finance Department): The City Council established the Contingency Reserve Fund to accumulate a prudent level of financial resources to protect the City against temporary revenue shortfalls or unanticipated operating costs, and/or to meet short-term cash flow requirements. The City of Capitola Administrative Policy III-3, Financial Management Policy, amended on February 28, 2013, to increase the level of contingency reserves from 10 to 15 percent of operating expenditures.

PERS Contingency Reserve (Finance Department): The City Council established the PERS Contingency Reserve Fund in FY 2015/16. The Council discussed possible uses of a General Fund positive ending balance and wanted to set aside funds for future PERS increases. In FY 2022-13 an additional $500,000 was deposited into the Trust to add to the previously deposited $800,000.

Facilities Reserve (Finance Department): The City Council established the Facilities Reserve Fund to serve as a resource to fund capital improvements and major repairs on City facilities. Based on the National Research Council Stewardship of Federal Facility guidelines, the City’s goal is to provide annual contributions equal to two percent of the facility replacement values. This annual contribution will be determined each budget year.

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EMERGENCY RESERVES
The City of Capitola adopted an Emergency Reserve Policy as part of the City’s Financial Management Policies. This reserve protects against significant one-time costs that arise from major unpredictable emergency events. In FY 2012/13, the City amended the Financial Management Policies to increase the funding level of Emergency Reserves from five to ten percent of the General Fund budgeted expenditures, or approximately $1.6 million in FY 2024-25.

The Emergency Reserve fund was nearly depleted in March of 2011 due to an underground storm drain failure that flooded Capitola Village and the surrounding area. The City was required to recognize a $1.4 million extraordinary loss on the FY 2010/11 and FY 2011/12 financial statements. An additional $200,000 was needed to fund a related retaining wall project. In FY 2012/13, a settlement was reached with the City’s insurance carrier to pay $1.35 million in damages to the City.

The March 2011 pipe failure repairs were paid from the City’s Emergency Reserve Fund. As funding in the Emergency Reserve Fund fell short of the flood-related costs, additional funding to respond to the flood event was provided through interfund loans from the Contingency Reserve Fund and Capital Improvement Fund. In FY 2011/12, the Emergency Reserve Fund balance was $410,000 lower than the targeted balance. In FY 2012/13, funds were transferred from the internal service funds, Measure O revenue receipts, and the General Fund operating balance to assist in replenishing the reserves.

In FY 2014/15 and FY 2015/16, $465,100 and $213,000, respectively, were budgeted for transfer to the fund to prepare for any unforeseeable emergencies and to meet the new Emergency Reserve targeted levels. As the chart below shows, the reserve balance is currently below the target level for FY 2024-25 in part due to the transfer of $80,000 for damages from the Jan. 2023 storms. The City anticipates receiving reimbursements from FEMA and Cal OES and plans to fund reserves to target balances once received.
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Item 5 A.

CONTINGENCY RESERVES
The City of Capitola adopted a Contingency Reserve Policy as part of the City’s Financial Management Policies. This reserve was established to provide a prudent level of financial resources to protect against temporary revenue shortfalls, unanticipated operating costs, and/or to meet short-term cash flow requirements. In FY 2012/13, the City amended the Financial Management Policies to increase the Contingency Reserve target from 10 to 15 percent of General Fund budgeted expenditures, or approximately $2.6 million in FY 2024-25.

Due to the expenses associated with the March 2011 pipe failure, a loan was made from the Contingency Reserves Fund to the Emergency Reserves Fund. As a result, Contingency Reserves were $727,000 below their Financial Management Policy funding goal in FY 2011/12. In FY 2012/13, funds were transferred from the Internal Service Funds, Measure O revenue receipts, and the General Fund operating balance to assist in replenishing and building the reserves.

In FY 2014/15 and FY 2015/16, a total of $182,600 and $89,400 were transferred to the fund to meet the new Contingency Reserve targeted levels. As the chart below shows, the reserve balance is currently estimated to be below the target level for FY 2024-25. The City anticipates receiving reimbursements from FEMA and Cal OES and plans to fund reserves to target balances once received. 106
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PERS CONTINGENCY RESERVES
The City of Capitola established a PERS Contingency Reserve as part of the FY 2015/16 Budget process. The fund was set up to help stabilize the City’s finances and help manage future increases in PERS contributions.

The PERS Contingency Fund was initially funded with a $300,000 transfer from the General Fund. The $300,000 allows for two years of PERS projected increases and time to evaluate options to address the larger unfunded liability and yearly obligations.

In December 2016, $300,000 was invested in a moderately conservative trust fund with Public Agency Retirement Services (PARS). The FY 17/18 budget transferred an additional $500,000 into the PERS trust fund to offset rising pension costs. During the FY 2022-23 goal setting session the City Council allocated $500,000 of existing fund balance to the PERS Trust reserve. 107
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FACILITIES RESERVES
The Facilities Reserve Fund was established in FY 2014-15 to serve as a resource to fund capital improvements and major repairs on City facilities. The National Research Council Stewardship of Federal Facilities recommends setting aside two to four percent of building replacement costs to preserve or extend the life of facilities. The estimated replacement value of the City’s facilities is $17.5 million.

The Facilities Reserve is used to fund future facility needs of the City. The Proposed FY 2024-25 Budget does not include nay funding for the Facilities Reserve. 108
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MULTI-YEAR ASSETS & OBLIGATIONS

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MULTI-YEAR ASSETS & OBLIGATIONS
City & Joint Powers Authority (JPA) Multi-Year Obligations: The City of Capitola has six multiyear obligations, two of which are part of a Joint Powers Authority. The obligations are paid from various funding sources.

Pacific Cove Lease Financing: In March 2011, a pipe failure flooded the City-owned Pacific Cove Mobile Home Park. The City of Capitola entered into a $2,390,000 lease/sublease agreement to finance the relocation of mobile home residents and close the park.

Beach and Village Parking Lot II: The City of Capitola initiated a $1,372,500 California Infrastructure and Economic Development Bank (I-Bank) loan to fund the development of a parking lot and related improvements at the site of the former Pacific Cove Mobile Home Park. 111
244
Item 5 A.

CITY/JOINT POWERS AUTHORITY MULTI-YEAR ASSETS & OBLIGATIONS

GENERAL GOVERNMENT
The City of Capitola has seven multi-year obligations, three of which are part of a Joint Powers Authority. The obligations are paid from various funding sources. All obligations are shown in the budgets of the applicable funds and all payments are current.

112
245
Item 5 A.

PACIFIC COVE LEASE FINANCING

DEBT SERVICE
The City of Capitola owns 426 Capitola Avenue, which formerly housed the 41 mobile home Pacific Cove Mobile Home Park. On March 24, 2011, a 72” storm drain that carries Noble Gulch Creek water from Bay Avenue to Soquel Creek catastrophically failed following a heavy rain storm. This resulted in flooding of the Pacific Cove Mobile Home Park, City Hall and village residences and businesses.

The initial estimate to bring the park up to code was $1.33 million. Due to the high cost and potential for future liability, Capitola City Council approved a Relocation Impact Report (RIR) for the closure of Pacific Cove Mobile Home Park in January 2012. The RIR provided a cost estimate for relocating residents and professional relocation consultants to help displaced residents find suitable replacement housing. The City executed a $2.39 million lease/sublease agreement using the existing City Hall site and adjacent upper parking lot as the pledged property. The City verified income status as part of the relocation process and determined that a percentage of Housing Trust Fund monies could be used to repay the debt service at a proportion no greater than the number of low income mobile home occupants that were relocated. The funding sources for debt service payments will be determined annually. Any General Fund monies for the share of allowable costs from other funding sources may be reimbursed in subsequent years as funds become available.

At the time the loan was issued, there was some uncertainty as to whether the property would be developed for public or private use. This resulted in the City entering into a 20–year taxable lease/sublease agreement at an interest rate of 5.14%. In FY 12/13, the City determined that the site would be converted to a public parking lot, now named Beach & Village Parking Lot II (BVPL II). This public use allows the City to refinance the existing debt at a 3.25% tax-exempt interest rate with a 10- year Treasury Bill reset + 1.5% in year 10. As a result of the refinancing, annual loan payments were reduced by approximately $28,000, with an estimated nine-year interest savings of approximately $350,000. In FY 12/13 the City reached a $1.35 million insurance settlement related to the pipe failure. This resulted in a principal reduction of $476,200, with a prepayment penalty of $23,800.

During the FY 2023-24 City Council Goal setting the Council allocated $725,000 to pay off the outstanding balance saving approximately $150,000 of interest costs over the next several years. 113
246
Item 5 A.

Payment
Date Principal
Interest
/Prepmt
penalty Total Fiscal Year
9/1/2012 30,815 $ 53,893$ 84,708$
3/1/2013 35,871 60,632 96,503
6/28/2013 476,200 23,810 500,010 $ 681,221
9/1/2013 42,440 22,843 65,283
3/1/2014 53,207 29,326 82,533 147,816
9/1/2014 46,196 36,337 82,533
3/1/2015 46,947 35,586 82,533 165,066
9/1/2015 47,710 34,823 82,533
3/1/2016 48,485 34,048 82,533 165,066
9/1/2016 49,273 33,260 82,533
3/1/2017 50,074 32,459 82,533 165,066
9/1/2017 50,887 31,645 82,533
3/1/2018 51,714 30,819 82,533 165,066
9/1/2018 52,555 29,978 82,533
3/1/2019 53,409 29,124 82,533 165,066
9/1/2019 54,277 28,256 82,533
3/1/2020 55,159 27,374 82,533 165,066
9/1/2020 56,055 26,478 82,533
3/1/2021 56,966 25,567 82,533 165,066
9/1/2021 57,891 24,641 82,533
3/1/2022 58,832 23,701 82,533 165,066
9/1/2022 59,788 22,745 82,533
3/1/2023 60,760 21,773 82,533 165,066
9/1/2023 61,747 20,786 82,533
3/1/2024 62,751 19,782 82,533 165,066
9/1/2024 63,770 18,763 82,533
3/1/2025 64,807 17,726 82,533 165,066
9/1/2025 65,860 16,673 82,533
3/1/2026 66,930 15,603 82,533 165,066
9/1/2026 68,017 14,515 82,533
3/1/2027 69,123 13,410 82,533 165,066
9/1/2027 70,246 12,287 82,533
3/1/2028 71,387 11,145 82,533 165,066
9/1/2028 72,548 9,985 82,533
3/1/2029 57,304 7,887 65,191 147,724
9/1/2029 - - -
3/1/2030 - - - -
9/1/2030 - - -
3/1/2031 - - - -
9/1/2031 - - -
3/1/2032 - - - -
TOTAL 2,390,000 $ 897,681$ 3,287,681$ $ 3,287,681
Pacific Cove Financing Lease Debt Service
114
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Item 5 A.

BEACH & VILLAGE PARKING II – LEASE FINANCING

DEBT SERVICE
In April 2013, the City of Capitola received $1,372,000 in funding from the California Infrastructure and Economic Development Bank (I-Bank) for development of a parking lot on the former Pacific Cove Mobile Home Park site. The funding was used to create the 226 space Beach & Village Parking Lot II. The project included grading, pay station installation, shuttle bus stops, landscaping, pedestrian walkways, and pay stations for the upper parking lot. The I-Bank loan is 2.26% tax exempt reimbursement financing.

This project improved parking capacity for Capitola Village, Capitola Beach, and Capitola Wharf, and is especially helpful during peak seasons. The additional parking spaces are also anticipated to facilitate the development of a hotel. The parking lot contributes about $62,500 annual revenue to the General Fund and the I-Bank annual debt service of $87,116 is paid with funds transferred from the General Fund.
115
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Item 5 A.

Payment
Dates Principal Interest Total
Fiscal
Year
8/1/2014 55,040 $ 15,922 70,962
2/1/2015 14,887 14,887 $ 85,849
8/1/2015 56,284 18,840 75,124
2/1/2016 14,251 14,251 89,375
8/1/2016 57,556 18,035 75,591
2/1/2017 13,601 13,601 89,192
8/1/2017 58,857 17,212 76,069
2/1/2018 12,936 12,936 89,004
8/1/2018 60,187 16,370 76,557
2/1/2019 12,256 12,256 88,812
8/1/2019 61,547 15,509 77,056
2/1/2020 11,560 11,560 88,616
8/1/2020 62,938 14,629 77,567
2/1/2021 10,849 10,849 88,416
8/1/2021 64,360 13,729 78,089
2/1/2022 10,122 10,122 88,211
8/1/2022 65,815 12,809 78,624
2/1/2023 9,378 9,378 88,002
8/1/2023 67,302 11,868 79,170
2/1/2024 8,618 8,618 87,788
8/1/2024 68,823 10,905 79,728
2/1/2025 7,840 7,840 87,568
8/1/2025 70,379 9,921 80,300
2/1/2026 7,045 7,045 87,344
8/1/2026 71,969 8,915 80,884
2/1/2027 6,231 6,231 87,116
8/1/2027 73,596 7,886 81,482
2/1/2028 5,400 5,400 86,881
8/1/2028 75,259 6,833 82,092
2/1/2029 4,549 4,549 86,641
8/1/2029 76,960 5,757 82,717
2/1/2030 3,680 3,680 86,396
8/1/2030 78,699 4,657 83,356
2/1/2031 2,790 2,790 86,146
8/1/2031 80,478 3,531 84,009
2/1/2032 1,881 1,881 85,890
8/1/2032 82,297 2,380 84,677
2/1/2033 951 951 85,627
8/1/2033 84,156 1,204 85,360 85,360
Total $ 375,736 1,372,500 $ 1,748,236 $ 1,748,236 $
Beach & Village Parking Lot II Lease Financing
Debt Service
116
249
Item 5 A.

FY 2026-27 Proposed Budget
M AY 6 , 2 0 2 6
250
Item 5 A.

Budget Review Process
Draft Budget Published • April 17
Initial FAC Budget Review • May 5
• May 6: Overview & questions
• May 21: CIP, follow-up from May 16, FAC
recommendation
• June 3 & 18: If needed
City Council Budget Hearings
• No later than June 25 City Council Budget Adoption
251
Item 5 A.

Budget Summary
• Local economy may be impacted by uncertainty at
national level
Approximately $1.2 million
increase in general fund
revenues
Measure Y • Utilized to provide public safety and essential services • Measure Q: $200,000 annually
• Measure S: $165,000 annually for 20 years Measure Q & Measure S • $600,000 personnel costs primarily due to Cal PERS Approximately $1.1 million increase in general fund
expenditures
252
Item 5 A.

Budget Summary (cont.)
Proposed General Fund budget slightly imbalanced
• Estimated fund balance June 30, 2027 – $133,704
Ongoing PERS costs remain a major threat to City resources • Estimated PERS Contingency reserve balance $1.8 million • Unfunded Actuarial Liability (UAL) decreased from $35 to $34 million, up from $21 million in 2024 • Annual payment increased from $2.9 to $3.3 million
• Up from $2.1 million in 2024
Heavy reliance on Sales & Transient Occupancy Tax
• Measure Y sunsets in 2034
Reserves below target balances
• Still awaiting additional 2023 storm damage/insurance reimbursements 253
Item 5 A.

Multi-year Budget Projection
254
Item 5 A.

Multi-year Budget Projection
255
Item 5 A.

Unbalanced Budget Estimated Ending Fund Balance
256
Item 5 A.

FY 26/27 Revenue Growth Forecast
Key Revenue Sources Budget Increase Notes
Property Tax $172,000 County estimate + sales
Sales Tax (1%) 227,000 Consistent with HdL, Tesla
Sales Tax (District) 67,000 Measure O & Y
TOT 78,000 Based on current activity
Charges for Services 181,000 New Community Center - Classes Parking Citations 250,000 Fully staffed – increased rates Grants 107,000 Additional grants in PD
Other revenues $105,000 Licenses/permits/facility rentals Total $1.2 million
257
Item 5 A.

Revenue Notes
Total General
Fund revenues
Expected to
increase $1.2
million from
prior year
TOT projected to
end FY 25-26 at
$2.2 million
Same as prior
year receipts
Occupancy rates
remain high
Sales tax (45%) & TOT
(10%) represent
approximately 55% of
general fund revenues
Top 25 sales tax
generators represent
70% of total
Top 5 generators
represent 39% of total
Village represents

7.5% of total
Property tax
5% growth rate
due to increased
property prices
Charges for
Services
Increased
classes in
New
Community
Center
258
Item 5 A.

Revenue
by
Category
259
Item 5 A.

Proposed
Tax
Revenues
260
Item 5 A.

Restricted
TOT
261
Item 5 A.

Expenditure Forecast
• Personnel - $588,000
• Salary – full-time - $42,000
• Salary – part-time/seasonal - $52,000
• Overtime –$57,000
• CalPERS - $460,000
• UAL = $376,000
• Normal cost = $84,000
262
Item 5 A.

We are not alone!
263
Item 5 A.

Expenditure
Summary
(cont.)
264
Item 5 A.

Expenditure
Summary
(cont.)
265
Item 5 A.

Restricted Special Revenue
All Road Fund Revenue
$950,000
Youth funds
$67,000
Business
Assistance
$180,000
All Housing
$83,000
(balance $2 million)
Potential Grant Revenue
$1M - $6M
Other Special
Revenue
$520,000
Parks and Open
Space
$200,000
266
Item 5 A.

Potential One Time Revenue
Back Payment TOT
$300,000
Building Permits
$180,000
Insurance Claims
$500,000
FEMA/CalOES
Reimbursement
$969,000
Surplus Land
$90,000
267
Item 5 A.

Staffing
268
Item 5 A.

Strategic Plan &
Priorities
Departments
considered Priorities
when preparing FY
2026-27 Budget
269
Item 5 A.

Original
Proposed
Goals
Department Draft Goals
City Manager Election: three Council seats
Employee contract negotiations
Beach Lifeguard Service Organizational Study
Police Anti Human Trafficking Ordinance
Countywide records management system rollout
Continued funding for: Drone Program, RING, Body Worn
Cameras
Continue working with Mall, Village hotel owners and
other economic development opportunities.

Community &
Economic
Development Ordinance updates: Community Benefits, ADUs, Bicycle Parking, Hotel Incentives
Review Outdoor Dinning Program
Development impact fees - 41st Avenue
Housing Element Implementation: Down payment
assistance program, update nexus study for rental
housing.

Community Services & Update Community Center rental package Recreation Explore and develop new opportunities related to renovated facilities
Administrative Improve fiscal transparency
Services Transition to paperless HR Division
Return TOT administration to internal staff
270
Item 5 A.

Council
Items
Included in
Proposed
Budget
Dept Topic Notes
Evaluation opportunity to use Trestle Staff working with RTC Public
Works
PCI Update Report Planned update 27/28
Bay Ave Corridor Plan (Council
May 14)
Bay Avenue – enhance
lighting/crosswalk
Esplanade Park project, Climate
Action Plan update Sea level rise climate action planning Existing projects grant funded Continue Cliff Drive, Stockton Bridge projects
Pavement Management Plan Included in PW workplan
Depot Hill pathway Requires $275k in project funding
Esplanade Park Design grant funding obtained
Seek funding for sidewalk infill Projects Ongoing
Tree maintenance near street lights Ongoing
Staff to contact Sanitation Examine options for backup
power/pumps in village
Active Transportation Plan 41st and Clares intersection traffic safety
Improved bike facilities on 38th Avenue Active Transportation Plan Active Transportation Plan Examine if bike-detection technology can help with bike safety
271
Item 5 A.

Council
Items
Included in
Proposed
Budget
Dept Topic Notes
RFP for wharf To be release this month
Com and
Econ Dev
Impact fees prior to mall submision Incorporated in workplan 41st Clares - Complete Street project Ave Corridor Plan Report back on Economic Incorporated in workplan
Development opportunities
Individual programs balanced,
excluding events and
administration
Review options for revenue-neutral
programs CS&R
Ensure CS&R balance of programs Incorporated in workplan for youth and seniors
Police Ebike safety plan Incorporated in workplan
Options to manage PERS costs Incorporated in workplan Admin Service Included in tonight's budget
presentation
Story of City reserve funds and how
we got to where we are
Work with community groups to help Incorporated in workplan fund projects
CM
272
Item 5 A.

Council
Items Not
Included in
Proposed
Budget
Topic
Sidewalk maintenance – ownership report
Look at rent control costs/risks
Parking rate evaluation, rates last updated in 2024, inflation increase = 14 cents currently
Village clean up & new trashcans
Funds to match private donation at Rispin Park
Present info about GF spend by geographic area
Study Citywide vacation rental zone revenue
Additional sidewalk cleaning when weather is nice, off season 273
Item 5 A.

FY 2026-27 Department
Overview
MAY 6, 2026
274
Item 5 A.

City Manager Department
2025-26 Accomplishments:

Accountable Government
• Completed annexation feasibility study
• Citywide website update project completed
• Completed .gov transition
• Negotiated regional radio contract with regional agencies • Hosted Town Hall and launched enhanced community outreach plan • Hosted various ground breakings/grand openings as part of outreach efforts • Initiated districting process
275
Item 5 A.

FY 2026-27 City Goals:

City Manager Department
Accountable Government
• Districting process
• Election, 3 seats
• Employee contract negotiations
• Beach lifeguard organizational study
• Community engagement – Town Hall at Community Center
276
Item 5 A.

Administrative Services Department
2025-26 Accomplishments:
 Continued TOT vacation rental audit and enforcement program  Implemented new bail schedule
 Implemented transition of IT to a contracted service
 Increased efficiency and streamlined HR as part of restructuring 277
Item 5 A.

FY 2026-27 City Goals:

Administrative Services
Accountable Government
 Digitize and streamline HR processes
 Continue to improve City financial transparency
Economic Opportunity
 Develop long-term financial plan for Measure Y
 Identify future revenue opportunities, address increasing costs  TOT Auditing in-house
278
Item 5 A.

Police Department
2025-26 Accomplishments:
 Converted Community Service Officer position to Muli Service Officer  Staffed Parking Enforcement with 3 full time PEO’s
 Implemented the Axon interview system
 E-bike Safety collaboration with New Brighton Middle school using a bicycle registration program
 Pay station replacement plan completed with online payment options  E-citation technology implemented
279
Item 5 A.

FY 2026-27 City Goals
Police
Community Safety
• Adopt updated Emergency Operation Plan
• Prepare Anti-Human Trafficking ordinance
• Implement data-driven directed traffic enforcement operations • Continue E-bike safety plan & school sticker program
• Enhance community engagement: • Neighborhood Watch program • Fraud education to protect older adults • Recruit for Chief’s Advisory Committee • Grant opportunities for enforcement (ongoing): • Cannabis • Traffic safety
• ABC
• Records Management System (RMS) building out process. 280
Item 5 A.

Public Works Department
2025-26 Accomplishments:
 Improved public spaces:
 Park at Rispin Mansion
 Community Center Renovation
 Treasure Cove Playground
 Pavement Management:
 41st Avenue multimodal Improvements
 Delivered core services, obtained project funding, and supported year-round public events
281
Item 5 A.

FY 2026-27 City Goals
Public Works
Community Safety
 Advance safety projects identified in the Local Roadway Safety Plan  Advance Active Transportation Plan planning
Sustainable Infrastructure
 Advance Council-approved projects:
 Cliff Drive Resiliency
 Esplanade Park
 Stockton Avenue Bridge
 Deliver annual Pavement Management Program
Healthy Families, Community, & Environment
 Initiate Monterey Park play space planning
282
Item 5 A.

Community & Economic
Development Dept.
2025-26 Accomplishments:
 Expanded Economic Development into Department
 Adopted objective standards for Mall and Multifamily Zoning  Issued occupancy of 4401 Capitola Road: 36-unit 100% affordable  Received $3.3 million CDBG for development of Treasure Cove Playground  Planned For economic growth through 41st/Capitola Rd/Clares Corridor Study  Established Conceptual Wharf Master Plan and soliciting proposals for development  Executed Housing Rehabilitation Program with Habitat for Humanity & 7 households  Processed 80 planning permits and 407 building permits 283
Item 5 A.

FY 2026-27 City Goals
Community & Econ. Development
Attainable Housing
 Issue building permit for 52-unit, 100% affordable housing at 1098 38th Ave  Launch Down Payment Assistance Program
 Update Nexus Study for rental housing
Economic Opportunity Infrastructure
 Work with Capitola Mall, Tesla, Village Hotel Site, and Grimes Property toward development  Update Community Benefits Code to Incentivize Hotels, Retail Growth, and Housing  41st Avenue Development Impact Fees for Corridor Improvements Healthy Families, Community, & Environment
 Capitola Wharf Master Plan funding opportunities for implementation  CDBG Grants for shovel-ready Community Project ($5 Million in 2026; $5 Million in 2027) 284
Item 5 A.

Qualified Areas for
Community Development Block Grants
Yes = Qualifies for CDBG
No = Does not Qualify for CDBG
No But Close = May qualify with
adjacent neighborhood which
qualifies
285
Item 5 A.

Community Services & Recreation
FY 2025-26 Accomplishments
Community Safety
 Provided Beach Lifeguard Services to event organizers and expanded tower services through October
Accountable Government
 Enhance Junior Guard program by redistributing age divisions throughout sessions and providing smaller group sizes for effective instruction  Sustained a robust schedule of Classes and Summer Camp with minimal disruption during Community Center remodel
Healthy Families, Community, & Environment
 Provided programming on the Wharf with fun, family-friendly activities by hosting “Boogie on the Wharf” dance event series
 Introduced two new music events: “New Music Sundays” featuring local youth bands, and “Dueling Pianos” offering a fresh and interactive community opportunity  Celebrated 10th annual Plein Air event with new artist engagement opportunities for the public and record exhibition attendance
286
Item 5 A.
2026-27 City Goals:

Community Services & Recreation
Community Safety
 Enhance structure of the Beach Lifeguard Service and Junior Guard program Accountable Government
 Strengthen partnerships with county agencies to expand regional initiatives  Develop a new Community Center rental package, incorporating new use opportunities provides by the remodel
Healthy Families, Community, & Environment
 Increase capacity of Camp Capitola and utilize new Jade St Park features and Treasure Cove Playground
 Utilize lessons learned for new music events “Dueling Pianos and New Music Sunday’s; provide improved series for residents.
287
Item 5 A.

Art & Cultural Commission
Recommendations
Public Art
Monterey Avenue Railing Public Art Project
 Nearing Completion; dedication expected
in June
Rispin Reflecting Pool Public Art Project
 Current phase: Artist selection for proposal
Bandstand Weathervane Public Art Project
 Current phase: Artist selection for proposal
Public Art Maintenance
 Touch Up remaining Signal Box Murals
Event Series
Makers Market paused
New Music Sundays
 Youth Bands from music schools
 End of May and August
Dueling Pianos
 Moved to Wednesdays after the completion
of the Twilight Concert Series
Twilight Concerts, Movies at the Beach, & Plein Air
unchanged
288
Item 5 A.

Key Budget
Elements
• Increased from $450,000 to $850,000
• Fully staffed and 80% increase in citation amount
Parking Citation Revenue
• Freeze one of two positions = $100,000 salary savings Multi-Service Officer Vacancy
• Utilizing $93,000 – (25% of annual average)
Citywide Salary Savings
• Eliminated discretionary training, Citywide = $46,000 Training & Memberships
289
Item 5 A.

Changes since
1 st Draft
Police Services decreased $54,000
• SC 911 Emergency Communications
Center
Community Television decreased $19,000
• Utilization of Public Education &
Government Cable TV Access funds
These changes structurally balance
proposed budget
290
Item 5 A.

Other
Considerations
Increase parking rates
• $1.2 million annual revenue
• Last increased in 2024
Allow short-term rentals city-wide
• Impact requires analysis
• This would include significant public outreach
Utilize CalPERS Trust
• Could use portion of trust to pay UAL
• Would reduce balance to offset Mall construction
End free holiday parking
• Estimated cost is $90,000 – $100,000
Business License Modernization
• Requires ballot measure, potential long-term solution 291
Item 5 A.

Additional Items
• Contingency: $2.5 million
• $530,000 below June 30, 2027 target
• Emergency: $1.6 million
• $385,000 below June 30, 2027 target
• Storm damages still under FEMA/Cal OES review:
$962,000
• Potentially could replenish reserves
Reserve Fund Balances
292
Item 5 A.
• Potential Cost Savings
• Utilize OPEB Trust Fund
• Requests for 2nd Draft
• Improve Transparency
• Include cost for fiscal transparency software
• Additional details for expenditures included in presentation • Include 5 yr. expenditure forecast
• Provide list of edits between drafts
Finance Advisory Committee
293
Item 5 A.

Council Action
Identify:
• Budget questions
• Details for presentation at next
hearing
Provide preliminary feedback on:
• Draft Budget
• Key discussion points/proposed
changes
Next Steps: Special Meeting May 21
• Draft Capital Improvement
Project Budget • Minor budget
adjustments/corrections
• Response to questions/requests
for additional detail
294
Item 5 A.