Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: ADOPTION OF THE RESOLUTION APPROVING THE
FISCAL YEARS 2025/26 AND 2026/27 BUDGETS
Date: June 10, 2025
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended that the City Council Adopt a Resolution Approving the City of Cotati Budget for Fiscal Year 2025/26 and 2026/27 and authorize the Mayor to sign a letter requesting acceptance into the PG& Fleet EV program.
Background
The City Council held a Strategic Planning Study Session on February 20, 2025, where the City Council, the public, and staff reviewed and updated the goals and objectives, as well as the project priorities for Fiscal Years 2025/26 and 2026/27.
Subsequently, the City Council held two Budget Study Sessions, on April 1st and April 15th, to review the draft proposed Fiscal Year 2025/26 budget, take public comment, and provide direction to staff.
City Staff have been continuing work to improve the City’s fourth online budget book that is available to the public at: https://city-cotati-ca-cleardoc.cleargov.com/11305/351805/d Analysis/Discussion
Budget Summary
Following the review of the Draft Budget presented to the City Council, there were only minor corrections and updates made to the projections.
Council Goals and Objectives:
During the strategic planning sessions, the City Council provided feedback on the goals and objectives for the City, as well as the Vision and Mission. Key Goals were also then summarized for linking departmental goals and objectives. The final version of the Vision, Mission and goals are incorporated within the final budget documents presented and attached herein for approval.
Highlights of the overall FY Budget are:
• Conservative budget outlook for both years
• Balanced budgets strive to maintain prudent fund balances. • Continue to prioritize council goals of economic development, infrastructure, and community, while integrating equity and climate resilience in our daily operations and planning.
General Fund Highlights:
Balanced Operating Budget for the 16th straight year.
• The General Fund maintained a reserve of 25% of operating expenses, per Resolution No. 2009-50.
• The General Fund has additional reserve funds in excess of the required 25% totaling $1.3M for FY 25/26 and $711K for FY 26/27.
• General Fund Ending Fund Balance of $3.9M and $3.4M for FY 25/26 and FY 26/27 respectively.
General Fund Risks:
• Annual net operating surplus must be $1.5M or more per fiscal year to support basic maintenance/grant matching capital programs as well as continued significant street and park rehabilitation in the near future. The surplus is currently estimated at $0.3M in the FY 25/26 budget and estimated at $0.4M for FY 26/27.
• Continued planned mid-year discussion on CalPERS actuarial results and associated UAL strategies that require prefunding to minimize interest costs Capital Projects Highlights:
The proposed City budget includes the full 5-year CIP for the City, for planning purposes. For Fiscal Year 25/26, General Fund funding for the CIP is $4.4M, for a total of $7.4M in capital projects (All funds) to improve the community. Projects are were split into A projects and B projects, with the A projects funded in this proposed budget and B projects on hold pending other revenue. The proposed “A” and “B” projects, include:
- A - Projects with Priority Funding
Fiscal Year 2025/26 Fiscal Year 2026/27
Sunflower Park Improvements Cator Basketball Ct. Resurfacing Hwy 116/ W. Cotati Ave Intersection Safety
Improvements - Split Year
Hwy 116/ W. Cotati Ave Intersection
Safety Improvements - Split Year
Reroof Police Building Annual Bicycle Pedestrian Safety Trash Implementation Plan - Phase 1 Annual Landscaping Improvements Projects
2026 Street Preservation Project
– Construction
2027 Street Preservation Project
– Construction
2027 Street Preservation Project – Design
Class 1 Pathway Maintenance Project
Annual Landscaping Improvements Projects
Annual Bicycle Pedestrian Safety
Veronda-Faletti Ranch Barns (Design)
- B - Projects Pending Funding Availability
ADA Transition Plan & Redwood Drive Veronda-Faletti Ranch Barns (Const) Microgrid City Hall Complex (Const)* Traffic Signal at William George Putnam Park Improvements Phase 2
*The Microgrid project is underway but will not proceed into construction unless construction funding is identified and the project is approved by the City Council.
Internal Service Funds Highlights:
Vehicle Maintenance and Replacement
• $527,000 in funding across City Funds based on fleet usage. • Purchase of replacement police vehicles and various public works equipment and vehicles as needed.
• Evaluation of all-electric vehicles for replacements going forward, as applicable.
Note that attached to this item is a draft letter for the Mayor to enroll the City in the PG&E Fleet EV program, which would allow the City to participate in a CPUC program to upgrade the electrical service free of charge at locations that host medium or heavy duty fleet vehicles. The program is nearly fully subscribed, so enrollment in June should ensure participation. This work is part of the larger Microgrid Project, but will improve our infrastructure to allow the continued deployment of electric vehicles in the City fleet.
Compensated Absences Fund
• $119,480 funding provided by Citywide allocation costing.
Enterprise Fund Highlights:
The Enterprise Funds budget includes a combined $1.3 Million in various water and sewer capital projects including:
Fiscal Year 2025/26 Fiscal Year 2026/27
Water Fund
Well 2 Renewal/Remediation P-3, 4: Cypress Tank New Water Main Water Renewal and Replacement Master
Plan T-1: New Cypress Storage Tank
Distribution System Monitoring BP-1: Cypress Tank Booster Pumps Well 1A/Well 3 Treatment Renewal and
Replacement
P-3, 4: Cypress Tank New Water Main
Sewer Fund
Sewer Renewal and Replacement Master
Plan Sewer Lift Station Renewal and Replacement
The sewer operating fund has been operating with a negative operating balance and is projected to have fund balance less than the 33% requirement for both Fiscal Year 2025/26 and FY 2026/27. This was accounted for in the most recent rate studies approved by the City Council, with a “soft landing“ approach to turn around the annual operating deficit through short term use of reserves. This approach is intended to avoid customer rate shock with sudden rate adjustments. However, unanticipated cost pressures, most significantly the cost of wastewater treatment, has created an on-going challenge for this fund. With the newly adopted rates, staff are optimistic the fund should start recovering and provide more stable funding into the future.
The Budget document attached to the resolution contains narrative summaries for each department, the City Managers message, and some of the graphics from the budget presentations Debt Management
The City has the following types of debt:
• Direct Debt
o Streets Improvements Tax Exempt Lease Obligation Bonds 2022A represents a tax-exempt bond issuance of an amount up to $7,000,000 used to fund critical city street improvement projects at a low interest rate of 2.45% per annum and matures in 2041.
o Pension Taxable Lease Obligation Bonds 2022B represent a $4,000,000 unfunded pension obligation refunding debt whereby the City paid down the CalPERS obligations with a locked 3.33% interest per annum, maturing in 2036. • Pass-through Debt
o Assessment District Debt with No City Commitment totaling $5.7M and maturing in 2034
o Successor Agency Debt Service for Recognized Obligation Payment Schedules ▪ Cotati-RP Unified School District payments total debt of $663K maturing in 2033.
▪ Tax allocation refunding bond, Series 2020 with total Debt Service of $6.3M maturing in 2036
• Inter-Government Loans
o In-Lieu Housing Loan to Sewer total debt service $693K maturing in 2039 o General Fund Loans to Water and Sewer for their portion of the Unfunded Pension Liability Additional Discretionary Payment. The total outstanding debt as of June 30, 2025, for the Water and Sewer operations funds is approximately $820K and $786K respectively. Annual combined payments are approximately $156K back to the General Fund.
• Pension Obligations
o Unfunded Liability Pension Obligations with an estimated net pension liability of $5.8M as of June 30, 2024. These estimates will be finalized once CalPERS publishes the 06/30/2024 actuarial reports in August 2025. With this remaining balance, the City is at a funded level of 85.3% for the combined CalPers Pension Plans.
Financial Considerations
The City has continued strategic projects and has not significantly reduced the reserve funds. The recommended budget includes a General Fund that is balanced with the estimated annual operating revenues exceeding the budget operating expenditures. However, as previously mentioned under General Fund Risks, the City must work to increase its’ net surplus operating revenue to perform future infrastructure maintenance, grant matching and re-build reserves. Due to the expense associated with reconstruction work currently underway, infrastructure in the general fund is supported by reserves. The overall fund total reserve is estimated to be $3.9M, or
37.3% of operating expenditures at the end of FY 25-26. This is a slight decrease over prior years adopted budget which was estimated to end at $4.1M or 42% of operating expenses, but still higher than the required reserve of 25%.
The Sewer Operating Fund continues to run in a deficit and is anticipated to run below the required 33% reserves in Fiscal Year 2025/26 and continue into FY 2026/27. Based on City staff projections, and in line with the independent rate study for the utility, this period is expected to be the trough, and it should continue to climb and recover to be able to provide sufficient funding for necessary capital projects planned in the future. Staff will continue to monitor this fund and report to the council any notable variance from the anticipated plan.
Environmental Issues
The creation of an Annual Budget is not a project under the California Environmental Quality Act (CEQA), per the definition of a project identified in Section 15378 of CEQA in that there will be no direct, or reasonably foreseeable indirect physical change in the environment