Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: MID-YEAR FINANCIAL REPORT FOR FISCAL YEAR 2025/26 Date: February 10, 2026
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended the City Council receive and file the Mid-Year Financial Report for Fiscal Year 2025/26; and adopt a Resolution amending the Fiscal Year 2025/26 Operating Budget to reflect updated revenue projections and expenditure adjustments.
Background
Overall, the City remains in a stable financial position, with most revenues and expenditures tracking as expected based on historical timing patterns. Based on updated forecasts and operational needs identified through the mid-year review, staff are recommending several targeted budget amendments. These amendments are intended to reflect conservative revenue estimates, recognize higher-than-anticipated revenues in certain areas, and provide appropriate funding for unanticipated but necessary expenditures.
Analysis/Discussion
The mid-year financial review evaluated the actual revenues and expenditures through December 31, assessing trends, and recommending budget amendments where appropriate. These mid-year results are considered in the context of normal timing differences, including; Revenues that are received later in the fiscal year; Annual or upfront expenditures incurred early in the year; and Capital projects that span multiple fiscal years.
Citywide Revenues and Expenditures
Citywide financial activity is within expected ranges. Special Revenue Funds and Capital Projects reflect timing-related variances, particularly transfers for capital improvements and debt service. Special Revenue Funds have earned approximately $66,000 in investment interest year-to-date. Capital Projects total more than $5.5 million and are funded through a mix of grants, special revenues, and General Fund contributions.
Internal Service Fund revenues appear low at mid-year due to the timing of fleet replacement transfers, which are expected to be completed later in the fiscal year.
General Fund
Revenues – operating revenues are approximately $212,000 (5%) higher than the same period last year and are at 40.9% of the annual budget, consistent with historical timing.
Key items include:
• Property Tax: Up 2.8% year-over-year and expected to meet budget. • Sales Tax: Down 1.5% compared to the prior year mid-year. Updated forecasts indicate a modest shortfall; staff recommend reducing the FY 2025/26 sales tax budget by approximately $92,000 to remain conservative. • Other Taxes (Cannabis): Under review due to compliance findings; no budget adjustment is proposed at this time.
• Charges for Services: Increased development activity has resulted in Community Development exceeding budget; staff recommend increasing this revenue budget by $18,000.
• Investment Earnings: Lower due to reduced interest rates and reduced proportional cash balances.
Expenditures – increased approximately 21.3% compared to the prior year, primarily due to the timing of transfers to capital projects. Expenditures are at 53.6% of the annual budget as of mid-year. Key factors include:
• Increased contract services for legal and IT support. • Salary and benefit increases resulting from negotiated labor agreements and onetime payouts. • Unanticipated legal services related to ongoing Code Enforcement matters.
Staff recommend a budget amendment to increase the legal services appropriation to address these unplanned but necessary costs. With the proposed amendments, General Fund expenditures are expected to remain within available resources.
Enterprise Funds
Water Fund
Total revenues exceed budget by 11.2% and are 5.1% higher than the prior year due to increased rates and usage. Investment earnings are also exceeding budget; staff recommend increasing the investment earnings budget by $30,000. Operating expenses are below budget and aligned with expectations, and no expenditure adjustments are recommended at this time.
Wastewater Fund
Revenues are tracking above budget at 53.3%, including $63,000 in unbudgeted connection fee revenue related to a development project. Investment earnings are also exceeding initial budget expectations. Staff recommend increasing the Wastewater Fund revenue budget to recognize additional $30,000 in investment earnings. Operating expenses are lower than the prior year due to debt service and capital project timing.
Cash and Investments
As of December 31, 2025, the City’s cash and investment balances comply with the adopted investment policy and are sufficient to meet anticipated expenditure needs for the remainder of the fiscal year.
Financial Considerations
The proposed budget amendments adjust revenues and expenditures within existing fund balances and do not negatively impact the City’s overall financial condition. All recommended amendments are supported by updated forecasts, realized revenues, or necessary operational expenditures.
The City’s financial position at mid-year remains stable. Revenues and expenditures are generally aligned with expectations when accounting for timing differences. The proposed budget amendments ensure that the FY 2025/26 budget remains accurate, conservative, and responsive to current conditions. Staff will continue to monitor financial performance and report back to the City Council during future financial updates.
Environmental Issues
The action of a mid-year budget review does not constitute a project as defined by California Environmental Quality Act Guidelines Section 15378; therefore, no further environmental review is required.