City of Cotati
2026-2036
Updated May 12, 2026
Prepared By:
- Damien O’Bid, City Manager
- Angela Courter, Director of Administrative Services
- Neil Tomlinson, Senior Accountant
General Fund
Long-Range Financial Forecast
City of Cotati
General Fund - Financial Forecast
FY 2025-26 to FY 2035-36
Contents
INTRODUCTION .............................................................................................................................3 City Overview........................................................................................................................3 Objectives ..............................................................................................................................3 FORECAST OVERVIEW .................................................................................................................4 Long Range Financial Forecast..............................................................................................4 Base Assumption ...................................................................................................................4 Scenarios................................................................................................................................4 Risks to the Forecast ..............................................................................................................7 GENERAL FUND FORECAST........................................................................................................9 REVENUES HISTORICAL TRENDS............................................................................................11 APPENDIX - DEAIL SCENARIO REPORTS ...............................................................................12 3 INTRODUCTION
City Overview
The City’s Fiscal Year (FY) 2025-26 adopted General Fund Operating Budget is $11.2 million with approximately 49 FTE budgeted positions. The City has the following departments to support operations and provide services to the community: City Manager (including Recreation), Administrative Services, Community Development (Planning and Building), Public Works and Engineering, and Police Services.
Objectives
The Long-Range Financial Forecast (LRFF) through FY2035/36 represents a continuing effort to analyze the City’s long-term fiscal condition based upon a reasonable set of economic and operational assumptions. It is an important management tool that can be used by both the City Council and the City Manager for identifying fiscal trends and issues which must be addressed to assure continued financial success. With early detection, financial trends identified as possible problems can be dealt with in a reasonable manner rather than waiting for a crisis to occur. The set of forecasts contained in this report is not a prediction of what will occur. The forecast is a snapshot in time and an approximate view of what could occur in the future if all the assumptions are realized.
As with any forecast or prediction, the assumptions and projections for the nearer years carry more certainty and confidence than for the years further into the future. The economic disruption of the past few years has made forecasting increasingly challenging as financial markets, cost of goods, and the economy overall has grown increasingly volatile on the cost side, as well as various shortterm stimulus and assistance programs that have been implemented by the state and federal governments on the revenue side. It is important that the City continue to closely monitor economic conditions locally, statewide, and nationally as well as policies at state and national levels that will impact the City’s financial health.
Based on the output from the issues identified in the 2022-23 LRFF, City staff generated the Fiscal Resilience Policy. This policy provides a structured response to the need for a more proactive approach to identify and manage potential financial challenges, including recession scenarios and changing economic conditions. With the budget adoption for fiscal year 2024-25, council formally adopted the policy.
The proposed policy establishes a comprehensive framework for ongoing financial monitoring and early intervention. It outlines key financial indicators across the General Fund, Water Fund, and Sewer Fund—such as liquidity, revenue trends, and broader economic signals—to help detect potential fiscal stress. If certain risk thresholds are met, the policy provides a phased response strategy, including prioritizing essential services, reducing non-critical expenditures, renegotiating contracts, managing assets, and implementing staffing controls. Overall, the policy is designed to strengthen the City’s financial stability, improve transparency, and enable timely, data-driven decision-making to minimize impacts to services during economic downturns. 4 FORECAST OVERVIEW
Long Range Financial Forecast
The Long-Range Financial Forecast (LRFF) provides a current and long-range financial assessment of revenues, expenditures, fund balance, and emergency reserves. The primary objective is to provide the City Council and the community with a financial forecast and identify any significant issues that may need to be addressed in the annual budget development process.
It is important to keep in mind that a forecast is not a budget. The LRFF is a vehicle that peers into the future and makes projections about what is likely to happen if the assumptions are realized. If future deficits are projected, this forecast allows time to take corrective action to ensure finances remain stable.
This analysis focuses on the City's General Fund because it is the primary operating budget for tax support municipal services. Enterprise Water and Sewer Services have a separate long-range plan that is performed along with the Proposition 218 process. The materials supporting the current water and sewer rate structure are available on the City Website at https://www.cotaticity.gov/356/Rates-andBilling-Information .
Long range financial forecasting assists the City in making decisions that lead to our ability to sustain the community’s core services. This document represents a review of the City of Cotati’s General Fund using three different scenarios.
Base Assumption
The LRFF scenarios illustrate trends of the City’s expenditures and revenues over the next 10 years.
The FY 2025-26 amended budget is the base for the scenarios. More detailed information for the assumptions is included in the Revenue and Assumptions and Expenditure and Assumptions sections of this report. For forecasting purposes if significant non-reoccurring revenues and non-reoccurring expenditures could be identified, they were removed in determining forecasted growth/decline. This includes transfers out for Capital Projects which have been excluded from the analysis in order to evaluate operations before investments in capital.
The City’s Annual Budget represents a total financing plan for all City operations and must be analyzed by its component parts to make any meaningful comparisons. Unlike a private holding company, the City cannot remove cash from any one enterprise operation to help support general tax funded operations. Although there is certainly limited financial interdependence between the funds, such as internal service fund charges to allocate common costs, each fund represented in the budget must stand alone. When analyzing City operations for budgeting, it is appropriate to look at the budget department by department. However, when reviewing long range financial forecasts, it is best to look at the fund structure and revenue and expenditure categories rather than the department structure.
Scenarios
The scenarios are modeled to provide insight into future financial capacity so that strategies can be developed to achieve long-term sustainability considering the City’s service objectives and financial challenges. They are intended to provide a high-level overview of the City’s financial situation utilizing various assumptions. Three scenarios are presented; each scenario is described as follows:
5 1. Scenario 1 - Baseline Flat Growth- This scenario accounts for flat fiscal growth from the base year starting in FY 2025-26. Flat fiscal growth includesthe following assumptions:
Revenues:
• Sales Tax. Average increase using consultant projections through FY 2030/31, then increase
3.4% per year thereafter. This future projection is based on the historical average of change in Sales Tax receipts over the last 10 years.
• Property Tax. This is based on consultant projections through FY 2030/31using known property valuation changes, anticipated transfers of ownership and Prop 8 recaptures for the first five years and then increases by an average of 5.3% in the remaining years. This future projection is based on the historical average of change in Property Tax receipts over the last 10 years. • Other Tax. This is primarily cannabis business tax. For fiscal year 2026/27 the City is projecting a decline of approximately 15%, as sales decrease due to the closure of one of the taxing businesses within the City. After fiscal year 2026/27, we estimate cannabis purchases to continue to increase on average by 2.5% per year, in line with a conservative inflation rate. • License and Franchises, Rents, Revenue from Other Agencies. Other Revenue, and Special Revenues are estimated at a gradual 5% increase year over year. This is based on average trends for these accounts over the last 10 years.
• Transfers in and Other Sources. This includes contributions and are budgeted flat as they are based on (1) Transfers in for reimbursements to the General Fund from Prop 72 for police services, (2) Interfund loan balances due from the Water and Sewer operations for the Unfunded Pension Payment initiated in 2021/22.
• Charges for Services for All Departments are highly variable but are closely related to CPI adjustments for our fees. We believe assuming a 1% increase per year would be reasonable as this is the historical average for all charges for services across the General Fund for the last 10 years. The most significant contributor to these historical changes is from the Community Development department fees on large development projects. As these large projects are cyclical in nature, the historical highs were eliminated to better project regular revenues for the City. • Investment Earnings are primarily driven by interest rates as well as volume of surplus cash available for investment. To remain prudent the known rates of investment for the next three years then investment earnings are decreasing based on the use of funds for capital at a rate of -10% per year for the remaining years.
• Funding derived from the operations of the County Veterans Building has been removed pending contract evaluation which is not known at this time. • One-time reimbursement revenues for staff costs on development projects (primarily Community Development and Engineering) are not included in this analysis as they are dependent on development and unpredictable.
Expenses:
The baseline model utilizes Fiscal Year 2025/26 adopted operating budget and applies the following assumptions for the Baseline Scenario:
• Salaries & Benefits (Excluding Health Insurance). All known contract changes for labor groups for future years have been incorporated into the forecast. However, unknown changes were projected using an estimated 2.5% overall increase in costs, but with no staffing FTE increases. • Payouts – Due to unusual payouts applied in fiscal year 2025/26 we are estimating a decrease of 17% in fiscal year 2026/27 then increasing again by 2.5% consistent with Salaries and Benefits.
• Health Insurance for Personnel. Assume 15% increase in Fiscal Year 2026/27, 5% for the two following years then 3.5% thereafter.
6 • City Insurance and Utilities have continued to climb over the last 4 years. We have projected continued 7% increases for two years then reducing to an average of 3.5% in line with trends before 2020 for Utilities. For Insurance we have continued with annual increases of 5% going forward.
• PERS Unfunded Liabilities. Based on last available PERS information presented in the 2025/26 Pension Analysis Report (dated December 9, 2025). Updated actual information from CalPERS should be available in September 2026.
• All Other Operating Expenses. To conservatively project expenditures, we have assumed 2.5% increases each year based on an average CPI increase for the US over the last 10 years.
2. Scenario 2 – Baseline with Hotel Development - Thisscenario uses the base Scenario 1 and then adds the possible impact of the Hotel Development being completed in 2026-27 and opening in FY 2027-28.
The hotel revenue model is based on consultant projections based on like hotels in the region. This scenario adds the following:
• Property Tax. Additional $40,000 in Property Tax revenues beginning in FY 2027-28 then increasing consistently with the base model thereafter. • Sales Tax. Incremental increase of 1% beginning in FY 2027-28 due to increased tourism and then increasing consistent with the base model thereafter. • Transient Occupancy Tax (TOT). Receipts initiating based on a ramp up of occupancy starting with 55% occupancy rate in the first year (FY 2027/28), 62% the second year, 67% the third and stabilizing in year four at 70%. Overall revenue (a function of price and occupancy) would then increase by 3% per year for each subsequent year based on estimated increased room rates.
It is important to note the following regarding Transient Occupancy Tax (TOT) assumptions:
• The approved TOT is set at 10% per City Code 3.12.030. • The proposed hotel is designed with 153 rooms.
• Investment Earnings are estimated to continue to decrease until 2027-28 when new funding can be reinvested for future returns. Estimated returns are based on increasing the balance of funds invested to the similar level of 2025/26 and increasing 3.5% per year thereafter. • No assumptions around increases in expenses. Though it is reasonable to assume a new contract service for TOT audits would be initiated, the City does not have a cost estimate for these services, but it is not expected to be significantly material to this evaluation.
3. Scenario 3 – Recession in 2026/27 - This scenario starts from the base assumptions in scenario 1 then estimates what an impact of an event like the great recession of 2008 would be on the City’s General Fund. Assumptions for recession include the following:
Revenues:
• Sales Tax and Rents are considered initial revenue streams that are directly impacted by recession due to the pullback of consumers non-essential spending. Decrease of 35% in Fiscal Year 2026-27 followed by a 5% decrease in the year following Fiscal Year 2027-28, zero growth for the two fiscal years, Fiscal Years 2029-30 and 2030-31, and then back to regular growth of
2.0% thereafter.
• Property Tax is a lagging recession point, so it still shows growth for fiscal year 2026/27, however in fiscal Year 2027/28 there is applied a 25% decrease followed by the 15% decrease in the subsequent, no growth for two more years and then average growth of 3.2% thereafter. • Other Tax, Licenses and Franchises, and Other Revenue could show immediate declines due to Cannabis Industry shrinkage and closures of business thus reducing of business licenses tax.
This was estimated at a 15% decline in Fiscal Year 2026-27 followed by a 25% decrease in the year following Fiscal Year 2027-28, zero growth for the two fiscal years, Fiscal Years 2028-29 7 and 2029-30, and then back to regular growth of 1.0% thereafter. • Investment Earnings are estimated to be eliminated as the cash on hand is used for operations and no longer available for continuing returns.
Expenses:
The model shows the maintenance of the baseline expenses without any reductions, as if we were going to try and continue operations as normal.
This scenario of expenses is not intended to be a realistic projection, but rather to represent the magnitude of cuts that would need to be made to City Operations. Immediate changes assumed implemented include:
• Discontinued investment in capital projects, discontinued funding of vehicle replacements, canceling of non-essential contracted services, liquidating not essential assets, etc., using the fiscal resilience policy as a guideline.
Risks to the Forecast
Every projection is a combination of assumptions based on analysis of historical data, use of actual data when available (e.g., labor contracts, CalPERS rates), and educated assumptions based on an analysis of available information. In addition to the built-in uncertainty of projections, the City continues to experience uncertainty around future revenue and major expenses that would impact the City’s budget due partly to the structure of State municipal finance laws, described in further detail below. The major risks to these projections include:
1. Volatile Economy - Regional and statewide economic conditions can greatly impact the City’s revenues. The City’s three largest General Fund revenue sources are sales, property, and other taxes, with sales taxes representing approximately 50% of all revenue. These revenue streams, and sales tax are sensitive to the broader economic trends and more specifically, consumer spending and development/construction. According to Beacon Economics, “the outlook for the U.S. economy remains one of moderate growth in the near term, where the lack of employment growth and the impact of political turmoil are offset by growing stimulus from both the federal government and Federal Reserve. Growth of around 2.5% in 2026 remains a reasonable baseline expectation. At the same time, the probability of a more severe disruption continues to rise as fiscal imbalances accumulate.” Given this continued uncertainty, impacts to State revenue streams remain difficult to predict and could result in additional State actions or funding shifts intended to address potential budget deficits.
2. State Takeaways and Borrowing - During times of economic downturn, the State of California has previously shifted, borrowed, or took money from cities to cover its own budget shortfalls. To protect local governments, Proposition 1A was passed in 2004 to prevent local revenuesfrom being transferred away to the state. However, Proposition 1A can be suspended if the Governor declares a fiscal necessity and two-thirds of the Legislature concur. The first emergency suspension of Proposition 1A was passed by Legislature as part of the 2009-10 budget package. Under this provision the State borrowed 8% of the property tax revenue and was required to repay the obligations to cities, plus interest, by 2013. After thisinitial repayment, the legislature may consider only one additional borrowing within a ten-year period. While it cannot be predicted if the State will once again borrow money from local governments, it is a possibility.
3. Insurance Premiums - The City is a participant in the California Intergovernmental Risk Authority (CIRA) which is a self-insured joint powers authority that was renamed and merged with the Redwood 8 Empire Municipal Insurance Fund (REMIF) in 2021 to manage insurance claims, benefit programs, and risk management needs of more than 50 cities or special districts. Continued costs related to both health insurance premiums as well as general liability and workers compensation liability are expected to continue to increase, many in double digits. The LRFF assumes 7% in the next year and then 5% per year thereafter. Just as local governments revenues are subject to impacts from the regional and national economic conditions, the city’s insurance premiums are additionally impacted.
4. Unfunded Liability Pension Costs – Rather than provide retirement benefits through Social Security, the City instead provides pension benefits to its employees and retirees through six pension plans with CalPERS. As of 06/30/2024 (the most recent official information available as of the date of this memorandum), the plans had a total actuarial accrued liability (the estimated amount necessary, as of the valuation date, to fund all earned pension benefits for current employees, retirees, and beneficiaries) of approximately $47.5 million, held approximately $40.4 million in assets, and were underfunded by approximately $7.1 million. The pension plans were 85.1% funded.
In January 2021, the City issued a pension obligation refunding loan and a street improvements financing loan (UAL Refunding Loans) that allowed it to pay down the UAL by $6,000,000. After the UAL refunding, the City programmed relatively small UAL payments to CalPERS, as well as payments on the two loans. Since the loan interest rates are significantly lower than the interest rate charged by CalPERS, the refunding allowed the City to generate approximately $2.25 million in cash flow savings.
After the refunding, CalPERS has reported both significant losses (6.1% in fiscal year 2022), shortfalls (5.8% in 2022-23) and excess returns above the required 7.2% (9.3% in 2023-24 and estimated 11.6% in 2024-25). The initial shortfall translated to approximately $4.7 million in new UAL for the City. To minimize the financial impacts of this loss the City implemented application of Additional Discretionary Payments to reduce negative amortization on losses.
The projections in this forecast are based on the 2025 Pension Liability Review generated by Ridgeline Municipal Strategies which did consider the amortization of these losses. However, it does not assume application of no negative amortization schedules or future losses/gains for the current fiscal year forward. A new CalPERS report should be made available in September of 2026, after which staff will report back to the City Council with a new Pension Liability Update.
5. City Operational Changes and Related Staffing Adjustments – The City is continuing to focus on providing the best of class service to our community. This service is provided by three separate bargaining units; the CEA, the Cotati Police Officers Association (CPOA), and the Cotati Police Management Association (CPMA), as well as the Non-Represented group and a single employment agreement with the City Manager. Each of these groups negotiate their set period contractsfor council approval. All known contract changes for future years were incorporated into the future projections.
Unknown changes are projected using cost trends of 2.5%, but with zero staffing FTE increases.
6. No Major New One-Time Operating Expenses - The expenditure forecast does not include any provisions for unexpected one-time expenses,such as changesin legislation, unexpected events, acts of nature, or other such factors that could require the City to expend a significant amount of General Fund resources. Also, as mentioned previously, the LRFF does not account for transfers or capital projects, due to the variability of these, but focuses on on-going operational costs/revenues.
GENERAL FUND FORECAST
Below are the financial summaries of the three scenarios outlined. The following tables and charts show the General Fund operating fund balance for each of the scenarios over a 10-year period. Full-size detailed tables with the revenues and expenses by classification are included in Appendices A-C
Scenario 1 - Appendix A: Baseline – Flat Growth
Scenario 2 – Appendix B: Baseline with Hotel
Scenario 3 – Appendix C: Recession in 2023/24
REVENUES HISTORICAL TRENDS
Chart 1 provides a summary of the total General Fund Actual Revenues from 2000 to 2022 and budget revenues for fiscal year 2022-23.
CHART 1 – General Fund Revenue FY 2000-2001 to FY 2024-25 Chart 2 provides a summary of the top three General Fund revenue sources 2000 to 2026.
CHART 2 – Top Three General Fund Revenues FY 2000-2026
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200020012002200320042005200620072008200920102011201220132014201520162017201820192020202120222023202420252026 Millions
Top Revenue Historical Trends
Property Tax Sales Tax Bradley Burns Sales Tax Measure A/G/S
APPENDIX - DEAIL SCENARIO REPORTS
Included within this appendix are the details for the Revenues and Expenses by Function for the General Fund, as summarized within the scenario summaries under General Fund Forecast. This provides in depth information on the exact changes by fiscal year based on each function as outlined in the assumptions.
A. Baseline – Flat Growth
B – Baseline with Hotel
C – Recession in 2026/27