CITY COUNCIL STAFF REPORT
Meeting: June 16, 2026
Subject
Consideration of Recommended Operating and Capital Improvement Program Budgets for Fiscal Year (FY) 2026‐27, adoption of the Operating and Capital Improvement Program Budgets for FY 2026‐27, establishment of the Appropriation Limit, and related actions
Recommended Action
1. Adopt Resolution No. 26‐XXX establishing an Operating Budget of $141,318,264 for FY 2026‐27, which includes the following changes to the FY 2026‐27 Proposed Budget, published on May 4, 2026:
a. Approve the operating budget of $141,293,145 outlined in the FY 2026‐27 Proposed Budget.
b. Approve a reduction in appropriations of $47,000 for recurring Chamber of Commerce funding agreement
c. Approve additional appropriations of $25,000 for City Work Program Special Projects PR & Strategic Comm Strategy
d. Approve additional appropriations of $34,119 for the Council approved salary adjustment of Senior Assistant City Attorney
e. Approve additional appropriations of $13,000 for RISE Housing Solutions f. Approve the allocation of $200,000 for RISE Housing funds to be budgeted in the General Fund previously funded in Special Revenue Fund as approved by Council on May 19, 2026
g. Approve a reduction in revenues of ($224,320) relating to at‐risk ERAF property tax h. Approve additional revenues of $15,000 for Law Enforcement related administrative fees
i. Approve any other recommended changes as directed by City Council
2. Adopt Resolution No. 26‐XXX establishing a Capital Improvement Program Budget of $14,235,000 for FY 2026‐27.
3. Adopt Resolution No. 26‐XXX establishing an Appropriation Limit of $148,461,383 for FY 2026‐27
Executive Summary
Overall, the Final Budget for both Operating and Capital Budgets for Fiscal Year 2026‐27 is recommended at $155,553,264 across all funds with estimated revenues of $150,378,779, which 2 includes the use of one‐time funds of $2,303,500. Focusing on the General Fund, the City’s largest tax‐supported fund, includes a budget of $109,922,076, with estimated revenues of $109,518,537 resulting in a use of fund balance $403,539.
The proposed budget included the following requests:
$2,394,903 in department requests ($2,303,500
in one‐time costs and $91,403 in ongoing
costs)
The final budget includes the following additional changes since the proposed budget was printed:
Reduction in appropriations for recurring Chamber of Commerce funding agreement Additional appropriations for City Work Program Special Projects PR & Strategic Comm Strategy
Additional appropriations for the Council approved salary adjustment of Senior Assistant City Attorney
Additional appropriations for RISE Housing Solutions
Reallocation of RISE Housing funds to General Fund from Special Revenue Fund as previously approved by Council
Reduction in property tax revenues
Budgeting Law Enforcement related administrative revenues Creating the Economic Development Committee budget and reallocating current staff time to this program budget
Identifying recurring costs for Innovation & Technology Department proposals that were not originally included
Updated General Fund Fund Balance Chart to reflect recent budget adjustments
Reasons for Recommendation
At its May 11, 2026 meeting, the City Council received the proposed budget and directed staff to bring it back for final adoption on June 16.
This report consists of the initial Proposed Budget that was printed on May 4, 2026, as well as any subsequent modifications made to date. Most of these modifications were also presented to Council on May 11 and include unforeseen adjustments to expenditures and revenues that have emerged since the publication of the Proposed Budget. New among these adjustments are requests for additional appropriations for a City Work Program item, the Council approved salary adjustment of the Senior Assistant City Attorney, additional appropriations for RISE Housing Solutions, the reallocation of RISE Housing funds to General Fund from Special Revenue Fund as previously approved by Council, , budgeted revenues for Law Enforcement related administrative fees, These adjustments also include a reduction in estimated property tax revenues and a reduction in recurring costs for the Chamber of Commerce funding agreement.
Those changes are summarized by funds below:
Changes to Revenues
3 Changes to Expenditures
Changes to Fund Balance/Net Position
4 In addition, responses to Council’s questions during the Proposed Budget Study Session are included in Attachment G.
The Final Budget for the upcoming fiscal year highlights an increase in both expenditures and revenues compared to the previous yearʹs Adopted Budget. Total expenditures for all funds are at $155.5 million, a $19.5 million or 14.3%, increase from the previous year’s Adopted Budget.
Similarly, total revenues for all funds are anticipated to be $150.4 million, a $16.7 million or 12.5%, increase from last year’s Adopted Budget. The increase in expenditures are primarily due to increases in the Law Enforcement Contract, Community Shuttle expenses, and negotiated labor contracts.
General Fund expenditures are at $109.9 million, which is an increase of $10.7 million or 10.8%, from the previous yearʹs Adopted Budget. General Fund revenues are anticipated to be $109.5 million, which is a $12.3 million or 12.6%, increase from the previous yearʹs Adopted Budget.
The following table shows the City’s budget by fund type.
5 General Fund
The General Fund is the Cityʹs primary operating fund. It accounts for basic services such as public safety, public works, community development, park maintenance, code enforcement, and the administrative services required to support them. The fund generates revenue from the Cityʹs discretionary funding sources (e.g., sales tax, property tax, transient occupancy tax, and utility tax). As a rule, General Fund resources are used only to fund operations that do not have other dedicated (restricted) funding sources. Operations that rely heavily upon non‐General Fund resources, such as street maintenance, solid waste collection, and recreation, are accounted for in other funds. Information on these funds may be found in the Other Funds section of this document on page 17.
As illustrated in the following chart, most of the General Fund supports costs for Public Works, Law Enforcement, and Community Development.
6 General Fund Expenditures
FY 2026‐27 expenditures are estimated at $109.9 million, which represents a $10.7 million or 10.8% increase compared to the adopted budget from the previous year. This increase is primarily attributed to increases in negotiated compensation adjustments and benefit cost increases, increases in outsourcing legal services, law enforcement contract costs, and community shuttle rate increases and increased ridership.
7 General Fund expenditures increased by $225,119 from the $109.7 million as printed in the Proposed Budget, due to the following:
Description Expenditure Change
Administration – City Work Program Special Projects PR & Strategic Comm Strategy
$25,000
Community Development Department – RISE Housing Solutions from Special Revenue Fund to General Fund
$200,000
Community Development Department – RISE Housing Solutions – Additional Appropriations
$13,000
Additional appropriations for the Council approved salary adjustment of Senior Assistant City Attorney
$34,119
Reduced budget for annual contract with Chamber of Commerce ($47,000) Total $225,119
The estimates for FY 2026‐27 General Fund expenditures are based on a thorough analysis of anticipated personnel and non‐personnel costs. To create a more fiscally responsible budget, department budgets reflect a base budget with only justified ongoing expenses. This accounts for changes in personnel costs as well as any other anticipated or known increased costs in FY 2026‐
27. Personnel Costs
In FY 2026‐27, personnel costs are expected to reach $37.3 million, accounting for 33% of the General Fund expenditures. These costs include salaries and compensation for benefited and part‐time staff (69%), retirement benefits (15%), and other fringe benefits (14%), such as health coverage.
To obtain these figures, the City extracted data from the payroll system and made necessary updates to account for vacant positions, new hires, salary adjustments, and reallocated positions.
Furthermore, the projected costs of benefits for the upcoming year, such as retirement and health plans, were taken into consideration. A transfer to the Retiree Medical Fund for retiree healthcare, which is an ongoing expense, is budgeted in FY 2026‐27.
The FY 2026‐27 Final Budget includes funding for a total of 211 positions, representing no staffing changes from the FY 2025‐26 Adopted
Budget.
Non‐Personnel
Non‐Personnel budgets were developed based on previous yearʹs base budget and adjusted for the current yearʹs needs. One‐time projects were excluded to reflect ongoing expenditure needs.
Materials and contract services were adjusted by CPI, where applicable.
Major changes from the prior fiscal year
include:
8 Employee Compensation – Increasing primarily due to negotiated compensation adjustments and benefit cost increases, and step progressions.
Contract Services – Increase primarily driven by outsourcing legal services, law enforcement contract costs, and community shuttle rate increases and increased ridership.
Contingencies
Contingencies for individual program budgets were calculated based on FY 2026‐27 base budget
numbers and then incorporated into the materials budget. This has resulted in the City Manager Contingency being the only remaining contingencies in the budget.
General Fund Revenue
The Cityʹs General Fund revenues for the upcoming fiscal year are projected to be $109.5 million, representing an increase of $12.3 million or 12.6% from the FY 2025‐26 Adopted Budget. This increase is primarily due to an increase in Sales Tax, Licenses and Permits, and Use of Money and Property.
Since the Proposed Budget Study Session on May 11th, there has been a decrease in Property Tax revenues and an increase in Law Enforcement administrative fee revenues. Overall, General Fund revenues decreased by $209,320 from $109.7 million in the Proposed Budget as shown below:
2023 ‐24 2024 ‐25 2025 ‐26 2026 ‐27 2026 ‐27 Percent
REVENUES Actual Actual Adopted Proposed Final Change
Sales Tax 30,961,166 17,394,996 11,983,958 16,903,174 16,903,174 41.0% Property Tax 33,036,853 34,425,468 35,413,310 35,939,222 35,714,902 0.9% Transient Occupancy 6,486,798 8,305,933 7,500,000 7,676,155 7,676,155 2.3% Utility Tax 3,935,917 4,214,212 4,206,907 4,102,431 4,102,431 ‐2.5% Franchise Fees 4,313,669 4,383,827 4,394,563 4,475,281 4,475,281 1.8% Other Taxes 1,621,328 2,113,162 1,736,718 1,763,401 1,763,401 1.5% Licenses & Permits 4,412,057 5,755,842 4,261,859 6,528,411 6,528,411 53.2% Use of Money & Property 9,098,441 14,804,318 6,538,880 8,476,479 8,476,479 29.6% Intergovernmental 1,404,322 14,574,153 3,569,332 5,231,221 5,231,221 46.6% Charges for Services 12,181,459 394,405 15,162,032 15,616,424 15,616,424 3.0% Fines & Forfeitures 416,402 2,962,429 410,760 413,760 413,760 0.7% Miscellaneous 2,199,861 2,056,694 1,668,815 2,219,898 2,234,898 33.9% Transfers in 111,000 348,333 15,000 15,000 15,000 0.0% Other financing sources 127,037 3,619,142 367,000 367,000 367,000 0.0% TOTAL REVENUES 110,306,310$ 115,352,915$ 97,229,134$ 109,727,857$ 109,518,537$ 12.6% GENERAL FUND REVENUE SUMMARY
9 Description Revenue Change
Law Enforcement Administrative Fee Revenues not previously budgeted
$15,000
Property Tax Revenue Reduction ($224,320)
Total $(209,320)
Major changes from the prior fiscal year include:
Sales Tax revenue increases driven primarily by strong performance from a small number of businesses.
Increases in Licenses and Permits due to development‐related activity and updated fee assumptions.
Increases in Use of Money and Property revenues due to higher investment earnings.
Educational Revenue Augmentation Fund (ERAF) Revenue
The FY 2026‐27 Final Budget does not include revenue associated with the Stateʹs proposed redirection of excess Educational Revenue Augmentation Fund (ERAF) revenues from counties to schools. Several counties, including Santa Clara County, have challenged the Stateʹs interpretation and implementation of the proposal, creating uncertainty regarding the timing and availability of these revenues.
Given the ongoing litigation and uncertainty surrounding the ultimate disposition of excess ERAF funds, staff recommends a conservative approach and has not budgeted any ERAF‐related revenue in FY 2026‐27. If excess ERAF
revenues are ultimately received, staff recommends that such revenues be assigned to a dedicated reserve at year‐end until the legal and policy implications are fully resolved. This approach preserves fiscal flexibility while avoiding reliance on revenues that may be subject to future legal challenges or policy changes.
Other agencies throughout California have taken varying approaches, ranging from budgeting anticipated revenues to establishing reserves. Staff believes establishing an assigned reserve represents the most prudent fiscal approach until additional certainty is available.
General Fund – Fund Balance
FY 2026‐27 total ending fund balance is estimated to be $176.6 million, a decrease of $0.4 million
from the FY 2025‐26 Projected Budget; however, this does not account for the $1.4 million vacancy savings discussed later in the report under the Forecast section. It’s important to note that the only portion available for use, according to City policy, are unassigned funds. Committed funds, such as the For Future Use Reserve, are set aside for specific purposes determined by City Council resolution. Restricted funds, such as the Section 115 Pension Trust, are allocated for specific purposes stipulated by external resource providers.
10 Of the total fund balance, $59.1 million is categorized as unassigned and available; however, approximately $14.3 million of this amount is tied to the Vallco Town Center project. While the current accounting reflects the assumption that all revenue and contracted expenditures for the project have been recognized, Vallco is a multi‐year effort, likely spanning a decade. Key long‐ term costs, including staff salaries and benefits associated with managing and supporting the project, have not yet been fully incurred or accounted for. As a result, this portion of the unassigned balance should not be viewed as fully available, as the project is expected to ultimately have a net zero fiscal impact to the City.
The following table shows changes to fund balance for the General Fund since the close of FY 2023‐24:
11 General Fund Forecast
The City has reached resolution on the California Department of Tax and Fee Administration (CDTFA) Audit, and this budget focuses on the 10‐year forecast following this resolution. While long‐term projections may be less precise than short‐term projections, they help identify potential structural budget issues in advance. The Sheriff’s contract is the most significant cost driver impacting the City’s financial outlook and is the primary reason for the shift in the forecast from prior years. The projections reflect the latest proposal as of April 13, with an annual contract cost of approximately $25.5 million—an increase of $6.5 million from the current $19.0 million Cl assi fi cati on
2023‐24
Actual
2024‐25
Actual
2025‐26
Adopted
2025‐26
Year End
Proj ected
2026‐27
Fi nal
Nonspendable
Loa ns Re ce ivable 428,431 1,012,168 435,000 1,012,168 1,012,168 Adva nce to Other Funds 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 Inventori es/P rep ai d Ite ms 21,383 25,267 21,383 25,267 25,267 Total Nonspendable 3,449,814 4,037,435 3,456,383 4,037,435 4,037,435 Restri cted
CASp Ce rtific a tion and Tra ining 7,628 9,753 7,628 9,753 9,753 Secti on 115 Pe ns ion Trust 21,663,664 24,320,860 21,663,664 21,663,664 24,320,860 Public Access Te le vision 1,639,443 1,471,890 429,443 261,890 261,890 Public Art In‐Lie u ‐ ‐ ‐ ‐ ‐ Total Restricted 23,310,735 25,802,503 22,100,735 21,935,307 24,592,503 Commi tted
Sal es Ta x Re payme nt Re se rve 74,500,000 ‐ ‐ ‐ ‐ For Future Us e Re se rve ‐ 64,500,000 64,500,000 62,000,000 62,000,000 Economic Unce rta inty Re se rve 24,000,000 24,000,000 22,543,315 24,000,000 26,517,894 Capital Proje cts Re se rve 10,000,000 ‐ ‐ ‐ ‐ S us ta ina bility Re se rve 127,891 127,891 127,891 127,891 127,891 Total Committed 108,627,891 88,627,891 87,171,206 86,127,891 88,645,785 Assigned
Re se rve for Encumbrance s* 4,741,474 7,287,794 ‐ ‐ ‐ Re se rve for ERAF ‐‐ ‐‐ 224,320
Total Assigned 4,741,474 7,287,794 ‐ ‐ 224,320 Total Unassigned 25,965,405 56,081,637 43,275,717 64,897,986 59,095,037 TOTA L FUND BALANCE 166,095,319$ 181,837,260$ 156,004,041$ 176,998,619$ 176,595,080$ 12 contract. This increase materially changes the City’s long‐term financial trajectory and accelerates the onset of structural deficits. With the CDTFA audit now in the City’s rearview window and a more certain—albeit reduced—sales tax revenue base, the forecast has shifted significantly. The following chart shows a structural deficit beginning in FY 2029‐30 of approximately $134.8 thousand, growing to $3.9 million in FY 2030‐31. This increase is largely attributed to the anticipated sunset of the Utility Users Tax (UUT) in FY 2030‐31. The City is currently exploring an option to extend the UUT through a ballot measure in the November 2026 election to help secure a more financially stable future. Additional details will be provided as part of the FY 2026‐ 27 Mid‐Year Report, which will include an updated forecast. The forecast assumes expenditures grow at an average annual rate of 2.58%, while revenues are projected to grow at an average annual growth rate (AAGR) of 1.60%. This imbalance contributes to the structural deficit in the later years of the forecast
Although this forecast reflects improved certainty in revenue assumptions compared to prior projections, it represents a notable change from the FY 2025‐26 Adopted Budget and prior forecast updates. The results of the CDTFA audit have been finalized, resulting in an ongoing reduction of approximately $30 million, or 73%, in sales tax revenues, and an overall decrease of approximately $30 million, or 28%, in total.
City revenues from the original FY 2023‐24 forecast. While these impacts are significant, they are
now fully incorporated into the City’s baseline and provide a more stable foundation for long‐ term financial planning. Given the proposed and expected structural balance in the early years of the forecast, it is important that the City avoid reactive or premature service reductions. The primary driver of long‐term fiscal pressure remains the Sheriff’s contract, for which negotiations are ongoing and not yet finalized. As such, maintaining current service levels while continuing to monitor developments and refine the forecast will be critical to ensuring thoughtful and strategic financial decision‐making.
The City has worked to hold the line
on expenditures in the near term, particularly in areas within its control, while continuing to face significant cost pressures from the Sheriff’s contract and personnel costs. Based on the updated forecast, deficits are now projected to begin earlier, in FY 2029‐30, with a modest shortfall of approximately $134.8 thousand, growing to $3.9 million in FY 2030‐31. This shift from prior forecasts is primarily driven by the proposed increase in the Sheriff’s contract. In the out years, the deficit is further impacted by the anticipated sunset of the Utility Users Tax (UUT) in FY 2030‐31. While prior forecasts included recessionary assumptions, the current forecast more clearly reflects ongoing structural cost pressures, particularly in law enforcement services. Looking ahead, the City should continue evaluating long‐term solutions to address the structural imbalance, including potential revenue measures such as extending the UUT.
13 FY 2026‐27 salaries and benefits reflect the cost‐of‐living adjustments (COLA) approved by the City Council in the Fall of 2025. Additionally, the forecast, full‐time salaries are expected to increase by estimated payroll increases from the CalPERS valuation report. On the other hand, part‐time salaries
are forecasted to grow at a rate of 1.5%, because historically, part‐time salaries have tended to grow at a slower rate than full‐time salaries. A 4% vacancy rate has been included in the out‐years of the forecast, in alignment with historical vacancy rates. The vacancy rate is not included in the budgeted salary and benefits as the City budget at the position level making is difficult to determine where vacancies may occur.
In the out years, the deficit is primarily driven by a few factors: a recession scenario modeled in FY 2027‐28, and the sunset of the Utility Users Tax in FY 2030‐31, and uncertainty surrounding the long‐term growth of the Sheriff’s contract.
Additionally, the forecast does not yet reflect revenue adjustments City Council approved the FY 2026‐27 fee schedule in April 2026 with the newly adopted fees going into effect 60 days after adoption in July 1, 2026. Increased fee revenue has not been included in this budget due to the timing of new fee schedule adoption and preparation of the proposed budget document.
Despite these pressures, the forecast demonstrates that the City is well‐positioned to maintain balanced budgets without drawing on reserves during the majority of the 10‐year period.
14 Fund Balance Outlook
The City’s long‐standing commitment to fiscal discipline has resulted in a strong fund balance position, which provides flexibility to address future funding challenges. In FY 2026‐27, the General Fund’s total fund balance is projected to be $176.6 million, of which $59.1 million is Unassigned. Beginning in FY 2030, fund balance is projected to gradually decline as expenditure growth begins to outpace revenue growth and the forecast returns to structural deficits.
The forecast assumes the Reserve for Future Use remains untouched at approximately $62 million throughout the entire forecast period. The Economic Uncertainty Reserve is projected to grow
over time as revenues and expenditures increase, while the Pension Trust initially grows due to investment earnings.
Unassigned fund balance is projected to remain positive throughout the forecast period, though it declines in the later years of the forecast due to ongoing expenditure pressures and the scheduled sunset of the Utility Users Tax in FY 2030‐31.
While these reserves provide a strong financial foundation, ongoing uncertainty surrounding the Law Enforcement contract, particularly the magnitude and structure of future cost increases, continues to be a significant factor influencing the City’s long‐term financial outlook.
Maintaining these reserves will be critical
as negotiations progress and future cost obligations
become more defined.
The forecast anticipates total fund balance growing from an estimated $176.6 million at the end of FY 2027 to $150.8 million on FY 2035. Key reserve categories include:
‐ Future Use Reserve ‐ Maintains a consistent balance of $62.0 million throughout the
forecast period, available for use as determined by City Council.
‐ Economic Uncertainty Reserve ‐ Grows incrementally due to projected increases in General Fund revenues and expenditures, supporting the City’s ability to weather economic shocks. Section 115 Pension Trust ‐ Grows initially through investment earnings. The trust may be used to offset CalPERS costs and ensure long‐term pension funding stability.
‐ Unassigned Fund Balance ‐ Projected to steadily decrease from $60.7 million in FY 2027 to zero in FY 2035, largely reflecting the impact of a structural deficit resulting from the increase of the Sheriff’s contract increase and at‐risk ERAF funds.
15 Overall, this forecast reaffirms the City’s commitment to responsible financial management and positions Cupertino to remain resilient in the face of future uncertainties.
Budget Balancing Options
The FY 2026‐27 Final Budget reflects a use of fund balance of approximately $403,539. While the Cityʹs 10‐year forecast projects modest surpluses in the near term, those projections assume vacancy savings that are not budgeted at the position level in the annual budget. As a result, City Council may wish to provide direction regarding how the FY 2026‐27 budget shortfall should be addressed.
Staff recommends addressing the FY 2026‐27 shortfall through temporary use of fund balance.
The projected deficit represents less than one‐half of one percent of General Fund expenditures and is expected to be offset through normal vacancy savings during the fiscal year. However, for a structurally balanced budget, the following options are available for Council consideration.
Temporary Use of Fund Balance
The City could utilize available unassigned fund balance to address the FY 2026‐27 shortfall.
Given the Cityʹs strong reserve position and relatively modest size of the deficit, this approach would have minimal impact on the Cityʹs overall financial condition.
16 Section 115 OPEB Trust
The Cityʹs Section 115 OPEB Trust remains well‐funded, with a funded status of approximately 103% as of FY 2025 and a market value of approximately $50.0 million as of May 31, 2026. The City may consider utilizing a portion of the trust to offset future retiree medical costs currently paid from the General Fund, thereby reducing ongoing operating expenditures.
Service Level Adjustments to Law Enforcement Services
Given that the Sheriffʹs contract is the Cityʹs single largest operating expenditure and the primary driver of long‐term fiscal pressures, the City could consider reducing law enforcement service levels to offset the FY 2026‐27 budget shortfall. Additionally, the recent County contract proposal does not include caps on annual increases, making forecasting difficult. Potential options include reducing dedicated positions such as two School Resource Officers ($772,000), one Traffic Enforcement Officer ($336,000), or one General Law Enforcement Officer ($336,000), subject to Council priorities and community service expectations. Any reductions would lower ongoing contract costs and could help mitigate future structural deficits.
Budgeting ERAF Revenues
If litigation surrounding excess ERAF revenues is resolved favorably and the revenues become recurring and reliable, the City could consider incorporating a portion of those revenues into
future operating budgets.
Combination of Strategies
The City may ultimately choose a combination of the options described above, balancing the use of reserves, operational efficiencies, service level adjustments, and revenue enhancements to maintain long‐term fiscal sustainability while minimizing impacts to residents and businesses.
Other Funds
This section combines all non‐general funds. Discussion at the fund type level can be found in the All Funds Summary of the budget.
17 All Other Funds Expenditures
Expenditure sources increased by $8.8 million from the FY 2025‐26 Adopted Budget. This is primarily due to an increase in Capital Outlays and Transfers Out. Since the proposed budget study session on May 11, all other funds expenditures have remained unchanged apart from Contract Services which decreased by $200,000 due to the reallocation of $200,000 for RISE Housing funds from a Special Revenue fund to the correct account in the General Fund. This account change was previously approved by Council at the May 19, 2026 Council meeting.
All Other Funds Revenues
Revenue sources increased by $4.4 million from FY 2025‐26 Adopted Budget. This increase is primarily due to an increase in charges for services and Transfer In. Since the proposed budget study session on May 11, all other funds revenues have remained unchanged.
18 All Other Funds Fund Balance/Net Position
Fund Balance/Net Position sources decreased by $4.77 million from the prior year Adopted Budget due to overall expenditures exceeding revenues.
Requests for Funding
City Work Program (CWP)
Last fiscal year, Council approved the funding for the FY 2025‐27 City Work Program as part of the FY 2025‐26
adopted budget. On December 1, 2025, Council voted to modify the CWP by adding six new projects and eliminating the Sign Ordinance project as shown in Attachment I.
The elimination of the Sign Ordinance allowed for $200,000 to be defunded and returned to the general fund.
The new projects have resulted
in an additional $1.135 million that has already been allocated during this fiscal year to support the Housing Site Inventory ($660k) and Protections for Parkland ($475k) projects. This increase is shown in the table below under FY 26 amended budget. For FY 27, an additional $25,000 is needed for the Public Outreach and Engagement Strategy to establish citywide standards and consistency to all community engagement. The total CWP budgets for FY 26 and FY 27 are shown below.
Project FY26
Adopted
Budget
FY26
Amended
Budget
FY 27
Proposed
Budget
FY 2025‐2027 CWP $3,498,000 $4,433,000 $4,458,000
Unfunded Needs
Departments have identified the following items as unfunded needs, which refer to priority projects that lack sufficient funding to be implemented at this time.
Community Development Department – Emergency Building Inspection Services The City utilizes on‐call consultants to provide building inspection services when City inspection staff are unavailable. Due to staffing challenges and the expiration of the existing consultant agreement, additional funding may be needed to maintain service levels. Staff will continue to Fund Department Request Frequency Expense One-time Expense Recurring 100 CDD Emergency Building Inspection Services One Time 125,000 $ 100 CDD CDBG Human Service Grants program One Time 152,000 $ CDD Total 277,000$ - $
Grand Total 277,000$ - $
19 monitor staffing and workload needs and may return to Council during the first quarter or Mid‐ Year Budget Review process if additional resources are necessary.
Community Development Department – CDBG Human Service Grants program The Housing Commission recommended increasing annual funding for the Housing Services Grant Program by $152,000 due to ongoing uncertainty surrounding federal Community Development Block Grant (CDBG) funding. While staff recognizes these concerns, the recommendation is not included in the FY 2026‐27 Final Budget given current fiscal constraints and uncertainty surrounding other major budgetary pressures. Staff will continue to monitor federal funding developments and evaluate future funding needs as part of subsequent budget reviews.
All Department Requests
Additional requests in red font were changes added since the proposed budget was printed. Refer to Page 9 of the staff report for changes to revenues since the proposed budget was printed.
20 Administration – CWP – Special Projects PR & Strategic Comm Strategy Council approved this project as part of the FY 25‐27 City Work Program in December 2025. Staff is requesting $25,000 to establish citywide standards to embed meaningful engagement into every city project. Funds will be used to secure a contractor to administer a citywide survey targeting resident responses about public outreach standards. Staff will utilize the survey results to present a report to Council about outreach strategies and recommended policy implementation.
Administration – City Attorney’s Office (CAO) – Senior Assistant City Attorney Salary adjustment At the May 19, 2026
Council meeting, Council approved an increase to salary and benefits to align the salary of the Senior Assistant City Attorney. This alignment reflects the elevation of that classification as a member of the City’s Executive Management Team and increased responsibilities including review and revision of department staff reports, review of an increasing volume of Public Records Act requests, increased work on special complicated projects such as Fund Department Request
One-time Expense Recurring Expense
100 Administration City Work Program Special Projects PR & Strategic Comm Strategy 25,000 $ 100 Administration Assistant City Attorney Salary Adjustment 34,119$ 100 Administration Law Enforcement ALPR (60,000)$
100 Administration Removed budget for annual contract with Chamber of Commerce (47,000) $ CMO Total 25,000$ (72,881) $
100 CDD Planning - On Call Contract for Design Review 35,000 $ 100 CDD Planning - On Call Contract for Environmental Review 82,000 $ 100 CDD RISE Housing Solutions – Additional Appropriations 13,000 $ CDD Total 117,000$ 13,000 $
100 I&T Video - AJA Ki Pro Ultra 6,500 $
100 I&T Video - City Hall Lobby Monitor Replacements 7,500 $ 100 I&T Video - Tally system for Ross Carbonite Switcher 12,000 $ 100 I&T Video - Panasonic PTZ Cameras and Controller 115,000 $ 100 I&T Video - Tiger Technology 17,000 $
100 I&T Applications - Doc Access 15,000$
100 I&T Applications - Open Counter 37,000$
610 I&T Infrastructure - Regional vCISO (Pilot) 45,000 $ 610 I&T Infrastructure - MFPs 150,000 $
610 I&T Infrastructure - Network Access Control and Wi-Fi refresh 150,000 $ 610 I&T GIS - Ichi Plan 10,000$
I&T Total 503,000$ 62,000 $
100 P&R QCC Round Table Replacement 15,500 $
P&R Total 15,500$ - $
100 PW Sustainability Intern - 81-122 and 520-81-801 25,205 $ 100 PW Sustainability Intern - 81-122 and 520-81-801 356$ 100 PW Sustainability Intern - 81-122 and 520-81-801 319$ 100 PW Grounds Memorial Park Asphalt Repairs - 84-809 36,000 $ 100 PW Trees/ROW Median Sleave - 86-824 95,000 $
100 PW Facilities - Library VAV HVAC Upgrade - 87-828 130,000 $ 100 PW Facilities - QCC - Control Valves & Circuit Setters - 87-830 52,000 $ 100 PW Facilities - Wilson Park - Dry Rot and New Roof - 87-834 80,000 $ 100 PW Facilities - BBF Painting - 87-841 60,000 $
100 PW Transportation - DeAnza Traffic Signal Sync 88-844 110,000 $ 100 PW Transportation - SCB Traffic Signal Sync - 88-844 115,000 $ 100 PW Transportation - Traffic Signal Video Detection Upgrade - 88-844 50,000 $ 100 PW Transportation Bike Ped Education - 88-846 15,000 $ 100 PW Transportation - eBike education 88-846 5,000$
520 PW Sustainability Intern - 81-122 and 520-81-801 8,179 $ 520 PW Sustainability Intern - 81-122 and 520-81-801 119$ 520 PW Sustainability Intern - 81-122 and 520-81-801 106$ 630 PW Fleet - Replace Fuel Dispensers - 85-849 60,000 $ 630 PW Fleet - Vehicle and Equipment Replacement List - 90-985 890,000 $ PW Total 1,643,000$ 89,284 $
Grand Total 2,303,500$ 91,403 $
21 interagency agreements and appointment as the Board member to PLAN and its concomitant responsibilities in risk and insurance management.
Administration – Law Enforcement – Automated License Plate Reader (ALPR) In early 2026, Santa Clara County suspended their partnership with Flock Safety due to privacy reasons. Staff is requesting to remove $60,000 which was previously allocated annually to fund the Automated License Plate Reader (ALPR) contract with Flock Safety.
Administration – Chamber of Commerce Contract
Staff is requesting to remove $47,000 per Council direction due to cost reduction of the annual Cupertino Chamber of Commerce contract. This contract was previously budgeted at $52,000 per year, and the amended contract terms limit the agreement to a maximum of $5,000 per year.
Community Development Department – RISE housing solutions On May 19, 2026, the City Council approved a three‐year contract with RISE Housing Solutions for administration of the Below Market Rate program. Staff originally budgeted $200,000 as an
estimate for FY 2026‐27, however the exact total for FY 2026‐27 services will be $213,000.
Therefore, staff requests an additional $13,000 to cover the financial contract amount. With the May 19, 2026 award, Council approved an appropriation from the General Fund to cover costs of the BMR Program for the three‐year period. The budget should reflect this decision with a total of $213,000 from the General Fund to cover Below Market Administration services for FY 2026‐
27. Innovation & Technology – DocAccess, Open Counter, & Ichi Plan Staff is requesting recurring costs of $62,000 respectively to cover ongoing costs beyond FY 2026‐
27. The ongoing costs were inadvertently excluded from the May 11th Study Session.
Staffing
The FY 2026‐27 Final Budget proposes funding for a total of 211 positions, representing no changes from the FY 2025‐26 Adopted Budget.
Budget Adjustments Summary and Detail
The changes are discussed further below and are also detailed in Attachment D.
Capital Improvement Program (CIP)
On March 3, 2026, the City Council conducted a study session to review the Capital Improvement Program (CIP). The FY 2026‐27 Proposed Budget for CIP is $7.5 million, along with $175,000 ongoing administrative support. This also includes the annual transfer in from the General Fund of $2,000,000. The chart below includes the ongoing cost of $175,000 for CIP Preliminary Planning & Design and Capital Project Support which are part of the CIP base budget.
The draft CIP Budget document is included as Attachment J to this report. As this is the City’s first year pursuing recognition through the California Society of Municipal Finance Officers 22 (CSMFO) Capital Improvement Program Awards Program, the document remains in draft form while staff continues to incorporate feedback received through the CSMFO review process. In addition, FY 2026‐27 marks the first year the City’s CIP document will be published through OpenGov, and staff is currently finalizing the transition to that platform.
Ongoing Challenges
The City is continuing to navigate a major loss in sales tax revenues along with stagnation in its transient occupancy taxes and the potential loss of Utility User Tax that is set to sunset in FY2030.
In addition, expenditure increases continue to outpace revenue growth as shown by growing deficits in the last two years of the forecast.
Appropriations Limit
Article XIII B of the California Constitution established appropriations limits on government agencies within California. Originally established by Proposition 4 in 1979, the appropriations limit places a maximum limit on the appropriations of tax proceeds by the State, school districts, and local governments in California.
The City’s FY 2026‐27 appropriations limit is $148,461,383 an increase of $7,326,838, or 5.2%, from the prior year. Please refer to Attachment E for the calculation of the appropriations limit, and Attachment F for the corresponding price and population factors utilized in the calculation of the appropriations limit.
Budget Study Session
On May 11, 2026, City Council conducted a study session to review the FY 2026‐27 Operating Budget. The Capital Improvement Programs Budget was reviewed at a separate Council meeting date of March 3, 2026. During the session, City staff presented General Fund revenues,
expenditures, and forecasts. City Council offered input, sought clarifications, and provided recommendations.
During the study session, City Council requested staff follow‐up on several items. The responses to Council’s questions are included in Attachment G.
Project Program
External
Funding City Funding
Total Proposed
Budget
Citywide Building Conditions FCA Implementation (annual l y funded) 420‐99‐063 ‐ 1,250,000 1,250,000 City Hall Annex 420 ‐99‐248 ‐ 5,000,000 5,000,000
BBG Golf Course Pro Shop Renovation 420‐99‐277 ‐ 120,000 120,000 Sports Center Courts Resurfacing 420 ‐99‐278 ‐ 210,000 210,000 SCB/SR 85 NB Ramp Intersection Improvements 420 ‐99‐279 600,000 ‐ 600,000 Memorial Park Pickleball Sound Attenuation 420 ‐99‐280 ‐ 150,000 150,000 Blesch Property Improvements 420 ‐99‐281 TBD TBD TBD
CIP Preliminary Planning & Design 420 ‐99‐047 ‐ 125,000 125,000 Capital Project Support 420 ‐99‐048 ‐ 50,000 50,000
TOTAL $ 600,000 $ 6,905,000 $ 7,505,000 23 Changes to the Budget Document
Changes to the Budget and Policies
Budget Format and Performance Measures Report and Implementation Action Plan
In Fall 2024, the City engaged Baker Tilly US, LLP to conduct a comprehensive review of its Budget Document and Performance Measures. The primary objective of this engagement was to enhance clarity, accessibility, and to strategically align the Cityʹs annual budget document and to improve the effectiveness of performance measures in tracking progress toward key citywide goals. The Budget Format Implementation Action Plan (IAP) was approved by Council on May 6, 2025.
The prior year adopted budget document (FY 2025‐26) accomplished about half of the items listed in the IAP. Staff continued to address items listed in the IAP during FY 2025‐26. In July 2025, the Audit Committee formed a Budget Format Sub‐Committee to review budget format changes and finalize recommendations. In fall 2025, staff and the Sub‐Committee distributed a community survey and held a focus group, which emphasized keeping the PDF version alongside a new interactive format, with searchable content, enhanced AI features, and mobile‐friendly visuals. In response, several enhancements were made to the online budget, including an interactive table of contents, inclusion of the CIP book, embedded financial policy documents, improved navigation for departments and divisions, added links to CIP dashboard and CWP dashboard, and added division summaries. The FY 2026‐27 adopted budget document marks the first year that the Cityʹs budget is built and presented utilizing OpenGov Publications.
Revised Fees
Matrix Consulting Group recently conducted a comprehensive fee study that was presented to City Council in February 2024. City Council considered the FY 2026‐27 fee schedule in April 2026 with the newly adopted fees going into effect 60 days after adoption in July 2026. Increased fee revenue has not been included in this budget.
Investment Policy
The City Council annually updates and adopts a City Investment Policy that is in compliance with State statutes on allowable investments. By policy, the Audit Committee reviews the policy and acts as an oversight committee on investments. The policy directs that an external auditor performs agreed‐upon procedures to review City compliance with the policy. The Audit Committee reviewed and accepted the current Investment Policy on April 27, 2026. The City Council adopted the Cityʹs Investment Policy on May 19, 2026.
Contingencies
Contingency dollars have been calculated from the department’s FY 2026‐27 base budget materials have been consolidated into materials budgets. The City Manager Contingency is the only remaining budget with contingencies as an expense category.
24 Reorganizations
The Administrative Services Department underwent a reorganization in mid FY 2025‐26, with the Council authorizing the transfer of the responsibilities to oversee the City’s Liability, Property and Claims Insurance Program from Human Resources to the City Attorneyʹs Office, moving the Human Resources Division to the City Managerʹs Office and renaming the Administrative Services Department to the Department of Finance.
General Plan Consistency and Environmental Compliance of the Capital Improvement Plan State law and the Cupertino Municipal Code (Section 2.32.070(C)) require the Planning Commission to review the CIP for consistency with the Cityʹs General Plan (General Plan:
Community Vision 2015 ‐ 2040). The Planning Commission reviewed the FY 2026‐27 Proposed CIP Budget on April 28, 2026, and found that the FY 2026‐27 Proposed CIP is consistent with the Cityʹs General Plan and that this consistency determination is exempt from CEQA (see resolution Attachment H).
Sustainability Impact
No sustainability impact.
Fiscal Impact
City staff recommends establishing an Operating Budget of $141,318,264 and a Capital Improvement Program Budget of $14,235,000 for FY 2026‐27.
City Work Program (CWP) Item/Description
None
Council Goal
Public Engagement and Transparency
Fiscal Strategy
California Environmental Quality Act
The adoption of the budget is exempt from the California Environmental Quality Act (CEQA) under CEQA Guidelines section 15378(b)(4), Each proposed project will be evaluated to determine if CEQA applies. As applicable, each project will conduct the appropriate level of environmental analysis.
Prepared by: Toni Oasay‐Anderson, Budget Manager
Reviewed by: Jonathan Orozco, Acting Director of Administrative Services Reviewed by: Department Heads
Reviewed by: Floy Andrews, Interim City Attorney
Approved for Submission by: Tina Kapoor, City Manager
Attachments for FY 2026‐27 Final Budget:
A – Draft Resolution – Operating Budget for Fiscal Year 2026‐27 25 B – Draft Resolution – Capital Budget for Fiscal Year 2026‐27 C – Draft Resolution – Appropriations Limit for Fiscal Year 2026‐27 D – Budget Proposals Summary
E – Appropriation Limit for Fiscal Year 2026‐27
F – Appropriation Limit Price and Population Factors for Fiscal Year 2026‐27 G – Proposed Budget Study Session Supplemental Report
H – Planning Commission Adopted Resolution
I – Adopted FY 2025‐27 City Work Program Budget Details J – FY 2026‐27 Capital Improvement Budget (CIP) Book (Draft)