Agenda #: 1
Meeting Date: May 20, 2025
CITY COUNCIL STUDY SESSION REPORT
TO: Honorable Mayor and Members of the City Council
VIA: Daniel Fox, City Manager
FROM: Jason Jacobsen, Finance Director
TITLE: STUDY SESSION RE: FISCAL YEAR 2025/26 OPERATING BUDGET.
BACKGROUND:
Each year, the City prepares an annual Operating Budget and Capital Improvement Program for City Council consideration that implements the Council’s priorities and Strategic Plan Goals, and provides the financial resources to deliver services to the community. The preparation of the annual budget is a significant and important undertaking that takes place over the course of more than five months.
Below is the schedule for the public meetings related to the FY 2025/26 City Budget:
• Council Study Session on Draft FY 2025/26 CIP and Draft Five-Year CIP Review – Held on 5/6/2025
• Council Study Session on Draft FY 2025/26 Operating Budget – Scheduled for 5/20/2025
• Adoption of the Proposed FY 2025/26 City Budget & CIP – Scheduled for 6/3/2025
On May 6, 2025, the City Council held a Study Session to review the recommended Draft Capital Improvement Program (CIP). Following Council discussion, there were two recommended changes to the presented Draft FY 2025/26 CIP:
1) Removed - Citywide Traffic Mitigation Fund Planning: $350,000, 2) Removed - City Fleet Electric Vehicle Charging Station (Design): $300,000.
The purpose of this Study Session is to provide the City Council with an opportunity to review the combined Draft FY 2025/26 Operating Budget and Capital Improvement Program. The Draft General Fund Revenue and Expenditure Totals are included in Attachment 1. The Draft Consolidated Fund Balance Schedule is included in Attachment 2. The Draft Department and Fund line-item budgets are included in Attachment 3. The Draft Long-Term General Fund Forecast is included in Attachment 4.
Based on direction received, appropriate revisions and refinements will be made and presented to the City Council for adoption at the June 3, 2025 City Council meeting. At the City Council meeting on June 3, 2025 staff will provide a summary of any changes to the draft budget reviewed at tonight’s study session that were incorporated into the final Proposed FY 2025/26 Operating Budget.
ANALYSIS:
Compared to the prior year, the Draft FY 2025/26 Operating Budget reflects a more challenging fiscal environment, characterized by a structural deficit and a weakening economic outlook. While the budget maintains funding for essential City programs and services, and includes limited investments in maintenance and capital improvements, the City must adopt a measured approach to long-term planning and financial commitments. Management remains cautious and conservative this budget cycle, recognizing ongoing pressures from escalating contract costs, rising labor, material and operating expenses, higher energy and fuel prices, and broader economic uncertainty that portend a bumpy road ahead for the City, and possibly a wider economic slowdown.
Whereas the FY 2024/25 Adopted Budget contained a modest budgeted operating deficit of $145 thousand, primarily attributed to the use of one-time reserves for onetime costs, the Proposed FY 2025/26 Budget projects a General Fund surplus of $49 thousand. Notably, this surplus is largely dependent on a one-time 37% reduction in Transfers Out, highlighting a recurring structural imbalance that, if left unresolved, will result in continued structural deficits.
A structural deficit occurs when a municipality’s ongoing (recurring) revenues are insufficient to fund its ongoing expenditures under normal (status quo) economic conditions. Unlike one-time or cyclical shortfalls, structural deficits require deliberate policy actions, such as revenue enhancements or expenditure reforms, to eliminate the underlying gap.
Without corrective action, the City will likely erode Unassigned General Fund reserves in ten years, necessitating the use of Emergency Contingency Reserve Funds, and further defer capital maintenance obligations to cover the recurring structural deficit.
Over time, this will constrain service levels or necessitate sudden, large revenue increases (see Attachment 4: Draft Long-Term General Fund Forecast).
Despite these fiscal challenges, the proposed budget prioritizes the implementation of high-priority objectives set by the City Council and remains guided by the three overarching goals found in the adopted FY 2024–2027 Strategic Plan:
• Responsible Stewardship of Public Resources
• Open, Engaged and Responsive Government
• Save, Sustainable and Healthy Community
FY 2025/26 Proposed General Fund Budget Overview
The Proposed Operating Budget for the General Fund comprises estimated resources of $32.3 million and expenditures of $32.3 million. Altogether, the operational budget reflects a one-time surplus of $49 thousand:
General Fund Revenues & Expenditures
Revenues (Ongoing) $ 32,335,151
Expenses (Ongoing) (32,286,151)
Addition to Fund Balance (One-Time) $ 49,000
Despite a budgeted “paper” surplus of $49 thousand, the budget retains a structural imbalance of approximately $702 thousand once one‐time adjustments are removed.
This imbalance will reoccur for the foreseeable future requiring the use of fund balance in the absence of structural changes to General Fund revenues or expenditures (see Attachment 4: Draft Long-Term General Fund Forecast).
Underlying Structural Deficit (General Fund)
Projected FY 2025/26 Surplus
Less One-Time Budget Balancing Strategy:
$49,000
Elimination of Transfer-Out to Self-Insurance Fund (750,744) Recurring Structural Deficit $ (701,744)
Revenue Highlights – General Fund: $32,335,151
Proposed General Fund revenues for FY 2025/26 have increased $390 thousand, or
1.2%, when compared to the prior FY 2024/25 Adopted Budget. The following are noteworthy General Fund revenue items incorporated into the proposed FY 2025/26 Operating Budget. The table below displays the prior two Adopted Budgets along with the proposed budget for FY 2025/26, and the percent of change for next fiscal year.
Property Taxes
Adopted Adopted Draft
FY 23/24 FY 24/25 FY 25/26
The estimated change in the City's net taxable value
of real property (secured & unsecured property) in the
City is expected to increase for FY 2025/26 which will
$6,438,183 $6,701,322 $6,971,047
4.09% 4.02%
result in year-over-year increase in all Property Tax
revenues of 4.02%. The City uses HdL as a
consultant to help monitor, audit and project this major revenue source.
Property Tax in Lieu of VLF (Vehicle License Fees)
Adopted Adopted Draft
FY 23/24 FY 24/25 FY 25/26
This revenue source grows at the same general pace
as the City's net assessed valuation. The City’s
consultant, HdL, also assists with the projection of this significant revenue item.
$7,510,497 $7,812,508 $8,107,449
4.02% 3.78%
Sales Taxes
Adopted Adopted Draft
FY 23/24 FY 24/25 FY 25/26
Sales tax revenue is projected to decline by $183,000
compared to the prior year—a significant reversal
from the $115,000 increase forecasted last year by
the City’s sales tax consultant. This downward
revision is primarily driven by updated assumptions
regarding statewide and national economic growth.
The City is seeing notable declines across several
key sectors, including Fuel & Service Stations,
General Consumer Goods, Online Sales, and
Building & Construction
$6,161,000 $6,597,000 $6,413,700
7.08% -2.78%
Transient Occupancy Taxes
Adopted Adopted Draft
FY 23/24 FY 24/25 FY 25/26
Transient Occupancy Tax is projected to remain
unchanged, reflective of a slowdown in travel.
$1,380,000 $1,449,000 $1,449,000
5.00% 0.00%
Use of Money & Property - Investments
Adopted Adopted Draft
FY 23/24 FY 24/25 FY 25/26
Investment Income for the General Fund is anticipated
to decline $71,000 as the City's portfolio reflects
changes to the interest rate environment.
$800,000 $1,320,000 $1,249,000
65.00% -5.38%
Current Service Charges
Adopted Adopted Draft
FY 23/24 FY 24/25 FY 25/26
Building Permit Activity – Revenue from Building,
Planning and Engineering activity is estimated to
decrease $317,000 due to a general reduction in
development activity.
$1,873,920 $1,929,057 $1,612,130
2.94% -16.43%
Rental Revenue – Revenue from rentals at the
Diamond Bar Center is anticipated to increase by
$25,000.
$939,000 $1,056,300 $1,102,500
Field and Park Facility Rentals, and related Facility
Security Charges, are anticipated to decrease
$28,000.
12.49% 4.37%
Cell tower lease revenue is projected to increase
$49,000 due to one additional site under lease and
adjustments for CPI to current leases.
Recreation Programs – Program revenue is
projected to have a net decrease of $85,000 mainly
due to a decrease in Contract Classes and a
continued decline in revenues from Youth Sports
Programs.
$714,095 $703,493 $618,425
-1.48% -12.09%
Gas Tax – Transfer In
Adopted Adopted Draft
FY 23/24 FY 24/25 FY 25/26
The Transfer-In from the Gas Tax Fund reimburses
the General Fund for eligible road maintenance
activities each year. However, as maintenance costs
continue to rise, available Gas Tax revenue remains
insufficient to fully cover these expenses. For FY
2025/26, total eligible costs are projected at $1.8
million—exceeding available Gas Tax funding by
$317,000.
$1,204,000 $1,475,000 $1,435,000
22.51% -2.71%
Expenditure Highlights - General Fund: $32,286,151
Proposed General Fund expenditures for FY 2025/26 have decreased by $583 thousand, or 1.8%, compared to the prior year’s Adopted Budget. In response to declining revenues, staff conducted a thorough review of all expense accounts and took deliberate steps to reduce or eliminate expenses in order to present a balanced initial draft. As a result, $1.04 million in expenditures has been removed from the Draft FY 2025/26 Operating Budget being presented today.
Key reductions include decreases to the Transfer-Out category (as previously noted), deferral of the Parking Lot Slurry Seal program at City parks, a reduction to Lobbying Services for legislative advocacy, and a scale-back in Records Management activities.
The following highlighted items are presented for City Council consideration:
• Public Safety
Law Enforcement – FY 2025/26 County of Los Angeles Sheriff’s Department (LASD) expenditures are expected to be approximately $8.8 million, representing the single largest line item and approximately 27.4% (up from 25.6%) of proposed General Fund expenditures. LASD proposed expenditures reflect a net increase of $398 thousand year-over-year, inclusive of a contract rate increase of
4.37% (down from 3.44% in the prior year) plus an increased Liability Trust Fund (LTF) surcharge of 13.0% (up from 12.5% in the prior year) on each contracted position. The General Fund includes a transfer-in from the Law Enforcement Reserve Fund in the amount of $50,000 for as-needed special assignments and suppression patrols which have proven to be a cost-effective approach to reducing crime and responding to specific public safety issues throughout the year. Lastly, the professional services budget for Public Safety also includes the third year of the Flock Agreement ($170,000) for the Automated License Plate Reader system.
Crossing Guard Services – The City provides Crossing Guard Services at seven (7) elementary schools and two (2) middle schools with a total of 16 guards. The total budget for crossing guard services in FY 2025/26 is $289,800.
This first contracted rate adjustment reflects a $9,800 increase as compared to the prior three years which saw a fixed rate.
Animal Control – Since incorporation, the City has contracted with the Inland Valley Humane Society (IVHS) for animal control and licensing services. The current agreement, last amended in 2021, follows a gross contract model in which the City pays the full cost of services, offset by any licensing revenue collected by IVHS. This year, three large member cities have withdrawn from IVHS (Montclair, Chino, Ontario), prompting a change in the cost adjustment methodology. Rather than applying the standard pro-rata pooled adjustment factor, a flat 15% increase has been proposed for FY 2025/26.
The projected gross cost for IVHS services in FY 2025/26 is $647 thousand, representing an $84 thousand increase over the prior year. After accounting for estimated licensing and service fee revenues of $91 thousand, the proposed net cost to the City is $557 thousand, an increase of $117 thousand compared to the previous fiscal year.
• Human Resources – “Human Capital Investment Program” – Each year, the City Council adopts the Compensation and Benefits Plan for the upcoming fiscal year which includes cost of living adjustments, and employee positions with associated salary ranges and benefits. To remain an “Employer of Choice” in the region the City must continue to reinvest in its personnel (i.e. human capital) in a manner similar to its capital projects and infrastructure. To identify and prioritize investment in organizational staffing and organizational structure, and to maintain, enhance and expand City programs, the City has developed a focused effort, led by members of the City Manager’s executive team, referred to as the Human Capital Investment Program (HCIP).
Cost-of-Living Adjustment – The City’s Personnel Rules and Regulations specify that the City Manager may request that the City Council authorize a Costof-Living Adjustment (COLA) for employees based on the March-to-March rates of the federal Consumer Price Index (CPI) for Wage Earners and Clerical Workers in Los Angeles/Orange Counties. This year’s CPI calculation in March 2025 was 3.1%. In order to avoid real wage losses and remain an “Employer of Choice” in the surrounding Los Angeles, Orange, Riverside and San Bernardino counties, it is recommended that the salary schedules for all benefitted classifications of employment including all executive positions, be increased by
3.1% effective with the pay period beginning June 28, 2025. A $100 per month increase to the Benefit Allotment is also recommended for all benefitted classifications of employment including the executive positions and members of the City Council to help keep up with corresponding health premium rate increases. This annual COLA and Benefit Allotment adjustment is a routine maintenance item to preserve the City’s competitive compensation structure. The total estimated cost is approximately $371 thousand, of which $322 thousand is funded by the General Fund.
• Parks & Recreation
The proposed Parks & Recreation department budget was developed based on continued community interest in valuable programs, services, and events.
Several programs and events offered this year to support an active and healthy community include summer youth day camp, senior dances, field allocations with sports organizations, contract classes, picnic reservations, and Concerts/Moviesin-the-Park. This fiscal year will include the ever-popular Wedding and Event Expo at the DBC to promote the facility, which is mostly a cost neutral event. All special events including: Windmill Lighting, Winter Snow Fest, Veterans Recognition, and the Halloween Party will continue to improve and bring the community together.
Expenses for recreation programs ($2.76 million) and operations at the Diamond Bar Center ($1.76 million) have been adjusted commensurate with the anticipated activities, and with a combined budget of $4.52 million the Parks & Recreation Department’s Proposed FY 2025/26 budget represents a total decrease of $100 thousand from the prior year. The Diamond Bar Center rental revenue is budgeted at $700 thousand, an increase of $25 thousand from the prior year. However, DBC revenues may fluctuate slightly in FY 2025/26 due to ongoing capital improvement projects scheduled for the facility in the late Summer of 2025. Recreation program revenue is expected to be down $85 thousand (12%) from the prior year amount of $703 thousand, with $618 thousand budgeted for FY 2025/26. This decrease is mainly due to decreased participation in contract classes and some youth sports.
Special Revenue Fund Highlights
• Integrated Waste Management Fund (250) – The proposed budget of $899 thousand includes $21 thousand for expanded student waste reduction and recycling field trips. The City has maintained a student environmental education program with Discovery Cube for several years. Last year, the program expanded to include 3rd and 4th graders in addition to its usual 5th and 6th graders. Student participation exceeded the annual goal by February, well before the school year ended. This program has been well-received by schools as it provides a fun and interactive way to educate students about recycling, organic waste, and sustainable purchasing choices. Additionally, it supports the goals of SB 1383, particularly through Discovery Cube’s organics lab, which includes composting and vermicomposting activities.
• Lighting & Landscape Assessment Districts (LLADs) – Much work has been done over the recent years to help address the operating deficits and reduce the General Fund subsidies to the LLADs, particularly Districts 39-2022 and 41-2021.
Total General Fund contributions to all three districts for FY 2025/26 is budgeted at $275 thousand, a decrease of $89 thousand from the prior year. Budgeted resources and expenditures for all three districts for FY 2025/26 are as follows – note that some districts are utilizing fund balance for proposed Capital Improvement Projects listed in the Draft FY 2025/26 CIP Plan:
Proposed FY 2025/26 Budget LLAD No. 38 LLAD No. 39-2022 LLAD No. 41-2021 Resources
Assessment Revenue $ 276,780 $ 687,833 $ 320,686
General Fund Contributions 217,326 45,535 12,314
Use of District Fund Balance - 354,449 187,873
Total Resources $ 494,106 $ 1,087,817 $ 520,873
Total Expenditures $ 493,992 $ 1,087,817 $ 520,873
Changes to Dist. Fund Balance $ 114 $ (354,449) $ (187,873) Landscape & Lighting Assessment Districts
• AB 2766 Air Quality Management District Fund (251) – The proposed budget of $74 thousand represents a decrease of $80 thousand and is recommended to accommodate citizen requests for neighborhood traffic management program (NTMP) improvements ($74 thousand). The year-over-year decrease is due to a $10 thousand reduction in funding for the NTMP and the removal of $70 thousand in funding previously allocated for zero-emissions replacement vehicles.
• Beverage Container Recycling Grant Fund (254) – The proposed $97 thousand budget includes $70 thousand for two (2) bottle refill stations at Diamond Bar Center.
• Park Development Fund (262) – The proposed budget of $35 thousand is for the design and manufacture of park and trail signs across the City. As the majority of park rules, information, and directional signs were purchased in FY 2024/25, there is a need to replace the faded, damaged and outdated trail wayfinding, flora/fauna, and historical signs which have not been replaced in over ten years. Many of these signs are undecipherable and staff recommends recreating signs with QR codes to ensure up-to-date information for park users.
Internal Service Funds Highlights
• Debt Service Fund (401) – In May 2021, the City refunded the outstanding Lease Revenue Bonds associated with the original acquisition and construction of the Diamond Bar Center. This achieved a gross savings of $1.736 million and present value savings of $1.63 million (or 20.85%) for the General Fund, which translates to approximately $144,700 in average annual debt service savings for the remainder of the term through June 1, 2033 at an effective interest rate of
1.15%. The 2021 Bonds were rated by S&P as AA+ (top rating for this type of bond) which is a testament to the Council’s conservative and prudent fiscal policies. The total debt service (principal and interest) will be $723 thousand for the upcoming year and is funded by a transfer to the Debt Service Fund from the General Fund.
• Self-Insurance Fund (501) – CA Joint Powers Insurance Authority (CJPIA) covers the City’s Property, Pollution Liability, Crime, General Liability and Workers’ Compensation needs. The combined premiums for Property, Pollution, Crime and General Liability are anticipated to be approximately $651 thousand which reflects a year-over-year increase of $116 thousand (21.7%) due mainly to an increase in the annual General Liability contribution. Workers’ Compensation costs have increased $4 thousand to $141 thousand and are included in the various personnel line-item budgets for all city funds.
Historically, as the City initially operated as a self-insured entity, it maintained a $1 million fund balance reserve in the Self-Insurance Fund (Resolution No. 89- 53) to address potential insurance-related needs. However, given the critical need for one-time resources to help address the structural deficit in the FY 2025/26 budget, a permanent reduction of this reserve to $250 thousand is recommended. This adjustment is considered appropriate in light of the City’s current participation in the California Joint Powers Insurance Authority (CJPIA), which provides comprehensive insurance coverage and related services. The recommended $250 thousand reserve level will serve as a prudent minimum balance to cover any uninsured or unforeseen losses or deductibles. A resolution amending the City’s Fund Balance and Reserve Funding Policy will be added to the June 3, 2025 FY 2025/26 Budget Adoption report for the City Council’s consideration.
• Vehicle Maintenance & Replacement Fund (502) – The proposed budget of $262 thousand is recommended for necessary operations and maintenance of the citywide fleet, as well as the purchase of one replacement vehicle. • Computer Equipment Maint. & Replacement Fund (503) – The proposed budget of $287 thousand is recommended for necessary information systems, hardware upgrades, and replacements, such as:
o (7) Replacement Servers
o New Tablets for New Enterprise Land Management (ELM) System o (3) Laser Printer Replacements
o Phase 2 ELM System Integration with Laserfische and Financial System o New Touch-Screens for Employee Time Keeping.
• Building Facility & Replacement Fund (504) – The proposed budget of $89 thousand is recommended for necessary facility maintenance projects not categorized as capital improvement projects, such as:
o City Hall Elevator Control Upgrade;
o City Hall Cubical Modifications and Office Furniture.
Fiduciary Fund
• OPEB Trust Fund (601) – The proposed budget for this fund consists only of revenue via a transfer-in from the General Fund in the amount of $88,000 and investment earnings in the amount of $26,600 designated to fund the City’s Other Post-Employment Benefits (OPEB) Trust, an investment vehicle managed by CalPERS for the purpose of reducing the City’s long-term OPEB liabilities (e.g. retiree medical costs). This amount is unchanged from the prior fiscal year.
There are no expenses budgeted in this fund.
Revised Draft Capital Improvement Program
The Revised Draft FY 2025/26 CIP budget includes five (5) new projects totaling $5.2 million, encompasses three project categories and represents an expenditure decrease of 63.0% when compared to the Adopted CIP for FY 2024/25. The revised program does not include any projects funded by the General Fund.
Below is the revised list of revised CIP projects for FY 2025/26 with changes:
Project No. Street Improvements: $4,499,000
Pavement Rehabilitation Design Project FYs 2026-28
(Arterials, Residential, Collector Street Rehab, and CDBG Curb Ramps).
Arterial Street Rehab (Construction)
- Brea Canyon Rd from DBB to Pathfinder
- Brea Canyon Rd from Pathfinder to Golden Springs Dr
- Diamond Bar Blvd from Westbound SR 60 off-ramp to City Limits SI264 CDBG Area 6 ADA Curb Ramp Project (Construction)
Traffic Management/Safety Projects: $414,000 $64,000
TM261 Battery Back-Up and CCTV Replacement Program FY 25/26 (Construction) TM262 Citywide Traffic Mitigation Fund Planning
Transportation Infrastructure Improvements: $300,000 $0 TI261 Fleet Electric Vehicle Charging Stations (Design) Miscellaneous Public Works Improvements: $0
N/A N/A
Facilities, Parks and Rec Improvements: $600,000
FP261 LLADs Irrigation, Landscape, and Miniparks Improvements SI261
SI262
Additional Consideration: Proposition A Funds Exchange for Pony Field Restoration
As the City Council may recall, in August 2024, the City successfully exchanged surplus, restricted Prop. A transportation funds for unrestricted, one-time general revenues. This transaction converted approximately $1.3 million in otherwise unusable Prop. A funds into $1 million in flexible revenue that could be applied to broader City priorities. Per the direction of the City Council, these funds were deposited in the Park Development Fund (262) where they remain unused at this time. The current projected ending fund balance for the fund as of June 30, 2026 is $1.6 million.
Staff is seeking City Council direction on whether to pursue a similar exchange in the upcoming FY 2025/26. Specifically, staff proposes identifying an exchange partner to convert additional surplus Prop. A funds into approximately $1 million in unrestricted revenue. If approved, these funds could be used to support the initial clean-up and restoration efforts of Stevens Field, or other uses as deemed appropriate by the Council. If directed to pursue this exchange, the FY 2025/26 budget will be adjusted to reflect the transaction at the time the City executes the funds exchange agreement.
Conclusion & Recommendation
The Proposed FY 2025/26 Operating Budget and Capital Improvement Program reflects a more challenging fiscal environment than in previous years, marked by a structural deficit and a weakening economic outlook. While the budget continues to fund a broad range of essential City programs and services and includes limited investments in deferred maintenance and capital improvements, as well as human capital, it also presents a measured and cautious approach to the City’s long-term planning and financial commitments.
Staff is currently working on a comprehensive strategy to build sustainable revenues over the long-term and will present the strategy to City Council in the coming months.
Should the City Council wish to modify any part of the Proposed FY 2025/26 Operating Budget and Capital Improvement Program, staff will incorporate all revisions for final adoption at the June 3, 2025 City Council Meeting.
Attachments:
1. 1.a Attachment 1_Proposed General Fund Revenue & Expenses - FY 2025- 26 2. 1.b Attachment 2_Consolidated Fund Balances_Draft FY 2025-26 Budget
3. 1.c Attachment 3_Proposed FY 2025-26 Line item Budgets (Draft Budget Book)
4. 1.d Attachment 4_Draft Long-Term General Fund Forecast