DATE:
May 20, 2025
TO:
LaTanya Bellow, City Manager
FROM:
Lilybell Nakamura, Acting Finance Director
Brian Moura, Regional Government Services (Finance Consultant) SUBJECT:
Study Session - Proposed 2025-27 City Budget
Recommendation
Staff recommends that the City Council hold a Study Session to review and discuss the proposed 2025-27 City budget. This will include a presentation on the budget, an opportunity for Council questions and comments, public input, and Council direction on the proposed budget. Following this meeting, the 2025-27 budget will be finalized and presented to the Council on June 3, 2025, for adoption.
Background
The City Manager works with the Finance Department and the City Department Head team to develop a biennial City budget every two years. This process has been underway since December 2024 to develop the upcoming 2025-27 City budget.
At the last City Council meeting held on May 6, 2025, the Council reviewed the 5 Year Financial Model used to develop the budget. The Council provided comments and guidance at that meeting which have been included in the proposed 2025-27 budget being discussed at tonight’s Council meeting.
City Strategic Plan
A new element of this budget process was the creation of a City Strategic Plan. In March 2025, members of the City Council met with the City Manager, the Department Head team, and an outside facilitator to review the many goals, aspirations, and projects that the City has underway and others that are contemplated for the future.
By focusing on these goals and the resources the City has to achieve them, a Strategic Plan was adopted by the City Council. This became a pillar in the development of the proposed 2025-27 Budget.
Citywide Revenues and Expenses
Revenues for the City are budgeted at $116.5 Million and Expenditures are budgeted at $143.5 Million in the 2025-26 fiscal year. For the 2026-27 fiscal year, revenues are budgeted at $109.2 Million and Expenditures are budgeted at $144.4 Million. The increased expenditures include work on several major Capital Improvement projects during the 2025-27 Budget cycle.
Citywide Staffing
The proposed budget funds 174.61 full-time equivalent (FTE) positions, including:
140 FTEs in the General Fund
34.61 FTEs in Special Revenue and Enterprise Funds
Measure F-funded positions: 1 Engineer (Public Works) and 1 Code Enforcement Officer (Community Development) General Fund Budget
The General Fund is the City’s main source of unrestricted funds. The City’s General Fund revenues total $46 million and $47.6 million in FY 2025-26 and FY 2026-27, respectively. The City’s General Fund expenditures total $55.7 million and $57.5 million for FY 2025-26 and FY 2026-27, respectively.
The outlook for the City’s General Fund Budget remains challenging during the 2025-27 biennial budget. In the current 2024-25 fiscal year, the General Fund was projected to have a deficit of $8.8 Million.
This was addressed by the City Council in March 2025 through several measures including:
Reallocating $3.2 Million per year of Residual Property Tax revenues from other funds to the General Fund Transferring $5 Million from the Economic Uncertainty Reserve and $2 Million from the Capital Improvement Fund to the General Fund Establishing a goal of 20% for the Unassigned General Fund Balance (based on annual General Fund expenditures). This is consistent with the GFOA (Government Finance Officers Association) standard of 2 months or more of operating capital in this fund for local government agencies.
The General Fund also benefitted from an unanticipated Commercial Property Tax Revenue payment of $11.2 Million from the Sutter Health Foundation. This was generated by its purchase of property from BioMed for a future Medical Center & Hospital complex.
Despite these measures, the 5 Year General Fund forecast shows an annual structural deficit of $9.7 Million to $14.6 Million over that period. While the Unassigned General Fund balance will remain above the 20% goal during the 2025-26 fiscal year (due to the measures and unanticipated revenue noted above), it will be necessary to transfer more funds to the General Fund starting in the 2026-27 and future fiscal years to remain at this level. 5 Year Budget Forecast (2025-27 Proposed Budget)
General Fund Revenues
General Fund Revenues are projected to grow modestly in FY 2025-26 and FY 2026-27. Changes in the economy of the San Francisco Bay Area will impact the City’s revenues, particularly the General Fund major revenue sources of business licenses, sales tax, departmental revenues, and transient occupancy taxes (TOT).
Property Tax & Property Transfer Tax
As illustrated in the chart below, based on the Property Assessment Value (AV) report from Alameda County, the City anticipates property tax revenues to increase by 2% annually.
The significant increase in FY 2024-25 is due to the unanticipated $11.2 million in Commercial Property Transfer Tax revenues from Sutter Health Foundation.
Sales and Use Tax
Sales and Use Tax revenues are dependent upon consumer confidence and the local economy. As illustrated in the chart below, sales taxes have gradually decreased since the FY 2021-22 recovery. This has included several quarters of negative Sales Tax receipts in the past year. Notably this trend was offset by a positive quarter of Sales Tax receipts in the 4th Quarter of 2024.
This revenue is projected to grow by 0.2% in the 2025-26 fiscal year with slight further growth over the next few years according to Avenu, the City’s Sales Tax audit and analysis firm.
Transient Occupancy Tax (TOT)
Revenues paid by visitors at local hotels, referred to as Transient Occupancy Tax (TOT), have been and continue to be flat and lower than in the pre-Covid period. Revenues in FY 2025-26 and the following 4 years are projected to be flat as shown in the graph below.
Card Room Tax
As illustrated in the chart below, revenue collected through the Card Room Tax declined significantly due to closure of the Card Room during the pandemic. While the Card Room Tax has since rebounded, we are assuming a moderate growth factor of 2% to 2.5% over the next few years.
Business License Tax
Business License Taxes reflect the health of the business community in Emeryville. Based on estimates from HdL, which manages the City’s Business License Tax program, we are budgeting taxes to be only slightly higher than the current fiscal year over the next several years.
Utility Users Tax
Utility Users Tax (UUT) is a 5.5% tax on communication, electricity, and gas services. As shown in the chart below, UUT has steadily increased over the past several years. This is primarily due to increases in electricity rates. UUT revenues are projected to continue to increase at rates between 3% to 12% through FY2029-30.
Measure F ¼ cent Sales Tax
In March of 2020 Emeryville voters approved a local ¼ cent sales tax measure that can be used to support a limited list of City expenditures. The projected revenue for FY 2025-26 & 2026-27 is $2.2 million for both years. The proposed budget allocates $1.3 million to $1.4 million of Measure F revenue to the Emeryville Child Development Center, an authorized use under the ballot measure. The City Council will make an annual determination about how to allocate proceeds as part of the budget process.
Expenditures
General Fund expenditures are projected to be $55.7 Million in FY 2025-26 and increase to $57.5 Million in FY 2026-27. Key drivers in these cost increases are the Social Security Settlement reached in 2023-24 and increased costs in City operations.
Pension Expenses - One of the benefits offered to City employees is participation in the CalPERS pension program. The following is the actual and projected costs of the CalPERS through FY 2029-30 based upon current information available.
The City established a Section 115 Trust Fund to accumulate funds that can only be used towards future pension costs in addition to paying the required CalPERS annual pension payments. The Section 115 Trust Fund is projected to have a balance of $16.9 million and $17.9 million at the end of FY 2025-26 and 2026-27, respectively.
If the City’s General Fund structural deficit persists, these funds will be used to cover some of the City’s PERS expenses as a General Fund deficit reduction measure.
Long Range Financial Planning
As noted earlier, the City uses a five-year financial forecasting model as a key budget planning tool to ensure accountability of the service provided and to plan for future challenges. The long-range financial planning enables the City to foresee potential budget challenges, giving the City sufficient time to analyze the long-term fiscal impact, and to take appropriate action.
The City has implemented a multi-pronged approach to ensure sustainability and prudent management of the City’s finances:
Maintain a strong General Fund reserve, including an Economic Uncertainty Reserve, and an unassigned fund balance.
Established Section 115 Pension Trust Program to pre-fund pension unfunded liability. Assets in the Trust Program can be transferred to CalPERS at the City’s discretion, which could reduce large fluctuations in employer contributions to CalPERS.
Passed voter-approved taxes or assessments (Measure C – Affordable Housing Bond, Measure F – Sales & Use Tax, and Measure O – Real Property Transfer Tax), and annually update the Master Fee Schedule of City departments to ensure cost recovery of services provided.
Promote economic development and diversify economic base to ensure business vitality and long-term fiscal sustainability. The City’s economic development work supports business growth, development, entrepreneurship, and innovation. Emeryville is home to both small and large businesses and prides itself on supporting a business-friendly culture. From retail stores to technology firms, businesses in Emeryville benefit from a small and personal city government, an active and engaged residential community, and a thriving local business community. Additionally, the City develops marketing programs that highlight the City as a center of Art and Innovation.
Recommendations from the Budget Advisory Committee
The Budget Advisory Committee met on May 8, 2025 to review the 5 Year Budget Model and the challenges facing the City’s General Fund. This included a discussion of how this will effect both the proposed 2025-27 City Budget and the following three years.
The committee noted that external factors such as the local and national economy and policy decisions may also affect the City and its budget. They recommended that the City Council pursue these steps to continue the initial progress that has already been made to address the General Fund structural deficit.
Pursue a Payment In Lieu of Taxes (PILOT) agreement with Sutter Health Foundation to offset the loss of tax revenues on this parcel in future years. Ideally the PILOT payments should be in an annual amount to the General Fund rather than a one-time lump sum payment.
Explore Revenue Measures that could be considered by Emeryville voters at the next General Election in November 2026.
The committee recommends that a Business License Tax Update and a Citywide Parcel Tax or Community Facilities District be given top priority when discussing these options with the community. The committee also recommends exploring an increase in the Transient Occupancy (Hotel) Tax as a third priority in this area.
The committee recommends that consideration of a ¼ Cent Transactions and Use (Sales) Tax and a 2% increase and addition of video to the Utility Users Tax be given a lower priority, in that order, when considering bringing revenue measure options to the voters.
Looking Forward
Staff will continue to streamline the City’s organizational processes and optimize existing programs to continue to meet the needs of residents and businesses throughout the city. Staff are also working with the City Council to identify new revenue streams to offset the structural deficit in the General Fund. A Study Session on these revenue options is planned for the Fall of 2025.
By continuing to improve efficiency and focusing on the longer-term forecast for the City’s General Fund, residents, business leaders and community partners will continue to invest in and strengthen the Emeryville community.
Capital Projects
The city has used the Capital Improvement Program (CIP) to implement the vision, goals, and priorities of the Emeryville community. The CIP is a five-year plan that guides Emeryville's investment in its public buildings, parks, streets, sewers, and other facilities.
City staff uses the CIP as a roadmap to design, construct, and repair City facilities that support a livable and sustainable Emeryville. Projects included in the CIP are large-scale, long-term investments that build, replace, or improve public infrastructure. For the 2025-2030 CIP City staff has prepared a $30.6 million Five-year Capital Improvement Program with 48 projects, supported by a variety of funding sources.
Upon adoption of the CIP, funds are appropriated for the first two years of the plan. The remaining three years are presented for planning purposes and are reevaluated and appropriated with the respective budget cycles.
Staff plans to bring a more detailed discussion of the Capital Projects program to the City Council in September 2025 for its review and consideration.
Conclusion
The City must plan with care and make prudent fiscal decisions about how to best use its resources to build on Emeryville’s reputation as the City of art and innovation. Sustaining services and continuing to create an environment that enhances resiliency and equity and brings joy to our residents and visitors is at the core of the budget.
Next Steps
Following tonight’s review of the proposed 2025-27 Budget, the proposed budget will be presented to the Budget Advisory Committee and the Budget and Governance Committee. A final version of the 2025-27 Proposed Budget will be prepared and presented to the City Council for adoption at the City Council’s June 3, 2025 meeting.
Approved and Forwarded to the
City Council of the City of Emeryville:
LaTanya Bellow, City Manager
Attachment
Attachment A - 2025-27 Proposed City Budget
Budget Study Session – Proposed 2025-27 City Budget
City Council Meeting | May 20, 2025
City of Emeryville
CALIFORNIA
MEMORANDUM