Business Agenda Item 5a
STAFF REPORT
Business Agenda Item
DATE: June 15, 2026
TO: Honorable Mayor and Council Members
FROM: Aaron Felmlee, Finance Director
THROUGH: Amy Nilsen, City Manager
SUBJECT: Adoption of Fiscal Year 2026-27 Annual Operating Budget STAFF RECOMMENDATION:
1. Conduct a Public Hearing to consider the Fiscal Year 2026-27 Annual Operating Budget.
2. Adopt the City of Fortuna’s Annual Operating Budget for Fiscal Year 2026-27 through the adoption of Resolution 2026-19.
EXECUTIVE SUMMARY:
The Fiscal Year (FY) 2026–27 Proposed Budget has been developed to present the City’s recommended operating programs and Capital Improvement Projects while maintaining a clear focus on fiscal responsibility. This year’s budget reflects a continued effort to balance the community’s service expectations with the City’s limited and increasingly constrained financial resources.
This year’s budget development occurred against a challenging fiscal backdrop. The City of Fortuna has experienced several consecutive years of structural financial strain driven by stagnant or declining revenues and rapidly increasing operational costs, particularly in public safety, insurance, and core community services. Since FY 2021–22, the City’s largest revenue sources that once grew modestly each year have instead flattened or contracted. At the same time, major cost drivers, most notably insurance, have risen sharply due to market conditions outside the City’s control.
These opposing trends have created a tightening budget environment in which maintaining existing service levels requires difficult and deliberate decision-making. Despite comprehensive review of departmental budgets and continued cost-containment efforts, the City faces an ongoing structural deficit between recurring revenues and expenditures. As a result, the Proposed Budget includes targeted reductions and operational adjustments necessary to sustain essential services while preserving the City’s long-term fiscal stability.
Throughout the budget development process, staff worked to deliver the highest possible level of service within available resources. The Proposed Budget is guided by the following principles:
• Current services will be preserved at existing levels to the highest degree possible. • The budget will comply with State Constitution, City Charter and Municipal Code provisions.
Business Agenda Item 5a
• Working capital balances will be examined to ensure balances are healthy enough to protect the City from any future uncertainties.
• Recurring expenditures will be aligned with recurring revenues to support long‑term fiscal sustainability.
• Department budgets will reflect the most accurate and realistic estimates of operational costs.
To support transparency and provide policy guidance, the City Council held two public special budget workshops. The first workshop, held on April 27, included a detailed presentation of the Proposed Budget, with a focused review of General Fund revenues and expenditures. The second workshop, held on May 4, addressed follow-up questions and included a comprehensive review of the City’s enterprise funds.
Enterprise funds differ from the General Fund in that they are self-supporting and operate on a feefor-service basis. Revenues generated within these funds are legally restricted to their respective operations and cannot be used for General Fund purposes (for example, water service fees cannot fund police services). Because enterprise funds rely primarily on service charges rather than taxes or license revenues, they are generally less susceptible to economic fluctuations. The City’s enterprise funds include the Water Fund, Wastewater Fund, and Transit Fund.
Overall, the FY 2026–27 Proposed Budget reflects a careful balancing of fiscal constraints with the need to provide reliable public services. While difficult adjustments are included, the budget is designed to position the City to navigate current financial challenges while maintaining core service delivery and planning for future stability.
FINANCIAL IMPACT:
The total FY 2026–27 Budget is $50,973,705 with $9,441,279 in General Fund expenditures. The total proposed budget represents an increase of $15,598,604 with an increase of $895,815 to the General Fund. The total budget increased due to the Wastewater Treatment Plant Compliance Upgrade project which accounted for an increase of $17,500,000. The General Fund portion of the increase is primarily due to the following:
• $420,000 for health insurance
• $87,000 for liability insurance
• $40,000 to replace the end-of-life phone system
• $200,000 for Police Officer and Sergeant pay equity increases • $110,000 for the Senior Planner position
• $550,000 for the General Plan update
These increases are partially offset by the decreases below:
• $223,000 due to the ongoing hiring freeze for one Police Officer position and one part-time Community Services Officer position
• $20,000 due to the elimination of the Business Improvement budget • $75,000 due to departments reducing services and supplies budgets • $180,000 due to pursuing a lease of the River Lodge and eliminating the full-time River Lodge Manager and currently vacant River Lodge Coordinator positions • $24,000 due to the transition of the Museum being funded by donations Business Agenda Item 5a
The table below summarizes the changes made from the proposed budget, as presented to the City Council during the budget workshops, and the final budget as attached. All changes are related to Capital Improvement Program (CIP) that the Council approved at the June 1, 2026, Council Meeting and the corresponding grant revenue associated with some of the projects.
Additional information can be found in the attached FY 2026-27 budget document.
RECOMMENDED CITY COUNCIL ACTIONS:
1. Receive staff presentation and review Council questions with staff
2. Open the public hearing.
3. Close the public hearing.
4. Motion to adopt Resolution 2026-19; and read by title only. Roll call vote.
ATTACHMENTS:
A. Resolution 2026-19; A Resolution of the City Council of the City of Fortuna Adopting the City of Fortuna’s Annual Operating Budget for Fiscal Year 2026-27 B. 2026-27 Fiscal Year Budget Document
Fund Account Project Name Type Amount ($)
352 4600 CA Water Resources Grant Revenue 21,000,000
352 171 NPDES Compliance Expense 21,000,000
270 4650 Regional TEA Allocation Revenue -1,500,000
270 9113 Kenmar & Ross Hill Rd Intersection
Improvement Project
Expense -1,500,000
510 9990 Annual Water Valve Replacement Project Expense 350,000 510 9377 City Hall Remodel Project Expense 50,000
560 9119 WWTP Primary Clarifier Concrete Sealing
Project
Expense -200,000
560 9377 City Hall Remodel Project Expense 50,000