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6 DATE: May 22, 2025
TO: Mayor and Members of the City Council President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
FROM: Stefan Chatwin, City Manager
Nate Cruz, Finance Director
Waqas Hassan, Assistant Finance Director
Mimi Lam, Financial Services Manager
DEPARTMENT: City Manager, Finance
SUBJECT: REVIEW OF PRELIMINARY BUDGET FOR FISCAL YEAR (FY) 2025-26 AND FIVE-YEAR FINANCIAL PLAN FOR FY 2025-26 TO
FY 2029-30
RECOMMENDATION
It is recommended that the City Council review and by Minute Order, provide policy direction on the information provided in the Preliminary Budget for FY 2025-26 and Five-Year Financial Plan for FY 2025-26 to FY 2029-30 (“Budget and Five-Year Plan”).
EXECUTIVE SUMMARY
The Budget and Five-Year Plan is the combination of (a) the prior financial information reviewed by the Council including the CIP program, water and wastewater rates, the master fee schedule, and internal service funds, and (b) the final operating revenue and expense projections. The table in Attachment 1 summarizes the Budget and Five-Year Plan for the General Fund, and the full Budget and Five-Year Plan can be found here:
https://www.fostercity.org/finance/page/annual-budget.
Highlights of the Budget and Five-Year Plan include:
•Relatively stable revenue projections, with the exception that staff no longer forecasts reimbursement for shortfalls from property tax in lieu of vehicle licensing fees;
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6 •A new assumption of 2% unspent funds in personnel expenses each year due to normal vacancy rates;
•Annual transfers of $5 million from the General Fund to support capital projects; •A new internal service fund to support the transition to self-insured Worker’s Compensation;
•Small but increasing deficits in each fiscal year, which slowly erode reserve levels from 86% of annual expenses in FY 2025-26 to 41% over the five-year plan.
The budget and five-year plan reflects more realistic revenue and expense projections, some of which were previously too conservative, including the new assumption of 2% unspent funds in personnel expenses each year due to normal vacancy rates. These revised assumptions are likely to result in the need to transfer appropriation authority between department budgets, subject to City Manager approval. Transferred funds would still be subject to fund-level appropriation limits and all applicable expenditure rules such as hiring and procurement policies.
BACKGROUND/ANALYSIS
The City Council has held two budget study sessions to-date (March 3, 2025 and March 25, 2025) and this budget study session is the third of four planned budget meetings prior to the scheduled adoption on June 16, 2025. Its purpose is to review the Preliminary Budget for FY 2025-26 and the Five-Year Financial Plan for FY 2025-26 to FY 2029-30. City staff seeks policy direction from the City Council regarding the budget documents so that a final budget can be prepared for City Council adoption.
Please refer to the City Manager’s Budget Message, the Budget Guide, the Five-Year Financial Plan and the Financial and Personnel Summaries for the full details and analysis of the Budget and Five-Year Plan.
California Environmental Quality Act
Not Applicable
FISCAL IMPACT
Based on policy direction provided at tonight's Budget Study Session, City staff will proceed to prepare the FY 2025-26 Budget and Five-Year Financial Plan for FY 2025- 26 to FY 2029-30 for a June 2 public hearing followed by final adoption on June 16, 2025. Upon final adoption, the FY 2025-26 Budget will become effective July 1, 2025.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Staff Empowerment and Operational Excellence
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6 ATTACHMENTS:
Attachment 1 - General Fund (Funds 001 to 003) Five Year Financial Plan for FY 2025- 26 to FY 2029-30