DATE: March 23, 2026
TO: Mayor and Members of the City Council
VIA: Stefan Chatwin, City Manager
FROM: Diane Pitman, Administrative Services Director
Rob Lasky, IT Manager
DEPARTMENT: Administrative Services
SUBJECT: FY 2026-2027 AND FY 2027-2028 INFORMATION TECHNOLOGY
INTERNAL SERVICE FUND BUDGET
RECOMMENDATION
It is recommended that the City Council review this report and its attachments, and by Minute Order, provide policy direction on the proposed Information Technology (IT) internal service expenditures budget, including the scheduled replacement purchases and Information Technology Fund charges in the Fiscal Years 2026-2027 and 2027- 2028 Preliminary Budget.
BACKGROUND/ANALYSIS
Attached are the spreadsheets for the IT Equipment Replacement Fund. The City continues to use the Internal Service Fund Methodology developed in FY 2005-2006 in determining the Information Technology Replacement Fund listing for FY 2026-2027 and FY 2027-2028.
On an annual basis, the IT Division reviews with each department their list of assets to determine which items are no longer needed, which equipment should be replaced, or which new assets will be requested. The replacement lives and values of each asset are also reviewed by the IT Division and adjusted where necessary. Assets that are fully funded are not automatically replaced. If it is determined that it is in good working condition, the asset accrual is frozen, and no replacement charges are accrued.
Total IT internal service charges for FY 2026-2027 will be $3,926,121 which is $1,071,017 (or ~ 37.5%) higher than internal service charges for FY 2025-2026 of $2,855,104. The main reason for the increase is the planned purchase of a replacement for the City's Financial System software. This software has been in place for 30 years and has a potential replacement cost of $1,200,000.
Total IT internal service charges for FY 2027-2028 will be $3,016,572 which is $161,468 (or ~ 5.7%) higher than internal service charges for FY 2025-2026 of $2,855,104. The main reason for the increase in FY 2027-28 is due to the expiration of prepaid 3-year subscription terms acquired with the original purchase of our backup and virtualization systems, along with additional consulting expenses for the City's .gov domain migration.
The following table summarizes the items that had the highest impact on the changes to the IT fund:
Key Projects for FY 2026-2027 Fiscal Impact
Financial System Software Replacement:
The City’s Financial System Software is used to process Accounts Payable/Receivable, General Ledger, Payroll, Purchasing, and Utility Billing. The current software has been in place for 30 years and lacks modern integration capabilities.
$1,200,000
Physical Security Remediations: Administrative Services has planned a Physical Security Audit in 2026, and there are expected to be a number of follow-ups, including the need for more keycard readers on doors, and more security cameras in facilities. The $70,000 had previously been allocated to Storage Area Network devices for our servers, but these are no longer needed since disk storage is now included with hyperconverged servers.
$70,000
Key Projects for FY 2027-2028 Fiscal Impact
Hyperconverged Server Replacement: The City’s hyperconverged servers enables the City to run over 100 virtual Windows server installs on a handful of actual physical servers. This equates to 90% of the City’s server-based applications. Our current server hardware was purchased in 2024 with a 3-year software subscription. $105,000
.gov Domain Migration Consulting: With the passage of AB 1637 in 2023, all California local government agencies are required to migrate to a domain ending in .gov by January 1, 2029. Since the City has never done a domain name change, the funding for a consultant will help make sure that staff is following best practices and that we don’t leave any loose ends.
$50,000
California Environmental Quality Act
Not Applicable
FISCAL IMPACT
Total IT internal service charges for FY 2026-2027 will be $3,926,121 which is $1,071,017 (or ~ 37.5%) higher than internal service charges for FY 2025-2026 of $2,855,104. Total IT internal service charges for FY 2027-2028 will be $3,016,572 which is $161,468 (or ~ 5.7%) higher than internal service charges for FY 2025-2026 of $2,855,104.
The total IT internal service charges shown above include capital expenditures that are paid for with the funds that are already accrued in the IT Replacement Fund. These capital expenditures do not impact the General Fund.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Innovation
ATTACHMENTS:
Attachment 1 – Draft FY 2026-27 and 2027-28 Operating Budget – Information Technology Fund
Attachment 2 – Department Internal Services Charges Allocation Summary for FY 2026-27 and 2027-28
Attachment 3 – Information Technology Fund Comparison for FY 2026-27 and 2027-28 Attachment 4 – Internal Service Fund Variance Analysis
Attachment 5 – Schedule of Items to be Replaced for FY 2026-27 and 2027-28 Attachment 6 – Items Added to or Deleted From the Equipment Replacement FY 2026- 27 and 2027-28
Attachment 7 – Changes to Estimated Useful Lives for FY 2026-27 and 2027-28 Attachment 8 – Changes to Replacement Values for FY 2026-27 and 2027-28 Attachment 9 – Budget Narrative for FY 2026-27 and 2027-28 - Information Technology Fund