Administrative Services Department
303 West Commonwealth Avenue, Fullerton, California 92832-1775 (714) 738-6529 Fax (714) 738-3168 www.cityoffullerton.com
To: Mayor Jung and City Council Members
Submitted by: Eric J. Levitt, City Manager
Prepared by: Kingsley Okereke, Interim Director of Administrative Services Steven Avalos, Budget & Purchasing Manager
Date: May 8, 2025
Subject: Budget Study Session on FY 2025-26 Proposed Operating Budget ____________________________________________________________________________ The Budget Study Session (Study Session) on the Proposed Fiscal Year (FY) 2025-26 Operating Budget will take place at a special meeting on May 13, 2025. The Study Session will provide the City Council with an initial review of, and seek direction on the Proposed Operating Budget for FY 2025-26 in advance of the Budget Adoption Meeting on June 3, 2025. The Study Session will also give the public an opportunity to comment and provide feedback on the Proposed Budget as this meeting was duly noticed and advertised on the City’s website and social media platforms.
This Memo will provide a preview of what the FY 2025-26 Budget Study Session will cover as follows:
Budget Overview & Timeline, including underlying City Council priorities and budget strategies;
An overview of the Proposed FY 2025-26 All Funds Citywide Budget; including a high- level overview of the City’s major Enterprise Funds, Special Revenue Funds and Capital Improvement Program (CIP) budgets;
FY 2025-26 Proposed General Fund Budget , including overview of the City’s Fiscal Challenges, Revenue and Expenditure highlights and Proposed Additions & Reductions to the General Fund Base Budget;
Alternative Budget Options;
Five-Year General Fund Financial Forecast and City’s Financial Outlook; and Review of the Fiscal Sustainability Ad Hoc Committee’s recommendations.
Over the last two years, based on City Council priorities, the City has taken a variety of steps to accomplish the City Council goals of providing quality services to the community, improving Public Safety, invested in its labor workforce, and enhancing funding for Infrastructure, specifically for streets. In working towards achieving these goals, the City has strived to meet its goals of financial stability including maintaining its financial policy of 17% Reserves level.
The FY 2025-26 Proposed Budget (Proposed Budget) continues the City Council’s goals and commitment to providing quality levels of services to its residents. The City continues its high level of community preservation efforts and will maintain its level of maintenance in parks, trails and right of ways as last year. Key community events like the Fourth of July, First Night and full year of programming at the Hunt Library are included in the proposed budget. Also, the Proposed Budget continues City investment in Streets, city facilities and IT infrastructure, as well as its water
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and sewer utilities’ infrastructure. However, we have concerns about continuing deficits.
Currently, many cities in California have been showing deficits in the coming year. Fullerton is in a similar situation and will need to do reduce services in operations or increase revenues to alter our 5-year financial forecast showing increasing budget deficits in the coming years .
The FY 2025-26 Proposed General Fund Budget will once again be balanced with ongoing revenues, expenditure reductions, and the use of $3.95 million of available reserves. The City is facing a myriad of fiscal challenges and issues, including (but not limited to): increased expenditure costs as a result of salary impacts from approved MOA agreements, rising CalPERS Unfunded Actuarial Liability (UAL) pension costs, revenues not growing in line/keeping pace with expenditures, and increased inflationary cost of doing business associated with economic uncertainty. Fullerton is not unique with these fiscal challenges, as the State and many cities within the State are facing operating deficits and budgetary shortfalls.
The FY 2025-26 Budget Study Session Presentation is attached for your advance review (Attachment 1). The overview of the City’s Proposed Budget and financial position which will be presented at the upcoming 5/13/25 Study Session are summarized below.
FY 2025-26 Proposed All Funds Citywide Budget
The FY 2025-26 All Funds Proposed Budget totals $270.9 million across all funds and will be supported by ongoing Citywide revenues, transfers in and available fund balances (including designated set aside funds for capital projects).
Table 1 – All Funds Proposed Budget
The Study Session Presentation will provide a high-level overview of key City funds, including enterprise funds, special revenue funds and a review of the City’s Proposed CIP Budget and projects plans for FY 2025-26.
FY 2025-26 Proposed General Fund Budget
The FY 2025-26 Proposed General Fund Budget tot als $137.8 million in operating expenditures including $4.5 million in transfers out to other funds. The General Fund Budget is proposed to be balanced with $137.5 million in operating revenues, $0.8 million of transfers in and $3.95 million of available reserves.
City management has reduced the proposed deficit from the previous year, and has taken cost cutting actions over the year to reduce the operating deficit for 2024-2025. With the Proposed Budget for FY 2025-26, Management has continued these cost containment efforts and the deficit is further reduced; but still has a $3.95 million deficit made up through reserves. The reduced
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deficit is achieved through reduced contributions to internal services funds’ and having some reductions in staffing which could have some impact on service levels.
Table 2 – Proposed General Fund Budget & Financial Position
The Study Session Presentation and agenda report will discuss:
Fiscal Challenges facing the City, including (but not limited to): Increasing expenditure costs as a result of salary impacts from approved MOA labor agreements, rising CalPERS UAL pension costs, revenues not growing in line with expenditures, and economic uncertainty facing all cities alike;
Revenue and Expenditure year-over-year changes;
Highlight the City’s Cost Containment efforts and strategies; FY 2025-26 Proposed Budget Additions and Reductions – Key proposed additions and reductions will be highlighted with the full list being provided as an attachment to agenda report; and
Overview of the General Fund’s projected Financial Position.
The Study Session will also present two (2) alternative “Budget Options” which have not been included in the Proposed Budget for City Council review and direction. One option provides further options to balance the City’s operating budget and decrease use of reserves. The other option presents financial information on the Redeployment of Fire Engine 6 to restore prior Fire safety staffing levels and provide optimal fire and protection services for the community. Staff will be seeking Council direction on both options as well.
FY 2025-26 General Fund Five-Year Financial Forecast
The General Fund Five-Year Financial Forecast (Attachment 2) will be presented at the upcoming Budget Study Session; and will show the Proposed FY 2025-26 Budget and projected financial outlook over a multi-year period from FY 2026-27 through FY 2029-30.
Per the attached Financial Forecast, the City is projected to meet its 17% Reserves goal for only one more year in FY 2025-26. Due to the City’s fiscal challenges, the City is projected to fall below the 17% goal and will only meet the 10% minimum reserve level (per financial policy) in FY 2026-
27. Thereafter, the General Fund will likely not meet its contingency reserve goal or minimum reserves amount.
Adopted Projected CM Proposed
Budget Budget Budget
FY 24-25 FY 24-25 FY 25-26
Beginning Fund Balance $31,196,742 $31,196,742 $30,816,295 Revenues 127,716,541 129,261,407 137,542,452 Transfers In: 1,320,164 1,320,164 778,087 Total Revenues and Transfers In 129,036,705 130,581,571 138,320,539 Expenditures (132,859,319) (130,769,018) (137,781,505) Transfers Out: (5,603,000) (5,193,000) (4,485,051) Total Expenditures and Transfers Out (138,462,319) (135,962,018) (142,266,556) Net Operating Surplus/(Deficit) (9,425,614) (5,380,447) (3,946,017) MOE Reserve Adjustment 5,000,000 5,000,000 - Ending Fund Balance $26,771,128 $30,816,295 $26,870,278
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Please keep in mind that the Financial Forecast is a financial planning tool that identifies the fiscal challenges ahead in the near-term to facilitate advanced decision-making to support financial and organizational stability. While the FY 2025-26 Proposed Budget will support current service levels and maintain its General Fund contingency reserve goal, the City will need to evaluate and implement strategies to address the deteriorating fiscal situation moving forward.
Fiscal Sustainability Ad Hoc Committee
Over the last several months, from December 2024 through April 2025, Staff has been meeting regularly with the Fiscal Sustainability Ad Hoc Committee. An Ad Hoc Committee was formed by the City Council to review the City’s fiscal condition and provide any financial recommendations to assist and improve the City’s financial position. The Ad Hoc Committee took an in-depth review and received several presentations by Staff on the City’s General Fund budget, its Capital Projects budget, and various other City areas / needs and topics as requested.
The Ad Hoc Committee also reviewed several Budget Balancing Options. The Budget Balancing Options consisted of several different approaches and included alternative options within the following areas:
Service Level Impacts options;
Service Level Impact options;
Revenue Enhancement options; and
Other Budget Consideration options.
The Budget Study Session will review the Ad Hoc Committee Recommendations for each of these options. The Ad Hoc Committee Voting Report is also included with this Memo as Attachment 3.
The Budget Study Session agenda report, presentation and all attachments will be posted prior to the 5/13/25 special meeting. Key budget schedules, such as the Fund Balances Summary, Revenue and Expenditure Summaries will also be attached to the report for City Council reference.
Attachments:
1. Attachment 1 – 5/13/2025 Budget Study Session Presentation
2. Attachment 2 – FY 2025-26 General Fund 5-Year Financial Forecast
3. Attachment 3 – Fiscal Sustainability Ad Hoc Committee Voting Report