Agenda Report
Fullerton City Council
MEETING DATE: SEPTEMBER 15, 2026
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: STEVEN AVALOS, interim director of administrative services PREPARED BY: CINNDY BARRIOS, SENIOR BUDGET ANALYST
EDGAR ROSALES, SENIOR ADMINISTRATIVE ANALYST
NOAH HYUN, ADMINISTRATIVE ANALYST
SUBJECT: THIRD QUARTER FINANCIAL REPORT FOR FISCAL YEAR 2025-26
SUMMARY
The Third Quarter Financial Report (Q3 Report) provides an overview of the City’s financial position, comparing revenues and expenditures from July 2025 through March 2026 against adopted budget levels. The Q3 Report requests budget authority to ensure year-end compliance in preparation for the FY 2025-26 Annual Audit.
PROPOSED MOTION
Receive and file the Third Quarter Financial Report for Fiscal Year (FY) 2025-26.
Authorize the City Manager, or designee, to make future budget adjustments as necessary to ensure budgetary and accounting compliance in preparation for the FY 2025-26 audited financial statements.
ALTERNATIVE OPTIONS
Approve Proposed Motion.
Other options brought by the City Council.
STAFF RECOMMENDATION
Staff recommends the Proposed Motion.
CITY MANAGER REMARKS
None.
BUDGET POLICY PRIORITY STATEMENT
This item matches the following Budget Policy Priority Statement:
Fiscal and Organizational Stability.
FISCAL IMPACT
The information provided in the FY 2025-26 Q3 financial report will be used by staff to ensure continued budgetary diligence and compliance with adopted budget levels through the end of the fiscal year.
Through the third quarter of FY 2025-26, General Fund revenues total $88.4 million and are at 64.3% of adopted revenues of $137.5 million. General Fund expenditures total $104.8 million and are at 75.9% of adopted expenditures of $137.9 million. General Fund revenues and expenditures are typically where they should be through three quarters into the fiscal year.
In addition, administrative budget amendments prepared by staff will be done to ensure accounting and budget compliance in preparation for the City’s audited financial statements for FY 2025-26. Budget amendments authorized will be provided at next available quarterly financial report.
BACKGROUND & DISCUSSION
Introduction
As part of the City’s budget monitoring and financial reporting practices, Staff provides quarterly financial reports on the current year’s budget to City Council. This is a sound financial practice and fiscal transparency tool to report on the City’s ongoing fiscal condition, to identify and address any budget issues as they arise, and to strengthen the City’s financial planning efforts. Quarterly financial reports also provide a measurement of the City’s overall fiscal condition relative to adopted budget levels.
The Q3 Report is the last financial report before the preparation of the City’s FY 2025-26 year-end audited financial statements. The Q3 Report is also a good indicator of the City’s projected year-end performance for FY 2025-26, as 75% of the fiscal year is completed and the majority of revenues and expenditures are booked for the fiscal year. As such, the FY 2025-26 Q3 Report identifies all revenues received and expenditures incurred through the third quarter of the fiscal year, from July 1, 2025 through March 31, 2026, in comparison to adopted budget levels.
The City’s All Funds is comprised of General Funds, Special Revenue Funds, Enterprise Funds, Internal Service Funds, and Capital Projects Funds. Through the third quarter of FY 2025-26, All Funds revenues total $183.1 million and are at 70.4% of adopted budgeted levels of $260.0 million. The All Funds expenditures total $193.9 million of $270.7 million or 71.6% of adopted budgeted levels.
As customary, the Q3 Report will primarily focus on the General Fund, as this is the City’s chief operating fund that supports traditional municipal services, such as public safety, community and economic development, administration, parks and recreation, library, and public works.
Q3 Review of General Fund (including Library and Parks/Recreation) Through the third quarter of FY 2025-26, General Fund revenues total $88.4 million and are at 64.3% of adopted revenues of $137.5 million. General Fund expenditures total $104.8 million and are at 75.9% of adopted expenditures of $137.9 million.
Revenues
General Fund revenues total $88.4 million through Q3 of FY 2025-26 and are at 64.3% of adopted revenues of $137.9 million. While 64.3% of budgeted revenues have been received to date, this is typical and on par with where the City should be through three quarters of the fiscal year. For Property Tax, the City’s largest revenue in the General Fund, the City typically receives its last two large installments of secured property taxes (April) and VLF in-lieu (May) during the last quarter of the year, which accounts for approximately 35%-40% of all property tax revenues. Sales Tax, the City’s second largest revenue, is received for three (3) months in arrears and sales tax revenues received normally account for 70% through three quarters of the fiscal year.
Property Tax revenues, through the third quarter, total $37.4 million and are in line to meet or exceed adopted budget levels of $62.7 million in FY 2025-26. This is due to increased residual property tax receipts anticipated to be received and VLF In-Lieu property tax and Supplemental Roll growth. The City also received additional property tax proceeds from the apportionment of Successor Agency property to the taxing entities. Property Tax continues to be the City’s most stable revenue and is indicative of the diverse and strong assessed valuation of Fullerton properties.
Sales Tax revenues total $18.1 million or 58% of the total $31.3 million budget. Sales Tax revenue through the third quarter of FY 2025-26 is trending to meet adopted budget levels. Positive revenue growth is attributed to a change in methodology from the county pool allocations, higher gasoline prices, and the demand for luxury merchandise. These gains are partially offset by lower receipts from a local industrial company affected by recent policy changes, as well as reduced allocations from other major taxpayers. However, sales tax continues to be a reliable revenue source due to the City’s diverse local economy and staff will monitor receipts through the end of the fiscal year.
Transient Occupancy Tax, or TOT, revenues total $1.9 million through the third quarter and are 59% of adopted budget levels as individuals and families continue to travel and book hotels within the City. TOT revenues are in line with adopted budget levels of $3.1 million and relatively flat compared to last year.
All other revenues, such as Charges for Services (Program Revenue) and Fines and Penalties, which include Parks and Recreation and Library fees, are performing well through three quarters of the year and are anticipated to be in line with budgeted projections for FY 2025-26. Specifically, the Fire Department’s ambulance billing revenue and planning fees from the Community & Economic Development Department are tracking well and may exceed budgeted revenues.
All other major revenues are performing in line with budgeted levels, and no revenue budget adjustments are requested at this time. As the year continues and if the City’s major revenues (e.g., property tax, sales tax, and planning / development fees) continue to perform over or under budgeted levels, revenue adjustments may be submitted on the next financial report.
Expenditures
Expenditures tend to be more linear in fashion as payroll is processed biweekly and invoices and bills are processed on a weekly basis. Through the third quarter of FY 2025-26, General Fund expenditures total $104.8 million and are at 75.9% of adopted expenditures of $137.9 million. While General Fund expenditures are currently in line at 75% of adopted budget levels through Q3, current projections indicate that both revenues and expenditures will likely exceed the budgeted amounts for FY 2025-26.
The increase in expenditures is largely due to overtime costs exceeding its budgeted levels for Public Safety, which is a fiscal challenge addressed during the budget process. Public Safety overtime has been adjusted in the FY 2026-27 Adopted Budget to align with historical actuals and better reflect anticipated expenditures. These budget overages are projected to be offset by savings across all other departments due to cost containment initiatives implemented in FY 2025-26.
Conversely, revenues are expected to exceed budgeted General Fund revenues in FY 2025-26. This is the result of favorable revenue performance with property tax revenues and reimbursements from other agencies and private development; which are expected to exceed budget estimates. Other revenues performing well for the City are its ambulance billing program and development permits and related revenues.
Budget Outlook
The FY 2025-26 General Fund budget was adopted with an operating deficit of $3.7 million. Despite expenditures expected to exceed budget, revenues are also anticipated to come over budget in FY 2025-26 to offset these costs. Staff is projecting to end the fiscal year with the same $3.7 million operating deficit as originally adopted. Overall, the City’s General Fund year-end position is on track to meet its budgeted financial position for FY 2025-26.
Lastly, as the City approaches the end of the fiscal year, administrative budget authority is being requested for the City Manager, or designee, to make any necessary budget adjustments to ensure year-end budgetary and accounting compliance for the FY 2025-26 Annual Audit. Budget adjustments will be performed by staff to reflect the City’s projected revenues and expenditures to end FY 2025-26. All budget adjustments effectuated by staff will be presented with the submittal of the City’s audited financial statements or Q4 Financial Report.
Next Steps
The City will continue to exercise fiscal diligence and monitor citywide expenditure budgets and revenue performance through the remainder of FY 2025-26. The last financial report for the fiscal year will present the City’s annual audited financial statements, known as the Annual Comprehensive Financial Report (ACFR) for FY 2025-26. The FY 2025-26 ACFR is anticipated to be submitted to the City Council in January or February 2027, upon the conclusion of the external year-end audit.
Attachments:
Attachment 1 – Q3 FY 2025-26 Revenue Detail by Fund
Attachment 2 – Q3 FY 2025-26 Expenditure Summary by Fund and Department cc: City Manager Eddie Manfro
Third Quarter Financial Report for FY 2025-26
September 15, 2026 - Page 2