Item 206/2025
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Patricia Song
Dept:
City Manager Dept: Finance
Date: June 10, 2025
Subject: Adoption of Resolutions approving the City's Biennial Budget for Fiscal Years 2025-26 and 2026-27. (Action Item)
OBJECTIVE
For the City Council to conduct a public hearing and adopt Resolutions approving the City of Garden Grove’s biennial budget for Fiscal Years (FY) 2025 -26 and 2026-27, setting the FY 2025-26 appropriations limit; and re-appropriating project balances and encumbrances from FY 2024-25.
BACKGROUND
On May 21, 2025, the City held a study session to review and discuss the proposed Fiscal Years 2025-26 and 2026-27 biennial budget. The budget was developed in alignment with the City Council’s visioning process, a collaborative effort aimed at defining the City’s long - term direction and aligning leadership priorities with the aspiratio ns of the community. This visioning process establishes strategic goals and guiding principles that inform City policies, programs, and initiatives.
Through this process, several strategic focus areas were identified as central to the City’s ongoing development:
Public Safety – Delivering efficient, high-quality police and fire services to ensure community well-being.
Economic Development – Expanding opportunities for shopping, dining, and entertainment while strengthening the City's economic base.
Neighborhoods – Protecting residential areas from traffic impacts and supporting the development of diverse housing options.
Arts, Culture, and Diversity – Promoting cultural inclusion through community events and encouraging greater multicultural integration.
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These focus areas serve as the foundation for strategic planning and are reflected throughout the City’s programs, capital investments, and operational initiatives.
During a City Council retreat in March 2025, the Council reaffirmed its commitment to s ix overarching priorities. These priorities are viewed as equally important and are underpinned by a core guiding principle: fiscal health and long-term sustainability. This principle ensures that resources are allocated responsibly to support both current and future community needs.
DISCUSSION
The Proposed Budget includes the City and its three component units: the Housing Authority, the Sanitary District, and the Successor Agency. While these entities are legally separate, they are included in the budget for reporting purposes. The Housing Authority also operates under its own governing board.
The proposed spending plans for FY 2025 -26 and FY 2026 -27 for the City and its three component units are outlined below:
General Fund
The General Fund serves as the City’s primary operating fund, supporting nearly 60% of all municipal functions.
Public safety represents the largest General Fund expenditure category, accounting for nearly 70% of total General Fund spending. Approximately 94% of Community Development’s budget is supported by the General Fund. For Community Services, 79% of the budget is funded by the General Fund, with the remaining 21% covered by fees and grants. Public Works receives about 36% of its funding from the General Fund, while the other 64% comes from special revenue sources such as Gas Tax, Measure M2, and other state and county allocations. Economic Development’s operating budget is 31% General Fund –funded, with the majority supported by grants and county special funding. Munic ipal Support is funded 36% by the General Fund and 60% through internal service funds or cost allocations.
Proposed
FY2026
(in $000)
Proposed
FY2027
(in $000)
City of Garden Grove
General Fund 188,436$ 194,840$
Other Government-Type Funds 51,971 37,831 Water Utility 55,031 52,701
Other Business-Type Funds 2,363 2,363 Internal Service Funds 30,817 29,374
Sanitary District 20,866 22,892
Housing Authority 51,344 51,504
Successor Agency 8,015 7,929
TOTAL 408,843$ 399,434$
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The table below outlines the total proposed General Fund budgets for FY 2025 –26 and FY 2026–27 by municipal function.
A breakdown of the services and programs funded by the General Fund is provided below:
The General Fund’s primary revenue source is taxes, which make up 87.5% of total General Fund revenues. Property Tax is the largest contributor at $71.3 million, followed by Sales Tax at $60.8 million, and Hotel Visitor’s Tax at $28.3 million.
Amended
FY2025
(in $000)
Proposed
FY2026
(in $000)
Proposed
FY2027
(in $000)
Fire 33,668$ 35,236$ 36,797$
Police 85,738 87,861 91,156
Public Works 21,038 20,273 21,040 Community Services 7,217 9,104 9,269 Community Development 7,065 7,939 8,121 Economic Development 9,038 6,058 6,123 Municipal Support:
City Administration 4,794 4,052 4,081 City Attorney 1,161 1,161 1,161 Finance 4,524 3,936 4,072
Human Resources 2,229 2,109 2,184 Information Technology 854 697 723 Non-Departmental:
Debt Service 7,172 8,753 8,756 Utilities 857 1,257 1,357 185,355$ 188,436$ 194,840$
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Below is a breakdown of the General Fund’s major revenue sources:
Other Government-Type Funds
Other governmental funds include special revenue sources such as Gas Tax, Measure M2, development impact fees, special assessments, and various grants. Appropriations from these funds are based on projected revenues and available fund balances. The total p roposed budget for these governmental funds —excluding the General Fund —is $52.0 million for FY 2025–26 and $37.8 million for FY 2026–27.
Water Utility Fund
The City provides water service to its residents, supporting a population of nearly 170,000 and meeting an annual demand of approximately 6.5 billion gallons. The City's water system includes 13 active wells with a combined pumping capacity of more than 35,000 gallons per minute, strategically located across the community. The system also features reservoirs with a total storage capacity of 53 million gallons, and four imported water connections that together provide an additional capacity of 22,440 gallons per minute.
Including capital expenditures, the proposed Water Utility Fund budget is $55.0 million for FY 2025–26 and $52.7 million for FY 2026–27. Annual operating costs are approximately $44.0 million, supporting water services for nearly 30,000 customers. Water service charges are the primary revenue source for the utility. The most recent water rate study was completed in 2023.
Amended
FY2025
(in $000)
Projected
FY2026
(in $000)
Projected
FY2027
(in $000)
Sales Tax 31,408$ 29,992$ 30,846$
Measure O 30,415 29,951 30,803
Property Tax 67,134 70,055 72,628 Hotel Visitors Tax 28,000 28,000 28,560 Other Taxes 5,900 6,018 6,779 Charges for Services 7,272 9,117 9,306 Fines, Forfeitures & Penalties 2,285 2,290 2,354 Licenses & Permits 3,045 4,349 4,433 Other Revenue:
Investment Income 1,855 1,969 2,232 Rental Income 1,177 1,685 1,692 Expense Reimbursement 1,437 1,390 1,449 Other 1,685 2,768 2,546
181,613$ 187,584$ 193,628$
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Below is a breakdown of the Water Utility Fund’s proposed budget for the next two fiscal years:
Internal Service Funds
To centralize and efficiently manage shared services such as fleet maintenance, IT support, risk management, and facility rehabilitation, the City has established several internal service funds. These funds account for goods and services provided internally to other departments on a cost -reimbursement basis. Their strategic use enhances cost tran sparency, improves operational efficiency, and helps stabilize departmental budgets over time.
SOURCES
Proposed
FY2026
(in $000)
Proposed
FY2027
(in $000)
Beginning Working Capital 32,027$ 28,699$
Revenues 51,703 56,061
TOTAL SOURCES 83,730 84,760
USES
Operating Expenses
Operations & Maintenance 21,134 21,592
Purchased Water Supply 18,764 19,008
Debt Service 2,901 2,902
Street Repair Charge 877 899
Toal Operating Expenses 43,676 44,401
Capital Expenses
Capital Replacement 3,500 3,500
Capital Improvements 7,855 4,800
Total Capital Expenses 11,355 8,300
TOTAL USES 55,031 52,701
Ending Working Capital 28,699$ 32,059$
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The table below outlines the proposed appropriations for the City’s internal service funds for the next two fiscal years:
Sanitary District
Established in 1924, the Garden Grove Sanitary District (the District) operates under the authority of the Sanitary District Act of 1923. The District is governed by a Board of Directors, which is responsible for adopting ordinances, resolutions, and regulation s to ensure the effective oversight and management of District services.
The District delivers two core services to the community: sewer utility services and refuse collection and disposal.
Sewer Utility
The Sewer utility is projected to generate approximately $12.4 million annually through service charges. Operating expenditures are estimated at $11.1 million in FY 2025 –26 and $11.4 million in FY 2026–27. The difference between revenue and operating costs represents the capital replacement portion built into the rate structure, which is intentionally designed to support the ongoing maintenance and renewal of the sewer infrastructure.
The District’s sewer system has an estimated replacement value of $130.5 million. To ensure long-term system reliability and performance, a designated share of rate revenue is allocated specifically for capital reinvestment. These funds are collected through bi -monthly utility billing and reserved for planned capital improvement projects.
For the upcoming two -year budget cycle, the District proposes to invest $15.3 million in capital improvements, funding eight projects identified in the Sewer Master Plan.
Projected
FY2026
(in $000)
Projected
FY2027
(in $000)
Worker's Compensation 7,225$ 7,249$
Fleet Management 9,638 7,810
Information Systems 5,098 5,025
Warehouse Operations 650 675
Telecommunications 399 402
Risk Management 5,829 6,416
Communication Replacement 600 597
Building & Structure Rehabilitation 1,378 1,200 30,817$ 29,374$
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Below is the proposed Sewer Utility budget for the next two fiscal years:
Refuse Disposal and Collection
The City contracts out refuse collection and disposal services through an exclusive franchise agreement with Republic Services. Under this agreement, Republic Services handles all residential, commercial, and multi-family waste collection within the City. The Garden Grove Sanitary District administers and oversees the contract to ensure adherence to service quality standards and compliance with environmental regulations.
The following table outlines the proposed budget for Refuse Collection and Disposal services managed by the District:
Proposed
FY2026
(in $000)
Proposed
FY2027
(in $000)
SOURCES
Beginning Working Capital 25,992$ 20,502$
Operating Revenue 12,407 12,407
TOTAL SOURCES 38,399 32,909
USES
Salaries & Benefits 5,485 5,719
Commodities 308 308
Contractual Services 2,475 2,475
Other Operating Expenses 2,867 2,902
Capital Improvement 6,762 8,500
TOTAL USES 17,897 19,904
Ending Working Capital 20,502$ 13,005$
FY 2025-26
Proposed
($000)
FY 2026-27
Proposed
($000)
SOURCES
Beginning Working Capital 19,259$ 20,687$
Operating Revenue 4,396 4,396
TOTAL SOURCES 23,655 25,083
USES
Salaries & Benefits 832 867
Other Operating Expenses 2,136 2,121
TOTAL USES 2,968 2,988
Ending Working Capital 20,687$ 22,095$
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Housing Authority
The Garden Grove Housing Authority (the Authority) administers federally funded rental assistance programs through grants from the U.S. Department of Housing and Urban Development (HUD). Its primary function is to provide rental subsidies to low-income families through HUD’s Housing Choice Voucher Program.
Currently, the Authority supports more than 2,200 families with monthly rental assistance.
The program’s annual budget is approximately $42 million, which is used to directly subsidize housing costs for eligible participants.
In addition, about $4.5 million per year is allocated for administrative expenses. This covers salaries and benefits for Authority staff, as well as essential operating costs such as office rent, utilities, and overhead.
The following table presents the Proposed Budget for the Authority over the next two fiscal years:
Successor Agency
The Successor Agency budget has been prepared in compliance with AB 1X 26, following the dissolution of the Garden Grove Redevelopment Agency on February 1, 2012. Budgeted amounts align with the Recognized Obligation Payment Schedule (ROPS) approved for the applicable fiscal periods.
The Successor Agency continues to manage long -term obligations totaling approximately $44.8 million.
Proposed
FY2026
(in $000)
Proposed
FY2027
(in $000)
SOURCES
Beginning Working Capital 5,019$ 4,714$
Housing Program Allocation 51,039 51,039
TOTAL SOURCES 56,058 55,753
USES
Administration 4,359 4,519
Voucher Program 42,220 42,220
HAP Portability 4,765 4,765
TOTAL USES 51,344 51,504
Ending Working Capital 4,714$ 4,249$
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The following table presents the Proposed Budget for the Successor Agency for the upcoming fiscal years:
Capital Improvement Plan
The Capital Improvement Plan (CIP) outlines the City’s planned capital projects, identifies funding needs, explores grant and alternative funding sources, and evaluates the long-term impact on operating budgets. Projects are prioritized based on various criteria, including feasibility, community benefit, asset age, historical preservation, safety considerations, and preventative maintenance needs.
The CIP uses a five -year planning horizon, providing both a short -term and strategic long - term outlook. While not all projects are immediately funded, each is evaluated and scheduled based on a prioritized implementation plan that aligns with the City’s infrastructure goals and available resources.
The CIP represents a citywide investment in essential infrastructure and community assets.
For the Fiscal Years 2025 –26 and 2026 –27, the biennial budget proposes a total capital investment of $82.3 million, spanning seven key categories.
Proposed
FY2026
(in $000)
Proposed
FY2027
(in $000)
SOURCES
Beginning Working Capital 199$ -$
RPTTF Distribution 7,816 7,929
TOTAL SOURCES 8,015 7,929
USES
Administration 337 351
Recognized Obligation Payments 7,678 7,578 TOTAL USES 8,015 7,929
Ending Working Capital -$ -$
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A summary of the City’s Five-Year Capital Improvement Plan is provided below:
Additional Transfers
Achieving long-term financial health and sustainability requires a strategic approach that balances fiscal discipline with effective service delivery. As part of this strategy, the City utilizes several internal service funds to proactively set aside resources for key liabilities, such as legal claims and employee injury-related costs.
Worker’s Compensation Internal Service Fund
The Workers’ Compensation Internal Service Fund is used to pay for all work-related injuries, disability retirements, and associated administrative expenses. Internal charges to City departments are calculated based on each employee’s job classification and relative risk level.
To ensure adequate funding, the City commissions a professional actuarial study every two years to evaluate past losses and project fu ture claims. The most recent actuarial review, completed in 2024, provides funding projections for the next two fiscal years.
Based on this study and the fund’s audited balance, a $4.0 million one-time transfer from the General Fund’s unassigned fund bala nce is recommended. This transfer will eliminate the Proposed
FY 2026
($000)
Proposed
FY 2027
($000)
Planned
FY 2028
($000)
Planned
FY 2029
($000)
Planned
FY 2030
($000)
STREET IMPROVEMENTS
Arterial 22,500$ 10,600$ 8,296$ 7,684$ 7,914$ Residential 1,700 3,300 2,264 2,295 2,327
TRAFFIC IMPROVEMENTS
Citywide Intersection - 500 500 500 500
PARK IMPROVEMENTS
Woodbury Park Expansion 500 - - - - Garden Grove Park Pickle Ball Courts 950 - - - - Park Master Plan Improvements 925 300 600 - - Citywide Park Light Pole Replacement 50 50 50 50 50 Park Irrigation System Replacement 120 120 - - -
HOUSING PROJECTS
St. Anselm Affordable Housing 2,000 - - - - HOME Projects 550 550 550 550 550 Purcell Building Rehabilitation 11 - - - -
FACILITY IMPROVEMENTS
Citywide Facility Replacement 1,479 1,200 - - -
WATER IMPROVEMENTS
Water Master Plan Improvements 11,355 8,300 14,500 4,500 3,500
SEWER IMPROVEMENTS
Sewer Master Plan Improvements 6,762 8,500 7,100 8,500 1,500 TOTAL 48,902$ 33,420$ 33,860$ 24,079$ 16,341$
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current deficit and ensure sufficient funding for projected claims, in addition to the routine internal charges collected throughout the year.
General Liability Internal Service Fund
The General Liabi lity Internal Service Fund covers all liability claims filed against the City.
Internal charges to departments are based on a combination of historical claims experience and actuarially projected future liabilities.
Following the recent settlement of seve ral significant claims, the fund is now underfunded.
To restore its fiscal stability and prepare for anticipated claims over the next two years, a $3.0 million transfer from the General Fund’s unassigned fund balance is also recommended.
These proposed tr ansfers are not part of the regular budget cycle but are essential for maintaining the fiscal health of the City’s two self -insured programs. The transfers are scheduled to occur at the end of the current fiscal year, on June 30, 2025.
GANN Appropriations Limit
Article XIII B of the California Constitution establishes limits on the amount of tax revenues that local governments may appropriate each year. Commonly known as the GANN Limit, this constitutional provision requires cities to adopt an annual appr opriations limit, which is calculated based on a formula using population growth and per capita personal income data published by the California Department of Finance. The City Council adopts the appropriations limit by resolution as part of the budget process.
Each year, the City’s independent auditor reviews the calculation to ensure accuracy. In December 2024, the auditor identified a variance in the factor used to calculate the City’s FY 2023–24 GANN Limit, resulting in an under-calculation of $1,869,422. Because the FY 2024– 25 limit was based on the incorrectly calculated prior -year limit, it must be revised accordingly. The original FY 2024–25 limit was adopted by the City Council in June 2024.
Despite this adjustment, the City of Garden Grove remain s well below its constitutional spending limit. The GANN Limit does not currently restrict the City’s appropriations, as actual appropriations subject to limitation remain significantly under the allowable threshold.
Overnight Travel and Training List
City Council Policy No. 100 -17 requires that the City Manager submit a listing of proposed staff attendance at overnight conferences, meetings, and training opportunities for the Council's approval as part of the budget adoption process. Once the City Cou ncil has approved this list, the City Manager is authorized to approve specific attendance at conferences, meetings, and training seminars in conformance with the list. The Overnight Conference and Training List for Fiscal Years 2025 -26 and 2026 -27 is incorporated in the Proposed Budget Book for Council approval in accordance with this Council policy.
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FINANCIAL IMPACT
The total proposed budget for FY 2025–26 and FY 2026–27, including all component units, is $408.8 million and $399.4 million, respectively. Additionally, one -time transfers of $4.0 million to the Workers’ Compensation Fund and $3.0 million to the General Liability Fund are recommended from the General Fund’s unassigned balance, effective June 30, 2025.
For the General Fund, estimated revenues slightly exceed proposed operating expenditures, resulting in a balanced budget for the two -year cycle. This structurally balanced budget reflects the City’s continued commitment to fiscal discipline, achieved through cross - departmental collaboration and strategic financial planning. It underscores the City Council’s dedication to long-term financial sustainability and reinforces public confidence in the City’s responsible management of public resources.
RECOMMENDATION
It is recommended that the City Council approves the following actions:
Conduct a public hearing;
Adopt a Resolution approving the City's Proposed Budget for Fiscal Years 2025- 26 and 2026-27;
Adopt a Resolution revising Appropriations Limit for Fiscal Year 2024 -25 and establishing the Appropriations Limit for Fiscal Year 2025-26; Adopt a Resolution re -appropriating certain Fiscal Year 2024 -25 project balances and encumbrances to Fiscal Year 2025-26;
Authorize transfers from the General Fund’s Unassigned fund balance in the amount of $4,000,000 to the Worker’s Compensation Fund and $3,000,000 to the General Liability Fund, effective June 30, 2025; and
ATTACHMENT(S)
Resolution approving the City's Proposed Budget for Fiscal Years 2025-26 and 2026-27
Resolution revising appropriation limit for Fiscal Year 2024-25 and establishing the appropriations limit for Fiscal Year 2025-26
Resolution re-appropriating certain Fiscal Year 2024-25 project balances and encumbrances to Fiscal Year 2025-26
Proposed Budget Book for Fiscal Years 2025-26 and 2026-27