Item 235/2026
Final
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
To:
Lisa L. Kim From: Patricia Song
Dept:
City Manager Dept: Finance
Date: 6/9/2026
Subject: Adoption of Resolutions amending the Fiscal Year 2026-27 Budget. (Action Item)
OBJECTIVE
To adopt resolutions amending the adopted Biennial Budget and appropriations limit for Fiscal Year 2026-27 for the City and its associated, component units, and to reappropriate certain Fiscal Year 2025-26 project balances and encumbrances.
BACKGROUND
On June 10, 2025, the City Council approved the City of Garden Grove’s Biennial Budget for Fiscal Years (FY) 2025 -26 and 2026-27. The City is now approaching the conclusion of the first year of the biennial budget cycle. The mid-cycle budget update provides an opportunity to review first-year financial results, evaluate the outlook for the second year, and identify key financial issues to be addressed during the next biennial budget process.
At the midpoint of the biennial budget cycle, it is necessary to amend the adopted budget estimates for the second year to better align available resources with current programs, projects, and operational needs, while continuing to advance the City Council’s priorities.
DISCUSSION
Economic Outlook
The latest forecast from UCLA Anderson Forecast projects real GDP growth of approximately 2% through the remainder of 2026 and into 2027, despite reduced consum er spending and private investment resulting from tariffs, federal government shutdowns, and a temporary increase in inflation, which reached 4% in April 2026. Continued capital investment in the technology sector, particularly in artificial intelligence, remains a key driver of national economic growth.
Locally, however, tax revenue growth is expected to remain relatively stagnant over the next several years. The housing market continues to show signs of weakness, with home sales at Item 235/2026
levels comparable to the Great Recession due to elevated interest rates. Additional indicators of stress include excess inventory in the new housing market and rising delinquency rates, which have surpassed Great Recession peak levels.
Labor market conditions have also weakened. Job growth slowed to near zero in 2025, with significant employment declines occurring in blue-collar and government sectors. For Orange County, the Anderson Forecast projects essentially flat job growth in 2026. New development activity remains the primary engine of economic growth within the County.
The tourism industry is anticipated to remain steady in 2026, followed by modest growth in 2027 and 2028. Employment trends remain the greatest uncertainty in the regional outlook, with healthcare identified as the only sector likely to experience continued job growth. Overall economic growth for Orange County is projected to range between 1.5% and 2.0% annually over the next two years.
General Fund Forecast
The General Fund is the City’s primary operatin g fund and supports essential municipal services, including public safety (police and fire), public works, community planning, economic development, and community and park services. These services are primarily funded through tax revenues, making the Gener al Fund highly dependent on revenues collected during the same period in which services are delivered. Maintaining a structurally balanced General Fund budget is therefore critical to preserving the City’s long -term fiscal stability and overall financial health.
A five -year General Fund forecast was prepared using the latest economic and revenue projections. Through this mid -cycle budget update, the City has achieved a structurally balanced budget. However, current projections indicate that the General Fun d may experience a temporary operating deficit for the next three to four years due to slowing revenue growth and increasing cost pressures.
Item 235/2026
Mid-Cycle Amendment
The adopted FY 2026 -27 Biennial Budget was developed to provide a longer -term financial outlook, improve operational efficiency, and strengthen strategic planning for City programs and projects. The City is now entering the second year of the biennial budget cycle, and departments have identified several modifications necessary for FY 20 26-27 to address operational needs, updated priorities, and changing conditions.
The proposed amendments to the Adopted FY 20 206-27 Budget total $ 13.8 million and include the following categories:
General Fund
The proposed Amended FY 2026 -27 Budget for the General Fund totals $198.2 million, representing an increase of $3.4 million from the originally adopted budget.
The increase reflects several adjustments, including an increase of $1.9 million in administrative overhead associated with the implementa tion of the citywide Cost Allocation Plan (CAP), as well as Supplemental Requests totaling $1.6 million. These adjustments are discussed in greater detail in the following sections of this report.
Amount
Supplement Requests 14,659,795$
Cost Allocation Plan Implementation 1,468,562
Administrative Adjustments
CalPERS Unfunded Actuarial Liabilities 676,700
CIP Adjustment - Drainage Project Acceleration (787,381) Successor Agency ROPS Admin Cost Reduction (625,912) (736,593) Grant Adjustments
Organized Retail Theft Prevention Grant from BSCC (1,151,300) Housing Grants Realignement (CalHOME and Permanent Local Housing Allocation) (870,810) CalRecycle Grant Reduction (240,305)
CDBG Grant Allocation Adjustment 498,208
CalTrans Grant - Fencing Project 308,260
AB109 State Funding 250,000
Community Services Grants Allocation Adjustment 219,615 Other Federal Grant Allocation Adjustment 57,220 (929,112) Capital Improvement Program Adjustments
Street and Storm Drain Projects Re-prioritization (700,000) Traffic Improvement Project Adjustment (700,000)
Sewer Capital Projects Re-priorization 789,700 (610,300) Total Amendment to the Adopted FY2027 Budget - All Funds 13,852,352$ Item 235/2026
A summary of the proposed amendments to the General Fund’s adopted FY 2026-27 budget is provided below:
The Adopted FY 2026-27 General Fund Budget included estimated revenues of $193.6 million.
As part of the mid -cycle review, additional revenue sources totaling $3.4 million were identified. These include $1.5 million in revenue generated from the administrative overhead charged through the CAP allocation, $1.1 million from Parking Enforcement revenues, $717,000 from increased investment earnings, and $63,000 in program revenue associated with the newly renovated Woodbury Pool.
These additional revenues, together with one-time funding approved in June 2025 as part of the adopted biennial budget, are sufficient to support the proposed mid -cycle budget adjustments and maintain a balanced General Fund budget for FY 2026-27.
General Fund
Adopted Budget - FY2026-27 194,840,054$
Proposed Mid-Cycle Amendments:
CalPERS Unfunded Actuarial Liabilities (110,814)
Cost Allocation Plan Implementation 1,910,730
Supplemental Requests
Council Chamber Security Enhancement 137,500
Municipal Yard Facility Condition Assessment 126,500
Public Safety Building Custodial Contract & Staffing 498,411 Public Safety Building Maintenance Program 160,000
Park Security Program Extension 340,000
Employee Training, Health & Wellness Program 113,900
Woodbury Park Pool Program Expansion 39,220
Vehicle Rebate Program Additional Funding 67,500
Citywide Property Tax 36,000
General Election Additional Funding 44,630 1,563,661 Total Proposed Mid-cycle Amendments 3,363,577
Proposed Amended Budget - FY2026-27 198,203,631$
General Fund
Estimated Revenue in Adopted Budget 193,627,775$
Additional Revenue Sources:
Citywide Cost Allocation Plan Overhead Charges 1,483,173 Parking Enforcement 1,100,000
Investment Income 717,383
Woodbury Park Pool Program Expansion 63,000 3,363,556 Revised FY2026-27 Revenue Estimate 196,991,331
One-time Funds Approved in Adopted Budget 1,212,300
Amended Total Sources 198,203,631$
Item 235/2026
Supplemental Requests
Presented below is a summary of the 23 Supplemental Requests that were reviewed and approved by the Budget Committee and are recommended for inclusion in the Amended FY2027 Budget for the City and its associated, component units.
FY2026-27 Mid-Cycle Supplemental Budget Request Summary Amount
Public Safety
Park Security Program Extension 340,000$
Officer Wellness Equipment and Supplies 350,000
Code Enforcement & Community Development
Woodbury Park Pool Program Expansion 39,220
Housing Authority Contractual and Operating Cost Increase 16,000 Economic Development & Support of Local Business
Vehicle Rebate Program Additional Funding 67,500
Garden Grove Tourism Promotion Corporation (GGTPC) Transit System 600,000 First-Time Home Buyer Program Extension through CalHOME and PLHA Grants 2,487,303 CalHOME Re-Roof Loan Program 330,300
Infrastructure
Harbor Blvd Street and Median Improvement through GGTPC 301,964 Network Access Control and Multi-Factor Authentication Implementation 210,000 Public Safety Building Custodial Contract Service 498,411 Public Safety Building Maintenance Program 160,000
Fleet Maintenance Cost Increase 380,000
SB1383 Compost Procurement Additional Costs 10,000
Longsdon Landfill Improvement 140,000
Council Chamber Security Enhancement 550,000
Municipal Yard Facility Condition Assessment 253,000
Street Rehabilitation Projects 3,950,000
Water Improvement Projects 3,500,000
Homelessness
Central Cities Navigation Center (CCNC) Contractual Cost Increase 234,887 Financial Health & Sustainability
Employee Training, Health and Wellness Program 113,900
Citywide Property Tax 64,750
General Election Additional Funding 62,560
14,659,795$
Item 235/2026
Supplemental Requests total $14.7 million and are intended to support the City Council’s reaffirmed six strategic priorities, while maintaining the foundational principle of Financial Health and Sustainability.
Position Budgeting and Cost Allocation Plan
The City implemented Position Budgeting during the development of the FY 2026-27 Biennial Budget. Under this approach, each employee’s payroll cost is allocated to the respective funds that either support the position or benefit from the services provided. The Position Budgeting model improved visibility and accountability of personnel costs and enhanced the City’s ability to allocate labor costs across departments, programs, and funds.
While Position Budgeting has proven to be an effective tool for personnel cost management, it has limitations in cost recovery, particularly for grant-funded programs. State and federal grant programs often allow reimbursement of eligible indirect costs; however, those costs must be allocated consistent ly across functions and supported by a documented allocation methodology.
After one full year of implementation, Finance leveraged the data collected through Position Budgeting to develop a formal Cost Allocation Plan (CAP). The CAP was completed in April 2026 and replaced the prior practice of allocating support staff personnel costs directly by fund with a formal indirect cost allocation methodology.
A Cost Allocation Plan is a methodology used to identify, accumulate, and distribute indirect costs across departments, funds, programs, projects, and activities that benefit from shared City services. The CAP ensures that costs are assigned to the functions receiving the benefit, rather than remaining solely within one department or fund.
For municipal gov ernments, a CAP is particularly important because many central service functions support the organization as a whole and cannot be directly attributed to a single program. Examples include the City Manager’s Office, Finance, Human Resources, Information Technology, and other administrative support functions.
Implementation of the CAP allows the City to recover the full cost of providing services, including indirect support costs. More importantly, it strengthens the City’s ability to maximize grant reimbursement and external funding opportunities. Many state and federal grants allow reimbursement of indirect costs. With a formal CAP in place, eligible indirect costs may be charged to grant programs as reimbursable expenditures, reducing the burden on City funds.
The CAP also enhances compliance and audit defensibility by providing a documented methodology, consistent allocation bases, and a clear audit trail. The use of a formal allocation plan reduces the risk of audit findings and questioned costs while i mproving transparency and accountability.
The City of Garden Grove maintains a significant grant portfolio. As such, the newly established CAP represents an important financial strategy that improves cost recovery, supports compliance requirements, protec ts City resources, and maximizes reimbursement opportunities.
Item 235/2026
As part of the mid-cycle budget update, the City implemented the CAP by centralizing most administrative and support service personnel costs within the General Fund and allocating those costs through the approved CAP methodology. As a result, the proposed Amended FY 2027 Budget includes approximately $1.5 million in Administrative Overhead charges distributed across various funds, replacing personnel costs that were previously budgeted directly within those funds. Correspondingly, the General Fund recognizes $1.5 million in Administrative Overhead revenue to offset the increased personnel expenditures resulting from the centralization of these costs.
Administrative Adjustments
Three administrative adjustments are proposed in the Amended FY 2027 Budget.
First, California Public Employees' Retirement System (CalPERS) released its FY 2027 actuarial valuation in July 2025. The budgeted Unfunded Actuarial Liability (UAL) payments were updated accordingly to reflect the most recent CalPERS valuation. As a result, a net increase of $676,700 is included in the Amended Budget across multiple funds.
Second, a storm drain improvement capital project originally included in the FY 2026 -27 Capital Improvement Plan was accelerated and completed during FY 2025 -26. Due to emerging repair needs at the project location, the project schedule was advanced and the associated funding was moved to FY 2025-26.
Third, the California Department of Finance appr oved the Recognized Obligation Payment Schedule (ROPS) for FY 2027 for the Successor Agency to the Garden Grove Redevelopment Agency in January 2026 and reduced the administrative cost allowance by $625,912.
Consequently, this amount will no longer be fund ed through Redevelopment Property Tax Trust Fund (RPTTF) distributions. The administrative expenditures previously covered by this allowance will be re -evaluated and distributed as part of the upcoming biennial budget process.
Grant Adjustments
When the FY 2026-27 Biennial Budget was adopted, estimates were made for the annual allocation of various grants received by the City. As part of the mid -cycle budget update, these estimates are being adjusted to better align available funding with projects and programs planned for the second year of the biennial cycle.
A net reduction of $929,000 is proposed in the Amended FY 2027 Budget, primarily attributable to an adjustment to the Organized Retail Theft Prevention Program Grant administered by the California Board of State and Community Corrections in the amount of $1.2 million. Funding availability for this program was estimated above the final State award allocation during the adoption of the current budget.
Offsetting a portion of this reduction are increas es totaling $222,000 for expenditures supported by other grant revenues, reflecting updated funding information and the latest grant award estimates.
Item 235/2026
Capital Improvement Program Adjustments
Based on available resources, project readiness, and other oper ational considerations, the Public Works Department re -prioritized several major Capital Improvement Program (CIP) projects within the Street, Traffic, and Sewer Improvement categories. The re -prioritization is consistent with the Department’s master plans and is intended to improve project delivery efficiency, optimize available resources, and enhance overall cost effectiveness.
FINANCIAL IMPACT
The proposed amended FY 2026 -27 Budget for all funds including the City’s associated, component units totals $413.3 million, representing an increase of $13.8 million from the adopted budget.
The primary drivers of this increase include $14.7 million in Supplemental Requests to address new funding needs and $1.5 million in personnel cost adjustments asso ciated with the implementation of the citywide Cost Allocation Plan (CAP). These increases are partially offset by $0.7 million reduction in administrative adjustments, a $0.9 million reduction in grant-funded project and program expenditures, and a $0.6 m illion reduction in capital expenditures resulting from project re-prioritization.
Please refer to the Discussion section of this report for detailed information regarding each recommended budget amendment.
RECOMMENDATION
It is recommended that the City Council:
Adopt the Resolution of the City Council of the City of Garden Grove amending the Adopted Biennial Budget for Fiscal Year 2026 -27 for the City and its Associated, Component Units;
Adopt the Resolution of the City Council of the City of Garden Grove adopting an appropriations limit for Fiscal Year 2026 -27 in accordance with Article XIII B of the California Constitution and pursuant to Section 7900 et seq. of the Government Code; Adopt the Resolution of the City Council of the City of Garden Grove appropriating fund balances as of June 30, 2026 to reserves for future year reappropriation; Adopt the Resolution of the City Council of the City of Garden Grove reappropriating certain Fiscal Year 2025 -26 project balances and encumbrances for the Fiscal Year 2026-27; and
Authorize the City Manager, or her designee, to make necessary administrative adjustments to the Amended Budget, provided such adjustments do not increase overall appropriations.
Item 235/2026
ATTACHMENT(S)
Attachment 1 - Resolution of the City Coun cil of the City of Garden Grove amending the Adopted Biennial Budget for Fiscal Year 2026 -27 for the City and its Associated, Component Units
Attachment 2 - Resolution of the City Council of the City of Garden Grove adopting an appropriations limit for Fiscal Year 2026 -27 in accordance with Article XIII B of the California Constitution and pursuant to Section 7900 et seq. of the Government Code Attachment 3 - Adopt the Resolution of the City Council of the City of Garden Grove appropriating fund balances as of June 30, 2026 to reserves for future year reappropriation
Attachment 4 - Resolution of the City Council of the City of Garden Grove reappropriating certain Fiscal Year 2025-26 project balances and encumbrances for the Fiscal Year 2026-27