CITY OF GROVER BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 8
Placement: Business
Meeting Date: May 11, 2026
TO: Honorable Mayor and City Council
FROM: Matthew Bronson, City Manager
PREPARED BY: Nick Szamet, Administrative Services Director Kristin Eriksson, Assistant City Manager
SUBJECT: FY 2026-27 Budget Update and Draft Work Programs for Council Goals and Priorities
RECOMMENDATION
Receive a report on the FY 2026-27 budget development process and draft work programs for Council Goals and Priorities and provide input and direction to staff.
BACKGROUND
The upcoming Fiscal Year (FY) 2026-27 marks the second year of the City’s FY 2025-27 budget cycle and staff is currently developing the FY 2026-27 Proposed Budget for presentation to the Council on June 8. The Budget will be posted on the City’s website in late May in preparation for the budget hearing. As the second year of a two-year budget, the FY 2026-27 Proposed Budget will include only a handful of incremental changes as highlighted in this report. On February 10, the Council received the mid-year budget review and updated five-year General Fund financial forecast agenda item. The forecast indicates that the General Fund is in a relatively positive position over the next several years as the City is running a break-even budget between revenues and expenditures to meet operational and service needs with reserves projected at or above the Council’s policy of 25% of operating expenditures before dropping to 23% in FY 2030-31.
However, despite this relative stability the City faces challenges in containing costs largely outside of the City’s control including increases in healthcare benefits, worker’s compensation insurance, unanticipated legal expenses, and other factors. These challenges create additional pressures on flattening revenues and balancing the City’s budget given macroeconomic uncertainties and volatility. Long term, the City is facing rising and variable costs of labor and services year-to-year which will require careful planning and cautious budgeting. However, the City has been cautious and prudent in its approach to new spending and does not anticipate a need for reducing General Fund expenditures in the current or next year’s budget.
FY 2026-27 Budget Development
The City budget is developed in a two-year planning and budgeting cycle. The budget for the second year, FY 2026-27, is reviewed to determine if any adjustments are needed prior to adoption and appropriation in June. The following page shows a summary and projection of key City revenues over the next year:
Staff Report: FY 2026-27 Budget Update & Draft Work Programs for Council Goals and Priorities Page 2 May 11, 2026
General Fund Revenue
• Property Tax – Property tax revenues have been a consistent revenue source for the City with annual increases of 5% over the past several years. Based on data from the San Luis Obispo County Tax Assessor’s Office along with the timing of new developments in FY 2026-27, staff is estimating a continued annual property tax revenue increase of 5% with total property tax revenue for FY 2025-26 projected to be $6.85 million. • Sales Tax - Projections use reports from the City’s sales tax consultant and local data to assess the ongoing condition of taxable sales in Grover Beach. For FY 2026-27, staff estimate a slight increase of 2.5% or nearly $6.2 million. • Transient Occupancy Tax (TOT) - TOT revenues are projected to total approximately $1.2 million in FY 2026-27 which is a continued increase from previous years. However, TOT is less than originally projected at mid-year largely due to the delayed opening of the hotel at 950 El Camino Real given construction delays. Staff anticipate a December 2026 hotel opening rather than the original opening date in Spring 2026. • Cannabis Tax – Staff anticipates cannabis tax revenues to remain flat for FY 2026-27 compared with the current year based on market conditions with total cannabis tax revenues of $1.06 million.
• Franchise Tax – Franchise fees for FY 2025-26 are estimated to be on budget at $965,000. For FY 2026-27, slight increases given the Waste Connections rate increases which will increase revenues to an estimated $1.02 million.
General Fund Expenses
In terms of expenditures, staff will be recommending small adjustments to the FY 2026-27 Budget that will continue to meet community needs in alignment with the adopted Council Goals and Priorities. Costs for employee salaries and benefits for next year include approved Cost of Living Adjustments of 3% for all employee bargaining units and groups. Staff will recommend a General Fund contribution to the City’s Capital Improvement Program (CIP) of $50,000 for a future street maintenance project.
The budget will also include $230,000 in funding for the Equipment Reserve Fund (ERF), which is a decrease of $124,000 compared to $354,000 originally budgeted in the FY 2025-27 two-year budget. Although this amount is less than depreciation for existing assets under the City’s Equipment Replacement Policy, staff believe savings in FY 2025-26 will ultimately make up this difference and there should be no long-term issue with financing future equipment. Staff recommend Council concurrence with this one-time departure from the ERF policy in order to balance next year’s budget. The Proposed Budget for FY 2026-27 will recommend $9,697 in limited General Fund increases that are necessary for City operations:
Department BAR Name Amount
Public Works Facilities Operating Supplies 1,865
Public Works Street Supplies 2,000
Police SLO Sheriff Data Access Costs 5,832
Total $9,697
Staff Report: FY 2026-27 Budget Update & Draft Work Programs for Council Goals and Priorities Page 3 May 11, 2026
Overall, the proposed General Fund budget for FY 2026-27 will be balanced with revenues and expenditures equaling $19.4 million with an estimated surplus of $3,511. The budget will produce ending reserves of approximately 27% of operating expenditures or $5.2 million compared with the Council’s reserve policy of 25% of operating expenditures.
Water Fund
For FY 2026-27, staff is recommending minimal changes to the Water Fund budget. Given the expiration of the current 2021 rate structure on June 30, Water Fund revenues for FY 2026-27 will be relatively flat with total revenues of approximately $4.5 million. Growth in Water Fund expenses is generally following the same trends as outlined in General Fund expenses. However, a significant issue affecting the Water Fund is Lopez Lake litigation expense given the federal endangered species litigation against the County of San Luis Obispo by environmental groups.
To date, the City has incurred nearly $500,000 in unbudgeted legal costs paid to the County given the City’s contractual amount of Lopez Lake water with additional legal expenses anticipated.
Given these unanticipated costs along with new and increases expenses for water systems operations, maintenance, necessary capital projects and additional costs, staff will return to the Council about a process for conducting a new Proposition 218 water rate study in 2027 following the conclusion of the water supply study underway. This water rate study would also address identified issues in the City’s water billing practices including multi-unit metering on properties. A new rate structure will be needed to ensure stability of the Water Fund and provide for adequate solvency given existing bond covenants which require net revenues to factor to 120% of annual debt service. Staff would caution that if debt service coverage is not maintained, covenants would require the City to begin the Proposition 218 rate study process along with a likely downgrade in the City’s credit rating.
Wastewater Fund
The City’s revised rate schedule for the Wastewater Fund has been in effect since July 1, 2025.
This includes nearly $250,000 additional revenue from user fees which will assist in paying for ongoing maintenance and expenses. Additionally, the rate increase has enabled the City to move forward with $4.8 million bond financing for the cost of sewer upgrades which are currently underway and will continue in future years. As a result of this revised rate structure, the Wastewater Fund is healthy and providing for sufficient funding for operations and maintenance and capital projects.
City Council Goals and Priorities Work Programs for FY 2026-27 On March 3, 2025, the Council held a workshop to discuss governance norms, long-term city vision, and goals and priorities for FY 2025-27. After agreeing upon governance norms, the Council considered, discussed and adopted broad multi-year goals as well as biennial Council priorities for FY 2025-27. On February 23, 2026, the Council reconsidered their goals and priorities and directed staff to add “Street Improvements and Maintenance” as a FY 2026-27 Priority. The updated goals and priorities were adopted by the Council on March 9, 2026, as listed on the following page:
Staff Report: FY 2026-27 Budget Update & Draft Work Programs for Council Goals and Priorities Page 4 May 11, 2026
• Broad Multi-Year Goals. These represent goals that the City’s budget is geared toward and what provide a foundation for the day-to-day work of the City. o Public Safety and Community Services – Provide a range of services that foster a sense of safety, enjoyment and well-being for community members. o Economic Development and Housing – Support businesses attraction and retention, revitalization of commercial areas, and development of housing opportunities.
o Community Infrastructure – Provide for long-range planning and well-maintained infrastructure, including streets, water and sewer facilities, sidewalks, City facilities and parks.
o Financial and Organizational Sustainability – Ensure fiscal responsibility, organizational viability and promote a culture of innovation and customer service. • Biennial Council Priorities. These represent those goals that the Council selected for focused attention and resources in the next two years.
o Water and Sewer Infrastructure and Needed Resources – Plan for the future, ensure appropriate funding levels, address aging infrastructure and educate the community on the systems’ needs.
o Community Engagement and Rebuilding Community Trust and Civility in Public Discourse – Provide education to the community, use various methods of communication, proactively initiate communication and broaden the audience for City communications.
o Street Improvements and Maintenance – Continue progress on residential street improvements and maintain already-improved residential streets.
Staff has identified work programs to implement these Council Goals and Priorities and allocate appropriate resources in the FY 2026-27 budget, and progress can be measured in achieving the goals. Staff is seeking the Council’s input and direction on these work programs which will be incorporated in the FY 2026-27 Proposed Budget presented to the Council on June 8. The proposed work programs are included in Attachment 1.
Summary
Staff is seeking Council’s input and direction on the FY 2026-27 budget and draft FY 2026-27 work programs for Council Goals and Priorities. This input and direction will be used in finalizing the proposed budget for FY 2026-27 which will be presented to the Council at the June 8th budget hearing. The Council’s adoption of the final budget in June will serve as the final approval for work programs for the Council Goals and Priorities and staff will then begin implementing these work programs in the new fiscal year and report back to Council on progress throughout the year.
FISCAL IMPACT
There are no funding impacts to this staff report.
ALTERNATIVES
The Council has the following alternatives to consider:
1. Receive a report on the FY 2026-27 budget development process and draft work programs for Council Goals and Priorities; and provide input and direction to staff; or
2. Provide staff with alternative direction.
Staff Report: FY 2026-27 Budget Update & Draft Work Programs for Council Goals and Priorities Page 5 May 11, 2026
PUBLIC NOTIFICATION
The agenda was posted in accordance with the Brown Act.
ATTACHMENTS
1. FY 2026-27 Draft Work Programs
Multi-Year Goals
☒ Public Safety and Community Services ☒ Economic Development and Housing ☒ Community Infrastructure ☒ Financial and Organization Sustainability Council Priorities
☒ Water & Wastewater Infrastructure ☒ Community Engagement ☒ Street Improvements and Maintenance
CITY COUNCIL MULTI-YEAR GOALS AND PRIORITIES
DRAFT FY 2026-27 WORK PROGRAMS
MULTI-YEAR GOALS:
Major Plans and Initiatives Lead Department
Public Safety and Community Services: Adopt a multi-year strategic plan for the Five Cities Fire Authority to ensure sufficient fire services response and address community risk reduction efforts to improve the safety and well-being of community members.
Five Cities Fire Authority
Public Safety and Community Services: Continue focus on traffic issues by adding an additional motorcycle officer, conducting grant-related enforcement, and reducing traffic collisions.
Police Department
Public Safety and Community Services: Begin work on a two-year Police Department accreditation process through the California Police Chief’s Association Police Department
Public Safety and Community Services: Continue delivering current and new community events to enhance community quality of life
City Manager’s Office
Community Services Division
Public Safety and Community Services: Expand partnerships for recreation and community programming including a South County sports program with the SLO County YMCA.
City Manager’s Office
Community Services Division
Economic Development and Housing: Initiate development of the 7th Cycle Housing Element (2028-2036) following release of the updated Regional Housing Needs Allocation (RHNA).
Community Development
Department
Public Safety and
Community
Services
Provide a range of
services that foster
a sense of safety,
enjoyment and well
being for community
members.
Economic
Development and
Housing
Support business
attraction and
retention,
revitalization of
commercial areas,
and development of
housing
opportunities.
Community
Infrastructure
Provide for long
range planning and
well-maintained
infrastructure,
including streets,
water and sewer,
sidewalks, City
facilities and parks.
Financial and
Organization
Sustainability
Ensure fiscal
responsibility,
operational viability
and promote a
culture of innovation
and customer
service.
Attachment 1
CITY COUNCIL MULTI-YEAR GOALS AND PRIORITIES
DRAFT FY 2026-27 WORK PROGRAMS
Economic Development and Housing: Initiate an update to the City’s Economic Development Strategy to assess economic and real estate market conditions affecting the city and identify potential improvements and efforts for the City to focus on.
Community Development
Department
City Manager’s Office
Economic Development and Housing: Expand tourism and visitor opportunities in Grover Beach through hotel development, short-term rental permitting changes, Visit Grover Beach marketing efforts, and collaboration with Visit SLO CAL.
City Manager’s Office
Community Development
Department
Community Infrastructure: Complete the Circulation Element Update to guide the planning, design, and improvement of the City’s transportation to keep pace with development activity and community needs.
Community Development
Department
Public Works Department
Community Infrastructure: Continue to work on potential locations and funding plans for new or renovated City facilities with a priority on the Police Station and Corporation Yard.
Public Works Department
Financial and Organizational Stability: Develop FY 2027-29 two-year budget to address community and organizational needs within available resources including update of the Council Goals and Priorities.
Administrative Services
Department
Financial and Organizational Stability: Work with City employee bargaining and unrepresented groups on new memoranda of understanding and resolutions affecting employee compensation, work conditions, and other factors.
City Manager’s Office
Financial and Organizational Stability: Conduct Cost Allocation study to better assess and allocate City costs and charges for services and across funds.
Administrative Services
Department
CITY COUNCIL MULTI-YEAR GOALS AND PRIORITIES
DRAFT FY 2026-27 WORK PROGRAMS
FY 2026-27 PRIORITIES:
CITY COUNCIL PRIORITY: WATER AND SEWER INFRASTRUCTURE AND NEEDED RESOURCES Major Plans and Initiatives
Lead
Department Key Milestones for
FY 2026-27
Budget Allocation
Complete water supply study
and present results to Council
City Manager’s
Office/Public
Works
• Continue work to complete a water supply study,
with regular public input opportunities
• Present preliminary results to the Council in
summer/fall 2026
• Present final results to the Council in late 2026 and seek policy direction on next steps
$300,000 from Water
Fund
Develop water rate study for
updated rate structure, given the
expiration of the existing rate
structure on June 30, 2026
Administrative
Services
Department
• Execute consultant contract for rate study following
completion of water supply study
• Initiate rate study process and conduct community
engagement on water rate structure
• Conduct Proposition 218 Hearing on new water rate
structure
$40,000 from Water Fund
Implement sewer improvement
project CIP 5003
Public Works
Department
• Design and construct Front Street Lift Station project $270,000 from Wastewater Fund
Implement sewer improvement
project CIP 5005
Public Works
Department
• Design and construct Oak Park Lift Station project $240,000 from Wastewater Fund
CITY COUNCIL MULTI-YEAR GOALS AND PRIORITIES
DRAFT FY 2026-27 WORK PROGRAMS
CITY COUNCIL PRIORITY: REBUILDING COMMUNITY TRUST, COMMUNITY ENGAGEMENT AND CIVILITY IN
PUBLIC DISCOURSE
Major Plans and Initiatives
Lead
Department Key Milestones for
FY 2026-27
Budget Allocation
Conduct Circulation Element
Update public engagement
Community
Development
Department
• Conduct public outreach related to proposed
policies and programs in the Circulation Element
update
Staff Resources
Develop “Grover Beach 101”
community outreach sessions
with initial focus on planning and
building
City Manager’s
Office/
Community
Development
Department
• Develop session framework and potential
schedule
• Implement initial sessions and review results for
future iterations
Staff Resources
Continue regular community
engagement events
City Manager’s
Office
• Host periodic “Coffee with Council” events
• Conduct outreach for the water rate study, including
an online survey, informational webpage, mailer,
informational sessions
Staff Resources
Continue business outreach
efforts in conjunction with the
South County Chambers of
Commerce
City Manager’s
Office
• Hold scheduled business outreach roundtable
meetings in partnership with the Chamber
• Conduct issue- or topic-specific business outreach
Staff Resources
CITY COUNCIL MULTI-YEAR GOALS AND PRIORITIES
DRAFT FY 2026-27 WORK PROGRAMS
CITY COUNCIL PRIORITY: STREET IMPROVEMENTS AND MAINTENANCE Major Plans and Initiatives
Lead
Department Key Milestones for
FY 2026-27
Budget Allocation
Implement street repair project
CIP 2295-17
Public Works
Department
• Begin and complete construction for CIP 2295-17
(N. 9th Street and portions of Brighton Avenue, N.
11th and N. 12th Streets and Ramona Avenue)
$2.9M in Measure K-14
Funds
Implement street repair project
CIP 2295-19
Public Works
Department
• Start construction for CIP 2295-19 (Portions of
Ramona Avenue, Brighton Avenue, N. 7th Street,
N. 6th Street, N. 2nd Street, and N.5th Street)
$600,000 in Measure K14 Funds
Implement street repair project
CIP 2285
Public Works
Department
• Finalize the design for CIP 2285 (N. 4th Street from
West Grand Avenue to Ocean View Avenue)
$100,000 in SB-1 Gas
Tax Funds
Develop plan to fund remaining
Measure K-14 street repair
project
Public Works
Department
• Develop funding plan to fund street repair project
CIP 2295-22 anticipated for construction in 2030
• Present plan to Council in early 2027 for review and
direction.
Staff Resources