Hercules City Council
January 27, 2026

210
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City’s basic financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards .

Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity ’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Santa Ana, California
December 18, 2025
284
Hercules Wastewater Fund
(An Enterprise Fund of the City of Hercules, California) Hercules, California
Independent Auditor’s Reports and
Basic Financial Statements
For the Year Ended June 30, 2025
285
286
Hercules Wastewater Fund
(An Enterprise Fund of the City of Hercules, California) Basic Financial Statements
For the Year Ended June 30, 2025
Table of Contents
Page
Independent Auditor’s Reports:

Report on the Financial Statements ................................................................................................................. 1 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ................................................................................ 5 Basic Financial Statements:

Statement of Net Position .................................................................................................................................... 9 Statement of Revenues, Expenses, and Changes in Net Position ...................................................................... 11 Statement of Cash Flows .................................................................................................................................... 12 Notes to the Basic Financial Statements ............................................................................................................ 15 Required Supplementary Information:

Schedule of the Proportionate Share of the Plan’s Net Pension Liability ....................................................... ... 40 Schedule of Contributions to the Pension Plan .................................................................................................. 42 Schedule of the Proportionate Share of the Plan's Net OPEB Liability (Asset) - PEHMCA ............................ 44 Schedule of Contributions to the OPEB Plan - PEHMCA ................................................................................ 46 Schedule of the Proportionate Share of the Plan's Net OPEB Liability (Asset) - SOMAR ............................... 48 Schedule of Contributions to the OPEB Plan - SOMAR ................................................................................... 50 287
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INDEPENDENT AUDITOR’S REPORT
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of the Hercules Wastewater Fund (the “Fund”), an enterprise fund of the City of Hercules, California (the “City”), as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collectively comprise the Fund’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of the Fund as of June 30, 2025, and the changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (“GAAS”) and the standards applicable to financial audits contained in Government Auditing Standards , issued by the Comptroller General of the United States (“Government Auditing Standards”) . Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and the Fund and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of a Matter
Wastewater Fund as an Enterprise Fund
As described in Note 1 to the basic financial statements, these financial statements present only the Fund and do not purport to and do not present fairly the financial position of the City as of June 30, 2025, the changes in its financial position, or where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

Change in Accounting Principle
As discussed in Notes 1 and 9 to the financial statements, the City adopted new accounting guidance, GASB Statement No. 101, Compensated Absences during the year ended June 30, 2025. The adoption of this standard resulted in the restatement of the Fund’s net position as of June 30, 2024. Our opinion is not modified with respect to this matter.
289
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

2 Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibilities for the Au dit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, a nd to issue an auditor’s report that includes our opinions.

Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we exercise professional judgment and maintain professional skepticism throughout the audit. identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordi ngly, no such opinion is expressed. evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
290
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

3 Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Schedules of Proportionate Share of the Plan’s Net Pension Liability, the Schedules of Contributions to the Pension Plan, the Schedule of Proportionate Share of the Plan’s Net Other Postemploym ent Benefits Liability (Asset) - PEHMCA, the Schedules of Contributions to the OPEB Plan – PEHMCA, the Schedule of Proportionate Share of the Plan’s Net OPEB Liability (Asset) – SOMAR, and the Schedule of Contributions to the O PEB Plan - SOMAR as listed in the table of contents be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency w ith management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Management has omitted the Management’s Discussion and Analysis that accoun ting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards , we have also issued our report dated December 18, 2025 on our consideration of the City's internal control over the Fund’ s financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effec tiveness of the City’s internal control over Fund’s financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over the Fund’s financial reporting and compliance.

Santa Ana, California
December 18, 2025
291
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292

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND

OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN

ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Independent Auditor’s Report
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States (“Government Auditing Standards”) , the financial statements of the Hercules Wastewater Fund (the “Fund”), an enterprise fund of the City of Hercules, California (the “City”), as of and for the year ended June 30, 2025, and the related notes to the basic financial statements, which collectively comprise the Fund’s basic financial statements, and have issued our report thereon dated December 18, 2025.

Report on Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (“internal control”) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses or significant deficiencies may exist that were not identified.
293
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

6 Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether th e Fund’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards .

Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Santa Ana, California
December 18, 2025
294

BASIC FINANCIAL STATEMENTS
7 295
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8 296
ASSETS
Current assets:

Cash and investments 16,611,554$
Cash and investments with fiscal agent 2,888
Total current assets 16,614,442
Noncurrent assets:

Net OPEB asset (PEHMCA) 17,400
Capital assets:

Nondepreciable 191,700
Depreciable, net 50,005,220
Total noncurrent assets 50,214,320
Total assets 66,828,762

DEFERRED OUTFLOWS OF RESOURCES
Pension-related deferred outflows of resources 278,792
OPEB-related deferred outflows of resources (PEHMCA) 13,392 OPEB-related deferred outflows of resources (SOMAR) 40,334 Total deferred outflows of resources 332,518

LIABILITIES
Current liabilities:

Accounts payable 527,334
Retention payable 632,081
Salaries and benefits payable 14,223
Accrued interest payable 14,587
Long-term debt - due within one year 1,643,853
Total current liabilities 2,832,078
Noncurrent liabilities:

Long-term debt - due in more than one year 24,481,394
Net pension liability 997,425
Net OPEB liability (SOMAR) 94,991
Total noncurrent liabilities 25,573,810
Total liabilities 28,405,888

DEFERRED INFLOWS OF RESOURCES
Pension-related deferred outflows of resources 45,959
OPEB-related deferred outflows of resources (PEHMCA) 66,999 OPEB-related deferred outflows of resources (SOMAR) 45,049 Total deferred inflows of resources 158,007

NET POSITION
Net investment in capital assets 23,529,978
Restricted for net OPEB assets 17,400
Unrestricted 15,050,007
Total net position 38,597,385$
Hercules Wastewater Fund
Statement of Net Position
June 30, 2025
See accompanying Notes to the Basic Financial Statements. 9 297
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10 298
OPERATING REVENUES:

Charges for services 6,330,489$
Total operating revenues 6,330,489
OPERATING EXPENSES:

Salaries and benefits 705,046
Services and supplies 3,235,332
Depreciation 1,031,064
Total operating expenses 4,971,442
Operating income 1,359,047
NONOPERATING REVENUES (EXPENSES):

Interest income 905,811
Interest (expense) (516,321)
Total nonoperating revenues (expenses), net 389,490
CHANGE IN NET POSITION 1,748,537
NET POSITION:

Beginning of year, as previously reported 36,883,037
Change in accounting principle (GASB 101) (34,189)
Beginning of year, as restated (Note 9) 36,848,848
End of year 38,597,385$
Hercules Wastewater Fund
Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2025
See accompanying Notes to the Basic Financial Statements. 11 299
CASH FLOWS FROM OPERATING ACTIVITIES:

Cash receipts from customers 6,330,489$
Cash paid to suppliers for goods and services (3,763,479) Cash paid to employees for services (718,404)
Net cash provided by operating activities 1,848,606

CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES:

Payments related to the acquisition of capital assets (1,376,226) Principal repayments related to capital purposes (1,548,285) Interest repayments related to capital purposes (517,065) Net cash (used in) capital and related financing activities (3,441,576) CASH FLOWS FROM INVESTING ACTIVITIES:

Interest earnings 905,811
Net cash provided by investing activities 905,811

NET CHANGES IN CASH AND CASH EQUIVALENTS (687,159)
CASH AND CASH EQUIVALENTS:

Beginning of year 17,301,601
End of year 16,614,442$

RECONCILIATION OF CASH AND CASH EQUIVALENTS
TO STATEMENT OF NET POSITION:

Cash and investments 16,611,554$
Cash and investments with fiscal agent 2,888
Total cash and cash equivalents 16,614,442$
Hercules Wastewater Fund
Statement of Cash Flows
For the Year Ended June 30, 2025
See accompanying Notes to the Basic Financial Statements. 12 300

RECONCILIATION OF OPERATING INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:

Operating income 1,359,047$
Adjustments to reconcile operating income
to net cash provided by operating activities:

Depreciation 1,031,064
(Increase) decrease in assets and deferred outflows
Pensions-related deferred outflows 121,318
OPEB-related deferred outflows (5,486)
Increase (decrease) in liabilities and deferred inflows Accounts payable (528,146)
Salaries and benefits payable 1,596
Net pension liability (93,780)
Net OPEB liability (2,776)
Pensions-related deferred inflows (39,651)
OPEB-related deferred inflows 8,157
Compensated absences (2,737)
Total adjustments 489,559
Net cash provided by operating activities 1,848,606$

NONCASH ITEMS
Retention Payable 632,081$
For the Year Ended June 30, 2025
Hercules Wastewater Fund
Statement of Cash Flows (Continued)
See accompanying Notes to the Basic Financial Statements. 13 301
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14 302
Hercules Wastewater Fund
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025

15 Note 1 – Summary of Significant Accounting Policies
The financial statements of the Hercules Wastewater Fund (“Fund”), an enterprise fund of the City of Hercules, California (the “City”), have been prepared in accordan ce with accounting principles generally accepted in the United States (“U.S. GAAP”) as applied to governmental agencies. The Governmental Accounting Standards Board (“GASB”) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the City’s significant policies relating to the Fund:

A. Reporting Entities

The Fund is an enterprise fund of the City’s financial st atements. This Fund accounts for wastewater treatment to the cities of Hercules and Pinole and for the maintenance of the City’s sewer lines and related facilities. It is a self- supporting activity which provides services on a user charge basis to residences and businesses.

These financial statements present only the Wastewater Fund and do not purport to and do not present fairly the financial position of the City as of June 30, 2025, the changes in its financial position, or where applicable, its cash flows for the year then ended in accordance with U.S. GAAP.

B. Measurement Focus and Basis of Accounting

Financial Statements include a Statement of Net Position, a Statement of Revenues, Expenses and Changes in Net Position, and a Statement of Cash Flows.

Proprietary funds are accounted for using the "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all assets, deferred outflows of resources, liabilities (whether current or noncurrent), and deferred inflows of resources are included on the Statement of Net Position. The Statement of Revenues, Expenses and Changes in Fund Net Position presents increases (revenues) and decreases (expenses) in total Net Position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. In these funds, receivables have been recorded as revenue and provisions have been made for uncollectible amounts.

Operating revenues are those revenues that are generated from the primary operations of the fund. All other revenues are reported as non-operating revenues. Operating expenses are those expenses that are essential to the primary operations of the fund. All other expenses are reported as non-operating expenses.

C. Cash and Investments

All cash and investments of the Fund are held in the C ity’s investment pool. These cash pools have the general characteristics of a demand deposit account, therefore, all cash and investments in the Fund are considered cash and cash equivalents for statement of cash flows purposes.

Investments are stated at fair value (quoted market price or best available estimate thereof).

D. Cash and Investments with Fiscal Agents

Cash and investments are held by fiscal agents for the redemption of bonded debt and maintaining required reserves.

E. Revenues

Wastewater revenues (wastewater disposal services) are recorded as billed to customers on a cyclical basis. All wastewater customers are billed annually by the Contra Costa County Treasurer-Tax Collector Office. 303
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

16 Note 1 – Summary of Significant Accounting Policies (Continued)

F. Capital Assets

Capital assets are recorded at historical cost or estimated historical if purchased or constructed. Donated capital assets are valued at their estimated acquisition value on the date donated. City policy has set the capitalization threshold for reporting capital assets with an initial, individual cost of more than $2,500 for general capital assets and $5,000 for infrastructure capital assets, and an estimated useful life of one year or more.

Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized.

Capital assets used in operations are depreciated over their estimated useful lives using the straight-line method. The estimated useful lives used for depreciation purposes are as follows:

Wastewater structure 30 Years
Machinery and equipment 5-20 Years
Infrastructure 15-50 Years

G. Accounts Payable

Accounts payable consists of general administration costs incurred and construction services performed during the fiscal year, but paid after the fiscal year.

H. Long-Term Debt

Long-term debt and other long-term obligations are reported as liabilities in the Statement of Net Position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method.

Bonds payable are reported net of the applicable bond premium or discount.

I. Compensated Absences

The City recognizes a liability for compensated absences that are attributable to services already rendered, accumulated, and are more likely than not to be paid or settled. The City's compensated absences include vested accrued vacation and accumulated sick leave as well as certain forms of leave that do not accumulate but are more likely than not to be paid in accordance with GASB Statement No. 101, Compensated Absences . The liability for compensated absences is determined annually, and is recognized as leave is earned, based on the employee’s pay rate in effect at the financial statement date, including any applicable salary-related costs. The liability includes only leave attributable to services already rendered and that is more likely than not to be paid.

J. Pensions

For purposes of measuring the aggregate net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the plans and additions to/deductions from the plans’ fiduciary net position have been determined on the same basis as they are reported by the plans (Note 6). For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with benefit terms. Investments are reported at fair value. 304
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

17 Note 1 – Summary of Significant Accounting Policies (Continued)

J. Pensions (Continued)

The following timeframes are used for pension reporting:

CalPERS
Valuation Date June 30, 2023
Measurement Date June 30, 2024
Measurement Period July 1, 2023 - June 30, 2024
Gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. The amortization period differs depending on the source of the gain or loss. The difference between projected and actual earnings is amortized straight-line over 5 years. All other amounts are amortized straight-line over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) as of the beginning of the measurement period.

Pension benefits are expensed to the various funds in the period they are earned, and the unpaid liability is recorded as a long-term liability.

K. Other Postemployment Benefits (“OPEB”)

For purposes of measuring the net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the plans and additions to/deductions from OPEB Plan's fiduciary net position have been determined on the same basis as they are reported by the plan (Note 7). For this purpose, the OPEB plan recognizes benefit payments when due and payable in accordance with the benefit terms. Investments are reported at fair value.

The following timeframes are used for OPEB reporting for PEMHCA and SOMAR:

OPEB - PEMHCA and SOMAR
Valuation Date June 30, 2025
Measurement Date June 30, 2025
Measurement Period July 1, 2024 - June 30, 2025
Gains and losses related to changes in total OPEB liability and fiduciary net position are recognized in OPEB expense systematically over time. The first amortized amounts are recognized in OPEB expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to OPEB and are to be recognized in future OPEB expense. The amortization period differs depending on the source of gain or loss. The difference between projected and actual earnings is amortized on a straight-line basis over 5 years. All other amounts are amortized on a straight-line basis over the average expected remaining service lives of all members that are provided with benefits (active, inactive, and retired) at the beginning of the measurement period.

L. Deferred Outflows and Inflows of Resources

The Statement of Net Position reports separate sections for Deferred Outflows of Resources, and Deferred Inflows of Resources, when applicable.

Deferred Outflows of Resources represent a consumption of net assets that applies to future periods.

Deferred Inflows of Resources represent an acquisition of net assets that applies to future periods. 305
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

18 Note 1 – Summary of Significant Accounting Policies (Continued)

M. Net Position

Net position is classified as follows:

Net Investment in Capital Assets – This component of net position consists of capital assets, net of accumulated depreciation and related deferred charges on refunding capital debt, reduced by the related debt that are attributable to the acquisition, construction, or improvement of those items, net of unspent debt proceeds.

Restricted – This component of net positi on consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets.

Unrestricted – This component of net position is the amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position.

When expenses are incurred for purposes for which both restricted and unrestricted components of net position are available, the City’s policy is to apply the restricted component of net position first, then the unrestricted component of net position as needed.

N. Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Note 2 – Cash and Investments

Cash and investments at June 30, 2025 consisted of the following:

Cash and investments pooled with City 16,611,554$
Cash and investments with fiscal agents 2,888
Total 16,614,442$

A. Cash and Investments Pooled with City

The Fund pools its cash and investments with the City in order to achieve a higher return on investment. Certain funds which are held and invested by independent outside custodians through contractual agreements, are not pooled.

Interest earned on investments is allocated using the LAIF factor and average quarterly balances. Required disclosure information regarding investments and other deposit, and related risk disclosures can be found in the City’s financial statements. The City’s financial statements may be obtained by contacting the City’s Finance Department’s office at 111 Civic Drive, Hercules, California.

At June 30, 2025, the Fund has deposited $16,611,554 in th e City’s investment pool. Investments held in the City’s investment pool are available on demand and are stated at cost plus accrued interest, which approximates fair value.

306
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

19 Note 2 – Cash and Investments (Continued)

B. Investments Authorized by the California Government Code and the City's Investment Policy The table below identifies the investment types that are authorized by the City's investment policy and the California Government Code. The table also identifies certain provisions of the California Government Code (or the City's investment policy, if more restrictive) that address interest rate risk, credit risk, and concentration of credit risk. This table does not address investments of debt proceeds held by bond trustee that are governed by the provisions of debt agreements of the City, rather than the general provisions of the California Government Code or the City's investment policy.

Maximum Maximum
Maximum Percentage Investment
Authorized Investment Type Maturity of Portfolio in One Issuer Local Agency Investment Fund (State Pool) N/A $50 Million $50 Million U.S. Treasury Obligations 5 Years None None
U.S. Government Agency Issues 5 Years None None
Insured Deposits with Banks and Savings and Loans N/A None None Bankers Acceptance (Must be Dollar Denominated) 180 Days 40% 30% Commercial Paper 270 Days 15% 10%
Negotiable Time Certificates of Deposits 5 Years 30% $100,000 Nonnegotiable Time Certificates of Deposits 5 Years 30% $100,000 Federally Issued Time Deposits 5 Years None $100,000
Repurchase Agreements 30 Days None 10%
Reverse Repurchase Agreements 92 Days 20% None
Medium-Term Notes 5 Years 30% 15%
Money M arket Mutual Funds N/A 20% 10%
Insured or Passbook Savings Accounts N/A None $100,000

*The table is based on state law requirements or investment policy requirements, whichever is more restrictive.

C. Investments Authorized by Debt Agreements

Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the investment policy of the City. The table below identifies the investment types that are authorized for investments held by bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk and concentration of credit risk.

307
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

20 Note 2 – Cash and Investments (Continued)
C. Investments Authorized by Debt Agreements (Continued) Maximum Maximum
Maximum Percentage Investment
Authorized Investment Type Maturity of Portfolio in One Issuer Local Agency Investment Fund (State Pool) N/A $50 Million $50 Million U.S. Treasury Obligations 30 Years 20% None
U.S. Government Agency Issues 30 Years 20% None
Insured Deposits with Banks and Savings and Loans N/A None None Bankers Acceptance (Must be Dollar Denominated) 6 Months 40% 30% Commercial Paper 6 Months 15% 10%
Negotiable Time Certificates of Deposits 5 Years 30% $100,000 Nonnegotiable Time Certificates of Deposits 5 Years 30% $100,000 Federally Issued Time Deposits 1 Years 20% None
Repurchase Agreements 30 Days None None
Reverse Repurchase Agreements 92 Days 20% None
Medium-Term Notes 5 Years 30% 15%
Mutual Funds N/A 20% None
Money M arket Funds N/A None None
Insured or Passbook Savings Accounts N/A None $100,000
Guaranteed Investment Contract N/A None None

D. Fair Value Measurement

At June 30, 2025, the Fund’s investment consisted of $16,611,554 pooled with the City and the City invested in the State of California Local Agency Investment fund and $2,888 invested in money market mutual funds, which is valued at amortized cost and “uncategorized” under th e fair value hierarchy as noted in the table below:

Investment Type Uncategorized Total
Cash and investments pooled with City 16,611,554$ 16,611,554$ Investments with fiscal agents:

Money M arket Mutual Funds 2,888 2,888 Total 16,614,442$ 16,614,442$

E. Risk Disclosures

Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment.

Generally, the longer the maturity of an investment is, the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Fund manages its exposure to interest rate risk is by purchasing a combination of shorter term and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.
308
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

21 Note 2 – Cash and Investments (Continued)
E. Risk Disclosures (Continued)

Disclosures Relating to Interest Rate Risk (Continued)
Information about the sensitivity of the fair values of th e Fund’s investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the following table that shows the distribution of the Fund's investments by maturity:

Maturity
12 Months
Investment Type Total or Less
Cash and investments pooled with City 16,611,554$ 16,611,554$ Investments with fiscal agents:

Money M arket Mutual Funds 2,888 2,888 Total 16,614,442$ 16,614,442$

Investments with Fair Values Highly Sensitive to Interest Rate Fluctuations Interest rate risk is the market value fluctuation due to overall changes in the interest rates. It is mitigated by limiting the average maturity of the City’s portfolio, not to exceed three years.

As a means of maintaining liquidity an d minimizing interest rate risk, the City’s investment policy limits are as follows:

Percentage
Maturity of Portfolio
Up to One Year 10% Minimum
One Year to Five Years 60% Maximum
More Than Five Years 30% Maximum

Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization.

Presented below is the minimum rating required by (where applicable) the California Government Code or the City's investment policy, or debt agreements, and the actual rating as of fiscal year end for each investment type.

Minimum
Legal Not
Investment Type Total Rating AAA Rated
Cash and investments pooled with City 16,611,554$ N/A -$ 16,611,554$ Investments with fiscal agents:

Money Market Mutual Funds 2,888 N/A 2,888 - Total 16,614,442$ 2,888$ 16,611,554$ S&P Rating as of Fiscal Year Ended

Concentration of Credit Risk
The investment policy of the City contains no limitations on the amount that can be invested in any one issuer beyond that stipulated by the California Government Code. The Fund has 100% of its cash and investments pooled with the City.
309
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

22 Note 2 – Cash and Investments (Continued)
E. Risk Disclosures (Continued)
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that in the event of the failure of the counterparty (e.g., broker dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City's investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the provision for deposits as disclosed in Note 2A.

Note 3 – Capital Assets

Summary of changes in capital assets for the year ended June 30, 2025, was as follows:

Balance Reclassification/ Balance
July 1, 2024 Additions Retirements Transfers June 30, 2025 Nondepreciable assets:

Land 191,700$ -$ -$ -$ 191,700$ Constrution in progress 13,642,030 1,439,043 - (15,081,073) - Total nondepreciable assets 13,833,730 1,439,043 - (15,081,073) 191,700 Depreciable assets:

Structures and improvements 38,325,271 - - (26,990,073) 11,335,198 Machinery and equipment 250,345 - - - 250,345 Infrastructure 14,945,319 - - 42,071,146 57,016,465 Subtotal 53,520,935 - - 15,081,073 68,602,008 Less: accumulated depreciation:

Structures and improvements (11,245,788) (144,187) - 157,647 (11,232,328) Machinery and equipment (224,513) (4,559) - - (229,072) Infrastructure (6,095,423) (882,318) - (157,647) (7,135,388) Subtotal (17,565,724) (1,031,064) - - (18,596,788) Total depreciable assets, net 35,955,211 (1,031,064) - 15,081,073 50,005,220 Total capital assets, net 49,788,941$ 407,979$ -$ -$ 50,196,920$

Depreciation expense in the amount of $1,031,064 was charged to the Fund for the year ended June 30, 2025.

310
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025
23 Note 4 – Long-Term Debt
Summary of changes in long-term debt for the year ended June 30, 2025, was as follows:

Balance
July 1, 2024 Balance Due within Due in More
(As Restated) Additions Deletions June 30, 2025 One Year Than One Yea r State Water Resources
Construction Loan 19,856,034$ -$ (1,173,285) $ 18,682,749$ 1,193,230$ 17,489,519$ Wastewater Revenue Bonds, Series 2021A 7,730,000 - (375,000) 7,355,000 385,000 6,970,000 Compensated Absences 90,235 17,661 (20,398) 87,498 65,623 21,875 Total 27,676,269$ 17,661$ (1,568,683) $ 26,125,247$ 1,643,853$ 24,481,394$ A. State Water Resources Construction Loan
In June 2016, the City entered into an installment sale agreement with the California State Water Resources Control Board in the amount of $26,500,000. The funds are for construction costs for the Pinole-Hercules Wastewater Pollution Control Plant Improvement Project. The interest rate on the loan is 1.7%. The first principal and interest payment are due August 31, 2019, and is contingent on the total drawdowns at project completion. The loan matures on August 31, 2038. The City has drawn down $25,457,695 of the loan principal including construction loan interest as of June 30, 2025. The outstanding balance as of June 30, 2025 was $18,682,749.

The annual debt service requirements to maturity for the State Water Resources Construction Loan as of June 30, 2025 are as follows:

Year Ending
June 30, Principal Interest Total
2026 1,193,230$ 317,606$ 1,510,836$
2027 1,213,515 297,322 1,510,837
2028 1,234,145 276,692 1,510,837
2029 1,255,127 255,712 1,510,839
2030 1,276,463 234,374 1,510,837
2031-2035 6,715,284 838,902 7,554,186
2036-2039 5,794,985 248,363 6,043,348
Total 18,682,749$ 2,468,971$ 21,151,720$
B. Wastewater Revenue Bonds, Series 2021A
In July, 2021, the City issued the Direct Purchase Lease in the amount of $8,450,000 and the proceeds were used to early pay off the 2010 PFA Wastewater Revenue Bonds. The bonds bear interest at 2.38%. Interest on the bonds is payable semi-annually on February 1 and August 1 in each year, commencing February 1, 2022. Principal payments are due in annual installments ranging from $355,000 to $545,000, commencing August 1, 2022 through August 1, 2040. The principal balance at June 30, 2025 is $7,355,000.

In the event of default, the City shall declare the entire principal amount of the unpaid Series 2021 installment payments and accrued inteest thereon to be due and payable immediately in writing. 311
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

24 Note 4 – Long-Term Debt (Continued)
B. Wastewater Revenue Bonds, Series 2021A (Continued)
The annual debt service requirements to maturity for as of June 30, 2025 are as follows:

Year Ending
June 30, Principal Interest Total
2026 385,000$ 170,468$ 555,468$ 2027 395,000 161,186 556,186 2028 400,000 151,725 551,725 2029 410,000 142,086 552,086 2030 420,000 132,209 552,209
2031-2035 2,255,000 504,501 2,759,501 2036-2040 2,545,000 219,258 2,764,258 2041 545,000 6,486 551,486 Total 7,355,000$ 1,487,919$ 8,842,919$

C. Compensated Absences

The liability is measured using the employee's pay rate at the financial statement date. There is no fixed payment schedule for earned but unpaid compensated absences.

Note 5 – Risk Management

The Fund is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disaster. The Fund participates in the City’s in surance programs to insure against these losses.

General Liability Insurance
Coverage is maintained with the Municipal Pooling Authority (MPA) with coverage limits of $1,000,000 with self- insured retention of $10,000 and $1,000,001 to $29,000,000 covered by California Affiliated Risk Management Authority (CARMA).

Workers’ Compensation
The City has coverage limits for the following without a deductible:

MPA $0 to $500,000
CSAC Excess Insurance Authority $500,000 to $50,000,000 Liberty Insurance Corporation Statutory excess of $50,000,000 312
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

25 Note 5 – Risk Management (Continued)
Miscellaneous Coverages
The MPA provides additional coverage for the following risks incurred by the City:

Coverage
Type Deductibles Limits
Auto - Physical Damage:

Police Vehicles 3,000$ 250,000$
All Other Vehicles 2,000 250,000
All Risk Fire & Property 25,000 1,000,000,000 Cyber Liability 50,000 2,000,000
Pollution Liability 250,000 25,000,000
Crime Coverage 2,500 5,000,000
Boiler and Machinery 10,000 100% of primary $25,000,000; 100% of $75,000,000 excess of $25,000,000

The MPA is governed by a board consisting of representatives from member municipalities. The board controls the operations of the MPA, including selection of management and approval of operating budgets, independent of any influence by member municipalities beyond their representation on the board.

The City’s deposits with the MPA are in accordance with formulas established by the MPA. Actual surpluses or losses are shared according to a formula developed from overall loss costs and spread to member entities on a percentage basis after a retrospective rating. Audited financial statements can be obtained from the Municipal Pooling Authority, 1911 San Miguel Drive, #200, Walnut Creek, California 94596.

Note 6 – Public Employee Retirement System

A. General Information About the Pension Plans

Plan Descriptions

All qualified permanent and probationary employees are eligible to participate in the City’s Miscellaneous Employee Pension Plans, cost-sharing multiple employer defined benefit pension plans administered by the California Public Employees’ Retirement System (CalPERS). Benefit provisi ons under the Plans are established by state statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website.

Benefits Provided

CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full-time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for nonduty disability benefits after 10 years of service.

The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law.
313
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

26 Note 6 – Public Employee Reti rement System (Continued)

A. General Information About the Pension Plans (Continued)

Benefits Provided (Continued)

The Plans’ provisions and benefits in effect at June 30, 2024, are summarized below:

Miscellaneous
Miscellaneous Tier 2
Benefit formula 2.0% @ 55 2.0% @ 62
Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life
Retirement age 50-63 52 - 67
Monthly benefits, as a % of
eligible compensation 1.426 - 2.148% 1.0 - 2.5%
Required employee contribution rate 7.0% 7.75%
Required employer contribution rate 11.840% 7.680%

Employees Covered

At June 30, 2023, the valuation date, the following employees were c overed by the Plan’s provisions:

Miscellaneous
Miscellaneous PEPRA
Active employees 22 27
Transferred employees 47 15
Separated employees 89 15
Retired employees and beneficiaries 99 1 Total 257 58

Contributions

Section 20814(c) of the California Public Employees’ Retirement Law (PERL) requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements are classified as plan member contributions.

The City contributed $109,499 towards the Fund’s share of the Miscellaneous Pension Plan during the year ended June 30, 2025.

314
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

27 Note 6 – Public Employee Reti rement System (Continued)

B. Net Pension Liability
Actuarial Methods and Assumptions Used to Determine Total Pension Liability The June 30, 2023 valuation was rolled forward to determine the June 30, 2024 total pension liability, based on the following actuarial methods and assumptions:

Actuarial Cost Method Entry Age Normal Actuarial Cost Method Actuarial Assumptions:

Discount Rate
Inflation
Salary Increases
Mortality Rate Table1
Post Retirement Benefit Increase

6.90%

2.30%
Varies by Entry Age and Service
Derived using CalPERS’ Membership Data for all Funds.
1 The mortality table used was developed based on CalPERS-specific data. The probabilities of mortality are based on the2021 CalPERS Experience Study and Review of Actuarial Assumptions. Mortality rates incorporate full generational mortality improvement using 80% of Scale MP-2020 published by the Society of Actuaries. For more details on this table, please refer to the 2021 experience study report from November 2021 that can be found on the CalPERS website.

The lesser of contract COLA or 2.30% until Purchasing Power Protection Allowance floor on purchasing power applies, 2.30%

Change of Assumptions
There were no changes of assumptions in 2024.

Long-Term Expected Rate of Return
The long-term expected rate of return on pension plan investments was determined using a building -block method in which expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class.

In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations. Using historical returns of all of the funds’ asset classes, expected compound (geometric) returns were calculated over the next 20 years using a building-block approach. The expected rate of return was then adjusted to account for assumed administrative expenses of 10 Basis points. The expected real rates of return by asset class are as follows:

Asset Class
1 Assumed Asset
Allocation Real Return
1,2
Global Equity - Cap-weighted 30.00% 4.54%
Global Equity - Non-Cap-weighted 12.00% 3.84%
Private Equity 13.00% 7.28%
Treasury 5.00% 0.27%
M ortgage-backed Securities 5.00% 0.50%
Investment Grade Corporates 10.00% 1.56%
High Yield 5.00% 2.27%
Emerging M arket Debt 5.00% 2.48%
Private Debt 5.00% 3.57%
Real Assets 15.00% 3.21%
Leverage -5.00% -0.59%
100.00%
1 An expected inflation of 2.30% was used for this period. 2 Figures are based on the 2021 Asset Liability M anagement study. 315
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

28 Note 6 – Public Employee Reti rement System (Continued)

B. Net Pension Liability (Continued)

Discount Rate

The discount rate used to measure the total pension liability was 6.90%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

C. Proportionate Share of Net Pension Liability

The following table shows the plan’s proportionate share of the risk pool collective net pension liability over the measurement period:

Plan Total Pension Plan Fiduciary Net Pension
Liability Net Position Liability/(Asset)
Miscellaneous
Balance at: 6/30/23 (Valuation date) 4,080,826$ 2,989,621$ 1,091,205$ Balance at: 6/30/24 (Measurement date) 4,007,872 3,010,447 997,425 Net changes during 2023-2024 (72,954)$ 20,826$ (93,780)$

The Fund’s proportionate share of the City’s net pension liability for the retirement plans is measured as the proportionate share of the net pension liability. The net pension liability of the retirement plans is measured as of June 30, 2024, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2023 rolled forward to June 30, 2024 using sta ndard update procedures. The Fund’s proportion of the net pension liability was based on a projec tion of the Fund’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The Fund’s proportionate share of the net pension liability as of the June 30, 2023 measurement date (June 30, 2024 reporting date) and 2024 measurement date (June 30, 2025 reporting date) was as follows:

Fund's Proportion
to City's Share
Measurement date Pool
Proportion - June 30, 2023 0.00875%
Proportion - June 30, 2024 0.00822%
Change - Increase/(Decrease) -0.00053%

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate

The following presents the Fund’s proportionate share of th e net position liability for the Plan, calculated using the discount rate, as well as what the Fund’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate:

Discount Rate - 1% Current Discount Discount Rate + 1%
(5.90%) Rate (6.90%) (7.90%)
Miscellaneous 1,538,249$ 997,425$ 552,247$ Plan's Net Pension Liability
316
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

29 Note 6 – Public Employee Reti rement System (Continued)

C. Proportionate Share of Net Pension Liability (Continued) Pension Plan Fiduciary Net Position

Detailed information about the pension plan’s fiduciary ne t position is available in the separately issued CalPERS financial reports.

D. Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pension

For the year ended June 30, 2025, the Fund recognized pension expense $89,924. At June 30, 2025, the Fund reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
Contribution made after the measurement date 109,499$ -$ Changes of assumptions 25,636 -
Net difference between projected and actual
earnings on pension plan investments 57,421 - Difference between expected and actual
experience 86,236 (3,365)
Employer contributions in excess/(under)
proportionate share of contributions - (9,681) Adjustments due to difference in proportions - (32,913) Total 278,792$ (45,959)$
Miscellaneous Plan

$109,499 was reported as deferred outflows of resources rela ted to pensions resulting from Fund’s contributions subsequent to the measurement date and will be recognized as a reduction of the net pension liability in the measurement period ended June 30, 2025. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Measurement Period
Ended June 30 Miscellaneous Plan
2025 31,157$
2026 115,480
2027 (3,624)
2028 (19,679)
Total 123,334$

E. Payable to the CalPERS Pension Plans

At June 30, 2025, the Fund had no outstanding amounts owed to the CalPERS pension plans for contributions for the year ended June 30, 2025.

317
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

30 Note 7 – Other Postemployment Benefits (“OPEB”)
A. Retiree Healthcare Plan (PEHMCA)

Plan Description and Administration

The City Retiree Healthcare Plan (Plan) is a single-employer benefit healthcare plan administered by the City. The Plan provides healthcare benefits to eligible retirees and their dependents. The Plan does not issue a financial report.

The City has prefunded a portion of its OPEB benefits in a Public Agency Retirement Services (PARS) trust. The PARS Trust is a tax qualified irrevocable trusts, organized under Internal Revenue Code (IRC) Section 115, established to pre-fund OPEB as described in GASB Statement 75. PARS issues annual audited financial statements for each participating agency of the Trust. PARS is considered an agency agent multiple-employer plan, required to provide financial statements and required supplementary information (Schedule of Changes in Fiduciary Net Position by Plan) that are prepared in conformance with GASB statement 75.

These reports may be obtained by writing the plan at the following address: PARS 4350 Von Karman Ave., Suite 100, Newport Beach, CA 92660 -2043.

Employees become eligible to retire and receive City-paid healthcare benefits upon attainment of age 50 and 5 years of service. The City contribution towards retiree health benefits is determined under the "Equal Contribution Method" under PEHMCA under which the City's nominal contribution to PEMHCA is the same for active employees and retirees ($149/month for 2024 and $158/month for 2025).

Proportionate share of the City’s postemployment benefits liabilities and related deferred outflows and inflows have been allocated to the Fund.

Contributions

The contributions are based on pay-go for premiums and contributions to the PARS OPEB trust. The pay-go amount is the actual amount of retiree premiums. Total contributions (pay-go and trust contributions) for the year ended June 30, 2025 were $4,344.

Employees Covered by Benefit Terms

At June 30, 2025, valuation date, the following employees were covered by the benefit terms:

Active Employees Eligible for Future Benefits 64
Retirees Currently Receiving Benefits 18
82 318
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

31 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued) A. Retiree Healthcare Plan (PEHMCA) (Continued)
Actuarial Assumptions

The net OPEB liability of the Plan was determined using an actuarial valuation as of June 30, 2025 using the following actuarial assumptions:

Actuarial Assumptions:

Cost Method Entry age actuarial cost method
Discount Rate 5.15%
Inflation 2.50%
Aggregate payroll increases 2.75%
Expected long-term investment rate of return 5.15%
Mortalit y, Termination, and Disability 1 2021 CalPERS Mortality Healthcare Trend Rate 4%
The mortality assumptions are based on the 2021 CalPERS Mortality for Miscellaneous and Schools Employees table created by CalPERS for the miscellaneous participant type and the 2021 CalPERS Mortality for Safety Employees for the safety participant type . CalPERS periodically studies mortality for participating agencies and establishes mortality tables that are modified versions of commonly used tables. This table incorporates mortality projection as deemed appropriate based on CalPERS analysis.

Changes of Assumptions

There were no changes of assumptions in 2025.

Discount Rate

The discount rate used to measure the total Plan’s OPEB liability was 5.15%. The projection of cash flows used to determine the discount rate assumed that City contributions will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the City plan's fiduciary net position was projected to be available to make all projected OPEB payments for current active and inactive employees. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability.

The expected long-term rate of return on OPEB plan investments of 5.15%, gross of expenses, was determined by Highmark Capital Management using a building-block method in which best-estimate ranges of expected future real rates of return, net of inflation, are developed for each major asset class. These ranges are combined to produce the term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table:

Asset Class
New Strategic
Allocation
Long-Term
Expected
Real Rate of
Return
All Domestic Equities 30.00% 7.25%
All Fixed Income 65.00% 4.25%
Short-Term Gov't Fixed 5.00% 3.00%
100.00%

319
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

32 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued) A. Retiree Healthcare Plan (PEHMCA) (Continued)
Proportionate Share of Net OPEB Liability and OPEB Expense

The following table shows the plan’s proportionate share of the risk pool collective net pension liability (asset) over the measurement period:

Total OPEB Plan Fiduciary Net OPEB
Liability Net Position Liability (Asset)
Balance at: 6/30/24 (Measurement date) (128,727)$ (142,062)$ (13,335)$ Balance at: 6/30/25 (Measurement date) (136,128) (153,528) (17,400) Net changes during 2024-2025 7,401$ 11,466$ 4,065$

The Fund’s proportionate share of the City’s net OPEB liability (asset) for the OPEB plan is measured as the proportionate share of the net OPEB liability (asset). The net OPEB liability (asset) of the OPEB plans is measured as of June 30, 2025, and the total OPEB liability (asset) used to calculate the net OPEB liability (asset) was determined by an actuarial valuation as of June 30, 2025 using standard update procedures.

The Fund’s proportion of the net OPEB liability (asset) was based on a projection of the Fund’s long-term share of contributions to the OPEB plans relative to the projected contributions of all participating employers, actuarially determined. The Fund’s proportionate share of the net OPEB liability as of the June 30, 2025 measurement date and June 30, 2024 measurement date was as follows:

Fund's Proportion
to City's Share
Pool
Proportion - June 30, 2023 4.91803%
Proportion - June 30, 2024 4.91810%
Change - Increase/(Decrease) 0.00007%

Sensitivity of the Net OPEB Liability (Asset) to Changes in the Discount Rate

The following presents the net OPEB liability (asset) of the Plan, as well as what the City’s net OPEB liability (asset) would be if it were calculated using a discount rate 1% lower or 1% higher than the current discount rate:

Discount Rate - 1% Current Discount Discount Rate + 1%
(4.15%) Rate (5.15%) (6.15%)
(119)$ (17,400)$ (31,915)$ Net OPEB Liability (Asset)
320
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

33 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

A. Retiree Healthcare Plan (PEHMCA) (Continued)
Sensitivity of the Net OPEB Liability (Asset) to Changes in the Healthcare Trend Rate

The following presents the net OPEB liability (asset) of the Plan, as well as what the Plan’s net OPEB liability (asset) would be if it were calculated using healthcare cost trend rates that 1% lower or 1% higher than the current healthcare cost trend rate:

Healthcare Cost Healthcare Cost Healthcare Cost
Trend Rates Trend Rates Trend Rates
3% 4% 5%
(35,810)$ (17,400)$ 5,626$
Net OPEB Liability (Asset)

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Relate to OPEB

For the year ended June 30, 2025, the Fund recognized OPEB expense (gain) of $(1,063) for the Plan. OPEB expense (gain) represents the change in the net OPEB liability during the measurement period, adjusted for actual contributions and the deferred recognition of changes in investment gain/loss, and actuarial assumptions or method.

At June 30, 2025, the Fund reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources:

Deferred Outflows Deferred Inflows
of Resources of Resources
Difference between expected and actual experience -$ (58,211)$ Changes of assumptions 13,392 (6,702)
Net difference between projected and actual earning on
OPEB plan investments - (2,086) Tota
l 13,392$ (66,999)$

Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows:

Measurement
Period Deferred Outflows/
Ending June 30 (Inflows) of Resources
2026 (6,303)$
2027 (11,022)
2028 (11,093)
2029 (10,118)
2030 (9,113)
Thereafter (5,958)
Total (53,607)$

321
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025
3 4
Note 7 – Other Postemployment Benefits (“OPEB”) (Continued) B. Retiree Cash Benefit Plan (SOMAR Plan)
Plan Description
The City SOMAR Plan is a single-employer benefit healthcare plan administered by the City. The Plan provides healthcare benefits to eligible retirees and their dependents. The Plan does not issue a financial report.

The SOMAR Plan benefit percentage is based on the lesser of actual years of service, or an equivalent based on sick- leave hours divided by 48, with a minimum percentage of 50% after 10 years and a maximum percentage of 100% after 20 years. The percentage is applied to a stated dollar amount prior to age 65 and the Kaiser Senior Advantage retiree only premium after age 65, offset by the PEMHCA Plan minimum, described above. The monthly dollar amounts under the SOMAR Plan are $388 per month and $292 per month in 2024 for Police and Executive Management, respectively, and $335 per month in 2025 for both groups. The amounts are contractually indexed each year by 3%.

The City provide an optional monetary allowance with an annual three (3%) adjustment each year to Public Safety and Executive employees who retire as regulated by the Public Employee’s Retirement System. To be eligible for the optional monies, an employee must retire as follows:

1. Service Retirement: Employees who have served the City for at least ten (10) consecutive years immediately prior to retirement and are at least fifty (50) years old when they separate service from the City.

2. Disability Retirement: Employees who retire with a disability retirement are not required to be a certain age, but must have at least twenty (20) years of service with the City.

Employees must have the minimum amount of sick leave on the books, as outlined in the chart below. If an employee has below the amount of sick leave required for their years of service, then they will only be eligible for the percentage paid equivalent to the amount of sick leave they do have on the books.

Years of Service
Sick Leave
Balance
% of Optional
Money
Available
10 480 50
11 528 55
12 576 60
13 624 65
14 672 70
15 720 75
16 768 80
17 846 85
18 864 90
19 912 95
20-24 960 100
25 No Minimum
amount required 100
E
mployees must retire within one hundred twenty (120) days. In addition, employees who separate service but do not retire as a PERS annuitant, shall not be eligible under for SOMAR benefits. 322
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

35 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

B. Retiree Cash Benefit Plan (SOMAR Plan) (Continued)

Plan Description (Continued)

The City will pay a portion of the optional money to a retiree until the retiree reaches age sixty-five (65), upon which they are required to enroll in Medicare. At that time, the optional money will drop to an amount equivalent to the Kaiser Supplemental to Medicare rate through PERS.

The SOMAR benefit is expected to last into perpetuity. Payments are made on a bi-annual basis.

Employees Covered by Benefit Terms

At the June 30, 2025 measurement date, the following employees were covered by the benefit terms:

Participating active employees 34
Inactive employees receiving benefits 16
50 Benefits Provided

The SOMAR plan’s provisions and be nefits in effect at June 30, 2025, are summarized below:

Executives Police
Duration of benefits Lifetime Lifetime
Required service 50% at 10 years
grading to 100% at
20 years
50% at 10 years
grading to 100% at
20 years
Minimum age Retirement Retirement
Amount $335 per month pre-
65; based on Kaiser
premium post-65
$335 per month pre-
65; based on Kaiser
premium post-65

Contributions

For the year ended June 30, 2025, the Fund contributions recognized as part of OPEB expense for the SOMAR plan were $2,400.

Actuarial Assumptions

The net pension liability of the SOMAR Plan was determined using an actuarial valuation as of June 30, 2025 using the following actuarial assumptions:

Actuarial Assumptions:

Cost method Entry age normal
Discount Rate 5.20%
Inflation 2.50%
Aggregate payroll increases 2.75%
Mortality 1, retirement, and turnover 2021 CalPERS tables 323
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

36 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

B. Retiree Cash Benefit Plan (SOMAR Plan) (Continued)
Changes of Assumptions

The interest assumption changed from 3.93% to 5.20%. Assumed rates of retirement, termination, and mortality have been updated to align with those currently being used by the statewide pension systems.

Discount Rate

The discount rate used to measure the total OPEB liability for the SOMAR plan was 5.20% based on the Bond Buyer 20 Bond Index.

Proportionate Share of Net OPEB Liability and OPEB Expense

The Fund proportionate share of the net OPEB liability as of June 30, 2025, measurement date, is as follows:

Plan's Proportion to
Total Plan at June 30,
2025
Proportionate
Share of Net
OPEB Liability

4.918% 94,991$

Sensitivity of the Net OPEB Liability to Changes in the Discount Rate

The following presents the net pension liability of the SOMAR Plan, as well as what the SOMAR Plan’s net pension liability (asset) would be if it were calculated using a discount rate 1% lower or 1% higher than the current discount rate:

Discount Rate - 1% Current Discount Discount Rate + 1%
(4.20%) Rate (5.20%) (6.20%)
110,938$ 94,991$ 82,268$ SOMAR Plan's Total OPEB Liability

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Relate to Pension

For the year ended June 30, 2025, the City recognized pension expense of $7,704 for the SOMAR plan. OPEB expense represents the change in the net pension liability during the measurement period, adjusted for actual contributions and the deferred recognition of changes in investment gain/loss, and actuarial assumptions or method.

At June 30, 2025, the City reported deferred outflows of resources and deferred inflows of resources related to pension from the following sources for the SOMAR plan:

Deferred Outflows Deferred Inflows
of Resources of Resources
Difference between expected and actual experience 29,759$ (10,862)$ Changes of assumptions 10,575 (34,187) Total 40,334$ (45,049)$
S OMAR Plan

324
Hercules Wastewater Fund
Notes to the Basic Financial Statements (Continued)
For the Year Ended June 30, 2025

37 Note 7 – Other Postemployment Benefits (“OPEB”) (Continued)

B. Retiree Cash Benefit Plan (SOMAR Plan) (Continued)

OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Relate to Pension (Continued)

Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in pension expense as follows:

Measurement SOMAR Plan
Period Deferred Outflows/
Ending June 30 (Inflows) of Resources
2026 (400)$
2027 (400)
2028 (400)
2029 (400)
2030 (400)
Thereafter (2,715)
Total (4,715)$

Payable to the OPEB Plan

At June 30, 2025, the Fund had no outstanding amounts owed to the SOMAR OPEB plan for contributions for the year ended June 30, 2025.

Note 8 – Contingencies

Lawsuits

The Fund is not involved in any matters of litigation that have arisen in the normal course of conducting business.

Additionally, management believes that the City’s insurance programs are sufficient to cover any potential losses should an unfavorable outcome materialize.

Note 9 – Restatement

Implementation of GASB Statement No. 101, Compensated Absences

Effective for the fiscal year ended June 30, 2025, the City implemented GASB Statement No. 101, Compensated Absences. The implementation of GASB 101 resulted in a change in accounting principle, and prior year amounts have been restated accordingly. The effect on the beginning net position is as follows:

June 30, 2024 Change in
As Previously Accounting June 30, 2024
Reported Principle As Restated
Hercules Wastewater Fund 36,883,037$ (34,189)$ 36,848,848$ 325
38 This page intentionally left blank.
326

REQUIRED SUPPLEMENTARY INFORMATION
39 327
Measurement Date: June 30, 2024 June 30, 2023 June 30, 2022 June 30, 2021 June 30, 2020 Proportion of the Net Pension Liability 0.0082% 0.0087% 0.0095% 0.0067% 0.0072% Proportionate Share of the Net Pension Liability 997,425$ 1,091,205$ 1,092,885$ 364,008$ 779,817$ Covered Payroll 472,871$ 458,019$ 437,549$ 229,694$ 335,827$ Proportionate Share of the Net Pension Liability
as a Percentage of Covered Payroll 210.93% 238.24% 249.77% 158.48% 232.21% Fiduciary Net Position as a Percentage of the
Plan's Total Pension Liability 75.11% 73.26% 73.13% 85.66% 73.63% Miscellaneous Plans
California Public Employees' Retirement System (CalPERS) Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net Pension Liability For the Year Ended June 30, 2025
Last Ten Fiscal Years
40 328
Measurement Date: June 30, 2019 June 30, 2018 June 30, 2017 June 30, 2016 June 30, 2015 Proportion of the Net Pension Liability 0.0068% 0.0066% 0.0067% 0.0065% 0.0056% Proportionate Share of the Net Pension Liability 694,727$ 637,000$ 659,623$ 562,902$ 481,238$ Covered Payroll 331,260$ 321,063$ 0 301,916$ 251,715$ 251,715$ Proportionate Share of the Net Pension Liability
as a Percentage of Covered Payroll 209.72% 198.40% 218.48% 223.63% 191.18% Fiduciary Net Position as a Percentage of the
Plan's Total Pension Liability 75.07% 77.69% 75.39% 75.87% 78.32% Miscellaneous Plans
Last Ten Fiscal Years
California Public Employees' Retirement System (CalPERS) Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net Pension Liability (Continued) For the Year Ended June 30, 2025
41 329
Fiscal Year: 2024-25 2023-24 2022-23 2021-22 2020-21
Actuarially Determined Contribution1
109,499$ 101,808$ 105,146$ 88,805$ 102,423$ Contribution in Relation to the Actuarially
Determined Contribution2
(109,499) (101,808) (105,146) (88,805) (102,423) Contribution Deficiency (Excess) -$ -$ -$ -$ -$ Covered Payroll3 486,111$ 472,871$ 449,800$ 437,549$ 229,694$ Contributions as a Percentage of Covered Payroll 20.94% 22.74% 23.38% 20.30% 44.59% Notes to the Schedule:

Methods and assumptions used to determine contribution rates:

Actuarial cost method Actuarial cost method
Amortization method For details, see June 30, 2021, funding valuation report.

Asset valuation method Fair Value of Assets. For details, see June 30, 2021, funding valuation report.

Inflation 2.30%
Salary increases Varies by entry age and service
Payroll Growth 2.80%
Investment rate of return 6.80% Net of pension plan investment and administrative expenses; includes Inflation.

Retirement age
Mortality
Miscellaneous Plans
The actuarial methods and assumptions used to set the actuarially determined contributions for Fiscal Year 2023-24 were derived from the June 30, 2023 funding valuation report.

The probabilities of retirement are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015.

The probabilities of mortality are based on the 2021 CalPERS Experience Study and Review of Actuarial Assumptions. Mortality rates incorporate full generational mortality improvement using 80% of Scale MP- 2020 published by the Society of Actuaries.

Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the Pension Plan
For the Year Ended June 30, 2025
California Public Employees' Retirement System (CalPERS) 1 As prescribed in GASB 68, paragraph 46, the information presented in the Schedule of Plan Contributions should also be presented as of the employer’s most recent fiscal year-end. The employer is responsible for determining this information as prescribed by the standard as this data is not available to CalPERS. 2 Employers are assumed to make contributions equal to the actuarially determined contributions. How ever, some employers may choose to make additional contributions tow ards their unfunded liability. Employer contributions for such plans exceed the actuarially determined contributions. 3 Includes one year’s payroll growth using 2.80% payroll growth assumption for fiscal year 2022 through 2024; 2.75% payroll growth assumption for fiscal years 2018 through 2021; 3.00% payroll growth assumption for fiscal years 2015 through 2017.

Last Ten Fiscal Years
42 330
Fiscal Year: 2019-20 2018-19 2017-18 2016-17 2015-16
Actuarially Determined Contribution1
95,532$ 91,514$ 63,159$ 52,105$ 52,884$ Contribution in Relation to the Actuarially
Determined Contribution2
(95,532) (91,514) (63,159) (52,105) (52,884) Contribution Deficiency (Excess) -$ -$ -$ -$ -$ Covered Payroll3 335,827$ 331,260$ 321,063$ 301,916$ 251,715$ Contributions as a Percentage of Covered Payroll 28.45% 27.63% 19.67% 17.26% 21.01% Last Ten Fiscal Years
California Public Employees' Retirement System (CalPERS) Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the Pension Plan (Continued) For the Year Ended June 30, 2025
Miscellaneous Plans
43 331
Measurement Date: June 30, 2025 June 30, 2024 June 30, 2023 June 30, 2022 June 30, 2021 Proportion of the Net OPEB Liability
(Asset) 4.92% 4.92% 5.36% 5.36% 5.88%
Proportionate Share of the Net OPEB
Liability (Asset) (17,400)$ (13,336)$ (12,132)$ (763)$ (28,052)$ Covered Payroll 437,549$ 229,694$ 229,694$ 335,827$ 335,827$ Proportionate Share of the Net OPEB
Liability (Asset) as a Percentage of
Covered Payroll -3.98% -5.81% -5.28% -0.23% -8.35%
Fiduciary Net Position as a Percentage
of the Plan's Total Pension Liability 110.36% 109.27% 109.27% 100.56% 119.65% 1 Historical information is presented only for measurement periods for which GASB No. 75 is applicable.

Last Ten Fiscal Years 1
Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net OPEB Liability (Asset) - PEHMCA For the Year Ended June 30, 2025
44 332
Measurement Date: June 30, 2020 June 30, 2019 June 30, 2018 Proportion of the Net OPEB Liability
(Asset) 6.80% 5.16% 5.19%
Proportionate Share of the Net OPEB
Liability (Asset) (11,718)$ 66,474$ 75,521$ Covered Payroll 331,260$ 321,063$ 301,916$ Proportionate Share of the Net OPEB
Liability (Asset) as a Percentage of
Covered Payroll -3.54% 20.70% 25.01%
Fiduciary Net Position as a Percentage
of the Plan's Total Pension Liability 106.92% 65.60% 59.11% 1 Historical information is presented only for measurement periods for which GASB No. 75 is applicable.

Last Ten Fiscal Years 1
Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net OPEB Liability (Asset) - PEHMCA (Continued) For the Year Ended June 30, 2025
45 333
Fiscal Year: 2024-252 2023-242 2022-232 2021-222 2020-212 Actuarially Determined Contribution 4,344$ 4,282$ 5,879$ 7,721$ 1,179$ Contribution in Relation to the
Actuarially Determined Contribution (4,344) (4,282) (5,879) (7,721) (1,179) Contribution Deficiency (Excess) -$ -$ -$ -$ -$ Covered Payroll 486,111$ 462,395$ 449,800$ 437,549$ 229,694$ Contributions as a Percentage of Covered
Payroll 0.89% 0.93% 1.31% 1.76% 0.51%
1 Historical information is presented only for measurement periods for which GASB No. 75 is applicable. 2 Effective for the year ended June 30, 2020, PEHMCA Plan is valued separately.

Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the OPEB Plan - PEHMCA
For the Year Ended June 30, 2025
Last Ten Fiscal Years 1
46 334
Fiscal Year: 2019-202 2018-19 2017-18
Actuarially Determined Contribution 11,571$ 18,642$ 10,641$ Contribution in Relation to the
Actuarially Determined Contribution (11,571) (18,642) (10,641) Contribution Deficiency (Excess) -$ -$ -$ Covered Payroll 335,827$ 331,260$ 321,063$ Contributions as a Percentage of Covered
Payroll 3.45% 5.63% 3.31%
Last Ten Fiscal Years 1
1 Historical information is presented only for measurement periods for which GASB No. 75 is applicable. 2 Effective for the year ended June 30, 2020, PEHMCA Plan is valued separately.

Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the OPEB Plan - PEHMCA (Continued) For the Year Ended June 30, 2025
47 335
Measurement Date: June 30, 20251 2 June 30, 20241 2 June 30, 20231 2 Proportion of the Net OPEB Liability (Asset) 4.92% 4.92% 5.36% Proportionate Share of the Net OPEB Liability (Asset) 94,991$ 93,703$ 100,875$ Covered Payroll 486,111$ 462,395$ 437,549$ Proportionate Share of the Net OPEB Liability (Asset) as a Percentage of Covered Payroll 19.54% 20.26% 23.05%
Fiduciary Net Position as a Percentage of the Plan's Total Pension Liability 0.00% 0.00% 0.00%
1 Historical information is presented only for periods for which GASB 73 is applicable. 2 SOMAR Plan is now valued separately from PEHMCA Plan effective June 30, 2020.

Last Ten Fiscal Years 1
Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net OPEB Liability (Asset) - SOMAR For the Year Ended June 30, 2025
48 336
Measurement Date: June 30, 20221 2 June 30, 20211 2 June 30, 20201 2 Proportion of the Net OPEB Liability (Asset) 5.36% 5.36% 5.36% Proportionate Share of the Net OPEB Liability (Asset) 71,848$ 86,665$ 99,901$ Covered Payroll 364,008$ 345,902$ 335,827$ Proportionate Share of the Net OPEB Liability (Asset) as a Percentage of Covered Payroll 19.74% 25.05% 29.75%
Fiduciary Net Position as a Percentage of the Plan's Total Pension Liability 0.00% 0.00% 0.00%
1 Historical information is presented only for periods for which GASB 73 is applicable. 2 SOMAR Plan is now valued separately from PEHMCA Plan effective June 30, 2020.

Last Ten Fiscal Years 1
Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of the Proportionate Share of the Plan's Net OPEB Liability (Asset) - SOMAR (Continued) For the Year Ended June 30, 2025
49 337
Fiscal Year: 2024-252 2023-242 2022-232
Actuarially Determined Contribution 2,400$ 2,404$ 2,303$ Contribution in Relation to the Actuarially Determined Contribution (2,400) (2,404) (2,303) Contribution Deficiency (Excess) -$ -$ -$ City's Covered-Employee Payroll -$ -$ -$ Contributions as a Percentage of Covered Payroll 0.00% 0.00% 0.00% 1 Historical information is presented only for measurement periods for which GASB No. 73 is applicable. 2 Effective for the year ended June 30, 2020, SOMAR Plan is valued separately.

Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the OPEB Plan - SOMAR
For the Year Ended June 30, 2025
Last Ten Fiscal Years 1
50 338
Fiscal Year: 2021-222 2020-212 2019-202
Actuarially Determined Contribution 2,342$ 2,332$ 2,182$ Contribution in Relation to the Actuarially Determined Contribution (2,342) (2,332) (2,182) Contribution Deficiency (Excess) -$ -$ -$ City's Covered-Employee Payroll -$ -$ -$ Contributions as a Percentage of Covered Payroll 0.00% 0.00% 0.00% Last Ten Fiscal Years 1
1 Historical information is presented only for measurement periods for which GASB No. 73 is applicable. 2 Effective for the year ended June 30, 2020, SOMAR Plan is valued separately.

Hercules Wastewater Fund
Required Supplementary Information (Unaudited)
Schedule of Contributions to the OPEB Plan - SOMAR (Continued) For the Year Ended June 30, 2025
51 339
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52 340

City of Hercules
Hercules, California
Independent Accountant’s Report on
Applying Agreed-Upon Procedures
on Measure B Transactions and Use Tax Revenues
For the Year Ended June 30, 2025
341
INDEPENDENT ACCOUNTANT’S REPORT

ON APPLYING AGREED-UPON PROCEDURES
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California
We have performed the procedures enumerated below on the City of Hercules, California (the “City”) in evaluating whether the Measure B – Transactions and Use Tax Revenues is in accordance with the provisions of this measure for the year ended June 30, 2025. The City ’s management is responsible for recei pt of Measure B - Transactions and Use Tax Revenues and deposit of such proceeds into the City's General Fund, and the City is responsible for compliance with the Measure B – Transactions and Use Tax.

The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of evaluating whether the Measure B – Transactions and Use Tax revenues is in accordance with the provisions of this measure. The City’s management has agreed to and ac knowledged that the procedures performed are appropriate for its purposes. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the ends of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.

The procedures and associated findings are as follows:

1. We confirmed Measure B payments with the Californi a State Board of Equalization (“BOE”) through online confirmation and calculated variances to the receipts summarized per the general ledger of the City for the year ended June 30, 2025.

2. We traced from the BOE on-line confirmation to the City ’s general ledger with no variance noted as detailed below:

Date Posted to G/L Receipts per G/L Payments per BOE Variance 07/03/2024 * 187,424$ $ 187,424 $ -
08/01/2024 * 147,868 147,868 -
08/27/2024 * 121,228 121,228 -
10/3/2024 208,870 208,870 -
10/31/2024 117,907 117,907 -
12/5/2024 140,164 140,164 -
1/2/2025 208,681 208,681 -
1/30/2025 123,253 123,253 -
03/06/2025 174,719 174,719 -
03/27/2025 183,321 183,321 -
5/1/2025 116,762 116,762 -
06/05/2025 130,474 130,474 -
6/26/2025 195,404 195,404 -
6/30/2025** 274,657 274,657 -
2,330,732$ 2,330,732$ -$
* The City accrued $456,520 for the fiscal year ended June 30, 2024. These payments apply to part of that accrual.
** California Department of Tax and Fee Administration (CDTFA) confirmed $151,293 and $123,364 were paid towards accruals subsequent to the year end.

Findings: No findings were noted as a result of the above procedures. 342
To the Honorable Mayor and the Members of the City Council of the City of Hercules

3. We traced the proceeds of the tax levied and confirmed at procedure 1 to the City's General Fund for use by the City, in accordance with Ordinance 470 Sec 8-9.12 Use of Tax Proceeds and Ordinance 481 Sec 8-9.12 Use of Tax Proceeds (amends ordinance 470).

Findings: No findings were noted as a result of the above procedures.

4. We noted the proceeds of taxes levied and confirmed under Measure B were paid/deposited into the City’s General Fund for use by the City.

Findings: No findings were noted as a result of the above procedures.

We were engaged by the City to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the revenue received by the City from Measure B – Transactions and Use Tax. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.

This report is intended solely for the information and use of the City Council and the management of the City and is not intended to be and should not be used by anyone other than these specified parties.

Santa Ana, California
December 18, 2025
343

City of Hercules
Hercules, California
Independent Accountant’s Report on
Applying Agreed-Upon Procedures
on Measure N Utility Users Tax Rate Revenues
For the Year Ended June 30, 2025
344
INDEPENDENT ACCOUNTANT’S REPORT

ON APPLYING AGREED-UPON PROCEDURES

To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

We have performed the procedures enumerated below on assi sting the City of Hercules, California (the “City”) in evaluating whether the Measure N Utility Users Tax Rate Revenues (UUT) is in accordance with the provisions of this measure for the year ended June 30, 2025. The City's management is responsible for the receipt of Measure N - Utility Users Tax Rate Revenues and deposit of such proceeds into the City's General Fund, and the City is responsible for compliance with Measure N Utility Users Tax Rate Revenues.

The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of evaluating whether the Measure N Utility Users Tax Rate Revenues is in accordance with the provisions of this measure. This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.

The procedures and associated findings are as follows:

1. We agreed the actual Utility Users Tax (UUT) to the receipts recorded in the City’s general ledger and recalculated the mathematical accuracy of the following schedules provided by the City for the year ended June 30, 2025:

a. Schedule of Expected UUT vs. Actual UUT:

Type of Utility
Estimated Utility
Billings
(FY 24/25
Utility Billings
as a Base) Expected UUT¹
Actual
UUT Variance % Variance
Electricity 19,775,000$ 1,582,000$ 1,776,185$ 194,185$ 11% Telephone 5,000,000 400,000 415,754 15,754 4% Gas 8,687,500 695,000 667,278 (27,722) -4% Water 9,987,500 799,000 903,390 104,390 12% Cable 6,400,000 512,000 449,837 (62,163) -14% Totals UUT 49,850,000$ 3,988,000$ 4,212,444$ 224,444$ 5% ¹ Based on UUT of 8% of estimated utility billings.

FY 2024/25 -Expected UUT vs Actual UUT

345
To the Honorable Mayor and the Members of the City Council of the City of Hercules

b. Schedule of Increase in Revenues Generated by Measure N:

Type of Utility
Actual UUT
with Measure N¹
Estimated UUT
without M easure
N²
Increase in
Revenue due to
Measure N
Increase/
Decrease in Revenue
per Staff Report³ Variance % Variance
Electricity 1,776,185$ 1,332,139$ 444,046$ 464,721$ 20,675$ 4% Telephone 415,754 311,816 103,938 105,201 1,263 1% Gas 667,278 500,459 166,819 193,532 26,713 14% Water 903,390 677,543 225,847 227,981 2,134 1% Cable 449,837 - 449,837 501,531 51,694 10% Totals 4,212,444$ 2,821,957$ 1,390,487$ 1,492,966$ 102,479$ 7% ¹ Based on the actual UUT collected for FY 2024/2025 at a rate of 8% for the entire year. ² Based on a rate of 6% UUT on electricity, telephone, gas, and water, and no UUT on cable. ³ Based on the Adopted Budget for FY 23/24 & FY 24/25.

FY 2024/25 -Increase in Revenue Generated by Measure N
Findings: No findings were noted as a result of the above procedures.

2. We traced and verified that the proceeds of taxes as listed in schedule presented at ‘1.a’ were paid/deposited into the City's General Fund for use by the City, in accordance with Ordinance 475 Sec 8-8.402 Use of Tax Proceeds and Ordinance 481 Sec 8-8.402 Use of Tax Proceeds.

Findings: No findings were noted as a result of the above procedures.

We were engaged by the City to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respectively, on the Measure N Utility Users Tax Rate Revenues of the City for the year ended June 30, 2025. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.

This report is intended solely for the information and use of the City Council and the management of the City of Hercules and is not intended to be and should not be used by anyone other than these specified parties.

Santa Ana, California
December 18, 2025
346
City of Hercules
Hercules, California
Independent Accountant’s Report on
Applying Agreed-Upon Procedures to
Appropriations Limit Schedule
For the Year Ending June 30, 2026
347
INDEPENDENT ACCOUNTANT’S REPORT ON

APPLYING AGREED-UPON PROCEDURES
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

We have performed the procedures enumerated below on the accompanying Appropriations Limit Schedule of the City of Hercules, California (the “City”) for the year ending June 30, 2026. The City’s management is responsible for the Appropriations Limit Schedule.

The City has agreed to and acknowledged that the procedures performed are appropriate to meet the intended purpose of meeting the requirements of Section 1.5 of Article XIII-B of the California Constitution, which was agreed by the City and the League of California Cities (as presented in the publication entitled Agreed-upon Procedures Applied to the Appropriations Limitation Prescribed by Article XIII-B of the California Constitution ). This report may not be suitable for any other purpose. The procedures performed may not address all the items of interest to a user of this report and may not meet the needs of all users of this report and, as such, users are responsible for determining whether the procedures performed are appropriate for their purposes.

The procedures performed and associated findings are as follows:

1. We obtained the completed worksheet used by the City to calculate its appropriations limit for the year ending June 30, 2026, and determined that the limit and annual calculation factors were adopted by resolution of the City Council. We also determined that the population and inflation options were selected by a recorded vote of the City Council.

Findings: No exceptions were noted as a result of our procedures.

2. For the accompanying Appropriations Limit Schedule, we added the prior year’s limit to the total adjustments, and agreed the resulting amount to the current year’s limit.

Findings: No exceptions were noted as a result of our procedures. However, we noted that the City is not maximizing its calculation by using the City population factor for the year ending June 30, 2026 that will benefit the City th e most. There is no impact as the City’s appropriations for 2025-26 are below the limit.

3. We verified the current year information presented in the accompanying Appropriations Limit Schedule to corresponding information in worksheets used by the City.

Findings: No exceptions were noted as a result of our procedures.

4. We verified the appropriations limit presented in the accompanying Appropriations Limit Schedule to the appropriations limit adopted by the City Council.

Findings: No exceptions were noted as a result of our procedures. 348
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

2 We were engaged by the City to perform this agreed-upon procedures engagement and conducted our engagement in accordance with attestation standards established by the American Institute of Certified Public Accountants. We were not engaged to and did not conduct an examination or review engagement, the objective of which would be the expression of an opinion or conclusion, respective on the accompanying Appropriation Limit Schedule. Accordingly, we do not express such an opinion or conclusion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you.

We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our agreed-upon procedures engagement.

This report is intended solely for the information and use of the City Council and management of the City and is not intended to be and should not be used by anyone other than these specified parties.

Santa Ana, California
December 18, 2025
349
City of Hercules
Appropriations Limit Schedule
For the Year Ending June 30, 2026

See accompanying Notes to Appropriations Limit Schedule. 3 Amount Source
A. Appropriations Limit FY 2024-2025 552,477,093$ Prior year appropriation limit adopted by the City
B. Calculation Factors:
1) Population increase % 0.9950 California Department of Finance 2) Inflation increase % 1.0644 California Department of Finance 3) Total adjustment % 1.0591 (B1 x B2) C. Annual Adjustment Increase 32,639,242 {(B3-1) x A} D. Other Adjustments:
1) Loss responsibility (-) - N/A 2) Transfer to private (-) - N/A 3) Transfer to fees (-) - N/A 4) Assumed responsibility (+) - N/A E. Total Adjustments 32,639,242 (C+D)
F. Appropriations Limit FY 2025-2026 585,116,335$ (A+E)

350
City of Hercules
Notes to Appropriations Limit Schedule
For the Year Ending June 30, 2026
4 Note 1 – Purpose of Limited Procedures Review
Under Article XIIIB of the California Constitution (the Gann Spending Limitation Initiative), California governmental agencies are restricted as to the amount of annual appropriations from proceeds of taxes. Effective for years beginning on or after July 1, 1990, under Section 1.5 of Article XIIIB, the annual calculation of the appropriations limit is subject to the agreed-upon procedures in connection with the annual audit.

Note 2 – Method of Calculation
Under Section 10.5 of Article XIIIB, for fiscal years beginning on or after July 1, 1990, the appropriations limit is required to be calculated based on the limit for the fiscal year 1986-87, adjusted for the inflation and population factors discussed in Notes 3 and 4 below.

Note 3 – Population Factors
A California governmental agency may use as its population factor either the annual percentage change of the jurisdiction’s own population or the annual percentage cha nge in population of the county where the jurisdiction is located. The factor adopted by the City of Hercules, Calif ornia (the “City”) for the year ending June 30, 2026, represents the annual percentage change in population for the City.

Note 4 – Inflation factors
A California governmental agency may use as its inflation factor either the annual percentage change in the 4 th quarter per capita personal income (which percentage is supplied by the California Department of Finance) or the percentage change in the local assessment roll from the preceding year due to the change of local nonresidential construction.

The factor adopted by the City for the year ending June 30, 2026, represents the percentage change in the local assessment roll from the preceding year due to the change of local nonresidential construction.

Note 5 – Other Adjustments
A California government agency may be required to adjust its appropriations limit when certain events occur, such as the transfer of responsibility for municipal services to, or from, another government agency or private entity. The City had no such adjustments for the year ending June 30, 2026. 351
December 18, 2025
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California
We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Hercules, California (the “City”) for the year ended June 30, 2025. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated April 21, 2025. Professional standards also require that we communicate to you the following information related to our audit.

Significant Audit Matters
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. As described in Note 1 to the basic financial statements, the City implemented the following accounting standards:

New Accounting Standards
GASB Statement No. 101 – In June 2022, the GASB issued Statement No. 101, Compensated Absences. The objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. The requirements of this Statement are effective for fiscal years beginning after December 15, 2023, and all reporting periods thereafter. Implementation of this Statement resulted in a restatement of the beginning fund balance as of July 1, 2024, as presented in Note 17 to the basic financial statements.

GASB Statement No. 102 – In December 2023, the GASB issued Statement No. 102, Certain Risk Disclosures.

The objective of this Statement is to provide users of government financial statements with information about risks related to a government’s vulnera bilities due to certain concentrations or constraints that is essential to their analyses for making decisions or assessing accountability. The requirements of this Statement are effective for fiscal years beginning after June 15, 2024, and all reporting periods thereafter. The City has not identified any risks requiring disclosure in the financial statements.

No other new accounting policies were adopted and the application of existing policies was not changed during 2025.

We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 352
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience a bout past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the City’s financial statements were:

Management’s estimate of the investment fair market value is based on information provided by the State of California for its investment in the Local Agency Investment Fund. We evaluated the key factors and assumptions used to develop the investment fair market value in determining that it is reasonable in relation to the financial statements taken as a whole.

Management’s estimate of the depreciation and amor tization on capital assets is based on the industry standard and past experience on actual useful life of the asset groups. We evaluated the key factors and assumptions used to develop the depreciation on capital assets in determining that it is reasonable in relation to the financial statements taken as a whole.

Management’s estimate of the net pension liability is based on the actuarial valuation on total pension liability and based on financial statements on fiduciary net position for CalPERS plans. We evaluated the key factors and assumptions used to develop the net pension liability in determining that it is reasonable in relation to the financial statements taken as a whole.

Management’s estimate of the net other postemployment benefits (“OPEB”) liability/(asset) is based on the actuarial valuation on total OPEB liability and financial statements on fiduciary net position. We evaluated the key factors and assumptions used to develop the OPEB liability in determining that it is reasonable in relation to the financial statements taken as a whole.

Management’s estimate of compensated absences is based on the City’s adopted methodology, consistent with the provisions of GASB 101. We evaluated the key factors and assumptions used to estimate the compensated absences determining that it is reasonable in relation to the financial statements taken as a whole.

Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the financial statements were:

Note 1 – Summary of Significant Accounting Policies
Note 8 – Retirement Plans
Note 10 – Other Postemployment Benefits
Note 12 – Commitments and Contingencies
Note 14 – Stewardship, Compliance, and Accountability
Note 17 – Restatement

The financial statement disclosures are neutral, consistent, and clear.

Difficulties Encountered in Performing the Audit

We encountered no significant difficulties in dealing with management in performing and completing our audit.

353
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

Corrected and Uncorrected Misstatements

Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole.

Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be si gnificant to the financial statements or the auditor’s report.

We are pleased to report that no such disagreements arose during the course of our audit.

Management Representations

We have requested certain representations from management that are included in the management representation letter dated December 18, 2025.

Management Consultations with Other Independent Accountants

In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.

Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.

Other Matters
We applied certain limited procedures to Management’s Discussions and Analysis (“MD&A”), the Budgetary Comparison Schedules for the General Fund and Major Sp ecial Revenue Funds, the Schedules of the City’s Proportionate Share of Net Pension Liability and Related Ratios, the Schedules of the City’s Contributions – Pensions, the Schedules of Changes in Net Other Postemployment Benefits Liability and Related Ratios, and the Schedule of the City’s Contributions – Other Postemployment Benefits, which are required supplementary information (“RSI”) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the informa tion for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI.

354
To the Honorable Mayor and the Members of the City Council of the City of Hercules
Hercules, California

We were engaged to report on the Combining and Individual Nonmajor Fund Financial Statements which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves.

We were not engaged to report on the Introductory and the Statistical Sections, which accompany the financial statements but are not RSI. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on it.

Restriction on Use
This information is intended solely for the information and use of the City Council and management of the City and is not intended to be, and should not be, used by anyone other than these specified parties.

Very truly yours,

Santa Ana, California
355

CITY OF HERCULES
1 Presentation to the City Council
For the Fiscal Year Ended June 30, 2025
January 27, 2026
356
2 Contents
• Scope of Work
• Required Communications (AU-C 260)
• Overview of Financial Statements and Financial Indicators • Key Pensions and Other Postemployment Benefits Information • Financial Audit Results
357
3 Scope Of Work
358
4 Scope Of Work
• Audit of the Annual Comprehensive Financial Report
• Audit of the Hercules Wastewater Fund
• Report on internal control over financial reporting and on compliance in accordance with Government Auditing Standards
• Agreed Upon Procedures:
•
GANN Limit
• Measure B – Transactions and Use Tax Revenues
• Measure N – Utility Users Tax Rate Revenues
359
5 Required Communications (AU-C 260)
360
6 Required Communications (AU-C 260)
• Ethics and Independence
• Complied with ALL relevant ethical requirements regarding independence • Significant Accounting Policies
• The District disclosed all significant accounting policies in Note 1 to the financial statements. • Significant Estimates
• Investment fair value
•
Depreciation and amortization on capital assets
• Net pension liability
• Net other postemployment benefits (“OPEB”) liability
• Compensated absences (GASB No. 101)
361
7 Required Communications (AU-C 260)
• Sensitive Disclosures
• Note 1 - Summary of Significant Accounting Policies
•
Note 8 – Retirement Plans
• Note 10 – Other Postemployment Benefits
• Note 12 – Commitments and Contingencies
• Note 14 – Stewardship, Compliance, and Accountability • Note 17 – Restatement
• Misstatements
• There were no material uncorrected misstatement.
362
8 Required Communications (AU-C 260)
• Consultation with Other Accountants
• Management informed us that, and to our knowledge, there were no consultations with other accountants regarding
auditing and other matters.
• Significant Difficulties
• We encountered no significant difficulties in dealing with management. • Disagreement with Management
• We did not have any disagreement with management in terms of accounting treatments nor audit procedures per
formed.
363
9 Overview Of The Financial Statements
and Financial Indicators
364
10 City of Hercules
Government-Wide Statement of Net Position
June 30, 2025
Governmental Business-Type
Activities Activities Total
Assets 136,090,000$ 66,829,000$ 202,919,000$
Deferred Outflows of Resources 6,745,000 332,000 7,077,000 Liabilities 48,115,000 28,406,000 76,521,000
Deferred Inflows of Resources 11,218,000 158,000 11,376,000 Net Position:

Net investment in capital assets 58,085,000 23,530,000 81,615,000 Restricted 16,610,000 17,000 16,627,000 Unrestricted 8,807,000 15,050,000 23,857,000 Total Net Position 83,502,000$ 38,597,000$ 122,099,000$ 365
11 City of Hercules
Government-Wide Statement of Activities
For the Year Ended June 30, 2025
Governmental Business-Type
Activities Activities Total
Program Revenues 10,745,000$ 6,330,000$ 17,075,000$ Expenses 31,066,000 5,487,000 36,553,000
Net Cost of Services (20,321,000) 843,000 (19,478,000) General Revenues 19,930,000 905,000 20,835,000 Changes in Net Position (391,000)$ 1,748,000$ 1,357,000$ 366
12 City of Hercules
Governmental Activities
Cost of Services to Tax Revenues
For the Years Ended June 30, 2025 and 2024
2025 2024
Cost of Services 20,321,000$ 17,708,000$
Tax Revenues 14,277,000 13,343,000
Ratio 142% 133%
367
13 City of Hercules
General Fund Summary
Fund Balance
June 30, 2025 and 2024
2025 2024 Change
Fund Balance:

Nonspendable 1,263,000$ 1,322,000$ (59,000)$ Restricted 2,643,000 2,392,000 251,000 Committed 7,885,000 7,884,000 1,000
Assigned 7,139,000 8,595,000 (1,456,000) Unassigned 13,802,000 14,755,000 (953,000) Total Fund Balance 32,732,000$ 34,948,000$ (2,216,000)$ 368
14 City of Hercules
General Fund Summary
Revenues, Expenditures and Changes in Fund Balance
For the Years Ended June 30, 2025 and 2024
2025 2024 Change
Revenues 21,780,000$ 20,329,000$ 1,451,000$ Expenditures (20,668,000) (18,245,000) (2,423,000) Revenues over Expenditures 1,112,000 2,084,000 (972,000) Other Financing Sources (Uses) (3,328,000) (1,014,000) (2,314,000) Change in Fund Balance (2,216,000)$ 1,070,000$ (3,286,000)$ 369
15 City of Hercules
General Fund
Unassigned Fund Balance to Annual Expenditures
For the Years Ended June 30, 2025 and 2024
2025 2024
Unassigned Fund Balance 13,802,000$ 14,755,000$
Annual Expenditures 20,668,000 18,245,000
Ratio 67% 81%
Committed/Assigned/Unassigned
Fund Balance 28,825,000$ 31,234,000$
Ratio 139% 171%
370
16 Key Pension and OPEB Information
371
17 Net Pension Liability – Misc. Plan
2025 2024
Plan Total Pension Liability 38,127,000$ 35,724,000$ Plan Fiduciary Net Position (28,639,000) (26,171,000) Net Pension Liability 9,488,000$ 9,553,000$
Funding Ratio 75% 73%
Contibution Made During the Fiscal Year 1,042,000$ 891,000$ 372
18 Net Pension Liability – Safety Plan
2025 2024
Plan Total Pension Liability 47,839,000$ 45,007,000$ Plan Fiduciary Net Position (36,311,000) (33,264,000) Net Pension Liability 11,528,000$ 11,743,000$ Funding Ratio 76% 74%
Contibution Made During the Fiscal Y ear 1,474,000$ 1,262,000$ 373
19 Net Pension Liability – PEHMCA Plan
2025 2024
Plan Total OPEB Liability 2,768,000$ 2,618,000$ Plan Fiduciary Net Position (3,122,000) (2,889,000) Net OPEB Asset (354,000)$ (271,000)$
Funding Ratio 113% 110%
Contibution Made During the Fiscal Year 88,000$ 87,000$ 374
20 Net Pension Liability – SOMAR Plan
2025 2024
Plan Total OPEB Liability 1,931,000$ 1,905,000$ Plan Fiduciary Net Position - - Net OPEB Liability 1,931,000$ 1,905,000$
Funding Ratio 0% 0%
Contibution Made During the Fiscal Year 49,000$ 49,000$ 375
21 Financial Audit Results
376
22 Audit Results
• Financial Statements
• Unmodified Opinion
• Financial Statement s are fairly presented in all material respects • Significant accounting policies have been consistently applied • Estimates are reasonable
• Disclosures are properly reflected in the financial statements • Agreed Upon Procedures – GANN, Measure B, and Measure N • No exceptions wer e noted
• Other Results
• No disagreements w ith management
• No material weaknesses in internal controls over financial reporting were reported • No accounting issues
377

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23 378

DISCUSSION AND/OR ACTION ITEM

AGENDA ITEMS

2. 26-004
379

STAFF REPORT TO THE CITY COUNCIL

DATE: Regular Meeting of January 27, 2026
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Glenn Dombeck, Public Works Director
SUBJECT: Execute a Professional Services Agreement with BKF Engineers, Inc. to provide Construction Management, Inspection and Quality Assurance Testing Services for the Refugio and Foxboro Park Improvements Project
RECOMMENDED ACTION:

Adopt a Resolution authorizing the City Manager to execute a Professional Services Agreement with BKF Engineer s, Inc. ( BKF) to provide Construction Management, Inspection and Quality Assurance Testing Services for the Refugio and Foxboro Park Improvements Project for a Total Cost of $193,070.

BACKGROUND:

The facility improvements included in this project will improve the public’s experience in Refugio and Foxboro P arks, while extending the lifespan of key assets and reducing future maintenance costs. The work at Refugio Park includes installation of prefabricated shade structures provided by the City, paving and concrete work, new site furniture, accessible parking enhancements and new sod and landscape planting. An alternate bid item was included for provision of a Type II slurry seal on the parking lot and entrance road.

The work at the Foxboro Park basketball court includes new asphalt paving around the perimeter of the existing basketball court, seal coat and court striping of the entire basketball court and new basketball standards. The existing playground equipment and surfacing will be demolished and disposed, new drainage fill and resilient surfacing installed, and new playground structures provided by the City will be installed. 380

Bids for construction of the improvements were received on Tuesday, December 16, 2025, with Frontline General Engineering Construction, Inc. (Frontline) having submitted the low bid, including the alternate bid item to slurry seal the Refugio Valley Park parking lot, in the amount of $ 895,814.00. At the January 13, 2026 City Council meeting, t he construction contract for the project was awarded to Frontline and the City Council also determined that the Project was ex empt from California Environmental Quality Act (“CEQA”) review pursuant to CEQA Guidelines section 15301 for work related to existing facilities. Construction is anticipated to take approximately three months following notice to proceed.

Construction management for this project is needed to handle contract administration, invoicing, inspections, quality assurance testing services and management of the project through the closeout phase.

ANALYSIS:

To ensure uninterrupted support throughout construction of the Refugio and Foxboro Park Improvements Project , staff requested proposal s from three firms on the pre -qualified engineering vendor list. Only one firm, BKF , provided a quote for the construction management services. BKF’s proposal is based on a subconsultant, MNS Engineers, Inc. (MNS), providing the construction management services, with project management oversight by BKF. MNS is a multiservice infrastructure consulting firm with offices across California including a local Oakland office , specia lizing in planning, engineering, construction management, and land surveying services. BKF/MNS’s scope of work includes:

 Construction Management
 Inspection Services
 Post-Construction Closeout
 Quality Assurance and Laboratory Testing (provided by Inspection Services, Inc.)

The professional services will be provided on an as -needed basis under a time -and- expense agreement, not to exceed $193,070.00. MNS’s services will include a part time Resident Engineer, full or part time inspector depending on the activity on the project, and material testing. Inspection Services , Inc (ISI), a testing firm based in Berkeley , will perform testing on an as -needed basis. MNS will report directly to the City of Hercules Project Manager, and will coordi nate with the contractor, and City staff as needed. The City’s Inspector will shadow the Consultant Inspectors on this project to facilitate their exposure to larger construction activities and provide training on the role and function of inspection services.

381
The project duration is approximately 70 working days for the Refugio Park improvements and 56 days for the Foxboro Park improvements. It is anticipated that the Inspector will conduct spot checks of benchmark items and full inspections of critical operations, including paving, concrete work, striping, and slurry seal treatments. The turf and plant establishment and maintenance periods associated with the project have been excluded from BKF/MNS’s scope, as the City maintenance staff will oversee these items.

ENVIRONMENTAL REVIEW:

The City Council previously determined that the Project is exempt from CEQA review pursuant to CEQA Guidelines section 15301 which allows minor alterations to existing facilities without further review. Award of this professional services agreement for construction management services is within the scope of that Project and will not result in additional or new impacts as Frontline will be implementing the Project as approved.

FISCAL IMPACT:

The proposed budget for the Refugio and Foxboro Park Improvement Project is as follows:

Funding Sources:

General Fund/Capital Reserves $1,037,136.00
Community Development Tax $170,000.00
Total Revenue $1,207,136.00
Expenditures accounts:

Construction Contract $ 895,814.00
10% Contingency $ 89,581.40
Engineering Services During Construction $193,070.00 Total Expenditures $1,178,465.40
This project was identified in the 2025 Capital Improvement Program along with other Facilities and Parks improvements. In preparation for the anticipated cost, funding has been designated from the General Fund/Capital Reserves and Community Development Tax funds to secure the necessary financial resources . Due to this proactive financial strategy, adequate funding exists to cover the expenses associated with this contract, which is incorporated into the adopted budget for the FY 2025-26.

382
ATTACHMENTS:

Attachment 1 - Resolution
Attachment 2 – Professional Services Agreement with BKF Engineers for proposal for Construction Management, Inspection and Materials Testing Services for the Refugio and Foxboro Park Improvements Project

383

HERCULES CITY COUNCIL
RESOLUTION NO. _________

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HERCULES ,

CALIFORNIA, AUTHORIZING THE CITY MANAGER TO EXECUTE A
PROFESSIONAL SERVICES AGREEMENT WITH BKF ENGINEER S, INC. TO

PROVIDE CONSTRUCTION MANAGEMENT, INS PECTION AND QUALITY

ASSURANCE TESTING SERVICES FOR THE REFUGIO AND FOXBORO PARK IMPROVEMENTS PROJECT FOR A TOTAL COST OF $193,070.

WHEREAS, On December 16, 2025, the City received bids for the Refugio and Foxboro Park Improvements Project (“Project”), wit h Frontline General Engineering Construction, Inc. submitting the low bid, inclusive of the alternate bid item; and

WHEREAS, on January 13, 2026, the City Council awarded the project construction contract to Frontline General Engineering Construction Inc. and determined that the Project was exempt from review under the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15301 (existing facilities); and

WHEREAS, The City anticipates need for BKF Engineer’s services to support management of the construction for this project inclusive of Construction Management, Inspection Services, Post -Construction Closeout and Quality Assurance and Laboratory Testing; and

WHEREAS, There is sufficient funding in the Adopted FY 2025 -26 Budget to fully fund the construction and construction management services; and

NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Hercules as follows:

1. The City Council hereby finds that award of the Professional Services Agreement for constructio n management services is within the scope of the Project and does not require further environmental review under CEQA.

2. The City Council hereby authorizes the City Manager to execute a Professional Services Agreement with BKF Engineers, Inc. to provide Construction Management, Inspection and Quality Assurance Testing Services for the Refugio and Foxboro Park Improvements Project for a Total Cost of $193,070.

The foregoing Resolution was duly and regularly adopted at a regular meeting of the City Council of the City of Hercules held on the 27th day of January, 2026 by the following vote of the Council:

AYES:

NOES:
384

ABSTAIN:

ABSENT:

____________________________
Chris Kelley, Mayor

ATTEST:

________________________________
Eibleis Melendez, City Clerk
385

Professional Services Agreement Agreement No. <________> City Attorney Approved, 03112024 Council Resolution No. <________>] Refugio and Foxboro Park Improvements
Project No. 63061, PR2501, 63088

CITY OF HERCULES

PROFESSIONAL SERVICES AGREEMENT

This Agreement (“Agreement”) for professional services is made on January 27, 2027, between the City of Hercules, a California municipality (“City”), and BKF Engineers, a corporation (“Consultant”) (individually, a “Party,” and collectively, the “Parties”).

1. Scope of Services. Consultant will provide to City the professional services described in the Scope of Services, attached as Attachment A and incorporated in this Agreement (the “Services”). Only the City Council or the City Manager may authorize any change or addition to the Scope of Services specified in Attachment A.

2. Term. This Agreement will become effective on January 27, 2027 (“Effective Date”), and will terminate upon the full and satisfactory completion of the Services or as otherwise specified in Attachment A, unless terminated sooner in accordance with Section 10 of this Agreement. Time is of the essence with respect to all provisions of this Agreement that specify a time for performance.

3. Compensation. For the full and satisfactory completion of the Services, City will pay Consultant in an amount not to exceed (ONE HUNDRED NINETY-THREE THOUSAND SEVENTY DOLLARS $193,070.00), without prior written authorization by City , pursuant to the terms set forth in Attachment B on Payment, which is attached to and incorporated in this Agreement. Consultant’s compensation is intended to encompass all costs required for performing the Services, including overhead and indirect costs. Except as expressly provided in Attachment B, Consultant will not be entitled to reimbursement for expenses it incurs to provide the Services.

3.1 Payment. City will pay Consultant for Services satisfactorily provided during each calendar month within 30 days following City receipt and approval of a detailed invoice. The invoice must include, at a minimum: a description of the specific Services provided; the name of the individual providing the Services; the date(s) upon which the Services were provided; the time spent providing the Services; the amount due for the Services ; and the basis for calculating the amount due.

3.2 Additional Services. If the City requests related services beyond the Scope of Services described in Attachment A, the Consultant will provide City a written estimate for the additional services (“Additional Services”). Consultant will not provide Additional Services until Consultant has received written authorization from the City to perform the Additional Services .

Consultant will not be entitled to payment for Additional Services performed without City’s prior written authorization or for costs to correct Consultant’s errors or omissions.

4. Independent Contractor. The Parties agree that Consultant will act as an independent contractor under this Agreement and will have control of its work and the manner in which the Services are performed. Consultant is not an employee of City and is not entitled to participate in any health, retirement, or similar employee benefits from the City.

Agreement No.__________
Council Resolution No.__________
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5. Consultant’s Warranties.

5.1 Consultant warrants that all Services provided under this Agreement will be performed in accordance with generally accepted professional practices and standards for Consultant’s profession in the Bay Area.

5.2 Consultant warrants that all Services provided under this Agreement will be performed in accordance with applicable federal, state, and local laws and regulations, including, but not limited to, conflict of interest laws and City ordinances and policies.

5.3 Consultant warrants that Consultant has no present interest which would conflict in any manner with the performance of Services on the City’s behalf.

5.4 Consultant warrants that it will comply with the City’s Nepotism and Cronyism Policy (Hercules Municipal Code § 2-3.401 et seq.) and the City’s California Equal Pay Act Compliance Policy (Hercules Municipal Code § 2-3.501 et seq.).

6. Notice. Any notice, billing, or payment required by this Agreement must be made in writing, and sent to the other P arty by personal delivery, U.S. Mail, a reliable overnight deliv ery service, or by e mail as a PDF (or comparable) file. Notice is effective upon delivery unless otherwise specified. Notice for each Party will be given as follows:

City: Consultant:

City of Hercules Name: BKF Engineers
111 Civic Drive Address: 1646 N. California Blvd.

Hercules, CA 94547 Suite 400 Walnut Creek, CA 94596
(510) 799-8200 Phone: (925) 940-2200
Attn: City Clerk Attn: Jason White
[email protected]
Copy to: Glenn Dombeck, P.E. Copy to: Jeff Munzer
Email: [email protected] Email: [email protected]

7. Indemnity. Subsection 7.1 is not applicable to this Agreement if Consultant’s Services are “design professional” services as that term is used and defined in Civil Code section 2782.8.

Subsection 7.2 is applicable to this Agreement if Consultant’s Services are “design professional” services as used and defined in Civil Code section 2782.8.

7.1 T o the full extent permitted by law, Consultant will indemnify, defend with counsel acceptable to City, and hold harmless City, its governing body, officers, agents, employees, and volunteers (collectively, “City Indemnitees”) from and against any and all liability, demands, loss, damage, claims, settlements, expenses, and costs (including, without limitation, attorney fees, expert witness fees, and costs and fees of litigation) (collectively, “ Liability”) of every nature arising out of or in connection with Consultant’s acts or omissions with respect to this Agreement, except such Liability caused by the active negligence, sole negligence, or willful misconduct of any of the City Indemnitees. This indemnification obligation is not limited by any limitation on the amount or type of damages or compensation payable under Workers’ Compensation or other employee benefit acts, or by insurance coverage limits, and will survive the expiration or early 387

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termination of this Agreement. This Subsection 7.1 does not apply if the Services to be provided under this Agreement are design professional services provided by a licensed architect, landscape architect, professional engineer, or professional land surveyor.

7.2 To the full extent permitted by law, Consultant will indemnify, defend, and hold harmless City, its City Council, officials, officers, agents, employees, and volunteers from and against any and all liability, loss, damage, claims, expenses and costs (including, without limitation, attorney fees and costs and fees of litigation) (collectively, “ Liability”) of every nature which arises out of, pertains to, or relates to the negligence, recklessness, or willful misconduct of Consultant in the performance of this Agreement, except such Liability caused by the active negligence, sole negligence or willful misconduct of City. This indemnification obligation is not limited by any limitation on the amount or type of damages or compensation payable under Workers’ Compensation or other employee benefit acts, or by insurance coverage limits, and will survive the expiration or early termination of this Agreement. This Subsection 7.2 is applicable if the Services to be provided under this Agreement are design professional services provided by a licensed architect, landscape architect, professional engineer, or professional land surveyor.

8. Insurance. Before providing any Services under this Agreement, Consultant is required to procure and provide proof of the insurance coverage required by this Section in the form of certificates and endorsements. Each certificate of insurance must state that the coverage afforded by the policy or policies will not be reduced, cancelled or allowed to expire without at least 30 days written notice to City, unless due to nonpayment of premiums, in which case at least 10 days written notice will be made to City. The required insurance must cover the activities of Consultant and its employees or subcontractors relating to or arising from the performance of the S ervices, and must remain in full force and effect at all times during the term of the Agreement. All required insurance must be issued by an insurer licensed to do business in the State of California, and each such insurer must have an A.M. Best financial strength rating of “A” or better and a financial size rating of “VIII” or better. If Consultant fails to provide any of the required coverage, City may, at its sole discretion, purchase such coverage at Consultant’s expense and deduct the cost from payments due to Consultant.

8.1 The following insurance policies and limits are required for this Agreement:

8.1.1 Commercial General Liability Insurance (“CGL”) . CGL insurance issued on an occurrence basis, including coverage of liability arising from Consultant’s acts or omissions in the performance of Services under this Agreement, with limits of at least $1,000,000.00 per occurrence.

8.1.2 Automotive. Commercial automotive liability coverage for owned, non- owned and hired vehicles must provide coverage of at least $1,000,000.00 combined single limit per accident for bodily injury, death, or property damage.

8.1.3 Workers’ Compensation Insurance and Employer’s Liability. The policy must comply with the requirements of the California Workers’ Compensation Insurance and Safety Act, with limits of at least $1,000,000.00. If Consultant is self- insured, Consultant must provide its duly authorized Certificate of Permission to Self-Insure.

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8.1.4 Professional Liability. This in surance must insure against Consultant ’s errors and omissions in the provision of S ervices under this Agreement, in an amount no less than $1,000,000.00 combined single limit.

8.2 Subrogation Waiver. Each required policy must include an endorsement that the insurer agrees to waive any right of subrogation it may have against City or the City’s insurers.

8.3 The CGL policy and the automotive liability policy must include the following endorsements:

(1) The City, including its Council, officials, officers, employees, agents, volunteers and consultants (collectively, “ Additional Insured”) must be named as an additional insured for all liability arising out of the operations by or on behalf of the named insured, and the policy must protect the Additional Insured against any and all liability for personal injury, death or property damage or destruction arising directly or indirectly in the performance of the Agreement.

(2) The inclusion of more than one insured will not operate to impair the rights of one insured against another, and the coverages afforded will apply as though separate policies have been issued to each insured.

(3) The insurance provided is primary and no insurance held or owned by City will be called upon to contribute to a loss.

(4) Any umbrella or excess insurance must contain or be endorsed to contain a provision that such coverage will also apply on a primary or non-contributory basis for the benefit of City before the City’s own insurance or self -insurance will be called upon to protect it as a named insured.

9. Dispute Resolution. In the event that any dispute arises between the Parties in relation to this Agreement, the Parties agree to meet face to face as soon as possible to engage in a good faith effort to resolve the matter informally. In the event that any dispute arises between the Parties in relation to this Agreement, and the dispute is not resolved by informal discussions, the Parties agree to submit the dispute to mediation.

9.1 Either Party may give written notice to the other Party of a request to submit a dispute to mediation, and a mediation session must take place within 60 days after the date that such notice is given, or sooner if reasonably practicable. The Parties will jointly appoint a mutually acceptable mediator. The Parties further agree to share equally the costs of the mediation, except costs incurred by each Party for representation by legal counsel.

9.2 Good faith participation in mediation pursuant to this Section is a condition precedent to either Party commencing litigation in relation to the dispute.

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10. Early Termination.

10.1 Termination for Convenience. City may terminate this Agreement for convenience by giving 10 calendar days written notice to Consultant. In the event City elects to terminate the Agreement without cause, it will pay Consultant for Services satisfactorily provided up to that date.

10.2 Termination for Cause. If either Party breaches this Agreement by failing to timely or satisfactorily perform any of its obligations or otherwise violates the terms of this Agreement, the other Party may terminate this Agreement by giving written notice five calendar days prior to the effective date of termination, specifying the reason and the effective date of the termination.

Consultant will be entitled to payment for all Services satisfactorily provided up to the effective date of termination, except that the City may deduct from that payment the amount of costs the City incurred, if any, because of Consultant’s breach of the Agreement.

11. Work Product. City will be the sole owner of all rights to any work product in any form which has been prepared by Consultant on City ’s behalf pursuant to this Agreement, unless otherwise specified in writing by the Parties.

12. Records. Unless otherwise specified in Attachment A, C onsultant will maintain records related to this Agreement for a period of four years from expiration or termination of this Agreement, including records of the Services performed, on a daily basis if necessary.

Consultant’s accounting systems will conform to generally accepted accounting principles, and all records will provide a breakdown of total costs charged under this Agreement, including properly executed payrolls, time records, invoices, and vouchers. Consultant will permit City to inspect and examine Consultant’s books, records, accounts, and any and all data relevant to this Agreement at any reasonable time.

13. General Provisions.

13.1 Assignment and Successors. Consultant may not assign its rights or obligations under this Agreement, in part or in whole, without City’s written consent. This Agreement is binding on Consultant’s and City’s lawful heirs, successors, and permitted assigns.

13.2 Third Party Beneficiaries. There are no intended third-party beneficiaries to this Agreement.

13.3 Nondiscrimination. Consultant will not discriminate in the employment of persons under this Agreement because of race, color, ancestry, national origin, religion, sex, marital status, age, medical condition, disability, or other prohibited basis. All nondiscrimination rules or regulations required by law to be included in this Agreement are incorporated by this reference.

13.4 Restrictions on Nepotism and Cronyism . Consultant must comply with the regulations adopted by the City to avoid favoritism or discrimination in the award of contracts, as set forth in section 2 -3.401 et seq. of the City’s Municipal Code. Consultant must complete the “Contractor Acknowledgment of City of Hercules Nepotism and Cronyism Policy,” using the form attached as Attachment C to this Agreement, and submit a fully executed copy with the executed Agreement.

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Project No. 63061, PR2501, 63088

13.5 Compliance with the California Equal Pay Act. Consultant must comply with the regulations adopted by the City to allow for verification of Consultant compliance with the requirements of the California Equal Pay Act, as set forth in section 2-3.501 et seq. of the City’s Municipal Code. Consultant must complete the “Contractor Acknowledgment of Compliance with the California Equal Pay Act,” using the form attached as Attachment D to this Agreement, and submit a fully executed copy with the executed Agreement.

13.6 Choice of Law and Venue. This Agreement will be governed by California law, and venue will be in the Superior Court of Contra Costa County, and no other place.

13.7 Integration. This Agreement and the documents incorporated in this Agreement constitute the final, complete, and exclusive terms of the agreement between the City and the Consultant.

13.8 Severability. If any provision of this Agreement is determined to be illegal, invalid, or unenforceable, in part or in whole, the remaining provisions of the Agreement will remain in full force and effect.

13.9 Amendment. No amendment or modification of this Agreement will be binding unless it is in a writing duly authorized and signed by the Parties to this Agreement.

13.10 Provisions Deemed Inserted. Every provision of law required to be inserted in this Agreement will be deemed to be inserted, and this Agreement will be construed and enforced as though included. If it is discovered that through mistake or otherwise that any required provision is not inserted, or not correctly inserted, this Agreement will be amended to make the insertion or correction.

13.11 Precedence. If any provision in any document attached to or incorporated in this Agreement conflicts with or is inconsistent with the provisions set forth in the body of this Agreement, the provisions set forth in the body of this Agreement will control over any such conflicting or inconsistent provisions.

13.12 Waiver. No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this Agreement will be effective unless it is in writing and signed by the P arty waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy will be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, nor will any waiver constitute a continuing waiver unless the writing so specifies.

13.13 Force Majeure. If either Party is delayed or hindered in or prevented from the performance of any act required under this Agreement because of strikes, lockouts, inability to procure labor or materials, failure of power, riots, insurrection, war, fire or other casualty, or other reason beyond the reasonable control of the P arty delayed, excluding financial inability (“ Force Majeure Event”), performance of that act will be excused for the period during which the Force Majeure Event prevents such performance, and the period for that performance will be extended for an equivalent period. Delays or failures to perform resulting from lack of funds will not be Force Majeure Events.

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13.14 Headings. The headings in this Agreement are included for convenience only and will not affect the construction or interpretation of any provision in this Agreement or any of the rights or obligations of the Parties to this Agreement.

13.15 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which will be an original, but all of which together will constitute one instrument.

13.16 Authorization. Each individual signing below warrants that he or she is authorized to do so by the Party that he or she represents, and that this Agreement is legally binding on that Party. If Consultant is a corporation, signatures from two officers of the corporation are required pursuant to California Corporation Code section 313.

[Signature page follows.]

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Professional Services Agreement Agreement No. <________> City Attorney Approved, 03112024 Council Resolution No. <________>] Refugio and Foxboro Park Improvements
Project No. 63061, PR2501, 63088

The Parties agree to this Agreement as witnessed by the signatures below:

CITY: Approved as to form:

s/_______________________________ s/__________________________________

________________________________ ___________________________________ Dante Hall, City Manager Christie Crowl, City Attorney

Date: ___________________________ Date: ______________________________

Attest:

s/_______________________________

_________________________________
Eibleis Melendez, City Clerk

Date: ___________________________

CONSULTANT: BKF Engineers
Business Name

s/_______________________________

_________________________________
Name/Title

Date: ____________________________

s/_______________________________

_________________________________
Name/Title

Date: ____________________________

Attachments:

Attachment A: Scope of Services
Attachment B: Payment
Attachment C: Contractor Acknowledgment of City of Hercules Nepotism and Cronyism Policy Attachment D: Contractor Acknowledgment of Compliance with the California Equal Pay Act 393
Attachment A

SCOPE OF SERVICES
City of Hercules
Construction Management for Refugio and Foxboro Park Improvement Project

Professional Services Agreement Agreement No. <________ > City Attorney Approved, 03112024 Scope of Services
Refugio and Foxboro Park Improvements
Project No. 63061, PR2501, 63088

SCOPE OF SERVICES

The Refugio Park Improvements include demolition of existing site elements, earthwork, installation of city furnished pre -fabricated shade structures, concrete work, accessible parking spaces, pathways, striping, installation of site furniture, landscape, irrigation and maintenance, plus a bid alternative for parking lot slurry seal treatment. The Foxboro Park Improvement Project consists of Basketball and Playground Upgrades including site demolition, asphalt paving and seal coat for a replacement basketball court, striping, painting of existing basketball posts, drainage, new playground surfacing, installation of city furnished play equipment and fencing.

These facility improvements will improve the public’s experience in these parks, while extending the lifespan and reducing future maintenance costs.

Based on the Project Understanding, MNS’ services will include a part time Resident Engineer, full or part time inspector, and material testing. We have enlisted Inspection Services Inc (ISI), a local testing firm, to perform testing on an as-needed basis. MNS will report directly to the City of Hercules Project Manager, and will coordinate with the contractor, and City staff as needed. Below is a scope of work related to the described project tasks above.

Task 1 Preconstruction

MNS will meet with the City after the awards of the individual contracts to establish lines of communication and preferred protocols to meet the needs of the City.

MNS will assist the City in setting up these projects on MNS’ CMIS document control web based platform. We will ensure that all parties involved have access to CMIS as needed.

Our Resident Engineer, David Franco, will work with the City to set up and run a preconstruction meeting prior to construction starting. After the preconstruction meeting Mr. Franco will work with the Contractor and City staff to get their required traffic control plans through the City’s process.

While the traffic control is being reviewed Mr. Franco will coordinate the review all the submittals for the project with the project designers and architects and make sure that everything is ready for the work once it starts.

The work will require schedules for each of the operations. This schedule will need to be reviewed and approved prior to the start of work, this schedule will also dictate when notices need to be sent out for each area. These notifications and the dates they are sent out will be tracked to ensure compliance with the Specifications.

Task 2 Construction Inspection

The Construction Inspectors will inspect the work to verify it is being performed in accordance with the contract documents. The Construction Inspector’s responsibilities will also include:

• Daily periodic inspection of contractor’s work
• Monitoring the Contractor’s Traffic Control in conjunction with City staff 394
Attachment A

SCOPE OF SERVICES
City of Hercules
Construction Management for Refugio and Foxboro Park Improvement Project

Professional Services Agreement Agreement No. <________ > City Attorney Approved, 03112024 Scope of Services
Refugio and Foxboro Park Improvements
Project No. 63061, PR2501, 63088
• Daily inspection reports
• Track item quantities
• Verify materials incorporated into the project meet contract requirements • Coordination with City staff, contractor
• Coordinate with the our materials testing consultant, ISI, to ensure proper testing is being done
• Photo documentation
• Punchlist
• As-Built Documentation

During construction, the Resident Engineer will be working with the Inspectors to ensure that the quantities are being tracked and documented. These quantity sheets will be used to generate a monthly pay estimate.

If there is any unforeseen work that arises, the inspectors will document the work and Mr. Franco will bring it to the attention of the city with a recommendation, if a change is warranted. If warranted, Mr. Franco will put together a Contract Change Order to pay for this work. Mr. Franco will also review any RFI’s, and pass them on to the appropriate responsible party.

Task 3 Closeout

At the end of the project, Mr. Franco will put together a proposed final estimate for final payment to the contractor. He will ensure that all final documentation has been collected and stored in CMIS for archiving.

Schedule

The project duration is approximately 70 and 56 working days, for the Refugio and Foxboro Park Improvements, respectively, and it is anticipated that the Inspector will be required on a part time basis, performing spot check on benchmark items, with full time inspection of critical operations such as paving, concrete work, striping, and slurry seal treatments.

For the sake of the proposal, we have not included costs associated with the plant establishment and maintenance periods at Refugio Park, assuming city maintenance and parks staff will monitor these items. This work can be added to our scope upon request or amendment.

395
Attachment B

PAYMENT
City of Hercules
Construction Management for Refugio and Foxboro Park Improvement Project

Professional Services Agreement Agreement No. <________ > City Attorney Approved, 03112024 Payment
Refugio and Foxboro Park Improvements
Project No. 63061, PR2501, 63088
Schedule and Fee

MNS proposes to provide construction inspection services as outlined in the Scope of Work (See Attachment A) on a time and materials not-to-exceed basis. The estimated cost of services is shown in the attached Cost Proposal. The actual costs billed to the City will be on actual time spent. Based upon the City’s anticipated construction duration listed in Attachment A, with additional time for start-up and closeout, MNS estimates that the total fee for construction management services for this project is $169,570.00 for the Refugio & Foxboro Parks Improvements Projects. Please note that the fee is an estimate; the actual costs may fluctuate depending on the contractor’s actual operation, changes in scope, and/or the length of time requested by the City to complete this project.

Additional fees of $17,000 and $6,500 is applied to this work to account for BKF project management costs and reimbursable allowance, respectively. The total project not-to-exceed fee is $193,070.

For tasks requested by the City not defined in this Scope of Services, BKF will identify them as potential Additional Services. We can provide a scope and fee for these items or they may be tracked separately as Additional Services and billed on a time and materials per our attached rate schedule.

396
Attachment B

PAYMENT
City of Hercules
Construction Management for Refugio and Foxboro Park Improvement Project

Professional Services Agreement Agreement No. <________ > City Attorney Approved, 03112024 Payment
Refugio and Foxboro Park Improvements
Project No. 63061, PR2501, 63088
Fee Proposal for MNS Engineer’s Construction Management Services for the Refugio and Foxboro Park Improvements Project

397

DISCUSSION AND/OR ACTION ITEM

AGENDA ITEMS

3. 26-001
398

STAFF REPORT TO THE CITY COUNCIL

DATE: Regular Meeting of January 27, 2026

TO: Mayor and Members of the City Council

VIA: Dante Hall, City Manager

SUBMITTED BY: Tim Rood, Community Development Director

SUBJECT: “Shop Hercules” Yiftee Gift Card program

RECOMMENDED ACTION:

Receive a report on the “Shop Hercules” Yiftee Gift Card program, ask any questions, take public comment, and provide any comments or direction to staff on continuation of the Yiftee Gift Card program.

BACKGROUND:

Following the COVID-19 pandemic, the City implemented a Yiftee Community Digital Gift Card program as a way to stimulate the local economy and assist small businesses in recovery. The program provides bonus cards that yield additional savings to card purchasers who shop locally. To date, the City has matched each card purchase with a free gift card of equal amount.

Yiftee gift cards are virtual credit cards that are ordered and paid for online and emailed to the buyer. To redeem the cards, us ers present merchants with their Yiftee credit card number, expiration date, and 3-digit authorization code, and the merchant types all this information into their Point -of-Sale device. Users can view their remaining card balance online. Transaction s that exceed the remaining card balance are declined, which can make it difficult to redeem the full card balance unless the user knows the exact balance remaining and can persuade the merchant to split their purchase into two credit card transactions. Beginning in June 2025, Yiftee has begun implementing tap-to-pay (allowing users to load their virtual cards into their ApplePay or Google Wallet), which will make them considerably easier to use for both merchants and customers. 399

To date, the City has allocated a total of $165,000 in gift card funding, as well as approximately $1,525 for the economic development consultant that assists the City with the program, HdL ECONSolutions. The City Council allocated Yiftee funding in the amounts of $65,000 in July 2022, $75,000 in March 2023, and $25,000 in November 2023.

To date, the City has also opted to pay 100% of Yiftee’s transaction fees for issuing the cards, which come to $1 per card plus 5% of the card value for non -bonus cards. For example, a user purchasing a $100 card would receive a free $100 bonus card, and the City would incur fees of $7.50 on the transaction ($1 for each card plus 5% of the customer-purchased card value) These fees are deducted from the available bonus card funding as cards are purchased. As of July 2025, $10,711 had been deducted in fees.

Pinole and Rodeo currently each have a Yiftee program in place. The City-funded “Pinole Perks” program provides a 25% bonus and has $25,000 in funding released at intervals throughout this fiscal year. The “Rodeo Rewards” program, which is funded by the Phillips 66 Rodeo Renewed Project Community Benefits Agreement through a County grant to the Bay Front Chamber, provides a 50% bonus and also has $25,000 in funding.

ANALYSIS:

At its October 15, 2025 meeting, the Council’s Economic Development Subcommittee received a report on the Yiftee program and requested that this item be brought to the full Council for discussion.

At the Subcommittee meeting, staff had recommended a maximum card value of $100 and a maximum of 2 card purchases per user per quarter. Following the Subcommittee meeting, Yiftee representatives confirmed that current Yiftee guidelines allow only one card purchase per user per round of funding and recommended that the maximum card value be increased to $200 to provide the same value proposition to the user.

Card Usage
Staff analysis of Yiftee redemption data through July 2025 found that following each round of funding, cards were purchased and redeemed almost entirely within the following two months. (Customer-purchased cards do not expire, but the bonus gift cards expire after 120 days.) A total of 522 unique buyers purchased 1,420 cards and received 1,384 gift cards. The most common card value purchased by far was $100, with over 1, 800 such cards purchased, followed by over 350 cards valued at $250 and over 250 cards valued at $50. Each round of funding allowed two purchases per customer. The City’s program guidelines were modified for the October 2023 round of funding to make $100 the largest card available for purchase.

400
Analysis of redemptions by merchant category found that about $137,000, or 46% of the total redemptions, occurred at the ten participating health/beauty businesses , which primarily provide services that are not subject to sales tax. The next largest category was restaurants, with about $131,000 in redemptions at the 14 participating restaurants, accounting for 44% of the total. These two categories together accounted for 90% of redemption value, with the remaining 10% (approximately $30,000) split among the other participating merchants, including the City’s Parks and Recreation Department programs and other recreational services that are not subject to sales tax.

Sales Tax Impact
To assess the impact of the Yiftee program on the City’s sales tax receipts, staff compared the sales tax revenues for participating and non-participating restaurants, before and after the introduction of the Yiftee program . Restaurants provide a good basis for evaluation, because they comprise nearly half of Yiftee redemptions, are easy to identify as a distinct category in the sales tax data, and collect sales tax on nearly all their sales. In addition, there is a sufficient number of restaurants in both the participating and non -participating categories to avoid sales tax data confidentiality issues.

Between March 2021 and March 2025, the 14 restaurants that began participating in Yiftee in the fall of 2022 accounted for between 19% and 26% of total restaurant sales.

Overall restaurant sales tax receipts increased modestly in 2021 as pandemic restrictions began to be removed and have shown only minor seasonal variations since 2022 .

Following each introduction of Yiftee funding, sales tax revenues remained similar for both Yiftee and non-Yiftee restaurants. This suggests that the bonus card redemptions , even for taxable goods, largely replaced purchases that customers might otherwise have made out of their own pocket, without noticeably increasing overall sales or sales tax receipts.

Conclusion
While the Yiftee program did not appear to materially increase sales tax receipts, and the City has many other funding needs and priorities, the City Council may wish to approve additional funding for the program to provide additional support to customers of participating businesses and maintain parity with neighboring cities. Yiftee representatives also suggested marketing the gift cards as thank you-gifts and around the holidays. They indicated that successful marketing programs emphasized the value of the cards as small gifts of appreciation, as opposed to emphasizing the bonus gift card subsidy.

Should the Council, wish to proceed with a new round of Yiftee funding, staff would return to Council for an appropriation and authorization to proceed.

401
FISCAL IMPACT:

This program would require a new allocation from the General Fund. Should the Council, wish to proceed with a new round of Yiftee funding, staff would recommend a one-time $25,000 allocation for the current fiscal year, to be released at quarterly intervals, a 25% bonus on gift card purchases, a maximum card value of $200, and a maximum of 1 card purchase per user per quarter.

ATTACHMENTS

1. Shop Hercules Presentation
402
“Shop Hercules”
Yiftee Gift Card
Program City Council 1/27/2026
403
Yiftee Digital Gift Cards
Business Retention/Support Initiative
• “Buy One/Get One” program funded in
2022-23 to assist in Covid recovery
• Cost to City ~$166,500
• Gift Card Value ~$154,289
• Pinole and Rodeo have active programs
2 404
Neighboring Cities’ Programs
Pinole Perks
• 25% bonus
• $25,000 funding for FY 25-26
• City-f unded
Rodeo Rewards
• 50% bonus
• $25,000 funding
• Funded by Phillips 66 Rodeo Renewed
C
ommunity Benefits Fund
3 405
Yiftee Funding and Redemptions
4 406
Yiftee Cards Purchased by Value
5 -
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
$- $50 $100 $150 $200 $250 $300
Subsidized Cards Purchased by Card Value
407
Yiftee Redemptions by Category
6 408
Restaurant Sales Tax Receipts, 2021-25
7 Yiftee Program Initiated
409
Questions/
Discussion City Council 1/27/2026
410

DISCUSSION AND/OR ACTION ITEM

AGENDA ITEMS

4. 26-002
411

STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of January 27, 2026
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Tim Rood, Community Development Director
SUBJECT: Tiered Business Attraction Grant Program
RECOMMENDED ACTION:

Receive a presentation on the proposed tiered Business Attraction Grant program , take public comment, and provide any comments or direction to staff.

BACKGROUND:

In July 2023, the City Council established a pilot Business Attraction Grant program to assist new, locally-owned eating & drinking establishments with their move-in expenses.

Commercial landlords typically provide a fixed cost per square foot allowance for tenant improvements (build -out of the interior of a commercial space to suit the needs of a particular tenant). In many cases, actual construction costs are significantly higher than the allowance, with the portion above the allowance paid by the business moving in.

Businesses offering food and beverage service also have significant costs for furnishings, fixtures and equipment, such as commercial appliances, point of sale systems, furniture and tableware. By assisting with these costs, the City aims to lower the bar for entry of desired types of new businesses.

Qualifying new businesses moving into vacant spaces were eligible for up to $25,000 in matching grants toward specified move -in costs, including tenant improvement construction net of the tenant improvemen t allowance provided by the landlord, permitting, fittings, furnishings, and equipment. The existing funding has been fully committed, with f our businesses qualif ying for the maximum $25,000 grants: Tommy’s BBQ, Sugar Toof, HOM Coffee and Pho Hanoi 89. Gra nt funding for Tommy’s , Sugar 412
Toof and Pho Hanoi 89 has been completely disbursed. HOM Coffee has received $20,000 to date and is eligible for a final payment of $5,000 once the business receives a certificate of occupancy.

Available Spaces
Hercules has approximately 246,000 square feet of retail space. As of September 2025, staff estimates that Hercules has approximately 53,600 square feet of vacant and available retail space, about 25% of the current supply. Vacant and available spaces include the 31,631-square-foot former Big Lots space at Creekside Center, for which the property owner has identified a tenant. The former Rite-Aid property at 1560 Sycamore is vacant and is being marketed for lease . At the Willow Avenue Center, Suite A-4 totaling 1,200 square feet is available.

The Exchange has six commercial suites available, ranging from 502 square feet to 1,469 square feet, for a total of 10,563 square feet available. Suite A, which is 2,478 square feet and can accommodate venting for a full-service restaurant , has been leased . The Aventine has two commercial suites of 556 and 1,115 square feet available.

Sycamore Plaza at 1500 Sycamore Avenue, which was damaged by a fire in August 2023, is vacant and still has an open code enforcement case due to unpermitted interior remodeling work, failure to make required monthly reports to the Code Enforcement Officer, and failure to obtain required inspections for open building permits for repairs.

Building A, the former Century 21, is approximately 4,435 square feet, and Building B to the rear includes nine (9) suites that are each under 2,000 square feet, for a total of 8,765 square feet. A leasing sign was posted at the property in October 2025.

Retail Sectors with Growth Potential
In January 2024, the City’s economic development consultant, HdL E CONSolutions, prepared a n updated analysis of “leakage” of Herculeans’ retail dollars to other jurisdictions for specific types of purchases (Attachment 1). Retail leakage occurs when local people spend a larger amount of money on goods than local businesses report in sales, usually due to people traveling to a neighboring town within the same trade area to buy goods that are not available in their own city.

ANALYSIS:

At the July 15, 2025 meeting of the City Council’s Economic Development Subcommittee’s, the Subcommittee requested that staff return with a proposal for additional Business Attraction Grants that were “tiered” to include larger grants and broader eligibility criteria for the two larger vacant spaces. 413
At the Subcommittee’s October 15, 2025 , meeting, the Subcommittee received a presentation and draft program guidelines and referred the item to the full City Council for consideration.

The proposed program guidelines (Attachment 2) include two categories: First, Eating & Drinking Establishment grants for smaller spaces would continue with similar eligibility criteria as before, but with a new grant maximum of $20,000 for spaces less than 1,500 square feet and $30,000 for spaces between 1,500 and 5,000 square feet.

Second, a new General Business Attraction category would be created for the larger spaces, with broader eligibility criteria for many typ es of retail uses in which Hercules experiences retail “leakage,” primarily to Pinole. The General category would also include national chains and franchises, which are the primary tenants of these larger spaces.

Grant applications will continue to be reviewed on a first-come, first-served basis, and staff has full discretion in awarding the grant according to the established guidelines and information submitted.

FISCAL IMPACT:

This program would require a new allocation from the General Fund. Should the Council wish to proceed, staff will return to the Council for an appropriation and authorization.

Should the Council wish to proceed, staff would recommend allocating a total of $200,000 for the program, with $100,000 allocated to spaces over 15,000 square feet (i.e. Big Lots); $50,000 allocated to spaces between 5,000 and 15,000 square feet (i.e.

Rite-Aid); and an additional $50,000 allocated to the Eating & Drinking Establishment grant program, which could support two additional grantees.

Attachments:

1. Retail Void Analysis, January 2024

2. Draft program guidelines
414
Market Profile
Opportunities 5 Min 10 Min
Automotive Dealers Population 44,301 103,606
General Merchandise Stores Daytime Population 31,194 74,882 Grocery Stores Households 15,360 36,750
Health/Personal Care Stores Average HH Income $124,159 $113,992 Clothing Stores Average Age 42 41
Department Stores White Collar 70% 65%
Restaurants College Degree & Above 43% 40%
Retailer Retail Class Nearest Location Contact Email
Advance Auto Parts Automotive 9.0 $2,000 - $5,000 6,000 - 8,000 Lynn Aliment [email protected] Les Schwab Automotive 7.5 $23,000 - $35,000 12,000 - 15,000 Dietrich Haar [email protected] Quick Quack Car Wash Car Wash 20.5 $600 - $2,000 3,000 - 3,600 Efrain Corona [email protected] Tommy's Express Car Wash Car Wash 72.8 N/A 5,000 - 10,000 Tod Holloway [email protected] Carter's + OshKosh B'gosh Clothing and Apparel 12.3 $10,000 - $16,000 4,000 - 5,000 Laura Tinetti [email protected] 85 Degrees C Bakery Cafe Coffee Shop 12.8 $1,500 - $3,200 2,800 - 3,200 Cecila Ma [email protected] Dunkin' Donuts Coffee Shop 12.0 $3,000 - $5,000 1,500 - 1,800 Matt Sweeney [email protected] Philz Coffee Coffee Shop 9.3 $800 - $1,700 1,500 - 3,500 Phil Fontes [email protected] Dutch Bros Coffee Coffee Shop 20.3 $1,700 - $2,700 400 - 900 Branden Harris [email protected] Sephora Cosmetics and Beauty 9.1 $30,000 - $57,000 5,200 - 5,500 Dave Hart [email protected] Bath & Body Works Cosmetics and Beauty 8.8 $25,000 - $43,000 3,000 - 4,000 Kal Sandhu [email protected] Five Below Discount Store 12.2 $16,000 - $27,000 7,000 - 10,000 George Ryan [email protected] Rotten Robbie Fuel/Convenience Store 12.0 $74,000 - $90,000 5,000 - 20,000 Mark Salma [email protected] 99 Ranch Market Grocery Store 8.1 $20,000 - $32,000 30,000 - 55,000 Samantha Chien [email protected] ALDI Grocery Store 156.9 $11,000 - $15,000 22,000 - 22,000 Matthew Baca [email protected] Nugget Market Grocery Store 14.3 $51,000 - $75,000 40,000 - 60,000 Eric Stille [email protected] Bel Air Grocery Store 51.8 $53,000 - $63,000 55,000 - 65,000 John Welter [email protected] H Mart Grocery Store 23.4 $22,500 - $41,000 60,000 - 90,000 James Chung [email protected] Edible Arrangements Other Food/Beverage 10.9 $600 - $1,700 1,000 - 1,200 Brian Feldman [email protected] Rocky Mountain Chocolate Factory Other Food/Beverage 11.9 $100 - $1,300 600 - 1,000 Greg Pope [email protected] Mendocino Farms Restaurant - Casual 12.0 $24,000 - $45,000 2,500 - 3,500 Reid Tussing [email protected] Jinya Ramen Bar Restaurant - Casual 57.1 $10,000 - $23,000 2,200 - 5,000 Mike Larue [email protected] Teriyaki Madness Restaurant - Casual 12.8 $6,000 - $11,000 1,400 - 2,400 Trina McWhorter [email protected] Smashburger Restaurant - Fast Casual 18.5 $4,000 - $15,000 1,800 - 2,200 Randy Carucci [email protected] Dave's Hot Chicken Restaurant - Fast Casual 30.6 $34,000 - $41,000 1,900 - 3,000 Devon Wesselink [email protected] Blaze Pizza Restaurant - Fast Casual 10.0 $8,000 - $13,000 2,500 - 3,000 Collins Cogan [email protected] Noodles & Company Restaurant - Fast Casual 11.9 $6,000 - $12,000 2,500 - 2,500 Dawn Rheinlander [email protected] Crumbl Cookies Restaurant - Other 12.1 $6,000 - $10,000 1,000 - 2,500 Chris Alihemmat [email protected] Fatburger Restaurant - Quick Service 23.4 $6,000 - $11,000 1,000 - 2,500 Dan Moran [email protected] Cream Restaurant - Quick Service 8.1 N/A 1,000 - 1,500 Jimmy Shamieh [email protected] Jimmy John's Restaurant - Quick Service 11.9 $300 - $600 600 - 1,500 Bruce Katz [email protected] Firehouse Subs Restaurant - Quick Service 15.5 $7,000 - $10,000 1,400 - 1,800 Jim O' Keefe [email protected] Arby's Restaurant - Quick Service 16.5 $10,000 - $17,000 1,800 - 2,100 Bonnie Gatine [email protected] Ono Hawaiian BBQ Restaurant - Quick Service 15.6 $13,000 - $21,000 1,800 - 2,500 Joshua Liang [email protected] Size (SF)Est. Annual Sales Tax ($)

VOID ANALYSIS SUMMARY & MARKET PROFILE
City of Hercules
I-80 & Sycamore
225,449
$102,380
78,107
40 59%
35%
15 Min
September 2022
City of Hercules has over 26,000 residents, and the population within 5, 10 and 15 minutes trade areas increases significantly. With over 100,000 residents within a 15 minute drive-time trade area, the Hercules trade area includes multiple shopping centers that offers residents and visitors a wide range of retail stores, personal services and restaurants. Most eating establishments are in the quick service and casual dining categories. Retail spans a broad spectrum, from major stores like The Home Depot to Rite Aid to Lucky Market to smaller businesses serving the residents in Hercules. 174,105
415
415
Market Profile
Opportunities 5 Min 10 Min
Automotive Dealers Population 44,301 103,606
General Merchandise Stores Daytime Population 31,194 74,882 Grocery Stores Households 15,360 36,750
Health/Personal Care Stores Average HH Income $124,159 $113,992 Clothing Stores Average Age 42 41
Department Stores White Collar 70% 65%
Restaurants College Degree & Above 43% 40%
Retailer Retail Class Nearest Location Contact EmailSize (SF)Est. Annual Sales Tax ($)

VOID ANALYSIS SUMMARY & MARKET PROFILE
City of Hercules
I-80 & Sycamore
225,449
$102,380
78,107
40 59%
35%
15 Min
September 2022
City of Hercules has over 26,000 residents, and the population within 5, 10 and 15 minutes trade areas increases significantly. With over 100,000 residents within a 15 minute drive-time trade area, the Hercules trade area includes multiple shopping centers that offers residents and visitors a wide range of retail stores, personal services and restaurants. Most eating establishments are in the quick service and casual dining categories. Retail spans a broad spectrum, from major stores like The Home Depot to Rite Aid to Lucky Market to smaller businesses serving the residents in Hercules. 174,105
416
Hercules Business Attraction Grant 2.0 –
Tiered Incentive Program
A. Ea
ting & Drinking Establishment Grant Program Eligibility • The vacant space must be less than 5,000 square feet
• The business is a brick-and-mortar, for-profit, sales tax-generating businesses in one of the following categories:
o Restaurant
o Café (if the café comprises a majority of the space/operation, or if the café is the primary use and not incidental to another use)
o Wine bar
o Brewery or taproom
o Craft distillery
• The business must lease/rent their commercial property directly from a landlord. • The business is either independently owned/operated or a locally owned franchisee (i.e., local outlets of chains or franchises that are headquartered outside of the nine-county Bay Area and/or have more than six locations are not eligible)
• The business must provide a matching move-in expenditure equal to or greater than the grant amount.
• The maximum grant amount is $20,000 for spaces less than 1,500 square feet and $30,000 for spaces between 1,500 and 5,000 square feet. • A maximum of $50,000 is available for new grants in this category B. Ge
neral Business Attraction Grant Program Eligibility
• The vacant space must be 5,000 square feet or larger
• The business is a brick-and-mortar, for-profit, sales tax-generating businesses in one of the following categories:
o Beer/Wine/Liquor Stores
o Books/Periodicals/Music Stores
o Clothing/Shoe Stores
o Department Stores
o Drugstore/Health/Personal Care
o Electronics/Appliances
o General Merchandise
o Grocery Stores
o Hobby/Games/Toys
o Jewelry/Luggage/Leather Goods
o Kitchenware/Furniture/Home Furnishings
o Musical Instruments
o Pets/Pet Food/Pet Supplies
417
o S
pecialty Food Stores
o Sporting Goods
• Businesses that sell used merchandise and/or accept donations on-site are not eligible
• The business must have a lease in place with a primary term of at least five (5) years, excluding options
• The business may be independently or corporate owned/operated or a franchisee, with no limitations on corporate or franchise ownership • The business must provide a matching move-in expenditure equal to or greater than the grant amount.
• The maximum grant amount is $50,000 for spaces between 5,000 and 15,000 square feet and $100,000 for spaces over 15,000 square feet • A maximum of $150,000 is available for new grants in this category S
ubmittal Requirements (Both Programs)
• Signed Lease or Letter of Intent (LOI) for a vacant (as of the grant application date) tenant space in Hercules.
• Verification that all required Planning approvals for the business have been granted and applicable appeal periods have expired.
• Pro-forma detailing all construction and move-in expenses required to open the business.
• Grant amount requested and verification by the pro-forma that the grant amount will not exceed 50% of all construction and move-in expenses. • Complete and signed online application which will include:
o Verification that the business is within one of the eligible categories. o For Eating & Drinking Establishments, verification that the business is either independently owned/operated or a locally owned chain (as required under eligibility requirements)
U
se of Funds
• Tenant improvements (construction costs)
• Signage
• City, County or Utility permitting and connection fees • Mechanical, Appliance and Equipment Costs
• Furniture and Furnishings
• Computer and Software Costs
G
rant payments (up to the amount requested and awarded) will be upon submittal of receipts and/or invoices to HdL every 30 days, with a minimum payment of $5,000 per payment request. Business shall obtain a City Business license and have a Certificate of Occupancy prior to final reimbursement payment.
418

DISCUSSION AND/OR ACTION ITEM

AGENDA ITEMS

5. 26-018
419

STAFF REPORT TO THE CITY COUNCIL

DATE: Regular Meeting of January 27, 2026

TO: Mayor and Members of the City Council

VIA: Dante Hall, City Manager

SUBMITTED BY: Glenn Dombeck, Public Works Director/City Engineer Kristi Carter, Human Resources Manager

SUBJECT: Addition of a Sewer and Stormwater Supervisor Job Description to the City’s Classification Plan

RECOMMENDED ACTION:

Adopt a resolution approving the addition of a Sewer and Stormwater Supervisor job description to the City’s Classification Plan and approving an amended Fiscal Year 2025- 2026 Master Salary Schedule pursuant to California Public Employees Retirement System (“CalPERS”) effective July 6, 2025 (last updated on January 8, 2026).

BACKGROUND:

The Maintenance and Operations Division of the Public Works Department is responsible for the operation, maintenance, and regulatory compliance of the City’s stormwater drainage system and sanitary sewer collection system. These systems are critical to public health, environmental protection, flood prevention, and regulatory compliance with federal and state requirements, including National Pollutant Discharge Elimination System (“NPDES”) permits.

Over time, the scope and complexity of sewer and stormwater responsibilities have increased significantly. Regulatory requirements have expanded, infrastructure has aged, and coordination with contractors, developers, and regulatory agencies has become more intensive. In addition, the City’s stormwater program now requires more proactive planning, inspection, documentation, and reporting to maintain compli ance and reduce the risk of violations and enforcement actions.

Currently, supervisory and program oversight duties related to sewer and stormwater operations are distributed among management staff and field personnel, limiting the ability to consistently oversee day-to-day operations, contractor performance, emergency response, and regulatory compliance activities. Establishing a dedicated Sewer and 420
Stormwater Supervisor position will provide focused, first-level supervision and technical oversight for these critical systems.

ANALYSIS:

The City currently has an established Public Works Supervisor classification, which serves as a working supervisory role responsible for overseeing a broad range of public works maintenance activities across multiple functional areas. The proposed Sewer and Stormwater Supervisor classification is intended to complement the existing Public Works Supervisor position by providing a clearly defined supervisory structure within the Maintenance series and ensuring adequate oversight, accountability, and subject-matter expertise in the sewer and stormwater functions.

The proposed Sewer and Stormwater Supervisor classification is designed as the first full supervisory level within the Maintenance class series, with a more focused s cope of responsibility specific to the City’s sewer collection and stormwater systems. While the Public Works Supervisor position provides general, cross -functional supervision and performs hands on maintenance work, the proposed classification establishes a dedicated supervisory role to support the City’s increasing regulatory, operational, and compliance demands related to sewer and stormwater infrastructure.

As outlined in the attached job description, the position will be responsible for planning, assigning, reviewing, and supervising the work of City staff and contractors performing stormwater and wastewater collection system maintenance and operations. The position will also provide technical and administrative support to management in areas such as permit compliance, infrastructure inspection, emergency response, and capital project coordination.

Key responsibilities of the Sewer and Stormwater Supervisor will include oversight of the City’s stormwater management program and wastewater collection sys tem, monitoring compliance with applicable NPDES permits, coordinating maintenance and repair activities, and responding to emergencies such as blockages, overflows, or flooding events. The position will also play an important role in coordinating with engineering staff on capital improvement projects, reviewing plans and specifications, and ensuring new infrastructure meets City standards.

Creating this classification will improve operational efficiency by consolidating supervisory and technical responsib ilities under a single position with the appropriate authority and expertise. It will enhance regulatory compliance, improve response times to service requests and emergencies, and allow management staff to focus more effectively on strategic planning, budgeting, and policy matters.

The Sewer and Stormwater Supervisor will be a full -time, non -exempt position represented by Teamsters Local 315 and assigned to Pay Grade 147, consistent with the level of responsibility, supervisory duties, and technical exper tise required . The pay grade is aligned with the existing Public Works Supervisor position. The Sewer and Stormwater Supervisor position has been included in the attached revised Fiscal Year 2025-2026 Master Salary Schedule.
421

FISCAL IMPACT:

The estimated annual cost for the Sewer and Stormwater Supervisor position (assuming full family-level health insurance benefits are elected) would be $163,000 at mid-step.

The position will be funded from the Sewer Fund. The labor costs for this position were included in the 2025 sewer rate increase evaluation and therefore the costs for this position are fully funded.

ATTACHMENTS:

1. Resolution

2. Landscaping and Lighting Program Coordinator Job Description

3. Amended Fiscal Year 2025 -2026 Master Salary Schedule effective July 6, 2025 (last updated on January 8, 2026)

422

HERCULES CITY COUNCIL
RESOLUTION 2026-XX

RESOLUTION OF THE CITY COUNCIL OF THE CITY OF HERCULES APPROVING

THE ADDITION OF A SEWER AND STORMWATER SUPERVISOR JOB
DESCRIPTION TO THE CITY’S CLASSIFICATION PLAN AND APPROVING AN AMENDED FISCAL YEAR 2025–2026 MASTER SALARY SCHEDULE

WHEREAS, the City maintains a Classification Plan and Master Salary Schedule to ensure positions are appropriately defined, classified, and compensated; and

WHEREAS, the Maintenance and Operations Division of the Public Works Department is responsible for the operation, maintenance, and regulatory compliance of the City’s stormwater drainage system and sanitary sewer collection system, which are critical to public health, environmental protection, flood prevention, and compliance with federal and state regulations; and

WHEREAS, the scope and complexity of sewer and stormwater operations have increased due to expanded regulatory requirements, aging infrastructure, and increased coordination with contractors, developers, and regulatory agencies; and

WHEREAS, the City has identified a need for a dedicated first -level supervisory position to provide focused oversight of sewer and stormwater operations, regulat ory compliance, contractor performance, and emergency response; and

WHEREAS, the proposed Sewer and Stormwater Supervisor classification will complement the existing Public Works Supervisor classification by providing specialized supervision and subject-matter expertise for the City’s sewer and stormwater programs; and

WHEREAS, the Sewer and Stormwater Supervisor position is proposed as a full - time, non -exempt position represented by Teamsters Local 315 and assigned to Pay Grade 147, consistent with the level of responsibility and aligned with comparable supervisory classifications; and

WHEREAS, the position has been included in the amended Fiscal Year 2025 – 2026 Master Salary Schedule effective July 6, 2025, last updated on January 8, 2026; and

WHEREAS, the estimated annual cost of the position is fully funded through the Sewer Fund and was accounted for in the City’s 2025 sewer rate evaluation.

//

//
423

NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Hercules as follows:

1. The City Council approves the addition of the Sewer and Stormwater Supervisor job description to the City’s Classification Plan.

2. The City Council approves the amended Fiscal Year 2025–2026 Master Salary Schedule effective July 6, 2025, last updated on January 8, 2026, to include the Sewer and Stormwater Supervisor classification at Pay Grade 147.

3. The City Manager, or designee, is authorized to implement this Resolution and take all actions necessary to carry out its intent.

The foregoing Resolution was duly and regularly adopted at a regular meeting of the City Council of the City of Hercules held on the 27th of January 2026, by the following vote of the Council:

AYES:

NOES:

ABSENT:

ABSTAIN:

___________________________
Chris Kelley, Mayor
ATTEST:

Eibleis Melendez, City Clerk

424

CITY OF HERCULES

SEWER AND STORMWATER SUPERVISOR

DESCRIPTION

Under general direction, this class plans, assigns, reviews, and supervises the work of staff and/or contractors performing public works infrastructure maintenance duties including stormwater and sanitary sewer system maintenance and operations; provides complex staff assistance to management staff in areas of expertise, and performs other duties as assigned.

DISTINGUISHING CHARACTERISTICS

This class is the first full supervisory level in the Maintenance class series. Duties include field supervision, inspection of work, and office administrative duties in support of the functional area of assignment. Incumbents are expected to exercise initiative and independence in implementing departmental policies, developing effective work processes and solving operational problems. This class is distinguished from the Public Works Superintendent by the latter's broader responsibility to manage all activities of a specific department-wide maintenance program. The Sewer and Stormwater Supervisor is distinguished from the Maintenance Worker II by the complexity of the work and having full supervisory responsibility over both City staff and contractors.

SUPERVISION RECEIVED AND EXERCISED

Receives supervision from the Public Works Director or their designee. Exercises direct and indirect supervision over assigned staff.

ESSENTIAL FUNCTIONS

Below is a descriptive list of the range of duties performed by employees in this classification. These examples are not intended to reflect all duties performed within the job and not all duties listed are necessarily performed by each individual.

 Leads and oversees permit compliance and implementation of the storm water management program and wastewater collection system and private sewer lateral program. Assists with the development of annual reports and permit requirements.
 Monitors ongoing program and/or project activities for compliance with National Pollutant Discharge Elimination System (“NPDES”) permit(s) for storm water and non-storm water discharges and the wastewater collection system.
 Troubleshoots, oversees, directs and participates in the maintenance, inspection, and repair of the City’s stormwater mains, laterals, inlets, drainage infrastructure, maintenance holes, field inlets, drainage channels, and access roads.
 Plans, organizes, coordinates, directs, and participates in the operation and maintenance of sanitary sewer systems.
 Operates a variety of light construction equipment and wastewater collection system equipment.  Performs the full range of duties in repair and maintenance of storm and sanitary sewers, including opening, flushing, inspecting, repairing and installing sewer lines, catch basins, and other drainage facilities.
 As assigned, represents the City in meetings with public and private organizations, community groups, contractors, developers, and the public.
 Plans, organizes, assigns, supervises and reviews the work of assigned staff to ensure that work is completed in a safe and appropriate manner.
425

CITY OF HERCULES

 Trains staff in work procedures and methods; evaluates the work of staff, provides input into work selection and disciplinary procedures.
 Answers questions and provides information related to projects including resolving problems, responding to and resolving complaints, and providing technical expertise in the areas of assignment.
 Provides input into the development of the operating budget for the assigned area of responsibility; orders materials and supplies; assists in monitoring and tracking expenditures for the section.
 Mitigates vegetation growth; ensures proper maintenance and operation of channels, and access roads.
 Collaborates with management to identify and mitigate any potential flooding as well as fire, private, and city water inflow concerns.
 Inspects new installations and repair work in process and upon completion; participates in the development of new systems and equipment.
 Reviews plans and specifications; collaborates with engineering staff on plans, specifications, and inspections of construction-related Capital Improvement Projects; ensures all new infrastructure and projects meet City standards.
 Responds to emergencies as requested; coordinates activities with other responders; directs the work of staff and utilization of resources to effect repair and ensure the safety of the community.  Prepares and maintains records related to the work performed, and materials and supplies used.  Coordinates work and projects with contractors and/or other City departments.  Prepares reports and correspondence.
 Performs other related duties as required.

QUALIFICATIONS

Knowledge of:

 Principles and practices of employee supervision, including work planning, assignment, review and evaluation; and the training of staff on safety practices and work procedures.  Collection system design, operation, and construction methods.  City standards and specifications including materials, methods, equipment, and tools used in public works maintenance activities specific to the areas of assignment.  Principles and practices of storm water management, water quality, creek restoration, low impact development, and storm drain design.
 Basic methods of estimating time, cost, and equipment necessary to perform assigned work.  Safety equipment and practices related to the work, including the handling of hazardous chemicals.
 Applicable federal, state, and local laws, codes, regulations, and standards.  Business systems, equipment, and applications relevant to the area of assignment.

Ability to:

 Organize, implement, and direct wastewater collection and stormwater system maintenance and repair operations and activities.
 Oversee and perform semi-skilled and skilled construction, modification, maintenance, and repair work on wastewater and stormwater collection systems infrastructure such as found in the City. 426

CITY OF HERCULES

 Safely and effectively operate and maintain specialized maintenance and repair equipment related to wastewater and stormwater collection system inspection, cleaning, maintenance, and repair.  Inspect work in progress and upon completion; identify areas needing improvement.  Troubleshoot maintenance issues and determine materials and supplies required for repair.  Respond to complaints or inquiries from internal and external stakeholders.  Read and interpret construction drawings and specifications.  Organize work, set priorities, meet deadlines, and follow up on assignments.  Work well under the pressure of deadlines and in emergency situations.  Maintain accurate logs and records of work performed.  Interpret and apply applicable laws, codes, regulations, and standards.  Plan, organize, and coordinate the work of assigned staff, providing training, leadership, and work direction.
 Communicate clearly and concisely, both orally and in writing.  Prepare clear and concise complex technical documents and reports.  Operate a computer and standard business software programs and databases related to the area of assignment.
 Establish and maintain effective working relationships with those contacted in the course of the work.

EXPERIENCE AND EDUCATION/TRAINING GUIDELINES

The knowledge, skills, and abilities listed above may be acquired through various types of training, education, and experience. A typical way to acquire the required knowledge and abilities would be:

Education

Equivalent to the completion of the twelfth grade.

Experience

Three (3) years of full-time experience in a related field including at least one (1) year of lead or supervisory experience.

Licenses and Certificates

For specific positions, possession and maintenance of a valid California driver’s license and the ability to meet automobile insurability requirements of the County or the ability to provide suitable transportation needs as a condition of continued employment.

PHYSICAL, ENVIRONMENTAL, AND WORKING CONDITIONS

Physical Demands

Must be able to frequently exert force on 25-50 pound objects, occasionally up to 100 pounds; must be able to lift, carry, push, pull, or move objects requiring the use of both hands and legs; frequent standing, walking around job sites, bending, stooping, crouching, kneeling, handling, gripping, grasping, twisting, and reaching while inspecting, repairing, digging, or clearing worksites; occasional to frequent reaching at, above, and below shoulder level, extending neck upward, downward, and side to side; use various tools and equipment.
427

CITY OF HERCULES

Vision: Visual acuity which could be corrected sufficiently to perform the essential functions of the position; average depth perception needed.

Hearing: Effectively hear/comprehend oral instructions and communication, equipment noise, and traffic noise.

WORKING CONDITIONS
Work is performed in a combination of office and field environments, with duties divided approximately equally between indoor, computer-based work and outdoor or operational field activities. Indoor work includes regular use of a computer and standard office equipment. Field work includes site visits, inspections, meetings, and operational oversight.

The position frequently works outdoors and indoors and may work around machinery. The employee may occasionally to frequently drive motorized equipment or City vehicles and may be exposed to uneven or slippery walking surfaces. Occasional exposure to electrical energy, chemicals, water, hazardous materials, excessive noise associated with traffic or mechanical equipment, dust, fumes, gases, odors, solvents, grease, or oil may occur.

Field work may involve exposure to varying weather conditions and temperatures and, on a limited basis, work at heights or in confined spaces. The employee may be expected to be on-call for emergencies or safety-related issues.

Supplemental Information
May be required to work a varied schedule of hours, which may include evenings, weekends, and holidays.

Established: January 2026
Unit: Teamsters Local 315, Full Time
FLSA/Position: Non - Exempt
428
STEP 1 Effective Date Annual Hours

BARGAINING UNIT/

EMPLOYEE GROUP POSITIONS GRADE ANNUAL HOURLY ANNUAL HOURLY ANNUAL HOURLY ANNUAL HOURLY ANNUAL HOURLY ANNUAL HOURLY MONTHLY CONTRACT CI TY MANAGER CM 302,356.7040 145.3638 7/6/2025 2080 ELECTED OFFICIAL COUNCIL MEMBER CCM 831.6000 12/10/2024 ELECTED OFFICIAL MAYOR CCM 831.6000 12/10/2024
ELECTED OFFICIAL VICE MAYOR CCM 831.6000 12/10/2024
EXECUTIVE CHIEF OF POLICE 057 195,339.6536 98.8561 205,106.8240 103.7990 215,362.2640 108.9890 226,130.4760 114.4385 237,436.5552 120.1602 249,308.5608 126.1683 7/6/2025 1976 EXECUTIVE CHIEF OF POLICE / ASSISTANT CITY MANAGER 57A 205,106.6264 103.7989 215,362.0664 108.9889 226,130.4760 114.4385 237,436.9504 120.1604 249,308.3632 126.1682 261,773.9592 132.4767 7/6/2025 1976 EXECUTIVE CITY CLERK 051 123,097.2912 62.2962 129,252.3336 65.4111 135,714.8416 68.6816 142,500.6232 72.1157 149,625.4864 75.7214 157,106.8200 79.5075 7/6/2025 1976 EXECUTIVE CITY CLERK / ASSISTANT CITY MANAGER 51A 129,252.1360 65.4110 135,715.0392 68.6817 142,500.6232 72.1157 149,625.6840 75.7215 157,106.8200 79.5075 164,962.2104 83.4829 7/6/2025 1976 EXECUTIVE CITY CLERK / PIO 052 132,944.6872 67.2797 139,592.7416 70.6441 146,571.5784 74.1759 153,900.3648 77.8848 161,595.3040 81.7790 169,675.1680 85.8680 7/6/2025 1976 EXECUTIVE CITY CLERK / PIO / ASSISTANT CITY MANAGER 52A 139,591.9512 70.6437 146,572.3688 74.1763 153,900.1672 77.8847 161,595.3040 81.7790 169,675.1680 85.8680 178,158.9264 90.1614 7/6/2025 1976 EXECUTIVE COMMUNITY DEVELOPMENT DIRECTOR 056 180,870.3936 91.5336 189,913.5576 96.1101 199,409.2256 100.9156 209,380.1216 105.9616 219,848.9696 111.2596 230,841.2600 116.8225 7/6/2025 1976

EXECUTIVE COMMUNITY DEVELOPMENT DIRECTOR / ASSISTANT CITY

MANAGER
56A 189,913.9528 96.1103 199,409.2256 100.9156 209,379.7264 105.9614 219,849.1672 111.2597 230,841.4576 116.8226 242,383.2736 122.6636 7/6/2025 1976
EXECUTIVE FINANCE DIRECTOR 056 180,870.3936 91.5336 189,913.5576 96.1101 199,409.2256 100.9156 209,380.1216 105.9616 219,848.9696 111.2596 230,841.2600 116.8225 7/6/2025 1976 EXECUTIVE FINANCE DIRECTOR / ASSISTANT CITY MANAGER 56A 189,913.9528 96.1103 199,409.2256 100.9156 209,379.7264 105.9614 219,849.1672 111.2597 230,841.4576 116.8226 242,383.2736 122.6636 7/6/2025 1976 EXECUTIVE PARKS & RECREATION DIRECTOR 054 155,066.9952 78.4752 162,820.2264 82.3989 170,961.1488 86.5188 179,509.5224 90.8449 188,485.1072 95.3872 197,909.2440 100.1565 7/6/2025 1976

EXECUTIVE PARKS & RECREATION DIRECTOR / ASSISTANT CITY

MANAGER
54A 162,820.4240 82.3990 170,960.7536 86.5186 179,509.1272 90.8447 188,484.9096 95.3871 197,909.4416 100.1566 207,804.6568 105.1643 7/6/2025 1976
EXECUTIVE PUBLIC WORKS DIRECTOR / CITY ENGINEER 057 195,339.6536 98.8561 205,106.8240 103.7990 215,362.2640 108.9890 226,130.4760 114.4385 237,436.5552 120.1602 249,308.5608 126.1683 7/6/2025 1976

EXECUTIVE PUBLIC WORKS DIRECTOR / CITY ENGINEER / ASSISTANT

CITY MANAGER
57A 205,106.6264 103.7989 215,362.0664 108.9889 226,130.4760 114.4385 237,436.9504 120.1604 249,308.3632 126.1682 261,773.9592 132.4767 7/6/2025 1976
MID-MANAGEMENT PUB LIC WORKS SUPERINTENDENT 253 125,693.7552 63.6102 131,978.6208 66.7908 138,576.8800 70.1300 145,506.3168 73.6368 152,781.3560 77.3185 160,420.1768 81.1843 7/6/2025 1976 MID-MANAGEMENT REC REATION MANAGER 248 98,484.6304 49.8404 103,408.4272 52.3322 108,578.8288 54.9488 114,007.8888 57.6963 119,708.4512 60.5812 125,693.9528 63.6103 7/6/2025 1976 MID-MANAGEMENT SEN IOR ACCOUNTANT 249 103,408.2296 52.3321 108,579.0264 54.9489 114,007.8888 57.6963 119,708.2536 60.5811 125,693.7552 63.6102 131,978.8184 66.7909 7/6/2025 1976 NON-REPRESENTED ACC OUNTING TECHNICIAN II 046 83,777.8552 42.3977 87,966.7776 44.5176 92,365.1560 46.7435 96,983.4632 49.0807 101,832.5672 51.5347 106,924.5216 54.1116 7/6/2025 1976 NON-REPRESENTED ADM INISTRATIVE SPECIALIST 045 77,571.8320 39.2570 81,450.7200 41.2200 85,522.6632 43.2807 89,799.3200 45.4450 94,289.3848 47.7173 99,003.5280 50.1030 7/6/2025 1976 NON-REPRESENTED HU MAN RESOURCES ADMINISTRATOR 046 83,777.8552 42.3977 87,966.7776 44.5176 92,365.1560 46.7435 96,983.4632 49.0807 101,832.5672 51.5347 106,924.5216 54.1116 7/6/2025 1976 NON-REPRESENTED HU MAN RESOURCES MANAGER 050 113,978.8416 57.6816 119,677.8232 60.5657 125,656.4088 63.5913 131,945.2264 66.7739 138,541.9048 70.1123 145,469.1680 73.6180 7/6/2025 1976 NON-REPRESENTED HU MAN RESOURCES TECHNICIAN 045 77,571.8320 39.2570 81,450.7200 41.2200 85,522.6632 43.2807 89,799.3200 45.4450 94,289.3848 47.7173 99,003.5280 50.1030 7/6/2025 1976 NON-REPRESENTED PO LICE COMMANDER 055 167,472.5208 84.7533 175,846.6112 88.9912 184,638.2304 93.4404 193,870.1024 98.1124 203,563.7656 103.0181 213,742.1416 108.1691 7/6/2025 1976 POA POLICE OFFICER PO 111,558.3040 53.6338 114,905.4400 55.2430 118,352.0000 56.9000 121,903.1840 58.6073 125,560.2400 60.3655 129,327.1200 62.1765 7/6/2025 2080 PT BENEFITED POLICE OFFICER TRAINEE PTR 100,402.6400 48.2705 7/6/2025 POA POLICE SERGEANT SGT 131,876.5760 63.4022 135,832.3200 65.3040 139,907.8720 67.2634 144,105.1040 69.2813 148,427.7600 71.3595 152,881.0400 73.5005 7/6/2025 2080 PT UNBENEFITED ADMINISTRATIVE SECRETARY PT20 30.6156 32.1464 33.7537 35.4415 37.2135 39.0742 7/6/2025 PT UNBENEFITED FACILITY ATTENDANT PT1 17.5049 18.3327 19.2493 20.2118 21.2223 22.2834 7/6/2025 PT UNBENEFITED INTER ADMIN / ENG / PLANNING PT1 17.5049 18.3327 19.2493 20.2118 21.2223 22.2834 7/6/2025 PT UNBENEFITED LIFEGUARD / SWIM INSTRUCTOR I PT1 17.5049 18.3327 19.2493 20.2118 21.2223 22.2834 7/6/2025 PT UNBENEFITED LIFEGUARD / SWIM INSTRUCTOR II PT2 17.9835 18.8826 19.8269 20.8181 21.8591 22.9519 7/6/2025 PT UNBENEFITED SENIOR LIFEGUARD PT4 19.0787 20.0326 21.0342 22.0860 23.1903 24.3498 7/6/2025 PT UNBENEFITED SPORTS COACH / REFEREE PT1 17.5049 18.3327 19.2493 20.2118 21.2223 22.2834 7/6/2025 PT UNBENEFITED SWIM COACH PT6 20.2406 21.2527 22.3153 23.4311 24.6025 25.8327 7/6/2025 TEAMSTERS FT ACCOUNTING TECHNICIAN I 145 69,967.9864 35.4089 73,466.2968 37.1793 77,139.4832 39.0382 80,996.6352 40.9902 85,046.4472 43.0397 89,298.7992 45.1917 7/6/2025 1976 TEAMSTERS FT ASSISTANT ENGINEER 150 102,805.9448 52.0273 107,946.1136 54.6286 113,343.5576 57.3601 119,010.5280 60.2280 124,961.2520 63.2395 131,209.3640 66.4015 7/6/2025 1976 TEAMSTERS FT ASSISTANT PLANNER 149 95,190.0456 48.1731 99,949.4392 50.5817 104,946.9408 53.1108 110,194.4064 55.7664 115,703.8896 58.5546 121,489.0248 61.4823 7/6/2025 1976 TEAMSTERS FT ASSOCIATE ENGINEER 151 111,030.0568 56.1893 116,582.0240 58.9990 122,410.8288 61.9488 128,531.6864 65.0464 134,958.0336 68.2986 141,705.8760 71.7135 7/6/2025 1976 TEAMSTERS FT COMMUNITY DEVELOPMENT SPECIALIST 146 74,831.5152 37.8702 78,572.8736 39.7636 82,501.7544 41.7519 86,630.8040 43.8415 90,958.0464 46.0314 95,506.0080 48.3330 7/6/2025 1976 TEAMSTERS FT INFORMATION SYSTEMS ADMINISTRATOR 151 111,030.0568 56.1893 116,582.0240 58.9990 122,410.8288 61.9488 128,531.6864 65.0464 134,958.0336 68.2986 141,705.8760 71.7135 7/6/2025 1976 TEAMSTERS FT INFORMATION SYSTEMS SPECIALIST 148 88,138.6896 44.6046 92,545.5648 46.8348 97,172.9616 49.1766 102,031.3528 51.6353 107,132.9896 54.2171 112,489.7280 56.9280 7/6/2025 1976 TEAMSTERS FT LANDSCAPING AND LIGHTING PROGRAM COORDINATOR 147 81,610.1832 41.3007 85,690.8208 43.3658 89,975.3816 45.5341 94,474.5360 47.8110 99,197.9664 50.2014 104,157.9240 52.7115 7/6/2025 1976 TEAMSTERS FT MAINTENANCE AIDE 141 51,428.5616 26.0266 54,000.3256 27.3281 56,700.1344 28.6944 59,534.9040 30.1290 62,511.7480 31.6355 65,637.3848 33.2173 7/6/2025 1976 TEAMSTERS FT MAINTENANCE WORKER I 143 59,985.8272 30.3572 62,985.3952 31.8752 66,134.3488 33.4688 69,441.3824 35.1424 72,913.4120 36.8995 76,558.9344 38.7444 7/6/2025 1976 TEAMSTERS FT MAINTENANCE WORKER II M46 74,104.7424 37.5024 77,809.9400 39.3775 81,700.6840 41.3465 85,785.4712 43.4137 90,074.7744 45.5844 94,578.6712 47.8637 7/6/2025 1976 TEAMSTERS FT MANAGEMENT ANALYST 147 81,610.1832 41.3007 85,690.8208 43.3658 89,975.3816 45.5341 94,474.5360 47.8110 99,197.9664 50.2014 104,157.9240 52.7115 7/6/2025 1976 TEAMSTERS FT PARKING ENFORCEMENT OFFICER 142 57,023.6056 28.8581 59,875.1712 30.3012 62,868.8112 31.8162 66,012.2320 33.4070 69,312.9424 35.0774 72,778.4512 36.8312 7/6/2025 1976 TEAMSTERS FT POLICE SUPPORT SPECIALIST 145 69,967.9864 35.4089 73,466.2968 37.1793 77,139.4832 39.0382 80,996.6352 40.9902 85,046.4472 43.0397 89,298.7992 45.1917 7/6/2025 1976 TEAMSTERS FT PUBLIC WORKS INSPECTOR / SPECIALIST 147 81,610.1832 41.3007 85,690.8208 43.3658 89,975.3816 45.5341 94,474.5360 47.8110 99,197.9664 50.2014 104,157.9240 52.7115 7/6/2025 1976 TEAMSTERS FT PUBLIC WORKS SUPERVISOR 147 81,610.1832 41.3007 85,690.8208 43.3658 89,975.3816 45.5341 94,474.5360 47.8110 99,197.9664 50.2014 104,157.9240 52.7115 7/6/2025 1976 TEAMSTERS FT RECREATION COORDINATOR 146 74,831.5152 37.8702 78,572.8736 39.7636 82,501.7544 41.7519 86,630.8040 43.8415 90,958.0464 46.0314 95,506.0080 48.3330 7/6/2025 1976 TEAMSTERS FT RECREATION SUPERVISOR 147 81,610.1832 41.3007 85,690.8208 43.3658 89,975.3816 45.5341 94,474.5360 47.8110 99,197.9664 50.2014 104,157.9240 52.7115 7/6/2025 1976 TEAMSTERS FT RECREATION TECHNICIAN 145 69,967.9864 35.4089 73,466.2968 37.1793 77,139.4832 39.0382 80,996.6352 40.9902 85,046.4472 43.0397 89,298.7992 45.1917 7/6/2025 1976 TEAMSTERS FT SENIOR CLERK 143 59,985.8272 30.3572 62,985.3952 31.8752 66,134.3488 33.4688 69,441.3824 35.1424 72,913.4120 36.8995 76,558.9344 38.7444 7/6/2025 1976 TEAMSTERS FT SENIOR PLANNER 151 111,030.0568 56.1893 116,582.0240 58.9990 122,410.8288 61.9488 128,531.6864 65.0464 134,958.0336 68.2986 141,705.8760 71.7135 7/6/2025 1976 TEAMSTERS FT SEWER AND STORMWATER SUPERVISOR 147 81,610.1832 41.3007 85,690.8208 43.3658 89,975.3816 45.5341 94,474.5360 47.8110 99,197.9664 50.2014 104,157.9240 52.7115 1/27/2026 1976 TEAMSTERS PT AQUATICS POOL MANAGER PT12 24.1683 25.3767 26.6456 27.9779 29.3767 30.8455 7/6/2025 TEAMSTERS PT OFFICE ASSISTANT I PT1 17.5049 18.3327 19.2493 20.2118 21.2223 22.2834 7/6/2025 TEAMSTERS PT OFFICE ASSISTANT II PT2 17.9835 18.8826 19.8269 20.8181 21.8591 22.9519 7/6/2025 TEAMSTERS PT RECREATION AIDE PT1 17.5049 18.3327 19.2493 20.2118 21.2223 22.2834 7/6/2025 TEAMSTERS PT RECREATION LEADER I PT2 17.9835 18.8826 19.8269 20.8181 21.8591 22.9519 7/6/2025 TEAMSTERS PT RECREATION LEADER II PT7 20.8477 21.8902 22.9848 24.1339 25.3407 26.6076 7/6/2025 TEAMSTERS PT RECREATION LEADER III PT11 23.4643 24.6376 25.8694 27.1629 28.5210 29.9471 7/6/2025 TEAMSTERS PT RECREATION SPECIALIST PT4 19.0787 20.0326 21.0342 22.0860 23.1903 24.3498 7/6/2025 Last Revised 01/08/2026
Adopted by City Council on 01/27/2026
STEP 6
FY 2025-2026 SALARY SCHEDULE
STEP 1 STEP 2 STEP 3 STEP 4 STEP 5
429

DISCUSSION AND/OR ACTION ITEM

AGENDA ITEMS

6. 26-016
430

STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of January 27, 2026
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Christie Crowl, City Attorney
SUBJECT: Discussion of potential ordinance regulating tobacco sales RECOMMENDED ACTION:

Receive report. P rovide direction to staff regarding preparation of an ordinance, if desired.

BACKGROUND:

At the March 25, 2025 City Council meeting, several members of the Community Villages group spoke about local ordinances that regulate the sale of tobacco products, specifically retail licensing ordinances. Councilmember Walker-Griffin requested that the City Council discuss adoption of such an ordinance, and the City Council voted unanimously to direct staff to add such a discussion item to a future City Council meeting.

ANALYSIS:

Overview of Regulatory Framework for Retail Sale of Tobacco in California Tobacco sales in California are governed by a comprehensive regulatory framework that includes state statutes, state agency enforcement programs, and federal law. Local jurisdictions may adopt additional regulations but they are not required to do so, and such jurisdictions may not adopt regulations that conflict with or are otherwi se preempted by state or federal law.

These laws generally regulate the following:

1. Minimum age to purchase tobacco. State and federal law both prohibit sale of tobacco products to anyone under 21.

2. Sales practices.
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a. State and federal law require retailers to confirm a sale to anyone who appears under the age of 27 by checking photo identification, and such identification must be government-issued and unexpired. b. State law requires retailers to post their state and local tobacco retail licenses as well as an “age -of-sale warning” sign stating the minimum 21 years of age requirement at each cash register where tobacco sales are made.
c. State law prohibits the sale of single cigarettes or packages with less than 20 cigarettes.
d. State law prohibits any self-service display of tobacco products or tobacco paraphernalia in most circumstances.
e. State law prohibits the sale of tobacco products anywhere cannabis is sold. f. State law prohibits free tobacco samples.
g. State law restricts tobacco vending machines to adult-only locations.

3. Flavored tobacco products.
a. State law prohibits the sale of flavored cigarettes and most flavored tobacco products.
b. State law prohibits the sale of tobacco products anywhere cannabis is sold. c. State law prohibits the sale o f electronic cigarettes or refilling solutions unless there are child-resistant packaging meeting federal standards.

4. Advertising and packaging . State la w refers to federal/Food and Drug Administration (FDA) regulations governing product labeling, health warnings, and marketing practices.

5. Enforcement.
a. The California Department of Public Health (CDPH) and its Office of Youth Tobacco Enforcement (OYTE) conducts undercover youth compliance inspections under the Stop Tobacco Access to Kids Enforcement (STAKE) Act.
b. The California Department of Tax and Fee Administration (CDTFA) administers and enforces the state’s own TRL and has the authority to seize illegal products.
c. Local law enforcement agencies can conduct inspections and cite violations of state and federal law.

In sum, there is a robust federal and state regulatory and enforcement system governing tobacco sales.

Overview of Tobacco Retailer License Ordinances
Generally, cities with ordinances governing tobacco product sales require tobacco retailer licenses (“TRLs”) in addition to all state-required permits. These ordinance are generally adopted in order to raise revenue to fund compliance checks or public hea lth programs, and to reduce illegal sales to minors. Jurisdictions throughout California have adopted 432
TRL ordinances and/or regulate tobacco in ways that are consistent with state and federal law.

However, adoption is not uniform statewide . Many smaller cities, particularly those with limited retail outlets or low rates of tobacco -related violations, have opted not to adopt local licensing beyond what is required under California and federal law.

Existing HMC Requirements for Smoke Shops and Tobacco Retailers Hercules currently requires any smoke shop or tobacco retailer to obtain a conditional use permit which is a discretionary review process allowing the Planning Commission to confirm that the use will not adversely impact the general welfare of th e City. Larger retailers like supermarkets and gas stations also require a conditional use permit to operate. Hercules Municipal Code section 5 -6.111 further requires the following related to smoke shops and tobacco retailers:
 Smoke shops and tobacco stores shall not be located within 300 feet from a school, daycare or childcare facility, youth center, community center, recreational facility, park, church, hospital, or other similar uses where children regularly gather.  Smoke shops and tobacco stores shall not be located within 500 feet of another smoke shop or tobacco store.
 Sale of tobacco products to anyone under age 21 is prohibited.  Smoke shops and tobacco stores must post a notice stating that selling tobacco products to an yone under 21 is illegal and subject to penalties. The notice must also state that the law requires that all persons selling tobacco products check the identification of a purchaser of tobacco products who reasonably appears to be under 21. The notice must also include a toll-free telephone number to the State Department of Public Health for persons to report unlawful sales of tobacco products to any person under 21.

Staff notes that most cities in Contra Costa County actually do have a licensing requirement, but the smaller cities (e.g. Pinole, Martinez) have minimal requirements associated with the license that are similar to what HMC section 5 -6.111 requires. For example, Pinole’s TRL ordinance requires a license to operate a tobacco retailer but its regulations govern only limited advertising and display practices consistent with state law.

Tobacco Retailers in Hercules
Hercules has only five retailers that sell tobacco products:
 Lucky’s Supermarket (1590 Sycamore Avenue)
 Shell (3900 San Pablo Avenue)
 Willow Food & Liquor (844 Willow Street)
 Rocket (828 Willow Avenue)
 Safeway (4080 San Pablo Avenue)
In 2025, there were approximately 192 calls for service and/or security checks performed at these five locations and RiteAid (which closed in July). None of those calls/checks 433
were related to tobacco sales or resulted in any citations related to tobacco sales or use of tobacco by a minor.

Three of these locations (Lucky’s, Shell, and Safeway) are subject to corporate compliance programs that are intended to ensure all local, state, and federal law requirements are met and involve extensive employee training programs. There is a strong incentive for these locations to adhere to such requirements. For example, Safeway Corporation lost a lawsuit br ought by the Attorney General and the City of Los Angeles in 2004 for violation of age-of-sale laws which resulted in hefty state law-imposed fines and legal costs. Further, it is staff’s understanding that the other two locations (Willow Food & Liquor and Rocket) have not been the subject of any code enforcement or other investigation.

Analysis of the City’s Need for a TRL Ordinance
Hercules has not experienced a pattern of calls for service or documented problems related to illegal sales of tobacco to minors or the sale of illegal flavored products. The absence of local enforcement issues suggests that there is not a pressing public safety concern that a TRL ordinance would uniquely address.

A local TRL ordinance would create a new regulatory program that requires annual license issuance, fee collection, monitoring, compliance checks, and enforcement actions. For jurisdictions with expansive retailer networks and significant youth access problems, such programs may be justified. However, for a small city with limited staffing — particularly in the Police Department and code enforcement — administrative and enforcement burdens may overwhelm the City’s current bandwidth and capacity. Without dedicated staff or budget for compliance checks, a local licensing program risks becoming more symbolic rather than effective, while imposing new requirements on businesses.

Moreover, many TRL ordinances ant icipate revenue from licensing fees to offset enforcement costs. In a city with so few retailers, fees may not generate sufficient revenue to sustain compliance checks and administrative tasks, forcing the city to subsidize enforcement efforts with general funds or existing overextended staff.

Finally, staff notes that n ationwide and statewide data show long -term declines in youth tobacco use, even in the absence of local TRL ordinances. According to a recent study by the Centers for Disease Control and Pre vention (CDC), tobacco use among middle and high school students has significantly declined in the past few years, reaching the lowest level ever measured. The report notes that the decline in high schoolers’ use of e-cigarettes represents a significant factor in the decline. The American Lung Association has reported that California is one of the nation’s leaders in “smokefree air” and “tobacco prevention programs,” noting that the state invests hundreds of millions of dollars annually in robust tobacco control and prevention programs.

Summary of Analysis and Recommendation
While youth use of tobacco products remains a public health focus, current data suggest overall use rates are relatively low compared to past decades . Given that Hercules only has five retailers that sell tobacco, and given that none of these retailers has caused any 434
problems related to sales to minors or have been the subject of calls for service related to illegal tobacco sales, staff does not believe that the City needs a TRL ordinan ce.

Further, the license fees from such a small number of retailers likely would not sufficiently fund the licensing program, including administration and enforcement. Finally, administration and enforcement would be difficult for the City’s limited staff.

Balancing the City’s local context, administrative burden, and existing state and federal enforcement mechanisms suggests that maintaining the status quo is a reasonable path forward for ensuring compliance with tobacco laws and protecting youth in Hercules. Staff thus recommends that the City continue to rely on its existing regulations along with state and federal law. Staff will continue to monitor these locations and return to the City Council should issues associated with tobacco sales arise.

FISCAL IMPACT:

There is no fiscal impact to continued reliance on existing regulations.

If the City Council desires to explore preparation of a TRL ordinance, staff would need to conduct a study evaluating, at minimum: (1) the costs associated with enforcement of the proposed ordinance, (2) potential revenue from the 5 existing retailers, and (3) costs associated with administration of the ordinance’s licensing program. Staff may need to hire a consultant to perform such a study, and the cost of such a contract could vary based on the type of ordinance and regulations that the Council is proposing.

ATTACHMENTS:

None.

435

DISCUSSION AND/OR ACTION ITEM

AGENDA ITEMS

7. 26-011
436

STAFF REPORT TO THE CITY COUNCIL

DATE: Regular Meeting of January 27, 2026
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Christie Crowl, City Attorney
SUBJECT: Overview of H.R. 1 (“One Big Beautiful Bill Act”) and Potential Impacts on Local Governments
RECOMMENDED ACTION:

Receive and file report.

BACKGROUND:

In 2025, Congress enacted H.R. 1, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The legislation is a comprehensive federal statute addressing a wide range of fiscal, tax, and programmatic policies. OBBBA consolidates multiple policy initiatives into a single bill and represents one of the most significant federal legislative actions affecting taxation and federal spending in recent years.

OBBBA was enacted through the federal budget reconciliation process, which allows certain fiscal legislation to pass with a simple majority vote in the U.S. Senate. As a result, OBBBA primarily focuses on federal revenues, mandatory spending programs, and tax policy, rather than discretionary appropriations.

OBBBA was signed into law on July 4, 2025 and is being implemented in phases, with certain provisions taking effect immediately and other s phased in over several fiscal years.

ANALYSIS:

Overview of Major Components of H.R. 1
OBBBA’s major components generally fall into the following categories:
437

1. Federal Tax Policy Changes: OBBBA makes multiple amendments to the Internal Revenue Code affecting individuals and businesses, including temporary adjustments to the federal cap on the State and Local Tax (SALT) deduction, modifications to certain business tax provisions, and the preservation of the federal tax exemption for municipal bonds and private activity bonds used by state and local governments to finance infrastructure.

2. Mandatory Spending and Entitlement Program Reforms: OBBBA includes changes to large federal mandatory spending programs, such as health and nutrition assistance programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP), through funding reductions, eligibility modifications, and new administrative or work-related requirements intended to control federal expenditures over time.

3. Infrastructure and Federal Grant Programs: OBBBA rescinds or limits certain previously authorized but unobligated federal funds for transportation, environmental, and climate-related programs, while also authorizing or modifying selected public safety, homeland security, and emergency preparedness grant programs.

4. Energy and Environmental Policy Adjustments: OBBBA modifies, phases down, or eliminates certain federal clean energy, emissions reduction, and climate-related tax incentives and programs that were enacted under prior federal laws.

5. Economic Development and Investment Provisions: OBBBA includes provisions intended to encourage private investment and economic development, including adjustments to tax incentives affecting capital investment, housing, and designated development areas.

Potential Impacts of H.R. 1 to Local Governments
While the impacts of OBBBA to local government operations continue to be assessed, the following are key takeaways for cities:

Municipal Finance and Infrastructure:
 Preservation of Municipal Bond Exemption. OBBBA preserves the tax-exempt status for municipal and private activity bonds, which support local government infrastructure financing and serve as a critical financial tool for cities.  Temporary SALT Cap Increase. The legislation temporarily increases the federal SALT deduction cap from $10,000 to $40,000 (indexed annually through 2029) with phaseouts starting for households earning over $500,000, which may influence resident tax burdens and local economic conditions during the period the higher cap is in effect.
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 Changes to Tax Credits for Local Projects. Many federal tax credits tied to energy and climate resiliency projects that qualified for direct payment (elective pay) under prior law are limited, phased out, or eliminated, including certain credits for clean vehicles and charging infrastructure, potentially reducing federal support for local initiatives in these areas.
 Rescission of Unobligated Grants. OBBBA rescinds unobligated funds from several Inflation Reduction Act programs and eliminates specific federal grant initiatives, such as Environmental Justice Block Grants, Climate Pollution Reduction Grants, and the Neighborhood Access and Equity Program, which could affect local infrastructure and environmental projects that depend on federal participation.

Housing and Economic Development:
 Low-Income Housing Tax Credit Enhancements. OBBBA includes enhancements to the Low-Income Housing Tax Credit (LIHTC), which is an indirect federal subsidy used to finance the construction and rehabilitation of low- income affordable rental housing. The legislation increases 9 percent credit allocations by 12 percent and lowers the threshold for private-activity bond financing from 50 percent to 25 percent, starting in 2026, potentially facilitating more affordable housing development in partnership with private investors.  Modifications to Opportunity Zones. The legislation makes permanent the Opportunity Zones program, which offers tax benefits for reinvesting capital gains in designated communities, and modifies the tax incentives and eligibility rules, which may affect long-term investment strategies in those communities.

Health and Human Services:
 Medicaid and SNAP Reforms. OBBBA includes changes requiring states to implement work requirements for Medicaid and SNAP and shifts more administrative and financial responsibility to states. Reduced federal funding for these programs could indirectly affect local service demand and safety net needs. Moreover, cuts to Medicaid and SNAP could put more pressure on state budgets, which could in turn constrain municipal budgets.

Environmental and Energy Impacts:
 Reduction of Clean Energy Incentives. OBBBA reduces or phases out many clean energy tax credits and incentives created under prior federal law, including those for solar, wind, electric vehicles, and electric vehicle charging infrastructure. This may reduce federal support for municipal sustainability initiatives and energy projects.

Considerations for Cities
In addition to the changes enacted through OBBBA, the federal administration is continuing a broad review of federal grants and contracts to identify waste, fraud, abuse, and projects associated with diversity, equity, and inclusion initiatives. This evolving 439
federal landscape creates additional uncertainty for cities relying on federal funding and should be considered alongside the impacts of OBBBA.

In the near term, cities may wish to focus on:
 Risk management and funding preservation strategies, including reviewing active and pending federal grants to assess viability, timing constraints, and potential exposure to rescission or recoupment;
 Evaluating compliance with federal grants and assessing risk exposure and mitigation options;
 Accelerating eligible projects (e.g., solar, wind, electric vehicles, and electric vehicle charging infrastructure ) to take advantage of federal tax credits and elective pay provisions before phaseouts occur; and
 Exploring alternative funding sources such as state programs, regional initiatives, philanthropic organizations, and climate resilience financing mechanisms.

Over the longer term, cities may consider emphasizing fiscal resilience and diversified financing by leveraging preserved municipal bond tools for infrastructure investment, monitoring evolving federal and Internal Revenue Service guidance to ensure compliance, developing multi -source capital strategies that combine bonds with state, private, and philanthropic funding, and strengthening budget stabilization and reserve policies.

FISCAL IMPACT:

OBBBA may have indirect fiscal implications over time due to changes in federal funding levels for state- and county-administered programs, potential reductions in certain federal grant opportunities, and increased demand for community services. Any fiscal impacts are expected to be dependent on future state and federal implementation, and staff will continue to monitor developments and incorporate relevant considerations into the City’s budget and financial planning processes.

ATTACHMENTS:

None.

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