STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of March 24, 2026
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Glenn Dombeck, Public Works Director
Edwin Gato, Director of Finance
SUBJECT: Budget Workshop: Fiscal Year 2026-27 Capital Projects Proposed Budget and Ten-Year Capital Improvement Projects Plan RECOMMENDED ACTION:
Staff recommends that the City Council receive a presentation and provide feedback on the proposed projects, funding allocations, and prioritization for the Fiscal Year (FY) 2026-27 Proposed Capital Projects Budget and the associated Ten-Year Capital Improvement Plan (CIP).
EXECUTIVE SUMMARY:
The Capital Improvement Plan (CIP) serves as a comprehensive strategic outline for a multi-year effort dedicated to enhancing and maintaining critical infrastructure. This plan effectively transforms complex, multi-million-dollar infrastructure requirements into a prioritized and actionable agenda for the forthcoming fiscal years. It carefully navigates the constraints associated with limited funding sources, ensuring that essential improvements are both feasible and sustainable, ultimately contributing to the long-term vitality and resilience of our community infrastructure.
BACKGROUND:
The CIP articulates a vision for both short- and long-term project delivery and funding, aiming to maintain, enhance, and construct new and existing infrastructure assets that serve the needs of residents, businesses, property owners, and visitors. The CIP serves as a critical link among the General Plan, Parks Master Plan, and various other master planning documents, while also incorporating available resources to provide a structured framework for the planning, scheduling, and execution of capital projects over the next ten years.
The CIP plan is intended to integrate the City’s investments in infrastructure development and maintenance—commonly referred to as capital improvements—with other substantial capital expenditures that contribute to or strategically advance the City’s asset inventory. Projects within the CIP are identified as any long-term investment that builds, replaces, or improves an asset (e.g., facilities, roads, parks, sewers, and drainage systems), possesses a useful life of no less than five years, and incurs a minimum cost of $50,000.
A fundamental distinction between capital and operating budgets lies in the approval process; capital projects receive approval in one fiscal year, yet their completion may extend over multiple years. Conversely, operating budgets typically concentrate on ongoing maintenance and adhere to a "use-it-or-lose-it" principle at the conclusion of the fiscal year, resulting in any unspent funds being returned to the General Fund.
ANALYSIS:
The proposed FY 2026–27 CIP Budget and the associated TenYear CIP represent a comprehensive, longrange strategy to maintain, rehabilitate, and invest in the City’s critical infrastructure. The City continues its commitment to a “fixitfirst” philosophy, concentrating limited resources on essential improvements to streets, parks, facilities, sewer infrastructure, and the Hercules Hub.
This year’s CIP Budget builds upon prior Council direction, masterplanning documents, and conditionbased assessments to prioritize projects that address safety, regulatory compliance, asset preservation, and community needs. The projects identified for funding from the Ten-Year CIP have been selected in accordance with the strategic objectives established in the 2024 Parks and Recreation Facilities Master Plan, 2020 Collection System Master Plan Update, 2022 Pavement Management Program, and 2024 Building Assessment Report. These documents collectively inform the prioritization of capital investments and ensure that projects are aligned with longterm infrastructure strategies. This careful prioritization ensures alignment with limited resources and effectively addresses community needs.
Consistent with prior years, capital funding remains heavily constrained and is largely dependent on restricted revenues in specialized funds such as Gas Tax, SB1, Measure J, and the Sewer Enterprise Fund. The General Fund plays a limited but flexible role and continues to serve as the primary funding source for several highpriority projects and match requirements for grantfunded initiatives.
Overall, the FY 2026–27 CIP presents a balanced and realistic capital work plan for the upcoming year within the constraints of available resources. Staff will continue to pursue grant opportunities, partnerships, and longterm financing strategies to reduce the City’s unfunded capital backlog and ensure that infrastructure investments remain aligned with Council priorities and community needs.
As always, City staff are committed to being responsive to the community's identified priorities. Recently, the City conducted a survey for the Service Priorities Study in winter 2025 to gather information about the types of priorities our community is interested in. Some highlights of that study, as they pertain to our CIP, are noted below.
Streets and Transportation. The Ten-Year CIP Streets Program continues to face the most significant longterm funding pressure, with pavement conditions projected to decline under current expenditure levels. The FY 2026–27 CIP Budget includes the Foxboro Neighborhood Street Rehabilitation project, with plans to complete Phase 1 construction in the upcoming fiscal year and preparation of future phases that will address remaining deteriorated segments. Additional streets investments include the Annual Street Repair Program, John Muir Parkway improvements, and planning/design for the Sycamore Avenue Bike/Pedestrian Connector. While the TenYear CIP Streets Program outlines a $16.8 million program, funding gaps remain for several highpriority projects, including the Gateway Monument Sign and portions of the Sycamore Avenue Connector, which will require targeted grant pursuit and future appropriations.
Seventy-three to seventy-seven percent of respondents in the City’s recent survey indicated that repairing potholes and deteriorating streets, and preventing streets from deteriorating further, should be prioritized by the City—and they want the City to make it safer to drive and walk in the City by making these repairs, before they become more expensive in the future.
Parks and Recreation. Hercules has 13 different parks and nearly 500 park assets, including recreation facilities, fields, playgrounds, restrooms, and trails. Most of these are rated as being in “fair” condition. Reinvesting in the park system remains a top community priority and a significant financial challenge. The FY 2026–27 CIP Budget allocates full funding for two major park projects: the Refugio Lake Restoration Project and the final design and construction at Beechnut Park. These projects support key recommendations from the Parks Master Plan and address safety, ecological health, and recreational needs. Although the Ten-Year CIP Parks Program totals around $35.5 million, about 96 percent of this plan is currently unfunded. Future funding strategies—such as grants, partnerships, and exploring financing tools—will be necessary for large-scale improvements at Ohlone Park, Hanna Ranch Park, Refugio Valley Park, and other neighborhood parks.
In the Winter survey, the community expressed that they want the City’s parks and community facilities to be in better condition, and 70% say that improving parks should continue to be a priority of the City’s.
Facilities. City facilities continue to experience aging infrastructure and deferred maintenance needs. The FY 2026–27 CIP Budget for facilities is entirely supported by prioryear General Fund/Capital Reserve balances, with no new appropriations proposed for this fiscal year. Active projects include critical lifesafety, electrical, ADA, and operational improvements at City Hall, the Community Swim Center, the Senior Center, the Library, the Foxboro Community Center, and other facilities. The TenYear CIP Facilities Program identifies more than $8.3 million in unfunded future needs across multiple buildings, reflecting the continued challenge of maintaining essential public facilities within available resources.
Sewer System. The Ten-Year CIP Sewer Program is financially stable due to its dedicated enterprise funding structure. The FY 2026–27 Budget advances highpriority collection system rehabilitation, including design of the Willow–Newbury Sewer Rehabilitation Project and continued funding of an annual sewer condition assessment program. The Ten-Year CIP Sewer Program remains fully funded over the tenyear horizon, though several large, longrange projects—such as the Promenade Lift Station Improvements and future trunk main upgrades—will require reevaluation as hydraulic modeling and operational analyses progress as well as pursuit of grant funding opportunities.
Hercules Hub. Our community views the future vision of the Hercules Hub as a great opportunity to reducing traffic congestion by completing the bus, train, and ferry service planned at the Hercules Waterfront. The Hercules Hub continues to be the City’s most transformative and longterm transportation infrastructure initiative. The FY 2026–27 CIP Budget includes funding for ongoing design, environmental, and planning activities supported by a combination of General Fund/Capital Reserves and competitive grant sources. The City continues to pursue significant state and federal funding—including recently submitted Federal Support Program applications—to advance the rail station design and multimodal access improvements. While major construction will depend on securing substantial outside funding, the City’s continued progress on preliminary phases positions the Hub to remain competitive for future infrastructure programs.
Funding Sources:
The Capital Improvement Projects are funded almost exclusively by restricted fund revenues.
The Sewer Fund plays a crucial role in enhancing the City's infrastructure by focusing on the maintenance and replacement of the sewer systems.
The Transportation Fund encompasses various revenue sources, including the Gas Tax, Measure J, and the SB1 Road Maintenance and Repair Account, all of which stem from voter-approved initiatives to improve transportation infrastructure.
While the General Fund historically accounts for a smaller share of the overall capital budget, it is worth noting that it is unrestricted. This flexibility allows it to support a diverse range of public infrastructure projects that meet the community's needs.
To further enhance funding opportunities for approved Capital Improvement Projects, the City has engaged California Consulting, a grant writing consultancy. Their expertise will help identify and apply for relevant grants, thereby maximizing resources and supporting the City's strategic initiatives.
FISCAL IMPACT:
The FY 202627 CIP Budget fully funds all nearterm, deliverable capital projects while establishing a longrange outlook for the remaining years of the TenYear CIP. The proposed FY 202627 CIP Budget appropriates a total of $3.77 million in capital project funding across facilities, parks, streets and sewer.
Funding consists primarily of restricted transportation and sewer funds, supplemented by General Fund/Capital Reserves and prioryear carryover appropriations. Restricted transportation and sewer revenues provide stable support for core assets, while General Fund/Capital Reserves continue to play a targeted but critical role for project match commitments and park improvements. An additional approximately $2.268 million expenditure is projected on progressing the Hercules Hub. A summary of FY 202627 appropriations by CIP category is provided below.
CIP Category
FY 202627 Funding
Primary Funding Sources
Streets
$1,436,000
General Fund/Capital Reserves, SB1 RMRA, Measure J, Gas Tax, MTC TDA3 Parks
$1,895,995
General Fund/Capital Reserves, EBRPD WW Grant, Prop 68, Parks Impact Fees Facilities
$0
General Fund/Capital Reserves (funded from prioryear carryover estimated at $715,679) Sewer
$444,700
Sewer Enterprise Fund (ratesupported)
Hercules Hub
$2,268,500
General Fund/Capital Reserves, TIRCP, WCCTAC STMP, Federal earmark TOTAL
$6,035,195
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Across the full tenyear period of the CIP, excluding the Hercules Hub, there exist approximately $76.6 million in total capital needs. Of that amount, $41.9 million (54.7%) remains unfunded and will require future appropriations, grant awards, or other financing strategies. The largest longterm unfunded needs are concentrated in parks and facilities projects.
Projects with prior City Council appropriations that were not fully expended have remaining appropriation balances that are carried forward. These amounts are strictly estimates and will be reconciled at year-end. Amounts reflected in the projected carryover column should not be construed as funds available for commitment. In many cases, the carryover estimate includes funds that have been encumbered or committed under an executed contract.
The Ten-Year CIP is designed to align physical enhancements with comprehensive financial planning, thereby maximizing the benefits derived from available funding sources. The CIP primarily utilizes resources from various funding streams, largely distributed within the capital and special revenue funds, which have specific restrictions on their use. Additionally, the City has adopted a resolution (22-056) amending the statement of financial principles and policies to allocate any General Fund surplus to the capital reserve, ensuring a dedicated resource to address capital requirements. Nonetheless, the long-term financial forecast anticipates little reserve accumulation due to limited or nonexistent surpluses. It is therefore imperative to explore alternative sources of income to support these critical infrastructure projects.
ATTACHMENTS:
Proposed FY 26-27 CIP Budget & Ten-Year CIP Summary
Ten-Year CIP – Facility Category
Ten-Year CIP – Parks Category
Ten-Year CIP – Sewer Category
Ten-Year CIP – Street Category
Ten-Year CIP – Hercules HUB Category
Presentation