REPORT TO CITY COUNCIL
To:Honorable Mayor and Members of the City Council
From:Jason Simpson, City Manager
Prepared by:Brendan Rafferty, Assistant Administrative Services Director Date:June 24, 2025
Subject:Adoption of the FY 2025-26 Annual Operating Budget, Schedule of Authorized Positions, and the Gann Limit
Recommendation
1. Adopt A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE, CALIFORNIA, ADOPTING THE FY 2025-26 ANNUAL OPERATING BUDGET AND ESTABLISHING THE CONTROLS ON CHANGES IN THE APPROPRIATIONS;
2. Adopt A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE, CALIFORNIA, REVISING THE SCHEDULE OF AUTHORIZED POSITIONS; and
3. Adopt A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE, CALIFORNIA, ESTABLISHING THE APPROPRIATIONS GANN LIMIT FOR FY 2025-26 AND SELECTING THE POPULATION AND INFLATION FACTOR ACCORDINGLY.
Background
The Proposed Fiscal Year 2025-26 Annual Operating Budget is attached for your review. The budget includes revenue projections and expenditure requests for the General, Special Revenue, Capital Project, and Agency Funds. Also presented with this report are the FY2025-26 proposed authorized position schedule and the Gann Limit Calculation. The budget subcommittee has reviewed and discussed the FY2025-26 Annual Operating Budget and the noted items.
Inflation is stabilizing, and the job market is doing well. However, the economic outlook is uncertain as the Federal Reserve continues to hold interest rates steady and determines the impact of tariffs on imported goods. The City will continue to operate fiscally prudently, maintaining current public safety service levels and providing critical services that our citizens have come to expect.
FY 2025-26 Annual Operating Budget
The City is committed to reflecting the community's priorities in the budget. It looks forward to ongoing engagement with residents, soliciting feedback, and reporting to the public and City Council on identified needs and priorities. The City seeks to keep Lake Elsinore safe, clean, and well-maintained to help protect and improve local property values. Working together, we will ensure our budget and financial policies reflect spending consistent with the community's priorities.
As such, the Fiscal Year 2025-26 Annual Operating Budget Status Report proposes maintaining current services through June 30, 2026, and the Uncertainty Reserve at 20%.
Discussion
Current Condition - State of California – May 2025 Revision Budget (Governor Newsom) Gov. Gavin Newsom unveiled his May revision to the Fiscal Year 2025-26 budget proposal on Thursday, May 14, 2025. The revised budget proposal reflects a $12 billion shortfall. The budget includes an estimated deficit of $7.5 billion and a build-up of the state's discretionary reserve by $4.5 billion. The May Revision downgrades the state's economic outlook based on recent federal policies, most notably the imposition of tariffs.
Unlike the last two years, during which the state also faced budget deficits, this year's approach includes a significant number of reductions to ongoing programs, resulting in greater savings in future years.
•Reductions—$5 billion in total solutions in 2025-26. This category is projected to grow to $14.8 billion by 2028-29.
oEnrollment Freeze for Full-Scope Medi-Cal Expansion for Undocumented Adults, Adults 19 and older—$86.5 million in 2025-26, growing to $3.3 billion in 2028-29.
oMedi-Cal Premiums, Adults 19 and Older—Implementation cost of $30 million in 2025-26, growing to savings of $2.1 billion in 2028-29 for individuals with certain statuses, those who will eventually qualify for federal funds, and individuals enrolled in the Medi-Cal full-scope expansion.
oMedi-Cal Asset Test Limits—$94 million in 2025-26, growing to $791 million in 2028-29.
oElimination of Long-Term Care Benefits—$333.3 million in 2025-26, growing to$800 million in 2026-27 for individuals with certain statuses, those who will eventually qualify for federal funds, and individuals enrolled in the Medi-Cal full- scope expansion.
oProspective Payment System Payments to Federally Qualified Health Centers and Rural Health Clinics—$452.5 million in 2025-26, growing to $1.1 billion in 2026-27.
oSpecialty Drug Coverage for Weight Loss—$85 million in 2025-26, growing to$680 million in 2028-29.
oCap In-Home Supportive Services Overtime and Travel Hours at 50 Hours— $707.5 million in 2025-26, growing to $893.4 million in 2028-29.
FY 2025-26 Annual Operating Budget
oRequire Provider Mandates for Quality Incentive Payment Incentive Eligibility—$221.7 million ongoing beginning in 2026-27. •Revenue/Borrowing—$5.3 billion in total solutions in 2025-26. oProposition 35 Support for Medi-Cal Rate Increases—$1.3 billion in 2025-26 and$263.7 million in 2026-27.
oMedical Providers Interim Payment Fund Loan—$3.4 billion due to extending the repayment deadline.
oUnfair Competition Law Fund Loan—$150 million in 2025-26. oLabor and Workforce Development Fund Loan—$400 million in 2025-26. •Fund Shifts—$1.7 billion total solutions in 2025-26.
oGreenhouse Gas Reduction Fund for CAL FIRE Operations—$1.5 billion in 2025-26, growing to $1.9 billion in 2028-29.
In addition to these solution categories, the May Revision includes triggers for two future spending commitments.
•Triggers—$456.1 million in commitments would be triggered in 2027-28, contingent upon sufficient resources to support these commitments.
oCalifornia Food Assistance Program Expansion—$117.2 million in 2027-28, growing to $163.2 million in 2028-29.
oFoster Care Tiered Rate Structure Trigger—$338.9 million in 2027-28, growing to $522.1 million in 2028-29.
The next step is negotiation with lawmakers. The California Legislature must approve a state budget by June 15.
City General Fund Revenues
The projected General Fund revenues are $77.49 million for Fiscal Year 2025-26, representing a $4,937,480, or 6.81%, increase from Fiscal Year 2025-25. General Fund revenues have increased primarily due to the passing of Measure Z. The most significant revenue increases are identified below:
•Reimbursement & Other – 20.18% ($2.77 million)
oMeasure Z - $2.17 million
oNPDES - $330k
•Special Assessments – 20.02% ($1.33 million)
•Franchise Tax – 25.00% ($721,090)
•Property Tax – 5.88% ($692,540)
•Sales Tax – Decrease of 2.98% (-$494,730)
oWeakened consumer confidence
oSales Tax Revenue is down statewide
oUp $561k vs. FY 23/24
FY 2025-26 Annual Operating Budget
City General Fund Expenditures
The proposed budget of $77.49 million reflects an increase in General Fund expenditures of $4,937,480, or a 6.81% increase from Fiscal Year 2024-25. The primary factors contributing to this increase are:
•Police Services – 14.6% ($2.85 million)
oNew union contracts and an estimated 11% cost increase. oAdded 1 Traffic Officer
•Fire Services – 8.81% ($1.07 million)
oMove from a 72-hour work week to a 66-hour work week.
•Recreation – 13.5% ($322,620)
oMinimum wage increase and benefits.
•Human Resources – 31.72% ($257,480)
oAdded 1 HR Specialist
The City has continued to focus on reorganizing department structures to streamline processes and enhance efficiencies without reducing essential public services to the community.
Schedule of Authorized Positions
Section 37206 of the California Government Code requires the City Council to prescribe the time and method of paying salaries and wages of City officers and employees. Under Government Code Section 37206, the City Council annually adopts, by resolution, a schedule of authorized positions for each fiscal year.
"Gann" Appropriations Limit
Under Government Section 7910, the City Council is required, on an annual basis, to adopt by resolution the "Gann" Appropriations Limit. The Appropriations Limit restricts the revenue that can be appropriated in any fiscal year. The Limit is adjusted each year based on changes in population, non-residential assessed valuation, or California's per capita income. The Limit for the FY2025-26 is based on California's per capita income.
Using population and per capita personal income data provided by the State Department of Finance, the City's Appropriations Limit for Fiscal Year 2025-26 has been computed to be $143,842,430. Appropriations subject to the Limit in the proposed Fiscal Year 2025-26 budget total $52,399,860, which is $91,442,570 less than the computed Limit. Additional appropriations to the budget are funded by non-tax sources such as service charges, restricted revenues from other agencies, grants, or beginning fund balances, which would be unaffected by the Appropriations Limit. However, any supplemental appropriations funded through increased tax sources could not exceed the $91,442,570 variance indicated above. Furthermore, any actual receipts from tax sources exceeding $91,442,570 from the budget estimates will result in proceeds from taxes above the City's Appropriations Limit, requiring refunds of the excess within the next two fiscal years or voter approval to increase the City's Appropriations Limit. Above the City's Appropriations Limit, refunds of the excess within the next two fiscal years or voter approval are required to increase the City's Appropriations Limit.
FY 2025-26 Annual Operating Budget
Fiscal Impact
The Proposed FY2025-26 Annual Operating Budget provides a balanced budget while maintaining the 20.0% designation for the economic uncertainty reserve target of $15,497,246.
Attachments
Attachment 1 - Resolution Operating Budget
Exhibit A - General Fund Summary
Exhibit B - FY 25-26 All Other Funds Summary
Exhibit C - FY 24-25 All Other Funds Summary
Attachment 2 – Resolution Authorized Positions FY 25-26 Exhibit A - Schedule of Authorized Positions
Attachment 3 - Resolution Gann Limit FY 25-26
Exhibit A - Appropriations Limit Calculation
Attachment 4 - Measure Z Spending Plan
Administrative Services