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there are contingency funds collected, they may be held in a reserve fund or utilized for other program, administration or renewal costs at the discretion of VMB. Policies relating to contributions to the reserve fund, the target amount of the reserve fund, and expenditure of monies from the reserve fund shall be set by VMB. Contingency/reserve funds may be spent on MBTBID programs or administrative and renewal costs in such proportions as determined by VMB. The reserve fund may be used for the costs of renewing the MBTBID.
B. Annual Budget
The total ten (10) year assessment budget is projected at approximately $1,200,000 annually, or $12,000,000 through the ten (10) year term of the MBTBID. A similar budget is expected to apply to subsequent years, but this budget is expected to fluctuate as room sales do, and as businesses open and close.
C. California Constitutional Compliance
The MBTBID assessment is not a property-based assessment subject to the requirements of Proposition 218. Courts have found Proposition 218 limited the term ‘assessments’ to levies on real property.1 Rather, the MBTBID assessment is a business-based assessment, and is subject to Proposition 26. Pursuant to Proposition 26 all levies are a tax unless they fit one of seven exceptions.
Two of these exceptions apply to the MBTBID, a “specific benefit” and a “specific government service.” Both require that the costs of benefits or services do not exceed the reasonable costs to the City of conferring the benefits or providing the services.
1. Specific Benefit
Proposition 26 requires that assessment funds be expended on, “a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege.”2 The services in this Plan are designed to provide targeted benefits directly to assessed businesses, and are intended only to provide benefits and services directly to those businesses paying the assessment. These services are tailored not to serve the general public, businesses in general, or parcels of land, but rather to serve the specific businesses within the MBTBID. The activities described in this Plan are specifically targeted to increase demand for room night sales for assessed businesses within the boundaries of the MBTBID and are narrowly tailored. MBTBID funds will be used exclusively to provide the specific benefit of increased demand for room night sales directly to the assessees. Assessment funds shall not be used to feature non-assessed businesses in MBTBID programs, or to directly generate sales for non-assessed businesses. The activities paid for from assessment revenues are business services constituting and providing specific benefits to the assessed businesses. Nothing in this Plan limits the ability of the Owners’ Association to enter into private contracts with non-assessed businesses for the provision of services to those businesses.
The assessment imposed by this MBTBID is for a specific benefit conferred directly to the payors that is not provided to those not charged. The specific benefit conferred directly to the payors is an increase in demand for room night sales. The specific benefit of an increase in demand for room night sales for assessed businesses will be provided only to businesses paying the district assessment, with Sales, Marketing, Communications, and Destination Development programs promoting businesses paying the MBTBID assessment. The marketing, sales, communications, and destination development programs will be designed to increase room night sales at each assessed business. 1 Jarvis v. the City of San Diego 72 Cal App. 4th 230
2 Cal. Const. art XIII C § 1(e)(1)
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Because they are necessary to provide the marketing, sales, communications, and destination development programs that specifically benefit the assessed businesses, the administration and contingency services also provide the specific benefit of increased demand for room night sales to the assessed businesses.
Although the MBTBID, in providing specific benefits to payors, may produce incidental benefits to non-paying businesses, the incidental benefit does not preclude the services from being considered a specific benefit. The legislature has found that, “A specific benefit is not excluded from classification as a ‘specific benefit’ merely because an indirect benefit to a nonpayor occurs incidentally and without cost to the payor as a consequence of providing the specific benefit to the payor.”3
2. Specific Government Service
The assessment may also be utilized to provide, “a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.”4 The legislature has recognized that marketing and promotions services like those to be provided by the MBTBID are government services within the meaning of Proposition 265. Further, the legislature has determined that “a specific government service is not excluded from classification as a ‘specific government service’ merely because an indirect benefit to a nonpayor occurs incidentally and without cost to the payor as a consequence of providing the specific government service to the payor.”6
3. Reasonable Cost
MBTBID services will be implemented carefully to ensure they do not exceed the reasonable cost of such services. The full amount assessed will be used to provide the services described herein. Funds will be managed by VMB, and reports submitted on an annual basis to the City. Only assessed businesses will be featured in marketing materials, receive sales leads generated from MBTBID-funded activities, be featured in advertising campaigns, and benefit from other MBTBID-funded services. The assessed business list was compiled from records provided by the jurisdiction and complies with the requirements of the 94 Law. Pursuant to Streets and Highways Code Section 36615, the City Council’s determination of ownership is final and conclusive, with no obligation to obtain other information.
Non-assessed businesses will not receive these, nor any other, MBTBID-funded services and benefits.
The MBTBID-funded programs are targeted directly to benefit assessed businesses. It is, however, possible that there will be a spill over benefit to non-assessed businesses. If non-assessed businesses receive incremental room nights, that portion of the promotion or program generating those room nights shall be paid with non-MBTBID funds. MBTBID funds shall only be spent to benefit the assessed businesses, and shall not be spent on that portion of any program which directly generates incidental room nights for non-assessed businesses.
D. Assessment
The annual assessment rate is three percent (3%) of gross short term sleeping room rental revenue.
Based on the benefit received, assessments will not be collected on stays of more than thirty (30) consecutive days; and on any officer or employee of a foreign government who is exempt by reason of express provision of federal law or international treaty. 3 Government Code § 53758(a)
4 Cal. Const. art XIII C § 1(e)(2)
5 Government Code § 53758(b)
6 Government Code § 53758(b)
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The assessment was calculated based on the total cost of the activities to be provided for the benefit of the businesses within the MBTBID, with costs allocated based on the proportional benefit conferred to each business. Activities funded by the MBTBID, are specifically targeted to increase room nights at assessed businesses. All room night sales do not represent the same benefit to the payors. For example, a higher priced room night is of greater benefit than a lower priced room night because the assessee derives greater revenue. To account for this benefit differential and to make sure the benefits are proportional, an assessment formula based on a percentage of revenue has been selected. The proposed formula accurately reflects greater benefit to assessed businesses with higher priced room nights.
The term “gross short-term sleeping room rental revenue” as used herein means: the consideration charged on the room rate for the occupancy of space in a lodging business or vacation rental business valued in money, not including other charges such as reservation fees, forfeited deposits, cancelation fees, attrition fees, no-show fees, parking fees, internet fees, roll-a-way beds fees, early and/or late checkout fees, or any other charges or fees (existing or in the future).
Gross sleeping room rental revenue shall not include, and therefore the assessment shall not be charged upon, any federal, state or local taxes collected, including but not limited to transient occupancy taxes.
The assessment is levied upon and a direct obligation of the assessed business. However, the assessed business may, at its discretion, pass the assessment on to transients. The amount of assessment, if passed on to each transient, shall be disclosed in advance and separately stated from the amount of rent charged and any other applicable taxes, and each transient shall receive a receipt for payment from the business. If the MBTBID assessment is identified separately it shall be disclosed as the “MBTBID Assessment.” As an alternative, the disclosure may include the amount of the MBTBID assessment and the amount of the assessment imposed pursuant to the California Tourism Marketing Act, Government Code §13995 et seq. and shall be disclosed as the “Tourism Assessment.” The assessment is imposed solely upon, and is the sole obligation of the assessed business even if it is passed on to transients. The assessment shall not be considered revenue for calculation of transient occupancy taxes.
Bonds shall not be issued.
E. Interest and Overdue Charges
The MBTBID shall reimburse the City for any costs and fees (including, but not limited to, both City staff time as reasonably calculated by the City, as well as any attorney’s fees) associated with collecting unpaid assessments. If sums in excess of the delinquent MBTBID assessment are sought to be recovered in the same collection action by the City, the MBTBID shall bear its pro rata share of such collection costs. Assessed businesses which are delinquent in paying the assessment shall be responsible for paying:
1. Original Delinquency. Any owner who fails to remit any assessment imposed by this Plan within the time required shall pay an overdue charge of ten percent (10%) of the amount of the assessment in addition to the amount of the assessment.
2. Continued Delinquency. Any owner who fails to remit any delinquent remittance on or before a period of thirty (30) days following the date on which the remittance first became delinquent shall pay a second delinquency overdue charge of ten percent (10%) of the amount of the assessment in addition to the amount of the assessment and the ten percent (10%) overdue charge first imposed.
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3. Fraud. If the City determines in its sole reasonable discretion that the nonpayment of any remittance due under this chapter is due to fraud and/or intent to mislead the City, a overdue charge of twenty-five percent (25%) of the amount of the assessment shall be added thereto in addition to the overdue charges stated in subsections 1 and 2 of this section.
4. Interest. In addition to the overdue charges imposed, any owner who fails to remit any assessment imposed by this Plan shall pay interest at the rate of one-half of one percent (0.05%) per month or fraction thereof on the amount of the assessment, exclusive of overdue charges, from the date on which the remittance first became delinquent until paid.
5. Overdue Charges Merged with Assessment. Every overdue charge imposed and such interest as accrues under the provisions of this section shall become a part of the assessment herein required to be paid.
F. Time and Manner for Collecting Assessments
The MBTBID assessment will be implemented beginning July 1, 2026, or as soon as possible thereafter, and ending ten (10) years from its start date. The City will be responsible for collecting the assessment on a monthly basis (including any delinquencies, interest and overdue charges) from each assessed business. The City shall take all reasonable efforts to collect the assessments from each assessed business. The City shall forward the assessments collected to the VMB.
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VI. GOVERNANCE
A. Owners’ Association
The City Council, through adoption of this Plan, has the right, pursuant to Streets and Highways Code §36651, to identify the body that shall implement the proposed program, which shall be the Owners’ Association of the MBTBID as defined in Streets and Highways Code §36612. The City Council has determined that VMB will continue to serve as the Owners’ Association for the MBTBID. The City reserves the right to conduct regular financial and/or operational audits, as reasonably determined to be appropriate by City in City’s sole discretion, of the Owners’ Association. Any such City audits will receive the full and unqualified cooperation and assistance of the Owners’ Association, and upon request by City will be paid for in whole or part with MBTBID funds. Consistent with law, and for good cause as reasonably demonstrated to the satisfaction of the City Council, the City Council at a noticed public hearing may designate a different qualified private nonprofit entity as the Owners’ Association of the MBTBID, to replace either Visit Morro Bay, or any subsequent designated Owners’ Association.
B. Brown Act and California Public Records Act Compliance An Owners’ Association is a private entity and may not be considered a public entity for any purpose, nor may its board members or staff be considered to be public officials for any purpose. The Owners’ Association is, however, subject to government regulations relating to transparency, namely the Ralph M. Brown Act and the California Public Records Act. These regulations are designed to promote public accountability. The Owners’ Association acts as a legislative body under the Ralph M. Brown Act (Government Code §54950 et seq.). Thus, meetings of the VMB Board and certain committees must be held in compliance with the public notice and other requirements of the Brown Act.
Accordingly, the Owners’ Association shall publicly report any action taken and the vote or abstention on that action of each member present for the action. The Owners’ Association is also subject to the record keeping and disclosure requirements of the California Public Records Act.
C. Annual Report
The VMB shall present an annual report at the end of each year of operation to the City Council pursuant to Streets and Highways Code §36650 (see Appendix 1). The annual report shall include:
• Any proposed changes in the boundaries of the improvement district or in any benefit zones or classification of businesses within the district.
• The improvements and activities to be provided for that fiscal year. • An estimate of the cost of providing the improvements and the activities for that fiscal year. • The method and basis of levying the assessment in sufficient detail to allow each business owner to estimate the amount of the assessment to be levied against his or her business for that fiscal year.
• The estimated amount of any surplus or deficit revenues to be carried over from a previous fiscal year.
• The estimated amount of any contributions to be made from sources other than assessments levied pursuant to this part.
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APPENDIX 1 – LAW
CURRENT THROUGH ALL LEGISLATION OF THE 2024 REGULAR AND SPECIAL SESSIONS
STREETS AND HIGHWAYS CODE
DIVISION 18. PARKING
PART 7. PROPERTY AND BUSINESS IMPROVEMENT DISTRICT LAW OF 1994 CHAPTER 1. General Provisions
ARTICLE 1. Declarations
36600. Citation of part
This part shall be known and may be cited as the “Property and Business Improvement District Law of 1994.” 36601. Legislative findings and declarations; Legislative guidance
The Legislature finds and declares all of the following:
(a) Businesses located and operating within business districts in some of this state’s communities are economically disadvantaged, are underutilized, and are unable to attract customers due to inadequate facilities, services, and activities in the business districts. (b) It is in the public interest to promote the economic revitalization and physical maintenance of business districts in order to create jobs, attract new businesses, and prevent the erosion of the business districts. (c) It is of particular local benefit to allow business districts to fund business related improvements, maintenance, and activities through the levy of assessments upon the businesses or real property that receive benefits from those improvements.
(d) Assessments levied for the purpose of conferring special benefit upon the real property or a specific benefit upon the businesses in a business district are not taxes for the general benefit of a city, even if property, businesses, or persons not assessed receive incidental or collateral effects that benefit them. (e) Property and business improvement districts formed throughout this state have conferred special benefits upon properties and businesses within their districts and have made those properties and businesses more useful by providing the following benefits:
(1) Crime reduction. A study by the Rand Corporation has confirmed a 12-percent reduction in the incidence of robbery and an 8-percent reduction in the total incidence of violent crimes within the 30 districts studied.
(2) Job creation.
(3) Business attraction.
(4) Business retention.
(5) Economic growth.
(6) New investments.
(f) With the dissolution of redevelopment agencies throughout the state, property and business improvement districts have become even more important tools with which communities can combat blight, promote economic opportunities, and create a clean and safe environment. (g) Since the enactment of this act, the people of California have adopted Proposition 218, which added Article XIII D to the Constitution in order to place certain requirements and restrictions on the formation of, and activities, expenditures, and assessments by property-based districts. Article XIII D of the Constitution provides that property-based districts may only levy assessments for special benefits. (h) The act amending this section is intended to provide the Legislature’s guidance with regard to this act, its interaction with the provisions of Article XIII D of the Constitution, and the determination of special benefits in property-based districts.
(1) The lack of legislative guidance has resulted in uncertainty and inconsistent application of this act, which discourages the use of assessments to fund needed improvements, maintenance, and activities in property-based districts, contributing to blight and other underutilization of property. (2) Activities undertaken for the purpose of conferring special benefits upon property to be assessed inherently produce incidental or collateral effects that benefit property or persons not assessed. Therefore, for special benefits to exist as a separate and distinct category from general
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benefits, the incidental or collateral effects of those special benefits are inherently part of those special benefits. The mere fact that special benefits produce incidental or collateral effects that benefit property or persons not assessed does not convert any portion of those special benefits or their incidental or collateral effects into general benefits. (3) It is of the utmost importance that property-based districts created under this act have clarity regarding restrictions on assessments they may levy and the proper determination of special benefits. Legislative clarity with regard to this act will provide districts with clear instructions and courts with legislative intent regarding restrictions on property-based assessments, and the manner in which special benefits should be determined.
36602. Purpose of part
The purpose of this part is to supplement previously enacted provisions of law that authorize cities to levy assessments within property and business improvement districts, to ensure that those assessments conform to all constitutional requirements and are determined and assessed in accordance with the guidance set forth in this act.
This part does not affect or limit any other provisions of law authorizing or providing for the furnishing of improvements or activities or the raising of revenue for these purposes. 36603. Preemption of authority or charter city to adopt ordinances levying assessments
Nothing in this part is intended to preempt the authority of a charter city to adopt ordinances providing for a different method of levying assessments for similar or additional purposes from those set forth in this part. A property and business improvement district created pursuant to this part is expressly exempt from the provisions of the Special Assessment Investigation, Limitation and Majority Protest Act of 1931 (Division 4 (commencing with Section 2800)).
36603.5. Part prevails over conflicting provisions
Any provision of this part that conflicts with any other provision of law shall prevail over the other provision of law, as to districts created under this part.
36604. Severability
This part is intended to be construed liberally and, if any provision is held invalid, the remaining provisions shall remain in full force and effect. Assessments levied under this part are not special taxes.
ARTICLE 2. Definitions
36606. “Activities”
“Activities” means, but is not limited to, all of the following that benefit businesses or real property in the district:
(a) Promotion of public events.
(b) Furnishing of music in any public place.
(c) Promotion of tourism within the district.
(d) Marketing and economic development, including retail retention and recruitment. (e) Providing security, sanitation, graffiti removal, street and sidewalk cleaning, and other municipal services supplemental to those normally provided by the municipality. (f) Other services provided for the purpose of conferring special benefit upon assessed real property or specific benefits upon assessed businesses located in the district. 36606.5. “Assessment”
“Assessment” means a levy for the purpose of acquiring, constructing, installing, or maintaining improvements and providing activities that will provide certain benefits to properties or businesses located within a property and business improvement district.
36607. “Business”
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“Business” means all types of businesses and includes financial institutions and professions. 36608. “City”
“City” means a city, county, city and county, or an agency or entity created pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code, the public member agencies of which includes only cities, counties, or a city and county, or the State of California. 36609. “City council”
“City council” means the city council of a city or the board of supervisors of a county, or the agency, commission, or board created pursuant to a joint powers agreement and which is a city within the meaning of this part. 36609.4. “Clerk”
“Clerk” means the clerk of the legislative body.
36609.5. “General benefit”
“General benefit” means, for purposes of a property-based district, any benefit that is not a “special benefit” as defined in Section 36615.5.
36610. “Improvement”
“Improvement” means the acquisition, construction, installation, or maintenance of any tangible property with an estimated useful life of five years or more including, but not limited to, the following:
(a) Parking facilities.
(b) Benches, booths, kiosks, display cases, pedestrian shelters and signs. (c) Trash receptacles and public restrooms.
(d) Lighting and heating facilities.
(e) Decorations.
(f) Parks.
(g) Fountains.
(h) Planting areas.
(i) Closing, opening, widening, or narrowing of existing streets. (j) Facilities or equipment, or both, to enhance security of persons and property within the district. (k) Ramps, sidewalks, plazas, and pedestrian malls.
(l) Rehabilitation or removal of existing structures.
36611. “Management district plan”; “Plan”
“Management district plan” or “plan” means a proposal as defined in Section 36622. 36612. “Owners’ association”
“Owners’ association” means a private nonprofit entity that is under contract with a city to administer or implement improvements, maintenance, and activities specified in the management district plan. An owners’ association may be an existing nonprofit entity or a newly formed nonprofit entity. An owners’ association is a private entity and may not be considered a public entity for any purpose, nor may its board members or staff be considered to be public officials for any purpose. Notwithstanding this section, an owners’ association shall comply with the Ralph M. Brown Act (Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5 of the Government Code), at all times when matters within the subject matter of the district are heard, discussed, or deliberated, and with the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), for all records relating to activities of the district. 36614. “Property”
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“Property” means real property situated within a district. 36614.5. “Property and business improvement district”; “District”
“Property and business improvement district,” or “district,” means a property and business improvement district established pursuant to this part.
36614.6. “Property-based assessment”
“Property-based assessment” means any assessment made pursuant to this part upon real property. 36614.7. “Property-based district”
“Property-based district” means any district in which a city levies a property-based assessment. 36615. “Property owner”; “Business owner”; “Owner”
“Property owner” means any person shown as the owner of land on the last equalized assessment roll or otherwise known to be the owner of land by the city council. “Business owner” means any person recognized by the city as the owner of the business. “Owner” means either a business owner or a property owner. The city council has no obligation to obtain other information as to the ownership of land or businesses, and its determination of ownership shall be final and conclusive for the purposes of this part. Wherever this part requires the signature of the property owner, the signature of the authorized agent of the property owner shall be sufficient. Wherever this part requires the signature of the business owner, the signature of the authorized agent of the business owner shall be sufficient. 36615.5. “Special benefit”
(a) “Special benefit” means, for purposes of a property-based district, a particular and distinct benefit over and above general benefits conferred on real property located in a district or to the public at large. Special benefit includes incidental or collateral effects that arise from the improvements, maintenance, or activities of property-based districts even if those incidental or collateral effects benefit property or persons not assessed. Special benefit excludes general enhancement of property value. (b) “Special benefit” also includes, for purposes of a property-based district, a particular and distinct benefit provided directly to each assessed parcel within the district. Merely because parcels throughout an assessment district share the same special benefits does not make the benefits general. 36616. “Tenant”
“Tenant” means an occupant pursuant to a lease of commercial space or a dwelling unit, other than an owner.
ARTICLE 3. Prior Law
36617. Alternate method of financing certain improvements and activities; Effect on other provisions
This part provides an alternative method of financing certain improvements and activities. The provisions of this part shall not affect or limit any other provisions of law authorizing or providing for the furnishing of improvements or activities or the raising of revenue for these purposes. Every improvement area established pursuant to the Parking and Business Improvement Area Law of 1989 (Part 6 (commencing with Section 36500) of this division) is valid and effective and is unaffected by this part.
CHAPTER 2. Establishment
36620. Establishment of property and business improvement district
A property and business improvement district may be established as provided in this chapter.
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36620.5. Requirement of consent of city council
A county may not form a district within the territorial jurisdiction of a city without the consent of the city council of that city. A city may not form a district within the unincorporated territory of a county without the consent of the board of supervisors of that county. A city may not form a district within the territorial jurisdiction of another city without the consent of the city council of the other city. 36621. Initiation of proceedings; Petition of property or business owners in proposed district
(a) Upon the submission of a written petition, signed by the property or business owners in the proposed district who will pay more than 50 percent of the assessments proposed to be levied, the city council may initiate proceedings to form a district by the adoption of a resolution expressing its intention to form a district. The amount of assessment attributable to property or a business owned by the same property or business owner that is in excess of 40 percent of the amount of all assessments proposed to be levied, shall not be included in determining whether the petition is signed by property or business owners who will pay more than 50 percent of the total amount of assessments proposed to be levied. (b) The petition of property or business owners required under subdivision (a) shall include a summary of the management district plan. That summary shall include all of the following:
(1) A map showing the boundaries of the district.
(2) Information specifying where the complete management district plan can be obtained. (3) Information specifying that the complete management district plan shall be furnished upon request.
(c) The resolution of intention described in subdivision (a) shall contain all of the following:
(1) A brief description of the proposed improvements, maintenance, and activities, the amount of the proposed assessment, a statement as to whether the assessment will be levied on property or businesses within the district, a statement as to whether bonds will be issued, and a description of the exterior boundaries of the proposed district, which may be made by reference to any plan or map that is on file with the clerk. The descriptions and statements do not need to be detailed and shall be sufficient if they enable an owner to generally identify the nature and extent of the improvements, maintenance, and activities, and the location and extent of the proposed district. (2) A time and place for a public hearing on the establishment of the property and business improvement district and the levy of assessments, which shall be consistent with the requirements of Section 36623.
36622. Contents of management district plan
The management district plan shall include, but is not limited to, all of the following:
(a) If the assessment will be levied on property, a map of the district in sufficient detail to locate each parcel of property and, if businesses are to be assessed, each business within the district. If the assessment will be levied on businesses, a map that identifies the district boundaries in sufficient detail to allow a business owner to reasonably determine whether a business is located within the district boundaries. If the assessment will be levied on property and businesses, a map of the district in sufficient detail to locate each parcel of property and to allow a business owner to reasonably determine whether a business is located within the district boundaries.
(b) The name of the proposed district.
(c) A description of the boundaries of the district, including the boundaries of benefit zones, proposed for establishment or extension in a manner sufficient to identify the affected property and businesses included, which may be made by reference to any plan or map that is on file with the clerk. The boundaries of a proposed property assessment district shall not overlap with the boundaries of another existing property assessment district created pursuant to this part. This part does not prohibit the boundaries of a district created pursuant to this part to overlap with other assessment districts established pursuant to other provisions of law, including, but not limited to, the Parking and Business Improvement Area Law of 1989 (Part 6 (commencing with Section 36500)). This part does not prohibit the boundaries of a business assessment district created pursuant to this part to overlap with another business assessment district created pursuant to this part. This part does not prohibit the boundaries of a business assessment district created pursuant to this part to overlap with a property assessment district created pursuant to this part.
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(d) The improvements, maintenance, and activities proposed for each year of operation of the district and the estimated cost thereof. If the improvements, maintenance, and activities proposed for each year of operation are the same, a description of the first year’s proposed improvements, maintenance, and activities and a statement that the same improvements, maintenance, and activities are proposed for subsequent years shall satisfy the requirements of this subdivision.
(e) The total annual amount proposed to be expended for improvements, maintenance, or activities, and debt service in each year of operation of the district. If the assessment is levied on businesses, this amount may be estimated based upon the assessment rate. If the total annual amount proposed to be expended in each year of operation of the district is not significantly different, the amount proposed to be expended in the initial year and a statement that a similar amount applies to subsequent years shall satisfy the requirements of this subdivision.
(f) The proposed source or sources of financing, including the proposed method and basis of levying the assessment in sufficient detail to allow each property or business owner to calculate the amount of the assessment to be levied against their property or business. The plan also shall state whether bonds will be issued to finance improvements.
(g) The time and manner of collecting the assessments.
(h) The specific number of years in which assessments will be levied. In a new district, the maximum number of years shall be five. Upon renewal, a district shall have a term not to exceed 10 years.
Notwithstanding these limitations, a district created pursuant to this part to finance capital improvements with bonds may levy assessments until the maximum maturity of the bonds. The management district plan may set forth specific increases in assessments for each year of operation of the district. (i) The proposed time for implementation and completion of the management district plan. (j) Any proposed rules and regulations to be applicable to the district. (k)
(1) A list of the properties or businesses to be assessed, including the assessor’s parcel numbers for properties to be assessed, and a statement of the method or methods by which the expenses of a district will be imposed upon benefited real property or businesses, in proportion to the benefit received by the property or business, to defray the cost thereof. (2) In a property-based district, the proportionate special benefit derived by each identified parcel shall be determined exclusively in relationship to the entirety of the capital cost of a public improvement, the maintenance and operation expenses of a public improvement, or the cost of the activities. An assessment shall not be imposed on any parcel that exceeds the reasonable cost of the proportional special benefit conferred on that parcel. Only special benefits are assessable, and a property-based district shall separate the general benefits, if any, from the special benefits conferred on a parcel. Parcels within a property-based district that are owned or used by any city, public agency, the State of California, or the United States shall not be exempt from assessment unless the governmental entity can demonstrate by clear and convincing evidence that those publicly owned parcels in fact receive no special benefit. The value of any incidental, secondary, or collateral effects that arise from the improvements, maintenance, or activities of a propertybased district and that benefit property or persons not assessed shall not be deducted from the entirety of the cost of any special benefit or affect the proportionate special benefit derived by each identified parcel.
(3) In a property-based district, properties throughout the district may share the same special benefits. In a district with boundaries that define which parcels are to receive improvements, maintenance, or activities over and above those services provided by the city, the improvements, maintenance, or activities themselves may constitute a special benefit. The city may impose assessments that are less than the proportional special benefit conferred, but shall not impose assessments that exceed the reasonable costs of the proportional special benefit conferred. Because one or more parcels pay less than the special benefit conferred does not necessarily mean that other parcels are assessed more than the reasonable cost of their special benefit. (l) In a property-based district, a detailed engineer’s report prepared by a registered professional engineer certified by the State of California supporting all assessments contemplated by the management district plan.
(m) Any other item or matter required to be incorporated therein by the city council. 36623. Procedure to levy assessment
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(a) If a city council proposes to levy a new or increased property assessment, the notice and protest and hearing procedure shall comply with Section 53753 of the Government Code. (b) If a city council proposes to levy a new or increased business assessment, the notice and protest and hearing procedure shall comply with Section 54954.6 of the Government Code, except that notice shall be mailed to the owners of the businesses proposed to be assessed. A protest may be made orally or in writing by any interested person. Every written protest shall be filed with the clerk at or before the time fixed for the public hearing. The city council may waive any irregularity in the form or content of any written protest. A written protest may be withdrawn in writing at any time before the conclusion of the public hearing. Each written protest shall contain a description of the business in which the person subscribing the protest is interested sufficient to identify the business and, if a person subscribing is not shown on the official records of the city as the owner of the business, the protest shall contain or be accompanied by written evidence that the person subscribing is the owner of the business or the authorized representative. A written protest that does not comply with this section shall not be counted in determining a majority protest.
If written protests are received from the owners or authorized representatives of businesses in the proposed district that will pay 50 percent or more of the assessments proposed to be levied and protests are not withdrawn so as to reduce the protests to less than 50 percent, no further proceedings to levy the proposed assessment against such businesses, as contained in the resolution of intention, shall be taken for a period of one year from the date of the finding of a majority protest by the city council. (c) If a city council proposes to conduct a single proceeding to levy both a new or increased property assessment and a new or increased business assessment, the notice and protest and hearing procedure for the property assessment shall comply with subdivision (a), and the notice and protest and hearing procedure for the business assessment shall comply with subdivision (b). If a majority protest is received from either the property or business owners, that respective portion of the assessment shall not be levied. The remaining portion of the assessment may be levied unless the improvement or other special benefit was proposed to be funded by assessing both property and business owners. 36624. Changes to proposed assessments
At the conclusion of the public hearing to establish the district, the city council may adopt, revise, change, reduce, or modify the proposed assessment or the type or types of improvements, maintenance, and activities to be funded with the revenues from the assessments. Proposed assessments may only be revised by reducing any or all of them. At the public hearing, the city council may only make changes in, to, or from the boundaries of the proposed property and business improvement district that will exclude territory that will not benefit from the proposed improvements, maintenance, and activities. Any modifications, revisions, reductions, or changes to the proposed assessment district shall be reflected in the notice and map recorded pursuant to Section 36627. 36625. Resolution of formation
(a) If the city council, following the public hearing, decides to establish a proposed property and business improvement district, the city council shall adopt a resolution of formation that shall include, but is not limited to, all of the following:
(1) A brief description of the proposed improvements, maintenance, and activities, the amount of the proposed assessment, a statement as to whether the assessment will be levied on property, businesses, or both within the district, a statement on whether bonds will be issued, and a description of the exterior boundaries of the proposed district, which may be made by reference to any plan or map that is on file with the clerk. The descriptions and statements need not be detailed and shall be sufficient if they enable an owner to generally identify the nature and extent of the improvements, maintenance, and activities and the location and extent of the proposed district. (2) The number, date of adoption, and title of the resolution of intention. (3) The time and place where the public hearing was held concerning the establishment of the district.
(4) A determination regarding any protests received. The city shall not establish the district or levy assessments if a majority protest was received.
(5) A statement that the properties, businesses, or properties and businesses in the district established by the resolution shall be subject to any amendments to this part. (6) A statement that the improvements, maintenance, and activities to be conferred on businesses and properties in the district will be funded by the levy of the assessments. The revenue from the
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levy of assessments within a district shall not be used to provide improvements, maintenance, or activities outside the district or for any purpose other than the purposes specified in the resolution of intention, as modified by the city council at the hearing concerning establishment of the district.
Notwithstanding the foregoing, improvements and activities that must be provided outside the district boundaries to create a special or specific benefit to the assessed parcels or businesses may be provided, but shall be limited to marketing or signage pointing to the district. (7) A finding that the property or businesses within the area of the property and business improvement district will be benefited by the improvements, maintenance, and activities funded by the proposed assessments, and, for a property-based district, that property within the district will receive a special benefit.
(8) In a property-based district, the total amount of all special benefits to be conferred on the properties within the property-based district.
(b) The adoption of the resolution of formation and, if required, recordation of the notice and map pursuant to Section 36627 shall constitute the levy of an assessment in each of the fiscal years referred to in the management district plan.
36627. Notice and assessment diagram
Following adoption of the resolution establishing district assessments on properties pursuant to Section 36625, the clerk shall record a notice and an assessment diagram pursuant to Section 3114. No other provision of Division 4.5 (commencing with Section 3100) applies to an assessment district created pursuant to this part. 36628. Establishment of separate benefit zones within district; Categories of businesses
The city council may establish one or more separate benefit zones within the district based upon the degree of benefit derived from the improvements or activities to be provided within the benefit zone and may impose a different assessment within each benefit zone. If the assessment is to be levied on businesses, the city council may also define categories of businesses based upon the degree of benefit that each will derive from the improvements or activities to be provided within the district and may impose a different assessment or rate of assessment on each category of business, or on each category of business within each zone. 36628.5. Assessments on businesses or property owners
The city council may levy assessments on businesses or on property owners, or a combination of the two, pursuant to this part. The city council shall structure the assessments in whatever manner it determines corresponds with the distribution of benefits from the proposed improvements, maintenance, and activities, provided that any propertybased assessment conforms with the requirements set forth in paragraph (2) of subdivision (k) of Section 36622. 36629. Provisions and procedures applicable to benefit zones and business categories
All provisions of this part applicable to the establishment, modification, or disestablishment of a property and business improvement district apply to the establishment, modification, or disestablishment of benefit zones or categories of business. The city council shall, to establish, modify, or disestablish a benefit zone or category of business, follow the procedure to establish, modify, or disestablish a property and business improvement district. 36630. Expiration of district; Creation of new district
If a property and business improvement district expires due to the time limit set pursuant to subdivision (h) of Section 36622, a new management district plan may be created and the district may be renewed pursuant to this part.
CHAPTER 3. Assessments
36631. Time and manner of collection of assessments; Delinquent payments
The collection of the assessments levied pursuant to this part shall be made at the time and in the manner set forth by the city council in the resolution levying the assessment. Assessments levied on real property may be collected at the
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same time and in the same manner as for the ad valorem property tax, and may provide for the same lien priority and penalties for delinquent payment. All delinquent payments for assessments levied pursuant to this part may be charged interest and penalties.
36632. Assessments to be based on estimated benefit; Classification of real property and businesses; Exclusion of residential and agricultural property
(a) The assessments levied on real property pursuant to this part shall be levied on the basis of the estimated benefit to the real property within the property and business improvement district. The city council may classify properties for purposes of determining the benefit to property of the improvements and activities provided pursuant to this part.
(b) Assessments levied on businesses pursuant to this part shall be levied on the basis of the estimated benefit to the businesses within the property and business improvement district. The city council may classify businesses for purposes of determining the benefit to the businesses of the improvements and activities provided pursuant to this part.
(c) Properties zoned solely for residential use, or that are zoned for agricultural use, are conclusively presumed not to benefit from the improvements and service funded through these assessments, and shall not be subject to any assessment pursuant to this part. 36633. Time for contesting validity of assessment
The validity of an assessment levied under this part shall not be contested in an action or proceeding unless the action or proceeding is commenced within 30 days after the resolution levying the assessment is adopted pursuant to Section 36625. An appeal from a final judgment in an action or proceeding shall be perfected within 30 days after the entry of judgment.
36634. Service contracts authorized to establish levels of city services
The city council may execute baseline service contracts that would establish levels of city services that would continue after a property and business improvement district has been formed. 36635. Request to modify management district plan
The owners’ association may, at any time, request that the city council modify the management district plan. Any modification of the management district plan shall be made pursuant to this chapter. 36636. Modification of plan by resolution after public hearing; Adoption of resolution of intention
(a) Upon the written request of the owners’ association, the city council may modify the management district plan after conducting one public hearing on the proposed modifications. The city council may modify the improvements and activities to be funded with the revenue derived from the levy of the assessments by adopting a resolution determining to make the modifications after holding a public hearing on the proposed modifications. If the modification includes the levy of a new or increased assessment, the city council shall comply with Section 36623. Notice of all other public hearings pursuant to this section shall comply with both of the following:
(1) The resolution of intention shall be published in a newspaper of general circulation in the city once at least seven days before the public hearing.
(2) A complete copy of the resolution of intention shall be mailed by first class mail, at least 10 days before the public hearing, to each business owner or property owner affected by the proposed modification.
(b) The city council shall adopt a resolution of intention which states the proposed modification prior to the public hearing required by this section. The public hearing shall be held not more than 90 days after the adoption of the resolution of intention.
36637. Reflection of modification in notices recorded and maps
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Any subsequent modification of the resolution shall be reflected in subsequent notices and maps recorded pursuant to Division 4.5 (commencing with Section 3100), in a manner consistent with the provisions of Section 36627. 36638. Assessment as government imposed fee on Civ C § 1770 transaction [Operative July 1, 2024]
(a) A business assessment pursuant to this part is a fee imposed by a government on the transaction for purposes of paragraph (29) of subdivision (a) of Section 1770 of the Civil Code. (b) This section shall become operative on July 1, 2024.
CHAPTER 3.5. Financing
36640. Bonds authorized; Procedure; Restriction on reduction or termination of assessments
(a) The city council may, by resolution, determine and declare that bonds shall be issued to finance the estimated cost of some or all of the proposed improvements described in the resolution of formation adopted pursuant to Section 36625, if the resolution of formation adopted pursuant to that section provides for the issuance of bonds, under the Improvement Bond Act of 1915 (Division 10 (commencing with Section 8500)) or in conjunction with Marks-Roos Local Bond Pooling Act of 1985 (Article 4 (commencing with Section 6584) of Chapter 5 of Division 7 of Title 1 of the Government Code). Either act, as the case may be, shall govern the proceedings relating to the issuance of bonds, although proceedings under the Bond Act of 1915 may be modified by the city council as necessary to accommodate assessments levied upon business pursuant to this part. (b) The resolution adopted pursuant to subdivision (a) shall generally describe the proposed improvements specified in the resolution of formation adopted pursuant to Section 36625, set forth the estimated cost of those improvements, specify the number of annual installments and the fiscal years during which they are to be collected. The amount of debt service to retire the bonds shall not exceed the amount of revenue estimated to be raised from assessments over 30 years.
(c) Notwithstanding any other provision of this part, assessments levied to pay the principal and interest on any bond issued pursuant to this section shall not be reduced or terminated if doing so would interfere with the timely retirement of the debt.
CHAPTER 4. Governance
36650. Report by owners’ association; Approval or modification by city council
(a) The owners’ association shall cause to be prepared a report for each fiscal year, except the first year, for which assessments are to be levied and collected to pay the costs of the improvements, maintenance, and activities described in the report. The owners’ association’s first report shall be due after the first year of operation of the district. The report may propose changes, including, but not limited to, the boundaries of the property and business improvement district or any benefit zones within the district, the basis and method of levying the assessments, and any changes in the classification of property, including any categories of business, if a classification is used.
(b) The report shall be filed with the clerk and shall refer to the property and business improvement district by name, specify the fiscal year to which the report applies, and, with respect to that fiscal year, shall contain all of the following information:
(1) Any proposed changes in the boundaries of the property and business improvement district or in any benefit zones or classification of property or businesses within the district. (2) The improvements, maintenance, and activities to be provided for that fiscal year. (3) An estimate of the cost of providing the improvements, maintenance, and activities for that fiscal year.
(4) The method and basis of levying the assessment in sufficient detail to allow each real property or business owner, as appropriate, to estimate the amount of the assessment to be levied against his or her property or business for that fiscal year.
(5) The estimated amount of any surplus or deficit revenues to be carried over from a previous fiscal year.
(6) The estimated amount of any contributions to be made from sources other than assessments levied pursuant to this part.
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(c) The city council may approve the report as filed by the owners’ association or may modify any particular contained in the report and approve it as modified. Any modification shall be made pursuant to Sections 36635 and 36636.
The city council shall not approve a change in the basis and method of levying assessments that would impair an authorized or executed contract to be paid from the revenues derived from the levy of assessments, including any commitment to pay principal and interest on any bonds issued on behalf of the district.
36651. Designation of owners’ association to provide improvements, maintenance, and activities
The management district plan may, but is not required to, state that an owners’ association will provide the improvements, maintenance, and activities described in the management district plan. If the management district plan designates an owners’ association, the city shall contract with the designated nonprofit corporation to provide services.
CHAPTER 5. Renewal
36660. Renewal of district; Transfer or refund of remaining revenues; District term limit
(a) Any district previously established whose term has expired, or will expire, may be renewed by following the procedures for establishment as provided in this chapter. (b) Upon renewal, any remaining revenues derived from the levy of assessments, or any revenues derived from the sale of assets acquired with the revenues, shall be transferred to the renewed district. If the renewed district includes additional parcels or businesses not included in the prior district, the remaining revenues shall be spent to benefit only the parcels or businesses in the prior district. If the renewed district does not include parcels or businesses included in the prior district, the remaining revenues attributable to these parcels shall be refunded to the owners of these parcels or businesses. (c) Upon renewal, a district shall have a term not to exceed 10 years, or, if the district is authorized to issue bonds, until the maximum maturity of those bonds. There is no requirement that the boundaries, assessments, improvements, or activities of a renewed district be the same as the original or prior district.
CHAPTER 6. Disestablishment
36670. Circumstances permitting disestablishment of district; Procedure
(a) Any district established or extended pursuant to the provisions of this part, where there is no indebtedness, outstanding and unpaid, incurred to accomplish any of the purposes of the district, may be disestablished by resolution by the city council in either of the following circumstances:
(1) If the city council finds there has been misappropriation of funds, malfeasance, or a violation of law in connection with the management of the district, it shall notice a hearing on disestablishment.
(2) During the operation of the district, there shall be a 30-day period each year in which assessees may request disestablishment of the district. The first such period shall begin one year after the date of establishment of the district and shall continue for 30 days. The next such 30-day period shall begin two years after the date of the establishment of the district. Each successive year of operation of the district shall have such a 30-day period. Upon the written petition of the owners or authorized representatives of real property or the owners or authorized representatives of businesses in the district who pay 50 percent or more of the assessments levied, the city council shall pass a resolution of intention to disestablish the district. The city council shall notice a hearing on disestablishment.
(b) The city council shall adopt a resolution of intention to disestablish the district prior to the public hearing required by this section. The resolution shall state the reason for the disestablishment, shall state the time and place of the public hearing, and shall contain a proposal to dispose of any assets acquired with the revenues of the assessments levied within the property and business improvement district. The notice of the hearing on disestablishment required by this section shall be given by mail to the property owner of each parcel or to the owner of each business subject to assessment in the district, as appropriate. The city shall conduct the public hearing not less than 30 days after mailing the notice to the property or business
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owners. The public hearing shall be held not more than 60 days after the adoption of the resolution of intention.
36671. Refund of remaining revenues upon disestablishment or expiration without renewal of district; Calculation of refund; Use of outstanding revenue collected after disestablishment of district
(a) Upon the disestablishment or expiration without renewal of a district, any remaining revenues, after all outstanding debts are paid, derived from the levy of assessments, or derived from the sale of assets acquired with the revenues, or from bond reserve or construction funds, shall be refunded to the owners of the property or businesses then located and operating within the district in which assessments were levied by applying the same method and basis that was used to calculate the assessments levied in the fiscal year in which the district is disestablished or expires. All outstanding assessment revenue collected after disestablishment shall be spent on improvements and activities specified in the management district plan. (b) If the disestablishment occurs before an assessment is levied for the fiscal year, the method and basis that was used to calculate the assessments levied in the immediate prior fiscal year shall be used to calculate the amount of any refund.
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APPENDIX 2 – ASSESSED BUSINESSES
Hotel Name Hotel Address City, State, Zip
Harbor Front Suites 593 Embarcadero Morro Bay, CA 93442 La Roche 575 Embarcadero Rd Morro Bay, CA 93442
Salty Sister - Suites at Morro Rock 1170 Front St Morro Bay, CA 93442 Morro Shores Inn & Suites 290 Atascadero Rd Morro Bay, CA 93442 Gray's Inn and Gallery 561 Embarcadero Rd Morro Bay, CA 93442 Motel 6 Morro Bay 298 Atascadero Rd Morro Bay, CA 93442 The Inn at Morro Bay 60 State Park Rd Morro Bay, CA 93442 Marina Street Inn B & B 305 Marina St Morro Bay, CA 93442 Masterpiece Hotel 1206 Main St Morro Bay, CA 93442
Bayview Inn 225 Harbor St Morro Bay, CA 93442
Ascot Suites 260 Morro Bay Blvd Morro Bay, CA 93442
Best Western Tradewinds Motel 225 Beach St Morro Bay, CA 93442 Morro Crest Inn 670 Main St Morro Bay, CA 93442
Morro Bay Sandpiper Inn 540 Main St Morro Bay, CA 93442 Morro Bluff Inn 213 Dunes St Morro Bay, CA 93442
Rhapsody In View Boutique Hotel 2790 Main St Morro Bay, CA 93442 Coastal Breeze Inn 1098 Main St Morro Bay, CA 93442
Harborwalk Inn 833 Embarcadero Morro Bay, CA 93442
Beach Bungalow Inn & Suites 1050 Morro Ave Morro Bay, CA 93442 Sea Air Inn 845 Morro Ave Morro Bay, CA 93442
The Landing at Morro Bay 780 Market Ave Morro Bay, CA 93442 La Serena Inn 990 Morro Ave Morro Bay, CA 93442
Best Western San Marcos Inn 250 Pacific St Morro Bay, CA 93442 Pleasant Inn 235 Harbor St Morro Bay, CA 93442
Estero Inn LLC 501 Embarcadero Morro Bay, CA 93442
Holland Inn And Suites 2630 Main St Morro Bay, CA 93442 Harbor House Inn 1095 Main St Morro Bay, CA 93442
Pacific Cottage Motel 2830 Alder Ave Morro Bay, CA 93442 Front Street Inn & Spa 1140 Front St Morro Bay, CA 93442 Pacific Shores Inn 890 Morro Ave Morro Bay, CA 93442
Hotel Avisa 590 Morro Ave Morro Bay, CA 93442
Inn At Rose's Landing 725 Embarcadero Rd Morro Bay, CA 93442 Fireside Inn 730 Morro Ave Morro Bay, CA 93442
Embarcadero Inn & Suites 456 Embarcadero Rd Morro Bay, CA 93442 Hampton Inn 295 Atascadero Rd Morro Bay, CA 93442
Bayfront Inn 1150 Embarcadero Morro Bay, CA 93442
Blue Sail Inn 851 Market Ave Morro Bay, CA 93442
Anderson Inn 897 Embarcadero Rd Morro Bay, CA 93442
Morro Bay Beach Inn 1100 Main St Morro Bay, CA 93442
Sundown Inn Of Morro Bay Inc. 640 Main St Morro Bay, CA 93442 Rockview Inn & Suites 1080 Market Ave Morro Bay, CA 93442
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November 18, 2025
Blufftop Inn & Suites 220 Beach St Morro Bay, CA 93442
Harbor View Suites 205 Harbor St Morro Bay, CA 93442
Short-Term Rental Address City, State, Zip
110 Java St Morro Bay, CA 93442
115 Easter St Morro Bay, CA 93442
115 Hatteras St Morro Bay, CA 93442
1174 Main St Morro Bay, CA 93442
1177 Main St Morro Bay, CA 93442
1184 Main St Morro Bay, CA 93442
120 Java St Morro Bay, CA 93442
120 Mindoro St Morro Bay, CA 93442
121 Bradley Ave Morro Bay, CA 93442
121 Easter St Morro Bay, CA 93442
1210 Bolton Drive Morro Bay, CA 93442
1215 Main St Morro Bay, CA 93442
1271 Hillcrest Dr Morro Bay, CA 93442
1275 Morro Ave Morro Bay, CA 93442
1363 Prescott Dr Morro Bay, CA 93442
1364 Clarabelle Dr Morro Bay, CA 93442
1365 Prescott Dr Morro Bay, CA 93442
150 Formosa St Morro Bay, CA 93442
150 Verdon St Morro Bay, CA 93442
155 Formosa St Morro Bay, CA 93442
157 Verdon St Morro Bay, CA 93442
165 Panay St Morro Bay, CA 93442
166 Vashon St Morro Bay, CA 93442
176 Panay St Morro Bay, CA 93442
180 Andros St Morro Bay, CA 93442
180 Bali St Morro Bay, CA 93442
180 Gilbert St Morro Bay, CA 93442
180 Verdon St Morro Bay, CA 93442
184 Tahiti St Morro Bay, CA 93442
1851 Ironwood Ave Morro Bay, CA 93442
1887 Ironwood Ave Morro Bay, CA 93442
1890 Hill St Morro Bay, CA 93442
195 Capri St Morro Bay, CA 93442
195 Orcas St Morro Bay, CA 93442
199 Main St Morro Bay, CA 93442
199 Sienna St Morro Bay, CA 93442
2060 Seaview Ave Morro Bay, CA 93442
2083 Seaview Ave Morro Bay, CA 93442
210 Dunes St Morro Bay, CA 93442
216 Surf St Morro Bay, CA 93442
217 Main St Morro Bay, CA 93442
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218 Pacifica St Morro Bay, CA 93442
220 Dunes St Morro Bay, CA 93442
221 Dunes St Morro Bay, CA 93442
221 Piney Way Morro Bay, CA 93442
2250 Hemlock Ave Morro Bay, CA 93442
226 1/2 Pacific St Morro Bay, CA 93442
226 Pacific St Morro Bay, CA 93442
229 Piney Way Morro Bay, CA 93442
234 Beach St Morro Bay, CA 93442
234 Pacific St Morro Bay, CA 93442
238 Pacific Morro Bay, CA 93442
2398 Laurel Ave Morro Bay, CA 93442
240 Bali St Morro Bay, CA 93442
2400 Ironwood Morro Bay, CA 93442
245 Driftwood St Morro Bay, CA 93442
245 Gilbert St Morro Bay, CA 93442
2470 Hemlock Ave Morro Bay, CA 93442
2545 Elm Ave Morro Bay, CA 93442
2575 Greenwood Ave Morro Bay, CA 93442
2585 Ironwood Ave Morro Bay, CA 93442
261 Shasta Ave Morro Bay, CA 93442
2615 Maple Ave Morro Bay, CA 93442
2615 Nutmeg Ave Morro Bay, CA 93442
2629 Koa Ave Morro Bay, CA 93442
263 Main St Morro Bay, CA 93442
263 Main St Cottage A Morro Bay, CA 93442
2630 Greenwood Ave Morro Bay, CA 93442
2640 Maple Ave Morro Bay, CA 93442
2697 Laurel Ave Morro Bay, CA 93442
2700 Greenwood Ave Morro Bay, CA 93442
271 Pacific St Morro Bay, CA 93442
2746 Main St Morro Bay, CA 93442
2799 Elm Ave Morro Bay, CA 93442
2811 Ironwood Ave Morro Bay, CA 93442
2870 Fir Ave Morro Bay, CA 93442
2870 Hemlock Ave Morro Bay, CA 93442
2889 Hemlock Ave Morro Bay, CA 93442
290 Terra St Morro Bay, CA 93442
2910 Fir Ave Morro Bay, CA 93442
2950 Beachcomber Dr Morro Bay, CA 93442
2958 Cedar Ave Morro Bay, CA 93442
2960 Beachcomber Dr Morro Bay, CA 93442
2975 Beachcomber Dr Morro Bay, CA 93442
300 Kings Ave Morro Bay, CA 93442
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301 Trinidad St Morro Bay, CA 93442
3015 Beachcomber Dr Morro Bay, CA 93442
3030 Beachcomber Dr Morro Bay, CA 93442
3033 Beachcomber Dr Morro Bay, CA 93442
310 Bernardo Ave Morro Bay, CA 93442
311 Piney Way Morro Bay, CA 93442
3128 Beachcomber Dr Morro Bay, CA 93442
3130 Beachcomber Dr Morro Bay, CA 93442
3175 Orcas Way Morro Bay, CA 93442
3200 Beachcomber Dr Morro Bay, CA 93442
324 Shasta Ave Morro Bay, CA 93442
325 Shasta Ave Morro Bay, CA 93442
3273 Tide Morro Bay, CA 93442
3350 Beachcomber Dr Morro Bay, CA 93442
337 Bernardo Ave Morro Bay, CA 93442
3370 Beachcomber Dr Morro Bay, CA 93442
3464 Toro Ln Morro Bay, CA 93442
3476 Toro Ln Morro Bay, CA 93442
3480 Toro Ln Morro Bay, CA 93442
356 Shasta Ave Morro Bay, CA 93442
361 Dunes St Morro Bay, CA 93442
370 Vashon St Morro Bay, CA 93442
371 La Jolla Morro Bay, CA 93442
381 Panay St Morro Bay, CA 93442
390 Luzon St Morro Bay, CA 93442
391 Luzon St Morro Bay, CA 93442
395 Avalon St Morro Bay, CA 93442
400 Pico St Morro Bay, CA 93442
401 San Joaquin St Morro Bay, CA 93442
410 Mindoro St Morro Bay, CA 93442
424 Morro Ave Morro Bay, CA 93442
425 Bernardo Ave Morro Bay, CA 93442
431 Panay St Morro Bay, CA 93442
431 Whidbey St Morro Bay, CA 93442
441 Luzon St Morro Bay, CA 93442
449 Panay St Morro Bay, CA 93442
450 Napa Ave Morro Bay, CA 93442
450 Tahiti Morro Bay, CA 93442
452 Sicily St Morro Bay, CA 93442
457 Oahu St Morro Bay, CA 93442
465 Whidbey St Morro Bay, CA 93442
467 La Jolla St Morro Bay, CA 93442
476 Hill St Morro Bay, CA 93442
481 Jamaica Morro Bay, CA 93442
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491 Orcas St Morro Bay, CA 93442
499 La Jolla St Morro Bay, CA 93442
508 Shasta Ave Morro Bay, CA 93442
510 Yerba Buena St Morro Bay, CA 93442
530 Monterey Ave 1 Morro Bay, CA 93442
535 Dunes St Morro Bay, CA 93442
540 Downing St Morro Bay, CA 93442
550 Main St Morro Bay, CA 93442
564 Morro Ave Morro Bay, CA 93442
565 Monterey Ave #A Morro Bay, CA 93442
601 San Jacinto Morro Bay, CA 93442
623 Kern Ave Morro Bay, CA 93442
625 Monterey Ave Morro Bay, CA 93442
630 Embarcadero #C Morro Bay, CA 93442
630 Embarcadero #D Morro Bay, CA 93442
636 Bay Ave Morro Bay, CA 93442
645 Monterey Ave Unit B Morro Bay, CA 93442
647 Estero Ave Morro Bay, CA 93442
650 Avalon St Morro Bay, CA 93442
659 Kern Ave Morro Bay, CA 93442
671 Estero Ave Morro Bay, CA 93442
675 La Loma Ave Morro Bay, CA 93442
700 Sierra Ct Morro Bay, CA 93442
701 San Joaquin St Morro Bay, CA 93442
880 Main St Morro Bay, CA 93442
881 Ridgeway St Morro Bay, CA 93442
895 Monterey Ave Morro Bay, CA 93442
897 Monterey Ave Morro Bay, CA 93442
921 Mesa St Morro Bay, CA 93442
938 Marina St Morro Bay, CA 93442
948 Marina St Morro Bay, CA 93442
958 Pecho St Morro Bay, CA 93442
998 Carmel St Morro Bay, CA 93442
Jurisdiction list as of November 16, 2025
AGENDA NO: 8.c
MEETING DATE: February 24, 2026
Prepared By: EC Dept Review: EC
City Manager Review: JC City Attorney Review: BS
Staff Report
TO: Honorable Mayor and City Council DATE: February 13, 2026 FROM: John Craig, City Manager
Emily Conrad, Finance Director
SUBJECT: Fiscal Year 2025-26 Midyear Report
RECOMMENDED ACTION
1. Receive the Fiscal Year (FY) 2025-26 Midyear Budget Report; and
2. Adopt Resolution No. 09-26 authorizing the attached Budget Amendments.
FISCAL IMPACT
The expected fiscal impact of the recommended budget amendments is $856,156 in increased revenues and $516,520 in increased expenses for a total net revenue increase of $339,636 citywide across all funds.
Fund Revenue or Expense Budget
Increase/(Decrease)
General Fund Revenue $856,156
General Fund Expense $420,520
NET TOTAL GF REVENUE INCREASE $435,636
Harbor Fund Expense $40,000
NET TOTAL HARBOR EXP INCREASE $40,000
Triangle Lot-Boat Storage Yard Fund Expense $56,000
NET TOTAL FUND EXP INCREASE $56,000
Water Capital Impv Fund Expense $934,305
Water Capital Impv Fund Expense $934,305
NET TOTAL REVENUE $-
Each recommended change is detailed by fund in the attached Midyear Budget Report (Attachment 1).
BACKGROUND
The City traditionally evaluates its primary revenues and expenditures in its major funds at the middle of the fiscal year and recommends any necessary budget amendments. The Midyear Budget Report covers the first half of the fiscal year, beginning July 1, 2024, and ending December 31, 2025. The report analyzes the key General Fund revenues and expenditures by category and the City’s other major funds.
On February 17, 2026, the midyear report was submitted to the Citizens’ Finance Advisory Committee (CFAC) for input. CFAC supported the recommended budget amendments.
Staff has traditionally presented the City Council with a fiscal update at or around midyear as well, which serves as the precursor to the subsequent fiscal year budget development cycle.
DISCUSSION
Midyear Budget Report
The Midyear Budget Report provides a high level of detail regarding fiscal year-to-date revenues and expenditures in the City’s major funds and a detailed breakout of recommended budget amendments by fund.
Fiscal-Year-to-Date Update – Overall, this year’s midyear report demonstrates that operating revenues and expenditures are on track to meet adopted budget. Citywide, across all funds, the City has received approximately 50% of revenues as of December 31, 2025, and expended approximately 51% of all budgeted operating expenditures. This indicates that revenues are consistent with projections.
General Fund Recommended Budget Amendments
Revenue: Staff recommend General Fund revenue budget amendments of $856,156 for Fire Mutual Aid activities. Mutual aid reimbursement is provided to cover actual costs incurred by the Fire Department due to mutual aid response. This includes wear-and-tear on vehicles and equipment, personnel costs for those firefighters responding to mutual aid assignments, personnel costs to cover firefighters on assignment, reimbursement of expenses incurred while on assignment, and administrative costs to facilitate the mutual aid program. Like last year, staff deferred budgeting all mutual aid activity to the midyear budget review, when costs are usually entirely incurred. This provides enhanced transparency, separately recognizing mutual aidrelated personnel, equipment, administrative costs, and CalOES reimbursement.
Expenditure: Staff recommend General Fund expenditure budget amendments of $420,520 for Fire Mutual Aid activities and Human Resources activities. The Mutual Aid budget will cover the personnel costs that have already been incurred (and for which reimbursement was received).
Additionally, Fire will have three one-time expenditures related to Mutual Aid: thermal imaging cameras and headset upgrades, boiler treatment installation, and the purchase of a utility SUV for use on assignment ($397,520). The only other General Fund amendment is recommended in Human Resources to cover the unanticipated expense of recruiting a new City Manager ($23,000).
The net impact of all General Fund amendments is a net revenue increase of approximately $435,636. However, since Mutual Aid reimbursements are restricted for use on Mutual Aid activities, the $458,636 difference between the total reimbursement received and the expenditure budget amendment amount will be classified as Restricted fund balance. Therefore, the impact to the General Fund is a $23,000 reduction of the available fund balance.
Enterprise and Other Funds Recommended Budget Amendments and Reallocations Staff recommend a few minor amendments to the Harbor Operating Fund, increasing the expenditure budget by $40,000. The increase will fund the replacement of a failed vessel trailer ($20,000) and repairs to the Beach Street Gangway which sustained damage during a recent storm ($20,000). The current year’s projected operating surplus would cover both amendments.
Staff recommend an amendment in the Triangle Lot-Boat Storage Yard Fund of $56,000 for maintenance and installation of security measures. Current year revenues will cover these improvement costs.
Staff recommend the reallocation of funding between various water capital projects in the water Capital Improvement Fund for a net change of $0.00 (zero).
Long-Term Fiscal Forecasts
Staff has included updates to the long-term fiscal forecasts for each major fund that has recommended midyear amendments, including the General Fund, Measures Q/E Fund, and Harbor Operating Fund. Except for activity has already occurred, such as with mutual aid reimbursement, midyear requests are not modeled in the forecasts.
As in prior years, the city’s long-term financial forecast is somewhat sobering. The next four fiscal years indicate the increase in personnel costs including annual pension liability payments cause current year operating expenses to exceed current year revenues. Because a healthy reserve has built up over recent years, the gap can be closed with reserves in the near-term, though using reserves for ongoing costs is not best practice. In the out years, based on current assumptions, the gap narrows and ultimately flips and we see a growing surplus once again.
ATTACHMENTS
1. Fiscal Year 2025-26 Midyear Budget Report
2. Resolution No. 09-26 authorizing the attached Midyear Budget Amendments
3. Budget Performance Reports
Midyear Budget Report FY 2025-26
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FEBRUARY 2026
City of Morro Bay
Authored by: Administrative Services
Version Date: 2/12/2026
Midyear
Budget Report
FISCAL YEAR 2025-26
This Report covers the sixmonth period of July 1, 2025 through December 31, 2025. It
provides an update on the
City’s primary revenues and
expenditures in its major funds
and outlines recommended
budget amendments.
Midyear Budget Report FY 2025-26
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Table of Contents
0BExecutive Summary .................................................................................................3 Introduction ............................................................................................................4 Fiscal Outlook .........................................................................................................4 Major Revenue Sources .................................................................................................................................. 4 Major Expenditures ......................................................................................................................................... 5 Near-Term Actions .......................................................................................................................................... 7 General Fund and Measure Q/E Fund .....................................................................8 Key General Fund Revenue Sources Analysis .................................................................................................. 9 Recommended General Fund Revenue Budget Amendments ..................................................................... 12 General Fund Expenditures Analysis ............................................................................................................. 13 Recommended General Fund Expenditure Budget Amendments ................................................................ 13 Enterprise Funds ........................................................................................................................................... 15 Harbor Enterprise Fund ................................................................................................................................. 15 Water Enterprise Fund .................................................................................................................................. 17 Sewer Enterprise Fund .................................................................................................................................. 18 Other Funds .......................................................................................................... 19 Recommended Other Funds Budget Amendments ...................................................................................... 19 Summary Current Year and Ten-Year Fiscal Forecasts ........................................... 19 Assumptions .................................................................................................................................................. 19 General Fund Forecast .................................................................................................................................. 20 Measure Q/E Forecast ................................................................................................................................... 21 Harbor Operating Forecast ........................................................................................................................... 21
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0BExecutive Summary
This year’s midyear report indicates that the City’s revenues and expenditures are on track. As of December 31, 2025, the City has received approximately 50% of its projected revenues and has spent 51% of its budgeted expenditures across all non-capital funds. Net of one-time transfers and capital spending, revenues and expenditures are tracking at 58% and 40%, respectively, consistent with six months of fiscal year activity. This report includes amendments already approved by City Council, as well as new requests for FY 2025-26.
Previously approved amendments include:
$32,715 increase to General Fund expenditure budget for the Animal Services contract which was underbudgeted at budget development (Reso No. 58-25)
$693,882 re-allocation for the Morro Creek emergency stabilization from available governmental capital project funding (approved at November 18, 2025 Special Meeting) Table 1 Summary of Citywide Operating Budget Revenues and Expenditures, excluding transfers and Capital Projects All unspent balances of previously adopted capital project funding is carried forward year-over-year in the capital project expenditure budgets, allowing for tracking each funded project’s total cumulative budget. Table 2 shows the available capital expenditure budgets as well as the expected revenues from transfers in and grant revenues.
Table 2 Summary of Citywide Capital Budget Revenues and Expenditures Several budget amendments are recommended, mostly to recognize mutual aid activity. These recommended budget amendments include $856,156 in increased revenues and $516,520 in increased expenses for a total net revenue increase of $339,636 citywide across all funds. Each recommended change is detailed by fund herein.
Midyear Budget Report FY 2025-26
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Introduction
This report covers the six months ending December 31, 2025 and provides an update on the City's primary revenues and expenditures in the City’s five major funds and outlines recommended budget amendments. If no significant change is anticipated, no budget amendment will be recommended.
The City’s five major funds are General Fund (001), Measure E Fund (003), Harbor Operating Fund (331), Water Operating Fund (311), and Sewer Operating Fund (321). There are several amendments recommended in the General Fund, two in Harbor Operating Fund, and one in the Triangle Lot-Boat Storage Yard which is outlined under this report's “Other Funds” section.
This report contains the most accurate and updated information available at the time of publication and represents a snapshot of City revenues and expenditures as of December 31, 2025. It may not represent pending payments and revenues, irregular payments, or revenue timing. As this is not an audited financial statement, the figures are preliminary and will change as the fiscal year progresses.
Fiscal Outlook
The City’s fiscal outlook remains cautious. Major tax revenues remain largely consistent over the last three years.
While some revenue sources have exceeded conservative budget estimates in recent years and fluctuating staffing levels have generated citywide expenditure savings, these savings are expected to diminish as City costs increase and staffing vacancies are filled.
Currently, the City is in a position to have substantial reserves to manage economic downturns. However, these funds may also be needed to support essential capital improvements, such as the ongoing pavement management program and storm drain maintenance. Looking forward, the reserve in the General Fund will have to be drawn down to close the gap in the operating budget and to support capital projects, and, absent a supplemental revenue source, it will be insufficient to support the level of investment necessary to maintain existing City infrastructure. It is prudent to explore new revenue sources, maximize existing revenues, and implement operational efficiencies to address deferred maintenance and plateaued revenues.
Major Revenue Sources
The following is a summary of the City’s major revenue sources and some explanation regarding the methodologies used to forecast future growth.
Property Tax
The San Luis Obispo County Assessor’s Office and State Board of Equalization levies property tax at 1% of a property’s assessed value, of which the City receives approximately 13.7 cents per dollar paid on property located within the municipal limits of Morro Bay. The County Tax Collector’s Office provides property tax estimates annually, with reports in January/February and again in the fall. According to the County Assessor’s 2025-26 Annual Report, middling increases in property values are attributed mainly to Proposition 19, which has led to a significant number of property owners transferring low base values to San Luis Obispo County. In 2025,
Midyear Budget Report FY 2025-26
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the county-wide assessed value rose 4.74% compared to the previous year. Specifically, in Morro Bay, the assessed value increased by 4.96%. The County Assessor’s Office has estimated a growth rate of 4% for FY 2026.
Sales Tax
The City contracts with HdL to forecast sales tax revenue for both the General Fund Bradley Burns sales tax revenue and the Measure Q/E local sales and use tax revenues. While the City experienced sales tax growth in the 10-15% range in the immediate post-pandemic period, FY 2024-25 sales tax revenues decreased 1.1% or $77,352 over the prior year. As of this writing, HdL forecasts 0.54% growth over prior year actuals, or $38,000, for FY 2025-26.
Transient Occupancy Tax (TOT)
Budget estimates were developed in coordination with Visit Morro Bay and are based on a review of occupancy rates, average daily room rates, and regional trends. Visit Morro Bay increased its marketing efforts in the last year, and with Highway 1 re-opening after the prolonged closure, anticipates an increase in visitors to Morro Bay which may translate to an increase in TOT and Tourism Business Improvement District (TBID) revenues.
Major Expenditures
Mutual Aid Activity
Beginning in FY 2024-25, staff implemented a new practice to defer budgeting fire mutual aid-related expenditures and reimbursements to the midyear review, when annual costs are typically fully incurred. This approach allowed staff to develop a new system for accounting for mutual aid activities separately from routine fire expenditures, providing much-improved clarity and transparency. This accounting system ensures that mutual aid reimbursements are allocated strictly for mutual aid-related expenditures. Such expenditures include maintenance or replacement of vehicles and equipment, and personnel costs associated with mutual aid responses and coverage. These budget adjustments are included in this midyear report.
Current Personnel Costs
The City delivers essential services to citizens and visitors through a dedicated workforce, the cost of which represents 41% of the citywide expenditure budget and 63% of the general fund expenditure budget. FY 2025- 26 is the second of three-year Council-approved collective bargaining agreements with represented and unrepresented employee groups. The City had fallen behind market rates and made efforts in these agreements to bring compensation across employee groups closer to market rates. As anticipated, personnel costs have increased considerably as the new rates have been implemented and will increase again from FY 2025-26 to FY 2026-27, the last year of the three-year agreements.
Pension Liability Payments
The City’s pension obligations are comprised of two elements: CalPERS contributions for current employees, and unfunded accrued liability (UAL). CalPERS contributions for current employees are on an on-going basis as part of processing payroll, whereas the required minimum payments towards the UAL are made as a lump sum once a year each July so the City can receive the 3.3% discount offered by CalPERS. The UAL is primarily associated with past employees and more generous pension tiers that have since been phased out under State law with pension reform. The City’s UAL payments are a moving target impacted by CalPERS’s achieved rate of returns in the market. The latest estimates from CalPERS indicate the minimum annual UAL payments will increase for the next six consecutive years, peaking in FY 2031-32 at $3.97 million, then slightly decrease year over year until FY
Midyear Budget Report FY 2025-26
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2036-37 when the payment drops by 25% to $2.79 million. The current estimated payments for the full payoff period are shown visually in the scenario below.
In FY 2021-22, City Council directed staff to establish a pension trust to address this liability. The trust was established with Public Agency Retirement Services (PARS) in FY 2022-23. To date, $2.6 million has been deposited in the trust and, with earned interest, the balance was $3.4 million at December 31, 2025, a gain of over $800,000. To keep annual UAL payments below a target smoothing level of $3.4 million, as early as 2028 the City may consider the option of withdrawing from the pension trust for use towards the UAL. For example, if the FY 2027-28 UAL annual payment was $3.545 million, City Council could direct staff to make the payment with $3.4 million of current revenues and $145,000 from the pension trust.
Figure 1 Section 115 Trust Modeling with Existing Contributions $-
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
2025-262026-272027-282028-292029-302030-312031-322032-332033-342034-352035-362036-372037-382038-392039-402040-412041-422042-432043-442044-45 Millions
Midyear Budget Report FY 2025-26
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Unfunded Capital Needs
The City has invested significant resources in capital planned improvement projects over the past five years, with the Water Reclamation Facility being the City’s largest and most innovative project yet. In 2024, an average of $4.5 million annually was estimated as needed to maintain the City’s existing pavement rating of “fair/at risk” or 60 PCI. This was an increase over the $2.8 million annual investment recommended in a 2022 pavement management report. In FY 2024-25, the City completed the largest paving project in its history, investing nearly $4 million into improving and maintaining its roads. The FY 2025-26 budget directs an estimated $2.3 million to the objective, with the next paving project planned to begin in FY 2026-27. In addition to pavement management, the City has a growing list of storm drain replacements, sidewalk repairs, park improvements, and accessibility upgrades to address in the near future.
Near-Term Actions
To effectively navigate these competing priorities, the city must invest in comprehensive financial planning, prioritize projects based on their impact and urgency, and determine funding sources. In the Water Capital Fund, staff is recommending that previously adopted budget be reallocated to the projects deemed highest priority rather than allocating additional funding. The FY 2025-26 budget aimed to keep non-personnel operating expenditures as flat as possible. This approach will also be recommended for FY 2026-27 budget development.
Staff provides this transparent communication about the City's budgetary challenges and priorities to foster understanding and support for the difficult decisions that may need to be made in the coming budget years. A cautious and proactive approach to fiscal management will assist the City in weathering uncertainties and maintaining its financial stability over the long term.
Midyear Budget Report FY 2025-26
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General Fund and Measure Q/E Fund
As of Dec 31, 2025, actual revenues and expenditures have trended with the budgeted numbers, considering the approximate two-month lag time in receiving earned Measures Q/E sales tax revenue. Estimates for the remainder of FY 2025-26 suggest a slight increase in the unassigned or available fund balance, inclusive of Q/E funding, compared to original budget estimates. Estimates do not include the recommended midyear amendments as they are not yet approved, except for those mutual aid reimbursements and expenditures which have already occurred.
Table 3 FY 2025-26 General Fund Total Revenues and Expenditures The General Fund's and General Fund Emergency Reserve available fund balance have built up over recent years through prudent fiscal policies and budget savings, as well as over $700,000 in mutual aid reimbursements received and reserved for the replacement of Fire’s Wildland Engine. Long-term fiscal forecasts for the General Fund indicate the available fund balance will decrease this fiscal year and next. In FY 2026-27, personnel costs will increase approximately 7% due to implementation of the negotiated pay increases, and the 9% estimated increase in the annual UAL payment. Additionally, the fund balance will decrease when the payment is made from mutual aid reserves for the Wildland Engine that is currently being built. In out years, the available fund balance shows a gradual year over year increase as revenues and expenditures increase at relatively the same pace. This is subject to change, based on future collective bargaining agreement negotiations, changes to estimated UAL amounts due, inflation, capital needs, and incidentals beyond staff control. The ending available fund balance history for general funds, including the General Fund and Measures Q/E is presented below (Table 4). The General Fund ending available fund balance has alternating increases and decreases depending on fiscal year activity. The increase from FY 2025-26 Budget to FY 2025-26 Estimated can be attributed to the addition of mutual aid activities and recognizing expense savings due to vacant positions. The Measures Q/E Fund ending available fund balance also has alternating increases and decreases. The change from FY 2022-23 to FY 2023-24 was due to an effort to use the revenue received rather than building up a fund balance, a philosophy that has
Midyear Budget Report FY 2025-26
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changed over time with the changing of Citizens Finance Advisory Body (CFAC) members and City Council members. The swing to an increased fund balance in FY 2024-25 was due to two actions: the intentional decreased budgeting to save revenue for incidentals, and the return of $1.2 million in previously allocated funding to a cancelled capital project.
Table 4 Fund Balance Summary FY 2022-23 to current
The City’s current reserve policy requires a minimum emergency reserve of 33% of operating expenses (General Fund and Measure Q/E Fund) and a target of 50%. A cash reserve of 33% would fund four months of City general operations, and 50% would fund six months. The FY 2025-26 budget assumed the City would hold 45% in reserves. The midyear forecast indicates a reserve of 48% at fiscal year end. In the forecast model, the annual contribution to capital improvements must fluctuate to comply with the 33% minimum reserve requirement, getting as low as $500,000 in FY 2029-30. UAL costs are projected increase at a less drastic rate through 2031- 32, and projected to decrease annually over the period of FY 2032-33 through FY 2036-27, contributing to the projected return of the operating surplus in FY 2030-31. A risk-based reserve analysis is underway to be completed during the fiscal year which will be used to evaluate the current General Fund reserve threshold.
Considering what is already known about the city's vulnerability to severe weather, high inflation, and fluctuations in tourism, coupled with the large portion of general fund revenue generated by tourism, it is not advisable to reduce the minimum reserve drastically.
Key General Fund Revenue Sources Analysis
The adopted General Fund and Measures Q/E revenue budgets for FY 2025-26 combined was approximately $24.6 million. As of December 31, 2025, 46% of revenues, or $11.6 million, had been received (Table 3).
Overall, revenues fiscal-year-to-date are on track. The total percentage collected is close to the 50% one may expect six months through the year indicating the routine lag in collections of major revenue sources such as property tax, sales tax, and TOT. Factors affecting mid-year estimates include the receipt of one-time transfers from enterprise funds per the City’s cost allocation plan and the receipt of interest income, which is posted to the General Fund throughout the year and distributed to other funds at year-end.
Major revenue sources are described below in more detail, as they collectively account for over three quarters of budgeted General Fund and Measures Q/E revenues. Table 5 presents all revenue sources in summary format, including historical data from FY 2022-23. Note that Transfers In are excluded from the presentation of major
Midyear Budget Report FY 2025-26
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revenue sources, which accounts for the $1,518,991 difference in total budgeted revenues in Table 3 compared to Table 5.
Table 5 General Fund & Measures Q/E Revenues FY 2023 to Current Sales Tax Revenue
Sales tax is the largest revenue source for the City in FY 2025-26, budgeted to generate 31% of the general fund revenue for the year. The City’s sales and use tax rate is 8.75%, and the City’s general fund receives 2.5% of that base tax: 1% Bradley Burns Uniform Local Sales and Use Tax (1955), 0.5% local sales tax Measure Q (2007), and 1% local sales tax Measure E (2021).
While Measures Q/E are general purpose taxes, the City Council has identified priority spending areas that honor the ballot measure language. As directed by City Council on April 13, 2021, the four priority areas of spending for Measures Q/E include:
- Maintain public safety services by funding staff positions that are most closely aligned with the purposes of Measures Q and E. Expenses include costs associated with Morro Bay Fire Department, Morro Bay Police Department, and Morro Bay Harbor personnel and equipment, in addition to the Fire Headquarter Debt service and the Fire Engine loan repayment;
- Maintain or enhance cleanliness and safety of public spaces such as parks, waterfront, and the beach by funding personnel, supplies, expenses, and equipment to support City operations in departments including Public Works Consolidated Maintenance and Harbor Department; - Invest in infrastructure and equipment such as street paving, storm drains, and vehicle replacements that support City services. This priority may include increasing the capacity to implement the backlog of unfunded capital projects and
- Ensure the City's financial health by maintaining appropriate reserves to protect against economic downturns, natural/health emergencies, and other unforeseen challenges or opportunities.
Measures Q/E require an independent annual financial audit and the establishment of an independent citizens' advisory committee to review yearly expenditures. The Citizens’ Finance Advisory Committee (CFAC) serves as that oversight committee and receives annual and annual reporting on expenditures from Measures Q/E revenues. The annual report through June 30, 2025, was on the CFAC meeting agenda for January 20, 2026.
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The City contracts with industry expert HdL to analyze collections history, forecast sales tax revenues and pursue revenues on the City’s behalf that belong to the City. Sales Tax receipts are tracking with budget estimates, adjusted for the delay in receipts.
Recommendation: None.
Property Tax Revenue
Property tax is the second largest revenue category for the City’s General Fund, accounting for 26% of budgeted General Fund revenues in FY 2025-26. Property taxes are considered a relatively stable revenue source. The County provides property tax estimates, and this year’s estimates are consistent with the adopted budget.
Recommendation: None.
Transient Occupancy Tax Revenue
Transient Occupancy Tax (TOT) is the General Fund’s third largest revenue source, accounting for 20% of the City’s budgeted general fund revenues for FY 2025-26. The city levies and retains a 10% TOT on all hotels, motels, and vacation rentals (including RV parks offering short-term stays) to fund city services provided to visitors to Morro Bay. In addition, the City acts as the fiscal agent and collects and remits an additional 3% to Visit Morro Bay, the Morro Bay Tourism Business Improvement District (TBID), and an additional 1.5% to Visit SLOCAL, the Countywide Tourism program.
As a highly economically sensitive revenue source, the City monitors TOT closely. In recent years, TOT revenues have leveled-off. FY 2024-25 TOT revenues were higher than the prior fiscal year, and staff anticipates FY 2025- 26 revenues to come near or slightly above the budgeted amount of $4.6 million.
Recommendation: None.
Revenues from Current Services (Charges for Service)
City Revenues from Current Services consist primarily of plan check fees, building inspection fees, and recreation sports and youth services fees, services that benefit individuals as opposed to the community at-large. These fees are assessed based on recovery formulas, which reflect the approximate costs of providing these services and, as a total category, account for 9% of the City’s general fund revenue budget for FY 2025-26. These revenues also include fire mutual aid reimbursement. Due to the intentional delay in budgeting mutual aid activity, revenues from current services are tracking high at midyear. After the addition of mutual aid, the revised percentage of general fund revenue budgeted in this category is approximately 11%.
Recommendation: Amendments are recommended to recognize mutual aid reimbursements based on approved CalOES invoices.
Other General Fund Revenues
Other General Fund revenues comprise less than 25% of total budgeted revenues. These include Transfers In, Franchise Fees, Cannabis City Tax, Licenses and Permits, Fines and Forfeitures, Use of Property and Money, and Grant Revenues.
Recommendation: None.
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Recommended General Fund Revenue Budget Amendments
Staff recommends only the anticipated general fund amendments to recognize mutual aid reimbursements at midyear.
Table 6 Requested FY 2025-26 General Fund Revenue Budget Amendments
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General Fund Expenditures Analysis
The adopted general fund expenditure budget for FY 2025-26 was approximately $26.7 million. As of December 31, 2025, general fund expenditures totaled $17.7 million, or 66% of budget. After accounting for expenditure activity front-loaded at the start of the budget year (transfers out for capital project funding, cost allocation plan, annual insurance costs, and annual UAL payment), the actual percent of budget spent is 50%, which is on track for midyear. The tables below present expenditures for the first six months of the fiscal year by expense type (object). Where midyear requests result from actual costs already incurred (such as mutual aid activity), those expenditures are included in the estimated column below. All other midyear requests are omitted from staff estimates and the ten-year fiscal forecast, to be incorporated only if approved and adopted by City Council. “Other” expenditures include payments to other agencies (such as SLO County) and special events.
Table 7 FY 2025-26 General Fund and Measures Q/E Expenditure Budget Status by Object Recommended General Fund Expenditure Budget Amendments
Staff recommends only a few amendments to the General Fund expenditure budget at midyear. Anticipated revenue surplus and expenditure savings will cover the cost of requested budget amendments. All expenses associated with fire mutual aid are reimbursed, so they do not impact the overall budget. All of the $420,520 recommended adjustments are for one-time expenditures: $23,000 for recruitment services for the City Manager position that was unanticipated at the time of budget adoption, and $397,520 for Fire, all covered by mutual aid reimbursements. The recommended amendments are itemized below (Table 8).
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Table 8 Requested FY 2025-26 General Fund Expenditure Budget Amendments If all General Fund Budget Amendments are approved, the available General Fund balance at the end of FY 2025- 26 would be decreased by about $60,000, subject to change as the remainder of the fiscal year progresses. It is important to note that most of the City’s revenue increase is related to Fire mutual aid reimbursements, which are restricted to mutual aid-related expenditures. Thus, $458,636 of available General Fund balance will be restricted for future Fire Department appropriation per the California Fire Assistance Agreement (CFAA). This funding will be tracked in a restricted asset account on the balance sheet for future allocation.
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Table 9 Summary of Recommended General Fund Midyear Budget Amendments Enterprise Funds
The Enterprise Funds are Proprietary Funds that report the same functions as business-type activities. The following funds are included in this category: Harbor Funds, Water Funds, and Sewer Funds. Currently, each enterprise fund has an operating fund and a capital improvement fund. The following gives an update on significant changes or activities in these funds.
Harbor Enterprise Fund
The Harbor Enterprise Fund accounts for revenues from harbor leases, slips, moorings, and other sources expended for maintenance, operation, patrolling, and harbor improvements. As of December 31, 2025, the Harbor Operating Fund had received approximately 49% of budgeted revenue ($1.34 million of $2.76 million) and expended approximately 50% of its budget ($1.34 million of $2.86 million). After netting out transfers and front-loaded expenses paid at the start of the fiscal year, such as insurance and cost allocation plan contributions, the percent of the expenditure budget spent is 44%, which is on track with the first half of FY 2024-25. As lease agreements outline, a large portion of Harbor Fund revenues are received at the end of the fiscal year for the prior year's percentage rent. Due to that contractual timing, it can be difficult to project revenue budgets in the Harbor Fund. The adopted budget anticipated a small operating deficit at year-end.
Staff’s midyear projections estimate revenue will increase slightly from prior year actuals based on current trends and the implementation of harbor improvements cost-sharing with leaseholders. In expenditures, the
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cost allocation plan transfer out to General Fund was decreased and will be reconsidered in the FY 2026-27 Cost Allocation Plan Study. These changes resulted in an operating surplus of approximately $374,000.
As of June 30, 2025, the Harbor Fund had a working capital balance (spendable fund balance) of approximately $1.3 million.
Table 10 FY 2025-26 Harbor Operating Fund Total Revenues and Expenditures Recommended Harbor Fund Budget Amendments
Harbor Department staff continues to evaluate capital improvement projects for FY 2025-26 and forward.
Significant underfunded capital improvement needs for much of the Harbor infrastructure remain a critical consideration for future budget cycles. For FY 2025-26. Harbor is requesting to increase their operating budget to complete repairs of the Beach Street Gangway. Harbor is additionally requesting to amend the previously approved transfer of $40,000 from fund operations to vehicle reserves to $20,000 and instead use that $20,000 on the replacement of a failed vessel trailer. The amendments are itemized below as well as the impact to the operating budget (Tables 11 and 12).
Table 11 Requested FY 2025-26 Harbor Fund Expenditure Amendments
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Table 12 Requested FY 2025-26 Harbor Fund Expenditure Amendment Budget Impact Water Enterprise Fund
The Water Enterprise Fund accounts for revenues received primarily from water service charges, which are expended for maintenance, operations, and capital improvements to the water system. As of December 31, 2025, the Water Operating Fund received approximately 45% of its budgeted revenues ($4.3 of $7.8 million) and expended approximately 72% of its budgeted expenditures ($3.2 million of $11.3 million). Net of Transfers Out to the Capital Projects Fund, operating expenditures were 51% spent, and FY 2025-26 year-end estimates indicate revenues will continue to be in line with budget (Table 13).
Table 13 FY 2025-26 Water Operating Fund Total Revenues and Expenditures As of June 30, 2025, the amount of working capital (spendable fund balance) in the Water Fund was approximately $12.9 million.
Recommended Water Funds Budget Amendments
No budget amendments are recommended for the Water Fund, however staff recommends the net-zero impact of reallocating available balances between projects to clean up the Water Capital Projects list and funded projects. Staff recommends closing four projects: Storm/Flood Repair: Facilities/Equipment, Reverse Osmosis Building Tank Piping Modifications, Reverse Osmosis Membrane Replacement, and Corp Yard Reverse Osmosis Building Roof Repairs. These projects have available budget due to being either completed under budget, completed under a different project scope, or the project scope is no longer needed, as is the case with the Storm/Flood Repair: Facilities/Equipment. The $934,305 combined available balances are recommended to be transferred to two existing projects in need of additional funds: Brackish Water Reverse Osmosis Building
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Improvements ($300,000) and Morro Basin Wellfield Rehabilitation ($934,305). The reallocations are listed in Table 14 below.
Sewer Enterprise Fund
The Sewer Enterprise Fund accounts for revenues received primarily from sewer service charges, which are expended for maintenance, operations, and improvements to the sanitary sewer system. As of December 31, 2025, the Sewer Fund had received approximately 44% of budgeted revenue ($4.35 of $9.79 million) and expended approximately 69% of its budget ($6.45 of $9.41 million). Net of Transfers Out to the Capital Projects Fund, operating expenditures were 44% spent, and FY 2025-26 year-end estimates indicate revenues will continue to be in line with budget. FY 2025-26 year-end staff estimates actuals to be in-line with budget (Table 15).
Table 15 FY 2025-26 Sewer Operating Fund Total Revenues and Expenditures As of June 30, 2025, the working capital (spendable fund balance) amount in the Sewer Fund was approximately $18.4 million.
Recommended Sewer Funds Budget Amendments
No budget amendments are recommended for the Sewer Fund.
Table 14 Requested FY 2025-26 Water Capital Improvement Fund Project Budget Reallocation Description Project Increase /
(Decrease)
One-time /
Ongoing G/L Account
Project scope completed, no longer needed Storm/Flood Repair Facilities/Equip (154,305) One-Time 921-8033-6106 Project scope completed under different project RO Building Tank Piping Mods (300,000) One-Time 921-9945-6106 Project scope completed under budget RO Membrane Replacement (280,000) One-Time 921-9946-6106 Project scope completed under different project Corp Yard RO Building Roof Repairs (200,000) One-Time 921-9951-6106 Reallocate budget Brackish Water RO Building Impvmts 150,000 One-Time 921-9953-6104 Reallocate budget Brackish Water RO Building Impvmts 150,000 One-Time 921-9953-6106 Reallocate budget Morro Basin Wellfield Rehab 34,305 One-Time 921-8036-6105 Reallocate budget Morro Basin Wellfield Rehab One-Time 921-8036-7105 600,000 Water Capital Expenditure Increase: -
Midyear Budget Report FY 2025-26
- 19 -
Other Funds
Morro Bay has 20 nonmajor governmental funds with special purposes, two internal service funds, and three fiduciary funds. They are all outlined in detail each year in the Adopted Budget document.
Recommended Other Funds Budget Amendments
One midyear budget amendment is recommended in one nonmajor governmental fund (Triangle Lot-Boat Storage Yard), as outlined below (Table 16). The request can be funded from the balance of the fund, an appropriate source for this improvement cost.
Table 16 Requested FY 2025-26 Other (Nonmajor) Funds Expenditure Amendments As of June 30, 2025, the Triangle Lot-Boat Storage Lot Fund had a restricted fund balance of $173,631. The fund was originally established for the recording of rental revenue from the 37 boat storage rental spaces and expenditures to maintain the lot.
Summary Current Year and Ten-Year Fiscal Forecasts
In addition to the discussion of midyear budget status and budget revisions, staff has provided summary TenYear Fiscal Forecasts for the General Fund, Measure Q/E, Harbor Operating Fund, Water Operating Fund, and Sewer Operating Fund. The summaries include estimated actuals for the current fiscal year at a summary level and ten future fiscal years through FY 2035-36. The forecasts reflect a continuing effort by staff to analyze the City’s long-term fiscal condition based on current revenue and expense trends and information provided by sources such as the City’s sales tax consultant, the State of California, Visit Morro Bay, and the County of San Luis Obispo. The forecast represents a point-in-time snapshot and an approximate view of what could occur if all assumptions were proven correct.
Assumptions
Staff analyzed revenue trends from 2021 to the present and made several adjustments to the model’s assumptions in order to create a more realistic yet fiscally conservative forecast for the next ten years. Previous forecasts cautiously underestimated revenues and overestimated expenditures. While a conservative approach protects the City's financial security against unforeseen economic downturns and natural disasters, it can also lead to inefficient use of resources and result in unnecessary delays in implementing critical projects or other City initiatives. This midyear forecast aims to align more closely with actual revenue trends, ensuring optimal budget capacity for delivering high-quality services and providing fair compensation for the workforce that delivers them.
Below is a summary of the assumptions used in the forecast model.
Midyear Budget Report FY 2025-26
- 20 -
Revenue
o Charges for Service/Other Revenues: 3% based on estimated CPI o Sales Tax: 3% to match inflation estimates & HdL forecast o Property Tax: 4% per County of San Luis Obispo estimates o Harbor Lease revenues: 2% for the near term, rising to 3% to match sales tax assumptions Expenditures
o Other Operations & Maintenance: 3% based on estimated CPI o Personnel (Operational): Actual increase per MOU through FY 2026-27, then a modest increase for cost-of-living adjustments.
o Personnel (Pension Liabilities): Based on the CalPERS pension outlook tool. Normal pension costs average below 0.86% for the forecast period while unfunded pension liabilities range between 9.0% in the near term to -24.9% at the end of the forecast period.
In the General Fund, contributions to capital projects are projected at the level required to keep the reserve above 30% for the forecast period, understanding it is likely insufficient. Where capital costs are not yet scheduled, a placeholder has been added, as can be seen in the Harbor Fund forecast.
The summary reports emphasize the importance for the City to closely monitor local economic conditions as well as county and national economic trends and make the necessary budgetary recommendations to align future service delivery and essential capital improvements with estimated available financial resources.
General Fund Forecast
The current fiscal year is projected to end in a positive financial position with an operating surplus of over $500,000 and all reserve requirements met. The projected reserve is 56.6%. This is calculated by combining the General Fund, General Fund Emergency Reserve Fund, and Measures Q/E Fund estimated ending available fund balances and dividing that total by the combined General Fund and Measures Q/E estimated total operating expenditures.
Estimated Ending Available Fund Balances
General Fund $3,488,547
Measures Q/E $1,907,902
General Fund Emergency Reserve Fund $8,054,721
Total Estimated Ending Available Fund Balances: $13,451,170 Estimated Operating Expenditures
General Fund $20,390,498
Measures Q/E $3,389,446
Total Estimated Operating Expenditures: $23,779,945
Total Combined Estimated Ending Available Fund Balances: $13,451,170 Divided by Total Combined Estimated Operating Expenditures: $23,779,945 Reserve/Fund Balance as percent of Total Operating Expenditures: 56.6%
Midyear Budget Report FY 2025-26
- 21 -
Despite this positive position, the ten-year forecast for the General Fund projects a structurally unbalanced operating budget for fiscal years 2026-27 through 2029-30, meaning the estimated revenue in each year is not enough to pay for the estimated expenses, requiring the difference to come from the available fund balance.
The forecast is a point-in-time snapshot presenting the best possible educated guesses based on information currently available, so different outcomes are possible. For example, it is possible the gap could be closed by mutual aid activity if such activity takes place in those years, understanding that the reimbursements must be reinvested in Fire services. It is also possible that the major revenues could exceed the projections, or there will continue to be consistent vacant positions resulting in budget savings in salary and benefits. The net surplus/shortfall will be monitored closely by staff.
Personnel costs represent approximately 69% of General Fund operating expenditures for the forecast period.
In FY 2026-27, personnel costs are projected to rise in accordance with Council-approved collective bargaining agreements with represented and non-represented employee groups. In the out-years, the forecast assumes only modest cost-of-living adjustments (COLA) for personnel and coupled with the projected decrease in UAL annual payments, a gradual recovery of operating surplus is seen beginning in FY 2027-28.
The forecast assumes withdrawals from the PARS 115 Pension trust beginning next fiscal year and each fiscal year thereafter through the end of the forecast period. The projected withdrawal amount is equal to the difference between the estimated UAL payment due and the target $3.4 million, after accounting for the lumpsum payment discount. These projections will change annually based on the most current CalPERS projections.
The contributions to capital projects is estimated at the highest amount possible to still comply with the adopted minimum reserve of 33%. Staff did not assign contributions to specific projects but only provided the total amount available in each year. Note that the funding must come from the high balance in the General Fund Emergency Reserve Fund in order to maintain a positive fund balance in the General Fund. The forecast projects $3.3 million transferred in to the General Fund over FY 2028-29 through FY 2035-36 and maintaining 33% reserve rate.
Measure Q/E Forecast
The ten-year forecast for the Measure Q/E fund projects a healthy operating surplus. The current structure of appropriations prioritizes the personnel and services related to goals of Measures Q/E funding set forth by Council objective in 2021. General Fund capital projects are funded based on needs assessed at budget development but may be amended as future revenue opportunities are presented.
Harbor Operating Forecast
The ten-year forecast for the Harbor Operating fund projects a growing margin between ongoing revenues and expenditures. Pending the results of a capital needs assessment for the Harbor Department, this forecast has assumed $600,000 in capital funding per year for a total capital investment of $6 million over the ten-year forecast period. This number may be insufficient to address actual infrastructure needs and however it is used so that the reserve levels may be maintained.
Midyear Budget Report FY 2025-26
- Appendix 1 -
FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 Beginning Fund Balance 7,288,099 7,378,468 8,006,125 7,188,547 5,048,367 3,871,902 3,704,501 3,877,352 3,977,798 4,026,672 4,269,507 4,281,155 4,271,695 Revenue
Property Tax 5,801,166 5,977,292 5,993,477 6,233,216 6,482,545 6,741,847 7,011,521 7,291,982 7,583,661 7,887,007 8,202,488 8,530,587 8,871,811 Sales Tax 2,698,549 2,725,761 2,725,761 2,807,534 2,891,760 2,978,512 3,067,868 3,159,904 3,254,701 3,352,342 3,452,912 3,556,500 3,663,195 Transient Occupancy Tax 4,612,761 4,590,000 4,590,000 4,681,800 4,822,254 4,966,922 5,115,929 5,269,407 5,427,489 5,590,314 5,758,023 5,930,764 6,108,687 Other Revenue 6,325,590 5,362,678 6,370,576 5,679,852 5,850,248 6,025,755 6,206,528 6,392,724 6,584,505 6,782,041 6,985,502 7,195,067 7,410,919 Transfers In 1,627,247 1,518,991 1,303,107 1,342,200 1,382,466 1,423,940 1,466,658 1,510,658 1,555,978 1,602,657 1,650,737 1,700,259 1,751,267 TOTAL REVENUE 21,065,313 20,174,723 20,982,921 20,744,603 21,429,273 22,136,976 22,868,504 23,624,674 24,406,335 25,214,361 26,049,662 26,913,177 27,805,878 Expense
Personnel 13,252,292 13,963,320 14,101,178 14,887,839 15,215,688 15,652,352 15,943,568 16,233,442 16,559,847 16,824,224 17,091,351 17,336,403 17,552,758 Other Operations & Maintenance 5,110,439 5,171,313 5,301,496 5,460,540 5,624,357 5,793,087 5,966,880 6,145,886 6,330,263 6,520,171 6,715,776 6,917,249 7,124,767 Transfers Out (Ongoing) 870,382 952,635 952,635 981,214 1,010,650 1,040,970 1,072,199 1,104,365 1,137,496 1,171,621 1,206,770 1,242,973 1,280,262 Debt Service Payments 35,189 35,190 35,189 35,189 35,189 35,189 35,189 35,189 35,189 35,189 35,189 35,189 35,189 TOTAL EXPENSE 19,268,302 20,122,458 20,390,498 21,364,783 21,885,885 22,521,599 23,017,837 23,518,882 24,062,795 24,551,205 25,049,086 25,531,814 25,992,976 Net Surplus (Shortfall)-Operating 1,797,011 52,264 592,422 (456,612) (620,181) (384,623) (149,333) 343,540 105,792 663,156 1,000,576 1,381,363 1,812,902 Capital 1,150,000 1,300,000 1,300,000 1,520,000 750,000 750,000 500,000 650,000 1,050,000 1,055,000 1,500,000 1,945,000 2,350,000 Annual Pavement Management Program 650,00 1,000,00 0 1,000,00 0 750,00 0 - 0 - - - - - - - Annual Storm Drain Replacement Project 500,00 300,00 0 300,00 0 - 0 - - - - - - - - - Replacement Type 3 Fire Engine - - - 770,00 - 0 - - - - - - - - Net Surplus (Shortfall)-including Capital 647,011 (707,578) (1,247,736) (2,140,181) (1,206,612) (1,134,623) (649,333) (544,208) (706,460) (391,844) (499,424) (563,637) (537,098) Transfers In (One-Time) - - - - 30,147 967,222 822,183 644,654 755,334 634,679 511,073 554,176 656,272 Section 115 Trust - - - - 30,147 242,222 272,183 294,65 355,33 4 334,679 4 311,073 254,176 156,272 General Fund Emergency Reserve Fund (GFER)
- - - - - 725,00 550,000 0 350,00 400,00 0 300,00 0 200,00 0 300,000 0 500,000 Transfers Out (One-Time) 424,677 110,000 110,000 - - - - - - - - - - Vehicle Replacement Fund 80,000 100,00 100,00 0 - 0 - - - - - - - - - Compensable Leave Fund 32,677 10,00 10,00 0 - 0 - - - - - - - - -Section 115 Trust 312,00 - 0 - - - - - - - - - - - Year-End Accounting for Liabilities and Assets (4,308) - - - - - - - - - - - - Compensated Absences (6,286) - - - - - - - - - - - -
Leases 1,978
Ending Total Fund Balance 8,006,125 6,020,732 7,188,547 5,048,367 3,871,902 3,704,501 3,877,352 3,977,798 4,026,672 4,269,507 4,281,155 4,271,695 4,390,869 Less Non-Spendable Fund Balance 3,684,956 3,190,000 3,700,000 3,700,000 3,700,000 3,700,000 3,700,000 3,700,000 3,700,000 3,700,000 3,700,000 3,700,000 3,700,000 Ending Available Fund Balance 4,321,169 2,830,732 3,488,547 1,348,367 171,902 4,501 177,352 277,798 326,672 569,507 581,155 571,695 690,869 Ending Available Q/E Fund Balance 2,599,999 1,548,149 1,907,902 1,148,982 1,070,426 1,065,554 1,238,187 1,554,228 1,959,191 2,106,624 2,353,935 2,709,667 3,171,680 Measure E Fund Operating Expenses (excluding transfers) 3,153,382 3,462,084 3,389,446 3,263,480 3,328,828 3,395,184 3,461,919 3,534,765 3,598,867 3,664,012 3,726,477 3,785,271 3,851,219 General Fund Emergency Reserve Fund (GFER) Balance 7,896,785 7,803,442 8,054,721 8,215,815 8,380,132 7,808,234 7,403,399 7,194,467 6,930,356 6,762,963 6,694,223 6,522,107 6,142,549 Total Fund Balance as % of Total Operating
Expenses
(General Fund + Q/E + GFER Fund Balances) /
(General Fund + Q/E Operating Expenses)
54.5% 45.1% 56.6% 43.5% 38.2% 34.3% 33.3% 33.4% 33.3% 33.5% 33.5% 33.4% 33.5% Minimum Reserve Levels * MET MET MET MET MET MET MET MET MET MET MET MET MET General Fund Emergency Reserve Policy: 33% operating expenses. Includes Measure E fund operating expenses. 7,782,899 7,399,156 7,847,382 8,127,327 8,320,855 8,552,538 8,738,319 8,927,704 9,128,348 9,311,022 9,495,936 9,674,638 9,848,584 Ending Available Fund Balance: GF, Q/E, GFER 12,182,323 14,817,953 13,451,17 10,713,16 0 9,622,46 4 8,878,289 0 8,818,937 9,026,493 9,216,218 9,439,093 9,629,313 9,803,468 10,005,098
AVAILABLE FUND BALANCE (EXCESS OF
MINIMUM RESERVES) * 4,399,424 7,418,798 5,603,789 2,585,837 1,301,605 325,751 80,618 98,789 87,870 128,072 133,378 128,830 156,514 GENERAL FUND (001)
Forecast
FY 2026
Estimated
FY 2026
Budget
FY 2025
Actual
Midyear Budget Report FY 2025-26
- Appendix 2 -
FY 2025
Actuals
FY 2026
Budget
FY 2026
Estimated
FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 Starting Fund Balance 450,998 2,314,220 2,599,999 1,548,149 1,148,982 1,070,426 1,065,554 1,238,187 1,554,228 1,959,191 2,106,624 2,353,935 2,709,667 Revenue
Tax Revenue 4,510,264 4,400,000 4,401,336 4,532,000 4,667,960 4,807,999 4,952,239 5,100,806 5,253,830 5,411,445 5,573,788 5,741,002 5,913,232 Other Revenue 6,556 - - - - - - - - - - - -
Transfers In 1,200,000 - - - - - - - - - - - -
TOTAL REVENUE 4,400,000 5,716,820 4,401,336 4,532,000 4,667,960 4,807,999 4,952,239 5,100,806 5,253,830 5,411,445 5,573,788 5,741,002 5,913,232 Expense
Personnel 2,555,046 2,762,855 2,760,981 2,796,411 2,847,747 2,899,671 2,951,540 3,009,075 3,057,406 3,106,307 3,152,041 3,193,602 3,241,800 Other Operations & Maintenance 598,335 524,229 453,465 467,069 481,081 495,513 510,379 525,690 541,461 557,705 574,436 591,669 609,419 Transfers Out (operating) - 175,000 175,000 - - - - - - - - - - Debt Service Payments - - - - - - - - - - - - -
TOTAL EXPENSE 3,462,084 3,153,382 3,389,446 3,263,480 3,328,828 3,395,184 3,461,919 3,534,765 3,598,867 3,664,012 3,726,477 3,785,271 3,851,219 Net Surplus (Shortfall)-Operating 2,563,439 937,916 1,011,890 1,268,520 1,339,132 1,412,815 1,490,320 1,566,041 1,654,963 1,747,433 1,847,312 1,955,731 2,062,013 Capital 430,000 1,703,987 1,703,987 1,667,687 1,417,687 1,417,687 1,317,687 1,250,000 1,250,000 1,600,000 1,600,000 1,600,000 1,600,000 Police Digital Radio Communications Upgrade - 317,687 317,687 317,687 317,687 317,687 317,687 - - - - - - Morro Bay Bridge Inspection & Assessment 80,000 - - - - - - - - - - - - Storm Drain Assessment - 86,30 86,30 0 - 0 - - - - - - - - - Local Road Safety Plan (LRSP) Implementation and Safety - - - 100,000 100,000 100,000 - - - - - - - Sidewalk Improvements and Street Tree Replacements Project - 300,000 300,000 250,000 - - - - - - - - - Annual Pavement Management Program 350,000 1,000,00 1,000,00 0 1,000,000 0 1,000,00 1,000,00 0 1,000,00 0 1,250,00 0 1,250,00 0 1,600,00 0 1,600,00 0 1,600,00 0 1,600,00 0 0 Net Surplus (Shortfall) including Capital 2,133,439 (692,097) (766,071) (399,167) (78,555) (4,872) 316,041 172,633 404,963 147,433 247,312 355,731 462,013 Contribution to 115 Trust - - - - - - - - -
Net Asset (Liability) Adjustment to Cash (15,563)ENDING FUND BALANCE 2,599,999 1,548,149 1,907,902 1,148,982 1,070,426 1,065,554 1,238,187 1,554,228 1,959,191 2,106,624 2,353,935 2,709,667 3,171,680 MEASURE Q/E FUND (003)
Forecast
Midyear Budget Report FY 2025-26
- Appendix 3 -
FY 2025 FY 2026 FY 2026Actuals Budget Estimates FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 Starting Fund Balance (Working Capital) 1, 1,850,288 213,391 1,331,244 1,752,453 1,483,724 1,254,610 1,054,917 902,412 799,241 743,388 743,851 802,479 923,938 RevenueHarbor Leases 2,171,505 2,162,721 2,162,721 2,205,975 2,272,155 2,340,319 2,410,529 2,482,845 2,557,330 2,634,050 2,713,072 2,794,464 2,878,298 Boat Charges 472,647 466,600 476,650 490,950 500,769 510,784 521,000 531,420 542,048 552,889 563,947 575,226 586,731 Other Charges for Service 74,024 82,500 89,834 92,529 94,379 96,267 98,192 100,156 102,159 104,202 106,286 108,412 110,580 Other Revenue 286,381 51,500 118,902 122,469 122,656 122,847 123,043 123,242 123,445 123,652 123,863 124,078 124,298 Transfers In - - - - - - - - - - - - -
TOTAL REVENUE 2,763,321 3,004,558 2,848,107 2,911,923 2,989,959 3,070,218 3,152,764 3,237,662 3,324,982 3,414,793 3,507,168 3,602,180 3,699,907 ExpensePersonnel 1,389,870 1,550,340 1,546,626 1,624,981 1,634,732 1,656,040 1,660,981 1,665,218 1,672,950 1,673,210 1,673,185 1,670,106 1,663,220 Operational Costs 1,087,074 1,204,168 1,200,454 1,260,829 1,260,477 1,261,184 1,261,902 1,262,635 1,263,382 1,264,144 1,264,922 1,265,715 1,266,524 -term liabilities (PERS) 302,796 346,173 346,173 373,903 364,504 394,856 399,079 402,583 409,568 409,06 408,263 6 404,391 396,696 Other Operations & Maintenance 659,143 629,736 632,165 651,130 670,664 690,784 711,507 732,852 754,838 777,483 800,808 824,832 849,577 Transfers Out (Ongoing) 443,199 511,555 295,671 304,541 313,677 323,088 332,780 342,764 353,047 363,638 374,547 385,784 397,357 Debt Service Payments - - - - - - - - - - - - -
TOTAL EXPENSE 2,691,631 2,492,212 2,474,462 2,580,652 2,619,073 2,669,911 2,705,269 2,740,834 2,780,835 2,814,331 2,848,540 2,880,721 2,910,154 Net Surplus (Shortfall) - Operating 512,345 71,690 373,644 331,271 370,886 400,307 447,495 496,829 544,148 600,462 658,628 721,459 789,753 Capital Revenues (Transfers, Grants, Other) - - - - - - - - - - - - - Capital Expenditures - 169,525 169,525 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 600,000 Storm Recovery - Dock Repairs - 100,000 100,000 - - - - - - - - - - Beach Street Slips - - - - - - - - - - - - -
Boat Launch Ramp & Float Repair - - - - - - - - - - - - - North T-Pier Repairs - 69,525 69,525 - - - - - - - - - - Net Surplus (Shortfall) including Capital 512,345 (97,835) 204,119 (268,729) (229,114) (199,693) (152,505) (103,171) (55,852) 462 58,628 121,459 189,753Contribution to 115 Trust 28,000 - - - - - - - - - - - - Net Asset (Liability) Adjustment to Cash 485 - -Ending Fund Balance Before Reserves 1, 1,752,453 697,252 1,535,363 1,483,724 1,254,610 1,054,917 902,412 799,241 743,388 743,851 802,479 923,938 1,113,691 tal Operating Expenses 68% 65% 62% 57% 48% 40% 33% 29% 27% 26% 28% 32% 38% Minimum Reserve Levels MET MET MET MET MET MET MET MET MET MET MET MET MET 15% Annual Operating Expenses
(Prior Yr Adopted Budget) 403,745 366,008 403,745 371,169 387,098 392,861 400,487 405,790 411,125 417,125 422,150 427,281 432,108 Unreserved/Available Fund Balance 1, 1,348,709 331,244 1,131,619 1,112,555 867,513 662,056 501,925 393,450 332,263 326,725 380,329 496,657 681,583 HARBOR OPERATING FUND (331) Forecast
RESOLUTION NO. 09-26
RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF MORRO BAY, CALIFORNIA,
APPROVING AMENDMENTS TO THE CITY’S FISCAL YEAR 2025-26 BUDGET
T H E C I T Y C O U N C I L
City of Morro Bay, California
WHEREAS, Fiscal Year 2025-26 Midyear Budget adjustments were discussed and approved during the February 24, 2026 Council meeting; and WHEREAS, the Council now desires to amend its Adopted Fiscal Year 2025-26 Budget to include the amendments outlined in Exhibit 1.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Morro Bay, California,
1. The operating and capital budgets of the City are amended by the additional and revised revenues, expenditures, and transfers, as shown on the attached Exhibit 1, that were discussed at the February 24, 2026, Council Meeting.
PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 24th day of February 2026, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
RECUSED:
______________________________
CARLA WIXOM, Mayor
ATTEST:
_____________________________
DANA SWANSON, City Clerk
Exhibit 1 to Resolution No. 09-26
Fund Dept Acct Increase (Decrease) G/L
General Fund Fire Mutual Aid Mutual Aid Reimb-Personnel 563,115.01 001-4230 3502 General Fund Fire Mutual Aid Mutual Aid Reimb-Vehicle/Equip 147,185.24 001-4230 3503 General Fund Fire Mutual Aid Mutual Aid Reimb-Admin 297.00 001-4230 3504 General Fund Fire Mutual Aid Mutual Aid Reimb-Expense Claims 145,558.74 001-4230 3505 856,155.99
Fund Dept Acct Increase (Decrease) G/L
General Fund Human Resources Recruitment 23,000.00 001-3140 6760 General Fund Fire Mutual Aid Regular Pay 3,523.52 001-4230 4110 General Fund Fire Mutual Aid Overtime Pay 283,410.37 001-4230 4120 General Fund Fire Mutual Aid Part-Time Pay 4,576.00 001-4230 4310 General Fund Fire Mutual Aid Employer Paid Benefits 16,047.63 001-4230 4910 General Fund Fire Mutual Aid Pension Normal Cost 5,787.33 001-4230 4911 General Fund Fire Mutual Aid Communication Supplies 38,500.00 001-4230 5108 General Fund Fire Mutual Aid Buildint Maint. Supplies 675.00 001-4230 5502 General Fund Fire Mutual Aid Other Vehicles 45,000.00 001-4230 7204 Harbor Operating Fund Harbor Department Equipment Acquisition 20,000.00 331-6510 7302 Harbor Operating Fund Harbor Department Outside Structural Repair 20,000.00 331-6510 6602 Triangle Lot-Boat Storage Yard Non-Dept Grounds Maintenance Supplies 56,000.00 925-1111 5501 516,519.85
Fund Dept Acct Increase (Decrease) G/L
Water Capital Impv Fund Storm/Flood Repair-Facilities/Equip Contractual Services (154,305.00) 921-8033-6106 Water Capital Impv Fund RO Building Tank Piping Mods Contractual Services (300,000.00) 921-9945-6106 Water Capital Impv Fund RO Membrane Replacement Contractual Services (280,000.00) 921-9946-6106 Water Capital Impv Fund Corp Yard RO Building Roof Repairs Contractual Services (200,000.00) 921-9951-6106 Water Capital Impv Fund Brackish Water RO Bldg Impv Engineering Services 150,000.00 921-9953-6104 Water Capital Impv Fund Brackish Water RO Bldg Impv Contractual Services 150,000.00 921-9953-6106 Water Capital Impv Fund Morro Basin Wellfield Rehab Consulting Services 34,305.00 921-8036-6105 Water Capital Impv Fund Morro Basin Wellfield Rehab Capital Planning & Permitting 600,000.00 921-8036-7105 -
Revenue Budget Amendments
Expenditure Budget Amendments
Water Capital Improvement Fund Budget Reallocations
Adopted Budget Amended Current Month YTD YTD Budget - YTD % Used/ Account Account Description Budget Amendments Budget Transactions Encumbrances Transactions Transactions Rec'd Prior Year Total Fund 001 - General Fund
REVENUE
Department 4230 - Fire Mutual Aid
3502 Mutual Aid Reimb-Personnel .00 .00 .00 235,748.58 .00 403,291.66 (403,291.66) +++ 787,484.623503 Mutual Aid Reimb-Vehicle/Equipment .00 .00 .00 66,022.04 .00 95,493.94 (95,493.94) +++ 177,351.993504 Mutual Aid Reimb-Admin .00 .00 .00 61,875.53 .00 102,232.07 (102,232.07) +++ 200,397.803505 Mutual Aid Reimb-Expense Claims .00 .00 .00 297.00 .00 297.00 (297.00) +++ 8,806.45 Department 4230 - Fire Mutual Aid Totals $0.00 $0.00 $0.00 $363,943.15 $0.00 $601,314.67 ($601,314.67) +++ $1,174,040.86 REVENUE TOTALS $0.00 $0.00 $0.00 $363,943.15 $0.00 $601,314.67 ($601,314.67) +++ $1,174,040.86
EXPENSE
Department 3140 - Human Resources
4110 Regular Pay 178,918.27 .00 178,918.27 13,762.95 .00 79,618.68 99,299.59 45 169,471.624310 Part-Time Pay 5,980.00 .00 5,980.00 .00 .00 .00 5,980.00 0 1,827.004530 Record Compensated Absences .00 .00 .00 .00 .00 .00 .00 +++ 177.274599 Other Pay 2,033.22 .00 2,033.22 33.50 .00 1,784.30 248.92 88 3,260.694910 Employer Paid Benefits 50,251.38 .00 50,251.38 3,709.99 .00 18,563.36 31,688.02 37 47,546.564911 Pension Normal Cost 14,241.89 .00 14,241.89 1,095.54 .00 6,337.69 7,904.20 45 13,342.044912 PERS Unfunded Accrued Liability 37,669.63 .00 37,669.63 .00 .00 37,669.63 .00 100 35,992.744914 Workers' Compensation 6,484.00 .00 6,484.00 .00 .00 6,249.75 234.25 96 5,678.265105 First Aide Supplies .00 .00 .00 .00 .00 .00 .00 +++ 2,818.545199 Miscellaneous Operating Supplies 1,600.00 .00 1,600.00 13.62 .00 145.62 1,454.38 9 627.675301 General Office Supplies 600.00 .00 600.00 13.93 .00 68.24 531.76 11 518.916101 Legal Services - General 5,000.00 .00 5,000.00 168.50 .00 168.50 4,831.50 3 .006105 Consulting Services 35,000.00 .00 35,000.00 .00 .00 .00 35,000.00 0 5,260.006106 Contractual Services .00 .00 .00 .00 .00 5,570.00 (5,570.00) +++ .006125 Professional Development 8,600.00 .00 8,600.00 33.25 .00 1,399.76 7,200.24 16 764.986129 Digital Services 11,686.00 .00 11,686.00 .00 .00 2,921.25 8,764.75 25 2,921.256150 Fingerprinting 2,500.00 .00 2,500.00 256.00 .00 768.00 1,732.00 31 2,775.006151 Investigations 5,000.00 .00 5,000.00 2,379.50 .00 4,269.50 730.50 85 25,000.006199 Other Professional Services 25.00 .00 25.00 .00 .00 25.00 .00 100 .006201 Telephone 840.00 .00 840.00 61.00 .00 371.75 468.25 44 737.566401 General Liability Insurance 5,163.00 .00 5,163.00 .00 .00 5,144.00 19.00 100 3,360.006513 Meals & Lodging .00 .00 .00 .00 .00 18.75 (18.75) +++ .006514 Meeting and Travel Expense 1,000.00 .00 1,000.00 .00 .00 .00 1,000.00 0 23.006519 Association Membership 799.00 .00 799.00 .00 .00 .00 799.00 0 264.00 6720 Medical Examinations 2,750.00 .00 2,750.00 .00 .00 305.00 2,445.00 11 2,410.006760 Recruitment 20,000.00 .00 20,000.00 2,065.13 .00 33,809.13 (13,809.13) 169 16,918.00 Department 3140 - Human Resources Totals $396,141.39 $0.00 $396,141.39 $23,592.91 $0.00 $205,207.91 $190,933.48 52% $341,695.09 Department 4230 - Fire Mutual Aid
4110 Regular Pay .00 .00 .00 .00 .00 3,523.52 (3,523.52) +++ 4,992.714120 Overtime Pay .00 .00 .00 .00 .00 283,410.37 (283,410.37) +++ 463,904.39 Run by Emily Conrad on 02/18/2026 05:15:50 PM Page 1 of 2City of Morro Bay Budget Performance Report Fiscal Year to Date 12/31/25
Include Rollup Account and Rollup to Account
Adopted Budget Amended Current Month YTD YTD Budget - YTD % Used/ Account Account Description Budget Amendments Budget Transactions Encumbrances Transactions Transactions Rec'd Prior Year Total Fund 001 - General Fund
EXPENSE
Department 4230 - Fire Mutual Aid
4310 Part-Time Pay .00 .00 .00 .00 .00 4,576.00 (4,576.00) +++ 18,111.414910 Employer Paid Benefits .00 .00 .00 .00 .00 16,047.63 (16,047.63) +++ 29,664.714911 Pension Normal Cost .00 .00 .00 .00 .00 5,787.33 (5,787.33) +++ 11,663.905108 Communication Supplies .00 .00 .00 .00 .00 .00 .00 +++ 424.135121 Safety Equipment .00 .00 .00 .00 .00 .00 .00 +++ 19,893.625502 Building Maint. Supplies .00 .00 .00 .00 .00 675.00 (675.00) +++ 4,324.165530 Small Tools .00 .00 .00 .00 .00 .00 .00 +++ 3,507.806604 Outside Vehicle Repair/Maint .00 .00 .00 .00 .00 .00 .00 +++ 23,434.527302 Equipment Acquisition .00 .00 .00 .00 .00 .00 .00 +++ 133,237.788501 Transfers Out .00 .00 .00 .00 .00 .00 .00 +++ 80,000.008721 Payment To Other Agency .00 .00 .00 .00 .00 .00 .00 +++ 12,800.90 Department 4230 - Fire Mutual Aid Totals $0.00 $0.00 $0.00 $0.00 $0.00 $314,019.85 ($314,019.85) +++ $805,960.03 EXPENSE TOTALS $396,141.39 $0.00 $396,141.39 $23,592.91 $0.00 $519,227.76 ($123,086.37) 131% $1,147,655.12 Fund 001 - General Fund Totals
REVENUE TOTALS .00 .00 .00 363,943.15 .00 601,314.67 (601,314.67) +++ 1,174,040.86 EXPENSE TOTALS 396,141.39 .00 396,141.39 23,592.91 .00 519,227.76 (123,086.37) 131% 1,147,655.12 Fund 001 - General Fund Totals ($396,141.39) $0.00 ($396,141.39) $340,350.24 $0.00 $82,086.91 ($478,228.30) $26,385.74 Grand Totals
REVENUE TOTALS .00 .00 .00 363,943.15 .00 601,314.67 (601,314.67) +++ 1,174,040.86 EXPENSE TOTALS 396,141.39 .00 396,141.39 23,592.91 .00 519,227.76 (123,086.37) 131% 1,147,655.12 Grand Totals ($396,141.39) $0.00 ($396,141.39) $340,350.24 $0.00 $82,086.91 ($478,228.30) $26,385.74 Run by Emily Conrad on 02/18/2026 05:15:50 PM Page 2 of 2City of Morro Bay Budget Performance Report Fiscal Year to Date 12/31/25
Include Rollup Account and Rollup to Account
Adopted Budget Amended Current Month YTD YTD Budget - YTD % Used/ Account Account Description Budget Amendments Budget Transactions Encumbrances Transactions Transactions Rec'd Prior Year Total Fund 921 - Water Capital Impv Fund
REVENUE
Department 8036 - Morro Basin Wellfield Rehab
3802 Intrafund Revenue Transfers 1,734,900.00 .00 1,734,900.00 .00 .00 .00 1,734,900.00 0 1,250,000.003860 Transfer From Enterprise .00 .00 .00 .00 .00 1,734,900.00 (1,734,900.00) +++ .00 Department 8036 - Morro Basin Wellfield Rehab Totals $1,734,900.00 $0.00 $1,734,900.00 $0.00 $0.00 $1,734,900.00 $0.00 100% $1,250,000.00 REVENUE TOTALS $1,734,900.00 $0.00 $1,734,900.00 $0.00 $0.00 $1,734,900.00 $0.00 100% $1,250,000.00
EXPENSE
Department 8033 - Storm/FloodRepair-Facilities/Equ
6106 Contractual Services .00 154,305.00 154,305.00 .00 .00 .00 154,305.00 0 .00 Department 8033 - Storm/FloodRepair-Facilities/Equ
Totals
$0.00 $154,305.00 $154,305.00 $0.00 $0.00 $0.00 $154,305.00 0% $0.00 Department 8036 - Morro Basin Wellfield Rehab
6105 Consulting Services .00 .00 .00 .00 8,503.75 .00 (8,503.75) +++ 16,496.256106 Contractual Services 1,734,900.00 1,459,763.90 3,194,663.90 16,751.56 .00 161,834.02 3,032,829.88 5 23,739.857105 Capital Planning & Permitting .00 170,458.85 170,458.85 28,312.43 104,511.05 93,745.59 (27,797.79) 116 79,541.15 Department 8036 - Morro Basin Wellfield Rehab Totals $1,734,900.00 $1,630,222.75 $3,365,122.75 $45,063.99 $113,014.80 $255,579.61 $2,996,528.34 11% $119,777.25 Department 9945 - RO Bldg Tank & Piping Modificati
6106 Contractual Services .00 300,000.00 300,000.00 .00 .00 .00 300,000.00 0 .00 Department 9945 - RO Bldg Tank & Piping Modificati Totals $0.00 $300,000.00 $300,000.00 $0.00 $0.00 $0.00 $300,000.00 0% $0.00 Department 9946 - RO Membrane Replacement
6106 Contractual Services .00 280,000.00 280,000.00 .00 .00 .00 280,000.00 0 .00 Department 9946 - RO Membrane Replacement Totals $0.00 $280,000.00 $280,000.00 $0.00 $0.00 $0.00 $280,000.00 0% $0.00 Department 9951 - Corp Yard R/O Bld Roof Repairs
6106 Contractual Services .00 200,000.00 200,000.00 .00 .00 .00 200,000.00 0 .00 Department 9951 - Corp Yard R/O Bld Roof Repairs Totals $0.00 $200,000.00 $200,000.00 $0.00 $0.00 $0.00 $200,000.00 0% $0.00 Department 9953 - Brackish Water RO Buildng Imprvm
6104 Engineering Services .00 .00 .00 .00 31,163.50 .00 (31,163.50) +++ .006106 Contractual Services .00 372,994.50 372,994.50 .00 .00 .00 372,994.50 0 .00 Department 9953 - Brackish Water RO Buildng Imprvm
Totals
$0.00 $372,994.50 $372,994.50 $0.00 $31,163.50 $0.00 $341,831.00 8% $0.00 EXPENSE TOTALS $1,734,900.00 $2,937,522.25 $4,672,422.25 $45,063.99 $144,178.30 $255,579.61 $4,272,664.34 9% $119,777.25 Fund 921 - Water Capital Impv Fund Totals
REVENUE TOTALS 1,734,900.00 .00 1,734,900.00 .00 .00 1,734,900.00 .00 100% 1,250,000.00 EXPENSE TOTALS 1,734,900.00 2,937,522.25 4,672,422.25 45,063.99 144,178.30 255,579.61 4,272,664.34 9% 119,777.25 Fund 921 - Water Capital Impv Fund Totals $0.00 ($2,937,522.25) ($2,937,522.25) ($45,063.99) ($144,178.30) $1,479,320.39 ($4,272,664.34) $1,130,222.75 Grand Totals
REVENUE TOTALS 1,734,900.00 .00 1,734,900.00 .00 .00 1,734,900.00 .00 100% 1,250,000.00 EXPENSE TOTALS 1,734,900.00 2,937,522.25 4,672,422.25 45,063.99 144,178.30 255,579.61 4,272,664.34 9% 119,777.25 Grand Totals $0.00 ($2,937,522.25) ($2,937,522.25) ($45,063.99) ($144,178.30) $1,479,320.39 ($4,272,664.34) $1,130,222.75 Run by Emily Conrad on 02/18/2026 05:15:26 PM Page 1 of 2City of Morro Bay Budget Performance Report Fiscal Year to Date 12/31/25
Include Rollup Account and Rollup to Account
Adopted Budget Amended Current Month YTD YTD Budget - YTD % Used/ Account Account Description Budget Amendments Budget Transactions Encumbrances Transactions Transactions Rec'd Prior Year Total Fund 925 - Triangle Lot - Boat Storage Yard
REVENUE
Department 1111 - Undistributed/Non-Dept.
3710 Interest Income .00 .00 .00 .00 .00 .00 .00 +++ 6,232.323730 Rental Income 53,000.00 .00 53,000.00 4,460.00 .00 26,790.00 26,210.00 51 56,620.003750 Gain On Investment .00 .00 .00 .00 .00 .00 .00 +++ 261.57 Department 1111 - Undistributed/Non-Dept. Totals $53,000.00 $0.00 $53,000.00 $4,460.00 $0.00 $26,790.00 $26,210.00 51% $63,113.89 REVENUE TOTALS $53,000.00 $0.00 $53,000.00 $4,460.00 $0.00 $26,790.00 $26,210.00 51% $63,113.89
EXPENSE
Department 1111 - Undistributed/Non-Dept.
4910 Employer Paid Benefits 3,675.00 .00 3,675.00 455.64 .00 1,795.49 1,879.51 49 3,159.744911 Pension Normal Cost 1,050.00 .00 1,050.00 414.93 .00 564.06 485.94 54 420.694999 Labor Costs Applied 10,500.00 .00 10,500.00 3,700.35 .00 9,550.49 949.51 91 13,097.105199 Miscellaneous Operating Supplies 500.00 .00 500.00 .00 .00 .00 500.00 0 .005501 Grounds Maintenance Supplies 1,500.00 .00 1,500.00 .00 .00 91.32 1,408.68 6 .00 Department 1111 - Undistributed/Non-Dept. Totals $17,225.00 $0.00 $17,225.00 $4,570.92 $0.00 $12,001.36 $5,223.64 70% $16,677.53 EXPENSE TOTALS $17,225.00 $0.00 $17,225.00 $4,570.92 $0.00 $12,001.36 $5,223.64 70% $16,677.53 Fund 925 - Triangle Lot - Boat Storage Yard Totals
REVENUE TOTALS 53,000.00 .00 53,000.00 4,460.00 .00 26,790.00 26,210.00 51% 63,113.89 EXPENSE TOTALS 17,225.00 .00 17,225.00 4,570.92 .00 12,001.36 5,223.64 70% 16,677.53 Fund 925 - Triangle Lot - Boat Storage Yard Totals $35,775.00 $0.00 $35,775.00 ($110.92) $0.00 $14,788.64 $20,986.36 $46,436.36 Grand Totals
REVENUE TOTALS 53,000.00 .00 53,000.00 4,460.00 .00 26,790.00 26,210.00 51% 63,113.89 EXPENSE TOTALS 17,225.00 .00 17,225.00 4,570.92 .00 12,001.36 5,223.64 70% 16,677.53 Grand Totals $35,775.00 $0.00 $35,775.00 ($110.92) $0.00 $14,788.64 $20,986.36 $46,436.36 Run by Emily Conrad on 02/18/2026 05:16:00 PM Page 1 of 1City of Morro Bay Budget Performance Report Fiscal Year to Date 12/31/25
Include Rollup Account and Rollup to Account
Prepared By: NS Dept Head Review: GK
City Manager Review: JC City Attorney Review: BS
Staff Report
TO: Honorable Mayor and City Council DATE: February 19, 2026 FROM: Nate Stong, PE – City Engineer
Greg Kwolek, Public Works Director
John Craig, City Manager
SUBJECT: Award of Contract with J Bruce Kies – Contractor/Consultant for the Coleman Park Improvements Phase 1 Project
RECOMMENDED ACTION
1. Award and authorize the City Manager to execute a contract with J Bruce Kies – Contractor, for the Coleman Park Improvements Phase 1 Project (Project) in the amount of $724,874.00 and sign any documents or amendments necessary for the ongoing administration of the contract subject to review and approval by the City Attorney’s Office as to form / legal effect; and
2. Adopt Resolution No. 10-26 to reallocate $194,167 in available capital project funding as defined in the report.
FISCAL IMPACT
The current approved budget for the Project is as follows:
Fund Amount
Deferred Maintenance Fund $ 31,500
Castle Winds Community Development $ 40,000
Park Fee Fund/1975 Quimby Act $ 69,500
Proposition 68 Per Capita Program Grant $ 177,952
Development Impact Fees $ 292,300*
Rural Recreation & Tourism Grant $ 600,000**
Total Project Budget $ 1,211,252
*Pending descoping determination by California State Parks **Development Impact Fees previously allocated to project in Fiscal Year 2022-23 Adopted Budget Anticipated Project expenditures, which exceed current budget, are shown in the table below:
Anticipated Expenditures Amount
Construction Contract $ 724,874
Prefabricated Restroom Purchase $ 333,169
Design $ 182,365
Construction Contingency (10%) $ 72,487
Construction Management $ 40,000
Materials Testing & Observation $ 24,395
Project Contingency $ 20,144
Environmental Monitoring $ 7,985
Total $ 1,405,419
AGENDA NO: 8.d
MEETING DATE: February 24, 2026
2 CURRENT FUNDING GAP
The funding gap between the current available budget and the anticipated project expenditure is $194,167. Staff proposes to cover this gap by transferring of funds from three separate project funds associated with projects either already completed or recommended to be paused as summarized below:
Project Acct. # Reason Transfer
Amount
Active Transportation Plan 915-8032 Recommended for pause $ 67,000 Sequoia Emergency Storm Drain 915-9950 Project complete $ 42,368 Citywide Capital and Facilities Planning 915-8240 Project complete $ 84,799 Total Requested Transfer $ 194,167
The Active Transportation Plan/Corridor Studies project was originally included in the Fiscal Year (FY) 2023-24 budget to create the City’s first active transportation plan for the purpose of pursuing active transportation grant funding. However, due to the high number of active and wait-listed capital projects as well as reduced staff capacity to implement these projects, as well as the low priority status of this project, no work has been done on this on the Active Transportation Plan. This was indicated to the Public Works Advisory Board and the Citizens Finance Advisory Committee (CFAC) during a joint meeting of the two boards on April 17, 2024, as well as to the City Council at their meeting on February 25, 2025. Staff received approving comments regarding the pause to this project, though the project was never formally paused in any City document. As such, staff now recommend formally pausing the project and reallocating the $67,000 of Measure Q/E from the project budget to the Coleman Park Phase 1 Improvements project budget.
Both the Sequoia Emergency Storm Drain project and the Citywide Capital and Facilities Planning project were completed under budget and may be closed out, with the reallocation of remaining funds to the Coleman Park Phase 1 Improvements project budget.
Of note, the $600,000 of grant funding awarded by California State Parks was for a broader Coleman Park Improvements project and included additional scope to what is now planned for the Phase 1 project.
At the recommendation of State Parks, the City has formally submitted a descoping request for several items originally proposed in the grant. As of the writing of this staff report, State Parks has not made a final decision on the City’s descoping request. In the event State Parks reject the City’s descoping request, staff would come back to identify potential solutions to fill any funding gaps as an alternative to project cancellation.
BACKGROUND
In fall of 2021, City staff performed community outreach in the form of on-site community meetings to understand the interests and desires of the community for the Coleman Park area. Based on the input received, the City applied for and received a $600,000 Rural Recreation & Tourism Grant from the California State Parks Department (State Parks). This grant included scope to build a number of park amenities including construction of a public restroom, ADA parking, connecting pathways, playground and exercise equipment, a plaza, and cultural installations.
At their September 17, 2025, meeting, Recreation and Parks Commission (RPC) provided feedback on color, texture, and style for a new restroom building and approved reducing the project scope based on current cost estimates to focus available funding on a new restroom building, ADAcompliant parking, accessible playground replacement, and ADA pathways connecting these features and the existing Harborwalk. The reduced project scope is referred to as the Phase 1 project, with future improvements such as exercise equipment, plaza, cultural installations, etc. to be informed through the Waterfront Master Plan Update and implemented at a later date as funding allows.
3 At their October 28, 2025, meeting, the City Council authorized the purchase of a prefabricated restroom building, which is in the process of being manufactured and scheduled for delivery to the site in early April.
A Notice to Bidders was advertised on both January 15, 2026 and January 22, 2026 in the New Times SLO for construction of the Phase 1 project and the bidding period closed on February 17, 2026. The City received seven bids, with J Bruce Kies providing the lowest responsive and responsible bid in the amount of $724,874.00. Staff recommends award of the contract with authorization of an additional 10% or $72,487.40 for construction contingencies.
The construction contract includes a total of 55 working days and is scheduled to begin on March 13th following approval of a Coastal Development Permit Waiver by the California Coastal Commission, which would conclude the week of Memorial Day. Recognizing the benefit of having the park open prior to tourist season, the contract includes incentive pay of $50,000 for completion prior to Memorial Day weekend.
In addition to the construction costs, the total project costs include procurement of a prefabricated restroom as well as design, construction management, geotechnical engineering and environmental services as summarized in the table below.
ENVIRONMENTAL
A Notice of Exemption was filed for the project under the California Environmental Quality Act (CEQA) on January 27, 2026. An application for a Coastal Development Permit (CDP) Waiver is pending before the California Coastal Commission (CCC), to be heard at their March 11-13 meeting. Following award and execution of the construction contract, staff will issue a Notice to Proceed with the first working day following approval of the CDP waiver by the CCC.
ATTACHMENT(S)
1. Contract
2. Resolution No. 10-26 Coleman Park Phase 1 Budget Amendment
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 1
AGREEMENT
CITY OF MORRO BAY
STATE OF CALIFORNIA
CONTRACT FOR
COLEMAN PARK IMPROVEMENTS, PHASE 1
IN THE CITY OF MORRO BAY, CALIFORNIA
THIS AGREEMENT (“this Contract” or “this Agreement”) is made and entered into this __________ day of ______________________________, 20__, by and among the City of Morro Bay, a municipal corporation, hereinafter referred to as “City” and J Bruce Kies - Contractor/Consultant, hereinafter referred to as “Contractor”. In consideration of the mutual covenants, conditions, promises, and agreements herein contained, City and Contractor hereby mutually covenant and agree as follows:
ARTICLE I – SCOPE OF WORK:
Each work order issued pursuant to this Agreement and each amendment, as provided herein, shall be based on the unit prices included in the bid upon which this Agreement was awarded. For all work provided pursuant this Agreement and every amendment provided for herein (the “WORK”), Contractor agrees to furnish all tools, equipment, apparatus, facilities, labor and materials necessary to perform and complete in a workmanlike manner, and in strict accordance with the Contract Documents, (defined in Article 6 herein) the WORK of: COLEMAN PARK IMPROVEMENTS, PHASE 1 (MB2024-PA01), in the City of Morro Bay, State of California, as called for in the drawings and specifications adopted by City. It is understood and agreed the tools, equipment, apparatus, facilities, labor, and materials shall be furnished, and the WORK performed and completed as required in said Contract Documents, and subject to the approval of City and duly authorized representatives.
ARTICLE 2 - TIME OF COMPLETION:
The WORK, as defined in the specifications, per the following: site grading and construction of an ADA concrete paved parking stall and, concrete pedestrian walk ways, flatwork, and sidewalks, concrete access ramps, installation of water and sewer services, surface/subsurface drainage appurtenances, installation of a play equipment area and surfacing, concrete seat walls, and related ADA improvements and associated improvements for the successful construction of the Project.
The prefabricated restroom building shown on the Project Plans will be delivered and installed by the restroom manufacturer three weeks following the first working day. The Contractor shall have completed the site work necessary for installation of the restroom, including foundation pad and required stubbed site utilities, and provide an area for crane with minimum dimensions as specified by the restroom manufacturer. Traffic control shall be provided by the Contractor.
A. All utilities will be protected in place or adjusted and returned to their prior condition. The work will also include traffic control, removal and reinstallation of traffic striping and pavement markings, public notifications, and all work necessary to render the infrastructure/facility complete and operational.
B. Once the Notice to Proceed has been issued, the Contractor shall have Fifty-five (55) WORKING days to complete their installation from the first WORKING DAY identified in the NTP. The Contractor shall pay to the City the sum of One Thousand Dollars ($1,000.00), for each and every calendar day, or portion thereof, delay in finishing that installation work in excess of the aboverequired completion time.
C. City and Contractor recognize time is of the essence, and the City will suffer losses if the WORK is not completed in the time specified in paragraphs A and B. They also recognize the delays,
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 2
expense, and difficulties involved in proving in a legal proceeding the actual loss suffered by City if the WORK is not completed on time. Accordingly, instead of requiring any such proof, City and Contractor agree, as liquidated damages for delay (but not as a penalty) Contractor shall pay City amounts for each day, or portion thereof, that expires after the time and amounts specified in Article
2.A and 2B.
ARTICLE 3 - CONTRACT PRICE:
City will pay Contractor in current funds for the full, complete and satisfactory performance the sum of:
Seven Hundred Twenty-Four Thousand Eight Hundred Seventy-Four Dollars ($724,874.00).
ARTICLE 4 – PAYMENT PROCEDURES:
A. Contractor shall submit Applications for Payment in accordance with Section 9 of the Standard Specifications.
B. The acceptance by Contractor of final payment shall be and shall operate as a full and unconditional release to the City of all claims and all liability to Contractor for all things done or furnished in connection with the WORK and for every act and neglect of City and others relating to or arising out of the WORK. No payment, however, final or otherwise, shall operate to release Contractor or sureties from any obligations under this Contract or the Performance and Payment Bond.
C. The amount of retention on the project shall be five percent (5%) of the WORK completed to date including stored materials, if any.
ARTICLE 5 – CONTRACTOR’S REPRESENTATIONS:
In order to induce City to enter into this Agreement the Contractor makes the following representations:
A. Contractor has examined and carefully studied the Contract Documents and the other related data identified in the Bidding Documents.
B. Contractor has visited the Site and become familiar with and is satisfied as to the general, local, and Site conditions that may affect cost, progress, and performance of the WORK.
C. Contractor is familiar with and is satisfied as to all federal, state, and local Laws and Regulations that may affect cost, progress, and performance of the WORK.
D. Contractor has carefully studied all: (1) reports of explorations and tests of subsurface conditions at or contiguous to the Site and all drawings of physical conditions relating to existing surface or subsurface structures at the Site (except Underground Facilities), if any, that have been identified in the Contract Documents.
E. Contractor has considered the information known to Contractor; information commonly known to Contractors doing business in the locality of the Site; information and observations obtained from visits to the Site; the Contract Documents; and the Site-related reports and drawings identified in the Contract Documents, with respect to the effect of such information, observations, and documents on (1) the cost, progress, and performance of the WORK; (2) the means, methods, techniques, sequences, and procedures of construction to be employed by Contractor, including any specific means, methods, techniques, sequences, and procedures of construction expressly required by the Contract Documents; and (3) Contractor’s safety precautions and programs.
F. Based on the information and observations referred to in Paragraph E above, Contractor does not consider that further examinations, investigations, explorations, tests, studies, or data are necessary for the performance of the WORK at the Contract Price, within the Contract Times, and in accordance with the other terms and conditions of the Contract Documents.
G. Contractor is aware of the general nature of work to be performed by Owner and others at the Site that relates to the WORK as indicated in the Contract Documents.
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 3
H. Contractor has given Engineer written notice of all conflicts, errors, ambiguities, or discrepancies that Contractor has discovered in the Contract Documents, and the written resolution thereof by Engineer is acceptable to Contractor.
I. The Contract Documents are generally sufficient to indicate and convey understanding of all terms and conditions for performance and furnishing of the WORK.
ARTICLE 6 – CONTRACT DOCUMENTS:
This Contract shall consist of the following identified documents herein referred to as the Contract Documents: Invitation to Bidders, Instructions for Bidders, Bid Form, Supplements to Bid Form, Agreement, Bond Requirements and Bond Forms, Substitution of Securities, Guarantees, Insurance and Indemnification Requirements, Specifications, City Standard Specifications, and attached supplemental information, Drawings, and any Addenda, for the project, as those documents exist on the date of the first signature to this Contract. There are no other Contract Documents except those listed above. This Contract shall include all labor, materials, equipment, transportation, and services necessary for the proper execution of the WORK.
ARTICLE 7 – LAW AND VENUE:
This Agreement has been executed and delivered in the County of San Luis Obispo, State of California and the validity, enforceability and interpretation of any of the clauses of this Agreement shall be determined and governed by the laws of the State of California. The duties and obligations of the parties created hereunder are performable in the City of Morro Bay and as such the County shall be the venue for any action of proceeding that may be brought or arise out of, in connection with or by reason of this Agreement.
ARTICLE 8 - CONFLICTS OF INTERESTS:
No official of City who is authorized on behalf of City to negotiate, make, accept, or approve, or to take part in negotiating, making, accepting, or approving any architectural, engineering, inspection, construction, or material supply contract or any subcontract in connection with the construction of the project, shall become directly or indirectly interested personally in this Contract or in any part thereof. No officer, employee, architect, attorney, engineer, or inspector of or for City who is authorized on behalf of City to exercise any executive, supervisory or other similar function in connection with the construction of the project shall become directly or indirectly interested personally in this Contract or in any part thereof.
ARTICLE 9 – ASSIGNMENT:
No assignment by a party hereto of any rights under or interests in this Contract will be binding on another party hereto without the written consent of the party sought to be bound; and, specifically but without limitation, moneys that may become due and moneys that are due may not be assigned without such consent (except to the extent that the effect of this restriction may be limited by law), and unless specifically stated to the contrary in any written consent to an assignment, no assignment will release or discharge the assignor from any duty or responsibility under the Contract Documents.
ARTICLE 10 – SUCCESSORS:
City and Contractor each binds itself, its partners, successors, assigns, and legal representatives to the other party hereto, its partners, successors, assigns, and legal representatives in respect to all covenants, agreements, and obligations contained in the Contract Documents.
ARTICLE 11 – SEVERABILITY:
Any provision or part of the Contract Documents held to be void or unenforceable under any Law or Regulation shall be deemed stricken, and all remaining provisions shall continue to be valid and binding upon City and Contractor, who agree that the Contract Documents shall be reformed to replace such stricken provision or part thereof with a valid and enforceable provision that comes as close as possible to expressing the intention of the stricken provision.
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 4
ARTICLE 12 – CONFLICTS:
In the event of a conflict between the Bid Documents and this Agreement, the terms and conditions of this Agreement shall control.
ARTICLE 13 – BONDS:
A. PERFORMANCE BOND: Pursuant to Section 20129 of the California Public Contract Code, the successful Bidder shall, within ten (10) working days after award of this Contract simultaneously with the execution and delivery of this Agreement, execute a Faithful Performance Bond in an amount equal to one hundred percent (100%) of the Contract price, secured from a surety company admitted in the State of California and satisfactory to City. The Bond shall be issued on the Performance Bond form contained in these Contract Documents.
B. PAYMENT BOND: Pursuant to Sections 9550 through 9560, inclusive, of the California Civil Code, the successful bidder shall, within eight (8) working days after award of this Contract exceeding $25,000, simultaneously with the execution and delivery of the Agreement, execute a Payment Bond in the amount equal to 100% of the Contract price, secured from a surety company admitted in the State of California and satisfactory to City. The Bond shall be issued on the Payment Bond form contained in these Contract Documents.
ARTICLE 14 - SUBSTITUTIONS OF SECURITIES FOR RETENTION AMOUNTS:
Substitution of certain securities for retention amounts are allowed under the Public Contract Code at the option of the Contractor. The Contractor is required to formally request the substitution and to conform to the specific provisions of Public Contract Code section 22300.
A. Acceptable Securities: Whenever retention of monies is authorized to insure performance of Contract conditions, the Contractor shall be permitted to substitute securities for the amount withheld in accordance with Public Contract Code section 22300. Securities eligible for deposit under this procedure shall consist of bank or savings and loan certificates of deposit, interest bearing demand deposit accounts, standby letters of credit, securities listed in Government Code Section 16430, or any other security mutually agreed to by the Contractor and the public agency.
The Contractor shall be the beneficiary of the City of any securities substituted for monies withheld and shall receive any interest thereon.
B. Value of Securities: The value of securities being deposited shall be based upon market value as of the date of deposit and not necessarily on face value of the securities. Market value shall be determined by the City Public Works Director. If deposit is made into an escrow, escrow instructions must clearly state, in addition to the items mentioned in, that the escrow agent must convert the securities to cash in whole or in part upon a unilateral written demand for such conversion by the City Manager; and further, that any amount demanded by City shall be paid to City upon unilateral written demand for payment. Escrow instructions used must be substantially similar to the form set forth in Public Contract Code section 22300. City will only make such demand for conversion in payment when the conditions of the Contract would have warranted an expenditure by City of a cash retention expenditure without any securities substitution. All escrow expenses shall be paid by Contractor.
C. Release of Securities: Securities deposited hereunder shall be released back to Contractor when the City Manager has certified in writing to the escrow holder that the project has been satisfactorily completed. The recording of Notice of Completion does not constitute such certification. All retention times called for in these Contract Documents must have passed, including the time after recording of Notice of Completion, before City will certify to satisfactory completion of the Contract.
ARTICLE 15 – GUARANTEES AND WARRANTIES:
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 5
A. GUARANTEE FOR TOTAL WORK: Prior to acceptance of the WORK by City, the Contractor shall submit a guarantee in the form of a written warranty on Contractor’s own letterhead as follows:
“WARRANTY FOR COLEMAN PARK IMPROVEMENTS, PHASE 1 (MB2024-PA01): This WORK has been constructed in accordance with the Contract Documents, and the WORK as installed will fulfill the requirements of this warranty, and any other warranty therefor, included in the Contract Documents. We agree to repair or replace any and all of our WORK together with any other adjacent WORK which may be displaced by so doing, that prove to be defective in its workmanship or material for the period of one (1) year (except when otherwise required in this Contract to be for a longer period) from date of acceptance of the above mentioned structure by City, ordinary wear and tear and unusual abuse or neglect excepted. Said date of acceptance shall be the date of acceptance and filing of the Notice of Completion by the City Council.
In the event of our failure to comply with the above-mentioned conditions within seven (7) days after being notified in writing, we collectively or separately, do hereby authorize City to proceed to have said defects repaired and made good at our expense and we will honor and pay the cost and charges therefor on demand.
Signed:
______________________________ _____________
Contractor License Number”
B. ADDITIONAL GUARANTEES: Additional Guarantees shall be provided as required in the technical sections of the Contract Documents.
ARTICLE 16 – INSURANCE:
The parties expressly agree the indemnification and insurance clauses in this Contract are an integral part of the performance exchanged in this Contract. The compensation stated in this Contract includes compensation for the risks transferred to Contractor by the indemnification and insurance clauses.
Attention is invited to the provisions of the Insurance Code of the State of California with reference to the writing of insurance policies and bonds covering risks located in this state, and the premiums and commissions thereon. Contractor shall obtain, and maintain, at his own expense, all the insurance required by this section. The insurance requirements must be met within the time period allowed for Contract execution as defined herein.
The Notice to Proceed with the WORK under this Contract will not be issued, and Contractor shall not commence WORK, until such insurance has been approved by City. Contractor shall not allow any subcontractor to commence WORK on his subcontract until all similar insurance required for the subcontractor has been obtained. Such insurance shall be maintained in full force and effect at all times during the prosecution of the WORK and until the final completion and acceptance thereof.
A. General Requirements: The following requirements apply to all insurance to be provided by Contractor:
1. A Certificate of Insurance and all required insurance endorsements and documents shall be furnished to City along with contract documents within three (3) days of the receipt of the Notice of Award.
2. Certificates and policies shall state the policies not be canceled or reduced in coverage or changed in any other material aspect without thirty (30) days prior written notice to City, except if cancelation is for non-payment and then notice shall be ten (10) days.
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3. Approval of the insurance by City shall not relieve or decrease the extent to which the Contractor may be held responsible for payment of damages resulting from Contractor’s services or operations pursuant to this Contract.
B. Commercial General Liability (CGL):
1. Contractor shall maintain in full force and effect, for the period covered by this Contract, Commercial General Liability insurance with the following coverages. a. Personal Injury and Bodily Injury, including death resulting therefrom. b. Property Damage.
2. The amount of insurance shall not be less than the following: single limit coverage applying to bodily and personal injury, including death resulting therefrom and property damage coverage in in an amount not less than $2,000,000 per occurrence, $4,000,000 general aggregate, for bodily injury, personal injury, and property damage. The policy must include contractual liability that has not been amended. Any endorsement restricting standard ISO “insured contract” language will not be accepted.
3. The following endorsements must be provided in the policy:
a. If the insurance policy covers an “accident” basis, it must be changed to “occurrence”. b. The policy must cover personal injury as well as bodily injury. c. Blanket contractual liability must be afforded and the policy must be afforded and the policy must contain a cross liability or severability of interest endorsement.
4. The City of Morro Bay, its officials, officers, employees and agents shall be named as additional insurer under the policy using standard ISO endorsement No. CG 2010. Contractor also agrees to require all subcontracting to do likewise. The policy shall provide that the insurance will operate as primary insurance. No other insurance effected by the City, whether commercial or self-insurance will be called upon to contribute to a loss hereunder. Nothing contained in this Contract shall be construed to require Contractor’s insurance to indemnify City in contravention of Insurance Code 11580.04.
C. Workers’ Compensation and Employer’s Liability Insurance: In accordance with the provisions of Section 3700 of the California Labor Code, the Contractor will be required to secure the payment of compensation to his employees. The Contractor shall sign and file with City the following certification:
“I am aware of the provisions of Section 3700 of the Labor Code which require every employer to be insured against liability for Workers’ Compensation or to undertake self-insurance in accordance with the provisions of that code, and I will comply with such provisions before commencing the performance of the WORK of this Contract.”
Notwithstanding the foregoing provision, before the Contract is executed on behalf of City, a bidder to whom a Contract has been awarded shall furnish certificate of insurance or certificate of permission to self-insure. Said certificates shall provide that 30 days’ notice of cancellation or change shall be afforded City.
Waiver of subrogation. All insurance coverage maintained or procured pursuant to this agreement shall be endorsed to waive subrogation against Agency, its elected or appointed officers, agents, officials, employees, and volunteers or shall specifically allow Vendor or others providing insurance evidence in compliance with these specifications to waive their right of recovery prior to
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 7
a loss. Vendor hereby waives its own right of recovery against Agency and shall require similar written express waivers and insurance clauses from each of its subconsultants.
D. Business Auto Coverage on ISO Business Auto Coverage from CA 00 01 including symbol 1 (Any Auto) or an acceptable equivalent. Limits are subject to review, but in no event to be less than $1,000,000 per accident. If Contractor owns no vehicles, then this requirement may be satisfied by a non-owned auto endorsement to the general liability policy described in B., above. If Contractor or Contractor’s employees or subcontractors will use personal autos in any way on this project, then Contractor shall provide evidence of personal auto liability coverage for each such person.
E. Duration of coverage. Contractor shall procure and maintain for the contract period, and any additional length of time required thereafter, insurance against claims for injuries to persons or damages to property, or financial loss which may arise from or in connection with the performance of the Work hereunder by Contractor, their agents, representatives, employees, or subconsultants.
Contractor must maintain general liability and umbrella or excess liability insurance for as long as there is a statutory exposure to completed operations claims. Agency and its officers, officials, employees, and agents shall continue as additional insureds under such policies.
F. Products/completed operations coverage. Products/completed operations coverage shall extend a minimum of three (3) years after project completion. Coverage shall be included on behalf of the insured for covered claims arising out of the actions of independent contractors. If the insured is using subcontractors, the Policy must include work performed “by or on behalf” of the insured.
Policy shall contain no language that would invalidate or remove the insurer’s duty to defend or indemnify for claims or suits expressly excluded from coverage. Policy shall specifically provide for a duty to defend on the part of the insurer. The Agency, its officials, officers, agents, and employees, shall be included as additional insureds under the Products and Completed Operations coverage.
ARTICLE 17 – INDEMNIFICATION:
A. Except as otherwise provided in subparagraphs B. and C. below, Contractor shall defend, indemnify and save harmless City, and entities’ agents, officials, officers and employees, from any and all claims demands, damages, costs expenses, judgments, attorney fees or liability relating to any act or omission by the Contractor, or its agents, employees, or certain independent Contractors (described below) which relates in any way to this Contract; regardless of whether said act or omission is willful, negligent or non-negligent. The preceding sentence applies to any theory of recovery relating to said act or omission, including but not limited to the following:
1. Violation of statute, ordinance, or regulation.
2. Professional malpractice.
3. Willful, intentional or other wrongful acts, or failures to act.
4. Negligence or recklessness.
5. Furnishing of defective or dangerous products.
6. Completed operations.
7. Premises liability.
8. Strict liability.
9. Inverse condemnation.
10. Violation of civil rights.
11. Violation of any federal or state statute, regulation, or ruling resulting in a determination by the Internal Revenue Service, California Franchise Tax Board or any other California public entity responsible for collecting payroll taxes, when Contractor is not an independent contractor. The certain “independent contractors” referenced above refer to independent contractors which are either hired by Contractor, directly responsible to Contractor, or under the direction or control of Contractor.
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 8
B. Nothing contained in the foregoing indemnity provision shall be construed to require indemnification for liability arising from proven willful misconduct of City.
C. Nothing contained in the foregoing indemnity provision shall be construed to require indemnification for that portion of any liability attributable to the active negligence of City provided, however, this exception for active negligence shall not apply to (1) liability arising from the passive negligence of City, or (2) that portion of any liability attributable to any act or omission, whether willful misconduct or active or passive negligence on the part of the Contractor.
D. Contractor shall have the burden of proving the exception described in paragraphs B and C above.
E. It is the intent of the parties to provide City the fullest indemnification, defense, and “hold harmless” rights allowed under the law. If any word(s) contained herein are deemed by a court to be in contravention of applicable law, then said word(s) shall be severed from this Contract and the remaining language shall be given full force and effect.
ARTICLE 18 – COMPLIANCE WITH LAWS:
Federal and State Laws and Regulations: The project shall be constructed under the complete jurisdiction of all applicable laws of the United States and State of California governing construction including, without limitation, the following:
A. The California Health and Safety Code and all applicable administrative code regulations pursuant thereto.
B. All laws governing the employment of labor, qualifications for employment of aliens, payment of employees, convict-made materials, domestic and foreign materials and accident prevention.
C. Title 19 of the California Administrative Code entitled “Public Safety” Chapter 1, State Fire Marshall, Sub-Chapter 1, “General Fire and Panic Safety”.
D. General Industrial Safety Orders: Each and every Contractor shall observe and conform to the provisions of Title 8, California Administrative Code bearing upon safe and proper use, construction, disposal, etc., of materials, machinery, and building appurtenances as therein set forth.
E. Code Rules and Safety Orders: All work and materials shall be in full accordance with the latest - substantive rules and regulations of the State Fire Marshall, the safety orders of the Division of Industrial Safety, Department of Industrial Relations; the Uniform Building Code, National Electric Code, Uniform Mechanical Code, Uniform Plumbing Code, and other applicable State Laws or Regulations. Nothing in these plans and specifications is to be construed to permit WORK not conforming to these codes.
Note: The procedural aspects of the Uniform Codes referred to above may not apply to the WORK of this Contract, but the substantive provisions do apply. All of the above laws and regulations though referred to herein, are as much a part of the Contract as if they were incorporated in their entirety in this Agreement.
F. Prevailing Wage Law:
a.) Public Work. The Parties acknowledge that the work to be performed under this Agreement is a “public work” as defined in Labor Code Section 1720 and that this Agreement is therefore subject to the requirements of Division 2, Part 7, Chapter 1 (commencing with Section 1720) of the California Labor Code relating to public works contracts and the rules and regulations established by the Department of Industrial Relations (“DIR”) implementing such statutes. The work performed under this Agreement is subject to compliance monitoring and enforcement by the DIR.
Contractor shall post job site notices, as prescribed by regulation.
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 9
b.) Registration with DIR. Pursuant to Labor Code section 1771.1, Contractor and all subcontractors must be registered with, and pay an annual fee to, the DIR prior to and during the performance of any work under this Agreement.
c.) Prevailing Wages. Contractor shall pay prevailing wages to the extent required by Labor Code Section 1771. Pursuant to Labor Code Section 1773.2, copies of the prevailing rate of per diem wages are on file at City Hall and will be made available to any interested party on request. By initiating any work under this Agreement, Contractor acknowledges receipt of a copy of the DIR determination of the prevailing rate of per diem wages, and Contractor shall post a copy of the same at each job site where work is performed under this Agreement. Contractor assumes responsibility for the payment of prevailing wages and shall indemnify City and hold City harmless from any and all claims made by the State of California, the DIR, any subcontractor, any worker, or any other third party with respect thereto.
d.) Penalty for Failure to Pay Prevailing Wages. Contractor shall comply with and be bound by the provisions of Labor Code Sections 1774 and 1775 concerning the payment of prevailing rates of wages to workers and the penalties for failure to pay prevailing wages. The Contractor shall, as a penalty to the City, forfeit two hundred dollars ($200) for each calendar day, or portion thereof, for each worker paid less than the prevailing rates as determined by the DIR for the work or craft in which the worker is employed for any public work done pursuant to this Agreement by Contractor or by any subcontractor.
e.) Payroll Records. Contractor shall comply with and be bound by the provisions of Labor Code Section 1776, which requires Contractor and each subcontractor to: keep accurate payroll records and verify such records in writing under penalty of perjury, as specified in Section 1776; certify and make such payroll records available for inspection as provided by Section 1776; and inform the City of the location of the records.
f.) Apprentices. Contractor shall comply with and be bound by the provisions of Labor Code Sections 1777.5, 1777.6, and 1777.7 and California Code of Regulations Title 8, Section 200 et seq. concerning the employment of apprentices on public works projects. Contractor shall be responsible for compliance with these aforementioned Sections for all apprenticeable occupations.
Prior to commencing work under this Agreement, Contractor shall provide City with a copy of the information submitted to any applicable apprenticeship program. Within sixty (60) days after concluding work pursuant to this Agreement, Contractor and each of its subcontractors shall submit to the City a verified statement of the journeyman and apprentice hours performed under this Agreement.
g.) Eight-Hour Work Day. Contractor acknowledges that eight (8) hours labor constitutes a legal day’s work. Contractor shall comply with and be bound by Labor Code Section 1810. h.) Penalties for Excess Hours. Contractor shall comply with and be bound by the provisions of Labor Code Section 1813 concerning penalties for workers who work excess hours. The Contractor shall, as a penalty to the City, forfeit twenty-five dollars ($25) for each worker employed in the performance of this Agreement by the Contractor or by any subcontractor for each calendar day during which such worker is required or permitted to work more than eight (8) hours in any one calendar day and forty (40) hours in any one calendar week in violation of the provisions of Division 2, Part 7, Chapter 1, Article 3 of the Labor Code. Pursuant to Labor Code section 1815, work performed by employees of Contractor in excess of eight (8) hours per day, and forty (40) hours during any one week shall be permitted upon public work upon compensation for all hours worked in excess of 8 hours per day at not less than one and one-half (1½) times the basic rate of pay.
COLEMAN PARK IMPROVEMENTS, PHASE 1; MB2024-PA01 Page 10 i.) Workers’ Compensation. California Labor Code Sections 1860 and 3700 provide that every employer will be required to secure the payment of compensation to its employees if it has employees. In accordance with the provisions of California Labor Code Section 1861, Contractor certifies as follows: “I am aware of the provisions of Section 3700 of the Labor Code which require every employer to be insured against liability for workers’ compensation or to undertake selfinsurance in accordance with the provisions of that code, and I will comply with such provisions before commencing the performance of the work of this contract.” j.) Contractor’s Responsibility for Subcontractors. For every subcontractor who will perform work under this Agreement, Contractor shall be responsible for such subcontractor’s compliance with Division 2, Part 7, Chapter 1 (commencing with Section 1720) of the California Labor Code, and shall make such compliance a requirement in any contract with any subcontractor for work under this Agreement. Contractor shall be required to take all actions necessary to enforce such contractual provisions and ensure subcontractor’s compliance, including without limitation, conducting a review of the certified payroll records of the subcontractor on a periodic basis or upon becoming aware of the failure of the subcontractor to pay his or her workers the specified prevailing rate of wages. Contractor shall diligently take corrective action to halt or rectify any such failure by any subcontractor.
IN WITNESS, WHEREOF, the parties to these presents have hereunto set their hands the year and date first above written.
CITY OF MORRO BAY ATTEST:
_____________________________________
JOHN CRAIG, CITY MANAGER DANA SWANSON, City Clerk
CONTRACTOR: APPROVED AS TO FORM:
_________________________________ ____________________________________ By:______________________________ BRIAN STACK, City Attorney Its:______________________________
Licensed in accordance with an act providing for the registration of Contractors.
License No. ________________; Classification ______ ; Expires ____/____/20____
RESOLUTION NO. 10-26
RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF MORRO BAY, CALIFORNIA,
AUTHORIZING AMENDMENT TO THE CITY’S FISCAL YEAR
2025-26 OPERATING AND CAPITAL BUDGET
T H E C I T Y C O U N C I L
City of Morro Bay, California
WHEREAS, the City of Morro Bay is required to appropriate and expend public funds to conduct its day-to-day business activities; and
WHEREAS, the City Council adopted the Fiscal Year (FY) 2025-26 Operating and Capital Budget on June 24, 2025, by Resolution No. 38-25; and
WHEREAS, the cost of Phase 1 of the Coleman Park Capital Project has exceeded allocated funding; and
WHEREAS, the Active Transportation Plan/Corridor Studies project has been paused; and WHEREAS, the Sequoia Emergency Storm Drain project was completed under budget; and WHEREAS, the Citywide Capital and Facilities Planning project was completed under budget; and
WHEREAS, the City Council deems it necessary to reallocate previously allocated funding of these projects to Coleman Park Capital Project Phase 1.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Morro Bay, California, authorizes the reallocation of $194,167.09 in previously allocated General Fund resources to the Coleman Park Capital Project Phase 1 as outlined in Table 1. //
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Table 1. Budget Reallocation Detail
Project Account Description Increase
(Decrease)
Citywide Capital &
Facilities Planning
915-8240-6105 Consulting
Services
($84,798.71)
Sequoia
Emergency Drain
Repair
915-9950-6106 Contractual
Services
($42,368.38)
Active
Transportation
Plan & Corridor
Studies
915-8032-6106 Contractual
Services
($67,000.00)
Coleman Park
Project Phase 1
915-8424-6106 Contractual
Services
$194,167.09
PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 24th day of February 2026, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
RECUSE:
______________________________
CARLA WIXOM, Mayor
ATTEST:
_____________________________
DANA SWANSON, City Clerk