Morro Bay City Council
May 26, 2026

CITY OF MORRO BAY
City Council Regular Meeting Agenda

Tuesday, May 26, 2026, 5:30 p.m.

Veterans Memorial Hall
209 Surf St., Morro Bay, CA
Public Participation
Public participation is offered in the following ways:
• Community members may attend the meeting in person at the Morro Bay Veterans Hall.

Alternatively, members of the public may watch the meeting and speak during general Public Comment or on a specific agenda item by logging into the Zoom webinar using the information provided below. Please use the "raise hand" feature to indicate your desire to provide public comment.
•
• Zoom webinar link: https://us02web.zoom.us/j/82429164990 Or Telephone Attendee: 1 (669) 444-9171 or 1 (669) 900-9128 or 1 (346) 248-7799; Webinar ID: 824 2916 4990. Press *9 to raise hand for public comment. •
• Meetings are also livestreamed on the City's website.

Community Members are encouraged to submit agenda correspondence via email to the City Council at [email protected] prior to the meeting. Agenda correspondence received by 10:00 a.m. on the meeting day will be posted on the City website.
•
Pages

1. ESTABLISH QUORUM AND CALL TO ORDER

2. PLEDGE OF ALLEGIANCE

3. REPORTS

3.a Closed Session Report

3.b Mayor and Councilmembers' Reports, Announcements and Presentations

3.c City Manager Reports, Announcements and Presentations

3.d Subcommittee Reports - Verbal Update of Current Subcommittee Activities

1. Water Reclamation Facility & Morro Bay / Cayucos Sanitary District JPA

2. Morro Bay Power Plant (Vistra)

3. Morro Elementary School

4. RECOGNITION AND PRESENTATIONS

4.a Certificates of Recognition for Morro Bay High School students who have completed 80+ hours of community service

5. PUBLIC COMMENT
Members of the audience wishing to address the Council on City business matters not on the agenda may do so at this time. For those desiring to speak on items on the agenda, but unable to stay for the item, may also address the Council at this time.

Public comment is an opportunity for members of the public to provide input to the governing body. To increase the effectiveness of the Public Comment Period, the City respectfully requests the following guidelines and expectations be followed:
•
Those desiring to speak are asked to complete a speaker slip, which are located at the entrance, and submit it to the City Clerk. However, speaker slips are not required to provide public comment.
•
When recognized by the Mayor, please come forward to the podium to speak.

Though not required, it is helpful if you state your name, city of residence and whether you represent a business or group. Unless otherwise established by the Mayor, comments are to be limited to three minutes. •
All remarks should be addressed to Council, as a whole, and not to any individual member thereof.
•
The Council respectfully requests that you refrain from making slanderous, profane or personal remarks against any elected official, commission and/or staff.
•
Please refrain from public displays or outbursts such as unsolicited applause, comments or cheering.
•
Any disruptive activities that substantially interfere with the ability of the City Council to carry out its meeting will not be permitted and offenders will be requested to leave the meeting.
•
Your participation in City Council meetings is welcome and your courtesy will be appreciated.
•
The Council in turn agrees to abide by its best practices of civility and civil discourse according to Resolution No. 07-19.
•

6. CONSENT AGENDA
Unless an item is pulled for separate action by the City Council, the following actions are approved without discussion. The public will also be provided an opportunity to comment on consent agenda items.

Recommended Action
Approve Consent Agenda Items 6.a through 6.d.

6.a Approval of Minutes
(City Clerk)
Recommended Action
Approve as submitted.

1. April 21, 2026 - Joint City Council and Citizens Finance Advisory Committee Special Meeting
5 2. May 12, 2026 - Special Closed Session Meeting 7

6.b Approval of Proclamations
(City Clerk)

1. Proclamation Declaring June 2026 as Pride Month 9

6.c Presentation of Allocation of Water Equivalency Units (WEU) for Fiscal Year (FY) 2026/27
10 (Public Works Department)
Recommended Action
Adopt Resolution No. 25-26 to allocate 50 WEUs for residential development (30 single-family residential (SFR) and 20 multi-family residential (MFR)) and 65 for commercial development for a total of 115 WEUs for FY2026/27.

6.d San Luis Obispo Countywide Regional Homelessness and Affordable Housing Compact and Regional Homeless Service Inventory
14 (Police Department)
Recommended Action
Adopt Resolution No. 26-26 approving “San Luis Obispo Countywide Regional Homelessness and Affordable Housing Compact” and receive a report from the County of San Luis Obispo’s Homeless Services Division on the Regional Compact and Regional Homeless Services Inventory.

7. PUBLIC HEARING ITEMS
None.

8. BUSINESS ITEMS

8.a Budget Study Session - Review of Fiscal Year 2026-27 Draft Proposed Budget
31 (Finance Department / City Manager)
Recommended Action
Receive the Proposed Fiscal Year (FY) 2026-27 Citywide Operating and Capital Budget and provide feedback prior to budget adoption, scheduled for June 9, 2026, on:

General Fund shortfall of $900,000 ($0.9 million): spend from fund balance or shift appropriate budgeted costs to Measure Q/E; and

1. Measure Q/E shortfall of $700,000 ($0.7 million): spend from fund balance or decrease budget by reducing contributions to capital projects and/or on-call services.

2. 8.b Discussion of Resources for Economic Development and Related Efforts 64 (City Manager)
Recommended Action
For consideration and discussion.

9. COUNCIL DECLARATION OF FUTURE AGENDA ITEMS

10. ADJOURNMENT
The next Regular Meeting will be held on June 9, 2026.

This agenda is subject to amendment up to 72 hours prior to the date and time set for the meeting. Please refer to the agenda posted at City Hall, 595 Harbor Street, Morro Bay, CA 93442 for any revisions or call the Clerk's office at (805) 772-6205 for further information.

Materials related to an item on this agenda submitted to the City Council after distribution of the agenda packet are available for public inspection upon request by calling the City Clerk's office at (805) 772-6205.

In compliance with the Americans Disability Act, if you need special assistance to participate in a City meeting, please contact the Clerk's office 24 hours prior to the meeting to insure reasonable arrangements can be made to provide accessibility to the meeting.

1 MINUTES - SPECIAL JOINT MEETING

OF THE MORRO BAY CITY COUNCIL

AND CITIZENS FINANCE ADVISORY COMMITTEE
April 21, 2026, 3:30 p.m.

Veterans Memorial Hall
209 Surf St., Morro Bay, CA
Members Present: Mayor Carla Wixom
Council Member Jeff Eckles
Council Member Cyndee Edwards
Council Member Zara Landrum
Council Member Bill Luffee
Committee Chair Stephen Peck
Committee Member Bart Beckman
Committee Member Barry Branin
Committee Member Dorfman
Members Absent: Committee Vice-Chair Johnson
Staff Present: City Manager John Craig
Finance Director Emily Conrad
City Clerk Dana Swanson
_____________________________________________________________________

1. ESTABLISH QUORUM AND CALL TO ORDER
Mayor Wixom and CFAC Chair Peck established a quorum and called the meeting to order at 3:30 p.m. with all Council Members and CFAC Members Beckman and Branin present. CFAC Member Dorfman joined the meeting at 3:37 p.m.

CFAC Member Branin led the flag salute.

2. PUBLIC COMMENT FOR ITEMS ON THE AGENDA
Mayor Wixom opened public comment; seeing none, the public comment period was closed.

3. SPECIAL MEETING AGENDA ITEMS

3.a Review 2026 Workplan:
 Subcommittee Update - Revenue Policy
 Subcommittee Update - Measure Q/E Accounting and Reporting Finance Director Conrad introduced the item and turned to CFAC Chair Peck to introduce subcommittee updates.

2  Revenue Policy Subcommittee Members Beckman and Branin sought Council guidance on the intended purpose of CFAC's review of the Revenue Policy and received direction to review the policy language (not a specific revenue stream or fund) and opine on whether the policy is overly broad or prescriptive, specifically regarding the use of one-time revenues, such as the sale of City property.
 On behalf of himself and Member Johnson, Chair Peck presented the proposed Allocation/Expenditure Plan work program for Measure Q/E funds. There was consensus to remove items 1 and 5 from the draft work program and agreement the CFAC would refine the work program and return to Council for final approval.

Staff recommends the City Council and Citizens Oversight/Finance Advisory Committee (CFAC):

1. Receive and file review of City Council-assigned 2026 Workplan;

2. Discuss potential additional assignments.

3.b Fiscal Year 2026-27 Measure Q/E Budget Requests
Finance Director Conrad presented the report and responded to Council and CFAC questions and comments.

No formal action was taken on this item.

4. ADJOURNMENT
The meeting adjourned at 5:35 p.m.

Respectfully submitted,
/s/ Dana Swanson, City Clerk

1 MINUTES - MORRO BAY CITY COUNCIL

CLOSED SESSION MEETING
May 12, 2026, 4:00 p.m.

City Hall Conference Room
595 Harbor Street, Morro Bay, CA
Members Present: Mayor Carla Wixom
Council Member Jeff Eckles
Council Member Cyndee Edwards
Council Member Zara Landrum
Council Member Bill Luffee
Staff Present: City Manager John Craig
City Attorney Brian Stack
Harbor Patrol Supervisor Becka Kelly
_____________________________________________________________________

1. ESTABLISH QUORUM AND CALL TO ORDER
Mayor Wixom called the meeting to order at 4:00 p.m. with all members present.

2. CLOSED SESSION PUBLIC COMMENT
Mayor Wixom opened public comment for items on the agenda; seeing none, the public comment period was closed.

3. SUMMARY OF CLOSED SESSION ITEMS

4. THE COUNCIL WILL CONVENE IN CLOSED SESSION

4.a CONFERENCE WITH LEGAL COUNSEL - POTENTIAL LITIGATION Potential initiation of litigation pursuant to Government Code Section 54956.9(d)(4): (two potential cases)

4.b PUBLIC EMPLOYEE PERFORMANCE EVALUATION
Conduct an employee evaluation of the City Manager pursuant to Government Code Section 54957.

4.c PUBLIC EMPLOYEE PERFORMANCE EVALUATION
Conduct an employee evaluation of the City Attorney pursuant to Government Code Section 54957.

5. RECONVENE IN OPEN SESSION
The City Council reconvened in Open Session. City Attorney Stack reported the Council did not take any reportable action in accordance with the Brown Act.

2 6. ADJOURNMENT
The meeting adjourned at 5:24 p.m.

Respectfully submitted,
/s/ Dana Swanson, City Clerk

A PROCLAMATION OF THE CITY COUNCIL

OF THE CITY OF MORRO BAY
DECLARING JUNE 2026 AS PRIDE MONTH

THE CITY COUNCIL
City of Morro Bay, California
WHEREAS, the City of Morro Bay supports the rights of all citizens to experience equality and freedom from discrimination; and
WHEREAS, the City of Morro Bay honors the history of the Lesbian, Gay, Bisexual, Transgender, Queer, Intersex and Asexual (LGBTQIA+) liberation movement and recognizes that LGBTQIA+ individuals have had immeasurable impact to the cultural, civic, and economic successes of our city and nation; and WHEREAS, this nation was founded on the principle that every individual has infinite dignity, worth, and status, and the City Council calls upon community members to embrace this principle and work to eliminate prejudice everywhere it exists; and
WHEREAS, Pride Month began as a protest against the profiling and violence of LBGTQIA+ people, who continue to face intense struggles to this day; and WHEREAS, human beings deserve not only the tools for survival but also access to the pursuit of equitable health, liberation, and joy; and
WHEREAS, LGBTQIA+ people have historically struggled to find others like themselves in media, community, and commerce, and Pride Month serves as a crucial time of visibility and community; and WHEREAS, recognition from one’s government is crucial for feeling safe in one’s community and the City of Morro Bay is intent on ensuring everyone in the City feels welcome, safe, and a sense of belonging; and
WHEREAS, recognizing and celebrating Pride Month influences awareness and provides opportunities to engage in dialogue to strengthen alliances, build acceptance and advance equal rights for all; and
WHEREAS, it is important to acknowledge both the achievements and the continued challenges faced by LGBTQIA+ individuals, including discrimination, harassment, violence, and barriers to equal opportunity; and
WHEREAS, the observance of Pride Month serves as an opportunity to promote understanding, celebrate authenticity, encourage acceptance, and reaffirm the commitment to building welcoming and inclusive communities for residents, families, youth, and visitors alike; and WHEREAS, the City of Morro Bay recognizes the importance of protecting civil rights and fostering a community where every individual feels seen, valued, safe, and empowered to live openly and authentically; and
WHEREAS, Pride Month is a cornerstone of American culture that allows us to lift up our successes while working toward a better, more inclusive, equitable future.

NOW, THEREFORE BE IT RESOLVED that City Council of the City of Morro Bay hereby proclaims the month of June 2026 as Pride Month in support of the LGBTQIA+ community.

IN WITNESS WHEREOF I have hereunto set my
hand and caused the seal of the City of Morro Bay to
be affixed this 26
th day of May 2026

CARLA WIXOM, MAYOR

Prepared By: NS Dept Review: ______
City Manager Review: JC City Attorney Review: BS
Staff Report
TO: Honorable Mayor and City Council DATE: May 21, 2026 FROM: Nate Stong, PE City Engineer
SUBJECT: Presentation of Allocation of Water Equivalency Units (WEU) for Fiscal Year (FY) 2026/27

RECOMMENDED ACTION
Adopt Resolution No. 25-26 to allocate 50 WEUs for residential development (30 single-family residential (SFR) and 20 multi-family residential (MFR)) and 65 for commercial development for a total of 115 WEUs for FY2026/27.

WATER EQUIVALENCY UNITS (WEU)
Background
In 1984 the citizens of Morro Bay adopted Measure F, codified as Ordinance 266 in Morro Bay Municipal Code as Chapter 13.20, as a “Growth Management System”. This measure set a maximum population of 12,200 by the year 2000. Measure F set a limit of 70 new housing units per year with an annual maximum variation in the number of units not exceeding 10 percent or 77 WEUs for residential units. City Council acted on August 27, 2007, to reduce the number of allocated housing units to 50 new housing units. Ordinance No. 266 requires the WEU allocation mix to consist of 60% SFR dwellings and 40% MFR dwellings. Since housing and population growth has not increased to the Measure F projected population of 12,200, new housing units can still be issued. The population growth estimates in the General Plan predict reaching the Measure F established population in 2040.

A WEU is defined as a unit of measure for water use equal to the average amount of water used by a single-family residence over the period of one year. Based on calculations completed in 2016, a WEU is 8,732 cubic feet (0.2 AF) of water or 90 gallons per capita per day (GPCD). This amount was lowered in the 2016 calculation from previous years due to the historical trend of lower water use per capita compared to previous years. Prior to 2016, a WEU was calculated at 166 GPCD per year. The intent of the WEU allocations is to regulate the addition of new water users to the City’s water system and to ensure the demand for water shall not exceed available water supply.

Water Equivalency Unit Program
WEUs are issued to new projects based on projects’ potential water use. WEUs are issued with planning permit approvals; therefore, this water use is projected to be in the future demands, not within the current or even next fiscal year water demand.

Summary of WEU FY 2025-26 activity:

The City Council authorized 115 WEUs for FY 2025-26, including 30 WEUs to be used for singlefamily dwellings, 20 for multiple-family dwellings, and 65 allowed for commercial/industrial uses.

Those WEUs were allocated on a first-come, first-serve basis. The tracking of the WEUs utilized for FY 2025-26 indicates 3 of the 115 WEUs allocated were used:

AGENDA NO: 6.c
MEETING DATE: May 26, 2026

 Single-Family Residential: 3
 Multi-Family Residential: 0
 Commercial: 0
Previous five years’ WEU total allocations used, for reference:

FY24/25 – 22.32 total (14SF Res. 4MF Res, 4.32 Commercial) FY23/24 – 21.6 total (2.0 SF Res, 5 MF Res, 14.6 Commercial) FY22/23 - 1.0 total (1.0 SF Res, 0 MF Res, 0 Commercial) FY21/22 - 8.94 total (8.0 SF Res, 0.94 MF Res, 0 Commercial) FY20/21 - 84.8 total (8.0 SF Res, 21.7 MF Res, 55.11 Commercial) This is not a comprehensive list of all building activity, but rather a list of those activities which required a WEU allocation in the past fiscal year. A WEU is only required for single family residential and multi-family residential when development is on an empty lot or when a change in use is proposed, i.e., changing from office building to apartment. Many of the projects for FY 2024/25 are Accessory Dwelling Units (ADU) and per State Law these units are to be treated the same as the existing residence with no greater impact than the existing residence, and as such, ADUs do not require allocation of WEUs.

There is no significant change in water availability that would impact the City’s ability to issue WEUs. Looking ahead at the planning projects in the queue for remainder of FY 2024/25, staff sees no need to adjust the number of WEUs for next fiscal year. Looking forward to next fiscal year, the Community Development Department is expecting one larger scale development to potentially begin the planning process towards the end of the fiscal year. It is anticipated that the staff recommended WEUs will be sufficient to move that project and other projects forward. As such, staff recommends the FY 2026-27 WEU allocation include 50 WEUs for residential development and 65 WEUs for commercial development for a total of 115 WEUs.

Public Meetings
The Water Equivalency Allocation for FY2026/27 was presented to Planning Commission on May 5, 2026, and the Public Works Advisory Board on May 20, 2026. Both bodies unanimously voted to approve the staff recommended WEUs allocation.

CONCLUSION
Staff recommends the City Council adopt Resolution No. 25-26 to allocate 50 WEUs for residential development (30 SFR and 20 MFR) and 65 for commercial development for a total of 115 WEUs for FY 2026/27.

ATTACHMENT

1. Resolution No. 25-26 to Allocate Water Equivalency Units for FY 2026/27

1 RESOLUTION NO. 25-26

RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF MORRO BAY, CALIFORNIA,
ALLOCATION OF WATER EQUIVALENCY UNITS FOR FY 2025/26

T H E C I T Y C O U N C I L
City of Morro Bay, California
WHEREAS, Chapter 13.20 of the Morro Bay Municipal Code calls for the City Council of the City of Morro Bay to adopt a yearly Water Allocation Program based on a report by the Public Works (Services) Director after review by the City of Morro Bay Planning Commission and Public Works Advisory Board; and WHEREAS, the Local Coastal Program Land Use Plan and Ordinance Number 266, require the City Council to set an annual limit on new residential units and to prescribe the mix of multi-family and single-family residences allowed within that limit; and WHEREAS, on May 20, 2026, the Public Works Advisory Board held a public meeting on the proposed FY 2026/27 Water Allocation Program and recommended the City Council adopt the proposed allocation of Water Equivalency Units (WEUs); and WHEREAS, on May 5, 2026, the Planning Commission held a public meeting on the proposed FY 2026/27 Water Allocation Program and recommended the City Council adopt the proposed allocation of WEUs; and
WHEREAS, on May 26, 2026, the City Council did hold a public meeting on the proposed FY 2026/27 Water Allocation Program; and
NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Morro Bay, California, as follows:

SECTION 1: WEU Allocation:

Allocate 115 WEUs in FY 2026/27, 50 WEU for residential purposes (30 SFR and 20 MFR) and 65 for Commercial/Industrial purposes.
///
///
///
///

2 SECTION 2: Applicability:

Each development project that requires an allocation of new Water Equivalency Units shall be subject to this revised allocation program, unless a building permit has been issued prior to the date of adoption of this Resolution.

PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on this 26th day of May 2026 on the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

RECUSED:

Carla Wixom, Mayor
ATTEST

Dana Swanson, City Clerk

Prepared By: AW Dept Review: AW
City Manager Review: JC City Attorney Review: BS
Staff Report
TO: Honorable Mayor and City Council DATE: May 12, 2026 FROM: Amy Watkins, Chief of Police
SUBJECT: San Luis Obispo Countywide Regional Homelessness and Affordable Housing Compact and Regional Homeless Services Inventory

RECOMMENDED ACTION
Adopt Resolution No. 26-26 approving “San Luis Obispo Countywide Regional Homelessness and Affordable Housing Compact” and receive a report from the County of San Luis Obispo’s Homeless Services Division on the Regional Compact and Regional Homeless Services Inventory.

ALTERNTIVES
Do not adopt resolution or provide alternative direction to staff.

FISCAL IMPACT
There are no funding impacts to this action.

BACKGROUND
The City has taken many actions over the years to address homelessness, supporting service and housing opportunities for unhoused individuals while also establishing and enforcing regulations on the use of public spaces. In 2022, City Council established a council goal to address low-income housing and to identify areas of service needs for the unhoused in Morro Bay.

AGENDA NO: 6.d
MEETING DATE: May 26, 2026

2 Previous Council and City actions:
 April 14, 2020, City Council received a presentation and adopted Resolution No. 32- 20 approving and authorizing Mayor to sign the San Luis Obispo Countywide Regional Compact (on housing).
 June 27, 2023, City Council support the Regional Housing and Infrastructure Plan (HIP) as a recommitment to the 2020 San Luis Obispo County-Wide Regional Compact.
 December 2023, Passing and Implementation of the City’s camping ordinance to address public health and safety and equitable use of public space. 72-hour removal process and storage of personal property from illegal encampments.  Full implementation of 805 Street Outreach Shower and Laundry Programs.

Program began in February 2023.
 June 2022, hiring of part-time City Homeless Outreach Case Manager to help connection mental health and unhoused to services.
 City staff held public forums to discuss ongoing concerns related to mental health and unhoused in the city.

Budget cuts, program restrictions, changing legislation, and program cancellations in local government will continue to create future challenges affecting the ability of local governments to address homelessness particularly regarding funding for housing and services.

San Luis Obispo Countywide Regional Homelessness and Affordable Housing Compact
In April 2022, the County adopted the San Luis Obispo Countywide Strategic Plan to Address Homelessness which identified 12-month, 3-year, and 5-year objectives to reduce the number of homeless individuals in the county by 50% over a five-year period. The first three years of this plan focus on sheltering capacity, homeless prevention, data sharing, and expanded case management, mental health, and substance abuse services along with improved regional coordination. The Board of Supervisors received an update on the progress on implementing this plan at their March 10, 2026 meeting.

As part of this plan, the County Homeless Services Division staff, in collaboration with the County Executive Office and City Managers group, worked with a steering committee of City Managers from Atascadero, San Luis Obispo, and Grover Beach to develop a Regional Homelessness and Affordable Housing Compact (Compact) shown in Attachment 2. The Compact recognizes the complexity of addressing homelessness in San Luis Obispo County and sets forth a voluntary, collaborative regional framework through which participating jurisdictions commit to shared principles to guide individual and collective actions. The Compact aligns with the City’s long-standing work on addressing homelessness and adoption of the Compact represents a formalization of ongoing regional collaboration providing a clear framework to guide coordinated action while preserving local authority and policy discretion. All seven incorporated cities are pursuing approval of this

3 compact with their elected officials, with the goal of holding a signing ceremony once all jurisdictions have approved the document. Such approval could also better position local jurisdictions for outside grant funding opportunities to address homelessness within San Luis Obispo County.

The shared commitments outlined in the Compact include:
• Treat all people with dignity
• Strengthen regional collaboration
• Expand housing and services
• Share responsibility and resources
• Promote transparency and accountability
• Foster community well-being and safety
Regional Homeless Services Inventory
In addition to the Compact, County Homeless Services Division staff has developed a Regional Homeless Services Inventory (Inventory) shown in Attachment 3, which is intended to convey the homeless services investments, commitments, and services being provided by each jurisdiction. The Inventory was informed by a homeless services survey facilitated by the County Homeless Services Division. Each jurisdiction could provide feedback on their respective efforts to address homelessness through the survey. The Inventory is organized into five sections:
• Strategic Planning & Coordination activities
• Funding contributions from each entity across the homeless services continuum, followed by a chart of funding sources
• Planning & Zoning activities
• Direct services provided by each entity, either specifically designed for individuals experiencing homelessness or with significant utilization by this population • Data & Communication activities
The Inventory illustrates the City’s commitment to addressing homelessness in our community through a variety of ways while also pointing out areas of potential work pending available resources.

CONCLUSION
Adopt a Resolution approving “San Luis Obispo Countywide Regional Homelessness and Affordable Housing Compact” and receive a report from the County of San Luis Obispo’s Homeless Services Division on the Regional Compact and Regional Homeless Services Inventory.

ATTACHMENTS

1. Resolution No. 26-26

2. San Luis Obispo Countywide Regional Homelessness and Affordable Housing Compact

3. County of San Luis Obispo Regional Homeless Services Inventory Report

RESOLUTION NO. 26-26

RESOLUTION OF THE CITY COUNCIL

OF THE CITY OF MORRO BAY, CALIFORNIA

APPROVING THE SAN LUIS OBISPO COUNTY REGIONAL

HOMELESSNESS AND AFFORDABLE HOUSING COMPACT

T H E C I T Y C O U N C I L
City of Morro Bay, California
WHEREAS, homelessness in San Luis Obispo County is a complex, countywide challenge requiring unified, compassionate, and strategic action; and WHEREAS, the County of San Luis Obispo and the seven incorporated cities recognize that addressing homelessness effectively requires shared responsibility, coordinated planning, and alignment of local and regional strategies; and
WHEREAS, the County of San Luis Obispo and the seven incorporated cities have collaborated to develop the San Luis Obispo County Regional Homelessness and Affordable Housing Compact (“Compact”); and
WHEREAS, the Compact establishes a voluntary, collaborative framework through which participating jurisdictions commit to shared principles to guide individual and collective actions, including treating all people with dignity, strengthening regional collaboration, expanding housing and services, sharing responsibility and resources, promoting transparency and accountability, and fostering community well-being and safety; and
WHEREAS, the Compact aligns with the City’s long-standing Council Goals and work efforts to address homelessness in Morro Bay; and
WHEREAS, adoption of the Compact is intended to strengthen regional partnerships, improve coordination across jurisdictions, and enhance competitiveness for state and federal funding opportunities to address homelessness and affordable housing needs.

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

SECTION 1.
a. The City Council hereby approves the San Luis Obispo County Regional Homelessness and Affordable Housing Compact, attached hereto as Exhibit A and incorporated herein by reference.
b. The City Council authorizes the Mayor to sign the Compact at a future date in collaboration and coordination with the County and the other six incorporated cities.
///
///

c. The City Council authorizes the City Manager, or their designee, to coordinate City actions and collaborate with the County, cities, and regional partners to align planning, data sharing and implementation efforts consistent with the Compact, subject to applicable City policies, regulatory restrictions and budgetary authority.

PASSED AND ADOPTED by the City Council of the City of Morro Bay at a regular meeting thereof held on the 26th day of May 2026 on the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

RECUSE:
______________________________
CARLA WIXOM, Mayor
ATTEST:
_____________________________
DANA SWANSON, City Clerk

San Luis Obispo Countywide Regional Homelessness and Affordable Housing Compact A united regional framework to address homelessness and strengthen community well-being Revision date:11/18/2025
Treat All People with
Dignity
We affirm that individuals experiencing homelessness are members of our community and deserve respect, compassion, and equitable access to services.

Strengthen Regional
Collaboration
We will coordinate across jurisdictions to align services, share data, and pursue joint funding opportunities that advance local and regional plans.

Expand Housing and
Services
We will work to increase access to shelter, supportive housing, affordable housing and essential services, recognizing that housing is foundational to health and stability.

Share Responsibility
and Resources
We will equitably share the responsibility of addressing homelessness by advocating for and actively pursuing funding for homelessness and affordable housing and by engaging in collaborative planning.

Promote Transparency
and Accountability
We will share data, communicate clearly with the public, and evaluate progress together to ensure effective, responsive action.

Foster Community
Well-Being and Safety
We recognize homelessness as both a public health concern and a humanitarian crisis that requires a coordinated and compassionate response. We will manage encampments with empathy and collaboration, balancing the needs of individuals with neighborhood safety, public health, and environmental stewardship.

We, the County of San Luis Obispo and the seven incorporated Cities, recognize that homelessness is a complex, countywide challenge that requires unified, compassionate, and strategic action. In San Luis Obispo County, individuals experiencing homelessness are most often long-term community members. According to the 2024 Point-in-Time Count, 81% of respondents reported living in the county for more than five years. This reinforces the importance of viewing people experiencing homelessness not as problems to be solved, but as neighbors and community members to be supported.

Together, our agencies embrace the following shared commitments. We agree to pursue policies that align with these principles and use them to guide future individual and collaborative actions to address homelessness in San Luis Obispo County. By strengthening our partnership, we can better respond to community needs and enhance our competitiveness for funding opportunities.

By signing this compact on this XX day of xxx, we commit to aligning our actions with these shared regional commitments. Through collaborative action we will build a more inclusive, resilient, and hopeful future for all who call San Luis Obispo County home.

Our Shared Commitments:

X
City of Arroyo Grande
X
City of San Luis Obispo
X
City of Paso Robles
X
City of Pismo Beach
X
City of Morro Bay
X
County of San Luis Obispo
X
City of Grover Beach
X
City of Atascadero

City of Paso Robles (PR)
City of Atascadero (AT)
City of Morro Bay (MB)
City of San Luis Obispo (SLO)
City of Pismo Beach (PB)
City of Grover Beach (GB)
City of Arroyo Grande (AG)
County of San Luis Obispo (COSLO)
AG
MB
AT
PB
GB
SLO
COSLO
PR
Countyof SanLuisObispo
RegionalHomeless Services
InventoryReport

January 2026
This report summarizes the diverse strategies implemented by the Cities and the County to address the needs of those at risk of or experiencing homelessness. In this report, each entity is represented by a colorcoded circle (shown above) to highlight the specific programs, services, funding sources, and collaborative partnerships that they participate in.

COSLO PR MB SLO
Strategic Plan to Address
Homelessness Adopted
City has a designated
Homeless Response
Coordinator
SLO PR
Entity has taken the following actions
Strategic Planning
& Coordination
Participates in Homeless Services
Oversight Counsel (HSOC)
AG
GB
PB
SLO
MB
AT
PR
COSLO
Entity participates in biannual unsheltered Pointin-Time (PIT) count AG
GB
PB
SLO
MB
AT
PR
COSLO
Law enforcement coordinates
with local providers to connect
individuals experiencing
homelessness to resources
GB
PB
SLO
MB
AT
PR
COSLO
AG Works in a lead capacity to
convene one or more
working groups to
coordinate services that
address homelessness

SLO PR COSLO
PaPage 21 of 64 ge 2 of 11
AG
GB
PB
SLO
MB
AT
COSLO
Entity has formal policy or
protocol for Encampment
Response and Management Has pursued and been awarded
State or Federal competitive
funding to expand homeless
services or affordable housing
(i.e. Homekey+, Encampment
Resolution Funds, etc.)

GB SLO COSLO
County established Homeless Services Division
Lead applicant for State and Federal funding designated for CoC and County organizations Conducts annual HUD Community Development Needs Assessment Oversight and development of HUD Five Year Action Plan
Serves as Homeless Management Information System (HMIS) administrator & conducts related activities Lead entity to conduct required State and Federal compliance activities.

Continuum of Care lead entity & related activities
Coordination of required activities to administer CDBG Urban County Agreement Regular review of system performance metrics and collaboration with partners to drive improvements Leads bi-annual unsheltered Point in Time Count
Leads annual sheltered Point in Time Count
Collaboration with affordable housing providers to increase affordable housing stock countywide Annual renewal of declaration of shelter crisis
Entity has taken the following actions
Strategic Planning &
Coordination (cont.)

The County of San Luis Obispo conducts all of the following activities:

Services for persons at risk of or experiencing homelessness supported by entity resources *Other support includes: Indirect contributions of staff time and use of entity owned land for delivery of services for those experiencing or at risk of homelessness
Paso Robles Atascadero Morro Bay
San Luis
Obispo
Pismo Beach Grover Beach
Arroyo
Grande
County
Service Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Outreach X X X X X X X X X X X X
Prevention X X X X X X X X X X
Rapid Rehousing X X X X X X X X X
Interim Shelter X X X X X X X X X X
Warming/Cooling
Center

X X X X X X X X X
Permanent
Supportive Housing

X X X X X X X X X X
Affordable Housing X X X X X X X X X X X
Stand Alone Shower
Programs
X X X
Funding
PaPage 23 of 64 ge 4 of 11
Services for persons at risk of or experiencing homelessness supported by entity resources (cont.) *Other support includes: Indirect contributions of staff time and use of entity owned land for delivery of services for those experiencing or at risk of homelessness
Paso Robles Atascadero Morro Bay
San Luis
Obispo
Pismo Beach
Grover
Beach
Arroyo
Grande
County
Service Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Allocation of entity
local funding(General
fund) to homeless
serving organizations

X X X X X X X
Allocation of entity
local funding(General
fund) to affordable
housing developers

X X X X
Hotel & Motel
Programs
X X X
Overnight Safe
Parking Programs
X X X
Housing Support for
Justice Involved
Individuals
X X
Funding (cont.)

Services for persons at risk of or experiencing homelessness supported by entity resources (cont.) *Other support includes: Indirect contributions of staff time and use of entity owned land for delivery of services for those experiencing or at risk of homelessness
Paso Robles Atascadero Morro Bay
San Luis
Obispo
Pismo Beach
Grover
Beach
Arroyo
Grande
County
Service Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Funding Other Sober Livingsupport
for Justice Involved
Individuals
X
Behavioral Health
Bridge Housing
X X
BHSA Housing
Interventions
X X
Homeless Outreach
Team and FullService Partnership
X X
Other community
programs serving
those experiencing or
at risk of
homelessness

X X X X
Funding (cont.)

Funding Source Allocated
Funding Source
Paso
Robles
Atascadero Morro Bay
San Luis
Obispo
Pismo
Beach
Grover
Beach
Arroyo
Grande
County
Community Development Block
Grant (Urban County Agreement)

X X X X X X X
Community Development Block
Grant (State competition)
X
State Homeless Housing Assistance
and Prevention Grant
X
Permanent Local Housing Allocation
(PLHA)
X
Continuum of Care X
Opioid SettlementFunds X X
Diablo DecommissioningFunds
(SB1090)
X
HOMEInvestment Partnership X
Funding (cont.)

Funding Source Allocated (cont.)
Funding Source
Paso
Robles
Atascadero Morro Bay
San Luis
Obispo
Pismo
Beach
Grover
Beach
Arroyo
Grande
County
Emergency Solutions Grant (State
and Federal)
X
Public Safety Realignment (AB109) X
Homeless HousingIncentive
Program
X
Behavioral Health Bridge Program X
Behavioral Health Services Act X
MediCal X
State Department of Social Services
Grant Programs
X
LocalFund Community Service
Grants
X X X
GeneralFund X X X X X X
Funding (cont.)

SLO PR AG
Fast tracked zoning changes
Made public land available for
housing/services

COSLO AG PR GB SLO
Entity has taken the following actions to support
homelessness and/or affordable housing infrastructure
Planning & Zoning
Prioritized affordable housing
in land use planning
GB
PB
SLO
PR
COSLO
MB
Leveraged CEQA exemptions
or density bonuses
AG
GB PB
SLO PR
COSLO
Partnered on siting/building
shelters or housing
GB
PB SLO
AT PR
COSLO
Waived or reduced fees for projects
that expand homeless services or
affordable housing

SLO PB PR MB
AT
Used City funds to pay
required fees
ProHousing designation earned
from State of California Housing
and Community Development
Division

COSLO SLO
Creation of local revenue
fund to support affordable
housing building
(Regional Housing
Incentive Fund)
COSLO
Deferred Development
Impact Fees for affordable
housing projects

PR AT SLO

PR

AG PB
MB AT
Teams comprised of law enforcement,
behavioral health and service
providers to work directly with people
experiencing unsheltered
homelessness (i.e. CAT or OUR Teams)
PR

COSLO SLO
Homeless Outreach
Case Manager
employed by City
MB
The services listed below are provided by various County departments and are either services specifically developed for persons experiencing or at risk of homelessness or are services available to the general public, but which have an identifiable overlap of utilization by persons experiencing or at risk of homelessness Mobile Probation Services to connect with justice involved individuals experiencing homelessness Dedicated case manager embedded with library to serve needs of unsheltered library patrons Public Health services including communicable disease treatment, and enhanced case management Conservatorship
Sobering Center
24/7 Mobile Crisis Services
Outpatient Treatment Centers for specialty behavioral health needs for MediCal insured individuals Psychiatric Health Facility
Treatment Court Programs
Housing Programs for clients of Social Services (Housing Support Program, Bringing Families Home, Home Safe, Housing Disability and Advocacy Program)
County General Assistance program
Direct Services forthose atrisk of or
experiencing homelessness provided by entity
Services
Delivery of trash bags and/or
trash collection for individuals
who are encamped
GB
MB SLO
AT PR

SLO
Uses official entity website to
share information about
affordable housing

COSLO GB
Uses official channels of
communication to share information
about affordable housing through
social media or press releases
AG SLO

COSLO MB AT
PR
Entity promotes community awareness of
homeless services and affordable housing projects
Data & Communication
Uses official entity website
to share information about
homeless services

SLO COSLO PR
Has held community forums
and/or neighborhood events to
discuss homelessness
GB SLO
PR
COSLO
MB AT
Uses official channels of
communication to share information
about homelessness through social
media or press releases

SLO PR MB AT COSLO
Holds at least one annual and
ongoing community meeting
or neighborhood event to
discuss homelessness

PR AT SLO
Holds regular updates as
part of official Board or City
Council meetings

GB PR COSLO
Has a process in place to encourage
two-way communication between
community members and leaders
around homelessness and
affordable housing issues

COSLO PR SLO AT

PR

Prepared By: EC Dept Review: EC
City Manager Review: JC City Attorney Review: BS
Staff Report
TO: Honorable Mayor and City Council DATE: May 21, 2026 FROM: John Craig, City Manager
Emily Conrad, Finance Director
SUBJECT: Budget Study Session – Review of Fiscal Year 2026-27 Draft Proposed Budget

RECOMMENDED ACTION
Receive the Proposed Fiscal Year (FY) 2026-27 Citywide Operating and Capital Budget and provide feedback prior to budget adoption, scheduled for June 9, 2026, on:

1. General Fund shortfall of $900,000 ($0.9 million): spend from fund balance or shift appropriate budgeted costs to Measure Q/E; and

2. Measure Q/E shortfall of $700,000 ($0.7 million): spend from fund balance or decrease budget by reducing contributions to capital projects and/or on-call services.

BACKGROUND
The City of Morro Bay develops an operating and capital budget each fiscal year (FY), which runs from July 1st through June 30th. City Council must review and adopt a budget for the subsequent fiscal year prior to June 30th. Each January, the City Council adopts a budget calendar that guides the budget development process and informs the public about opportunities to provide input. The detailed calendar that City Council approved in January included the following:
 February - Finance prepares budget framework, training, and instructions  Feb 17 - Midyear Measure Q/E Budget Presentation to CFAC  Feb 24 - Midyear Budget Presentation and Fiscal Update to Council  March - Departments prepare FY 2026-27 budget submittals  April - City Manager/Exec Team budget meetings; draft budget development  April - Preliminary Council input on budget and/or fiscal policies if needed  May 7 - City Manager delivers draft proposed budget numbers to Council  May 19 - CFAC reviews budget and provides input, emphasis on Measure Q/E  May 26 - Budget Study Session #1
 May 27 - Budget Study Session #2 (if needed)
 June 9 - Budget Adopted at Council Meeting
 June 23 - Backup date for Budget Adoption
Council goals inform the budget development process, ensuring that the budget includes funding for all core City services and, to the extent possible, one-time or additional City Council goals. This year’s City Council goals include Economic Vitality and Fiscal Health, Infrastructure Resiliency, and AGENDA NO: 8.a
MEETING DATE: May 26, 2026

2 Morro Elementary School (Site). Each goal also outlines several short-term action items that are detailed in the Proposed Budget, and each department page in the budget book describes the efforts that will be made in the coming year towards each of the goals.

These goals are in addition to the full complement of services that the City provides to the community on an ongoing basis, including police, fire, water, sewer, maintenance, community development, recreation, harbor, and code enforcement.

DISCUSSION
The May 26
th Budget Study Session will first discuss the Operating Budget and then discuss the Capital Budget. The FY 2026-27 Proposed Operating and Capital Budget is available online in webbased (Attachment 1a) and printable PDF (Attachment 1b) formats. For FY 2026-27, 31 of the City’s 47 funds have appropriations (see Attachment 2), however 90% of the financial activity occurs in the five major funds, therefore the operating budget discussion that follows the overview of revenue and expenditures for all funds will be focused on the major funds: General Fund, Measure Q/E, Water Operating Fund, Sewer Operating Fund, and Harbor Operating Fund.

This budget contains personnel costs based on the adopted three-year agreements with bargaining groups, unrepresented management, and at-will employees. It is an ongoing challenge to manage cost escalation in the wake of volatile revenues and also retain a knowledgeable and skilled workforce. Increased retention is a priority for City departments so teams can be strengthened, institutional knowledge retained, built upon, and passed on, while providing excellent service to the community in addition to reducing turnover costs.

The proposed budget funds efforts to achieve the strategic planning goals established by the City Council: Economic Vitality and Fiscal Health, Infrastructure Resiliency, and Morro Elementary School (Site). Each department budget page discusses their planned efforts towards reaching the adopted goals. Also reflected in the budget is a moderate increase to core City revenues and costs to continue providing a high level of service, a testament to the City's commitment to meeting community expectations. Economic cooling has slowed revenue growth, while persistent inflation drives higher costs, resulting in a revenue shortfall in the proposed budget, despite staff’s efforts at conservative spending in the coming fiscal year. The City is actively seeking additional revenue generation to keep pace with community expectations for a full-service City and to address robust City Council goals.

This year, the decision will need to be made to either reduce capital spending or to use fund balance to pay for capital improvements.

3 I. CITYWIDE REVENUE BUDGET SUMMARY – ALL FUNDS
The Citywide FY 2026-27 Proposed Budget projects $63.0 million of revenue, essentially flat over prior year. The $63.0 million is $53.4 million operating revenue and $9.6 million in capital project revenue. Chart 1 below depicts the $53.4 operating revenue by source from greatest source of revenue to least source of revenue, clockwise.

Chart 1. FY 2026-27 Operating Revenue
Revenues from Current Services – $22.3 million: The City receives 42%, the largest share of its revenue, as payment for services provided, including water, sewer, property leases, planning, building, and permitting fees, recreation services, and mutual aid reimbursements. Charges for service are a relatively stable revenue source over time for Morro Bay, as the majority comes from water and sewer rate revenue remitted by ratepayers. Lease revenues in the Harbor Fund are also relatively stable in terms of base lease payments, but the portion of lease payments associated with a percentage of gross sales fluctuates over time. As a note, the 3% decrease between FY 2025-26 Amended Budget and the amount proposed for FY 2026-27 is the amount for mutual aid reimbursements, which will be recognized at midyear based on actual reimbursements received for services provided. Additionally, the City was notified that San Luis Coastal Unified School District will not be funding the School Resource Officer at Morro Bay High School and the City has absorbed that cost in light of the loss of $150k in reimbursement.

4 Primary Tax Revenues – $18.2 million: Tax revenues represent the second-largest share of City revenues at 34% and include three specific tax revenues: sales and use tax ($7.3 million), property tax ($6.3 million), and transient occupancy tax (TOT) ($4.6 million). These revenues provide general services to the community at-large, such as public safety services and infrastructure maintenance.

Property taxes are the most stable of the tax revenue sources and have increased by approximately 3-4% per year in recent years. The proposed budget projects a 4% increase over prior year, based on San Luis Obispo County estimates. Sales tax and TOT revenues are more volatile as they are largely dependent on the status of the economy and the level of tourism in the City. These more volatile revenue sources represent 22% of the City's total revenues, making the City's financial reserves described below particularly important. Overall, current year-end projections indicate actual sales and use tax revenues are on track with budgeted amounts, which show very little change over four years, hovering around the $7.2 million mark, the same amount budgeted for FY 2026-27. TOT revenues are also projected to come in on target for FY 2025-26 and have similarly been a fairly constant $4.6 million in recent years, which is the amount budgeted for FY 2026-27.

All Other Revenues – $12.9 million: The other City revenues come from various smaller sources, including:
 Other Revenues - $3.0 million:
o Risk Fund: departmental reimbursement of insurance costs o General Fund: recognition of Mutual Aid Reimbursement fund balance for purchase of Wildland Fire Engine
o Developer Reimbursement Fund: developer reimbursement agreement deposits o IT Fund & Cloisters Assessment District Fund: recognition of use of fund balance to cover estimated annual costs
 Interfund Transfers - $3.0 million:
o Cost Allocation Plan
o Utility Discount Program
o Highway Users Tax
 Interest earnings - $2.7 million
 Intergovernmental Revenues - $1.4 million
o Highway Users Tax
o Road Maintenance and Rehabilitation
o LTF Roads
o State grants
o State Mandated Costs reimbursements
o Nuclear Planning Assistance grant
o COPS Program/SLESF funding
 Franchise Fees - $834K
 Licenses and Permits - $769K
 Rental Income - $607K
 Cannabis City Tax - $502K
 Fines and forfeitures - $120K
When looking at budgeted operating revenues for FY 2025-26 versus FY 2026-27 (see Table 1), two sources stand as increasing by a significant percentage: Interest Income and Other Revenues. For Interest Income, the City either did not budget for or under-budgeted this source, likely because it was an insignificant and/or unreliable source of income until FY 2022-23 when it exceeded $1 million for the first time. For more accurate citywide revenue estimates in FY 2026-27, staff included an

5 estimated interest income calculated using the current level of investment and anticipated slightly lower interest rates. The resulting $2.7 million is a conservative estimate, even at nearly 450% increase over prior year. Other Revenues are estimated to increase by about $1 million or 50% over prior year budget primarily due to two reasons: the recognition of $770,000 of mutual aid reimbursements fund balance which was committed for the purchase of a replacement Wildland Fire Engine, as well as increased citywide funding to the Risk Fund for funding the increased general liability insurance costs. Table 1 provides comparison of the City’s Operating Revenue Budgets for FY 2025-26 (amended) and FY 2026-27 (proposed).

Table 1. FY 2026-27 Operating Revenue

6 II. CITYWIDE EXPENDITURE BUDGET SUMMARY – ALL FUNDS
The City’s proposed budget covers all city services and capital projects in all funds from July 1, 2026 to June 30, 2027. It includes essential investments in operations, city staff, capital improvements, and pension liabilities while also maintaining healthy financial reserves to handle future emergencies and economic challenges.

The proposed FY 2026-27 expenditure budget for all funds is $58.7 million. This amount included $49.1 million for operations and $9.6 million for 11 capital projects discussed in detail later in this report. The $49.1 million in funding for operations provides the core City services of police, fire, water, sewer, parks, roads, recreation, community development, code enforcement, and harbor, as well as the integral administrative functions such as human resources, information technology, the city clerk, and finance.

Chart 2 below depicts the $49.1 million operating expenditures by source from greatest cost to least cost, clockwise.

Chart 2. FY 2026-27 Operating Expenditures
Personnel Services – $24.0 million: Personnel costs total $24.0 million, or 49% of the citywide operating expenditure budget, reflecting the City’s reliance on staff to deliver core services. This category includes salaries, benefits, pension costs, and the annual CalPERS unfunded accrued

7 liability (UAL) payment. The budget funds 117.5 full-time equivalent (FTE) positions across the City’s nine departments and divisions, unchanged from the prior year, with no new positions proposed for FY 2026-27. Personnel costs are budgeted across nine funds: General Fund ($15.3 million), Measure Q/E ($2.5 million), Water Operating ($1.7 million), Sewer Operating ($2.0 million), Harbor Operating ($1.6 million), Risk ($113K), IT ($465K), Cloisters ($100K), and Economic Development ($55K). At the time the budget was prepared, 4.0 of the City’s 117.5 FTE positions were vacant: the Public Works Director, one Police Officer, the Assistant to the City Manager, and the Senior Civil Engineer. The Public Works Director and Police Officer positions were recently vacated, and recruitment is underway. The Assistant to the City Manager position has remained vacant since April 2025 while the City Manager reevaluates staffing and service needs. The Senior Civil Engineer position has been vacant since November 2025; following an unsuccessful recruitment, the City is considering alternative ways to meet its engineering needs. For FY 2026-27, the UAL payment is just over $3.4 million, up 9% from the prior year. Although CalPERS allows monthly payments, the City continues to use the annual prepayment option, which provides a 3.2% discount. This saves $111K and reduces the total UAL payment to $3.3 million.

Services – $13.8 million: The cost of outside services is estimated at $13.8 million, or 28% of the citywide operating budget. Many different types of services are included in this budget category, some of which are for maintenance services provided on an on-call basis, therefore the full budgeted amounts may not be fully expended.

The largest subcategories are:
 Insurance coverage: $3.4 million
 State Water Contract: $2.1 million
 Various consultant services: $1.5 million
o Financial audits
o Sales tax specialists
o Actuarial services for pension and other post-employment benefits (OPEB) o Cost Allocation Plan study
o Outside legal counsel
o On-call services:
 Engineering
 Inspection
 Surveyor
 Biologist
 Arborist
o Federal and state lobbying firms
o Short-term rental (STR) compliance
o Housing Element Update
 Various contracted services: $1.2 million
o On-call services
 Plumbing
 Electrical
 Locksmith
 Roomer
 HVAC

8  Tree Maintenance
 Road Striping/Repair
o Police and Fire dispatch services
o Waterfront Maintenance/Cleaning
o Bird deterrent
o Extra janitorial services
o Water and Sewer laboratory testing
o 250th 4
th of July celebrations
 Electricity costs: $1.0 million
 Citywide software/digital services: $676K
 Disposal costs: $500k
 Maintenance/service/repair for equipment, vehicles, vessels, machinery: $410K  Maintenance contracts: $351K
o Animal services
o Security monitoring citywide
o Water, Sewer, and Harbor fire and security alarm
o Water and Sewer generator testing at water tanks
 Meetings/conferences, professional development, association memberships: $323K  Water/wastewater services for City facilities: $314K
 Contingency amounts for Water and Sewer Operations: $220K Interfund Transfers – $6.1 million: Interfund transfer expenditures account for transfers between City funds for specific uses such as funding for capital asset acquisitions, capital improvement projects, cost allocation plan, allocation of revenue in Special Revenue Funds to other funds for expenditure, or reserve contributions to comply with City Council reserve policies. In FY 2026-27, interfund transfers make up 13% of the citywide operating budget at $6.1 million and will fund capital asset acquisition, capital improvement projects, cost allocation plan, utility discount program, and street maintenance.
 Capital Asset Acquisition: $860K
o Replacement Wildland Fire Engine
o Streets Asphalt Sealer Trailer
 Capital Improvement Projects: $2.3 million; more detail presented later in the report  Cost Allocation Plan: $2.5 million
 Utility Discount Program: $127K
 Highway Users Tax to General Fund for streets maintenance: $323K Debt Service – $2.2 million: Debt Service costs make up about 5% of the City’s operating expenditures budget.

The City makes annual payments against two loans:

1. 2015 loan from the State of California for the installation of solar panels and HVAC system for various City facilities, which has a balance at June 30, 2026 of $281,515 and will be paid off in FY 2033-34 through annual payments of $35,190. This loan is paid by the General Fund.

2. 2020 loan from the United States Environmental Protection Agency (EPA), Water

9 Infrastructure Finance and Innovation Act (WIFIA) loan for portions of the cost of the Water Reclamation Facility (WRF) construction, split into Wastewater System Project and Water System Project:
a. The Wastewater System Project component has a balance at June 30, 2026 of $18,358,544 that is currently scheduled for payoff off in FY 2057-58 through annual payments of $645,652. This loan component is paid by the Sewer Fund. b. The Water System Project component has a balance at June 30, 2026 of $26,615,869 that is currently scheduled for payoff in FY 2057-58 through annual payments of $936,053. This loan component is paid by the Water Fund.

New in the FY 2026-27 Proposed Operating and Capital Budget is the purchase of the Morro Elementary School site. The City entered into a Purchase and Sale Agreement (Agreement) with San Luis Coastal Unified School District on March 10, 2026 through adoption of Resolution Number 14-26. The Agreement has a closing date of October 31, 2026. Future use of the property is being evaluated and will ultimately influence how the City is able to fund the purchase. For budgeting and forecasting purposes, staff assumed the sale will proceed and that the $5.3 million purchase price will be financed over a 10-year period at 4.33% interest, which was the federal interest rate at the time of budget development. These assumptions resulted in the inclusion of estimated annual debt service payments of $664,221, budgeted in the General Fund.

Supplies – $2.1 million: The cost of operating supplies is estimated at $2.1 million, or 4% of the citywide operating expenditure budget, and includes tangible, consumable supplies with a value of less than $5,000 per item and a useful life of one year or less. Costs include items such as:
 Janitorial supplies
 First aide supplies
 Uniforms/safety supplies
 Fuel, oil, and lubricants
 Lab supplies
 Evidence supplies
 Computers scheduled for replacement during the year
 Office and other operating supplies
 Books, manuals, periodicals, subscriptions
 Grounds maintenance supplies
 Automated external defibrillators (AEDs) scheduled for replacement during the year  Signs and forms printing
Other Expense – $478,820: The category Other Expense is estimated at $478,820, or 1% of the citywide operating expenditure budget. This category includes payments to other agencies, such as:
 Payments to other agencies for
o Access to the Sheriff’s Department’s California Law Enforcement Telecommunications System (CLETS) data lines
o Special Weapons and Tactics (SWAT) annual regional SWAT team contribution o County Bomb/Drug/Gang task force annual contribution
o Criminal Justice Information Services (CJIS) system access  Updating the City’s Personnel Rules and Regulations

10  Utility Rebate Program
 Water Conservation Rebate Program
Capital Outlay – $208,700: This budget category is estimated at $208,700, or 0.4% of the citywide operating expenditures budget and includes capital assets with values of $5,000 or more but less than $50,000, and useful lives of greater than one year. Capital assets with values of $50,000 or greater are budgeted with the Capital Improvement Project budget, not the operating budget. For FY 2026-27, the following capital outlay is budgeted in the citywide operating budget:
 Two Maintenance trucks
 One Utilities Truck
 One Police vehicle
 IT servers, storage, and routers
When looking at budgeted operating expenditures for FY 2025-26 versus FY 2026-27 (see Table 2), several categories stand out as significant percentage changes over prior year. Capital Outlay reduced by over 50%, or $220,333, simply due to fewer capital outlay needs budgeted in FY 2026-

27. The Interfund Transfers category reduced by 60%, or $9.3 million, because less capital project funding was requested in FY 2026-27; more detail can be found in the discussion of Capital Projects later in the report. The Debt Service category increased by over 40%, or $664,221, the difference over prior year being the estimated debt service payments for repayment of the financing that may be required to acquire the Morro Elementary School site, as discussed above. This a cost that may change as decisions about funding the purchase are made. The Other Expense category increased by 38%, or $131,519, due to the categorization of dispatch services for the Police Department. This expense will be reclassified as Contractual Services in the revised proposed version of the budget that will be presented for adoption in June. Once corrected, this category is anticipated to decrease over prior year. Table 2 provides comparison of the City’s Operating Expenditure Budgets for FY 2025-26 (amended) and FY 2026-27 (proposed).

Table 2. FY 2026-27 Operating Expenditures

11 III. CAPITAL IMPROVEMENT PROJECTS – ALL FUNDS
The FY 2026-27 Capital Expenditures Budget totals $9.6 million across 12 capital projects, as displayed in Table 3.

Table 3. FY 2026-27 Capital Projects
Project mix
 Six new projects
 Two replacement vessels or equipment purchases classified as capital projects because each exceeds $50,000
 Four ongoing projects with requests for additional funding Funding sources
The proposed $9.6 million in capital spending is funded through a combination of new appropriations, reallocated funding from completed or closed capital projects, donations, grants, financing, and available fund balance.

Project review and reallocation approach
As part of the capital budget process, staff reviewed all existing projects funded in prior budget cycles or through midyear budget actions. The goal was to minimize the need for new funding by identifying completed or closeable projects and reallocating any remaining appropriations. Balances from federal funding, grants, and Measure Q/E Fund were not considered for reallocation and therefore remain in the project balance.

Staff identified $768,652 in previously appropriated capital funding available for reallocation:
$470,000 is available from prior General Fund appropriations to governmental capital projects, and nearly $300,000 from prior Harbor Operating Fund transfers to the Harbor Capital Fund.

Capital Spending by Fund
Governmental Capital Improvement Fund
 Equipment Replacement
o Replace Asphalt Sealer Vehicle: $90,000 funded by Government Vehicle Replacement Fund
 Existing Projects
o Annual Pavement Management Program: $1,296,214
Capital Project New/Existing Fund Amount
FY 25-26
Project
Carryforward
Total Project
Budget FY 26-27
Replace Asphalt Sealer Equip Repl Governmental CIP Fund 90,000 - 90,000 Annual Pavement Management Program Existing Governmental CIP Fund 1,296,214 3,616,953 4,913,167 PD Radio Communications Upgrades Existing Governmental CIP Fund 317,687 317,687 635,374 Trash Enclosure Project Phase II Existing Governmental CIP Fund 30,000 20,000 50,000 Bayshore Bluffs Landing Improvements New Governmental CIP Fund 300,000 - 300,000 Morro Elementary School Site New Governmental CIP Fund 5,300,000 - 5,300,000 Update Engineering Standard Drawings and Specifications New Governmental CIP Fund 300,000 - 300,000 Wildland Fire Engine Replacement New Governmental CIP Fund 770,000 - 770,000 North T-Pier Renovations Existing Harbor CIP Fund 300,000 1,505,056 1,805,056 Supplemental Harbor Dredging New Harbor CIP Fund 150,000 - 150,000 Harbor Vessel Repower Vessel Harbor CIP Fund 437,652 - 437,652 Quintana Water Line Replacement New Water CIP Fund 300,000 - 300,000 Totals 9,591,553 15,051,249

12  $1 million by Measure Q/E
 $296,214 estimated RMRA funding
o Police Department Radio Communications Upgrade: $317,687 funded by Measure Q/E
o Trash Enclosure Project, Phase II: $30,000 funded by project budget reallocation  New Projects
o Bayshore Bluffs Stairs and Landing Improvements: $300,000 funded by project budget reallocation
o Update Engineering Standard Drawings and Specifications: $300,000 funded equally by project budget reallocation, Water Fund, and Sewer Fund o Wildland Fire Engine replacement: $770,000 funded by Mutual Aid Reimbursement fund balance from FY 2024-25 and FY 2025-26
o Morro Elementary School Site Acquisition: $5.3 million, likely to be funded through financing.

Harbor Capital Fund Projects
 Existing Project
o North T-Pier Renovations: $300,000 funded by federal grant  New Projects
o Vessel Repower: $437,652 funded by project reallocation, new funding from Harbor Operating Fund, and donation from Friends of Harbor
o Supplemental Harbor Dredging: $150,000 funded by project budget reallocation.

Water Capital Fund Projects
 New Project
o Quintana Water Line Replacement: $300,000 by Water Operating Fund More detail on each project is available in the digital budget book’s project description.

13 IV. MAJOR FUND BUDGETS
For FY 2026-27, 31 of the City’s 47 funds have appropriations, however 90% of the financial activity occurs in the five major funds: General Fund, Measure Q/E Fund, Water Operating Fund, Sewer Operating Fund, and Harbor Operating Fund. The budgets for these funds are discussed below, and the other budgeted funds can be viewed in the FY 2026-27 Proposed Operating and Capital Budget (see Attachments 1a and 1b).

1. GENERAL FUND BUDGET SUMMARY
The FY 2026-27 Proposed Budget projects total revenues at $21.5 million and total expenditures of $22.4 million, a shortfall of $0.9 million. Over $664K is for estimated, potential debt service payments for financing the purchase of the Morro Elementary School site. If the purchase goes through and the City does finance it, it is possible the first payment will not be due in FY 2026-27. Since that will not be determined until October 2026, the estimated cost is included in the budget. If that cost is not realized, the shortfall would be approximately $250K.

To close the gap of either amount and adopt a balanced budget, Council could direct staff to take two actions: reduce the capital contributions out of Measure Q/E Fund to free up budget, and shift appropriate costs to Measure Q/E from the General Fund, thereby balancing both budgets.

Chart 3. FY 2026-27 General Fund Revenues
The FY 2026-27 Proposed General Fund Budget projects $21.5 million in revenue, a 2.1% increase over the prior year, as shown in Table 4. The most notable changes are in Revenues from Current

14 Services, Fines and Forfeitures, Interest Income, and Other Revenues. Revenues from Current Services are down 29%, or $855,000, from the FY 2025-26 amended budget because anticipated mutual aid reimbursements were not budgeted; instead, those reimbursements will be recognized at midyear based on actual work performed and amounts received, consistent with the method used in FY 2025-26. Fines and Forfeitures are down 53%, or $12,000, based on FY 2025-26 actuals. Interest Income was budgeted more precisely to reflect expected earnings using current investment levels and slightly lower interest rates, resulting in a 183%, or $275,000, increase. Other Revenues rise from $31,000 to $786,000, an increase of 2,438%, due to the use of Mutual Aid Reimbursement fund balance from FY 2024-25 and FY 2025-26 to purchase a replacement Wildland Fire Engine.

Table 4. FY 2025-26 vs. FY 2026-27 General Fund Revenues

15 Chart 4. FY 2026-27 General Fund Expenditures by Division General Fund expenditures, including transfers to the Risk and IT Funds and the one-time transfer to the Governmental Capital Improvement Fund for the replacement Wildland Fire Engine, are projected to remain essentially flat in FY 2026-27, decreasing 0.5% to $22.4 million. The largest departmental budgets are Police at 23%, or $5.1 million; Fire at 17%, or $3.7 million; Public Works at 16%, or $3.7 million; and Community Development at 10%, or $2.2 million. All other divisions account for the remaining 34%, or $7.7 million (see Chart 4).

Costs by major category (see Table 5):
 Personnel costs are expected to increase 4%, or $617K, based on the collective bargaining agreements.
 Supplies increased modestly by 2%, or $16K, over the prior year.  Other Expense and Services decrease by about $718K because some safety services are budgeted in the Measure Q/E Fund rather than the General Fund in FY 2026-27; this reflects a shift in fund allocation rather than a reduction in overall City costs.  Debt Service increases entirely due to the estimated $664,221 annual payment that may be required to finance the acquisition of the Morro Elementary School site, as discussed earlier in the report. Although this amount may change as funding decisions are finalized, it is included in the budget and forecast for planning purposes.  Capital Outlay and capital contributions have been eliminated from the General Fund due to budget constraints (with the exception of the use of Mutual Aid Reimbursement fund balance). As a result, Interfund Transfers decreased 25%, or $599K, from the prior year.

16 After adjusting for the one-time $770K transfer of Mutual Aid Reimbursement fund balance to the Governmental Capital Improvement Fund for the replacement Wildland Fire Engine, the year-overyear decrease is about $1.4 million. In short, General Fund operating revenues are not sufficient to cover both operating and capital improvement costs in FY 2026-27, a condition that has been forecast since the FY 2023-24 Adopted Budget.

Table 5. FY 2025-26 vs. FY 2026-27 General Fund Expenditures

17 2. MEASURE Q/E FUND BUDGET SUMMARY
Measure Q/E revenues are allocated to four principles (activities), per City Council direction on April 13, 2021. The four activities are:

1. Maintain public safety services by funding staff positions that are most closely aligned with the purposes of the Measures Q and E. Expenses include costs associated with Morro Bay Fire Department, Morro Bay Police Department, and Morro Bay Harbor Department personnel and equipment, in addition to the Fire Headquarter Debt service and the Fire engine loan repayment.

2. Maintain or enhance cleanliness and safety of public space 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.

3. Invest in infrastructure and equipment such as street paving, storm drains, and vehicle replacements that support City services. This priority may include increasing capacity to implement the backlog of unfunded capital projects.

4. Ensure financial health of the City by maintaining appropriate reserves to protect against economic downturns, natural/health emergencies and other unforeseen challenges or opportunities.

The FY 2026-27 budget was developed around these four activities and is presented by activity in Table 6.

The FY 2026-27 Proposed Measure Q/E Budget projects $4.5 million in revenue, up 2% from the prior year budget. Proposed expenditures exceed revenue by about $700K, similar to the $766K use of fund balance budgeted in FY 2025-26. Total expenditures are projected to increase 1%, or $46K, over the prior year. As in FY 2025-26, the budget includes $1 million for the Annual Pavement Management Program paving project scheduled for FY 2026-27, the second year of a $317K contribution to the Police Radio Communications Upgrade Project, and $200K for on-call road and curb repair and street striping services.

To close the gap between revenues and expenditures to adopt a balanced budget, Council could direct staff to make two actions: reduce the capital contributions by $950K to free up budget, and shift $250K in appropriate costs to Measure Q/E from the General Fund, thereby balancing both budgets. These amounts assume the first year of Morro Elementary School site acquisition debt service will not be due until FY 2027-28 or later, making the General Fund shortfall $250K rather than $0.9 million. Another alternative to spending from fund balance is to reduce other budgeted items in Measure Q/E.

18 Table 6. FY 2026-27 Measure Q/E Proposed Budget by Activity Citizens’ Finance Advisory Committee (CFAC) Input
Consistent with CFAC’s scope of work in the Advisory Bodies Handbook and By-Laws, the City Council invites CFAC input on the Measure Q/E Proposed Budget and, as time allows, the broader Citywide budget. At the Special Joint City Council-CFAC meeting on April 21, 2026, Measure Q/E budget requests were presented and discussed, and there were no recommended changes at that time. The May 2026 meeting was canceled due to lack of quorum, so CFAC may provide budget recommendations to the City Council during the FY 2026-27 Budget Study Session.

19 3. WATER OPERATING FUND BUDGET SUMMARY
The Water Operating Fund accounts for all revenues and expenditures related to the City’s water utility operations. The total budgeted revenue is $8.4 million, with water sales to residents and businesses as the primary source. Because water rates have remained unchanged since the last increase in FY 2019-20, water sales revenue is also projected to remain flat at $7.6 million. Interest income is estimated at $700K, slightly below anticipated FY 2025-26 actuals, much more accurate and budgeting in previous years, and Fines and Forfeitures are budgeted at $55K, also unchanged from FY 2025-26 and in line with actuals in recent prior years.

Table 6. FY 2025-26 vs. FY 2026-27 Water Operating Fund Revenues The total expenditure budget is $7.4 million, a decrease due nearly entirely to reduced contributions to the Water Capital Fund, as staff plans to use current year appropriations as well as those made in prior years rather than request new funding for use in future years.  Personnel costs are increasing by 6.8% related to the collective bargaining agreements and the Council-approved reclassification in FY 2025-26 of one Sewer Lead Operator position to the split-funded Water Resources Compliance Specialist position.  The Supplies and Services categories are increasing due to the rising cost of fuel, chemicals, water, and electricity.
 The debt service payment is consistent with prior year and is the annual repayment of the Water portion of the 2020 WIFIA loan. As stated earlier in the report, The Water System Project component has a balance at June 30, 2026 of $26,615,869 that is currently scheduled for payoff in FY 2057-58 through annual payments of $936,053.  The Interfund Transfers category has the largest decrease in budget over prior year with a total budget of $919K compared to $5.2 million in FY 2025-26. The Cost Allocation Plan transfer out totals $489K and supports the General Fund, Risk Fund, and IT Fund. The transfer to the Utility Discount Fund of penalty revenue is $30K. The remainder are contributions to two new capital projects: $300K for the Quintana Water Line Replacement Project, and $100K for the updating of the Engineering Standards and Specifications Project, both of which are anticipated to be completed during FY 2026-27. The total cost of updating the Engineering Standards and Specifications is $300K with $100K coming from the Water Operating Fund, $100K from Governmental Capital Project budget reallocation (original

20 funding source was General fund), and $100K from the Sewer Operating Fund.

Table 7. FY 2025-26 vs. FY 2026-27 Water Operating Fund Expenditures

21 4. SEWER OPERATING FUND BUDGET SUMMARY
The Sewer Operating Fund accounts for all revenues and expenditures related to the City’s sewer utility operations. The total budgeted revenue is $10.8 million, with payments for usage by residents and businesses as the primary source.

As with the Water Operating Fund, revenue in the Sewer Operating Fund is projected to remain steady and not increase as the usage rates are unchanged, and estimated interest income is budgeted more accurately than in previous years at $1.3 million. Rental Income is budgeted at $20K for rental of the concrete plant, however this is a carryover from prior year and will be removed when staff presents the FY 2026-27 Revised Proposed Budget for adoption in June.

Table 8. FY 2025-26 vs. FY 2026-27 Sewer Operating Fund Revenues The total expenditure budget is $5.7 million, a sizable decrease over prior year because there is only one capital project funding request in FY 2026-27 as staff intends to use appropriations from prior years to continue work on existing projects.
 Personnel costs are flat over prior year, in spite of collective bargaining unit wage increases.

While the wage increases are budgeted, other changes occurred that result in a net zero change to personnel costs: a Council-approved reclassification in FY 2025-26 of one Sewer Lead Operator position to the split-funded Water Resources Compliance Specialist position, reclassification of the Utilities Coordinator position to Administrative Technician position, and vacant Public Works Director and Senior Civil Engineer positions which are budgeted lower than the FY 2025-26 incumbents.
 The Supplies budget is increasing by 9%, or $45K, over prior year due to higher costs for fuel, laboratory testing, and chemical supplies.
 The Services budget is increasing 16%, or about $250K, due fund the needed outfall dive inspection and potential buoy replacement.
 The debt service payment is consistent with prior year and is the annual repayment of the Wastewater portion of the 2020 WIFIA loan. As stated earlier in the report, the Wastewater System Project component has a balance at June 30, 2026 of $18,358,544 and will be paid off in FY 2057-58 through annual payments of $645,652.
 The Interfund Transfers category has the largest decrease in budget over prior year with a total budget of $646K, compared to $9.4 million in FY 2025-26. The decrease is found in the

22 level of capital project allocation requests, as staff efforts for Sewer infrastructure will be focused on existing projects funded in prior years. The one capital project contribution requested is for the Updating of the Engineering Standards and Specifications Project, which has a total cost of $300K, with $100K coming from the Sewer Operating Fund, $100K from Governmental Capital Project budget reallocation (original funding source was General fund), and $100K from the Water Operating Fund. The Cost Allocation Plan makes up $$516K and supports the General Fund, Risk Fund, and IT Fund. Lastly, the transfer of collected penalty revenue to the Utility Discount Fund is $30K.

Table 9. FY 2025-26 vs. FY 2026-27 Sewer Operating Fund Expenditures

23 5. HARBOR OPERATING FUND BUDGET SUMMARY
The Harbor Operating Fund accounts for all revenues and expenditures related to the City’s harbor and waterfront operations under the State of California’s Tidelands Trust granting statutes.

Administration of these State-granted tidelands supports public access, waterfront property and lease management, public services, public safety, and municipal code enforcement on Morro Bay’s waterfront, waters, and beaches.

Total budgeted revenue is $2.9 million, an increase of 5%, or $136K, driven by higher Revenues from Current Services from estimated lease increases tied to the consumer price index, higher Intergovernmental Revenues from anticipated grant funding, and a higher Interest Income budget that more closely reflects actual earnings.

Table 10. FY 2025-26 vs. FY 2026-27 Harbor Operating Fund Revenues The total expenditure budget is $2.9 million, nearly equal to prior year budget at just a 0.4%, or $12K, net decrease.
 Personnel increased by 5%, or $84K, on par with collective bargaining agreement wage increases.
 The Supplies budget increased 10%, or $8K, in part due to general rising costs and in part to fund the placement of filing cabinets and lockers for Harbor Patrol.  Costs for Services decreased overall by 11%, with some costs increasing and some decreasing. Costs that increased include utilities like electricity, water, equipment repair, and general liability and vessel insurance. Costs for professional services, such as legal services, engineering and consulting services, are budgeted to decrease compared to FY 2025-26.  The Capital Outlay budget was decreased from $54K to zero as there are no known capital outlay needs at the time of budget development.
 The Interfund Transfers increased by 1%, from $681K to $687K, for Cost Allocation Plan transfers to General Fund, Risk Fund, and IT Fund. Lastly, there is $189K budgeted for transfer to the Harbor Capital Fund as a contribution to the cost of the Harbor Vessel Repower Project.

24 Table 11. FY 2025-26 vs. FY 2026-27 Harbor Operating Fund Expenditures

25 V. FISCAL FORECASTS FOR MAJOR FUNDS
Although the City has 47 funds, 90% of its financial activity occurs in the five major funds: General Fund, Measure Q/E Fund, Water Operating Fund, Sewer Operating Fund, and Harbor Operating Fund. Ten-year forecasts for these funds are attached (see Attachments 3-7) and will be included in the FY 2026-27 Revised Proposed Operating and Capital Budget presented to City Council for adoption in June 2026.

General Fund: Consistent with the FY 2025-26 midyear report, the FY 2026-27 General Fund 10- year forecast shows ongoing expenditures exceeding ongoing revenues for the next six fiscal years, from FY 2026-27 through FY 2031-32. Although revenues are projected in the forecast to keep pace with estimated inflation, CalPERS projects UAL costs to rise each year during that period, peaking at $3.84 million in FY 2031-32. Those costs are then projected to decline gradually beginning in FY 2032-33, followed by a 25% drop in FY 2036-37 to $2.70 million, the final year of the forecast. The forecast also shows operating revenues returning to a surplus in FY 2032-33, which would allow the City to make modest investments in capital infrastructure maintenance in that year. From FY 2033- 34 through FY 2036-37, the surplus is forecasted to increase year over year as the UAL costs decrease. This will allow for some flexibility for Council in budgetary decision-making.

From FY 2026-27 through FY 2031-32, the City will need increases in ongoing revenues to maintain capacity for unfunded liabilities, infrastructure maintenance, and core services. Without additional recurring revenue, the City would need to defer maintenance or rely on unassigned fund balance and emergency reserves to cover operating and capital costs. That approach is not sustainable because reserves would eventually be depleted. Even under the current forecast, reserves are projected to reach a low point in FY 2030-31 at 32.2% of operating expenses, or $9.0 million, which is 0.8%, or $219K, below the Council-required minimum. One possible, though uncertain, source of revenue growth is sales tax and TOT. With Highway One through Big Sur reopened, tourism may increase, which could boost local spending and, in turn, sales tax and TOT revenues. In addition, several new boutique hotels have recently opened and may help attract more visitors and generate additional revenue.

Revenue forecasts are affected by volatility in tax revenues and the unpredictability of revenues from current services. The City has limited ability to directly influence the consumer spending that drives sales tax and TOT revenue, participation in Recreation Services programs, or planning/building permit activity. As a result, the forecast assumes revenues will keep pace with inflation, but actual results may vary. Expenditure forecasts are shaped primarily by inflation, personnel costs, and the potential debt service for the Morro Elementary School site purchase. For example, if the FY 2026- 27 expenditure budget did not include the estimated $664K debt service payment, the projected shortfall would be $250K instead of $914K. Because the City is still in the due diligence period under the Purchase and Sale Agreement, it is too early to know whether the purchase will close or, if it does, how it will be financed. Additionally, the forecast assumes steady inflation will increase operating costs, but actual outcomes remain to be seen. Lastly, the current collective bargaining agreements cover the period through June 30, 2027, so compensation negotiations will take place in the coming fiscal year as well and may change the personnel costs included in the 10-year forecast. After accounting for 33% required minimum reserve, the estimated ending available fund balance is $3.1 million for FY 2026-27 and $2.8 million for FY 2036-27.

26 Measure Q/E Fund: Consistent with the FY 2025-26 midyear report, the FY 2026-27 Measure Q/E Fund 10-year forecast shows ongoing revenues exceeding ongoing expenditures, in contrast to the General Fund for the same forecast period, despite the same UAL cost projections discussed above applying to this fund as well. One difference is that some personnel costs shifted from Measure Q/E Fund to General Fund in FY 2026-27 in exchange for non-personnel costs, such as contractual services, reducing UAL costs and allowing an operating surplus to grow over time. Similar to the General Fund forecast, Measure Q/E Fund tax revenues are volatile and may meet, exceed, or fall short of the forecast levels. In the forecast period, contributions to capital projects is limited to the surplus amount, so the capital contributions grow over time in-pace with the surplus, while maintaining a fund balance in excess of $1 million.

When looking at General Fund and Measure Q/E Fund combined, operating revenues total $25.2 million and operating expenditures total $25.5 million, leaving a shortfall of $304K. There is a shrinking shortfall for FY 2027-28 and FY 2028-29 of $183K and $101K, respectively. Then in FY 2029-30 we see a surplus begin which is projected to grow to an estimated $3.7 million by the end of the forecast period.

Water Operating Fund: Revenues in the Water Operating Fund are fairly stable due the set usage rate, and fluctuations in actuals are due to the level of usage by ratepayers. In this forecast, we see increases in costs outpacing increases to revenue, ultimately resulting in a revenue shortfall by FY 2035-36. This fund shares in the debt service for the Water Reclamation Facility and therefore is required to maintain a minimum debt coverage ratio (of debt cost to operating surplus) or risk defaulting on the loan. For the majority of the forecast period, the minimum ratio is exceeded, but starting in FY 2034-25 the minimum is projected to not be met. Staff will monitor this in real time and will need to make adjustments to either increase operating revenues or decrease operating costs in order to remain in compliance with the terms of the loan. A shortfall in operating revenues also means the fund is unable to make any needed improvements to the infrastructure necessary for delivering water to customers. These are the two concerns for the Water Operating Fund in the near-term. After accounting for all of the requirements for the Water Operating Fund (25% required minimum reserve, debt coverage ratio, 5% rate stabilization, and 20% vehicle replacement reserve), the estimated ending available fund balance is $11.7 million for FY 2026-27 and $13.5 million for FY 2036-27.

Sewer Operating Fund: Like the Water Operating Fund, revenues in the Sewer Operating Fund are fairly stable due the set usage rate, and fluctuations in actuals are due to the level of usage by ratepayers. Throughout this 10-year forecast, we see operating costs increasing steadily, but not yet catching up to revenues. Based on the trend, it is assumed operating costs will catch and exceed revenues in years directly following the end of this forecast period. Like the Water Operating Fund, this fund shares in the debt service for the Water Reclamation Facility and therefore is required to maintain a minimum debt coverage ratio (of debt cost to operating surplus) or risk defaulting on the loan. For all but the final year of the forecast period, the minimum ratio is exceeded. In FY 2036-37 it is projected to fall short but just barely. As with the Water Operating Fund debt coverage ratio, staff will monitor this in real time and will need to make adjustments to either increase operating revenues or decrease operating costs in order to remain in compliance with the terms of the loan. As operating costs catch up with operating revenues, the ability for the Sewer Operating Fund to maintain essential infrastructure will be limited. The debt service ratio and ability to fund maintenance to essential infrastructure are the two concerns for the Sewer Operating Fund in the near-term. After

27 accounting for all of the requirements for the Sewer Operating Fund (25% required minimum reserve, debt coverage ratio, 5% rate stabilization, and 20% vehicle replacement reserve), the estimated ending available fund balance is $23.1 million for FY 2026-27 and $33.2 million for FY 2036-27.

Harbor Operating Fund: The 10-year forecast for the Harbor Operating Fund shows an operating surplus for the entire period, largely due to lease agreements adjusting on par with inflation. Over the 10-years, the operating surplus allows the fund balance to grow, which will provide flexibility for planning and funding critical maintenance to the harbor and waterfront that has been deferred for many years. The forecast builds in capital spending not to exceed the operating surplus. After accounting for the 15% required minimum reserve, the estimated ending available fund balance is $2.2 million for FY 2026-27 and $2.7 million for FY 2036-27.

CONCLUSION
The City's financial situation has improved in recent years but still faces major challenges in ongoing annual revenues being insufficient to fund ongoing annual operating and capital costs. This puts the city at risk of falling behind in areas like compensation, infrastructure maintenance, and pension funding. However, the city has strong reserve policies to help navigate short-term uncertainty. To ensure long-term financial stability, the city needs to focus on increasing revenue generation.

Guided by established Council goals, the draft budget aims to maintain the current level of services while balancing the needs of competitive compensation, infrastructure projects, and healthy reserves. Council has the ultimate authority to make all appropriations in this budget. Upon Council review and direction at these budget study sessions, adjustments will be made by staff prior to presentation to Council of the FY 2026-27 Revised Proposed Operating and Capital Budget for adoption in June.

ATTACHMENTS

1. FY 2026-27 Proposed Capital and Operating Budget
a. Web-Based Version
b. Printable PDF Version

2. FY 2026-27 Budgeted Revenue and Expenditures by Fund

3. General Fund 10-Year Forecast

4. Measure Q/E Fund 10-Year Forecast

5. Water Operating Fund 10-Year Forecast

6. Sewer Operating Fund 10-Year Forecast

7. Harbor Operating Fund 10-Year Forecast

Budgeted Funds Revenue Expenditures Surplus/(Shortfall) 1 General Fund 21,469,722 22,383,929 (914,207)
2 Measure Q/E Fund 4,505,000 5,212,434 (707,434)
3 Developer Reimbursement Agreemnt Fund 220,000 220,000 - 4 General Fund Vehicle Replacement Fund - 160,000 (160,000) 5 General Fund Facility Maintenance Fund 66,336 105,000 (38,664) 6 State Gas Tax Fund 323,442 323,442 -
7 Road Maint and Rehab (RMRA) / SB1 Fund 296,214 296,214 - 8 Traffic Safety Fund 15,000 - 15,000
9 Special Safety Grants (COPS) Fund 162,500 183,900 (21,400) 10 Parking In-Lieu Fund 13,000 - 13,000
11 Bike Path Fund 15,428 - 15,428
12 Local Transportation Fund (LTF) Roads Fund 29,000 - 29,000 13 Water Operating Fund 8,434,200 7,373,095 1,061,105
14 Utility Discount Fund 60,000 73,000 (13,000)
15 Sewer Operating Fund 10,847,000 5,716,005 5,130,995
16 Harbor Operating Fund 2,899,776 2,888,588 11,188
17 Risk Fund 2,144,286 2,108,199 36,087
18 IT Fund 1,352,863 1,352,863 0
19 Special Assessment Districts Fund 5,332 - 5,332
20 North Point Assessment Fund 5,645 5,645 -
21 Cloisters Park Maint Assessment District Fund 176,898 176,898 - 22 Governmental Impact Fees Fund 162,000 - 162,000
23 Park Fee Fund 10,000 - 10,000
24 Economic Development Fund - 137,846 (137,846)
25 Governmental Capital Projects Fund 8,403,901 8,403,901 - 26 Water Capital Improvement Fund 300,000 300,000 -
27 Sewer Capital Improvement Fund - - -
28 Harbor Capital Improvement Fund 887,652 887,650 2
29 State Park Marina Fund 170,000 70,000 100,000
30 Triangle Lot-Boat Storage Yard Fund 55,000 110,225 (55,225) 31 Affordable Housing In-Lieu Fund 18,000 235,000 (217,000) 63,048,196 58,723,834 4,324,362
FY 2026-27 Proposed Operating and Capital Budget
Revenue and Expenditures by Fund

FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 FY 2037 Beginning Fund Balance 8,006,125 7,481,854 5,891,283 5,239,405 4,830,865 4,613,377 4,686,553 5,074,370 5,576,167 6,110,919 6,586,650 7,017,895 Revenue
Property Tax 5,993,477 6,179,220 6,426,389 6,683,444 6,950,782 7,228,813 7,517,966 7,818,685 8,131,432 8,456,689 8,794,957 9,146,755 Sales Tax 2,730,068 2,760,400 2,843,212 2,928,508 3,016,364 3,106,855 3,200,060 3,296,062 3,394,944 3,496,792 3,601,696 3,709,747 Transient Occupancy Tax 4,590,000 4,600,000 4,692,000 4,832,760 4,977,743 5,127,075 5,280,887 5,439,314 5,602,493 5,770,568 5,943,685 6,121,996 Other Revenue 6,370,576 5,628,338 5,797,188 5,971,104 6,150,237 6,334,744 6,524,787 6,720,530 6,922,146 7,129,810 7,343,705 7,564,016 Transfers In 1,303,107 1,531,764 1,577,717 1,625,048 1,673,800 1,724,014 1,775,734 1,829,006 1,883,877 1,940,393 1,998,605 2,058,563 TOTAL REVENUE 20,987,228 20,699,722 21,336,506 22,040,865 22,768,926 23,521,501 24,299,434 25,103,597 25,934,892 26,794,253 27,682,647 28,601,076 Expense
Personnel 14,212,178 15,393,364 15,781,801 16,283,807 16,674,955 16,978,308 17,315,732 17,593,259 17,870,295 18,128,167 18,353,609 18,080,324 Other Operations & Maintenance 4,901,496 4,527,626 4,663,455 4,803,358 4,947,459 5,095,883 5,248,759 5,406,222 5,568,409 5,735,461 5,907,525 6,084,751 Transfers Out (Ongoing) 952,635 993,528 1,023,334 1,054,034 1,085,655 1,118,225 1,151,771 1,186,324 1,221,914 1,258,572 1,296,329 1,335,219 Debt Service Payments 35,189 699,411 699,411 699,411 699,411 699,411 699,411 699,411 699,411 699,411 699,411 699,411 TOTAL EXPENSE 20,101,498 21,613,929 22,168,001 22,840,610 23,407,480 23,891,827 24,415,673 24,885,217 25,360,029 25,821,611 26,256,874 26,199,705 Net Surplus (Shortfall)-Operating 885,729 (914,207) (831,495) (799,745) (638,554) (370,326) (116,239) 218,380 574,862 972,642 1,425,773 2,401,372 Capital 1,300,000 770,000 - - - - - 200,000 500,000 900,000 1,300,000 2,350,000 Annual Pavement Management Program 1,000,000 - - - - - - - - - - Annual Storm Drain Replacement Project 300,000 - - - - - - - - - - - Replacement Type 3 Fire Engine - 770,000 - - - - - - - - - - Net Surplus (Shortfall)-including Capital (414,271) (1,684,207) (831,495) (799,745) (638,554) (370,326) (116,239) 18,380 74,862 72,642 125,773 51,372 Transfers In (One-Time) - 93,636 179,616 391,206 421,066 443,502 504,056 483,417 459,889 403,089 305,471 - Section 115 Trust - 93,636 179,616 391,206 421,066 443,502 504,056 483,417 459,889 403,089 305,471 - Transfers Out (One-Time) 110,000 - - - - - - - - - - -
Vehicle Replacement Fund 100,000 - - - - - - - - - - -
Compensable Leave Fund 10,000 - - - - - - - - - - -
Ending Total Fund Balance 7,481,854 5,891,283 5,239,405 4,830,865 4,613,377 4,686,553 5,074,370 5,576,167 6,110,919 6,586,650 7,017,895 7,069,266 Less Non-Spendable Fund Balance 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,000 3,600,001 Ending Available Fund Balance 3,881,854 2,291,283 1,639,405 1,230,865 1,013,377 1,086,553 1,474,370 1,976,167 2,510,919 2,986,650 3,417,895 3,469,265 Ending Available Q/E Fund Balance 2,046,498 1,339,064 1,349,562 1,380,938 1,411,208 1,418,956 1,429,081 1,567,478 1,580,978 1,636,671 1,669,549 1,681,964 Measure Q/E Fund Operating Expenses
(excluding transfers) 3,389,446 3,894,747 3,991,965 4,080,292 4,174,778 4,262,669 4,352,404 4,440,809 4,527,081 4,551,106 4,645,125 4,741,928 General Fund Emergency Reserve Fund
(GFER) Balance 7,896,785 7,896,785 7,896,785 7,896,785 7,896,785 7,896,785 7,896,785 7,896,785 7,896,785 7,896,785 7,896,785 7,896,785 Total Fund Balance as % of Total Operating Expenses
(General Fund + Q/E + GFER Fund Balances) /
(General Fund + Q/E Operating Expenses) 58.9% 45.2% 41.6% 39.0% 37.4% 36.9% 37.5% 39.0% 40.1% 41.2% 42.0% 42.2% Minimum Reserve Levels * MET MET MET MET MET MET MET MET MET MET MET MET General Fund Emergency Reserve Policy: 33% operating
expenses. Includes Measure Q/E fund operating expenses. 7,752,012 8,417,863 8,632,789 8,883,898 9,102,145 9,290,984 9,493,465 9,677,589 9,862,746 10,022,996 10,197,660 10,210,739 Ending Available Fund Balance: GF, Q/E, GFER 13,825,138 11,527,133 10,885,752 10,508,588 10,321,370 10,402,294 10,800,237 11,440,430 11,988,682 12,520,106 12,984,229 13,048,015

AVAILABLE FUND BALANCE (EXCESS OF MINIMUM
RESERVES) * 6,073,126 3,109,269 2,252,963 1,624,691 1,219,224 1,111,310 1,306,771 1,762,841 2,125,935 2,497,110 2,786,569 2,837,276 Fund Balance Notes
Ten-Year Forecast Capital Spending Totals: $ 5,250,000
* In years when the available fund balance is forecast to go negative, withdrawals from the General Fund Emergency Reserve would be required. * The City's Reserve Policy states that in years the minimum reserve levels are met, the General Fund will contribute 33% of the prior year's audited available balance to a Section 115 Trust to address pension liabilities. * Funds in excess of minimum reserves may be appropriated by Council for any use. * Minimum Reserve Levels are determined using the combined fund balance of the GFER and General Fund Available Fund Balance.

GENERAL FUND (001)
FY 2026
Estimated
FY 2027
Budget
Forecast

FY 2026
Estimated
FY 2027
Budget FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 FY 2037 Starting Fund Balance 2,599,999 2,046,498 1,339,064 1,349,562 1,380,938 1,411,208 1,418,956 1,429,081 1,567,478 1,580,978 1,636,671 1,669,549 Revenue
Tax Revenue 4,534,932 4,500,000 4,635,000 4,774,050 4,917,272 5,064,790 5,216,733 5,373,235 5,534,432 5,700,465 5,871,479 6,047,624 Other Revenue 5,000 5,000 5,150 5,305 5,464 5,628 5,796 5,970 6,149 6,334 6,524 6,720 TOTAL REVENUE 4,539,932 4,505,000 4,640,150 4,779,355 4,922,735 5,070,417 5,222,530 5,379,206 5,540,582 5,706,799 5,878,003 6,054,343 Expense
Personnel 2,560,981 2,544,380 2,601,087 2,647,687 2,699,195 2,742,819 2,786,958 2,828,400 2,866,300 2,840,501 2,883,202 2,927,147 Other Operations & Maintenance 453,465 1,350,367 1,390,878 1,432,605 1,475,583 1,519,850 1,565,446 1,612,409 1,660,782 1,710,605 1,761,923 1,814,781 Transfers Out (operating) 175,000 - - - - - - - - - - - TOTAL EXPENSE 3,389,446 3,894,747 3,991,965 4,080,292 4,174,778 4,262,669 4,352,404 4,440,809 4,527,081 4,551,106 4,645,125 4,741,928 Net Surplus (Shortfall)-Operating 1,150,486 610,253 648,185 699,063 747,957 807,748 870,126 938,396 1,013,501 1,155,693 1,232,878 1,312,415 Capital 1,703,987 1,317,687 637,687 667,687 717,687 800,000 860,000 800,000 1,000,000 1,100,000 1,200,000 1,300,000 Police Digital Radio Communications
Upgrade 317,687 317,687 317,687 317,687 317,687 - - - - - - Local Road Safety Plan (LRSP)
Implementation and Safety Improvements - - 100,000 - - - - - - - - - Sidewalk Improvements and Street Tree
Replacements Project 300,000 - 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Annual Pavement Management Program 1,000,000 1,000,000 120,000 250,000 300,000 700,000 760,000 700,000 900,000 1,000,000 1,100,000 1,200,000 Net Surplus (Shortfall) including Capital (553,501) (707,434) 10,498 31,376 30,270 7,748 10,126 138,396 13,501 55,693 32,878 12,415 ENDING FUND BALANCE 2,046,498 1,339,064 1,349,562 1,380,938 1,411,208 1,418,956 1,429,081 1,567,478 1,580,978 1,636,671 1,669,549 1,681,964 NOTE
Ten-Year Forecast Capital Spending Totals: $ 9,083,061
MEASURE Q/E FUND (003)
Measure Q/E does not have its own reserve policy, as it is covered in the General Fund Emergency Reserve policy.

Forecast

FY 2026 FY 2027
Estimate Budget FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 FY 2037 Starting Fund Balance (Working Capital) 12,879,248 11,584,663 12,645,768 9,941,047 10,555,156 10,998,666 11,274,495 11,874,621 12,300,989 12,548,781 12,615,585 12,499,508 Revenue
Rate Payer Revenue 7,591,264 7,675,000 7,675,000 7,675,000 7,675,000 7,675,000 7,675,000 7,675,000 7,675,000 7,675,000 7,675,000 7,675,000 Other Revenue 748,338 729,200 736,492 743,857 751,295 758,808 766,397 774,060 781,801 789,619 797,515 805,490 Transfers In 30,000 30,000 30,300 30,603 30,909 31,218 31,530 31,846 32,164 32,486 32,811 33,139 TOTAL REVENUE 8,369,602 8,434,200 8,441,792 8,449,460 8,457,205 8,465,027 8,472,927 8,480,906 8,488,965 8,497,105 8,505,326 8,513,629 Expense
Personnel 1,547,675 1,658,805 1,700,876 1,754,426 1,793,423 1,825,401 1,861,171 1,890,641 1,920,441 1,948,028 1,972,743 1,947,142 Other Operations & Maintenance 3,674,476 3,859,312 3,975,091 4,094,344 4,217,174 4,343,690 4,474,000 4,608,220 4,746,467 4,888,861 5,035,527 5,186,593 Transfers Out (Ongoing) 505,983 518,925 534,493 550,528 567,043 584,055 601,576 619,624 638,212 657,359 677,079 697,392 Debt Service Payments 936,054 936,053 936,053 936,053 936,053 936,053 936,053 936,053 936,053 936,053 936,053 936,053 TOTAL EXPENSE 6,664,187 6,973,095 7,146,514 7,335,351 7,513,694 7,689,198 7,872,801 8,054,538 8,241,173 8,430,301 8,621,403 8,767,179 Net Surplus (Shortfall)-Operating 1,705,415 1,461,105 1,295,278 1,114,109 943,510 775,829 600,126 426,368 247,792 66,804 (116,077) (253,550) Capital 3,000,000 400,000 4,000,000 500,000 500,000 500,000 - - - - - - North Morro Bay Water Improvements 2,500,000 - 3,500,000 - - - - - - - - - Water Meter Replacements 500,000 - 500,000 500,000 500,000 500,000 - - - - Quintana Water Line 300,000
Engieering Plan Update 100,000
Net Surplus (Shortfall) including Capital (1,294,585) 1,061,105 (2,704,722) 614,109 443,510 275,829 600,126 426,368 247,792 66,804 (116,077) (253,550) Ending Fund Balance Before Reserves 11,584,663 12,645,768 9,941,047 10,555,156 10,998,666 11,274,495 11,874,621 12,300,989 12,548,781 12,615,585 12,499,508 12,245,958 Fund Balance % of Total Operating Expenses 174% 181% 139% 144% 146% 147% 151% 153% 152% 150% 145% 140% Minimum Reserve Levels MET MET MET MET MET MET MET MET MET NOT MET NOT MET NOT MET Debt Coverage Ratio of 1.2 or greater 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.5 1.3 1.1 0.9 0.7 Operating: 25% Annual Operating Expenses (PY Budget) 1,480,721 1,642,691 1,612,103 1,786,628 1,833,838 1,878,424 1,922,299 1,968,200 2,013,635 2,060,293 2,107,575 2,155,351 Rate Stabilization: 5% of prior year's rates 378,972 383,750 383,750 383,750 383,750 383,750 383,750 383,750 383,750 383,750 383,750 383,750 Vehicle Replacement: 20% of original value of Water fleet 50,886 50,886 50,885 50,885 50,885 50,885 50,886 50,887 50,888 50,889 50,890 50,891 1,910,579 2,077,327 2,046,738 2,221,263 2,268,473 2,313,059 2,356,935 2,402,837 2,448,273 2,494,932 2,542,215 2,589,992 Unreserved/Available Fund Balance 9,674,084 10,568,441 7,894,309 8,333,892 8,730,193 8,961,436 9,517,685 9,898,151 10,100,508 10,120,652 9,957,293 9,655,966 > Five-Year Capital Spending Totals: $ 5,500,000
> The city's multi-year capital improvement plan covers five years. Thus, no capital expenditures are forecast beyond that period.

Forecast
WATER OPERATING FUND (311)
NOTES
> Fund Balance is defined as working capital: current assets less current liabilities > As baseline forecast, assumes no rate increases.
> Transfers out include transfers to the General Fund for internal cost allocation services, transfers to the Risk and IT funds, transfers to the Water and Sewer CIP funds for Water CIPs

FY 2026 FY 2027
SEWER OPERATING FUND (321) Estimated Budget FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 FY 2037 Starting Fund Balance (Working Capital) 18,390,354 19,902,937 25,033,932 27,135,568 29,245,904 28,153,149 29,866,340 31,380,976 32,704,552 33,836,302 34,778,311 35,533,249 Revenue
Rate Payer Revenue 9,444,334 9,490,000 9,490,000 9,490,000 9,490,000 9,490,000 9,490,000 9,490,000 9,490,000 9,490,000 9,490,000 9,490,000 Other Revenue 1,357,493 1,320,000 1,313,400 1,247,730 1,185,344 1,126,076 1,069,773 1,016,284 965,470 917,196 871,336 827,770 Transfers In 37,000 37,000 38,110 39,253 40,431 41,644 42,893 44,180 45,505 46,870 48,277 49,725 TOTAL REVENUE 10,838,827 10,847,000 10,841,510 10,776,983 10,715,774 10,657,720 10,602,666 10,550,464 10,500,975 10,454,067 10,409,613 10,367,494 Expense (Operating)
Personnel 2,038,753 2,031,609 2,107,760 2,173,726 2,222,077 2,261,739 2,306,012 2,342,666 2,379,733 2,414,136 2,445,074 2,415,042 Other Operations & Maintenance 1,998,625 2,392,224 2,463,991 2,537,910 2,614,048 2,692,469 2,773,243 2,856,441 2,942,134 3,030,398 3,121,310 3,214,949 Transfers Out (Ongoing) 546,215 546,520 562,916 579,803 597,197 615,113 633,566 652,573 672,151 692,315 713,085 734,477 Debt Service Payments 645,652 645,652 3,375,208 3,375,208 3,375,208 3,375,208 3,375,208 3,375,208 3,375,208 3,375,208 3,375,208 3,375,208 TOTAL EXPENSE 5,229,244 5,616,005 8,509,874 8,666,647 8,808,530 8,944,529 9,088,030 9,226,888 9,369,226 9,512,057 9,654,676 9,739,676 Net Surplus (Shortfall) - Operating 5,609,583 5,230,995 2,331,636 2,110,336 1,907,244 1,713,192 1,514,636 1,323,576 1,131,749 942,010 754,937 627,819 Capital 4,097,000 100,000 230,000 - 3,000,000 - - - - - - - Manhole Rehabilitation Project - - 230,000 - - - - - - - - - Beachcomber Drive Area Backyard
Sewer Improvements - Design - - - - 3,000,000 - - - - - - - Wastewater Treatment Plant Decomissioning 4,097,000 - - - - - - - - - - - Engineering Standards Update 100,000
Net Surplus (Shortfall) including Capital 1,512,583 5,130,995 2,101,636 2,110,336 (1,092,756) 1,713,192 1,514,636 1,323,576 1,131,749 942,010 754,937 627,819 Contribution to 115 Trust - - - - - - - - - - - -
Net Asset (Liability) Adjustment to Cash - - - - - - - - - - - - Ending Fund Balance Before Reserves 19,902,937 25,033,932 27,135,568 29,245,904 28,153,149 29,866,340 31,380,976 32,704,552 33,836,302 34,778,311 35,533,249 36,161,067 Fund Balance % of Total Operating Expenses 381% 446% 319% 337% 320% 334% 345% 354% 361% 366% 368% 371% Minimum Reserve Levels MET MET MET MET MET MET MET MET MET MET MET NOT MET Debt Coverage Ratio of 1.2 or greater 9.6 9.0 1.7 1.6 1.6 1.5 1.4 1.4 1.3 1.3 1.2 1.2 1,161,964 1,327,665 1,832,289 2,127,468 2,166,662 2,202,133 2,236,132 2,272,007 2,306,722 2,342,306 2,378,014 2,413,669 Rate Stabilization: 5% of prior year's rates 484,226 474,500 474,500 474,500 474,500 474,500 474,500 474,500 474,500 474,500 474,500 474,500 99,892 99,892 99,891 99,891 99,891 99,891 99,891 99,892 99,893 99,894 99,895 99,896 1,746,081 1,902,057 2,406,680 2,701,859 2,741,053 2,776,524 2,810,523 2,846,399 2,881,115 2,916,700 2,952,409 2,988,065 Unreserved/Available Fund Balance 18,156,855 23,131,875 24,728,888 26,544,045 25,412,096 27,089,817 28,570,453 29,858,153 30,955,187 31,861,611 32,580,839 33,173,002 >Five-Year Capital Spending Totals: $ 3,230,000
> The city's multi-year capital improvement plan covers five years. Thus, no capital expenditures are forecast beyond that period. > Transfers out include transfers to the General Fund for internal cost allocation services, transfers to the Risk and IT funds, and transfers to the Sewer CIP fund. > Fund Balance is defined as working capital: current assets less current liabilities > As baseline forecast, assumes no rate increases.

Operating: 25% PY Operating Expenses
Vehicle Replacement Reserve: 20% of fleet value
NOTES
Forecast

FY 2026 FY 2027
Estimates Budget FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 FY 2037 Starting Fund Balance (Working Capital) 2,407,954 2,612,073 2,623,261 2,635,132 2,648,289 2,680,517 2,740,922 2,827,188 2,848,151 2,905,419 3,003,446 3,047,477 Revenue
Harbor Leases 2,162,721 2,256,326 2,324,016 2,393,737 2,465,549 2,539,515 2,615,701 2,694,172 2,774,997 2,858,247 2,943,994 3,032,314 Boat Charges 476,650 471,200 485,336 499,896 514,893 530,340 546,250 562,637 579,517 596,902 614,809 633,253 Other Charges for Service 89,834 87,500 90,125 92,829 95,614 98,482 101,436 104,480 107,614 110,842 114,168 117,593 Other Revenue 118,902 84,750 84,993 85,742 86,500 88,030 89,590 91,182 92,806 94,462 96,151 97,013 TOTAL REVENUE 2,848,107 2,899,776 2,984,470 3,072,204 3,162,555 3,256,367 3,352,977 3,452,471 3,554,933 3,660,453 3,769,122 3,880,173 Expense
Personnel 1,546,626 1,634,829 1,675,897 1,729,443 1,766,836 1,797,567 1,832,364 1,860,129 1,888,146 1,913,622 1,935,822 1,902,573 Other Operations & Maintenance 632,165 566,388 583,380 600,881 618,907 637,475 656,599 676,297 696,586 717,483 739,008 761,178 Transfers Out (Ongoing) 295,671 498,371 513,322 528,722 544,583 560,921 577,749 595,081 612,933 631,321 650,261 669,769 TOTAL EXPENSE 2,474,462 2,699,588 2,772,599 2,859,046 2,930,327 2,995,962 3,066,711 3,131,507 3,197,665 3,262,427 3,325,091 3,333,520 Net Surplus (Shortfall) - Operating 373,644 200,188 211,870 213,158 232,228 260,405 286,266 320,964 357,268 398,026 444,031 546,653 Capital Revenues (Transfers, Grants, Other) - - - - - - - - - - - - Capital Expenditures 169,525 189,000 200,000 200,000 200,000 200,000 200,000 300,000 300,000 300,000 400,000 400,000 Storm Recovery - Dock Repairs 100,000 - - - - - - - - - - - North T-Pier Repairs 69,525 - - - - - - - - - - -
Harbor Vessel Re-power 189,000
Net Surplus (Shortfall) including Capital 204,119 11,188 11,870 13,158 32,228 60,405 86,266 20,964 57,268 98,026 44,031 146,653 Ending Fund Balance Before Reserves 2,612,073 2,623,261 2,635,132 2,648,289 2,680,517 2,740,922 2,827,188 2,848,151 2,905,419 3,003,446 3,047,477 3,194,129 Fund Balance - % of Total Operating Expenses 106% 97% 95% 93% 91% 91% 92% 91% 91% 92% 92% 96% Minimum Reserve Levels MET MET MET MET MET MET MET MET MET MET MET MET 15% Annual Operating Expenses
(Prior Yr Adopted Budget) 403,745 371,169 404,938 415,890 428,857 439,549 449,394 460,007 469,726 479,650 489,364 498,764 Unreserved/Available Fund Balance 2,208,328 2,252,092 2,230,193 2,232,399 2,251,660 2,301,372 2,377,793 2,388,145 2,435,693 2,523,796 2,558,113 2,695,366 NOTES
Fund Balance is defined as working capital: current assets less current liabilities.

Other Charges for Services include other service fees such as launch ramp parking, coin-operated services, and other rentals.

Other Revenue includes grant funds, penalties, bad debts recovery, auctioned property, and other miscellaneous revenue.

Other Operations and Maintenance includes services, supplies, debt service, capital outlay, and other expense Ten-Year Forecast Capital Spending Totals: $ 2,700,000
Boat Charges include live aboard; pier dockage; mooring, slip, and floating dockage rental, slip sublease, and skiff permits.

Transfers out are for internal services (insurance, IT, finance, administration, clerk, attorney, etc.) defined by cost allocation.

HARBOR OPERATING FUND (331) Forecast

Prepared By: JC Dept Review:

City Manager Review: JC City Attorney Review: BS
Staff Report
TO: Honorable Mayor and City Council DATE: May 20, 2026 FROM: John Craig, City Manager
SUBJECT: Discussion of Resources for Economic Development and Related Efforts

RECOMMENDED ACTION
For consideration and discussion.

BACKGROUND/DISCUSSION
On November 12, 2025 the City considered reinstating an Assistant City Manager position focused primarily on economic development, a topic the city has been actively discussing since at least 2016 when the City developed an Economic Development Roadmap. The minutes of that meeting read:

At the November 12, 2025 City Council meeting, Interim City Manager Lueker presented the report and fielded Council questions. Public comment was generally supportive of economic development efforts, though several speakers — including two members of the public and a Chamber of Commerce representative — urged the Council to wait for the incoming permanent city manager to weigh in before filling the position. Following discussion, the Council reached consensus to pause action on the item, allowing the new city manager time to assess the organization and then bring forward recommendations on economic development policies, goals, revenue generation, and staffing alternatives. Mayor Wixom directed staff to place a follow-up item on the agenda planning track, with a return to Council estimated between 90 days and nine months.

Before bringing back the item with my recommendation for Council consideration, I would like the Council to have a brief discussion regarding economic development, what it means in practice to the individual councilmembers and/or community members, and hear examples of specific outcomes you would like to see out of any economic development efforts.

ATTACHMENT(S)
None.

AGENDA NO: 8.b
MEETING DATE: May 26, 2026