CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
6/9/2025
1 SUBJECT:
Fiscal Year 2025-26 Recommended Budget Program Options
RECOMMENDED ACTION:
Review and discuss the Fiscal Year 2025-26 Proposed General Fund and Other Funds Budget and provide additional policy direction on the desired budget options and strategies for the upcoming budget.
STAFF CONTACT:
Kevin Woodhouse, City Manager
650-738-7409
[email protected]
Yulia Carter, Assistant City Manager
650-738-7301
[email protected]
Marisol Gómez, Director of Finance and Administrative Service 650-501-0257
[email protected]
BACKGROUND:
Each year, the City of Pacifica adopts an annual operating budget that reflects the planned activities for the next fiscal year based on the best information available at the time of adoption.
Then, at mid-year, staff revisits the projections and reports to the Council any changes needed to reflect new information and keep the City on track. The FY 2024-25 Mid-Year adjustments were presented to the Council on March 24, 2025.
The Budget Session 1 was held on April 14, 2025, and staff presented the Narrative Budget report outlining the Budget planning process, methodology, timeline, and preliminary budget strategies. As part of the presentation, staff introduced the preliminary Long-Term Financial Forecast (LTFF) which highlighted the City’s ongoing structural deficit ranging from $2.1 million in the upcoming year to as high as $5.5 million in future years. If this deficit is left unaddressed, the forecast indicates that the City’s reserves could fall below the Government Finance Officers Association (GFOA)-recommended two months of operating expenditure reserves as early as FY2026-27.
The Council reviewed and supported incorporating the following budget strategies into the budget development process:
1. Modify the allocation of Excess Educational Revenue Augmentation Funding (ERAF) to ensure they remain in the General Fund to help address the projected budget deficit.
The Council may provide further direction on whether a portion of these revenues should continue to be allocated to the Disaster Accounting and Housing Action funds.
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2. Address Financial Uncertainties Related to Vehicle License Fee In-Lieu Backfill Payments from the State by assigning a portion of the General Fund reserves as assigned fund balance designation to offset the potential loss.
3. Prioritize Revenue-Generating Development to Strengthen the City's Long-Term Financial Base and address the ongoing structural deficit.
At the May 12, 2025 Budget Session 2, staff introduced the FY 2025-26 Base Budget and FY 2025-30 Capital Improvement Program. The base budget revealed a $3.2 million structural deficit between operating revenues and expenditures, an increase from the initial projections, driven by insufficient general revenues to keep pace with the rising costs of providing municipal services. Staff emphasized that this level of structural imbalance cannot be sustained and that reliance on unguaranteed revenues like Excess ERAF exposes the City to long-term financial risk.
As demonstrated in both budget study sessions and reinforced in the long-term financial forecast, the City is at a tipping point. Without decisive action, including a shift toward strategic, revenue-generating development and innovative financing mechanisms, the City will face increasingly difficult tradeoffs, including reductions to core services, further reliance on limited reserves, and diminished capacity to maintain infrastructure and service levels.
The primary focus of today’s Budget Session 3 discussion is to provide Council with the recommended program options for the FY 2025-26 Proposed Budget and get additional policy direction for any additional inclusions in, or changes to, the budget prior to the adoption at the next meeting on June 23, 2025.
A summary of the FY 2025-26 budget schedule is presented below:
DISCUSSION:
City Manager’s Recommendations for the FY 2025-26 Budget The overarching goal of the budget process is to develop a balanced, and ideally sustainable, Budget by thoroughly analyzing the City's revenue structure and current service levels. This Pacifica City Council 3
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includes analysis of necessary service increases and/or reduction options, which, when combined, will achieve a balanced budget, which also involves making difficult decisions about where to invest limited resources and where to delay or scale back, while ensuring alignment with the City Council’s adopted Strategic Plan.
Since Budget Session 2, each City Department has been given an opportunity to submit their prioritized budget requests with reference to the Council’s specific goals and strategies in the newly adopted Strategic Plan. After a comprehensive review of these requests, the City Manager has developed a balanced FY 2025-26 Recommended Budget that reflects both the City’s financial constraints and its long-term vision.
Developing this budget required difficult choices, as the City continues to face a structural deficit and relies on unguaranteed or one-time revenues. As a result, the City Manager had to weigh each request against future fiscal sustainability, existing staffing and organizational capacity, and the ability to maintain essential services to the community to identify necessary and required service change options, which, in combination, maintain a balanced budget.
Out of 27 budget options submitted by the departments for consideration in FY 2025-26, the City Manager is recommending funding only 13 items (with many of those funded at reduced levels) with a total General Fund impact of $0.8 million. Of these, 6 are programmatic changes that will result in a marginal ongoing cost of $0.2 million, and 7 are one-time investments totaling $0.6 million.
Each recommended item aligns with one or more of the Strategic Plan goals and is detailed in Attachments 1 and 4-7, which outline the needs, funding impact, and strategic alignment.
Despite efforts to balance priorities, 9 critical requests, including 6 within the General Fund and 3 in other funds, totaling $1.8 million remain unfunded due to resource limitations. These include essential services and program enhancements that would advance Council priorities but could not be accommodated within the City's limited fiscal capacity this year. Leaving these requests unfunded limits departmental capacity to maintain service levels, deliver on strategic goals, and respond effectively to community needs.
The FY 2025-26 budget reflects a careful attempt to preserve service levels where possible, invest in high-impact areas, and maintain fiscal responsibility while planning for long-term resilience.
General Fund Program Options
At Budget Session 2, staff reported that the FY 2025-26 Base Budget included a structural deficit of $3.2 million. However, after the Council’s policy decision to reallocate Excess Educational Revenue Augmentation Fund (ERAF) revenues from the Disaster Accounting and Housing Action Funds to the General Fund, this deficit gap was closed, resulting in a very modest General Fund surplus of $557,180 available for service enhancements.
Since that presentation, an additional adjustment was made to reduce the intergovernmental revenue category by $600,000 to remove one-time funding in the Childcare program that had been inadvertently included in the Base Budget calculations. To mitigate the budgetary impact of this correction, finance staff was able to reduce the General Fund’s share of debt service obligations by applying a one-time $600,000 offset from a current remaining balance in the Debt Service Fund. This action will fully deplete the available fund balance in the Debt Service Fund, and starting next year, all future debt service obligations will be fully funded by the Pacifica City Council 4
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General Fund.
In order to fund the 13 critical recommendations, the City Manager is recommending a tradeoff by not funding the City’s annual contribution to the Pension Trust in FY 2025-26, included in the Base budget per the City’s current policy, which had been established to help offset the City’s long-term unfunded pension liability. While this decision is a deviation from the current policy and is not a best practice, it reflects the current fiscal reality and the need to prioritize essential services and high-impact investments in the short term.
After factoring in all recommended requests listed below, including both one-time and ongoing program enhancements, the General Fund shows the remaining surplus balance of approximately $57,109. This reserve margin provides a very modest buffer for any unanticipated fluctuations in budget assumptions or adjustments that may arise over the course of the fiscal year.
The City Manager’s recommendations include the following service requests, listed in priority order, with a total estimated cost of $0.8 million to the FY 2025-26 General Fund Budget.
General Fund Service Enhancements:
Additional Revenues:
1. The Senior Services division of Parks, Beaches, and Recreation (PBR) is expecting an increase in the San Mateo County contract as well as participant fees, investing some of that into Senior Program services, leaving a net increase of $15,100 to the General Fund (ongoing)
Expenditure Requests:
1. Shoreline Adaptation Program - $150,000 (One-time)
Supports long-term shoreline adaptation planning, including robust community engagement and technical analysis, as required by the certified Local Coastal Land Use Plan (LCLUP). Additional grant funding will be necessary to augment this effort.
2. District-Based Financing Feasibility Consulting - $50,000 (One-time) Funds specialized consulting services to assess and implement tools such as Enhanced Infrastructure Financing Districts (EIFD), Community Facility Districts (CFD), and Climate Resilience Districts (CRD) to support infrastructure and housing investments.
3. Development Impact Fee & Cost Recovery Study - $100,000 (One-time) Includes an updated Development Impact Fee study, Cost Allocation Plan, and Comprehensive User Fee Study to ensure cost recovery and fee fairness.
4. Economic & Housing Development Reorganization - ($34,200) Reclassifies an existing position and creates a new limited-term specialist role to better support strategic economic and housing priorities. Generates first-year General Fund savings; remaining two-year costs recommended to be covered by the Housing Action Fund.
5. Police Portable Radio Replacement - $157,319 (One-time) Replaces outdated 11-year-old portable radios. Costs to be shared between the General Fund, Risk Management Fund, and Supplemental Law Enforcement Fund.
6. Climate Adaptation and Resiliency Plan (CARP) - $85,000 (One-time) Funds a part-time program manager and an 11-month CivicSpark Fellow to support implementation of climate goals and the CARP Task Force.
7. Triennial Building Code Update - $15,000 (One-time)
Required update to adopt the 2025 California Building Code by the state-mandated deadline of December 31, 2025.
8. Childcare Staffing (Parks, Beaches & Recreation)
Increased revenues from enrollment and state reimbursements will support additional Pacifica City Council 5
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part-time childcare staffing, with no impact to the General Fund for FY 2025-26. (Ongoing)
9. LCLUP Implementation & Zoning Ordinance Update - $70,000 (One-time) Develops an overarching implementation plan and updates zoning regulations to reflect the newly certified LCLUP.
10. Library Modernization Project Support - $50,000 (Ongoing) Continues strategic communications, outreach, and web hosting support through external consultants for the Library Modernization Project.
11. Short-Term Rental (STR) Administration - $75,000 (Ongoing) Covers increased costs for STR program administration, including tax compliance and annual code enforcement inspections, following recent ordinance changes.
12. Motor Pool Fund Replenishment - $200,000 (Ongoing)
Establishes an annual General Fund transfer to gradually rebuild Motor Pool reserves.
While vehicle replacement requests totaling $1.3 million were not funded this year, this strategy positions the City to meet future needs as Public Works continues refining fleet priorities citywide.
Additional information related to these programmatic options is presented in budget forms listed in Attachments 4 through 6 to this staff report.
Unfunded General Fund Requests:
The City Manager does not recommend funding the following General Fund requests in FY 2025-26, due to limited resources and competing priorities. The total estimated cost of these unfunded requests is approximately $1.6 million, as grouped as follows:
· Vehicle Replacements - $1.3 million
Deferred replacement of multiple aging fleet vehicles due to General Fund constraints. · Public Works Compliance Training - $25,000
Additional training budget for Parks, Buildings, and Streets staff to meet updated regulatory standards.
· Human Resources Performance Management Software - $30,000 Would support development and rollout of a citywide performance management and evaluation system.
· Streetlight Maintenance & HVAC Improvements - $90,000 Additional funds for emergency repairs, electrical and system upgrades at City facilities. · Information Technology Analyst - $81,000 (General Fund impact) Would provide increased internal support for cybersecurity, systems administration, and systems support in wastewater.
· Community Development Administrative Assistant - $136,000 Proposed support position to improve workflow and customer service capacity within CDD.
Some of these requests may need to be revisited during the Mid-Year Budget Review, pending further analysis, refined cost estimates, or improved revenue conditions.
Projected Fund Balance Structure and Budgetary Reserves The Proposed FY 2025-26 Operating Budget is being presented as a balanced budget, meaning that the City’s operating expenditures do not exceed general revenues.
If all program options identified in this report are approved by the City Council, and backing out the FY 2025-26 projected contribution to the pension trust of $214,700, the General Fund will Pacifica City Council 6
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project an ending surplus of approximately $57k.
After factoring in the above-mentioned budget options, the General Fund Proposed Budget revenues and transfers-in are projected at $53.2 million. The total General Fund operating expenditures and transfers-out are budgeted at $53.1, and the capital transfer-out remains $50,000. The table below demonstrates the Net change to the General Fund balance.
After applying all the changes described above, the Proposed General Fund Budget will have a $57,109 surplus, leaving $10.1 million in the Unassigned General Fund Balance, which is about
19.1% of the City’s Operating expenditures in addition to 10% or $5.3 million in the minimum policy reserve.
The City’s Fund Balance Policy identifies fund balances (or reserves) that fall into the following categories: non-spendable items or portions of fund balance that cannot be liquidated, restricted amounts for use by outside agencies, committed amounts by Council action such as emergency /contingency reserves and assigned balances to pay off unfunded liabilities and to fund infrastructure improvements.
In accordance with GASB Statement No. 54 requirements and the City policy, the Council established the following designations or contingencies of the General Fund Committed Balance.
Budget Shortfall Policy Reserve of 10% of Expenditures ($5.3 million) VLF Restriction Budget Strategy #2 ($2.3 million) - new strategy in FY 2025-26 Facilities Maintenance & Replacement ($0.2 million)
Compensated Absences Reserve ($0.2 million)
Child Care Reserve ($0.5 million)
Legal Reserves ($0.1 million)
The General Fund balances for the FY 2025-26 Recommended Budget are detailed in the table below. If all options presented in this report are approved by the Council, the City will have a balanced FY 2025-26 Budget with an undesignated General Fund Balance of approximately Pacifica City Council 7
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$10.1 million.
Maintaining a sufficient level of the projected ending fund balance is necessary for fiscal and operational sustainability. After factoring in the restricted reserves and operating contingency, the ending undesignated General Fund balance is projected to be close to $10.1 million or
19.1% of the General Fund operating expenditures (excluding one-time capital transfers), which equates to slightly less than three months of regular operating expenditures and is slightly above the Government Finance Officers Association of the US and Canada (GFOA) minimum recommendation for government entities of no less than two months of regular general fund operating expenditures (approx. $8.8 million for the City of Pacifica in FY2025-26).
Other Funds Program Options:
The City Manager’s FY 2025-26 Budget recommendations for non-General Fund programs are summarized below and further detailed in Attachment 7.
These recommendations include three expense amendments totaling $250,000 and one ongoing adjustment with no net fiscal impact, reflecting the City’s continued focus on targeted strategic investments and operational efficiencies across all fund types.
Other Funds - Recommended Program Options:
1. Housing Action Fund (Fund 221). Master Planning and Implementation for Public Sites - $150,000 (One-time)
Required under Housing Element Program HE-I-3, this effort will evaluate the feasibility Pacifica City Council 8
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of developing City-owned land to support future housing production.
2. Housing Action Fund (Fund 221): On-Call Services for Housing Element Implementation - $100,000 (One-time)
Provides technical and policy support to advance Housing Element implementation and ensure compliance with state mandates.
3. Wastewater Fund (Fund 518): Hurricane Vacuum Rental - Net Zero (Ongoing) Adds a recurring expense for vacuum equipment rental, offset by a reduction in overtime costs. This operational change improves efficiency in wastewater system maintenance and has no net budget impact.
Additional information about these budget options can be found in Attachment 6 to this report.
During the annual budget process, the City often receives requests from community organizations or other governmental or non-governmental organizations for financial support.
The Recommended Budget already includes the following community organization funding:
Pacifica Resource Center ($100k), Pacific Beach Coaltion ($10k), and Coastside Pride ($5k).
While not included in the City Manager’s FY 2025-26 Recommended Budget, the Council may consider the following fundings:
• OneShoreline - $40,000
The City has received a 3-year, $120,000, request to support regional efforts related to climate resilience and sea-level rise adaptation, coordinated through the San Mateo County Flood and Sea Level Rise Resiliency District (OneShoreline). The City Manager has not included this funding in the Recommended Budget at this time, given the City’s current fiscal condition. However, if the City Council chooses to include funding for OneShoreline, the City Manager recommends including only the first year at $40,000, in order to see how OneShoreline’s efforts may add value to Pacifica’s specific climate resilience priorities, and then make a determination about future years of funding during budget approval for future years and depending on alignment of priorities. • Fog Fest
Although the City has not received a request for the City’s potential contribution to support this annual community festival, some Councilmembers raised this topic during Budget Session 2. Given the City’s current fiscal condition, funding is not included in the proposed budget at this time.
Alternative Funding Strategies for Council Consideration Should the Council wish to fund any additional service enhancements or community priorities not currently included in the FY 2025-26 Proposed Budget, the following policy-level adjustments may be considered as potential funding trade-offs. Each would require reallocation of existing resources or reprioritization of current commitments:
• Fire Equipment Fund Allocation - The General Fund currently contributes $100,000 annually to this fund to prepare for future Fire equipment replacement costs, including fire turnout gear replacement in FY 2027-28 and SCBA (Self-Contained Breathing Apparatus) replacements in approximately six years.
• OPEB Trust Contribution - The proposed budget includes an annual General Fund allocation of $283,750 to build reserves for the City’s Other Post-Employment Benefits (OPEB) liability. Council could consider deferring or reducing this contribution. • ERAF Allocation to Other Non-Governmental Organizations (NGOs) - The base budget includes $115,000 in ERAF funding to support local nonprofit partners such as PRC, PBC, and Coast Pride. Council may choose to modify or redirect these allocations to other priorities.
Capital Improvement Program 2025-30:
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The five-year Capital Improvement Program (CIP) was introduced to Council at the Budget Study Session 2 on May 12, 2025, outlining the City's infrastructure priorities and planned capital investments. Following that presentation, the draft CIP was reviewed by the Planning Commission on June 2, 2025, for consistency with the City’s General Plan.
Attachment 9 - FY 2025-30 Capital Improvement Program provides a comprehensive overview of planned infrastructure projects and reflects Council’s strategic priorities and community needs.
The CIP is intended to ensure that Pacifica’s public facilities and infrastructure are safe, functional, and positioned to serve both residents and visitors for years to come.
The following information is being provided as a follow-up from Council direction at the May 12 Budget Session 2:
• Sewer Lateral Grant Program: Attachment 10 - Lateral Grant Program Memo includes details on the City’s existing grant program, which offers incentives to residents for replacing privately owned sewer laterals, helping to reduce infiltration and protect the City's wastewater system.
• Rockaway Bridge Replacement Project: This project has been added to the list of unfunded CIP needs based on Council request and reflects the City’s ongoing efforts to address aging and vulnerable infrastructure. Grant funding is being sought for this project.
The final 5-year CIP document will be brought forward for adoption on June 23, 2025.
ALTERNATIVE ACTION:
The City Council has been asked to provide input and direction on the FY2025-26 Proposed Budget. No alternative action is identified.
RELATION TO CITY COUNCIL GOALS AND WORK PLAN:
A balanced and structurally sustainable budget is consistent with all City Council strategic goals and ensure that City-wide revenue meets the cost of providing City-wide services.
FISCAL IMPACT:
Because the recommendation is to review and discuss budget options, no direct fiscal impact is associated with this item. City Council direction on the proposed budget options will be factored in the FY 2025-26 Budget document that will be brought forward for adoption on June 23, 2025.
ORIGINATED BY:
City Manager's Office
ATTACHMENT LIST:
Attachment 1 - FY 2025-26 Recommended Budget Options (PDF) Attachment 2 - FY 2025-26 Recommended Budget General Fund Revenues (PDF) Attachment 3 - FY 2025-26 Recommended Budget General Fund Expenditures (PDF) Attachment 4 - FY 2025-26 Recommended Revenue Amendment Options - Budget Forms (PDF)
Pacifica City Council 10 June 09, 2025
Attachment 5 - FY 2025-26 Recommended Expenditure Amendment Options - Budget Forms (PDF)
Attachment 6 - FY 2025-26 Recommended Transfer Budget Options - Budget Forms (PDF) Attachment 7 - FY 2025-26 Recommended Other Funds Budget Options - Budget Forms(PDF) Attachment 8 - FY 2025-26 Projected Fund Balance Schedule (PDF) Attachment 9 - CIP 2025-2030 Budget Study Session 3 Draft (PDF) Attachment 10 - Lateral Grant Program Memo (PDF)