CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
6/23/2025
1 SUBJECT:
Adoption of the Fiscal Year 2025-26 Operating and Capital Budget.
RECOMMENDED ACTION:
Hold a public hearing, review, and move to adopt the following resolutions:
1. Adopt the resolution approving the FY 2025-26 Operating and Capital Budget;
2. Adopt the resolution establishing the GANN Appropriation Limit for FY 2025-26;
3. Adopt the resolution approving the Citywide Fee Schedule included as Exhibit A to the resolution;
4. Adopt the resolution approving the City's annual review of the Investment Policy included as Exhibit A to the resolution.
STAFF CONTACT:
Kevin Woodhouse, City Manager
[email protected]
650-738-7409
Yulia Carter, Assistant City Manager
[email protected]
650-738-7301
Marisol Gómez, Director of Finance and Administrative Services [email protected]
650-501-0257
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 Study 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 preliminary structural deficit ranging from $2.1 million in the upcoming year to as high as $5.5 million in future years. If this deficit were to be left unaddressed, the forecast indicated 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:
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1. Modify the allocation of Excess Educational Revenue Augmentation Funding (Excess ERAF) to ensure it remains in the General Fund to help address the projected budget deficit.
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 study session, staff introduced the FY 2025-26 Base Budget and FY 2025-30 Capital Improvement Program. The base budget revealed a more refined $3.2 million structural deficit between operating revenues and expenditures at the baseline level of services, 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 uncertain revenues like ERAF exposes the City to long-term financial risk.
As clearly 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.
At the June 9, 2025 budget study session, staff presented to Council the City Manager’s recommended program options for the FY 2025-26 Proposed Budget and received additional policy direction for any additional inclusions in, or changes to, the proposed budget.
Since the last meeting, staff has prepared the final Proposed FY 2025-26 Budget for all city funds. The primary focus of today’s discussion is to provide the Council with the final Proposed FY 2025-26 Operating and Capital Budgets, presented in Attachments 5 and 6, for adoption.
DISCUSSION
The overarching goal of the budget process is to develop a balanced and sustainable Budget by thoroughly analyzing the City's revenue structure and current service levels. This includes analysis of necessary service increases and/or reduction options, which, when combined, will achieve a balanced and sustainable budget, This 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.
Budgetary Reserves and Fund Balance Structure
The Proposed FY 2025-26 Operating and Capital Budget is being presented as a balanced budget, meaning that the City’s operating expenditures do not exceed operating general fund revenues. With the City Manager’s recommended program options included, which were presented in detail at the last meeting, the General Fund will project an ending marginal surplus of about $42,109 largely created by reallocating excess ERAF to the General Fund, one-time debt service payment relief to the General Fund, and backing out the projected contribution to the pension trust. The Proposed Budget also maintains all previously approved reserves necessary for long-term fiscal and operational sustainability.
The General Fund Proposed Budget revenues and transfers-in are projected at $53.18 million.
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The total General expenditures and transfers-out are budgeted at $53.19 million, which includes a one-time General Fund contribution of $50,000 towards the FY 2025-26 CIP Budget for the Annex Lighting project.
The table below demonstrates the Net change to the General Fund Balance.
After incorporating the City Manager’s budget recommendations and the Council’s policy directions from the last budget study session, the Proposed General Fund Budget will have a modest surplus of $42,109, leaving $10.1 million in the Unassigned General Fund Balance. This balance is about 23% of the City’s Operating expenditures, in addition to the 10% or $5.3 million minimum policy reserve, and complies with the Government Finance Officers Association of the US and Canada (GFOA) minimum standards of no less than two months of regular General Fund operating revenues or expenditures, which would be approximately $8.8 million for Pacifica in FY 2025-26.
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.
Under 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)
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Staff is pleased to report that the State Legislature has included San Mateo County’s $114 million FY 2023-24 Vehicle License Fee (VLF) backfill reimbursement in the adopted version of the FY 2025-26 State Budget (SB 101). This represents a significant win for the County and its partner cities. While this funding does not alter the City’s FY 2025-26 Budget, it will eliminate the need to draw from reserves in the upcoming year to cover the potential shortfall previously anticipated. As a result, the assigned designation of the General Fund reserve balance listed above will remain intact, although will remain in the assigned budgetary reserves for the upcoming year to maintain fiscal prudence. The City has submitted a support letter to the Governor encouraging his signature to ensure final approval of this critical funding.
The Recommended FY 2025-26 Budget is balanced and includes an undesignated General Fund Balance of $10.1 million in addition to the rest of the General Fund balances, as detailed in the table below.
Maintaining a sufficient level of the projected ending fund balance is necessary for the City’s fiscal and operational sustainability.
Other Funds
Staff used the same basic assumptions for all other funds to factor in the cost-of-living increase for most contract and professional services and materials and supply categories, as well as proposed program options, as discussed at the last meeting. The summary of Revenues, Expenditures, and Fund Balances for the City’s fund categories is shown in the table below and further described in Attachment 7. Revenues under expenditures for the Enterprise Fund reflect the uses of the available fund balance for one-time needs (e.g., capital investments in Wastewater infrastructure).
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Following the City Council’s discussion at the last budget study session, and in response to concerns regarding proposed funding policy changes and expenditures for the Housing Action Fund, staff conducted further analysis, specifically reviewing the current status of previously approved projects and associated encumbrances. This review included the $423,000 allocation approved in FY 2024-25 to support the implementation of the City’s Housing Element programs, such as rezoning, zoning code updates, ADU monitoring, and shared housing resources. As a result, the proposed FY 2025-26 appropriations have been reduced to reflect only remaining encumbrances and carryover activities, resulting in a nearly $0.3 million reduction to the base budget, plus the program requests related to the reorganization of the Economic and Housing Development program and housing initiatives discussed during the last study session.
Other Matters (Action Items):
GANN Appropriation Limit
The City is required by the State Constitution to annually establish and adhere to a limit on the amount of its appropriations. Such limit is prescribed by a State formula calculated by taking the prior year's limit and applying growth factors as appropriate. The growth factors are determined by 1) the change in population in either the City or the County and 2) the change in per capita income or non-residential new construction. For the Fiscal Year 2025-26, staff has calculated that the appropriations limit is $58.0 million. Per the Recommended FY 2025-26 Budget, the City expects to collect and has budgeted to appropriate $42.7 million, which is 26.4% or $15.3 million below the appropriations limit (Attachment 2).
Investment Policy
Following the CA Government Code requirement for annual review of the Investment Policy, staff is bringing the City's Investment Policy to the City Council together with the budget to satisfy this requirement. There are no changes to the Investment Policy recommended at this time. The Investment Policy is included in Attachment 4 to this report.
Citywide Fee Schedule & Charges
The Citywide Fee Schedule, which includes all City user fees, charges for services, and business license tax rates, is revised annually, as required by Pacifica Administrative Policy No.2. The proposed Citywide Fee Schedule for FY 2025-26 is provided as Attachment 3 to this report.
Some fees charged for City services are set at a flat dollar amount meeting the consistency benchmark with the neighboring agencies and the community's needs (i.e., recreation class fees). At the same time, others may result from a comprehensive study and also depend on the amount of time spent on services (i.e., development review).
The last Cost Allocation Plan and Fee Study was last developed in 2013 and has been used as a budget baseline since then, adjusted annually by Consumer Price Index (CPI) or Construction Cost Index (CCI) where applicable. Since an update of the Cost Allocation Plan, Development Pacifica City Council 6
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Impact Fees, and Citywide Fee Schedule project is included in the FY 2025-26 work plan, there were no substantial changes to the Citywide Fee Schedule other than the annual increase by the CPI of 2.4% this year derived from the December 2024 Consumer Price Index from the U.S.
Bureau of Statistics for the Western Metropolitan Area (San Francisco-Oakland-Hayward). The CCI as of December 2024 derived from the Engineering News Record (ENR) had no increase over the previous year, but experienced deflation at -0.7%, thus the fees subject to CCI remained flat.
Conclusion
In conclusion, the FY2025-26 Proposed Budget is presented as a balanced, transparent, and prudent financial plan that reflects significant efforts to preserve and deliver critical programs and services for the Pacifica community.
While the budget is balanced for the coming year, the City continues to face long-term structural challenges, including the need for sustainable strategies to address future staffing levels, infrastructure investments, and service delivery. In response, the City needs to focus not only on maintaining fiscal discipline and operational efficiency, but also on pursuing strategic revenuegenerating initiatives, both in the upcoming fiscal year and over the longer term. These efforts will include evaluating potential funding tools, implementing appropriate fee structures, optimizing existing resources, and identifying new revenue opportunities to enhance the City’s financial resilience and sustainability. Staff looks forward to collaborating with the City Council and the community to address these challenges and ensure that Pacifica remains a vibrant and desirable place to live, work, and play.
ALTERNATIVE ACTION:
The City Council is being asked to adopt the FY 2025-26 Proposed Operating and Capital Improvement Program Budget, establish the GANN appropriation limit, and approve the Citywide Fee Schedule and the unmodified Investment Policy. No alternative action is identified.
RELATION TO CITY COUNCIL GOALS AND WORK PLAN:
A balanced budget is consistent with all City Council goals.
FISCAL IMPACT:
The FY 2025-26 Recommended Budget is balanced. The General Fund Operating Revenues Budget is $53.18 million and slightly exceeds the General Fund Operating Expenditures Budget of $53.14 million. General Fund capital expenditures consist of $50,000 in a one-time transfer toward the CIP program. The FY 2025-26, Other Funds revenues and expenditures total $41.0 million and $57.5 million, respectively, and include the FY 2025-26 Capital Improvement Plan (CIP) budget of $22.7 million, which is partially funded by one-time use of various fund reserves and outside funding sources.
ORIGINATED BY:
City Manager's Office
ATTACHMENT LIST:
Attachment 1 Resolution Adopting the FY 2025-26 Operating and Capital Budget (PDF) Pacifica City Council 7
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Attachment 2 Resolution Establishing GANN Appropriation Limit for FY2025-26 (PDF) Attachment 3 Resolution approving the Citywide Fee Schedule for FY2025-26 (PDF) Attachment 4 Resolution Approving the City’s annual review of the Investment Policy (no changes for FY 2025-26) (PDF)
Attachment 5 FY 2025-26 Operating Budget(PDF)
Attachment 6 FY 2025-30 Capital Improvement Program Budget (PDF) Attachment 7 FY 2025-26 Fund Balance Summary (PDF)