CITY COUNCIL STAFF REPORT
Meeting Date: May 18, 2026
TO: THE HONORABLE MAYOR AND CITY COUNCILMEMBERS
TITLE: PRELIMINARY GENERAL FUND BIENNIAL BUDGET FOR
FISCAL YEARS 2026-2026 AND 2027-2028
Background
The City of Pleasant Hill operates on a biennial budget and has prepared a Preliminary General Fund Biennial Budget for Fiscal Years 2026/2027 (FY 26/27) and 2027/2028 (FY 27/28). The preliminary biennial budget incorporates proposals from the City’s departments and divisions and consultants on major revenue sources and projects, based on the City Council’s Goals Setting Workshop. The Preliminary General Fund Biennial Budget was presented to the Budget Committee on April 30, 2026, for committee members’ review and input. The City must adopt a biennial budget by June 30th to appropriate public funds, which provide legal authority to expend these funds.
Analysis
GENERAL FUND HISTORY
The General Fund (excluding Measure K) balance over the last several fiscal years has increased to $16.2 million as of June 30, 2025. This has mainly been due to revenues slightly outpacing expenditures over the last ten years. Between FY 15/16 and FY 24/25 the average revenue increase was approximately 4.4% and average expenditure was approximately 4.3% as shown in the tables below.
Ten Year General Fund Summary:
In previous fiscal years, the General Fund had seen historic increases in sales and property tax revenues, but both of those major revenue sources have slowed down in recent years. Sales tax revenues have actually slightly declined the last couple of fiscal years after receiving an infusion of federal funding and increased purchasing power due to savings during the pandemic, which could not be maintained. Property tax revenues have slowed, as rising interest rates have cooled home sales even though assessed values of single-family homes remain near historic highs.
Ten Year General Fund Revenue History:
Expenditures have also continued to increase, except during the peak of the pandemic in FY 20/21.
The City has managed to contain those costs that are within its control by reviewing proposed appropriations and adjusting and/or freezing vacant positions due to staff departures and/or retirements. There are two areas over which the City has minimal control that have seen the largest increases: Insurance premiums and PERS Unfunded Actuarial Liability (UAL).
Ten Year General Fund Expenditure History:
Insurance costs have increased substantially over the last decade from $0.5 million to $1.9 million in FY 24/25. The rise in premiums is attributable to the lack of legal dollar limits on settlements in claims filed against cities, as well as environmental issues, such as wildfires causing damage throughout the state. These conditions have driven up costs to consumers, as insurance providers require more funds.
The other major cost center where the City has minimal control over is the PERS UAL, which has grown from $1.3 million or 6% of total expenditures in FY 15/16 to $4.6 million or 14% of total expenditures in FY 24/25. As reflected in the preliminary biennial budget, the PERS UAL obligation will continue to grow to nearly $6.0 million in FY 27/28. After adjusting expenditures in the table below to exclude the PERS UAL, the average annual cost increase was 3.5%.
PRELIMINARY GENERAL FUND BIENNIAL BUDGET
The General Fund (excluding Measure K) Preliminary Budget for FY 26/27 – FY 27/28 is attached for the City Council’s review and comments. The preliminary budget assumes maintaining current service levels and programs and additional actions approved by the City Council through Goal Setting. The budget incorporates revenues and expenditures assumptions consistent with the LongTerm Financial Plan Update FY 24/25 through FY 28/29 and City consultants’ projections and analysis. Overall, the City is expecting that General Fund revenues will total $32.2 million in FY 26/27 and increase to $33.0 million in FY 27/28. General Fund expenditures, including the PERS UAL costs, are higher than revenues totaling $36.6 million in FY 26/27 and $38.0 million in FY 27/28. The preliminary budget is projecting that the General Fund Balance will be $9.8 million in FY 26/27 and $4.8 million in FY 27/28. The table below provides a summary of the General Fund:
Table 1
GENERAL FUND REVENUES (excluding Measure K)
The General Fund preliminary budgeted revenues for FY 26/27 are projected at $32.1 million and for FY 27/28 are projected at $33.0 million. A summary is provided below.
Table 2
Property Tax
Property tax revenue is the City’s second largest revenue source and represents 30% of total General Fund revenue. Based on consultation with HdL, the City’s experienced property tax consultant, property tax revenue is expected to grow to $9.5 million, an increase of 2.0% in FY 26/27; and $9.9 million, an increase of 3.3% in FY 27/28. The increase each year is due to higher assessed valuations on residential properties, which is offset by fewer home sales (given higher interest rates) and reassessments of commercial property to a lower value.
Sales Tax
Sales tax revenue is the City’s largest revenue source and represents 34% of total General Fund revenue. Based on projections provided by both HdL and the City’s Economic Development Manager, sales tax is projected to be $10.9 million in FY 26/27, with an increase to $11.2 million in FY 27/28. The assumption is based on the City’s past historical spending patterns, adjusting for online sales after the Supreme Court’s South Dakota v. Wayfair Inc. decision, inflation, and the existing mixture of retail.
Transient Occupancy Tax
The City has seven hotels, which collect and remit a 10% transient occupancy tax. This category of revenue has been level the last few fiscal years at $2.2 million, but appears to be closer to $2.1 million in FY 25/26. The preliminary biennial budget maintains this level at $2.1 million for both FY 26/27 and FY 27/28. This revenue source has not recovered to pre-pandemic levels of $2.5 million due to changes in travel for business and leisure.
Other Taxes and Assessments
Other Taxes and Assessments consist of mainly business license tax and minimal utility user tax.
In the preliminary biennial budget, business license tax is proposed to be $3.5 million and $3.6 million for the FY 26/27 and FY 27/28 budget, respectively. The growth is based on a 3% growth rate since the tax grows based on CPI.
Licenses and Permits
The revenue in this category comes from permits and fees collected. This category includes building, electrical, plumbing, and energy permits, primarily generated from construction-related activity. The preliminary biennial budget for permit and fee revenue for FY 26/27 is $1.7 million and $1.8 million for FY 27/28, assuming an annual 3% CPI growth rate.
GENERAL FUND EXPENDITURES (excluding Measure K)
General Fund preliminary expenditures for FY 26/27 are projected to be $36.6 million and $38.0 million for FY 27/28. A summary of expenditures is provided below:
General Fund Expenditures by Category
Table 3
General Fund Expenditures by Department
Table 4
Salaries and Benefits
The City’s largest expenditure is the salaries and benefits for the staff that serve the residents, businesses, and visitors. The cost is approximately 61%-62% for both fiscal years, and our largest staffed departments are the Police Department and Public Works Department. The preliminary budget assumes 3.25% growth in salaries and 6% for medical benefits consistent with the Updated Long-Term Financial Plan. Salaries and benefits in the preliminary biennial budget for FY 26/27 and FY 27/28 are $22.6 million and $23.4 million, respectively.
Unfunded PERS Liability
The City provides a pension benefit to current employees and retirees based on years of service.
The benefit payments along with the assumptions and contributions are determined by the California Public Employees’ Retirement System (PERS). The City has made and continues to make the required annual contributions to PERS for this liability based on PERS’ investment returns and assumption changes. The City has minimal control over PERS, and to make any significant changes would require the majority of the State Legislature to pass new legislation. The PERS UAL is the annual contribution amount to fully fund the pension over time and has continued to grow. As shown in the tables above, the amount will continue to grow from $5.1 million in FY 25/26 to $5.5 million in FY 26/27 and $6.0 million in FY 27/28.
Professional and Contract Services
This category includes expenditures from contractual specialized services such as legal, auditing, engineering, and contracted animal control services. Professional and Contract Services in the preliminary biennial budget for FY 26/27 and FY 27/28 are $2.5 million each.
Supplies and Materials & Utilities & Maintenance
This category includes expenditures for software licenses, as well as maintenance and utilities costs for all city facilities (City Hall, Corporation Yard, and Police Department). The preliminary biennial budget in Supplies and Materials, Utilities & Maintenance for FY 26/27 and FY 27/28 is $2.3 million and $2.4 million, respectively.
Insurance Costs
The City is a member of the Municipal Pooling Authority (MPA), a joint powers authority that provides self-insurance and insurance coverage against the risk of losses. MPA provides coverage from general liability, employment liability, workers compensation, cyber risk, vehicle, and property loss. The proposed biennial budget for FY 26/27 and FY 27/28 is $1.4 million and $1.5 million, respectively. The majority of the costs include the insurance premiums with preliminary estimates from MPA for FY 26/27 of $1.2 million for general liability and property and workers compensation of $0.8 million, which is slightly less than the previous year. Unfortunately, MPA has recently notified members that insurance carriers for excess insurance and workers compensation insurance have indicated higher premiums than their preliminary estimates. The revised amounts are not yet available, and the preliminary budget will need to be amended once the information is received.
Transfers
This category includes expenditures to transfer funds from the General Fund for capital improvements of city facilities (i.e. roof repair), vehicles (i.e. police cars), or technology (i.e. laptops, servers). Transfers in the preliminary biennial budget for FY 26/27 and FY 27/28 are $1.0 million each.
BUDGET COMITTEE
The Preliminary General Fund Biennial Budget was presented to the Budget Committee on April 30, 2026, for committee members’ review and input. The Budget Committee provided staff input and follow up including other funding options. Staff stated that these have been generally discussed in the previous Long Term Financial Plans. The following are the options presented in Updated Long Term Financial Plan (p.34), with the first two suggestion already addressed:
• Continue to aggressively seek regional, state, and federal funding – The City continues to do this, but most grant funding is capital in nature and one-time occurrences. These funds (i.e. Contra Costa Transportation Authority - Measure J and Metropolitan Transportation Commission - Transportation Development Act Funds) are mainly used for capital projects and not general operations but eligible to be expended for staff time associated with those projects.
• Update Fees and Cost Allocation to Special Revenues – The Master Fee Schedule is updated annually to account for cost of living; the City completed a comprehensive fee study in 2024 for full cost recovery. Staff also reviews the eligibility to allocate costs to other funding sources such as Gas Tax Funds or National Pollution Discharge Elimination Systems (NPDES) Funds, which would reduce the burden on the General Fund. • Revenue Enhancements – Additional revenue enhancements such as a parcel tax, property transfer tax, or sales tax, would require additional steps and placement on the ballot for voters to decide.
FISCAL IMPACT
None
PUBLIC CONTACT
Public Contact was made through posting of the City Council agenda on the City’s official notice bulletin board, at the Pleasant Hill Senior Center, and at the Pleasant Hill Police Department. The agenda and staff report are posted on the City’s web page.
RECOMMENDED CITY COUNCIL ACTION
Provide feedback to City staff regarding the General Fund Preliminary Biennial Budget for Fiscal Years 2026/2027 and 2027/2028.
ATTACHMENT(S)
General Fund Revenue and Expenditure Summary
General Fund Revenue and Expenditure Detail
Prepared by: Erick Cheung, Chief Financial Officer
Approved by: Ethan Bindernagel, City Manager