City of Sacramento
Budget and Audit Committee Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2025-01557 9/16/2025
Review of Proposed Budget Policies and Processes and Discussion of a Two-Year Budget Process
File ID: 2025-01557
Location: Citywide
Recommendation: 1) Review the proposed budget policies and processes; 2) Discuss the development of a two-year budget process; and 3) Pass a Motion forwarding to the City Council for adoption.
Contact: Peter Coletto, Director of Finance, (916) 808-5416, [email protected]; Mirthala Santizo, Budget Manager, (916) 808-5078, [email protected]; Department of Finance
Presenter: Peter Coletto, Director of Finance, (916) 808-5416, [email protected]; Mirthala Santizo, Budget Manager, (916) 808-5078, [email protected]; Department of Finance
Attachments:
1-Description/Analysis
Description/Analysis
Issue Detail: The City is facing significant financial challenges. As shown in the Fiscal Year (FY) 2025/26 Approved Budget five-year forecast below, the City’s budget is facing a structural deficit with the pace of expense growth exceeding revenue growth over the next five years. Both the FY2024/25 Budget and FY2025/26 Approved Budget (Budget) decreased the size of the structural deficit, but deficits are still forecasted in future years.
5-Year Forecast
General Fund ($ in 000s)
FY2025/26
Proposed
FY2026/27
Projection
FY2027/28
Projection
FY2028/29
Projection
FY2029/30
Projection
BEGINNING AVAILABLE FUND BALANCE 12 488 - - - Revenues
Revenues 838,742 851,643 869,393 885,136 900,669 Other Sources 18,150 15,488 15,181 15,407 15,637 Total Revenues/Resources 856,892 867,131 884,574 900,542 916,306 Expenditures
Department Operating, Debt, and MYOPs 860,789 868,346 895,763 929,226 948,862 Capital Projects 15,835 15,740 15,211 15,191 15,191 Federal Funding Loss Contingency 3,738 - - - - EUR Contribution - 4,396 4,530 4,696 4,792 Total Expenditures/Uses 880,362 888,481 915,504 949,113 968,845 Surplus/(Deficit) (23,469) (21,351) (30,930) (48,570) (52,538) Other Sources/(Uses)
Reserve for Future Budget Development (FY2023/24) 26,807 - - - - FY2024/25 Vacancy Factor 6,467 6,596 6,728 6,863 7,000 Total Other Sources/(Uses) 33,274 6,596 6,728 6,863 7,000 Voter-Approved Spending
Measure L (9,329) (9,329) (9,329) (9,329) (9,329) Total Voter-Approved Spending (9,329) (9,329) (9,329) (9,329) (9,329) Surplus/(Deficit) with Other Sources 476 (24,083) (33,530) (51,036) (54,867) Homeless Services
General Fund Support 35,304 11,507 11,555 11,604 11,653 Homeless Housing, Assistance, and Prevention Program (HHAP-6) 12,896 - - - - Homeless Services Programming (48,201) (48,304) (48,408) (48,892) (49,381) Total Homeless Services - (36,797) (36,853) (37,288) (37,728) Surplus/(Deficit) with Homeless Services 476 (60,880) (70,383) (88,325) (92,595) ENDING AVAILABLE FUND BALANCE WITH HOMELESS SERVICES 488 (60,392) (70,383) (88,325) (92,595)
File ID: 2025-01557 9/16/2025
5-Year Forecast
General Fund ($ in 000s)
FY2025/26
Proposed
FY2026/27
Projection
FY2027/28
Projection
FY2028/29
Projection
FY2029/30
Projection
BEGINNING AVAILABLE FUND BALANCE 12 488 - - - Revenues
Revenues 838,742 851,643 869,393 885,136 900,669 Other Sources 18,150 15,488 15,181 15,407 15,637 Total Revenues/Resources 856,892 867,131 884,574 900,542 916,306 Expenditures
Department Operating, Debt, and MYOPs 860,789 868,346 895,763 929,226 948,862 Capital Projects 15,835 15,740 15,211 15,191 15,191 Federal Funding Loss Contingency 3,738 - - - - EUR Contribution - 4,396 4,530 4,696 4,792 Total Expenditures/Uses 880,362 888,481 915,504 949,113 968,845 Surplus/(Deficit) (23,469) (21,351) (30,930) (48,570) (52,538) Other Sources/(Uses)
Reserve for Future Budget Development (FY2023/24) 26,807 - - - - FY2024/25 Vacancy Factor 6,467 6,596 6,728 6,863 7,000 Total Other Sources/(Uses) 33,274 6,596 6,728 6,863 7,000 Voter-Approved Spending
Measure L (9,329) (9,329) (9,329) (9,329) (9,329) Total Voter-Approved Spending (9,329) (9,329) (9,329) (9,329) (9,329) Surplus/(Deficit) with Other Sources 476 (24,083) (33,530) (51,036) (54,867) Homeless Services
General Fund Support 35,304 11,507 11,555 11,604 11,653 Homeless Housing, Assistance, and Prevention Program (HHAP-6) 12,896 - - - - Homeless Services Programming (48,201) (48,304) (48,408) (48,892) (49,381) Total Homeless Services - (36,797) (36,853) (37,288) (37,728) Surplus/(Deficit) with Homeless Services 476 (60,880) (70,383) (88,325) (92,595) ENDING AVAILABLE FUND BALANCE WITH HOMELESS SERVICES 488 (60,392) (70,383) (88,325) (92,595) To address the structural deficit issues and provide transparency for Council and the public, staff is proposing the adoption of the following policies and procedures for FY2026/27 Budget development.
In addition, considerations regarding balancing the year following the budget year are presented for Committee discussion.
City Charter - Budget Guidelines:
As stated in City Charter, Article IX Section 111, “each department, office and agency of the city shall provide in the form and at the time directed by the city manager all information required by the city manager to develop a budget conforming to modern budget practices and procedures as well as specific information which may be prescribed by the council.” The City’s budget process requires departments to submit all budget change proposals for review and consideration by the City Manager, which include both augmentations and reductions. All City departments, including Charter
File ID: 2025-01557 9/16/2025
and appointed offices, should follow process provided by the Budget Division.
FY 2026/27 Budget Development Policy:
As in the prior two budget cycles, staff will request departments submit reduction plans, with the total amount of reductions submitted across all City departments being greater than the projected budget deficit in order to give Council a menu of reduction options. To achieve that goal, the City will follow the following guidelines:
· All City departments, including Charter and appointed offices, will submit budget balancing strategies totaling 15% of net General Fund (including Measure U) use in their FY2025/26 Budget to the City’s Budget Division.
· Budget reduction strategies should seek to minimize, to the extent possible, service impacts to residents.
· All City departments, including Charter and appointed offices, will follow the timelines and instructions provided by the Budget Division.
This approach will ensure all proposed changes are analyzed and reviewed in a consistent manner and provide Council with the information needed to make budget decisions.
Council Amendments to the Proposed Budget:
Staff recommends that Councilmember proposals for amendments to the Proposed Budget be submitted in memo form to the Council and City Manager by the end of the first Council budget hearing. This will allow staff to provide a fiscal analysis of the proposal, publish the memos as attachments to the staff report for the next budget hearing, and allow staff to create summaries of all proposals for Council to discuss and deliberate in the following budget hearing. This process will allow each Councilmember and the public to view all the proposals along with staff analysis.
Two-Year Budget Development:
During the FY2025/26 budget process, there was a request to discuss the development of a two-year budget process. Due to the level of planning and resources required and current technology infrastructure, conducting a two-year budget for the upcoming budget cycle would be extremely difficult to achieve. However, there are several alternative options to consider if Council would like to balance the fiscal year after the Proposed Budget fiscal year:
· Option 1 - Balance the entire second-year budget: This could be achieved by approving
File ID: 2025-01557 9/16/2025
additional reductions to be implemented in the second-year budget with unused reduction strategies from the Proposed Budget OR approve ongoing reductions in the Proposed budget to fully balance the second year.
· Option 2 - Determine a deficit percentage threshold for the second-year budget: Instead of attempting to balance the entire second-year budget, there would be a percentage threshold that the deficit must be under. For example, if the percentage threshold is 2% and the General Fund budget is $900 million, then the second-year budget cannot be in deficit by more than $18 million.
· Option 3 - Do not implement second-year budget reductions at this time.
FY2026/27 Budget Hearing Schedule:
Below is a draft schedule of the FY2026/27 Budget hearings. The proposed schedule addresses Council’s recommendations from the previous budget cycle.
Date Time
Legislative
Body Subject
Proposed Budget
Tuesday, March 3, 2026 2:00 PM City Council Department presentations Tuesday, March 10, 2026 2:00 PM City Council Department presentations Tuesday, March 17, 2026 2:00 PM City Council Department presentations Tuesday, March 24, 2026 2:00 PM City Council Department presentations Week of April 28, 2026 TBD n/a FY2026/27 Budget Release Tuesday, May 5, 2026 11:00 AM Budget and
Audit Committee
Fees & Charges
Tuesday, May 5, 2026 5:00 PM City Council (1) FY2026/27 Proposed Budget Overview and (2) Assistant City Manager presentations
(Community Services, Internal Services,
Municipal Services and Public Safety)
Tuesday, May 12, 2026 2:00 PM City Council (1) 2026-2031 Capital Improvement Program, (2) Citywide Fees and Charges
(3) Budget Equity Lens
Tuesday, May 12, 2026 5:00 PM City Council FY2026/27 Proposed budget deliberations and Council direction
Tuesday, May 19, 2026 5:00 PM City Council HOLD
Tuesday, May 26, 2026 11:00 AM Budget and
Audit Committee
Adoption of the FY2026/27 Budget
Tuesday, June 9, 2026 5:00 PM City Council Adoption of the FY2026/27 Budget 1 Schedule is subject to change, refer to agendas at: http://sacramento.granicus.com/ViewPublisher.php?view_id=21 2026 Budget Hearing Schedule
1
File ID: 2025-01557 9/16/2025
Date Time
Legislative
Body Subject
Proposed Budget
Tuesday, March 3, 2026 2:00 PM City Council Department presentations Tuesday, March 10, 2026 2:00 PM City Council Department presentations Tuesday, March 17, 2026 2:00 PM City Council Department presentations Tuesday, March 24, 2026 2:00 PM City Council Department presentations Week of April 28, 2026 TBD n/a FY2026/27 Budget Release Tuesday, May 5, 2026 11:00 AM Budget and
Audit Committee
Fees & Charges
Tuesday, May 5, 2026 5:00 PM City Council (1) FY2026/27 Proposed Budget Overview and (2) Assistant City Manager presentations
(Community Services, Internal Services,
Municipal Services and Public Safety)
Tuesday, May 12, 2026 2:00 PM City Council (1) 2026-2031 Capital Improvement Program, (2) Citywide Fees and Charges
(3) Budget Equity Lens
Tuesday, May 12, 2026 5:00 PM City Council FY2026/27 Proposed budget deliberations and Council direction
Tuesday, May 19, 2026 5:00 PM City Council HOLD
Tuesday, May 26, 2026 11:00 AM Budget and
Audit Committee
Adoption of the FY2026/27 Budget
Tuesday, June 9, 2026 5:00 PM City Council Adoption of the FY2026/27 Budget 1 Schedule is subject to change, refer to agendas at: http://sacramento.granicus.com/ViewPublisher.php?view_id=21 2026 Budget Hearing Schedule
1 Policy Considerations: The proposed policies and processes could help to address on-going structural deficits and create more transparency for Council and the public.
Economic Impacts: Not applicable.
Environmental Considerations: California Environmental Quality Act (CEQA): This report concerns administrative activities and government fiscal activities that do not constitute a “project” as defined by CEQA Guidelines section 15378 and California Public Resources Code section 21080 and are not subject to the provisions of CEQA (CEQA Guidelines, §15060(c)(3)). CEQA review for any project which utilizes funds allocated in this report, has been or will be performed in conjunction with planning, design, and approval of each specific project as appropriate.
Sustainability: Not applicable.
File ID: 2025-01557 9/16/2025
Rationale for Recommendation: The proposed policies and processes reflect Council direction and would not only help address structural deficit issues and create more transparency for Council and the public, but it would also create procedural efficiencies. Initiating a discussion for the two-year budget process was requested during the FY2025/26 budget process.
Financial Considerations: The proposed policies and processes and discussion of a two-year budget process will support efforts to move the City’s operating budget back to structural balance, which will help improve the City’s overall fiscal condition.
Local Business Enterprise (LBE): Not applicable.