City of Sacramento
City Council - 2PM Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2026-00630 3/10/2026
Second Quarter Financial Report - Fiscal Year (FY) 2025/26 File ID: 2026-00630
Location: Citywide
Recommendation: Receive and file.
Contact: Mirthala Santizo, Budget Manager, (916) 808-5078, [email protected], Department of Finance
Presenter: None
Attachments:
1-Description/Analysis
2-Second Quarter Financial Report
Description/Analysis
Issue Detail: The purpose of the quarterly report is to provide the City Council with timely information regarding the City’s current financial condition. The attached report provides an update on the City’s major revenues and department expenditures through the second quarter of FY2025/26 (Attachment 1).
Policy Considerations: The quarterly financial reporting to the City Council is intended to provide an overview of the City’s financial status consistent with Section 61 of the City Charter.
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 the CEQA Guidelines Sections 15378(b)(2) and 15378(b)(4) 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.
File ID: 2026-00630 3/10/2026
Sustainability: Not applicable.
Commission/Committee Action: Not applicable.
Rationale for Recommendation: The City Manager is responsible for reporting in accordance with the authority granted by Section 61 of the City Charter.
Financial Considerations: The quarterly report reflects the City’s continuing need to actively monitor revenues and manage expenditures. Finance staff will continue to work with all department staff toward achieving budgetary goals over the remainder of the fiscal year.
Local Business Enterprise (LBE): No goods or services are being purchased under this report.
Exhibit A
Quarterly Financial Report Quarter Ended 12/31/2025
1 OVERVIEW
The Fiscal Year (FY) 2025/26 Approved Budget
(Budget) includes $1.7 billion and 4,984.83 authorized
full-time equivalent (FTE) positions from all funding
sources. The breakdown is as follows:
General Fund1 - $873 million and 3,735.06 FTE
Enterprise Funds2 - $460 million and 946.78 FTE
Internal Service Funds3 - $147 million and 118.00 FTE Other Governmental Funds4 - $195 million and 184.99
FTE
GENERAL FUND
The following graphs represent the City’s General Fund
approved revenue and expenditure budgets for
FY2025/26.
FY2025/26 General Fund Revenues
$838.7 Million
1 General Fund - the City’s principal operating fund s, including Measure U Fund, supported by taxes and fees.
2 Enterprise Funds - operations supported through user fees including the Community Center, Parking, Solid Waste, Storm Drainage, Wastewater, and Water Funds.
3 Internal Service Funds - internal operations, e.g., Fleet Management and Risk.
FY2025/26 General Fund Expenditures
$872.5 Million
Charter: City Attorney, Auditor, Clerk, Manager, and Treasurer Operations: Community Development , Community Response, Convention and Cultural Services, Public Works, Utilities, Youth, Parks & Community Enrichment
Support: Finance, Human Resources, and Information Technology Citywide: Debt, Property Taxes, and Insurance
General Fund Financial Condition
The follo wing chart reflects the Budget and actual
expenditures for all activities in the General Fund (e.g., department operations, debt service, capital projects)
through December 31, 2025.
The development of the Budget remained challenging
as the City continues to address a structural deficit
driven by rising labor costs, inflationary pressures, and 4 Other Governmental Funds - activities associated with specific revenues and/or reimbursements that are restricted to expenditures for specific purposes, e.g., Gas Tax Fund, Operating Grant Fund, Library Parcel Tax Fund.
Exhibit A
Quarterly Financial Report Quarter Ended 12/31/2025
2 the expiration of one -time federal resources that had supported expanded service levels. The Budget reflects
a measured approach to closing the gap through a
combination of ongoing and one-time solutions, with an
emphasis on protecting core services and avoiding
layoffs. Departments implemented targeted reductions
that prioritized operational effi ciencies and service
delivery, while Council made strategic adjustments to
sustain small business relief, youth and equity
programs, and community safety initiatives. The City
remains focused on achieving long -term structural
balance through disciplined co st management,
proactive revenue strategies, and continued alignment
of resources with Council priorities.
Department Projections
The following charts present the estimated variance of
budget to projected year -end results for the General
Fund Departments:
Departments projecting a net deficit (combined year -
end revenue and expenditure variances exceeding $1
million) have been highlighted in the chart above and
have provided the following summary explanations.
Fire. The projected net deficit of $ 5.1 million is driven by overtime expenses associated with the extended fire
season during Quarter 1 and ongoing staffing
shortages, including 43 injury-on-duty cases that have
increased backfill and mandatory overtime
requirements. This is an increase of 39% injury-on-duty cases over Quarter 1. These factors have placed
additonal pressure on labor costs during the second
quarter. The deficit is also due to overages in Services and Supplies related to ongoing annual contracts and
mandated payments, including the Sacramento
Regional Fire/Emergency Management Services (EMS)
Communication Center and Medic Ambulance Basic
Life Support (BLS) services needed to sustain
operations and response capacity. While a projected
revenue surplus is partially offsetting these overages, the department anticipates additional revenue from
Fees and Charges to help further mitigate impacts by
year-end.
Police. The projected net deficit of $ 3.1 million is
primarily due to expense overages driven by backfill
overtime related to staffing shortages in patrol and at the Communications Center , as well as increased labor
costs related to arbitration wi th the Sacramento Police Officers Association. In addition, a revenue shortage is anticipated with the termination of service contracts with Regional Transit and Natomas Unified School District,
which will further impact overall funding levels. The
Exhibit A
Quarterly Financial Report Quarter Ended 12/31/2025
3 department will review forecasted reimbursements for
possible undercharging and continue to monitor
overtime and expenditures closely to mitigate further
impacts through year-end.
Departments projecting a net surplus (combined year -
end revenue and expendi ture variances exceeding $1
million) have been highlighted in the chart above and
have provided the following summary explanations.
City Manager. The projected net surplus of $1.9
million is primarily attributable to expenditure savings across both the Executive Office and Office of
Innovation and Economic Development (OIED). Salary
savings from vacancies –including the Assistant City
Manager, Administrative Analyst, two Senior Project
Managers, Economic Development Manager, and
Program Specialist positio ns account for a significant portion of the favorable variance. Additional savings are due to lower-than-anticipated expenditures in
professional services within OIED.
Cannabis permit revenues were inadvertently recorded
in the City Manager’s Office during July and August due to the transition of the Office of Cannabis Management
to the Finance Department in FY2025/26. These
revenues will be reallocated to the Finance Department
by fiscal year-end and do not contribute to the projected surplus.
Community Development. The projected net
surplus of $2.9 million is primarily attributable to labor savings resulting from ongoing vacancies across the
department, which totaled 45.5 FTE in the second
quarter, generating personnel cost savings that
contribute to the favorable variance. Second -quarter
revenues increased due to higher -than-anticipated
activity in Building, Planning, and Animal Care services, and the department anticipates this trend to continue
while closely monitoring revenue performance in the
third quarter to assess sustainability.
Finance. The projec ted net surplus of $1.6 million is
attribuable to a combination of additional revenues and expenditure savings across multiple Finance divisions .
The Revenue Division accounts for a significant portion of the favorable variance due to higher-than-anticipated revenues related to deliquency charges. Expenditure
savings are driven by salary and professional services
in the Public Infrastructure Finance (PIF) Division and salary savings in the Procument and Payroll Divisions.
Youth, Parks & Community Enrichmen t. Youth,
Parks & Community Enrichment. The projected net
surplus of approximately $1.8 million is primarily
attributable to labor savings within the Community
Enrichment division, driven by vacancies and reduced
personnel costs. The department is also contin uing
efforts to correct the services and supplies budgets
across all divisions to align expenditures with current operational needs.
City’s Major Revenue Sources
Top General Fund Revenues ($ in 000s)
1Includes Measure U Transactions and Use Tax
2Businesses have 30 days to remit UUT, BOT, and TOT revenue to the City after the end of the month. After the 30-day remittance period, the City processes/reconciles the transactions over the following 10 days. Monthly reporting data is available by the 15 th of the following month (45 days after the reporting period ends).
Property Tax. Property taxes account for
approximately 2 9% of all General Fund revenues.
Revenues related to property taxes are affected by
fluctuations in the real estate market, levels of new
construction activity, and the corresponding changes to the tax roll. Most of the City’s current secured property tax r evenues are received in mid -December and mid -
April. The balance of the current secured property taxes as well as the current unsecured, supplemental, and
miscellaneous property tax revenues are received in
late January and late May. The first apportionment of the City’s FY202 5/26 property taxes was received in
December 2025 and was 0.9% higher than FY2024/25.
On February 10, 2026, the City Council approved a $1.5
million increase to the FY202 5/26 Current Secured
Property Tax budget . All property tax revenue s are
being monitored and will be reassessed as part of the
FY2026/27 budget development process.
Sales Tax. Sales Taxes make up approximately 28%
of General Fund revenues. Sales tax includes Sales and
Use Tax and the Measure U Transactions and Use Tax.
Exhibit A
Quarterly Financial Report Quarter Ended 12/31/2025
4 Sales tax is imposed on all retailers for the privilege of selling tangible personal property in the state, whereas the use tax is imposed on the purchase for storage, use, or other consumption of tangible personal property
purchased from any retailer. The Measure U
Transactions and Use Tax is a destination -based tax,
meaning it is applied to transactions based on the
buyer’s location rather than the seller’s location. In
November 2018, a voter approved ballot measure
increased the Measure U Transactions an d Use Tax
from 8.25% to 8.75% effective April 1, 2019 . The City
receives monthly apportioned payments and a true -up
payment for the prior period at the end of each quarter.
The first true -up payment for this fiscal year was
received in late November 2025. Sales tax revenues will be monitored closely with regard to consumer
confidence and inflation, and budget adjustments may
be necessary if consumer and business spending
decline.
Utility User Tax (UUT). UUT is the City’s third largest source of General Fund revenue at 8%. Measure O
approved by the voters in November 2008, reduced the
7.5% tax rate to 7.0% on telecommunication services,
but was expanded to include Voice over Internet
Protocol (VoIP), text messaging, and many other
previously excluded technologies. The 7.5% tax rate
continues to be in effect for gas, electric, and cable
services. The gas and electric components of UUT
comprise approximately 70% of the revenue. As PG&E
and SMUD continue to i ncrease rates, the energy
components of UUT will continue to grow and increase
the overall UUT base. On February 10, 2026, the City
Council approved a $3. 9 million increase to the
FY2025/26 Utility User Tax budget. Staff will reassess
this revenue as part of the FY202 6/27 budget
development process.
Other City Revenue Sources
Business Operations Tax (BOT). BOT is remitted
annually by individuals and businesses that commence,
transact, engage in, or carry on any business, trade,
profession, calling, occupation, or gainful activity in the city. BOT (including cannabis) makes up approximately
5% of General Fund revenues. On February 10, 2026,
City Council approved a $ 2.3 million decrease to the
FY2025/26 Cannabis BOT budget due to an 8.1% year
over year decrease in the first six months.
Public Safety Sales Tax. On November 2, 1993,
California voters enacted Proposition 172 which
established a permanent statewide half -cent sales tax
for support of local public safety functions in cities and counties. This tax represents approximately 1% of
General Fund revenue. This revenue will be monitored,
and budget adjustments may be considered later in the
fiscal year if necessary.
Transient Occupancy Tax (TOT). The current rate
of 12% is charged to all guests of hotels, motels, inns, and bed and breakfasts within city limits. The General
Fund portion of TOT revenues is equal to two
percentage points of the 12% rate. The remaining TOT
revenues collected are direct ed to the Community
Center Fund. TOT revenue will continue to be
monitored and may be adjusted later in the fiscal year .
On February 10, 2026, the City Council approved a $0.2
million increase to the FY2025/26 Transient Occupancy
Tax budget. Staff will reassess this revenue as part of the FY2026/27 budget.
Economic Indicators
The following chart reflects key economic indicators
utilized in projecting General Fund revenues.
ENTERPRISE FUNDS
The Departments of Convention and Cultural Services,
Public Works, and Utilities have prepared projections for the City’s enterprise funds as follows:
Community Center
Parking
Solid Waste
Storm Drainage and Drainage Property Fee
Wastewater
Water
Exhibit A
Quarterly Financial Report Quarter Ended 12/31/2025
5 Of the above funds, none are projecting a net deficit exceeding $1 million.
The following Funds are projecting a net surplus
exceeding $1 million and have provided the following
summary explanations.
Community Center Fund. The projected net surplus
of $1.8 million is primarily due to transient oriented tax, user fees, and commissions tracking at target, as well
as vacancy savings, Crocker expenses, use of on -call
contracts, and adjustments to citywide contacts.
Parking Fund. The projected net surplus of $1. 2
million is primarily due to revenues trending above
budget, driven by fee increases and steady demand.
Expenditures are projected to exceed budget due to
higher costs for security, repairs, and utilities, largely offset by labor savings from vacant positions.
Solid Waste Fund. The projected net surplus of $3.0
million reflects higher user fee collections and late
payment penalties, partially offset by lower recycling
rebate revenues and higher services and supplies
expenditures due to vehicle accidents, repairs and
maintenance, and rising fuel cost s. The prior -year
settlement payment included in the current budget will
be removed in FY2026/27.
Storm Drainage. The projected net surplus of $4.2
million reflects revenues projected $1.6 million over
budget and expenditures projected $2.6 million below
budget. Revenue growth is driven by higher drainage
property fee collections and interest earnings .
Expenditure savings are primarily attributable to
vacancy savings, partially offset by higher Services and Supplies costs due to a revised assumption for
mechanical supplies. Projections also reflect manual
transfer activity and an anticipated reimbursement from Fund 6021. Compared to the first quarter forecast,
projected expenditures are $5.6 million lower due to
updated transfer activity and the anticipated
reimbursement.
Wastewater. The projected net surplus of $2.0 million
reflects expenditure savings associated with increased
vacancies, as well as updated revenue and transfer
assumptions. Second -quarter pr ojections include
$491,000 in FEMA reimbursements related to the
FY2022/23 storm event, and manual transfer activity is
now reflected and projected through year-end based on
first quarter actuals. In addition, a first-quarter projection error that included a FY20 24/25 entry in the revenue
data, resulting in an overstated revenue projection, has been identified and corrected.
Water Fund. The projected net surplus of $2.9 million
is primarily attributable to expenditure savings resulting from 46 vacant positions. Utility rate revenues are
trending lower than prior years through the second
quarter. FY2025 /26 revenue budgets related to the
Special Item Revenue account will be adjusted via a
future Council action to reflect recently received per- and poly -fluoroalkyl substances (PFAS) settlement
payments totaling $ 2.0 million, which will be redirected to the Water Fund CIP.