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DISCUSSION
City of San Bernardino
Request for Council Action
Date: March 19, 2025
To: Honorable Mayor and City Council Members
From: Bill Gallardo, Interim City Manager
C. Jeannie Fortune, Interim Director of Finance & Management Services
Zuyva Ruiz, Budget Division Manager
Department: Finance & Management Services
Subject: Fiscal Year 2024/25 Mid-Year Financial Update (All Wards) Recommendation:
It is recommended that the Mayor and City Council of the City of San Bernardino, California receive and file the Fiscal Year 2024/25 Mid-Year Financial Update.
Executive Summary
The Fiscal Year (FY) 2024/25 Mid-Year Financial Update provides a clear and accessible overview of the City's financial position and economic conditions at the national, state, and county levels that influence the City’s fiscal health. The City is adjusting its revenue and expenditure projections based on economic trends to maintain long-term fiscal stability. Projected year-end revenues are now estimated at $222.6 million, compared to the originally adopted budget of $236.6 million, due to shifts in sales tax revenue, business activity, and permit fees. For expenditures, cost- saving measures were implemented to reduce year-end projections to $224.3 million, down from the originally budgeted $237.5 million. By aligning expenditures with realistic revenue expectations, the City remains in a healthy financial position while ensuring that essential services and capital improvement projects continue without disruption. These adjustments reflect responsible financial management, ensuring that the City can navigate shifting economic conditions while preserving the integrity of its fund balance.
Background
On January 15, 2025, the Mayor and City Council received the unaudited FY 2023/24 year-end General Fund financial update. The Mid-Year Financial Report allows the Budget Division to assess revenues and expenditures, ensuring that financial allocations align with the City's needs while maintaining long-term fiscal stability. This 2 5
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update provides insights into how national, state, and county-level economic conditions are impacting the City's finances. It also outlines necessary adjustments to ensure the City remains on track for responsible financial planning.
National Economic and Financial Trends
Broader economic trends influence local revenue streams, including sales and property taxes, development activity, and municipal investments. While the U.S. economy experienced moderate growth in the 3 rd and 4 th quarters of 2024, there are concerns about long-term stability. The following national trends are particularly relevant to the City’s financial planning:
Real Growth Domestic Product (GDP) Growth: Real GDP trends are important to the City because it directly impacts the local economy by influencing job creation, business investment, and overall economic activity within the City. The U.S. real GDP grew at an annualized rate of 3.1% in Q3 2024 and 2.3% in Q4 2024. The difference in Q3 2024 vs. Q3 2023 reflects the slowdown from the post-pandemic economic surge. This slowdown is likely to reduce consumer spending and impact sales tax revenue in San Bernardino. Interest Rates and Debt: The Federal Reserve has kept interest rates elevated at 5.25-5.50 %, which has tempered borrowing and reduced investment in real estate and business expansion, impacting the City’s development-related fees. Labor Market: According to the U.S. Bureau of Labor Statistics, the national unemployment rate fluctuated between 3.8% and 4.1%, indicating that the labor market is cooling slightly. However, jobless claims remain well below recessionary thresholds.
Consumer Confidence and Spending: Consumer spending remains strong at the national level, with inflation-adjusted retail sales at a record high in Q4 2024.
However, the U.S. Census Bureau announced that advance estimates of U.S. retail and food services for January 2025 are down 0.9% from the previous month. This means that after accounting for holidays, trading days, and other seasonal factors, consumer spending seems to be gradually decreasing, affecting sales tax collections.
California Economic Trends
Economic trends in California shape local revenue streams, employment levels, and
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housing markets. The state is currently facing budget deficits, labor market shifts, housing shortages, and trade policy changes, resulting in cities needing to proactively adapt to this changing economic landscape while remaining fiscally sustainable and minimizing service disruption. Key statewide trends include:
State Budget Deficit: According to the report released in November 2024 from the Legislative Analyst’s Office, the projected deficit for California’s FY 2025/26 budget is estimated to be $2 billion, meaning that the budget is considered roughly balanced given the large scale and unpredictability of state finances.
Though the immediate budget is relatively balanced, the concern is that California faces significant long-term budget challenges in the future. The annual operating deficits are expected to grow from $20 billion to $30 billion in the coming years due to higher-than-expected spending growth outpacing revenue growth. To address this proactively, the state may implement spending reductions and revenue increases or solicit policy adjustments to address future fiscal imbalances, a reality that most cities must begin preparing for now. Labor Market: The U.S. Bureau of Labor Statistics reported that the state’s unemployment rate remained at 5.4% as of December 2024. This rate remains above the national average, and the ratio of unemployed workers to available job openings has doubled over the past two years, impacting local business activity and sales tax revenue.
Housing Market: California’s median house prices are projected to rise 4.6% in 2025, meaning that the moderate rise in property values allows for additional revenue in property taxes. However, this does not directly boost the City’s General Fund since property tax in San Bernardino comes largely from Vehicle License Fee (VLF) revenue.
Trade and Tariffs: Proposed tariffs on imports from China and Mexico may increase costs for goods and services, affecting local businesses and consumers. This could lead to higher retail prices, reducing disposable income and, in turn, impacting sales tax revenue for the City. Consumer Price Index (CPI): The Department of Industrial Relations reported that California’s CPI annual average decreased from 3.9% in 2023 to 3.1% in 2024. This indicates moderating inflationary pressures and suggests that price increases for goods and services are stabilizing, which eases financial pressures on households. Housing, transportation, and food costs may still be high, but a slower inflation rate means that costs are rising at a more manageable rate.
County Economic Trends
San Bernardino County’s current economic landscape reflects both statewide pressures and regional strengths. The County continues to experience strong job growth and steady retail activity. However, challenges like housing affordability and limited new construction could shape the City of San Bernardino’s future revenue and service demands. Key countywide trends in consideration of the FY 2024/25 Mid-Year Report include:
Job Market Resilience: The Inland Empire, including San Bernardino County, has some of the strongest job growth in California at 3% year-over-year, 2 5
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outpacing Los Angeles and Orange County.
Housing Affordability: The Riverside-San Bernardino-Ontario metropolitan area is among the most overvalued housing markets in the U.S., with mortgage payments consuming approximately 67.8% of the per capita income. This significant burden highlights the challenge of housing affordability for residents and the limited disposable income for non-housing expenditures. Consumer Price Index (CPI): The Inland Empire saw a CPI decline from 4.7% to 2.6%, meaning inflation is cooling, but costs for essential goods and services remain high. This directly affects City expenses, particularly for infrastructure projects and public service contracts.
Discussion
City of San Bernardino’s Financial Condition
With the broader economic landscape in mind—spanning national, state, and county trends—it's crucial to assess how these factors impact the City of San Bernardino’s financial standing. At the midpoint of the fiscal year, a thorough review of the City's revenues, expenditures, and overall financial health provides valuable insight into the City’s ability to maintain fiscal sustainability while delivering essential services. Key City trends observed at the midpoint of the FY 2024/25 include:
Rising Unemployment and Business Closures: California’s 5.4% unemployment rate and business closures in the region are driving down license
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and permit revenues, reducing the economic activity and City revenue streams. Development and Investment Slowdown: Rising interest rates and inflation are slowing development, reducing building permits, impact fees, and investment in the City’s growth.
Federal and Trade Policy Uncertainty: Federal policy shifts could increase costs. The proposed 25% import tariffs may increase prices for businesses and residents, while potential EV credit cuts could hinder energy and transportation projects.
CPI: Increased costs for goods, utilities, and services could increase the demand for City support programs.
Rising Labor Costs and Fiscal Sustainability: To remain competitive with surrounding jurisdictions, the City has made some wage and compensation adjustment considerations as the City embarks on a Classification and Compensation study and prepares for labor negotiations with all bargaining units. However, rising labor costs present ongoing financial obligations that must be carefully managed. The City added over 100 full-time positions in FY 2023/24, contributing to increased personnel expenditures. While these additions were made during improved financial conditions, it is imperative to recognize that fund balance should be reserved for one-time expenditures, not ongoing costs such as personnel. The long-term sustainability of these positions must be evaluated as financial conditions evolve and an economic landscape of reduced resources presents itself.
General Fund Revenues
Year-end projections show that the City’s General Fund revenues are declining and will likely fall short of the budgeted amounts. While revenue grew by 3% in early FY 2024/25, growth is estimated to slow down to 2% throughout the remainder of the fiscal year. Current revenues are $4.9 million lower compared to the same period last year, signaling the need for a cautious financial approach.
As of January 2025, the 7-month cumulative General Fund revenue is down from last year by $4.9 million. Staff believes this downward trend will continue to total revenues Revenue CategoryF Y 2022-23
A ctuals
F Y 2023-24
A ctuals
F Y 2024-25
A dopted
F Y 2024-25
Y T D A ctuals
as of 1/31/25
F Y 2024-25
P rojected
Y ear-E nd T otal
% Change
from
A dopted
C harges for S ervices$9,107,888$6,829,807$10,319,801$3,175,537$6,275,538-39% F ines & F orefeitures$1,082,037$766,079$1,593,262$476,142$876,142-45% F ranchise T ax $12,692,337$14,328,378$14,939,265$3,956,639$14,402,938-4% Intergovernmental $2,225,143$6,708,044$2,949,651$2,449,830$5,506,96187% Investment Income $963,828$3,373,049$999,900$635,949$2,635,949164% L icenses & P ermits$15,740,360$16,059,891$16,989,168$7,783,412$14,083,412-17% Measure S S ales T ax$52,124,592$51,259,760$53,550,000$20,357,375$50,159,000-6% Miscellaneous $3,304,140$7,737,244$4,238,229$835,144$5,335,14426% Other T axes $11,173,774$12,414,954$15,060,480$4,859,440$11,259,440-25% P roperty T axes in L ieu if V L F$21,312,883$23,604,046$25,806,000$12,730,179$24,180,179-6% S ales & Use T ax $55,651,769$55,612,168$58,623,667$22,172,986$52,796,986-10% Use of Money & P roperty$3,158,026$5,273,844$2,640,627$2,727,459$4,887,45985% Utility User T ax $31,208,992$28,671,310$28,893,750$16,133,179$30,229,5055% General F und Revenue T otal$219,745,769$232,638,574$236,603,800$98,293,269$222,628,654-6% 2 5
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for FY 2024/25 at $222.6 million versus FY 2023/24 revenues at $232.6 million (a reduction of approximately $10.0 million in actuals).
Sales & Use Tax and Measure S Sales Tax
Sales & Use Tax is the City’s largest revenue source, accounting for 47% of total revenues when combined with Measure S. The City contracts with HdL Companies to advise and project Sales and Use Tax and Measure S Sales Tax. Based on HdL’s updated forecasts, the City is revising Measure S revenue projections downward by 6% and Sales & Use Tax projections downward by 10%. These adjustments align with realistic revenue expectations and ensure the City maintains a conservative approach to budgeting while carefully reassessing expenditures to match anticipated revenues.
HdL’s latest projections indicate that Sales and Use Tax is expected to total $52.8 million by the end of the year and Measure S is expected to total $50.2 million resulting in a $4.6 million decline from the last fiscal year. HdL reports that major decreases for Sales & Use Tax are seen in General Consumer Goods (-7.3%), Autos & Transportation (-5.6%), and Business & Industry (-1.6%), with minor offsets from Restaurant & Hotels (+2.0%) and State & County Pools (+2.5%). Measure S Sales Tax is also reported to decrease and those can be seen in Autos & Transportation (-8.9%) and Building & Construction (-6.2%), with small gains in Business & Industry (+2.1%) and Restaurant & Hotels (+1.3%).
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Charges for Services
The City of San Bernardino’s charges for services revenue category is projected to end the year 39% below the adopted budget, with a decrease totaling $554k in FY 2024/25 compared to FY 2023/24 actuals. This decline is driven by key revenue sources such as plan check fees, cannabis permit fees, and enforcement-related charges. Plan check fees are a major revenue source tied to development activity. The decrease signals a slowdown in new construction and permitting, which reflect the higher borrowing cost trends seen at the national and state level, economic uncertainty, or delays in large-scale projects. Fewer plan check fees impact the City's General Fund, as these fees help cover staffing and operational costs for processing permits. Overall, development-related revenue in this category is down by $283k as of January 2025.
The Cannabis Permit Regulatory Fee is also currently down by $55k in FY 2024/25 as compared to prior year. This may suggest fewer businesses applying for or renewing permits, indicating market saturation, regulatory shifts, or operational challenges for cannabis businesses. Another notable revenue source, the NPDES Storm Drain Utility Fee, is down by $11k as of January 2025. This decline is also tied to reduced development activity at the county and state levels, further reinforcing the broader slowdown in construction and permitting.
Intergovernmental
The City has revised its year-end projections for intergovernmental revenues upward by 87% from the FY 2024/25 adopted budget, incorporating updated forecasts and necessary revenue classification adjustments. Despite this positive revision, intergovernmental revenues will still fall short of FY 2023/24 actuals by approximately $1.2 million. This variance is primarily due to timing differences in revenue collection, accounting adjustments, and temporary delays in finalizing renewed cost-recovery agreements. While some reductions reflect structural changes, key cost-recovery agreements—including those with San Manuel, Dignity Health, and special event
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reimbursements—are expected to be fully collected by year-end, aligning with projections.
Investment Income & Use of Money and Property
The City’s higher-than-expected investment income and revenues from use of money & property reflect broader economic trends at the national, state, and county levels.
While these revenue sources provide a short-term financial boost, they remain highly volatile and dependent on external economic conditions, reinforcing the importance of prudent fiscal planning. The Federal Reserve’s elevated interest rates have contributed to higher investment earnings and increased interest income on the City’s idle cash.
However, as the Federal Reserve considers future adjustments, potential declines in interest earnings must be factored into future revenue projections. Staff will continue to monitor Federal Reserve actions closely to anticipate financial impacts and adjust projections accordingly.
Other Taxes
The City of San Bernardino’s Other Taxes revenue category is projected to end FY 2024/25 approximately 25% below the adopted budget and $1.1 million lower than FY 2023/24 actuals. This decline is attributed to weaker consumer spending, slowing real estate transactions, and industry-specific challenges in sectors such as hospitality and cannabis. As of January 2025, as compared to FY 2023/24 during the same period, Transient Occupancy Tax (TOT) is down by $648k, possibly indicating reduced business travel; Property Transfer Tax is down by $100k, possibly reflecting a slowdown in property transactions; and Cannabis Tax is down by $277k, indicating that the overall cannabis industry is falling below expectations.
General Fund Expenditures
With General Fund revenues now projected to come in $14 million below the adopted budget, the City is proactively adjusting expenditure projections to reflect current economic conditions. While FY 2024/25 expenditures are currently $17.4 million higher than the previous year, the year-end projections remain 6.9% below the adopted budget. The addition of the 100 full-time positions in FY 2023/24, although the Human Resources Department is continuously recruiting to fill these approved positions and other vacancies that may occur, has taken time.
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Looking ahead, the City will continue to closely monitor economic trends, refine forecasts, and make informed financial decisions that prioritize community needs while preserving the City's fiscal health. This approach ensures that residents continue to receive quality services, even in times of economic uncertainty.
Department F Y 2022-23A ctualsF Y 2023-24A ctualsF Y 2024-25A dopted F Y 2024-25Y T D A ctuals as of 1/31/25
F Y 2024-25 P rojectedY ear-E nd T otal
% Change from A dopted
Mayor $306,227$279,481$298,025$177,726$298,0250.0%C ity C ouncil $1,015,993$1,061,509$1,156,448$730,210$1,156,4480.0%C ity C lerk $1,300,833$1,391,383$1,942,869$798,606$1,571,500-19.1%C ity A ttorney $4,559,283$4,795,033$5,181,587$1,637,565$5,181,5870.0%G eneral G overnment $32,886,990$19,370,893$17,967,471$4,873,298$18,227,7431.4%C ity Manager $2,103,300$3,424,979$5,156,385$1,726,588$3,635,811-29.5%Human R esource & R isk Management$2,055,421$2,390,082$2,784,522$1,411,816$2,772,510-0.4%F inance & Management S ervices$5,163,873$5,044,637$6,612,496$3,507,801$5,947,838-10.1%E conomic Development $0 $237,278$1,785,363$967,317$1,814,7301.6%S pecial A ssessment District$115,996$114,321$150,000 $0 $120,000-20.0%C apital Improvement P rojects$89,235$320,505 $0 $0 $3,7150.0%C ommunity Development & Housing$9,040,721$9,341,981$15,004,584$6,067,124$10,721,947-28.5%P olice $103,840,116$114,176,196$132,847,479$84,800,743$124,951,642-5.9%P arks, R ecreation & C ommunity$4,132,108$5,109,685$6,000,401$2,808,982$5,936,896-1.1%P ublic W orks $21,764,427$26,606,218$35,591,030$18,591,892$29,008,952-18.5%L ibrary $2,610,050$2,601,058$4,975,030$3,333,843$4,221,603-15.1%General Operating E xpenditures$190,984,572$196,265,240$237,453,690$131,433,512$215,570,946-9.2%C apital Improvement P rojects$11,803,164$7,314,997$3,565,500$4,421,262$6,062,65170.0%P arks, R ecreation & C ommunity$3,000 $0 $0 $0 $0 0.0%MC C F und B alance Use - S treet S egment Imp.$0 $0 $0 $0 $2,650,0000.0%Measure S E xpenditures$11,806,164$7,314,997$3,565,500$4,421,262$8,712,651 GE NE RA L F UND T OT A L E X P E NDIT URE S$202,790,736$203,580,237$241,019,190$135,854,774$224,283,597-6.9%
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Library Department
The Library Department received a significant increase in funding for operations and staffing in the FY 2024/25 budget to address long-overdue maintenance needs and enhance customer service across all library branches. The department has used 67% of its budget due to necessary upfront investments in network and hardware upgrades following a cybersecurity breach. With these critical improvements now in place, spending has stabilized, and the department is on track to close the fiscal year 15.1% ($753K) under budget.
Police Department
As of January 2025, the Police Department accounts for 64% of the total year-to-date General Fund expenditures. The department has maintained strong financial management and cost-recovery efforts. Through reimbursement agreements with partners such as San Manuel, Dignity Health, SBIAA, COPs grants, and other reimbursable overtime arrangements, the department is projected to end the fiscal year
5.9% ($7.9 million) under budget.
Community Development & Housing Department
The Community Development & Housing Department has utilized 40% of its budget and is projected to close the year 28.5% ($4.2 million) under budget due to ongoing staffing vacancies. Many of these vacancies are tied to positions added as part of the Strategic Initiatives in October 2023, and despite multiple recruitment efforts, these roles have yet to be successfully filled. The department continues to prioritize hiring and remains focused on securing qualified candidates to support its long-term objectives.
Public Works Department
The Public Works Department has utilized 52% of its budget and is projected to close the fiscal year 18.5% ($6.6 million) under budget due to ongoing staffing vacancies.
Many of these vacancies are tied to positions added as part of the Strategic Initiatives in October 2023. Despite multiple recruitment efforts, these positions have not yet been successfully filled. The department remains focused on attracting and retaining qualified talent to support its operational and infrastructure needs.
Fund Balance
As the City proactively adjusts its year-end revenue and expenditure projections to reflect current economic conditions, it remains in a strong financial position with a healthy fund balance. The FY 2024/25 ending fund balance is estimated at $200.9 million, a slight decrease from $202.5 million in FY 2023/24. This modest reduction is primarily attributed to the City’s approved use of $2.65 million for street segment repairs, which has been partially offset by a $995K surplus being restored to fund balance due to existing staffing vacancies. For FY 2024/25, the City’s General Fund fund balance will remain in a healthy financial position and continue to preserve its emergency reserves, with:
$33.2 million in the 15% Emergency Reserve
$22.1 million in the 10% Economic Contingency Reserve
$91.3 million in Measure S Capital Project Funding
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In addition, staff is attaching a chart that provides a synopsis of the City’s revenue, expense, and fund balance activities for the last 20 years. All data was derived from the City’s audited Annual Comprehensive Financial Reports (ACFR) from Fiscal Years 2005/06 through 2023/24, with projections for FY 2024/25.
Summary
As the City moves forward with preparing its FY 2025/26 Proposed Budget, the City will be taking into consideration the following:
The City’s current year-end revenue projections show an overall decrease of approximately $10m from prior year actuals;
The decreases in revenue will most likely continue for the next few months; The State’s economy is showing resilience despite the decline in local and sales tax receipts during the 1st quarter of the 2024/25 fiscal year; A modest growth is projected for FY 2025/26 with the following economic drivers:
1. Autos/Transportation is expected to increase by 3.5%, but the recovery is likely to be gradual;
2. Building/Construction is expected to increase by 2.6% due to lumber and roofing supply holding steady;
3. Business/Industry is expected to increase by 1.8% E-commerce Category F Y 2021/22 A ctuals (audited)
F Y 2022/23 A ctuals (audited)
F Y 2023/24 A ctuals(unaudited)
F Y 2024/25 E stimated
Beginning Fund Balance, as of J une 30th110,742,632$ 156,449,095$ 173,462,555$ 202,520,892$ R evenues 208,775,374$ 221,320,505$ 232,638,574$ 222,628,653$ E xpenditures (includes CIP E xpenditures)(163,068,911)$ (204,307,045)$ (203,580,237)$ (221,633,597)$ Net Surplus/Deficit - Use of Fund Balance)45,706,463$ 17,013,460$ 29,058,337$ 995,057$ Approved Use of Fund Balance - S treet S egment R epair(2,650,000)$ E nding Fund Balance 156,449,095$ 173,462,555$ 202,520,892$ 200,865,949$ ACFR 2021-22ACFR 2022-23
Category FUND BALANCE 06-30-2022FUND BALANCE 06-30-2023 FUND BALANCE 06-30-2024(unaudited)
FUND BALANCE 06-30-2025(estimated)
Nonspendable 40,204,68741,421,53640,806,49741,000,000R estricted 2,107,2082,086,3662,099,5742,100,000CommittedAnimal S ervices - 68,387 - -G eneral Plan Update 100,000 142,877 551,312 600,000Measure S - Capital Projects63,342,85481,762,94986,330,03691,293,69215% E mergency R eserve24,460,33728,788,26435,618,05433,245,03910% E conomic Contingency R eserve16,306,89119,192,17623,745,36922,163,360Assigned 6,669,342 - 13,370,05010,463,858Unassigned 3,257,776 - - -T OT AL FUND BALANCE156,449,095173,462,555202,520,892200,865,949
CALCULAT ION OF FUND BALANCE
F UND BALANCE DE SIG NAT ION
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continues to rule; the convenience of shopping online is slowly being embraced by consumers;
4. Fuel/Service Stations anticipate a slow recovery in 2025/26 with mild growth of 3.7%;
5. General Consumer Goods is expected to remain flat with little growth of
1.4% as brick-and-mortar stores compete with online shopping;
6. Restaurants/Hotels is experiencing moderate growth, a 3.7% increase; the outlook for room rates and occupancy in the coming year is positive. To maintain the City’s fund balance integrity, while still providing essential services to the community, City staff will be proposing alternatives, solutions, and may consider reductions in operating expenditures for the City’s proposed FY 2025/26 budget that will align with the overall decrease in revenues and mild growth for the upcoming fiscal year.
2021-2025 Strategic Targets and Goals
Receiving and Filing the FY 2024/25 Mid-Year Financial Update Report aligns with Key Target No. 1: Improved Operational & Financial Capacity. Updated revenue and expenditure projections provide the Mayor and City Council with important information and analysis needed to make financial decisions impacting the City.
Fiscal Impact
There is no fiscal impact with receiving and filing this report. This report serves as a financial update.
Conclusion
It is recommended that the Mayor and City Council of the City of San Bernardino, California receive and file the Fiscal Year 2024/25 Mid-Year Financial Update.
Attachments
Attachment 1 - City’s 20-year Revenue, Expense and Fund Balance History Ward:
All Wards
Synopsis of Previous Council Actions:
June 26, 2024 The Mayor and City Council adopted Resolution No. 2024- 142 approving the City of San Bernardino’s Operating Budget and Capital Improvement Program (CIP) for Fiscal Year
2024/25.