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PUBLIC HEARING
City of San Bernardino
Request for Council Action
Date: June 17, 2026
To: Honorable Mayor and City Council Members
From: Tarik Rahmani, Director of Finance & Management Services Department: Finance & Management Services Department
Subject: City Manager’s Proposed Fiscal Year 2026/27 Operating Budget & FY 2027-2031 Capital Improvement Program (All
Wards)
Recommendation:
It is recommended that the Mayor and City Council of the City of San Bernardino:
1. Conduct the Public Hearing on the Proposed Fiscal Year 2026/27 Operating Budget and 2027-2031 Capital Improvement Plan; and
2. Adopt Resolution No. 2026-071 approving the City of San Bernardino’s Fiscal Year 2026/27 Operating Budget and 2027-2031 Capital Improvement Program; and
3. Adopt Resolution No. 2026-072 establishing the City’s Appropriations Limit as required by Article XIIIB of the California State Constitution; and
4. Adopt Resolution No. 2026-073 approving the updated Investment Policy for FY 2026/27; and
5. Approve any modifications made during the Public Hearing to be incorporated into the City of San Bernardino’s Fiscal Year 2026/27 Operating Budget and 2027-2031 Capital Improvement Program and included as part of the adopted budgets.
City Manager's Comments
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The City Manager recommends the proposed FY 2026/27 Operating Budget and Capital Improvement Program. Based on the discussion at the City Council study session on the budget, the proposed Capital projects has been revised to add back the projects that were recommended for deferral. In addition, the City Council requested that the City Manager look at the $3 million requested by public speakers for the Arts.
The City Manager reviewed the matter and is proposing the following for City Council consideration. (1) That the City Council appropriate $1 million from the Cultural Development Fund fund balance be appropriated in the General Fund budget specifically for the Arts. The City Council consider at a future meeting to create a Arts & Culture Committee to be staffed by the City Manager’s Office to recommend projects.
One consideration in doing this would be to create two separate Committees and have a dedicated Historic Preservation Committee and a dedicated Arts & Culture Committee. (3) Finally, the City Manager recommends he look at events for the coming year and see if there can be an Arts & Culture specific event.
Executive Summary
The FY 2026/27 Proposed Operating Budget and FY 2027-2031 Capital Improvement Program (CIP) have been prepared in accordance with the City Charter and reflect the City’s commitment to maintain essential services, advancing strategic priorities, and preserving long-term fiscal sustainability amid a moderating economic environment.
The proposed budget totals $318.2 million in revenues and $328.5 million in expenditures across all funds, including $9.9 million in new CIP appropriations. The General Fund remains financially stable with projected spendable reserves of approximately $104.9 million, exceeding the City’s reserve policy requirements.
However, the budget continues to reflect structural challenges driven by slowing revenue growth, increasing personnel and operational costs, and the City’s reliance on economically sensitive revenue sources such as Sales and Use Tax and Measure S.
The proposed budget incorporates conservative revenue projections across all funds, target expenditure reductions, and continued investment in critical infrastructure and community priorities. Adoption of the budget and CIP will provide the financial framework necessary to support City operations, deliver services, and advance the City Council’s goals.
While reserves remain strong, recurring expenditure growth continues to outpace recurring revenue growth, creating a structural imbalance that must be addressed over time.
Background
Section 701 of the City Charter provides that, at least sixty (60) days prior to the beginning of each fiscal year, the City Manager shall prepare and submit to the Mayor and Council a proposed budget and accompanying budget message explaining the City’s financial plan, work programs, organizational goals, community priorities, and proposed financial policies for the ensuing fiscal year. Section 702 further requires the City Manager to prepare and submit a multi-year Capital Improvement Program (CIP), which is to be revised and extended annually for projects pending or under construction 3 3
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or acquisition. Article VII, Section 703, states that the Council shall publish a general summary of the budget and CIP and hold one (1) or more public hearings. Following the public hearing(s), the budget and CIP shall be adopted, with any amendments deemed appropriate by the Council, before the beginning of each fiscal year.
On March 18, 2026, the Mayor and City Council received and filed the Fiscal Year 2025/26 Mid-Year Financial Update and adopted Resolution 2026-031 authorizing a budget amendment of $1,085,904 to the FY 2025/26 Operating Budget. The mid-year report projected year-end General Fund revenues of approximately $222.1 million and 3 3
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an estimated year-end fund balance of approximately $153.3 million, inclusive of $113.3 million in spendable reserves. The revenue and expenditure conditions identified in the mid-year report, including slowed activity in Sales & Use Tax, Measure S, and Utility Users Tax, informed the revenue assumptions and expenditure framework underlying the proposed FY 2026/27 Operating Budget and Capital Improvement Program.
The development of the FY 2026/27 Operating and Capital Improvement Program (CIP) Budget began in late 2025, at which time staff identified an initial General Fund funding gap between projected revenues and expenditures. During the FY 2026/27 Operating and Capital Improvement Program (CIP) Budget Kickoff, the City Manager directed departments to prepare budget proposals that included up to a 5% reduction from their current appropriations. This approach was intended to help address ongoing revenue constraints and support the City’s efforts to achieve a balanced budget.
Departments were given flexibility in how to meet the reduction target, including holding positions vacant or reducing operational expenditures. While the full 5% reduction may not ultimately be necessary, the exercise provided a framework for identifying potential cost-saving measures and prioritizing essential services. Several key considerations occurring in FY 2025/26 influence the development of the proposed budget as city operations continue, evolve, and change, as does the external economic landscape at the National, State, and County level.
On April 29, 2026, the Mayor and City Council held a Special Meeting Budget Workshop to review the Proposed FY 2026/27 Operating and CIP Budget. The Budget Book and Budget in Brief were also made available online, in both English and Spanish, on the City’s website at https://www.sanbernardino.gov/195/Budget-Books. The proposed FY 2026/27 budget presented to the Mayor and City Council totaled $318.2 million in revenues and $333.4 million in expenditures, including $14.9 million for Capital Improvement Projects. To help balance the budget, $15.0 million in CIP projects was proposed for adjustment, with $8.8 million reallocated to more appropriate special revenue funds and $6.3 million proposed for deferral into FY 2026/27. The Mayor and City Council directed staff to return the deferred Capital Improvement Projects for further consideration at the Budget Hearing.
Discussion
The FY 2026/27 Proposed Budget is developed within a moderating economic environment marked by slowing growth, softening consumer activity, and evolving revenue performance across key categories. While some revenue streams continue to demonstrate resilience, other revenue streams, particularly those tied to consumer spending and development activity, are showing signs of deceleration. As a result, it is critical to evaluate broader national, state, and regional economic conditions to inform revenue assumptions and guide prudent financial planning for the upcoming fiscal year.
Economic Indicators
U.S. Real GDP Growth
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Gross Domestic Product (GDP) is one of the broadest measures of a country’s economic activity since it estimates the total value of goods and services produced within a country over a specific period. According to the U.S. Bureau of Economic Analysis, Real GDP contracted 0.6% in Q1 2025 before rebounding through mid-year, then decelerated sharply to 0.5% in Q4 2025 and 1.6% in Q1 2026. Personal Consumption Expenditures with GDP is the most relevant factor to municipal revenue forecasting since it is the primary driver of taxable retail activity; this category followed a similar pattern of sharp declines and then a slight increase. It peaked at 3.5% in Q3 2025 before declining to 1.9% in Q4 2025 and 1.4% in Q1 2026. The GDP pictured below shows that the U.S. economy is still moving forward, but not in a smooth manner.
Businesses are investing and expanding, especially in technology and equipment, which has helped keep the economic growth positive. Meanwhile, households are becoming more careful with their spending, the housing market remains weak, and inflation is putting pressure on family budgets. Therefore, economic growth is occurring but not every sector that contributes to GDP is benefitting or contributing equally. Much of the recent growth is being supported by business investment, exports, and government spending rather than consumer spending. In the City of San Bernardino, the residents likely feel the effects of higher prices and housing costs even though at the national level, the economy appears to be slowly growing.
California and Regional Labor Market Conditions
A healthy job market means more people are working, earning, and spending, which for the City of San Bernardino would translate directly into sales tax revenue. By that measure, California and the Inland Empire are holding steady, but not growing. The U.S. Bureau of Labor Statistics reports that California’s unemployment rate has remained between 5.3% and 5.5% since November 2025. Locally, the Riverside-San Bernardino-Ontario region reported an unemployment rate of 4.9% in April 2026, with
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essentially no net job growth over the prior year (extracted on June 4, 2026). The sectors growing locally, primarily healthcare and education, contribute to the regional economy, but they do not generate the volume of taxable transactions that fund City services. Sales tax is collected on goods and services purchased at stores, dealerships, restaurants, and job sites. The industries shrinking in our region are precisely those that drive that activity. Construction is down 4.0%, manufacturing down
4.2%, and professional and business services down 3.5% compared to the prior year.
When the industries that buy equipment, materials, and commercial services are contracting, the City feels it directly in its revenue. A regional job market that is flat overall, and declining in its most commercially active sectors, means the City must remain conservative in its revenue projections to respond to these patterns seen.
Fuel Prices & Revenue Volatility
Fuel prices represent one of the most visible and immediate economic forces affecting both the City’s revenue and its costs. Fuel prices increased significantly during FY 2025/26 due to a combination of global market conditions, refinery capacity constraints, regulatory requirements, and geopolitical uncertainty combined with the closure of two major California refineries – Phillips 66 & Valero’s Benicia – along with CARB regulations are contributing to the risk of prices continuing to rise in FY 2026/27. For the City, this means that when the gas prices go up, the City collects more in fuel- related sales tax, simply because the taxable value of every gallon sold is higher. But, high gas prices also means that the City also has higher fuel expenses for its own fleet like police vehicles, public works trucks, and other essential equipment. An increase in revenue also comes with increased expenses. More broadly, when residents need to spend more at the pump, they have less to spend elsewhere such as restaurants, retailers, and car dealerships. These businesses generate the bulk of the City’s sales tax revenues, meaning that high fuel prices leave little room for broad-based sales tax growth in the year ahead.
California Sales Tax Trends & City of San Bernardino Performance After two consecutive years of decline, California’s sales tax revenues are showing signs of modest recovery. In HdL Companies’ March 2026 California Forecast, statewide sales tax revenues are projected to grow 1.8% in FY 2025/26 and 2.2% in FY 2026/27. While statewide growth is positive, the projections come with significant uncertainty, driven by tariff-related price changes, elevated fuel costs, and cautious consumer behavior that shows no signs of reversing in the near term. Locally, the City’s sales and use tax receipts for October through December 2025 were 8.5% higher than the same period the prior year. However, this increase was largely the result of a one- time recovery of taxes that had been missing from prior periods; this activity is not a reflection of stronger retail activity in the community. When those one-time adjustments are removed, underlying taxable sales in San Bernardino declined 6.9% compared to the same quarter in 2024. During that same period, San Bernardino County as a whole grew 5.9% meaning that the numbers the City is seeing are not keeping pace with its own region. Several factors are driving this gap – new competition from businesses outside the City limits continues to pull retail spending away from San Bernardino.
Online shopping is capturing a growing share of consumer dollars that once stayed 3 3
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local, the loss of taxes from the prior closure of an outlet in the business and industry group, and key revenue categories such as general consumer goods and business-to- business sales posted notable declines this quarter.
California State Budget (Structural Deficit)
California continues to face significant long-term fiscal challenges despite recent improvements in near-term revenue projections. In January 2026, the Summary of the Governor’s Proposed 2026-27 Budget proposed a $348.9 billion State budget projecting an estimated $2.9 billion deficit for FY 2026/27, substantially lower than prior projections of approximately $18 billion due to stronger-than-anticipated tax collections, resilient financial markets, and improved revenue assumptions. However, despite the improved short-term outlook, the State’s broader fiscal condition remains structurally imbalanced. According to the California Legislative Analyst's Office (LAO), California is projected to continue facing ongoing structural deficits ranging between approximately $20 billion and $30 billion annually throughout the remainder of the decade, with some forecasts projecting annual shortfalls approaching $35 billion in future years. The LAO has noted that recent revenue gains have been heavily influenced by strong financial market performance and technology-sector related investment activity, both of which remain highly volatile and susceptible to economic downturns. The State’s fiscal condition remains particularly relevant to local governments, as structural imbalances at the State level may create additional risks for cities through reduced funding flexibility, delayed program reimbursements, shifts in fiscal responsibility, or future reductions in State-supported programs. Similar to many jurisdictions throughout California, the City continues to experience budgetary pressure associated with inflation, rising operational costs, labor expenditures, and slowing revenue growth. Accordingly, the City continues to prioritize conservative revenue forecasting, prudent expenditure management, and long-term financial sustainability in response to ongoing economic uncertainty at both the State and national levels.
FY 2026/27 Proposed Budget Overview
The City Manager’s Proposed Operating and Capital Improvement Program (CIP) for the Fiscal Year 2026/27 for the City of San Bernardino totals $318.2 million in total revenues and $328.5 million in total expenditures. Of these expenditures, $9.9 million is newly requested funding for the Capital Improvement Program. The total budget reflects the City’s total financial plan across all fund types. These fund types can be categorized into five major fund categories: General Fund, Special Revenues Funds, Capital Project Funds (also known as Development Impact Fees), Enterprise Funds, and Internal Service Funds.
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An important distinction for these numbers is that some of the City’s funds are legally restricted: the dollars collected in certain fund types can only be spent on specific, designated purposes. Capital Project Funds, for example, are used exclusively for infrastructure and facility improvements; Enterprise Funds support the City’s integrated waste management operations; Internal Service Funds cover costs shared across City departments such as general liability, workers compensation, fleet operations, and information technology. Special Revenue Funds account for programs and services supported by dedicated revenue sources. The largest portion of the budget, General Fund, is the most significant fund type that supports the day-to-day operations and the delivery of core community services including public safety, parks, libraries, operations and maintenance. It is also the fund over which the City has the greatest discretion in how resources are allocated. The General Fund also provides financial support to special revenue funds whose own-source revenues are insufficient to fully cover their operational costs. In FY 2026/27, the General Fund includes a transfer of $7.6 million to the Animal Services Fund indicating a recurring General Fund obligation that reduce the dollars available for other City services.
FY 2026/27 General Fund Revenues
F und T ype B udgeted RevenuesB udgeted E xpenditures
C apital P roject F unds 5,985,000 $ 4,250,000 $ E nterprise F unds 500,000 $ 1,366,783 $ G eneral F und 233,826,392 $ 251,084,665 $ Internal S ervice F unds 40,982,753 $ 40,935,536 $ S pecial R evenue 36,885,126 $ 30,826,140 $ Grand T otal 318,179,271 $ 328,463,124 $
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Of the $233.8 million in budgeted General Fund revenues, Sales & Use Tax and Measure S are 44% of the total and Utility User Tax is the second largest category at 14%. The City is highly dependent on a single source of revenue that is volatile; the City’s financial condition is directly and immediately sensitive to changes in consumer spending and retail activity and is seen in the same fiscal year the slowdown occurs.
Sales and Use Tax & Measure S projected revenues for FY 2026/27 are reflected to decrease by $1.0 million combined, or -2%, as compared to the FY 2025/26 adopted budget. These projections are in line with the data available and trends seen locally:
consumer spending is cautious, regional retail is flat, and the City is underperforming the county. The revenue sources cannot be assumed to grow in the current environment, and staff recommends continuing to use a conservative projection for the time being.
Utility User Tax is projected to increase modestly by approximately $317k, or 1%, from the FY 2025/26 adopted budget. With energy costs rising driven by the Middle East conflict, and the closing of California refineries, higher utility costs may result in modest increases in Utility Users Tax revenues; however, these same increases create additional financial pressure on residents and businesses.
Licenses & Permits are projected to decrease in FY 2026/27 by $1.0 million, or -7%, due to slower development and a direct reflection of the labor market indications that show the construction sector employment is down by 4% regionally. With fewer construction projects occurring, less permits are pulled meaning the City may expect to see a decrease in these revenues.
Fines and Forfeitures & Intergovernmental are projected to increase by $3.3 million combined in FY 2026/27. The activity seen in both these revenue categories within FY 2025/26 due to parking enforcement fees and code administrative citations have been Revenue Category F Y 2023/24
A ctuals
F Y 2024/25
A ctuals
F Y 2025/26
A dopted
F Y 2025/26
P rojected
Y ear-E nd T otal
F Y 2026/27
P roposed
C harges for services 6,829,807 $ 6,184,405 $ 5,822,130 $ 6,728,670 $ 6,113,237 $ F ines and forfeitures 766,079 $ 1,211,377 $ 891,000 $ 2,145,409 $ 2,655,180 $ F ranchise T ax 14,328,378 $ 13,908,285 $ 14,560,000 $ 14,546,664 $ 13,963,040 $ Intergovernmental 6,753,174 $ 5,602,977 $ 5,018,400 $ 6,056,240 $ 6,523,920 $ Investment income 3,373,049 $ 3,166,512 $ 1,050,000 $ 3,716,834 $ 1,155,000 $ L icenses & permits 16,059,891 $ 14,575,494 $ 14,287,000 $ 14,171,910 $ 13,286,910 $ Measure S S ales T ax 51,214,630 $ 51,617,498 $ 52,040,000 $ 51,821,000 $ 51,540,000 $ Miscellaneous 7,737,893 $ 4,980,145 $ 7,411,797 $ 3,983,285 $ 7,857,645 $ Other T axes 12,409,515 $ 11,601,877 $ 11,780,000 $ 11,222,569 $ 12,854,600 $ P roperty T axes in L ieu of V L F 23,604,046 $ 25,443,736 $ 25,149,250 $ 25,198,138 $ 28,418,653 $ S ales and Use T ax 55,612,168 $ 52,367,619 $ 52,058,494 $ 50,535,897 $ 51,558,494 $ T axes 5,439 $ - $ - $ - $ - $ Use of Money and P roperty 5,273,844 $ 6,184,183 $ 6,383,760 $ 4,282,347 $ 5,841,324 $ Utility Users T ax 28,671,310 $ 29,146,952 $ 31,740,980 $ 27,650,246 $ 32,058,390 $ General F und Revenue T otal 232,639,223 $ 225,991,060 $ 228,192,811 $ 222,059,209 $ 233,826,392 $ 3 3
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elevated and staff expects these revenue levels to sustain given the current operations in place.
General Fund Structural Gap
The FY 2026/27 Proposed Budget reflects an operational gap between General Fund revenues and expenditures. This gap reflects the cumulative pressure of a revenue base that has not kept pace with the cost of delivering services to a growing and evolving community.
The budget as originally proposed in the April 29, 2026, Budget Workshop included a plan to address this gap in part through the deferral of approximately $15 million in Capital Improvement Projects previously budgeted in the General Fund. Of that amount, $8 million was identified for transfer to more appropriate funding sources, with the remainder proposed for deferral into FY 2027/28. While these recommendations would have contributed toward closing the budget gap, they were also intended to align the Capital Improvement Program with current organizational capacity. The Engineering and Project Management teams are actively advancing an ambitious portfolio of projects that were programmed in prior years and are currently in various stages of design and construction. Deferring select projects would allow the City to focus available staff and resources, both financial and operational, on successfully delivering the significant work already underway, ensuring projects are completed as effectively, efficiently, and expeditiously as possible while maximizing the value of existing investments. Additionally, approximately $1.9 million in supplemental funding was added in FY 2026/27 to the City Hall project within General Fund in response to direction received from Mayor and City Council at the budget workshop.
At the direction of Mayor and City Council, the deferred Capital Improvement Projects are being returned for further consideration at the Budget Hearing. As a result, the operational gap remains an active item before the Council. The City’s ability to close this gap, and to build toward long-term structural balance, depends on two things working together: disciplined expenditure management and a deliberate, sustained effort to diversify and grow the City’s revenue base beyond its current dependence on sales tax.
FY 2026/27 General Fund Expenditures
The FY 2026/27 Proposed Budget reflects total General Fund Expenditures of $251.1 million, an increase of $6.4 million, or 2% from the FY 2025/26 Adopted Budget. While the overall change appears modest, the composition of that change shows a more nuanced story about the various cost pressures the City is managing. Visually shown below is also the percentage composition of the departments within the General Fund, the largest being Police Department at 60% of the total General Fund budget. 3 3
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Personnel Costs remains the single largest category in the General Fund, totaling $160.4 million in FY 2026/27. This represents 64% of the total General Fund expenditure budget, and $16.6 million increase, or 12% from the FY 2025/26 adopted budget. Primary cost drivers within this category are full-time salaries, insurance costs, and CalPERS Unfunded Liability. Full-time salaries increased by 9% reflecting negotiated compensation adjustments across bargaining units, as well as merit increases for those subject to receiving them. Insurance premiums are also rising, which reflects a 12% increase in the personnel costs, and lastly the CalPERS unfunded liability increased by 7% from the prior fiscal year, totaling $41.9 million. However, these increases also reflect the impact of the addition of 343 full-time positions to the City in the span of five (5) fiscal years: FY 2020/21 through FY 2025/26. The most significant growth occurred in FY 2021/22 through FY 2023/24 when the organization added 240 full-time positions through various initiatives. Position additions of this magnitude, in a short span of time, in a City that is dependent on volatile revenue sources, and lacks a steady revenue source such as Property Tax, creates significant operational pressure to support personnel costs but lessens the resources available for operational costs.
Maintenance and Operations expenditures in FY 2026/27 total $41.6 million, which is a 3% increase from the FY 2025/26 adopted budget. The majority of the line items within this category encompass a standard 3% inflationary adjustments with materials and supplies increasing by about 12% overall and outside legal services increasing by about 6%. These increases reflect the broader inflationary pressures on good, services, commodities, and the management of an active litigation environment.
Operating Expenses encompass the internal service charges throughout the City for
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the Liability, Workers Compensation, Information Technology, and Fleet Funds. These expenses in FY 2026/27 total $45.5 million within General Fund, which is an 18% increase from the FY 2025/26 adopted budget. The primary increase for these charges are related the Fleet Service Charges due to rising maintenance costs, fuel costs, and increasing cost of the fleet lease model contract.
Capital Improvement Projects in the Proposed Budget encompass any new funding allocations in the General Fund for existing projects that require additional resources.
The budget allocation currently reflects $1.9 million specifically assigned to the City Hall Feasibility Study aligning with the Mayor and City Council’s direction during the April 29, 2026 Budget Workshop to continue forward with the City Hall project. The project currently has a budget allocation within General Fund in FY 2025/26 of $248k, the additional budget allocation in FY 2026/27 would bring the total project budget to $2.2 million which was previously identified by the engineering team to be the funding needing to complete the study.
Departmental Budget Reductions are included in the FY 2026/27 Proposed Budget to assist in working towards a reduced structural gap in the General Fund. Below are the items included in department budgets as reductions. These were submitted by the department, reviewed and approved by the City Manager after deeming the reductions to not impact core services the City provides to the community of San Bernardino. General Government’s budget is reduced by approximately $2.9 million due to the closure of a distribution center in 2025, which ended a sales tax sharing agreement, and reduced General Fund support for Animal Services following renegotiated partner cost-sharing agreements.
City Manager’s Office budget is reduced by approximately $220k due to the department holding the Assistant City Manager position vacant for 8 months. The Finance Department’s budget is reduced by $194k due to the department holding a Grants Assistant position vacant for 12 months, a DBE Specialist vacant for six months, and an overall reduction in contractual services. Economic Development’s budget is reduced by approximately $198k due to the department holding a Senior Economic Development Manager vacant for 12 months.
The Community Development & Housing Department’s budget is reduced by approximately $1.8 million. This reduction is primarily due to holding the following positions vacant for 12 months: one Assistant Planner (FLEX), one Community Development Technician, and one Ombudsperson. In addition, the Navigation Center operations budget has been revised from $2.0 million in originally programmed General Fund support, with $1.0 million now funded through the Opioid Fund. These operating costs are intended to be partially supported by the Opioid Fund for one year, after which staff will evaluate alternative funding sources during future budget development cycles. The department has also reduced $386k in contractual services. The Police Department’s budget is reduced by approximately $5.8 million which consists of $4.4 million in proposed salary savings and $1.4 million in motor vehicles.
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The Parks & Recreation Department’s budget is reduced by $117k due to the department holding a Community Recreation Program Supervisor vacant for 12 months.
The Public Works Department’s budget is reduced by approximately $1.3 million, primarily due to anticipated salary savings. The Engineering team that supports Capital Improvement Projects (CIPs) is budgeted in the General Fund; however, as staff actively work on projects, their time is charged to those projects. This results in a natural reduction in General Fund expenditures, as actual staff costs are recovered through project billing and allocated as overhead to the appropriate projects.
The Library Department’s budget is reduced by approximately $265k primarily due to the department holding a Library Technician I (FLEX) position vacant for 12 months and reduced contractual services.
Department Budget Increases are included within General Fund and are minimal.
Below are items included in the FY 2026/27 Proposed Budget:
The Police Department has an increase of approximately $350k due to ongoing contractual obligations that were previously funded by ARPA. The Parks & Recreation department has an increase of approximately $229k primarily due to increased funding for Special Events and pool maintenance contracts to continue allowing for year-round programming. The City Clerk, Public Works and Legal Services Department had increases tied to CPI increases in contractual obligations. Across the three departments, the budget increases total $249k.
The Economic Development Department had a $74k increase due to contractual obligations for increased real estate services.
FY 2026/27 Projected Fund Balance
Fund Balance represents the accumulated financial resources available to the City, calculated as the difference between what the City collects over time versus what it’s spent. Fund Balance serves as a financial cushion to provide stability during periods of economic downturns and provides the City with saved resources to respond to unexpected needs without disrupting core services.
Category
FY 2021/22
Actuals
(audited)
FY 2022/23
Actuals
(audited)
FY 2023/24
Actuals
(audited)
FY 2024/25
Actuals
(audited)
FY 2025/26
Y ear-E nd
E stimated
FY 2026/27
Projected
Adopted
Beginning Fund Balance, as of J une 30th 110,742,632 $ 156,449,095 $ 173,462,555 $ 202,925,562 $ 178,515,774 $ 153,260,986 $ R evenues 208,775,374 $ 221,320,505 $ 233,643,492 $ 228,011,214 $ 222,059,209 $ 233,826,392 $ E xpenditures (Operating Only) (157,177,194) $ (190,984,572) $ (196,185,240) $ (239,687,480) $ (234,229,923) $ (249,133,197) $ E xpenditures (CIP Only) (5,891,717) $ (13,322,473) $ (7,995,245) $ (12,733,522) $ (13,084,074) $ (1,951,468) $ CIP P roject Deferral to Other Funding S ource - $ - $ - $ - $ 8,849,187 $ Net Surplus/Deficit - (Use of Fund Balance) 45,706,463 $ 17,013,460 $ 29,463,007 $ (24,409,788) $ (25,254,788) $ (8,409,086) $ CIP F und B alance Use 13,084,074 $ 1,951,468 $ Operations F und B alance Use 5,553,929 $ 6,457,618 $ Carryovers from F Y 24/25 F und B alance Use 6,616,785 $ Fund Balance 156,449,095 $ 173,462,555 $ 202,925,562 $ 178,515,774 $ 153,260,986 $ 144,851,899 $ Less: Nonspendable 40,204,687 $ 41,421,536 $ 40,806,497 $ 39,593,408 $ 40,000,000 $ 40,000,000 $ E nding Fund Balance 116,244,408 $ 132,041,019 $ 162,119,065 $ 138,922,366 $ 113,260,986 $ 104,851,899 $
CALCULAT ION OF FUND BALANCE
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The City’s projected General Fund balance at the close of FY 2026/27 is estimated to be $144.8 million, $40.0 million of it being nonspendable, meaning the actual spendable fund balance is projected to be $104.9 million. The projected fund balance also complies with the Council-adopted General Fund Reserve Policy of 25% total budgeted expenditures: 15% Emergency Reserve and 10% Economic Contingency Reserve. Together, these two reserves total $62.8 million reflecting the disciplined financial stewardship exercised over multiple budget cycles.
However, the cumulative four-year trend shows that while the City meets its reserve policy entering FY 2026/27, the net fund balance overall has declined approximately $27 million since FY 2022/23, with the high point in recent years. The decline has two distinct origins:
The first dynamic is the intentional use of fund balance to support capital improvement projects. This reserve accumulated since the adoption of Measure S and use of this reserve is a legitimate and planned use of reserves that reflect the City’s investment in infrastructure and facilities. Capital fund balances drawdown, while still impacting overall fund balance, represent deliberate decisions made in the context of the broader investment strategy for the City’s parks, facilities, streets, etc.
The second dynamic is unplanned use of fund balance. In FY 2024/25, the General Fund revenues fell short of what was needed to fully cover the operational expenditures.
The FY 2026/27 budget reflects a projected operational deficit of approximately $8.4 million, partially offset by $8.8 million in Capital Improvement Projects being transferred to more appropriate funding sources and that budget then reverting back into fund balance. The net draw on fund balance is manageable in the context of current reserves and the City remains in compliance with its reserve policy. The trend line for future years remains clear though: the single largest expenditure pressure in General Fund, personnel costs, continue growing approximately 12% annually while the City’s largest and most critical revenue source isn’t keeping pace and is estimated to grow modestly but is subject to global, state and local economic changes. If the gap between rising costs and modest revenue growth persists, the City’s fund balance will ACFR 2021-22 ACFR 2022-23 ACFR 2023-24 ACFR 2024-25 Category
FUND BALANCE
06-30-2022
FUND BALANCE
06-30-2023
FUND BALANCE
06-30-2024
FUND BALANCE
06-30-2025
FUND BALANCE
06-30-2026
(estimated)
FUND BALANCE
06-30-2027
(estimated)
Nonspendable 40,204,687 41,421,536 40,806,497 39,593,408 40,000,000 40,000,000 R estricted 2,107,208 2,086,366 2,099,574 2,164,740 1,800,000 1,800,000 Committed
Animal S ervices 68,387 68,387 - - - -
G eneral Plan Update 55,048 142,877 551,312 471,515 600,000 600,000 Measure S - Capital Projects 57,201,940 81,762,949 86,734,706 68,201,640 46,480,551 39,680,733 15% E mergency R eserve 28,130,824 28,788,264 35,618,054 38,628,262 38,628,261 37,662,700 10% E conomic Contingency R eserve 18,753,883 19,192,176 23,745,369 25,752,175 25,752,174 25,108,466 Assigned 6,669,342 - 13,370,050 3,704,034 - -
Unassigned 3,257,776 - - - - -
T OT AL FUND BALANCE 156,449,095 173,462,555 202,925,562 178,515,774 153,260,986 144,851,899 Less: Nonspendable 40,204,687 41,421,536 40,806,497 39,593,408 40,000,000 40,000,000 NE T FUND BALANCE 116,244,408 132,041,019 162,119,065 138,922,366 113,260,986 104,851,899
F UND BALANCE DE SIG NAT ION
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continue to absorb the difference. The FY 2026/27 Proposed Budget has been built on a foundation of conservative revenue assumptions and deliberate expenditure management reflecting a responsible budget during a challenging economic environment. The City’s long-term fiscal health depends on thoughtful management of our resources and focusing on prioritization in each year, ensuring optimization of all available resources, and the need to grow and diversify the revenue base within the City.
Capital Improvement Program FY 2027-2031
The City’s capital improvement program is a testament to the sustained investment San Bernardino has made in its future. Across all funds, the City maintains an amended capital budget of approximately $196.0 million in FY 2025/26, including $54.6 million in General Fund capital. Of that, Measure S portfolio alone accounts for nearly $51.7 million. Approximately $163.9 million in prior-year appropriations are expected to carry forward into FY 2026/27, with an additional $9.9 million in proposed new appropriations to continue supporting ongoing projects. This portfolio also reflects approximately $8.8 million in General Fund project budget reallocations to more appropriate funding sources, ensuring the program is aligned with current capacity and funding strategy.
Together, this results in a CIP portfolio of approximately $165 million entering FY 2026/27. These figures represent more than funding – they are real commitments to the neighborhoods, streets, and facilities that shape daily life for our residents. Active capital priorities span the full breadth of community investment, from street rehabilitation and park improvements to the Navigation Center, a transformational project funded through ARPA and other dedicated funding sources that reflects the City’s commitment to addressing homelessness with lasting, meaningful solutions.
Delivering on commitments of this scale requires disciplined management of capacity alongside funding. The City’s engineering and project management team is actively advancing an ambitious portfolio of projects, doing so with the focus and precision that complex capital delivery demands. With $163.9 million in active appropriations already in motion across the organization, the priority this fiscal year is to advance the work already underway and deliver it to the community as effectively and efficiently as possible.
FY 2026/27 Appropriations Limit Calculation
Article XIIIB of the California Constitution, introduced by Proposition 4 in 1979 and later amended by Proposition 111 in 1990, imposes limits on the growth rate of appropriations for cities and other local governments. This growth rate is based on changes in population and California's Per Capita Personal Income. In May 2026, the California Department of Finance provided cities with updated factors for population change and Per Capita Personal Income to use in calculating their appropriation limits.
For Fiscal Year 2026-27, the change in the California Per Capita Personal Income is
4.95% and the change in San Bernardino's population is -0.06%. Based on this data, San Bernardino's appropriation limit for FY 2026-27 is calculated at $545,191,566. The total appropriations subject to limitation in the City’s FY 2026-27 budget is $188,964,926. The City remains below the legal appropriation limit by $356,226,640. 3 3
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Personnel Compensation
As changes are made to salaries or classifications, the City is required to adopt a revised salary schedule and resolution in a public meeting. The attached salary schedule meets the California Public Employees Retirement Systems (CalPERS) pay rate reporting requirements in accordance with Government Code Section 20636 defining “Compensation Earnable” and the California Code of Regulations (CCR) Section 570.5. Attachment 9 provides the City of San Bernardino’s city-wide FY 2026/27 salary schedule.
Investment Policy
State law requires that all municipalities have an investment policy approved by its governing board and that it approves the policy on an annual basis. The investment policy serves as the foundation of a local agency’s investment goals and priorities. A good investment policy encompasses the cash, treasury, and investment management functions of an agency. It serves as a guide for setting and achieving program objectives, defines rules and establishes benchmarks, and reduces exposure to liability. An approved investment policy demonstrates that the governing body is performing its fiduciary responsibilities, thereby instilling trust and confidence in the public it serves. It is also important to note that rating agencies pay close attention to an agency’s investment policy and portfolio in determining its credit rating. The Finance Department is responsible for submitting the Investment Policy for adoption by the Mayor and City Council on an annual basis. For FY 2026/27, the City had no major policy or operational changes in the Investment Policy. Attachment 5 provides the City of San Bernardino’s Investment Policy for FY 2026/27.
2021-2025 Strategic Targets and Goals
The proposed budget review aligns with all key targets of the City Council’s Strategic Plan: Improved Operational & Financial Capacity, Focused, Aligned Leadership and Unified Community, Improved Quality of Life, Economic Growth & Development.
Funding projects and programs at every level of the organization ensures that the City can achieve the goals and priorities established by the Mayor and City Council.
Fiscal Impact
The adoption of the operating budget allocates the available resources to programs, services, and departments for the upcoming fiscal year. The total revenue allocations for FY 2026/27, across all funds is $318,179,271.11: $233,826,392 in General Fund and $84,352,879.11 for all Other Funds. The total operating and CIP expenditure allocations for FY 2025/26 across all funds is $328,463,123.98: $251,084,665 in General Fund and $77,378,458.99 for all Other Funds. Of these expenditure allocations, $9,899,568 specifically pertain to CIP expenditures.
Conclusion
It is recommended that the Mayor and City Council of the City of San Bernardino:
1. Conduct the Public Hearing on the Proposed Fiscal Year 2026/27 Operating Budget and 2027-2031 Capital Improvement Plan; and
2. Adopt Resolution No. 2026-071 approving the City of San Bernardino’s Fiscal 3 3
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Year 2026/27 Operating Budget and 2027-2031 Capital Improvement Program; and
3. Adopt Resolution No. 2026-072 establishing the City’s Appropriations Limit as required by Article XIIIB of the California State Constitution; and
4. Adopt Resolution No. 2026-073 approving the updated Investment Policy for FY 2026/27; and
5. Approve any modifications made during the Public Hearing to be incorporated into the City of San Bernardino’s Fiscal Year 2026/27 Operating Budget and 2027-2031 Capital Improvement Program and included as part of the adopted budgets.
Attachments
Attachment 1 - Resolution 2026-071 (Budget Adoption)
Attachment 2 - Resolution 2026-072 (Appropriations Limit) Attachment 3 - Exhibit A Appropriations Limit Calculation – 2027 Attachment 4 - Resolution No. 2026-073 (Investment Policy) Attachment 5 - Exhibit A – Investment Policy Statement FY 2026-27 Attachment 6 - Exhibit A – Investment Policy Statement FY 2026-27 (Tracked Changes)
Attachment 7 - General Fund Reserve Policy
Attachment 8 - Public Hearing Notice Publication English Attachment 8 - Public Hearing Notice Publication Spanish Attachment 9 – 2026-27 Salary Schedule
Attachment 10 – FY 2027-2031 Updated CIP List
Attachment 11 – Proposed Measure S CIP Deferrals
Ward:
All Wards
Synopsis of Previous Council Actions:
April 29, 2026 - Mayor and City Council held the budget workshop for the Proposed FY 2026/27 Budget.
CC
Eric Levitt, City Manager