City Council Meeting – February 10, 2026; Item 3.3
2025-2026
Mid-Year Budget Review
2 Through the first half of 2025-2026, operating and capital funds are generally performing as expected, with a few exceptions
Economic conditions still generally align with previous expectations, but are not conducive to significant revenue growth
Budget adjustments are recommended in various operating and capital funds 2025-2026 Mid-Year Budget Review
Overview
3 Economic Conditions
Local economy remains sluggish
• Job growth is stagnant
• Office vacancies remain high; commercial sector is relatively week and weighing down property valuation • Residential real estate prices and sales have slightly decreased; days on market have slightly increased • Private development activity is up from last year, but not considered strong • Airport passenger levels are down 11% from the prior fiscal year 4 General Fund Assessment
Revenues are anticipated to end the year approximately $15 - $20 million below budgeted levels, which is primarily due to lower than anticipated Property Tax and Utility Tax revenues
Expenditures are currently tracking to end the year with minimal savings Cost saving actions totaling $16.6 million are included in this report to partially offset anticipated revenue shortfall ($15.4 million) and address other required expenditures adjustments ($1.2 million)
Cost controls, implemented in December 2025, will be maintained throughout the remainder of 2025-2026 to achieve further savings
5 General Fund Recommended Budget Adjustments
Recommended 2025-2026 General Fund Adjustments ($ in Millions) Source Use
Required Technical/Rebalancing Actions ($15.34) ($15.26) Grants/Reimbursements/Fee Activities $3.81 $3.81
Clean-Up Actions $0.08 $0
Total Recommended Budget Adjustments ($11.45) ($11.45)
6 General Fund Recommended Budget Adjustments Highlights Required Technical/Rebalancing Actions ($ in Millions)
Source Use
Property Tax ($14.00)
Utility Tax ($1.35)
Workers’ Compensation Claims - Police $1.00
Workers’ Compensation State License ($0.56)
Bay Area Phlebotomy Lab Services $0.25
Police Redistricting Software Integration $0.15
7 General Fund Recommended Budget Adjustments Highlights Required Technical/Rebalancing Actions ($ in Millions)
Source Use
2025-2026 Cost Reductions ($16.61)
Salaries and Benefits Reserve ($5.67)
Suspension of New Services Not Yet Started ($4.91)
- Police Training Center FF&E ($2.60)
- Emergency Medical Services Field Coordination ($0.70) - Fire Station 32 ($0.67)
- Disaster Preparedness & Emergency Response Modeling Software ($0.58)
- Police Training Center Maintenance and Operations ($0.25) - Emma Prusch Park Electrical and Infrastructure Upgrades ($0.10) Project/Program Savings ($2.37)
Non-Personal/Equipment Reductions ($2.24)
Personal Services Reductions ($1.42)
8 Status of Selected Capital Funds
0 10
20 30
40 50
60 70
($ in Millions)
Actual Annual Collections
and 2025-2026 Estimate
Building & Structure Construction Excise Construction & Conveyance Construction and
Conveyance Tax Funds:
• Stagnant real estate activity
is leading to slowed revenue
growth
Building and Structure /
Construction Excise Tax
Funds:
Construction Valuation
• Commercial
• Industrial
• Residential
Building & Structure
Construction Excise
9 Special/Capital Funds
Recommended Budget Adjustments
• Clean-Up Actions
− Fund Balance Reconciliations
− Rebudget Adjustments
− Technical Adjustments (e.g., Net-Zero Transfers/Reallocations) • Recommended Adjustments
− Recognize Grants and Reimbursements
− Update Cost/Revenue Estimates and Project Timing
10 Looking Forward: 2026-2027 Budget Process
March 2026
2026-2027 City Manager’s Budget Request and 2027-2031 Five-Year Forecast Released March 2026
City Council Review and Approval of Mayor’s March Budget Message April/May 2026
2026-2027 Proposed Capital Budget Mid-Biennial Update/2026-2027 Proposed Operating Budget/2026-2027 Fees and Charges Released
City Council Budget Study Sessions, Initial Budget Public Hearing and Community Budget Meetings
June 2026
Final Budget Public Hearing
Mayor’s June Budget Message & Final Review of Budgets
2026-2027 Capital/Operating Budgets and Fees & Charges Approval 2025-2026
Mid-Year Budget Review
Jim Shannon Selena Ubando
Budget Director Financial Status Coordinator
Bonny Duong Bryce Ball
Assistant Budget Director Operating Budget Coordinator Claudia Chang Jennifer Tell
Deputy Budget Director Capital Budget Coordinator