TO: Mayor and City Council
FROM: Philippe Eskandar, City Manager
BY: Hillary Guirola-Leon, Finance Director
DATE: March 11, 2026
SUBJECT: FISCAL YEAR 2025-26 MID-YEAR FINANCIAL REVIEW, UPDATED FIVE-YEAR FINANCIAL FORECAST AND LONGTERM FINANCIAL PROJECTIONS, AND APPROVAL OF
BUDGET AMENDMENTS
STRATEGIC PLAN CRITICAL SUCCESS FACTORS
Efficient, Responsive, and Effective City Services
Fiscally Responsible and Transparent City Government
BACKGROUND
On May 30, 2025, City Council adopted the Fiscal Year (FY) 2025-26 budget.
The budget was established using Priority Initiatives as the City’s strategic goals. Since budget adoption, staff has closely monitored the budget each month for both revenues and expenditures. Now with six (6) months’ worth of data, staff has analyzed budget projections against year-to-date actuals, current year trends, and current economic conditions.
Overall, the General Fund group is projected to end the fiscal year with a surplus of $182,037. The Sewer Service Charge was adopted by Council after the budget was approved. This mid-year review incorporates adjustments to account for the Sewer Service Charge revenue, as well as a reclassification of expenditures that were originally budgeted under the General Fund. Without this revenue, the General Fund would be projected to end the fiscal year with a deficit of approximately $38,500.
Staff has included the Proposed FY 2025-26 Budget Amendments Summary:
General Fund Group (Refer to attachment 1) and the proposed FY 2025-26 Tony Chou, Mayor
Calvin Lo, Vice Mayor
Hunter Chang, Council Member
John Chou, Council Member
Gretchen Shepherd Romey, Council Member
Budget Adjustments: All Other Funds (Refer to attachment 2) listing the recommended budget amendments for FY 2025-26 for Council’s approval. As part of the mid-year process, the Five-Year (5) Financial Forecast has also been updated. The Five-Year (5) Financial Forecast is included as Attachment 4.
Additionally, staff have met and discussed this report with the City Council’s finance liaisons Mayor Chou and Council Member Chou.
DISCUSSION
FY 2025-26 Mid-Year Financial Review
As part of the Mid-Year financial review, staff analyze both revenue and expenditures against year-to-date actuals and trends. City departments also review year-to-date activity, any operating changes, and the status of capital projects. The information obtained in the mid-year financial review is used to propose budget adjustments where necessary. Mid-year projections are then used to update the long-term forecasts.
General Fund Group: Revenues
The City’s primary revenue sources are Property Taxes, Utility Users Tax, and Public Safety Parcel Tax, making up approximately 74% of the FY 2025-26 budgeted revenues. Year-to-date actuals were analyzed against budgeted amounts and projections were updated for FY 2025-26. Overall, the General Fund group revenues are projected to decrease by $366,359 from budgeted amounts.
Table 1 below shows the adopted FY 2025-26 budget, current FY 2025-26 budget, projected year-end amounts, and the mid-year amendments proposed.
Table 1 – General Fund revenues by Revenue Source
• Note 1: As of February 2026, property taxes are showing a 4.2% increase compared to the previous year. In January 2026, staff discussed year-todate activity with HDL and based on current trends there is no budget adjustment proposed.
• Note 2: As of December 2025, Utility Users Tax revenue is trending 16% lower than last year. Based on review of the year-to-date remittances received, the decrease in revenues is due to a reduction in taxable sales.
The proposed FY 2025-26 mid-year amendment for Utility Users Tax revenues is reduced by $292,550.
• Note 3: The Regulatory Compliance Fee replaces revenue that had historically been recorded under Franchise Fees in prior fiscal years.
Beginning in FY 2025–26, this revenue is budgeted within Miscellaneous Revenue. On December 10, 2025, Council approved a budget amendment that included the full amount of the anticipated FY 2025-26 Regulatory Compliance Fee revenue of $318,750 under Miscellaneous Revenue. This amount should be presented net of the Franchise Fee revenue that was previously budgeted. To properly reflect the net revenue impact, a budget adjustment in the amount of negative $189,000 is proposed under the Franchise Taxes category.
• Note 4: The net increase projected under Charges for Services is $151,093. This net increase amount is made up of various accounts. The majority of the increase comes from Plan Check Fees related to activity during the year.
FY 2025-26 Year-End Projections
Adopted
Budget
FY 2025-26
Revised
Budget
FY 2025-26
Projected YE
FY 2025-26
Mid Year
Proposed
Amendments
GENERAL FUND REVENUES
Property Tax 20,950,000 20,950,000$ 20,950,000$ -$ Note 1 Public Safety Property Tax 3,704,709 3,704,709 3,704,709 - Public Safety Augmentation Fund 205,000 205,000 205,000 - Sales Tax 637,000 637,000 637,000 -
Utility Users Taxes 2,466,750 2,466,750 2,174,200 (292,550) Note 2 Franchise Taxes 787,950 787,950 598,950 (189,000) Note 3 Charges for Services 2,335,411 2,335,411 2,486,504 151,093 Note 4 Licenses & Permits 1,750,170 1,750,170 1,737,950 (12,220) Note 5 Property Tax in Lieu of Vehicle License Fee (VLF ) 2,198,457 2,198,457 2,218,384 19,927 Note 6 Other Revenues 1,392,585 1,736,335 1,692,726 (43,609) Note 7 Total Revenues 36,428,032 36,771,782$ 36,405,423$ (366,359)$ • Note 5: License & Permits revenues are trending lower than prior year.
Based on trends, a budget adjustment of negative $12,220 is proposed. • Note 6: Based on trends and the first remittance received during the year, a budget adjustment of $19,927 is proposed to recognize higher revenues related to Property Tax in Lieu of Vehicle License Fee (VLF). • Note 7: A budget adjustment of negative $43,609 is proposed under Other Revenues category. Included in this net amount are proposed adjustments to recognize donations received during the fiscal year. Also included in this adjustment is the reduction in revenue due to the temporary suspension of Lacy Park Weekend Non-Resident Admission Fee.
General Fund Group: Expenditures
As of December 2025, 51% of budgeted expenditures have been spent to date, with 49% remaining. As part of the mid-year process, expenditures were analyzed and proposed amendments are explained below. Overall, the proposed mid-year amendments to the General Fund group total a net decrease of $436,261. While certain expenditure categories are projected to increase, the overall reduction in expenditures is primarily due to temporary salary savings resulting from vacant positions.
Table 2 lists the adopted FY 2025-26 budget, the current FY 2025-26 budget, projected ending expenditures, and mid-year amendments proposed.
Table 2 – General Fund Group Expenditures
• Note 1: Overall, there is a net decrease in personnel costs due to vacancies during the fiscal year across various departments. While the Overtime-Safety category increased by $360,000 to maintain necessary coverage, these costs are offset by savings from public safety vacancies during the year. The total proposed net decrease in personnel expenditures is $597,162.
• Note 2: There is a proposed budget adjustment of $115,000 under the Legal Services Account based on year-to-date trends.
• Note 3: The proposed increase under the Office Supplies, Repair & Maintenance, Miscellaneous expenditure category is $77,904. This is the net increase and includes various accounts. Approximately $47,000 is related to recruitment costs during the year.
• Note 4: The proposed net decrease under Contract Services is $70,105.
This net decrease includes a decrease of $220,600 in sewer operating costs originally budgeted under the General Fund that are now being proposed to be paid with Sewer Service Charge Revenues. This net amount also includes an increase of $137,496 under the finance FY 2025-26 Year-End Projections
Adopted Budget
FY 2025-26
Revised Budget
FY 2025-26
Projected YE
FY 2025-26
Mid Year
Proposed
Amendments
GENERAL FUND EXPENDITURES
Personnel
Salaries - Miscellaneous 7,670,784$ 7,610,976$ 7,291,789$ (319,187)$ Salaries - Safety 10,136,916 10,136,916 9,598,004 (538,912) Overtime - Miscellaneous 32,795 32,795 32,795 -
Overtime - Safety 1,500,448 1,500,448 1,860,448 360,000 Medical, Medicare, Allowances 2,924,869 2,925,073 2,826,010 (99,063) Pension Payments - Miscellaneous 989,147 989,147 989,147 - Pension Payments - Public Safety 2,948,748 2,948,748 2,948,748 - Retirees' Medical (OPEB) 189,500 189,500 189,500 -
Total Personnel 26,393,207 26,333,603 25,736,441 (597,162) Note 1 Non-Personnel
Workers' Compensation 1,096,668 1,096,668 1,096,668 -
General Liability & Insurance 1,285,478 1,285,478 1,285,478 - Legal Services 555,000 555,000 670,000 115,000 Note 2
Office Supplies, Repair & Maint., Misc. 1,865,099 1,882,829 1,960,733 77,904 Note 3 Contract Services 3,909,496 4,218,949 4,148,844 (70,105) Note 4 Utilities 1,096,634 1,096,634 1,077,985 (18,649) Note 5 Capital Equipment 6,100 6,100 - (6,100)
Other (Building maintenance, Training, etc.) 184,385 184,387 247,237 62,850 Note 6 OPEB Trust Contribution - - - -
Windstrom Expenditures
Pension Trust Contribution - - -
Total Non-Personnel 9,998,860 10,326,045 10,486,945 160,900 Total Expenditures 36,392,067 36,659,648 36,223,386 (436,261) department, needed to provide coverage due to the Accounting Manager/Controller vacancy.
• Note 5: Utilities expenditure category is trending lower than budgeted.
The proposed decrease under this category is -$18,649.
• Note 6: An increase of $62,850 is proposed under the Other expenditure category. This increase is to cover the estimated election costs.
FY 2025-26 Year-End Projections
Table 3 shows the overall FY 2025-26 projections for the General Fund group.
Table 3 – General Fund Group Mid-Year Projections
Overall, the General Fund group is projected to end FY 2025-26 at a surplus of $182,037. The Sewer Service Charge was adopted by Council after the budget was approved. This mid-year review incorporates adjustments to account for the Sewer Service Charge revenue, as well as a reclassification of expenditures that were originally budgeted under the General Fund. Without this revenue, the General Fund would be projected to end the fiscal year with a deficit of approximately -$38,500.00.
Updated Five-Year (5) Financial Forecast and Long-Range Financial Projections
Table 4 below shows the Five-Year (5) forecast for the General Fund group.
Table 4– General Fund Group Five-Year (5) Forecast
Revised Budget
FY 2025-26
Projected YE
FY 2025-26
Mid Year
Proposed
Amendments
Total Revenues 36,771,782$ 36,405,423$ (366,359)$
Total Expenditures 36,659,648 36,223,386 (436,261)
Annual Operating Surplus (Deficit) 112,134$ 182,037$
The Five-Year (5) Financial Forecast (Refer to attachment 4), is the fiscal projection for the next five (5) fiscal years. The assumed projected growth rate was determined using various data points from prior year actuals, current pension valuations, three-year (3) averages, current year trends, and other relevant information.
Below are significant assumptions in this updated Forecast:
• A 5% annual increase in the Public Safety Parcel Tax; • Renewal of the Public Safety Parcel Tax upon its expiration in FY 2028- 29;
• Renewal of the Utility User’s Tax upon its expiration on March 31, 2027; • Property Tax growth rate of 4.6%
• Any FY 2025-26 frozen vacant positions are added back to the FY 2026- 27 budget
• One hundred fifty-four thousand dollars ($154,000.00) in expenditures budgeted under special revenue funds for FY 2025-26 are added back to the general fund.
o $25,000 - Foothill Communications contract costs were funded through COPS funds in FY 2025-26
o $100,000 - Flock camera contract costs were funded through COPS funds in FY 2025-26
o $29,000 – Donations fund reserves were used to purchase Adult and Youth books
Based on these projections, operating revenues will not grow at the same rate as ongoing expenditures, causing a structural deficit. The projected deficit for the next five-years (5) ranges from approximately $1.4 million to $1.8 million.
On February 11, 2026, staff presented the projected deficits ranging from $787,000 to $1.3 million. The projections presented at that time were developed prior to completion of the mid-year budget review and therefore reflected preliminary assumptions based on information available at that point in the fiscal year. Since that presentation, staff has completed the mid-year review and incorporated several updates into the financial projections. These updates include adjustments made to the budget following its adoption and the inclusion of relevant mid-year adjustments. As a result, the projections presented in this report reflect a more current financial outlook based on the most recent available data and year-to-date activity.
The City has taken steps to address these challenges in the past two (2) years.
Below are some of the steps that have been taken in FY 2025-26:
• Council approved the implementation of a Sewer Service Charge that will help fund future critical improvements to our sewer infrastructure. • Public Safety Parcel Tax assessments were adjusted 5% by the City Council in accordance with the the provisions of the approved ballot measure.
• On February 11, 2026, the City Council unanimously authorized the placement of a ballot measure on the June 2026 Primary Election Ballot for voters to consider adding a 1% Transaction and Use Sales Tax in San Marino.
• Special revenue funds were used where possible to reduce costs in the General Fund.
• Positions were strategically frozen in anticipation of extended hiring/recruitment timelines while other positions that became vacant were assessed for their operational impacts and opportunities to continue to hold them vacant as long as reasonable without impacting service delivery.
• Staff have pursued and been awarded several grants to help deliver services and purchase necessary equipment that would have otherwise been paid for by City revenues.
While challenges remain, the actions taken to date and those planned for the coming fiscal year will help the City bridge the gap between operating revenues and operating expenditures. On February 27, 2026, Council adopted the Priority Principles for FY 2026-27 and the renewal of the Utility User’s Tax is listed under the theme of Fiscal Stability. The Utility User’s Tax expires on March 31, 2027, and its renewal at an appropriate rate is critical to the City’s fiscal sustainably.
Utility User’s tax revenues make up approximately $2.2 million of the General Fund budgeted revenues.
Budget Amendments
Attachments 1 and 2 are the budget amendments proposed for Council approval. The budget amendments needed have been discussed in detail in this report for the General Fund group. There is also a budget amendment needed for the Capital Equipment Fund for a project that was finished in FY 2025-26.
The Sewer Enterprise Fund is new in FY 2025-26 and will be used to account for revenue and expenses related to sewer operations and capital investment.
The budget adjustment proposed under the Sewer Fund is needed to recognize revenue received during the fiscal year and sewer operating expenditures.
FISCAL IMPACT & PROCUREMENT REVIEW
The proposed budget adjustments in Attachment 2 have a net impact of $69,902 in the General Fund. The General Fund is projected to end FY 2025-26 at a surplus of $182,037.
Procurement review is not applicable.
LEGAL REVIEW
The City Attorney's office has reviewed and approved as to form.
RECOMMENDATION
Staff recommends that this report be received and filed, and that the Council approve the proposed FY 2025-26 budget adjustments as reflected in Attachments 1 and 2. If the City Council concurs with staff’s recommendations, the appropriate motion would be:
“I move to receive and file the FY 2025-26 Mid-Year Financial review, Updated Five-Year Financial Forecast, and Long-Term Financial Projections, and approve the FY 2025-26 proposed budget amendments.”
ATTACHMENTS
1. Proposed FY 2025-26 Budget Amendments Summary: General Fund Group
2. Proposed FY 2025-26 Budget Adjustments: All Other Funds
3. FY 2025-26 Year-End Projections
4. Five-Year (5) Financial Forecast
5. Revenue Summary at December 2025
6. Expenditure Summary at December 2025