TO: Mayor and City Council
FROM: Philippe Eskandar, City Manager
BY: Hillary Guirola-Leon, Finance Director
DATE: April 24, 2026
SUBJECT: PRESENTATION OF FY 2026-27 PROPOSED OPERATING
BUDGET BY DEPARTMENT
STRATEGIC PLAN CRITICAL SUCCESS FACTORS
Efficient, Responsive, and Effective City Services
Engaged and Connected Residents
Fiscally Responsible and Transparent City Government
BACKGROUND
The annual budget is an important document where government resources are allocated to programs and services for the year. This allocation of resources is driven by the City’s priority principles. The Fiscal Year 2026-27 budget process began at the second meeting in February and the goal is to adopt the budget by May/June before the start of the fiscal year. • At the February 27, 2026, City Council meeting, staff presented the Fiscal Year 2026-27 budget calendar, a budget overview, and presented the proposed priority principles. Council selected the FY 2026-27 priority principles listed below:
Fiscal Stability
Safeguard the long-term financial viability of the organization with a focus on protecting local revenue streams and planning for future capital and operating needs Public Safety Excellence
Embody the community’s commitment to maintaining the highest levels of public safety and operating as premier public safety agencies
Infrastructure Investment & Sustainability
Tony Chou, Mayor
Calvin Lo, Vice Mayor
Hunter Chang, Council Member
John Chou, Council Member
Gretchen Shepherd Romey, Council Member
Taking proactive and measured steps to ensure that San Marino’s public infrastructure meets the needs and expectations of our current and future generations Strengthening Community Partnerships
Highlight and build on the overall sense of community camaraderie through strengthening communication and shared resources with the City's many community partners, with a special emphasis on the San Marino Unified School District.
• At the March 11, 2026, City Council meeting, staff presented the FY 2025-26 mid-year review and the five-year financial forecast. • At the March 27, 2026, City Council meeting, staff presented the draft FY 2026-27 Capital Equipment, FY 2026-27 Construction Plans, and the 5-year Capital Improvement Plan. Developing a 5-year Capital Improvement Plan is a best practice used by governments to identify the City’s present and future anticipated capital investment needs.
Importantly, the 5-year plan is a forecasting tool and does not necessarily commit the City to certain projects unless funding is encumbered and can be modified during future budget cycles.
Today’s meeting continues the next stage of the budget process; the review of the operating budget by each department. Staff will provide a high-level budget summary including revenues, operating expenditures, and fund balance impacts for the Council’s consideration. Following discussions and input from the City Council, the entire budget and associated documents will return to the City Council in May for formal adoption.
DISCUSSION
Today’s meeting will focus on the departmental budget packets and proposed revenues included as Attachments 1 through 12 of this staff report. The departmental budget packets include a budget memorandum, a narrative description, current year accomplishments, next year’s objectives, an up-to date operating dashboard, and the department operating budget separated into Personnel and Services & Supplies sections. Departmental Organizational Charts are also included in the attached budget packets.
FY 2026-27 Proposed Revenue Budget
The proposed revenue budget for FY 2026-27 is $40,715,515, which is a $492,271 or 1% decrease from the amended FY 2025-26 budget.
The table below provides the breakdown of the General Fund revenues in more detail:
The top three General fund revenue sources are Property taxes, Utility Users Tax, and the Public Safety Parcel Tax, together making up 75% of the total General fund revenues for FY 2026-27.
Property tax revenue is projected to grow by 3.2% based on the City’s property tax consultants’ (HDL) latest estimates. The projected property tax revenue for FY 2026-27 based on HDL’s estimate provided is $21,629,900, which is a 3.2% increase from the FY 2025-26 budget amount.
The Public Safety Parcel tax for FY 2026-27 is estimated to grow by $186,616 or 5% from current year. The Utility User’s Tax (UUT) expires on March 31, 2027 and in light of this, the FY 2026-27 proposed budget includes Utility Users Tax Revenue projections for only 9 months.
The decrease of $192,604 under Charges for Services is primarily due to a reduction in revenue projected from the Lil’ Playmates and Lil’ Learners Classes of approximately $190,000. Importantly, this reduction in revenue was offset by a reduction in operating expenses due to the reduction of staff hours and other expenses associated with the programs.
The decrease under Other revenues is shown net and is made up of various accounts. The decrease under Other revenues is primarily due to lower interest revenue projected. This decrease projected reflects a combination of Revenues by Fund
FY 2025-26
Amended
FY 2026-27
Proposed
$
Change
%
Change
General Fund Group 36,453,097 36,437,374 (15,723) -0.04% Restricted Funds 4,754,689 4,278,141 (476,548) -10.0%
Total 41,207,786 40,715,515 (492,271) -1%
General Fund Group
Revenues
FY 2025-26
Amended
FY 2026-27
Proposed
$
Change
%
Change
Ad Valorem Property Taxes 20,950,000$ 21,629,900$ 679,900$ 3.2% Public Safety Property Tax 3,704,709 3,891,325 186,616 5.0% Property Tax in Lieu of Vehicle License Fee (VLF ) 2,218,384 2,293,730 75,346 3.4% Utility Users Tax 2,174,200 1,660,300 (513,900) -23.6%
Franchise Taxes 598,950 503,300 (95,650) -16.0%
PSAF 205,000 200,000 (5,000) -2.4%
Sales Tax 637,000 656,450 19,450 3.1%
Charges for Service 2,529,178 2,336,574 (192,604) -7.6% Licenses & Permits 1,737,950 1,716,812 (21,138) -1.2%
Other Revenues 1,697,726 1,548,983 (148,743) -8.8%
Total $ 36,453,097 $ 36,437,374 $ (15,723) -0.04%
factors, including reduced average cash balances as well lower interest rates.
This is also consistent with maintaining sufficient liquidity to support operational needs and investment in capital equipment and projects.
Proposed Expenditures Operating Expenditures-All Funds
The tables shown below compare the adopted FY 2025–26 budget against the proposed FY 2026–27 budget. The adopted budget is being used in this staff report as the basis for comparison to more accurately reflect year-over-year changes, as the amended budget includes one-time adjustments that would distort trend analysis. This approach is also consistent with the department budget packets provided as attachments.
For the final budget book, the amended FY 2025–26 budget will be used for comprehensive reporting purposes.
The city-wide proposed operating expenditure budget for FY 2026-27 is $38,674,002, which is an increase of $1.26 million or 3.4% increase from the adopted FY 2025-26 budget.
All Funds Operating Expenditures-By Fund Type
Operating Expenditures-General Fund Group
The proposed General Fund operating expenditures budget for FY 2026-27 is $37,383,451 which is an increase of $991,384 or 2.7% from the current adopted FY 2025-26 budget.
Personnel Category
Operating Budget
FY 2025-26
Adopted
FY 2026-27
Proposed
$
Change
%
Change
General Fund 36,392,067 37,383,451 991,384 2.7%
Restricted Funds 1,012,480 1,290,551 278,071 19.7%
Total 37,404,547 38,674,002 1,269,455 3.4%
Operating Budget
FY 2025-26
Adopted
FY 2026-27
Proposed
$
Change
%
Change
Personnel 22,265,983 22,545,070 279,087 1.3%
Personnel- Workers Comp 822,546 761,650 (60,896) -7.4%
Pension UAL & OPEB 4,127,224 4,530,905 403,681 9.8%
Services & Supplies 9,176,314 9,545,825 369,511 4.0%
Total 36,392,067 37,383,451 991,384 2.7%
Overall, the personnel budget increased by 1.3% from current adopted budget. The proposed budget includes the negotiated 4% MOU increase with each of the labor associations and unrepresented group of employees.
To help balance the General Fund operating budget, staff reviewed budgetbalancing strategies under the personnel category. As part of this process, staff reviewed vacant positions and part-time hours. The proposed personnel budget includes the budget-balancing strategies listed in the table below, which have a total net fiscal impact of $752,000.
Department Position
Budget
Impact Description
Community
Development Senior Planner (1)
$(145,500) Freeze vacant position
Police Department
Management Analyst
(1)
(123,700) Freeze vacant position
Police Department Police Cadet (2)
(48,900) Freeze vacant position
Police Department Police Officer (1)
(147,000)
Freeze or eliminate the long term vacant
and current FY 2025-26 frozen position
Police Department Dispatcher (1)
(107,500)
Freeze or eliminate the long term vacant
position
Community ServicesRecreation Recreation Supervisor (134,000) Freeze vacant position Community ServicesLibrary PT hours reduction
(45,400) Reducing part-time hours
Total
$(752,000)
Additionally as mentioned last year, it’s important to note that in order to deliver on the expectations of the community and City Council related to public safety, community services, permitting, responding to new State legislation, etc., past administrations have grown the organization from approximately 96 full time positions in Fiscal Year 2016-17 to 112 full time positions in FY 2024-
25. All of which has occurred without substantial new structural revenue growth over the same period of time.
As a part of the FY 2025-26 budget last year, the City Council directed staff to freeze 1 vacant Police Officer position and 1 vacant part time Police Cadet position reducing the total authorized positions to 111. In addition to the frozen positions above for the Council’s consideration, staff would also like direction from the City Council whether it would be appropriate to eliminate the 1 frozen Police Officer and 1 frozen Dispatcher position, both of which have been vacant for several years.
Pension Unfunded Accrued Liability (UAL) & Other Post Employment Benefits (OPEB) Category
The proposed budget includes an increase of $403,681 from current budget under the Pension Unfunded Accrued Liability (UAL) & OPEB category. This amount is determined based on the latest actuarial valuation available, and it is a 9.8% increase from the current adopted budget.
Services & Supplies Category
The proposed budget under Service & Supplies is $9,545,825 which is a $369,511 or 4% increase from the current budget. This increase is primarily due to an increase in the city’s liability insurance premiums of $354,785 or 28% from current adopted budget. Details regarding the changes within each department can be found in the individual department narrative attachments.
Services & Supplies Expenditure Category By Department
General Fund Overview
Overall, the General Fund FY 2026-27 proposed budget has an operating deficit of -$946,077. Of this amount $45,762 represents the planned use of donation fund reserves. These donations have been received and set aside over years for specific purposes and are now being appropriated. This does not represent the use of General Fund reserves.
The remaining operating deficit is $900,315 and staff is proposing a shortterm strategy to use the city’s California Employer’s Pension Prefunding Trust General Fund Expenditures
(Services & Supplies)
By Department
FY 2025-26
Adopted
FY 2026-27
Proposed
$
Change
%
Change
City Council 29,425 29,675 250 1%
City Attorney 355,000 355,000 - 0%
City Manager's Office 204,150 264,765 60,615 30%
Community Development 518,091 510,786 (7,305) -1%
Community Services 1,074,082 1,040,279 (33,803) -3%
El Molino Viejo 60,000 60,000 - 0%
Finance 179,877 192,320 12,443 7%
Fire & Emergency Management 847,845 909,165 61,320 7%
Human Resources 640,667 574,238 (66,429) -10%
Non-Departmental 2,078,201 2,451,468 373,267 18%
Parks & Public Works 2,606,048 2,534,945 (71,103) -3%
Police 582,928 623,185 40,257 7%
Total $ 9,176,314 $ 9,545,825 $ 369,511 4.0%
(CEPPT) funds to cover a portion of the city’s required contribution to UAL. By applying CEPPT funds toward these obligations, the City can address the projected deficit without using General fund reserves. In 2022, the City opened a CEPPT trust fund and since then, has invested $ 1,500,000. The current balance in the City’s CEPPT is $1,775,314 as of March 31, 2026. This balance would be reduced by $900,315 to help pay for the operating deficit under the proposed FY 2026-27 budget.
Importantly, staff considered the appropriateness of using the City’s unassigned General Fund balance (reserves) to pay for the projected deficit as the City’s only other alternative. However, the CEPPT is being recommended given that while the interest yield on the City’s cash in reserves is slightly lower than the potential investment yield within the CEPPT, the investment yield within CEPPT is not guaranteed and the ability to maintain funds in the unassigned General Fund balance as cash presents a more favorable option in terms of access to near term liquidity.
Per CalPERS guidelines, the funds in CEPPT can be used for the following expenditures:
• Prefund normal cost contributions and unfunded liability payments • Make additional discretionary payments
• As a contingency fund for future volatility
The City can use CEPPT funds to reimburse itself for the annual required contribution to the City’s UAL. The City’s required UAL contribution for FY 2026-27 is $4,322,455. Using CEPPT funds will help the City pay for a portion of the required UAL payment, thus avoiding the need to use General Fund Reserves to cover the FY 2026-27 proposed operating expenditures. It is important to note that the use of CEPPT funds is a one-time, short-term solution and does not resolve the City’s structural operating imbalance.
However, this approach is recommended at this time to maintain service levels
GENERAL FUND
FY 2026/27
Proposed
General Fund Revenues 36,437,374$
General Fund Expenditures 37,383,451
Operating Surplus (Deficit) $ (946,077)
Use of Donations Reserves 45,762
Use of CEPPT 900,315
Remaining Deficit $ -
while the City evaluates longer-term revenue solutions. Staff will propose refunding the CEPPT balance once the City’s revenues allow.
Looking Ahead
The proposed FY 2026–27 budget represents the third consecutive year in which the City is relying on one-time measures to balance the budget. Over the past two fiscal years, departments have made significant reductions to their operating budgets and services they deliver. In addition, the City has implemented personnel-related cost controls, including vacancy control and reductions in part-time hours. Further operational streamlining has also been implemented such as the reassignment of personnel from one department to another in order to increase operational efficiency and the exploration of new technologies where appropriate.
The City has reached a point where expenditures can no longer be reduced without causing significant impacts to service levels and City operations. The increase in the proposed budget is primarily driven by factors that are difficult for staff to mitigate, including costs of fuel, training academies for Police Recruits, materials and supplies, negotiated salary and benefits, existing contract commitments, and increased insurance premiums.
As provided last year, for historic context, the table below highlights the compounding effects that rising costs have had on a select number of the City’s operating expenses since FY 2018-19, the year before the COVID-19 pandemic. Just the 11 items below alone represent more than $2.16M in unavoidable cost increases impacting the City’s budget. These items are not those which have grown the most over this period of time, but rather a small selection of items that the City cannot operate without or has made policy decisions to maintain. Cutting any one of these items would have an adverse impact on service delivery, liabilities, etc. Additionally, several of these items have been competitively bid over this period of time to ensure that the City is complying with procurement policies and obtaining the best rates in the market.
Budget Year 8 Year Difference
(to 26-27)
Expense FY 18-19 FY 25-26 FY 26-27 $
Difference
%
Difference
General Liability Insurance Premium $531,930 $1,169,379 $1,461,724 $929,794 175% Citywide Water Utilities $171,666 $392,251 $437,300 $265,634 154% Citywide Electric Utilities $241,830 $429,012 $413,900 $172,070 71% Excess Workers Compensation
Insurance Premiums $27,176 $207,917 $240,157 $212,981 784% Crossing Guards to Support SMUSD
Students $129,426 $236,523 $276,494 $147,068 113%
Citywide Tree Management $297,000 $389,438 $481,750 $184,750 62% Annual Sewer Cleaning $129,336 $204,610 $214,840 $85,504 66% Fire Emergency Medical Services
Supplies $31,000 $77,700 $73,220 $42,220 136%
Verdugo Fire Dispatch Fees $74,200 $110,000 $108,000 $33,800 46% Department of Industrial Relations- SIP
CA $11,943 $45,657 $65,593 $53,650 449%
Fire Department 911 Lines $8,300 $27,000 $50,160 $41,860 504% Even with these budget-balancing efforts, the City continues to face a structural operating deficit as forecasted for several years.
The Utility Users Tax (UUT) is currently set to expire in March 2027. The proposed FY 2026–27 budget includes only the revenue authorized to be collected through that date. Accordingly, the budget reflects approximately 9 months of UUT revenue. As a result, the budgeted UUT revenue is reduced by approximately $553,000 compared to what would be received over a full fiscal year. Staff will return to the City Council in the coming months to discuss placing the renewal of the UUT on the November 2026 ballot for consideration by voters. Without the renewal of the UUT, the City lacks alternatives for structurally backfilling the lost revenue and would be forced to make wholesale reductions to the City’s operations.
Additionally, on February 11, 2026, the City Council unanimously approved the submission of a ballot measure (Measure S) to be placed on the June 2, 2026, Statewide primary election that asks voters to consider a one-cent Transaction and Use Tax (TUT). This difficult and thoughtfully considered decision marks an important step in the City’s roadmap to create a more fiscally stable San Marino, and continue to fund critical City services at their current levels. If approved by voters, this measure would generate approximately $1.65 million each year and help play a role in addressing the City’s long term fiscal sustainability.
General Fund Reserves
Estimated General Fund Balance – The estimated unassigned General Fund balance at June 30, 2026, is $17.8M, which is about 49.2% of the FY 2026- 27 proposed operating revenues which meets the City’s General Fund Reserves Policy of 40%. The reserve balance above the minimum amount required is $3.3M. These projections are based on the recommended Sewer revenue budget adjustment discussed below and most recent departmental projected ending balances by account, as reflected in the budget packet attachments to this staff report, rather than mid-year estimates and is subject to change.
Budget Adjustment FY 2025-26
The proposed FY 2026-27 capital budget continues to be reviewed by staff, with a final version to be presented to the City Council in May. Today, staff is recommending a budget adjustment to the account numbers listed below.
This adjustment reflects the use of FY 2025-26 Sewer revenues to fund the Lift Station Improvements Project, rather than utilizing capital project funding from Fund 394 further demonstrating the significant positive impact revenues from the newly adopted Sewer User Fee have had on the City’s overall operations. The General Fund reserve estimates noted in the section above assume approval of this proposed budget adjustment.
Account # Account Name
Budget
Adjustment Description
394-44-4600-8022
Lift Station
Improvements $ (1,244,000)
Decrease. To use Sewer
revenues for the Lift Station
Improvement Project
700-44-4600-8022
Lift Station
Improvements $ 1,244,000
Increase. To use Sewer revenues
for the Lift Station Improvement
Project
FISCAL IMPACT & PROCUREMENT REVIEW
Total operating budget expenses are proposed to be $38,674,002 for the FY 2026-27, of which $37,383,451 are supported by the General Fund.
LEGAL REVIEW
The City Attorney's office has reviewed and approved as to form.
RECOMMENDATION
Staff recommends the City Council provide direction to the City Manager on the proposed FY 2026-27 Operating Budget. Staff also recommends the approval of the budget adjustments to FY 2025-26. If the City Council concurs with staff’s recommendation, an appropriate motion would be:
“I move to approve the recommended FY 2025-26 budget adjustment of $1,244,000 related to the sewer lift station improvements.”
ATTACHMENTS
1. City Council
2. City Attorney
3. City Manager’s Office
4. El Molino Viejo (The Old Mill)
5. Finance & Non-Departmental
6. Human Resources
7. Community Development
8. Police
9. Fire & Emergency Management
10. Parks & Public Works
11. Community Services
12. Revenue Schedule (Summary & Detail)