TO: Mayor and City Council
FROM: Philippe Eskandar, City Manager
BY: Hillary Guirola-Leon, Finance Director
Corey Mize, Accounting Manager/Controller
DATE: May 29, 2026
SUBJECT: ADOPTION OF THE PROPOSED FISCAL YEAR 2026-27
OPERATING & CAPITAL BUDGET
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.
• 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.
Tony Chou, Mayor
Calvin Lo, Vice Mayor
Hunter Chang, Council Member
John Chou, Council Member
Gretchen Shepherd Romey, Council Member
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. • At the April 24, 2026, City Council meeting, staff presented a high-level budget summary, anticipated fund balance, and revenue details. City departments also presented their operating budgets.
DISCUSSION
Today’s meeting moves us into the final step in the budget process, with the presentation of the proposed operating and capital budget for FY 2026-27 (Attachment 1). The accompanying budget document incorporates all of the direction given to staff by the City Council at our previous budget meetings.
The proposed budget document provides the City Council with the comprehensive FY 2026-27 budget, as well as budget details down to the individual line items within each department, individual capital projects, and equipment items. The following are changes that were made to the FY 2026- 27 proposed budget.
Summary of Budget Revisions
In line with Council direction provided to staff at the April 24, 2026, City Council meeting, the following FY 2026-27 budget revisions were made:
Budget Revision: General Fund Group Revenues
General Fund Group April 24, 2026 Meeting May 29,2026 Meeting Variance $ Revenues $ 36,437,373 $ 36,459,874 $ 22,501
Following the City Council’s direction to not reduce the Library’s operating hours, staff reached out to the two non-profit groups who support the Library to request additional support. Staff explained the funding needs and alternatives to both groups and asked if they would be willing to support the Library’s funding needs. The Friends of the Crowell Public Library graciously increased their annual support of the library by and additional $22,500 to help offset the funding shortfall. As such, there is a $22,500 increase in revenue to account for the approved donation from the Friends of the Crowell Public Library. This donation will be used to pay for various Library books and materials.
Budget Revision: General Fund Group Expenditures
There is a net increase in General Fund expenditures of $42,871. Below is a table showing the detail of this increase:
The initial proposed budget presented on April 24, 2026, included a proposal to decrease the operating hours of the Library. Based on Council direction, the part-time hours ($54,454 budget impact) for the library were added back to the budget and are reflected in today’s proposed budget. To help offset some of this cost, the Library further reduced some of its operating expenditures by -$10,233. The police department also had a proposed decrease in their operating budget of -$1,350. This decrease was due to the timing of required software licenses being purchased in the current Fiscal Year rather than in FY 2026-27.
Budget Overview
The proposed FY 2026-27 budget includes total revenues of $40.79 million, inter-fund transfers of $17.2 million, and expenditures of $49.4 million across all funds.
General Fund Group
After incorporating the freezing of $706,600 in vacant positions, the FY 2026- 27 proposed General Fund budget reflects an overall operating deficit of - $966,448. 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 $920,686 and staff is proposing a shortterm strategy to use the City’s California Employer’s Pension Prefunding Trust (CEPPT) funds to pay for 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 $920,686 to help offset the operating deficit under the proposed FY 2026-27 budget.
CalPERS allows the City until July 2027 to submit a reimbursement request.
In line with this timeline, staff will return during the Mid-Year Budget Review in February 2027 to review any changes in the City’s financial projections and reassess the proposed use of CEPPT funds. This will also provide the City Council an opportunity to provide additional direction, if desired.
General Fund Reserves
The General Fund is projected to end FY 2026-27 with an unassigned fund balance of $17.7 million, which is 48.7% of the estimated FY 2026-27 General Fund operating revenues and meets the City’s General Fund Reserves Policy of 40%. The estimated reserve balance above the minimum amount required is $3.1 million.
Capital Budget
A total of $10.68 million is planned for capital improvement projects and equipment purchases in FY 2026-27. This total amount is comprised of $3.3 million for new requests for 14 projects, $5.6 million to re-appropriate funds in order to finish 17 projects that began in FY 2025-26 but are not expected to be finished by June 30, 2026, and $1.7 million for 11 capital equipment purchases.
The Capital Projects Fund will transfer $1.16 million to the Capital Equipment Fund. This transfer is needed to cover all proposed expenditures under Fund 591 Capital Equipment Fund. The Capital Projects Fund is projected to end FY General Fund Group
FY 2026-27
Proposed
Revenues $ 36,459,874
Expenditures 37,426,322
Operating Deficit $ (966,448)
2026-27 with a fund balance of $1 million. The primary funding source for the Capital Projects Fund is the General Fund. In the past five years, the General Fund has provided $13 million in funding to the Capital Fund, which has helped the City continue to invest in its infrastructure. In the next five years, the City will have $50.7 million in unfunded capital needs. A challenge ahead for the City is bridging the gap between operating revenues and operating expenditures as well as continuing to fund citywide capital needs.
Looking Ahead
Five-Year Forecast
Staff has updated the Five-Year forecast for the General Fund. The Five-Year Forecast for the General and Public Safety Funds shows that expenditure growth will continue to outpace revenue growth during the next five years.
The forecast indicates projected deficits continuing at $1.5 million in FY 2027- 28 and growing to $1.9 million in FY 2031-32. The City’s Public Safety Parcel Tax expires at the end of FY 2028-29 and the Five-Year Forecast assumes it will be renewed. The Public Safety Parcel Tax will be on the ballot again in November of 2028. The Utility User’s Tax expires on March 31, 2027, and the forecast assumes it will be renewed. Together these two revenues make up 17% of General fund revenues and are important funding sources for ongoing operations.
Significant assumptions used in this updated Forecast include:
• Renewal of the Utility User’s Tax upon its expiration on March 31, 2027;
• Renewal of the Public Safety Parcel Tax upon its expiration in FY 2029- 30;
• All CalPERS required pension costs paid in full each year; • A 5% annual increase in the Public Safety Parcel Tax; • Property tax growth rate of 4.6% per year;
• An average annual expenditure growth rate of 4.3% through FY 2031- 32; and
• Any frozen positions in the adopted budget FY 2026-27 are assumed to be filled
Budget-Balancing Efforts
Below are some of the budget-balancing efforts the City has implemented in the last three fiscal years:
• Reducing Services & Supplies expenditures by $917K in FY 2024-25 • Reducing Services & Supplies expenditures by $1.7 million in FY 2025- 26 • Freezing vacant positions in FY 2025-26
• Freezing vacant positions in FY 2026-27
o Senior Planner (1)
o Management Analyst- Police Department (1)
o Police Cadets (2 part-time positions)
o Police Officer (1)
o Dispatcher (1)
o Recreation Supervisor (1)
• Elimination of the Aquatics Program in FY 2025-26 ($100K) • Conducted a User Fee Study to update cost recovery for City services • Using CEPPT trust funds in FY 2026-27 to pay for the annual required contribution to Unfunded Accrued Liability (UAL)
• Adopted a Sewer User Fee for the first time in the City’s history • Implemented a more proactive strategy to utilize the City’s restricted fund revenue to ensure local use rather than the need to return or sell the funds.
• Aggressively pursued grants across the entire organization Many of these reductions are one-time and short-term in nature and are meant to help the City continue to fund current service levels while longerterm strategies are implemented. 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 is expected to generate approximately $1.65 million each year and help play a role in addressing the City’s long term fiscal sustainability.
Staff will continue to take meaningful steps to control growing costs such as overtime expenses, look for operational efficiencies, adjust services and workflows where necessary, and more while simultaneously exploring avenues to increase revenues. Through these thoughtful and deliberate measures, and in partnership with the City Council and the entire community of San Marino, staff are optimistic in the prospects of addressing the City’s long-term structural deficit in the coming years.
User Fee Schedule
A 3% increase was used as the CPI inflation factor to increase the schedule of fees for service for FY 2026-27. Below are additional changes to the fee schedule:
• S-095 Police Report Copy (Exhibit A to Resolution No. R-26-11) o This fee was increased by $5 to account for rising costs of copy paper and printing supplies.
• Ping Pong (Exhibit B to Resolution No. R-26-11)
o This is a new program and the fee is being added to the schedule • Alliant Insurance Fee(Exhibit B to Resolution No. R-26-11) o This fee is being added to the schedule as recommended by our insurance. The fee is based on full cost recovery
Updated Salary Resolution/Salary Schedule, amending the Unrepresented Employees Salary and Benefits Schedule for the period covering July 1, 2024, through June 30, 2027, and adoption of amended Job Classifications/Specifications Resolution
The Salary Resolution, R-26-12, and Salary Schedule (Attachment 4) have been updated to include a 4% Cost Of Living Adjustment (COLA) for City Staff, Executive Team, and City Manager to be approved by City Council for FY 2026- 27 via Memorandum of Understandings (MOU’s) and a compensation plan for Unrepresented Employees for the period covering July 1, 2024, through June 30, 2027, per the adopted MOU’s. Section 02.05.01(D) of the San Marino Municipal Code (“Code”) provides that the City Manager shall prepare salary and benefit schedules for presentation to the City Council. Section 02.05.01(A) of the Code provides that salary and benefits plans for employees are a part of the City’s personnel rules and regulations when approved by resolution of the City Council.
A Resolution (Attachment 5) amending the Unrepresented Employees Salary and Benefits Schedule for the period covering July 1, 2024, through June 30, 2027, as amended by Resolution No. R-26-13, to include the position of parttime Recreation Coordinator and the removal of positions that were eliminated in previous budget years. These changes are reflected in the proposed FY 2026-27 budget.
A Resolution, R-26-14 (Attachment 6) adopting the amended job classification of Facility Supervisor. The proposed changes to the job classification reflect the transfer of this position to the Parks & Public Works Department and the responsibility for oversight and coordination of all City facilities. The revised classification is intended to align the position description with the operational needs of the department and accurately reflect the scope of duties associated with facility maintenance, management, and coordination citywide. These updates ensure the classification appropriately captures the level of responsibility, departmental reporting structure, and operational functions now assigned to the position. These changes are reflected in the proposed FY 2026-27 budget.
FISCAL IMPACT & PROCUREMENT REVIEW
The FY 2025-26 proposed budget includes total revenues of $40.79 million, expenditures of $49.4 million and inter-fund transfers of $17.2 million.
This report requires no procurement review.
LEGAL REVIEW
The City Attorney's office has reviewed and approved as to form.
RECOMMENDATION
Staff recommends that the City Council adopt Resolution No. R-26-19, adopting the Operating and Capital Budget for Fiscal Year 2026-27. Resolution No. R-26-11, Updating the Schedule of Fees for Service, Resolution No. R-26- 12 approving the updated salary schedule for FY 2026-2027, Resolution No.
R-26-13, amending the Unrepresented Employees Salary and Benefits Schedule for the period covering July 1, 2024, thru June 30, 2027, to include the position of part-time Recreation Coordinator and Resolution No. R-26-14 amending the job classification of Facilities Supervisor-Community Services.
If the Council concurs with staff’s recommendation, an appropriate motion would be:
“I move to adopt (1) Resolution No. R-26-19, Adopting the Operating and Capital Budget for the Fiscal Year 2026-27 and Appropriating the Amounts Specified therein from the Funds and for the Purposes Indicated; (2) Resolution No. R-26-11 Updating the Schedule of Fees for Service, (3) Resolution No. R-26-12 approving the updated salary schedule for FY 2026- 2027, (4) Resolution No. R-26-13, amending the Unrepresented Employees Salary and Benefits Schedule for the period covering July 1, 2024, thru June 30, 2027, to include the position of part-time Recreation Coordinator and (5) Resolution No. R-26-14 amending the job classification of Facilities Supervisor-Community Services.”
ATTACHMENTS
1. Proposed Operating and Capital Budget for Fiscal Year 2026-27
2. Resolution No. R-26-19 Adopting the Operating and Capital Budget for Fiscal Year 2026-27
3. Resolution No. R-26-11 Updating the Schedule of Fees For Service
4. Resolution No. R-26-12 Approving the Updated Salary Schedule for FY 2026-2027
5. Resolution No. R-26-13, Amending the Unrepresented Employees Salary and Benefits Schedule for the period covering July 1, 2024, thru June 30, 2027, to include the position of part-time Recreation Coordinator
6. Resolution No. R-26-14 Amending the Job Classification of Facilities Supervisor-Community Services