CITY OF SAN MATEO
City Council Special Meeting
February 23, 2026
6:00 PM
City Hall Council Chamber
Entrance is on O’Farrell Street
COUNCIL MEMBERS
Adam Loraine
Nicole Fernandez
Danielle Cwirko-Godycki
Lisa Diaz Nash
Robert Newsom Jr.
AGENDA
THIS MEETING CAN BE ATTENDED IN PERSON OR REMOTE BY JOINING ZOOM – SEE CODES BELOW.
PUBLIC COMMENTS WILL BE ACCEPTED BOTH IN PERSON AND REMOTELY .
SEE END OF AGENDA FOR OPTIONS AND INSTRUCTIONS ON HOW TO PARTICIPATE IN THE MEETING.
To join via Zoom – click here:
February 23, 2026
To join via telephone: (408) 638-0968
Webinar ID: 824 3443 0206 Passcode: 673555
CALL TO ORDER
Roll Call
AB 2449 Requests and Considerations for Meeting Participation by Teleconference due to Just Cause or Emergency Circumstances
STUDY SESSION
The public will have an opportunity to comment during the consideration of this item.
1. Fiscal Year 2025-26 Mid-Year Budget — Update
Receive the Fiscal Year 2025-26 mid-year budget update.
CEQA: This mid-year budget update is not a project subject to CEQA, because it is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. (CEQA Guidelines Section 15378(b)(5).)
ADJOURNMENT
----------------------------------------------------------------------------------------------------------------------------- AGENDAS:
Agendas and material are posted on the City’s website on the Friday preceding each Council Meeting and can be viewed on the City's website at
www.cityofsanmateo.org
. Any supplemental material distributed to the Council after the posting of the agenda will be made part of the official record.
WATCHING A MEETING ON TV:
City Council meetings are broadcast live on Comcast/channel 27, Wave/channel 26, or AT&T/channel 99.
For transmission problems during the broadcast, please call (650) 522-7099. For all other broadcast comments, call (650) 522-7040, Monday-Friday, 8 a.m. - 5 p.m.
WATCHING A MEETING ON A COMPUTER:
There are three ways to stream.
1) Public Meeting Portal
www.cityofsanmateo.org/publicmeetings
2) City YouTube channel and stream it on YouTube:
http://youtube.com/CityofSanMateo
3) Watch TV live stream:
https://www.cityofsanmateo.org/193/Channel-San-Mateo-Live-Stream
PUBLIC COMMENTS/REQUEST TO SPEAK
Prior to the Meeting
Send comments to:
[email protected]
until 4 p.m. the day of the meeting.
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During the meeting
By Zoom:
Click the link at the top of the agenda and you’ll be added to the meeting. All attendees are muted by default. When the item of interest is open for consideration, select the “Raise Your Hand” icon and you will be called on at the appropriate time.
By telephone:
Call (408) 638-0968 and enter the conference ID found at the top of the meeting agenda. When the item of interest is open for consideration, select *9 to raise your hand. When called upon, press *6 to unmute, state your name and provide your comments.
In Person:
At the meeting complete a “Request to Speak” form. Organized Group and Presentations: Up to five (5) minutes for a group presentation, with as many speakers as can be accommodated within that time allowance. To qualify for a group presentation, all individuals associated with the presentation must be clearly identified and confirmed as in attendance at the meeting. Presentation materials must be submitted to [email protected] one (1) business day in advance of the meeting.
ACCESSIBILITY:
In compliance with the Americans with Disabilities Act to ensure meaningful access for all participants, including those with limited English proficiency, individuals requiring special accommodations or language assistance to participate in this meeting may contact the City Clerk’s Office at (650) 522-7040 or [email protected]. Notification 48 hours prior to the meeting will enable the City to make reasonable arrangements to ensure accessibility to this meeting.
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CITY OF SAN MATEO
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CITY OF SAN MATEO
Agenda Report
City Hall
330 W. 20th Avenue
San Mateo CA 94403
www.cityofsanmateo.org
Agenda Number: 1 Section Name: STUDY SESSION Account Number: 10-2011 File ID: 26-10918 TO: City Council
FROM: Alex Khojikian, City Manager
PREPARED BY: Finance Department
MEETING DATE: February 23, 2026
SUBJECT:
Fiscal Year 2025-26 Mid-Year Budget — Update
RECOMMENDATION:
Receive the Fiscal Year 2025-26 mid-year budget update.
BACKGROUND:
This agenda report provides a financial update on the City’s major funds: the General Fund and the Sewer Fund. However, the main focus is on the General Fund, the City's primary operating fund, which accounts for major tax revenues and funds essential city services. The report summarizes the City’s mid-year fiscal status by analyzing anticipated revenues and expenditures based on data through December 2025 and comparing the projections to the FY 2025-26 budget. The mid- year projections incorporate FY 2024-25 results, year-to-date actuals, and new data which was not available when the budget was originally developed.
GENERAL FUND
General Fund Revenues
With over half of the fiscal year’s actual transactions analyzed, the City’s General Fund revenues are now projected to slightly exceed the initial budgeted projections. The adopted budget projected total revenues of $175.8 million. Based on year-to-date results through December 2025, total revenues are now expected to reach $176.8 million, an increase of approximately $1.0 million. Table A below shows the currently projected General Fund revenues for FY 25-26.
Table A – FY 25-26 General Fund Revenue Projections
The favorable budget variance is primarily due to higher-than-expected real property transfer tax, partially offset by an estimated decline in sales tax revenues and the decrease in Vehicle License In-Lieu Fee revenues since the City only received 67% of its VLF shortfall. The following analysis provides insight into the primary contributing factors to the overall revenue forecast.
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PROPERTY TAX - $89.4M ADOPTED | $87.2M PROJECTED
Property tax is the largest and most stable tax revenue for the City, but it is not expected to meet the $89.4 million budget projection for FY 2025-26 due to two main factors.
Property Tax In Lieu of Vehicle License Fee (VLF) Shortfall The first and most significant reason property tax is not expected to meet the adopted budget is because the original budget assumed the State would pay 100 percent of the VLF shortfall from FY 23-24 due in FY 25-26. Since the State only provided the City with 67 percent of this VLF shortfall, the property tax projection is $2.2 million lower.
As discussed in previous meetings on the budget, VLF is funded by ERAF and property tax from non-basic-aid school districts. Of the 23 school districts in San Mateo County, only five school districts remain as non-basic-aid schools. This has led to the persistent VLF shortfalls that require the County to file an annual claim with the State to backfill the prior fiscal year’s VLF shortfalls, resulting in a two-year delay in the VLF shortfall payments.
The Countywide VLF shortfall has grown as more school districts shift from non-basic-aid to basic-aid status. In FY 2021-22 the Countywide shortfall was $32.4 million and by FY 2024-25 it had grown to $119.2 million. As a result, the City’s share of the Countywide VLF shortfalls also grew from $1.9 million in FY 2021-22 to $6.6 million in FY 2023-24 and $6.9 million in FY 2024-25 as outlined in Table B.
Table B – Summary of VLF Shortfall Amounts
Fiscal Year County-Wide VFL Shortfall City’s VLF Shortfall City received VLF shortfall (2-Year Delay) FY 2021-22 $32.4 million $1.9 million $2.0 million (FY 2019-20 VFL shortfall) FY 2022-23 $70.0 million $4.1 million $5.7 million (FY 2020-21 VLF shortfall) FY 2023-24 $114.4 million $6.6 million $1.9 million (FY 2021-22 VLF shortfall) FY 2024-25 $119.2 million* $6.9 million* $4.1 million (FY 2022-23 VLF shortfall) Source of Information: San Mateo County / City of San Mateo Note *: The State has not committed to backfill the 2024-25 VLF shortfall.
Although the City has not received data from the County on the anticipated FY 25-26 shortfall, the Countywide VLF shortfall is expected to continue to grow as the remaining five school districts transition to basic-aid status. The main concern with VLF, whether the State will backfill the VLF shortfall or not, has become a more acute issue since the State reduced the County’s reimbursement of VLF shortfall funding by 67 percent this year. If the State refuses to pay its VLF shortfall obligations, currently there is no other funding source available to the County and cities to fill the funding gap.
The City is working with the County and the other cities within the County to develop new solutions to address this issue, such as educating communities about the anticipated funding loss and looking at potential legislative fixes. The City, the County, and all other cities within the County also filed a lawsuit against the State for withholding VLF shortfall funds. Staff will continue to monitor these efforts and to analyze long-term effects on revenues if discussions do not go well as VLF revenues continue to be a major component of the City’s property tax revenue and the VLF shortfall is going to continue to grow.
High-Interest Rates
Another issue to keep in mind is interest rates and their effect on property taxes. Over the past 10 years, the City’s real property assessed values (AV) have grown annually on average of 6.9 percent. For FY 2025-26, projected AV growth is 3.8 percent, indicating a slowdown due to high interest rates. County Assessor’s data confirmed that secured property tax growth will align with the AV growth. However, if high interest rates persist, future property tax growth may be constrained.
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SALES TAX - $27.6M ADOPTED | $27.4M PROJECTED
Sales tax, the second largest tax revenue source for the General Fund, is particularly susceptible to economic cycles. At mid-year, sales tax revenue is projected to remain flat at $27.4 million compared to the previous year’s total of $27.2 million. This is $.2 million less than projected with less growth than anticipated.
Staff developed this updated estimate based on a summary of calendar year 2024 data provided by HdL Companies, the City’s sales tax consultant, and quarterly updates through September 2025. The data shows that the City’s sales tax in calendar year 2024 was down $.5 million from the previous year. San Mateo’s sales tax base relies heavily on General Consumer Goods (GCG), Restaurants, Fuel and Service Stations and Autos in addition to receipts from the County pool.
GCG held steady in 2024 and into 2025 and Restaurants showed some increase, but the other three categories showed a decrease. Autos and Transportation sales appeared to dip in 2024 and the first two quarters of 2025 and Fuel and Service Station sales tax declined due to lower gas prices and reduced gas consumption.
In addition, County pool receipts to San Mateo declined in 2024 and the first two quarters of 2025. Online sales tax paid by residents within the County is first accumulated at the County Pool and then allocated to cities based on their local share of the overall sales tax revenues. If the City’s sales tax from businesses in town is higher in relation to other cities, its portion of the County pool will be higher and similarly, if its sales tax is lower in relation to other cities, its share of the pool declines. Thus, the reduction in regular sales tax in 2024 and the first two quarters of 2025 reduced the City’s allocation from the County Pool for these online sales.
The City’s most recent report for the third quarter of calendar year 2025 shows growth in sales tax revenues, but City staff is not including this in our most recent estimate since the growth was based on one-time activities, according to our consultant. Staff will continue to monitor this trend and adjust the forecasts as needed.
REAL PROPERTY TRANSFER TAX - $8.6M ADOPTED | $11.0M PROJECTED
Real property transfer tax (RPTT), the third largest tax revenue for the General Fund, is highly volatile and subject to economic cycles as shown in Table C. At mid-year, regular RPTT (0.5 percent) is projected to increase to $9 million due to higher than projected housing activity. At the same time, Measure CC RPTT, the additional 1 percent RPTT that applies to properties sold or transferred with a value of $10 million or more, is performing better than budgeted with $1.9 million received as of mid-year. Although there is potential for more revenue in the Measure CC category, staff is conservatively not projecting any additional funding since no specific sales have been identified at this time. Total RPTT at mid-year is projected to be $11.0 million for FY 2025-26.
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OTHER GENERAL FUND REVENUES
Other General Fund revenues are projected to be on track with budgeted amounts, except one. Investment earnings are projected to outperform the original budget by $1.0 million due to favorable investment yields in a high-interest rate market.
Overall, General Fund revenues exhibit resilience and are projected to exceed the original budget by approximately $1 million in FY 2025-26. Although the increase in revenues is good news, staff is not recommending any budget adjustments at this time due to the limited dollar amount.
General Fund Expenditures
The adopted FY 2025-26 budget included $187.8 million in General Fund total expenditures (including transfers out). Based on January 2026 year-to-date transactions, total expenditures are projected to be $183.7 million, a favorable budget variance of $4.1 million.
Table D – FY 25-26 General Fund Expenditure Projections The majority of the favorable budget variance currently stems from salary and benefits savings achieved through vacancy savings and other levers within the financial sustainability plan. Since local government expenditure budgets (appropriations) serve as the legal level of budgetary control, it is common that some level of savings will be realized in any fiscal year. Although departmental budgets were analyzed for both underfunded operating needs and anticipated budgetary savings, the focus was on ensuring budget adequacy for General Fund operations for the remainder of the fiscal year.
General Fund Balance
With the mid-year updates, the General Fund is projected to generate $176.8 million in total revenues and incur $183.7 million in total expenditures (including transfers out), resulting in a $6.9 million deficit for FY 2025-26.
Table E – Estimated General Fund Deficit
Due to budget savings from personnel costs and improved revenue projections in certain categories, the projected deficit is smaller than the $12.0 million deficit in the adopted budget. The General Fund, though, still ended with a $3 million budget shortfall last year, and at mid-year, is projecting another $6.9 million deficit. At the start of FY 2025-26, the General Fund beginning balance was $119.5 million (per audited FY 2024-25 financial report). The projected General Fund ending
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balance as of June 30, 2026, is $112.6 million before setting aside the $25.0 million CIP Investment Reserve.
Progress on Financial Sustainability Plan
The City’s progress on our financial sustainability plan has helped lead to successful reductions in the General Fund deficit last year and the estimated deficit for FY 2025-26. City staff has advanced several initiatives that have either generated more revenue, developed more funding or reduced expenditures. Some of the recent progress includes:
1) Expenditure Control
a)Frozen positions (~$.8 million) - Eight positions have been frozen to save money within the General Fund b)Non-General Fund Charges (~$.7 million) Additional eligible positions and hours are being charged to capital projects and non-General Fund budgets
c) Benefit Savings (~1.5 million) – Workers Compensation fund contributions have been reduced d)Operating Savings (~.15 million) – Renegotiation of agreements to date e)Insurance Savings – Reviewed options for reducing City’s General Liability insurance 2) Revenue Enhancements
a)Sales Tax Measure – Conducting education and outreach around a potential quarter cent sales tax measure on the November 2026 ballot, consistent with state law b)Revenue Agreements – New revenues from agreement with Sutter Health for employee parking Downtown
3) Cost Recovery & Cost Allocation
a)Cost Recovery - Parks and Recreation Department adopted revised cost recovery model b)Cost Allocation – Finance Department soliciting proposals for a consultant to conduct a new Citywide cost allocation plan
4) Grant Opportunities
a)Grants Coordination – Completed contract with CPPG for grant consultation and coordination b)Grants Acquisition – Received approval for three new major grants:
$20 million grant for Fashion Island Blvd project
$1.2 million grant for Lakeshore Community Day Care Center $.55 million grant for Real Time Information Center Technology 5) Economic Development
a)Work Plan - Adopted Economic Development Workplan for 2026-2029 b)Expand and Diversify Revenues - Exploring billboard policies c)Expand and Diversify Revenues – Assessing City owned properties for highest and best use
Staff will continue to work on these and other initiatives as part of the financial sustainability plan to address the FY 2025- 26 General Fund deficit and the longer-term structural deficit within the General Fund.
SEWER FUND
The Sewer Fund has maintained sufficient liquidity to support ongoing operations and critical capital improvement projects. The approved 3 percent annual sewer rate increase (effective FY 2023-24 through FY 2027-28) provides necessary funding to complete the construction of the new wastewater treatment plant and improve the City’s sewer collection system, which will address regulatory requirements and minimize the potential for sanitary sewer overflows. At the same time this funding will support ongoing operations of the City’s sewer enterprise and provide a robust debt coverage ratio to support the Fund’s ongoing financing of the Clean Water Program.
For FY 2025-26, the Sewer Fund budget includes $95.7 million in total revenues, $64.6 million in total expenses, and $29.6 million of new funding added to the Sewer Fund’s capital budget for capital improvement projects (CIP). In addition, the City Council approved two capital project appropriations since July bringing the CIP budget to $31.4 million.
Based on a review of the Sewer Fund as of the end of January, revenues are expected to be slightly above budget
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estimates due to solid rate revenues and strong investment earnings. As a result, total Sewer Fund revenues are now projected to be $96.3 million for FY 2025-26. Operating expenses are estimated at $62.8 million, lower than the current budget, largely due to estimated vacancy savings. CIP spending is anticipated to increase as the City nears completion on many of the Clean Water Program projects.
BUDGET IMPACT:
There is no fiscal impact resulting from this report. The financial status of the General Fund for the current year, as well as all other City funds, will continue to be monitored, with updated final estimates incorporated into the recommended FY 2026-28 Budget.
ENVIRONMENTAL DETERMINATION:
This mid-year budget update is not a project subject to CEQA, because it is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. (CEQA Guidelines Section 15378(b)(5).)
NOTICE PROVIDED
All meeting noticing requirements were met.
ATTACHMENTS
None
STAFF CONTACT
Abby Veeser, Finance Director
[email protected]
(650) 522-7102
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FY 2025-26
Mid-Year
Budget Update
February 23, 2026
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Agenda
General Fund
• FY 2024-25 Actuals
• FY 2025-26 Mid-Year Updates
qRevenues
qExpenditures
qGeneral Fund Balance
• Update on Financial Sustainability Plan
Sewer Fund
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FY 2024-25 Actuals
General Fund
General Fund
2024-25
Adopted
Budget
2024-25
Amended
Budget
2024-25
Mid-Year
Projection
2024-25
Actuals
(audited)
Total Revenues 169.8 $169.8 $173.9 $179.1
Total Expenditures
(including transfer
out)
180.4 183.9 180.3 177.6
Net (10.6) ($14.1) ($6.4) $ 1.5
2024-25
Actuals
(adjusted)
$175.8
178.7
($2.9)
$3.3 million of
Mark-to-Market
Unrealized Gains
(non-cash adjustment)
$1.2 million of
Measure S funds
budgeted but not yet
transferred to CIP Fund
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FY 2025-26 Mid-Year Updates
General Fund
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FY 2025-26 Mid-Year Updates
General Fund Revenues
33% of VLF
Shortfall
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2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Actual
2025-26
Estimated
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
Property Tax (In Millions)
General Fund Revenues
Property Tax
$87 million
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General Fund Revenues
Property Tax
$0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 $80.0 $90.0 $100.0 2021-22
2022-23
2023-24
2024-25
2025-26 Est.
$43.0
$46.6
$48.9
$50.5
$53.0
$17.0
$17.6
$18.8
$19.2
$20.0
$12.3
$16.4
$10.8
$13.8
$14.2
Property Tax By Type (in millions)
Secured Current Excess ERAF + Oher VLF
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General Fund Revenues
Property Tax in-lieu VLF (VLF)
*VLF revenues are estimated for FY 2025-26
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General Fund Revenues
Sales Tax
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 Est.
$ 25
$ 20
$ 15
$ 10
$ 5
$ -
SALES TAX (IN MILLIONS)
Local 1% Sales Tax (including Prop 172) Measure S Trendline
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General Fund Revenues
Real Property Transfer Tax (RPTT)
2011-122012-132013-142014-152015-162016-172017-182018-192019-202020-212021-222022-23 2023-242024-252025-26 Est
$ -
$ 2
$ 4
$ 6
$ 8
$ 10
$ 12
$ 14
$ 16
$ 18
$ 20
$ 7.7
$ 11.0
$ 9.0
$ 0.9
$ 6.2
$ 1.9
PROPERTY TRANSFER TAX (RPTT) (IN MILLIONS)
RPTT 0.5% RPTT 1% (Measure CC)
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FY 2025-26 Mid-Year Updates
General Fund Expenditures
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FY 2025-26 Mid-Year Updates
General Fund
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FY 2025-26 Mid-Year Updates
General Fund Trends
Millions
2018-19
ACTUALS
2019-20
ACTUALS
2020-21
ACTUALS
2021-22
ACTUALS
2022-23
ACTUALS
2023-24
Actuals
2024-25
Actuals
2025-26
Estimates
-
20 40
60 80
100
120
140
160
180
200
General Fund Historical Trend
Operating Expenditures Contribution to CIP Revenues
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FY 2025-26 Mid-Year Updates
General Fund Balance
$113 mil.
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 Est
$ -
$ 20
$ 40
$ 60
$ 80
$ 100
$ 120
ENDING BALANCE (IN MILLIONS)
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FY 2025-26 Mid-Year Updates
Financial Sustainability Update
Expenditure
Control
• Frozen
positions
• Non-General
Fund Charges
• Benefit Savings
• Operating
Budget Savings
Revenue
Enhancements
• Sales Tax
Measure
• Revenue
Agreements
Cost Recovery &
Cost Allocation
• P&R Updated
Cost Recovery
• Citywide
Updated Cost
Allocation
Grant
Opportunities
• Grants
Coordination
• Grants
Acquisition
Economic
Development
• Adopted Work
Plan
• Expand and
Diversify
Revenues
$3.2 Million
Est. Savings
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FY 2025-26 Mid-Year Updates
Sewer Fund (in millions)
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Upcoming Agenda Items
• April 20 – Fiscal Year 2026-28 Budget Study Session
q Operating Budget Preview
q CIP Budget Preview
• June 1 – FY 2026-28 Proposed Budget (1st Public Hearing) • June 15 – FY 2026-28 Budget Adoption (2nd Public Hearing)
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Q&A
Abby Veeser
Finance Director
[email protected]
650-522-7102
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