____________________________________________________________________________________
FOR CITY CLERK ONLY
Council Meeting: _______________________
Disposition: ___________________________
Agenda Item No: 3.b
Meeting Date: February 2, 2026
SAN RAFAEL CITY COUNCIL AGENDA REPORT
Department: Finance
Prepared by: Paul Navazio, Finance Director
John Stefanski,
Assistant City Manager
City Manager Approval: ______________
TOPIC: FISCAL SUSTAINABILITY FRAMEWORK
SUBJECT: CITY’S BUDGET OUTLOOK, FRAMEWORK FOR FISCAL SUSTAINABILITY, AND PRELIMINARY STAFF RECOMMENDATIONS RELATED TO POTENTIAL 2026
BALLOT MEASURES
EXECUTIVE SUMMARY:
Staff will provide the City Council with an update on the City’s fiscal outlook, framework for maintaining balanced budgets and prudent reserves, and preliminary recommendations related to potential June 2026 and/or November 2026 ballot measures.
RECOMMENDATION:
Staff recommend that the City Council receive the presentation related to the fiscal sustainability framework and preliminary recommendations related to potential 2026 ballot measures.
BACKGROUND:
The information being provided via this agenda item was presented to the Finance Subcommittee at their meeting of December 2, 2025 and most recently at their meeting of January 20, 2026.
Over the past few years, the City Council and management team have worked to develop annual budgets that are balanced and aligned with the City Council’s Three-Year Strategic Plan and Annual Workplans.
The annual budgets have provided funding in support of baseline programs and services, priority funding needs and the annual Capital Improvement Program, while also maintaining prudent reserves to guard against unplanned emergencies as well as the volatility inherent in the City’s major revenue sources due to inevitable economic cycles.
Ensuring fiscal stability and sustainability requires strategic financial planning beyond the cycle of the annual budget process. A broader, long-term fiscal outlook is required in order to plan for and anticipate both opportunities and challenges, and to ensure that decisions made in the short-term do not unduly hinder the City’s ability to continue to maintain service levels and address emerging community needs into the future.
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2
ANALYSIS
Current Fiscal Outlook
The City faces a challenging fiscal environment over the next five years. The baseline General Fund forecast projects deficits beginning in FY 2026-27, with an estimated shortfall upwards of $3.5 million, which then grows to approximately $5.5 to $6.0 million by FY2029-30. These projections assume modest revenue growth of 2.5% to 3.0% for major sources (i.e. property tax; sales and use tax) and a 3% annual inflation adjustment for expenditures. This baseline deficit picture is further complicated by the potential for known and unknown budget pressures, including the potential for increased costs associated with the shared fire services agreement with Marinwood Community Services District, the anticipated San Rafael Sanitation District separation, and larger national impacts of federal economic and trade policy.
Beyond the projected baseline deficits, the City faces significant unfunded needs across virtually all service areas. Priority needs include the augmentation of baseline funding for utilities, equipment replacement, and legal services; infrastructure investments for streets, sidewalks, and storm drain systems; public safety and community services staffing including homelessness response and SAFE Team support; community and economic development capacity; and deferred building, parks and facilities maintenance. Without adequate funding for these priorities, residents may experience reduced service levels or quality, infrastructure will continue to deteriorate, and the City may face increased costs over the long term from the compounding effects of deferred maintenance.
Combined, these factors create a structural imbalance that will require the City to consider taking deliberate steps now to ensure the City’s continued financial sustainability.
Near-Term Actions and Considerations
These fiscal challenges are not insurmountable and reflect the general fiscal challenges currently facing cities across the State. However, such challenges require the City Council to consider a multi-faceted approach that includes both short-term operational adjustments and longer-term revenue strategies. For example, earlier this month the City Manager instituted a hiring pause through this fiscal year for all positions across all funds except for sworn public safety personnel, dispatchers, lifeguards, and nongeneral fund temporary seasonal employees. This step was necessary to ensure fiscal stability as the City moves through the remainder of the fiscal year, and until we know the outcome of a potential measure on the June 2026 ballot. The continuation of the hiring pause will be evaluated as a part of the FY 2026-27 budget process. Furthermore, as staff work on the development of the FY 2026-27 strategic plan annual work plan, the anticipated near-term budget adjustments will likely result in slower progress towards achieving the goals and objectives outlined in the City Council’s Three-Year Strategic Plan.
Work regarding the City’s ongoing financial sustainability is outlined in the City Council’s Three-Year Strategic Plan:
• Goal F.3: Implement comprehensive strategies and plans that ensure fiscal sustainability through balanced budgets; explore new revenue streams and renew existing tax measures. • Objective F.3.1: Develop a timeline and take steps to renew existing tax measures requiring voter approval.
To achieve this work, staff have engaged consultants to support fiscal modeling, tax measure analysis, polling, and strategic planning to support the development of a comprehensive ballot measure strategy, detailed below.
The existing Measure D Library Parcel Tax expires in June 2026. As such, staff will be recommending the City Council, at the February 17th Council meeting, to place a basic renewal of this measure before voters in June 2026 to preserve this existing $1.2 million revenue source. Looking to November 2026, SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3
staff is proposing a revenue enhancement measure—either a property transfer tax increase or a new public safety parcel tax—to generate resources for both baseline budget needs and the myriad of unfunded needs and priorities facing the City. Further out, November 2028 presents an early opportunity to seek a basic renewal of the City’s Measures E and R (transaction and use taxes), potentially consolidating them into a single 1.0% replacement measure. Additional options to explore could also include seeking an increase to the paramedic tax cap and/or establishing a Proposition 218 stormwater fee.
Conclusion
This item aims to provide the City Council and the community with a preview of the City’s budget forecast and framework for ongoing fiscal sustainability. The presentation is intended to serve as a preview of the FY2026-27 budget cycle, where budget-balancing measures are expected to be required to address emerging structural baseline deficits within the General Fund. In addition, the information presented is also intended to inform development of a broader fiscal sustainability framework required to address a host of under-funded needs, emerging priorities and additional budget pressures, as well as inform strategies related to the expiration of existing voter-approved tax measures along with potential future revenue enhancement measures, including those requiring approval by the City’s electorate.
FISCAL IMPACT:
As an informational presentation, there is no direct fiscal impact associated with this agenda item.
However, the issues and preliminary staff recommendations to be discussed will inform strategies required to develop a balanced budget for fiscal year 2026-27, preserve revenues being generated by expiring voter-approved tax measures and inform preliminary work on potential revenue enhancement measures that would require future action by the City Council and/or voters to enact.
RECOMMENDED ACTION:
Staff recommend that the City Council receive the presentation related to the fiscal sustainability framework and preliminary recommendations related to potential 2026 ballot measures.
ATTACHMENTS:
1. None.