COUNCIL AGENDA REPORT
TO: Mayor and City Council
FROM: David W. Rowlands, City Manager
DATE: June 3, 2025
SUBJECT: Adoption of a Resolution Approving Amendments to the Previously Adopted FY 2025-26 City Budget (Second Year of the Approved Two - Year Budget)
Description:
The City Council will consider making amendments to the Fiscal Year 2025-26 mid-cycle City Budget.
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
RECOMMENDATION:
Adopt a Resolution approving amendments to the Fiscal Year 2025 -26 Mid-Cycle City Budget, and delegating the City Manager to implement the same.
BACKGROUND:
On June 18, 2024, the City Council adopted two one -year budgets covering the period from July 1, 2024, to June 30, 2026. The Fiscal Year (FY) 2024-25 budget was adopted as a balanced budget closing a very significant $21.3 million imbalance between revenues and expenditures with a short -term strategy of using one -time reserves to balance the General Fund (including Measure U) by drawing on undesignated General Fund and Measure U reserves in the amounts of $8.6 million and $4.4 million, respectively, in addition to cancelled reserves from the Local Economic Augmentation Fund (LEAF) in the amount of $8 .3 million. The FY 2025 -26 budget was adopted as an unbalanced budget due to the depletion of the General Fund and Measure U unassigned reserves.
At the budget hearing, the City Council directed staff to return in the September 2024 timeframe with long-term budget strategy recommendations to close the ongoing budget deficit and avoid relying only on the use of one-time reserves. Subsequently, staff updated the General Fund long -term fiscal forecast with FY 2023 -24 year -end actual results.
Furthermore, City departments engaged in a budget balancing analysis to determine service level impacts if the potential reductions were taken across-the-board from all City operations. Revenue enhancement options were also explored. The summary of findings 2 and further recommendations were summarized in the reports presented to the City Council on September 17, 2024, and October 1, 2024.
FUND ANALYSIS – GENERAL FUND & MEASURE U
GENERAL FUND MEASURE U FUND
(in thousands)
FY 2024-25
Adopted
FY 2025-26
Adopted
FY 2024-25
Adopted
FY 2025-26
Adopted
Beginning Fund Balances $ 8,570 $ - $ 4,414 $ -
Revenues 91,813 93,420 26,716 26,886
Cancelled Reserves 8,336 - - -
Total Financing Sources $ 108,719 $ 93,420 $ 31,130 $ 26,886 Expenditures (108,719) (109,102) (31,130) (31,443)
Increased Reserves - - - -
Ending Fund Balances $ - $ (15,682) $ - $ (4,557)
Budget Balancing Analysis:
In July and August 2024, staff engaged in a budget balancing analysis. While the deficit for FY 2024 -25 amounted to $21.3 million, the ongoing budget gap, excluding expenditures classified as one -time, was determined to be $16.7 million, or 14 percent, of operational General Fund appropriations. The departments submitted an analysis of impacts to their programs and services if each department were to absorb a proportional share of the 14 percent reduction to fully close the structural budget gap.
Departmental analysis of potential reductions in operations were categorized into the following tiers:
Tier 1: Reductions having only a moderate impact to operations, Tier 2 Reductions having significant impacts to s ervices offered or lead to departmental inefficiencies, and
Tier 3 reductions resulting in significant service level impacts, including public safety as well as layoffs.
The identified Tier 1 and Tier 2 reductions amounted to $4.3 million on an annual bas is.
The identified Tier 3 reductions amounted to $10.5 million on an annual basis.
On October 1, 2024, staff provided the City Council with an update on Citywide efforts to begin closing the budget gap in alignment with the City Council’s goal of attaining long- term financial sustainability. The report included a summary of the Tier 1, Tier 2, and Tier 3 reductions. Staff recommended further analyzing actions to be taken to effectuate Tier 1 and Tier 2 reductions and return to the City Council with specific budget reduction amendments with the FY 2024 -25 Second Quarter Financial Report, slated to be presented to the City Council in February 2025. Tier 3 reductions were not recommended 3 to move forward pending further direction from the City Council due to the significant impacts to public safety and staff.
Following that meeting, the City Manager placed into effect a “hiring chill” policy requiring justification and analysis before any vacancy can be filled by a General Fund department, except for public safety departments. Through this process, the City continued to engage in analysis to seek efficiencies in operations and only fill positions identified as critical to perform essential functions. Staff continued to further analyze actions to be taken to effectuate Tier 1 and Tier 2 reductions.
On February 18, 2025, staff provided the City Council with an update as part of the FY 2024-25 Second Quarter Financial Report. Staff reported that $6.5 million in operating reductions were placed into effect, however thi s was not the case, as only a hiring chill had been put in place by the City Manager. Departments estimated savings of $3.7 million would be realized by holding positions vacant.
DISCUSSION:
The Mid-Cycle Budget Review of the FY 2024 -2026 Biennial Budget, encompassing FY 2024-25 and FY 2025 -26, began in earnest by engaging City staff in January through March 2025 in a thorough review of year -end estimates for expenditures and revenues, development of revenue estimates for FY 2025 -26, and assessment of their operational needs. The financial planning cycle will conclude with the City Council’s consideration of proposed amendments to the previously adopted FY 2025-26 Budget presented with this report. The proposed amendments to the FY 2025 -26 Budget do not inc lude any of the ongoing reductions identified by departments in the budget balancing exercise discussed above. Rather, it maintains services and reflects the City Council’s goals and priorities for the next year. The adopted goals and priorities of the City Council are as follows:
Goals:
Long-term financial sustainability
Community quality of life
Planning and infrastructure
Organizational well-being
Priorities:
New approach to economic
development
Provide youth opportunities
Provide public safety resources
Establish a staffing plan
All Funds Overview
The table below provides a high-level summary of financing sources and uses for all funds as previously adopted for FY 2024-26, estimated for FY 2024-25 and proposed amended for FY 2025-26. The table illustrates that year -end estimates developed for FY 2024 -25 reduce the amount of cancelled reserves (use of Genera l Fund reserves for unfunded liability pension payments and draw from the Local Economic Augmentation Fund) from $8.3 million to $3.6 million. The table also shows that previously adopted FY 2025 -26 appropriations for all funds totaled $346.9 million. The recommended Mid-Cycle 2025-26 appropriations total is proposed at $407.8 million.
4 FUND ANALYSIS – ALL FUNDS
(in thousands)
FY 2024-25
Adopted
FY 2025-26
Adopted
FY 2024-25
Estimates
FY 2025-26
Proposed
Beginning Fund Balances $ 261,656 $ 221,488 $ 417,621 $ 288,701 Cancelled Reserves 8,336 - 3,607 -
Revenues 315,472 324,672 345,309 337,716
Total Financing Sources $ 585,464 $ 546,160 $ 765,537 $ 626,417 Expenditures (363,976) (346,865) (477,836) (407,797) Increased Reserves - - - -
Ending Fund Balances $ 221,488 $ 199,295 $ 288,701 $ 218,620
FY 2025-26 Fund Analysis – General Fund:
The table below provides a high -level summary of financing sources and uses for the General Fund (including Measure U) as previously adopted for FY 2024-26, estimated for FY 2024-25, and proposed amended for FY 2025 -26. The table illustrates that year-end estimates developed for FY 2024 -25 reduce the amount of cancelled reserves (use of General Fund reserves for unfunded liability pension payments and draw from the Local Economic Augmentation Fund) from $8.3 million to $3.6 million. The year-end estimates also result in the depletion of General Fund reserves and reduce Measure U reserves to $1.3 million.
FUND ANALYSIS – GENERAL FUND & MEASURE U
(in thousands)
FY 2024-25
Adopted
FY 2025-26
Adopted
FY 2024-25
Estimates
FY 2025-26
Proposed
Beginning Fund Balances $ 12,984 $ - $ 22,236 $ 1,319
Cancelled Reserves 8,336 - 3,607 -
Revenues 118,529 120,307 117,369 121,102
Total Financing Sources $ 139,849 $ 120,307 $ 143,212 $ 122,421 Expenditures (139,849) (140,545) (141,893) (147,556) Ending Fund Balances $ - $ (20,238) $ 1,319 $ (25,135)
Factors considered when reviewing fund balances, revenues, and appropriations are discussed below.
Fund Balance:
5 Refer to Attachment E for a summary of beginning fund balances, financing sources and uses and resulting fund balances. Fund balance estimates were developed with unassigned fund balances (fun ds not set aside for a particular purpose by Council or another law or authority) being updated based on the FY 2023 -24 year-end unaudited actuals as shown on next page the FY 2024-25 Estimates column.
FUND ANALYSIS – GENERAL FUND & MEASURE U
GENERAL FUND MEASURE U FUND
(in thousands)
FY 2024-25
Adopted
FY 2024-25
Estimates
FY 2024-25
Adopted
FY 2024-25
Estimates
Beginning Fund Balances $ 8,570 $ 10,072 $ 4,414 $ 12,164 Revenues 91,813 91,664 26,716 25,705
Cancelled Reserves 8,336 3,607 - -
Total Financing Sources $ 108,719 $ 105,343 $ 31,130 $ 37,869 Expenditures (108,719) (105,343) (31,130) (36,550)
Increased Reserves - - - -
Ending Fund Balances $ - $ - $ - $ 1,319
To alleviate some of the draw on LEAF in FY 2024 -25, staff recommended and Council approved the use of General Fund reserves for unfunded liability pension payments. Per the City Council policy established in 2018, the City has designated a total of $13.2 million in reserves for unfunded liability pension payments. Payments toward the unfunded liability for pensions are contributing to the structural deficit. Through the budget amendment presented with the FY 2024 -25 Second Quarter Financial Report, the Cit y Council approved a reduction of the cancellation of Local Economic Augmentation Fund (LEAF) reserves by $3.2 million. As a result, $5.1 million of LEAF was anticipated to be used to balance FY 2024 -25. Based on year -end estimates developed for FY 2024 -25 the amount of cancelled reserves (use of General Fund reserves for unfunded liability pension payments and cancellation of LEAF reserves) is reduced from $8.3 million to $3.6 million.
The following points highlight the FY 2025-26 amended budget’s impact on fund balances for the General Fund and Measure U:
Available fund balance for the General Fund is anticipated to be depleted in FY 2024-25 and for Measure U is forecast at $1.3 million.
General Fund and Measure U appropriations exceed estimated revenues for each fund by $20.3 million and $6.1 million, respectively for a combined total of $26.4 million.
Available fund balance is insufficient to balance the General Fund and Measure U, thereby resulting in negative ending fund balances estimated at $20.3 mill ion and $4.8 million, respectively for a combined total of $25.1 million.
6 Revenues:
Refer to Attachment B for a summary of previously adopted and proposed amended revenues. The following table provides a comparison of the breakdown of FY 2025 -26 previously adopted and proposed revenues by major revenue type.
GENERAL FUND & MEASURE U REVENUES
(in thousands)
FY 2025-26
Adopted
FY 2025-26
Proposed
Variance
Percent
Change
Revenues & Transfers In
Taxes $ 96,989 $ 97,673 $ 684 0.7%
Licenses, Permits & Fines 3,323 3,804 481 14.5%
Revenues from Use of Money &
Property
3,131 3,148 17 0.5%
Revenues from Other Agencies 574 607 33 5.8%
Charges for Service 7,517 7,059 (457) -6.1%
Other Revenue and Transfers 8,773 8,811 38 0.4%
Total Revenues & Transfers In $ 120,307 $ 121,102 $ 796 0.7%
Revenue estimates for FY 2024 -25 and FY 2025 -26 were prepared in January through February 2025 through an objective, analytical process based on year -to-date trends, prior years’ data, and anticipated one -time adjustments. Also essential to any budget development are economic assumptions that were used to forecast changes to baseline revenues for FY 2025-26. In all instances, the departments provide reasonable revenue projections to prevent undue or unbalanced reliance on certain revenues and to ensure the ability to provide ongoing services.
Appropriations:
Refer to Attachment C for a summary of previously adopted and proposed amended appropriations by department. The table below provides a comparison of the breakdown of the previously adopted and proposed appropriations by major category.
GENERAL FUND & MEASURE U APPROPRIATIONS
(in thousands)
FY 2025-26
Adopted
FY 2025-26
Proposed
Variance
Percent
Change
Expenses & Transfers Out
Salaries & Benefits $ 103,084 $ 109,943 $ 6,859 6.7%
Services & Supplies 28,956 30,145 1,189 4.1%
Capital & Outside Agencies 1,820 2,451 631 34.7%
7 Debt Service 267 267 0 0.0%
Transfers 6,418 4,750 (1,668) -26.0%
Total Expenses & Transfers Out $ 140,545 $ 147,556 $ 7,011 5.0%
Expenditure estimates for FY 2024-25 were also prepared in January and February 2025 by departments. Some of the one -time savings projected to result from holding vacant positions are reflected in the FY 2024 -25 estimates. When developing expenditure assumptions for FY 2025-26, known factors, such as the impact of employee Memoranda of Understanding (MOUs); insurance premiums , and contractual obligations are considered.
FY 2025-26 Citywide Personnel Overview:
Full-time and part-time positions by department are summarized in Attachment F, which also shows the previously authorized FY 2025-26 allocations and the amended personnel changes proposed for FY 2025 -26. The Full-Time Equivalent (FTE) count reflects those reclassifications, and added and deleted posit ions that were implemented by the City Manager and through City Council actions, specifically as part of the budget amendments presented with the First and Second Quarter 2024 -25 Financial Reports, as well as the Enterprise Resource Planning System Project Implementation budget amendment adopted by Council in March 2024, which added 10.00 FTE limited-term positions for the project.
The FY 2025-26 previously adopted positions for the General Fund, inclusive of Measure U, included 499.12 FTE. This FY 2025 -26 proposed amended budget includes 498.87 FTE, due to a reallocation of 0.25 FTE for the Grants Manager position in the Finance Department from the General Fund to the Public Transit Fund.
POSITION ALLOCATION BY FUND – GENERAL FUND & MEASURE U
FY 2024-25 FY 2025-26
Fund Positions FTE Positions FTE
General Fund 365 361.52 365 361.27
Measure U Fund 141 137.60 141 137.60
Subtotal 506 499.12 506 498.87
In total, the FY 2025-26 previously adopted positions included 690 full-time and 53 part- time positions, for a combined total of 743 positions (732.40 FTE). This FY 2025 -26 proposed amended budget includes 700 full-time and 52 part-time positions, for a total of 752 positions equating to 741.60 FTE. This reflects an increase of 9 positions (9.20 FTE).
POSITION ALLOCATION BY FUND – ALL FUNDS
8 FY 2024-25 FY 2025-26
Fund Positions FTE Positions FTE
General Fund 365 361.52 365 361.27
Measure U Fund 141 137.60 141 137.60
Enterprise and other funds 237 233.28 246 242.73
Subtotal 743 732.40 752 741.60
The General Fund supports 361.27 FTEs, or 48.7 percent, of the City's workforce.
Service levels are largely maintained for FY 2025-26.
Measure U sales tax revenue supports 137.60 FTEs, or 18.5 percent, of the City’s workforce.
Enterprise Funds and other funds support 242.73 FTEs, or 32.6 percent, of the workforce. The FTE count reflects the following: six full -time positions added for the Landscape Districts in the Recreation and Parks Department through the budget amendments proposed with the FY 2024-25 First Quarter Financial Report; four full-time positions added and one part-time position eliminated for the Utilities Department for FY 2025 -26; and the creation of a Transit Depa rtment reflecting the shift of five full-time positions from the Public Works Department. Compensation Considerations:
Personnel costs are the first largest spending category and include salaries, benefits, workers ’ compensation insurance, and retirement c osts, including the California Public Employees Retirement System Unfunded Accrued Liability (CalPERS UAL). Costs in the FY 2025-26 proposed budget exceed 65 percent of the total General Fund Budget, when the CalPERS UAL is excluded.
Factored into compensa tion are terms related to new agreements reached with bargaining units as of May 2025 that includes the following:
o a base salary increase of 10.0 percent over two calendar years (2023-2024) for members of SEIU Local 620, for management and confidential employees, and for sworn Police and Fire Managers;
o a base salary increase of 10.0 percent over two calendar years (2025-2026) for members of the Santa Maria Police Officers’ Association; and o a base salary increase of 14.0 percent and certain equity adjustment s for members of the Santa Maria City Fire Fighters’ Union Local #2020 (from May 2025 through June 2027).
The increase in compensation drives up CalPERS costs.
Salaries and Benefits in the FY 2025 -26 previously adopted budget were anticipated to increase from those for FY 2024-25 by $3.8 million and $2.0 million, respectively. For the FY 2025 -26 proposed budget, they are now anticipated to increase an additional $2.3 million and $2.2 million, respectively. Health Insurance Premium:
9 City-paid health insurance premiums factored into the FY 2025 -26 previously adopted budget totaled $8.9 million, which represented an increase of $0.5 million from the FY 2024 -25 Budget. The new agreements reached with the bargaining units increased the City’s contribution toward the CalPERS Gold plans. As a result, the FY 2025 -26 proposed budget includes $9.5 million, which represents an additional increase of $0.6 million.
CalPERS UAL:
The minimum required contribution toward the CalPERS UAL factored into the FY 2025-26 previously adopted budget totaled $11.9 million, which represented an increase of $0.4 million from the FY 2024-25 Budget. The latest actuarial increases the minimum required contribution to $13.2 million, which represents an additional increase of $1.3 million.
Workers’ Compensation Insurance Premium:
The City allocates the costs of its self -insured workers’ compensation program, commonly referred to as Workers’ Compen sation. The total cost to be allocated for program year 2025 -26 is $9.548 million. This is an increase of $2.953 million from that factored into the FY 2025-26 previously adopted budget, of which $2.374 million impacts the General Fund Budget.
General Liability Insurance Premiums:
The City allocates the costs of its self-insured liability program, commonly referred to as General Liability. The total cost to be allocated for program year 2025 -26 is $12.040 million. This is an increase of $5.211 million from that factored into the FY 2025-26 previously adopted budget, of which $2.151 million impacts the General Fund Budget.
FY 2025-26 Local Economic Augmentation Fund Analysis:
The Local Economic Augmentation Fund (LEAF) is a reserve fund, established in FY 2000-01, made up of one -time discretionary resources, distinct from the General Fund that is designed to help balance the General Fund’s operating budget during times of economic and/or financial crisis. The City Council set aside any year -end General Fund operating surplus (revenues that exceeded expenditures) into this account. Through adoption of the FY 2024-26 Biennial Budget, a new policy will limit the amount set -aside in the LEAF to five percent of operating General Fund and Measure U operating appropriations. The intent of this fund is to be used as a “gap financing” mechanism during downturns in the local economy. In FY 2023-24, $8.9 million was transferred out of LEAF with $2.0 million going to the General Fund to cover operating expenditures and $6.8 million going to the General Fund Capital Projects Fund for capital projects. Upon reviewing year-end results, it is anticipated $3.6 million will be deposited from the General Fund back into LEAF.
10 Staff initially projected using $8.3 million from the LEAF in FY 2024 -25. Through the budget amendment presented with the FY 2024-25 Second Quarter Financial Report, the City Council reduced the use of LEAF by making available additional fund balance in the General Fund in the amount of $3.2 million previously reserved for pensions. Based on year-end estimates developed for FY 2024 -25 the amount of cancelled reserves (draw from the Local Economic Augmentation Fund) is further reduced from $5.1 million to $3.6 million, thereby leaving the LEAF balance at $22.7 million at the end of FY 2024-25.
11 2025-26 Supplemental Budget Requests:
In preparation for the Mid -Cycle Budget Update process, departments assessed their operational needs and requested the addition, consolidation, or deletion of positions and/or operating budget through Supplemental Budget Requests (SBRs) that have a nexus to support and align with the City Council’s goals and priorities. There were 61 SBRs requested, of which 46 are recommended for approval for the amendment of the budget. Approved SBRs by fund and department are summarized in Attachment G. There were a number of reclassification requests received, and it is recommended that related requests with a fiscal impact to the General Fund and/or Measure U Fund be included in the classification and compensation study that is in progress. Also, it is recommended at this time to hold on most General Fund and Measure U funded requests in order to be reevaluated as a plan to close the budget gap is assessed and implemented. 2025-26 Interfund Transfers:
Interfund transfers represent a transfer of resources from one fund to another fund. The transfer appears as a resource in the fund receiving the transfer and as a budget requirement in the fund that is sending the transfer. The nature of interfund transfers causes revenue and expenditures to be double counted in the citywide budget; however, the inclusion of interfund transfers provides transparency to the performance of individual funds and the subsidies from one City fund to another. Refer to Attachment D for a summary of previously adopted and proposed appropriations and transfers out by fund.
Cost Allocation Transfer:
Payments, by operating departments of the City to the General Fund, for central support services such as administration, payroll, and accounts payable. No changes are proposed for FY 2025-26.
Interfund Transfers and Loans:
In adherence to grant requirements, Generally Accepted Accounting Principles (GAAP), and public policy goals, the City has established various special revenue, capital project, debt service, and enterprise funds to account for revenues that are restricted to certain activities. Accordingly, each fund exists as a separate financing entity from other funds, with its revenue sources, expenditures, and fund equity.
Transfers among funds for operating purposes are outlined in the budget and can only be made by the Director of Finance, following the adopted budget. These operating transfers, under which financial resources are transferred from one fund to another, are distinctly different from inter-fund borrowing, which are customarily made for te mporary cash flow reasons, and are not intended to result in a transfer of financial resources by the end of the fiscal year. In summary, inter -fund transfers result in a change in fund equity; inter - fund borrowings do not, as the intent is to repay the loan in the near term.
From time-to-time, interfund borrowings may be appropriate; however, these are subject to the following criteria to ensure that the fiduciary purpose of the fund is met:
The Director of Finance is authorized to approve temporary inter -fund borrowings for cash flow purposes whenever the cash flow is expected to be resolved within 45 days. The most common use of this type of inter -fund borrowing is for grant 12 programs such as Local Law Enforcement Block Grant Funds, where costs are incurred before drawdowns are initiated and received; and the receipt of funds is typically received shortly after the request for funds was made. Other interfund borrowings, for cash flow or other purposes, are dealt with by a case-by-case review by the Director of Finance.
2025-26 Capital, Maintenance and Equipment Projects:
The purpose of the Capital, Maintenance, and Equipment Project (CMEP) is to systematically plan, schedule, budget, and finance capital projects to ensure cost effectiveness and efficiency of construction.
General Fund CMEPs will be budgeted in the Capital Projects – General Fund, while Enterprise and Internal Service Fund CMEPs will be budgeted in the individual funds.
The City Manager’s Office, in combination with the Public Works and Finance Departments, reviewed the project proposals and determine a listing of projects. CM EP projects that were previously approved but do not start by the end of the year will be ineligible for carryover to the new budget.
This section is designed to incorporate appropriation authority for approved, maintenance and equipment projects proposed in the 2025 -26 Mid -Cycle Budget Update. Capital projects range from road maintenance or construction to the renovation of municipal buildings, recreation centers and ball fields, to water main and sewerage system replacement. The first two years of the Cap ital Improvement Plan (CIP) were approved Incoming resources
(Revenues/Transfers In)
are budgeted twice
Provider Fund
Records Operating Revenue
from the normal course of
business
Records an Expense in the
form of a Transfer Out (e.g.,
for its share of debt
payments)
Recipient Fund
Records Revenue (in the
form of a Transfer In)
received from another fund
Records an Expense when
using the transferred funds
(e.g., to make a debt
payment)
Citywide Budget
Perspective
Outgoing resources
(Expenditures/Transfers Out)
are budgeted twice
$329,120,940
FY 2025-26 Adopted
Appropriations excluding
Interfund Transfers
$391,089,842
FY 2025-26 Proposed
Appropriations excluding
Interfund Transfers
13 by the City Council with the adoption of the Fiscal Year 2024 -26 Budget, while the following years are subject to future Council approval. However, individual capital projects and their estimated budgets may also b e approved by separate City Council action throughout the fiscal year, allowing the planned appropriations to be carried forward each year until project completion. Recommended funding for new capital projects is based on departmental priorities. Additionally, all projects submitted by departments were subject to review against the following criteria: 1) additional funds needed to make committed projects operational; 2) required to meet a legal or policy mandate; 3) required to improve unacceptable health and/or safety concerns; 4) required to maintain existing facilities or assets; 5) required to maintain existing service levels; 6) reduces other City costs; 7) will enhance and maximize operational efficiencies; and, 8) other justifications to merit consideration.
Staff reviewed 94 CMEPs, of which 90 are recommended for approval. In all, the adopted CMEP Budget for 2025-26 consists of $80.7 million in appropriations, which is an increase of $27.1 million from the previously adopted $53.6 million.
The proposed budget strives to maintain service levels to the public, invests in needed City infrastructure, and undertakes many projects that will directly benefit residents.
Fiscal Considerations
Proposed FY 2025-26 General Fund appropriations (including Measure U) are $147.6 million, an increase of 5.0 percent from those previously adopted. General Fund and Measure U revenues are forecast to continue to fall short of operational and capital expenses in each fund for FY 2025-26 by $20.3 million and $6.1 million, respectively, for a combined total of $26.4 million. The draw of the projected $1.3 million of fund balance in the Measure U Fund leaves a gap of $25.1 million to be closed. In addition, the General Fund Capital Projects Fund is projected to have a shortfall of $3.5 million. At this time, staff recommended actions to balance FY 2025-26 include:
1. Cancel additional General Fund reserves for unfunded liability pension payments in the amount of $5.9 million, thereby leaving a balance of $4.0 million in reserves for unfunded liability pension payments, and
2. Cancel the balance of LEAF reserves in the amount of $22.7 million with $14.4 million used to balance the General Fund, $4.8 million used to balance the Measure U Fund, and $3.5 million used to balance the General Fund Capital Projects Fund, thereby depleting LEAF reserves.
The proposed appropriation for all operating funds in FY 2025 -26 is $329.9 million, an increase of 13.6 percent from those previously adopted. The proposed appropriation for all funds (including capital projects, internal service funds, landscape services, mitigation, and grant funds) in FY 2025-26 is $407.8 million, an increase of 17.6 percent from those previously adopted.
14 Next Steps
The Finance Department and all City Departments will engage in a rebalancing initiative to develop a plan to address the structural deficit. This will entail the following:
Revisiting the FY 2024-25 Year-End Estimates. These estimates were developed in Quarter 3, and updating these estimates will update expenses a nd revenues that were experienced and not accounted for. Additionally, any other costs that were not included in the projections will be updated. This process will assist in updating fund balances that will help with the rebalancing effort. Vacant Position evaluation. This will involve a review of persistent vacancies and chilled positions and how they are affecting the budget. Departmental budget re-evaluation. This will involve a review of all revenues and expenses for each department.
Revenue generation opportunity evaluation. This will involve looking into potential revenue-generation initiatives.
Development of short - and long -term rebalancing initiatives that resolve the structural deficit and assist with strategic planning for the future. Establish a City Council ad-hoc committee for the rebalancing initiative. Staff will bring back a request to establish this ad-hoc committee at a future City Council meeting.
Staff will plan to return in the fall with an update to the City Council on the plan to move forward.
Impact to the Community
Adoption of the FY 2025 -26 Proposed Budget sets the stage for 2025 -26 service levels to remain intact. Any service level impacts identified through the upcoming rebalancing initiative will be presented to the City Council in the Fall of 2025.
ATTACHMENTS:
A: Resolution
B: Summary of Proposed Revenues
C: Summary of Proposed Appropriations
D: Revenue and Expenditures by Fund and Category
E: Fund Analysis
F: Position Allocation by Fund and Position Allocation by Department G: Proposed Supplemental Budget Requests
H: Capital Projects by Category