COUNCIL AGENDA REPORT
TO: Mayor and City Council
FROM: Rebecca Campbell, Director of Finance
DATE: June 2, 2026
SUBJECT: Adoption of a Resolution Approving a Preliminary FY 2026-28 Budget Development
Description:
The City Council will receive an update on the Fiscal Year (FY) 2026 -28 Budget Development, including a General Fund and Measure U overview; hear public testimony on the preliminary budget proposals; and provide input and direction to staff.
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:
1. Receive a presentation on the Fiscal Year (FY) 2026 -28 Biennial Budget, hear public testimony on the preliminary budget proposals, and provide input; and
2. Adopt a Resolution adopting the budget for Fiscal Years 2026 -2027 and 2027 - 2028, and delegating the City Manager to implement the same; or
3. Provide directions to staff.
BACKGROUND:
In July and August 2024, 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 operat ions. Revenue enhancement options were also explored. The summary of findings and further recommendations were summarized in the reports presented to the City Council on September 17 and October 1, 2024. On October 1, staff provided the City Council with a n update on Citywide efforts to begin closing the budget gap in alignment with the City Council’s goal of attaining long-term financial sustainability.
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.
On February 18, 2025, staff provided the City Council with a financial update as part of the FY 2024 -25 Second Quarter Financial Report , and the hiring chill remained .
Departments also participated in a comprehensive FY 2025-26 Mid-Cycle Budget Review process that included detailed evaluations of expenditures, revenues, operational needs, and long -term financial sustainability strategies. T hrough these collaborative efforts, departments identified ongoing savings opportunities by holding positions vacant and not 2 adding new costs while continuing to prioritize core public services and organizational efficiency.
Following the Mid -Cycle Budget Review, departments were once again asked to reevaluate their operations and submit proposals to reduce expenses and/or increase revenues of their Net General Fund/Measure U appropriations. Every submission was carefully reviewed by the Department of Finance and the City Manager’s Office with the submitting department. Upon review, the City Manager carefully selected amendments that would minimize impacts to the community in order to reduce the FY 2025 -26 deficit by $12.5 million, of which only $8.7 million of long-term reductions contribute toward the structural deficit ongoing with $7.6 million made up of vacant chilled positions.
The City Council’s action on January 20, 2026 resulted in the use of less one -time reserves to balance the FY 2025-26 budget and bring ongoing appropriations more in line with ongoing revenues. The commitment of staff and the City Council has brought us to a point where the City of Santa Maria is addressing the structural deficit in the General Fund, including Measure U, and striving to achieve long-term financial solvency, which is a big shift from just a few years ago.
City staff kicked off the financial plan ning of the F Y 2026-28 Biennial Budget, encompassing FY 2026 -27 and FY 2027 -28, in October 2025 and will continue its development until the City Council adoption of the Budget in June 2026. To develop a City Manager’s proposed budget that aligns with the City Council’s goals and priorities, this cycle was extended to incorporate a Budget Development Kickoff to engage Ci ty departments, held on January 29, and a City Council Goal -Setting Session, held on February 28.
The budget process encompasses the development, implementation, and evaluation of a plan for the provision of services and capital assets. The goal of the financial plan is to establish desired levels of service while achieving results in the most efficient manner within resource constraints. This will require hard decisions and discipline. The City also must find new revenue sources. The budget process incorporates long-term perspective, established linkages to broad organizational goals, focuse d budget decisions on results and outcomes, and promotes effective communication with stakeholders. City departments worked closely with the Finance Department and the City Manager’s Office through April and May to propose goals and programs to be accomplished over the next two years. The proposed programs were aligned with the City Council goals and priorities set on February 28.
By State law, the City must adopt a b alanced budget by June 30 th. The City Manager’s proposed budget is aligned with the City Council’s adopted goals and priorities. Long - term fiscal sustainability will be essential to achieve. This proposed budget, like many before it, uses a variety of stra tegies to close a very significant multi -million-dollar imbalance between revenues and expenditures in both fiscal years. To that end, the Financial Plan development process is extended this cycle to include this preliminary presentation to the City Counci l. Following the Preliminary Budget hearing, the City Council’s input will be incorporated into the Final Proposed Budget, which will be presented to the City Council on June 16 for adoption.
3 DISCUSSION:
Internal review of departments’ preliminary budget p roposals has concluded, and staff now seeks the feedback of the City Council, as well as the public at-large on the preliminary budget proposals of City departments. Feedback will be incorporated into the preliminary budget as directed by the City Council and will result in a Final Proposed FY 2026-28 Biennial Budget that will be presented for adoption by the City Council on June 16, 2026.
Fiscal Year 2026-28 Biannual Budget Investments:
Presented is a two-year budget comprised of $367.4 million for FY 2026 -27 and $425.3 million for FY 2027 -28, inclusive of a $50.0 million and $108.3 million capital project budget respectively. The Proposed Budget will include funding for supplemental budget requests that are necessary to attain Council Goals and to allow for the effective delivery of priority public services. The proposed FY 2026-28 Biennial Budget shows a significant structural imbalance within the General Fund and Measure U. All other funds are balanced. The ongoing expenditures in the General Fund and Measure U combined exceed the ongoing revenues by $8.8 million in FY 2026-27 and $9.4 million in FY 2027-
28. Moreover, the proposed 2026-28 Biennial Budget will include a recommendation to fund one-time items with projected one-time savings. The total draw on Local Economic Augmentation Fund and Measure U fund balances in the first fiscal year is $ 7.3 million and $1.5 million, respectively. An additional draw of $7.9 million and $1.6 million, respectively, would be required to balance the second fiscal year.
In total, this 2026-27 budget includes 713 positions (703.80 FTE), which is a decrease of 39 positions (37.80 FTE) from the FY 2025 -26 Mid-Cycle Adopted Budget. The budget indicates the deletion of 3 8 positions in the General Fund and 2 positions (2.00 FTE) in the Library Fund, the addition of 2 positions (2.00 FTE) in the Enterprise Funds, and the shift of 4 positions from the General Fund to the Assessment Districts, and the shift of a portion of 4 positions from the General Fund to the General Liability Fund. There are no employee layoffs anticipated.
The Proposed Budget incorporates additional balancing measures, that include, but are not limited to:
Citywide reduction of contract/consulting services, training, subscriptions & other operational costs: $1,451,000
Increase projections for less predictable revenues and newly proposed fees:
$1,727,000
Close Paul Nelson Aquatic Center for 6 months (Dec-May), including unfunding of assigned Limited Service positions: $344,000
Delete vacant positions and/or reallocate filled positions to other Funds, where justifiable (8.30 FTEs): $1,167,000
Unfund Limited Service positions in Library, Recreation & Parks, Police and Public Works (impacts programs and operating hours): $446,000
Eliminate subsidies to United Way, Historical Museum, and Museum of Flight:
$70,000
4 Assumes that most Governmental Fees are set to full recovery level , estimating the potential revenue growth of $2.012 million, of which $1.742 million impacts the General Fund.
Includes balancing the General Fund in FY 2026 -27 with a transfer in from the LEAF reserve’s one-time savings of $7.3 million.
The chart below shows the General Fund fiscal forecast . The Revenues line excludes operating transfers in of $9.5 million in FY 2026-27 and $2.3 million in FYs 2027-32:
The chart below shows the Measure U forecast based on Measure U continuing to fund the same level of services. The forecast is unbalanced due to expenditures outpacing revenue growth, which means that Measure U sales tax revenue will be able to fund lower levels of service than in the current fiscal year.
5 The City is incredibly fortunate to receive approximately $27 million in annual revenue from the enhanced one -cent local Measure U sales tax approved by the voters in November 2018. This source maintains many services ( and supports 132 full -time equivalent (FTE) positions, or 18 percent of the workforce) that the General Fund otherwise could not support.
Supplemental Budget Requests:
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 g oals. There were 78 SBRs submitted, of which 63 are incorporated into the Proposed Budget. Some of the SBRs are revenue-backed through the User Fee Study Update, such as the addition of limited-service staff for the Community Development and Police Departments, others are necessary to fund contractual obligations, such as the Animal Services Contract and software maintenance agreements. The fiscal impact for the General Fund and Measure U totals $1.30 million in FY 2026-27 and $1.57 million in FY 2027-28. Other SBRs ensure the budget is sufficient to replace the City’s business equipment, e.g., laptops, computers, etc., and pay for General Liability and Workers’ Compensation insurance premiums and claims. Approved SBRs by fund and department are summarized in Attachment C. Many of these are also highlighted in the Department Budget Detail section of the City of Santa Maria Proposed FY 2026-28 Biennial Budget Book.
Citywide Sources & Uses:
The City of Santa Maria categorizes operating revenues into six maj or categories, each with distinct revenue characteristics. Operating revenues and transfers in are anticipated to be $284.4 million in FY 2026-27 and $279.1 million in FY 2027-28. The year-over-year decrease is due to the one -time draw on LEAF reserves to balance FY 2026 -27.
Excluding transfers in, operating revenues are expected to total $263.6 million in FY 2026-27 and $265.6 million in FY 2027-28.
Charges for
Service
$123.4 M…
Taxes
$96.7 M…
Revenues from
Other Agencies
$26.6 M
9.4%
Other Revenue and
Transfers, $25.9 M,
9.1%
Rev. from Use of
Money &
Property
$6.1 M
2.2%
Licenses, Permits &
Fines
$5.6 M
2.0%
FY 2026-27 Sources
Salaries &
Benefits
$134.5 M
36.6%
Services &
Supplies
$169.7 M
46.2%
Capital &
Outside
Agencies
$36.5 M
9.9%
Transfers
$22.9 M
6.2%
Debt Service
$3.9 M
1.1%
FY 2026-27 Uses
6 The City’s FY 2026 -28 Biennial Budget totals $ 367.4 million in FY 2026 -27 and $425.3 million in FY 2027-28, inclusive of capital, maintenance and equipment project budgets.
Proposed Policy Recommendations for Council Consideration and Policy Direction:
To close the projected budget gap, staff proposes in FY 2026-27 to draw on Local Economic Augmentation Fu nd (LEAF) reserves to the amount of $7.28 million and on undesignated Measure U reserves of $1.47 million. The remaining LEAF reserves at the end of FY 2026-27 are projected to be $6.77 million, undesignated General Fund Reserve will remain depleted, and undesignated Measure U reserves are projected to be $1 .15 million. The projected balance for LEAF is not sufficient to balance the General Fund in FY 2027-28 and the balance projected for Measure U is only sufficient to balance FY 2027-28. Significant reductions will need to be implemented to balance both funds during the FY 2027-28 Mid-Cycle Budget Review process.
Next Steps:
Any policy direction provided by the City Council at the preliminary budget hearing will be incorporated into the Final Proposed Budget. With City Council approval, a public hearing on the Proposed Budget will be scheduled for June 16, during which staff will present the Final Proposed Budget inclusive of any changes requested by the City Council and request adoption of the FY 2026-28 Biennial Budget.
Alternative(s)
The City Council may provide staff with further direction to modify the Proposed Budget.
The City Council may provide direction to re -allocate funds across City operations. The limitations to re-allocation of funds are set at the fund level where the Enterprise Funds and Special Revenue funds can only be allocated to fund those specific operations or projects.
Fiscal Considerations
There is no fiscal impact associated with the City Council recommendations included in this report. With City Council approval, a public hearing will be held on June 16, followed by adoption of the Proposed Budget which currently totals $303.6 million in all operating funds for FY 2026-27 and $340.5 million for FY 2027-28, inclusive of capital, maintenance and equipment projects. City Council direction will be incorporated into the Proposed Budget, which will then be presented to the City Council for review and input on June 16.
The Proposed Budget as presented complies with the City Council adop ted financial policies for all funds except for General Fund and Measure U fund. The Proposed Budget for these funds does not comply with the Balanced Budget policy, which requires that ongoing revenues should meet ongoing operating expenditures. The two f unds are proposed to draw on fund reserves to cover ongoing operating expenditures.
The Proposed Budget includes the assumption that most Governmental Fees are set to full recovery level for the potential revenue growth of $ 2.012 million, of which $1.742 million impacts the General Fund. The Proposed Budget assumes balancing the General Fund in FY 2026-27 with a transfer in from the LEAF reserve’s one -time savings of $7.3 million.
7 Impact on the Community
The preliminary budget review provides the communit y with an understanding of the resources necessary to maintain and enhance services to the public, invest in infrastructure, and undertake many projects that will directly benefit the community. Adoption of the Final Proposed Budget on June 16 will allow C ity staff to provide the services desired by the community.
ATTACHMENT(S)
A. Resolution
B. City of Santa Maria Proposed FY 2026-28 Biennial Budget C. Proposed Supplemental Budget Requests