City of Wasco Supplemental Agenda Materials, June 2, 2026
SUPPLEMENTAL AGENDA MATERIALS
Regular City Council Meeting
June 2, 2026 – 6:00 p.m.
Council Chambers
746 8th Street, Wasco, CA 93280
www.cityofwasco.org
AGENDA ITEMS:
14) NEW BUSINESS:
c. Fiscal Year 2026-2027 General Fund Budget Proposal
• Staff Report
.
TO: Honorable Mayor and Council Members
FROM: M. Scott Hurlbert, City Manager
Tracy Blakemore, Finance Director
DATE: June 2, 2026
SUBJECT: Fiscal Year 2026-2027 General Fund Budget Proposal
Recommendation:
Staff recommends the City Council:
1) Review the General Fund budget for Fiscal Year 2026–2027 and provide feedback prior to finalizing the Fiscal Year 2026–2027 Operating Budget and CIP.
2) Find that this action is not a project as defined under the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15378; no environmental review is required.
Environmental Review:
The staff has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA). It has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA guidelines because the proposed activity consists of a governmental fiscal/administrative activity whic h does not result in a physical change in the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA. Thus, no environmental review is required.
Discussion:
This meeting is intended to provide a review and discussion of changes made since the Departmental Budget meetings, along with a high-level overview of the overall General Fund budget. The discussion will focus on broader budgetary items rather than a detailed line-item review and is necessary prior to finalizing the Adopted Operating Budget and Capital Improvement Project documents.
STAFF REPORT
City of Wasco
Budget Overview
Revenue
Sales Tax
General Sales Tax and Measure X Sales Tax revenues, as estimated by HDL, remain relatively consistent with prior fiscal years, resulting in an overall net decrease of approximately $23K. General Sales Tax is projected to decrease by approximately $54K, while Measure X Sales Tax is projected to increase by approximately $31K.
Local trends in the energy, logistic s, and agriculture industries may out -perform these projections. Middle East tensions, in particular, may actually encourage faster energy sector growth in Kern County. If growth returns to pre -war growth projections of around 3%, the combined sales tax re venue projection would be a net increase of nearly $170,000.
VLF Swap Property Tax
The FY 2026–2027 budget for VLF Swap Property Tax remains consistent with the prior fiscal year at $3.5 million. Actual revenues received in FY 2024–2025 exceeded the budget by approximately $830K. FY 2025–2026 revenues have not yet been fully received to determine whether this trend will continue. The FY 2026–2027 revenue projection remains conservative and does not budget for excess revenues experienced in FY 2024–2025.
By the end of Q2 FY 2026-2027, trends should be apparent. If the VLF Swap performance persists, revenues could exceed budget projections by as much as $800,000.
General & Administration Allocations
General & Administration (G&A) allocations are projected to increase by approximately $758K in FY 2026–2027. The increase is primarily attributable to higher salary and operational costs allocated across divisions.
Interest Income
FY 2024–2025 (remains open pending completion of the fiscal year-end close and audit process), interest income was budgeted at approximately $495K while actual revenues received totaled approximately $2.4M. This resulted in an estimated positive variance of approximately $1.9M, which is not currently reflected in the projected fund balance.
Grant / Intergovernmental Revenue
Grant and intergovernmental revenues are projected to decrease by approximately $486K in FY 2026–2027. This decrease is primarily due to FY 2026–2027 only recognizing grant revenues that correspond to expenditures recorded within the General Fund, while grant revenues associated with Capital Improvement Projects (CIP) are presented separately under “Other Sources.”
Costs
Operating costs are projected to increase by approximately $2.3 million, primarily due to salary and benefit increases totaling approximately $1.8 million. Salary projections have been budgeted conservatively to reflect a one- step increase for all eligible employees during FY 2026–2027. In addition, vacant positions anticipated to be filled during the fiscal year have been budgeted at a full 12 months of salary. Benefit costs have also been budgeted conservatively using the highest-cost employer health plan option.
Technology Expenditures – Budget Classification
As part of the FY 2026–2027 budget development process, management reviewed the classification of computer hardware and software expenditures within the General Fund.
Historically, the City budgeted most one -time compu ter hardware and software purchases within the Capital Outlay category. While this approach effectively distinguished one-time expenditures from ongoing operational costs, it was not always consistent with governmental accounting guidance or the City's capitalization policy.
Governmental accounting standards and Government Finance Officers Association (GFOA) best practices generally provide that expenditures should be classified as capital outlay only when they result in the acquisition or improvement of a capital asset that meets the agency's capitalization threshold and has a useful life extending beyond one year. Under the City's current Capital Asset Policy, assets must generally have an individual acquisition cost of $5,000 or more to be capitalized.
Accordingly, most computer hardware purchases with an acquisition cost below the $5,000 capitalization threshold are more appropriately classified as operating expenditures. Examples include desktop computers, laptop replacements, monitors, printers, and other routine technology equipment purchases.
Similarly, software expenditures are generally budgeted as operating expenditures, even when the annual cost exceeds $5,000, when the payment relates to a software license, subscription, maintenance agreement, clo ud-based service, or other right -to-use arrangement that provides benefits only during the applicable fiscal year. These expenditures do not result in the acquisition of a capital asset owned by the City and are therefore treated as operating costs. Examples include Microsoft 365, Tyler Technologies annual software maintenance, cybersecurity subscriptions, and cloud -hosted applications.
Only qualifying technology investments that create or significantly enhance a capital asset and meet capitalization requir ements are budgeted as Capital Outlay. Examples may include major server infrastructure, network upgrades, or large- scale technology implementations that meet the City's capitalization criteria.
Accordingly, the FY 2026–2027 budget reflects a revised class ification approach that aligns technology expenditures more closely with governmental accounting practices and the City's capitalization policy. This change is primarily a budget presentation and classification adjustment and does not affect the total amou nt appropriated for technology-related expenditures.
Total General Fund software and hardware expenditures budgeted for FY 2026–2027 are approximately $487,000. Under the City's prior budget presentation methodology, a significant portion of these costs wo uld have been reported within Capital Outlay and therefore excluded from operating expenditure totals. Beginning in FY 2026 –2027, these expenditures are reflected within operating expenditures when appropriate under the City's capitalization policy and gov ernmental accounting guidance. As a result, year - over-year comparisons of operating expenditures should take this classification change into consideration.
If desired, Council may direct management to create separate budget line items for computer hardware and software expenditures within the operating budget. While these costs would continue to be classified as operating expenditures for accounting and budgetary purposes, presenting them separately would provide greater visibility into technology spending and allow Council to evaluate operating expenditure trends both including and excluding these technology -related costs when considering the City's balanced budget position.
Staff also intends to review the City's current $5,000 capitalization threshold as part of a future evaluation of the Capital Asset Policy to ensure it remains appropriate given current technology costs, inflationary impacts, and industry best practices.
Overall General Fund
The FY 2026–2027 budget is presented in both Columns A and B. The purpose of this presentation is to illustrate the impact of General Fund software and hardware expenditures on the City's operating budget and to provide Council with the option of evaluating these costs separately for budgetary purposes.
A) This column reflects the FY 2026–2027 budget with approximately $487K of software and hardware expenditures included within Operating Costs. Under this presentation, total Sources Under Uses are projected at ($1,418,572).
B) This column reflects the FY 2026–2027 budget with approximately $487K of software and hardware expenditures shown separately from Operating Costs. If Council elects to evaluate the City's balanced budget position excluding these technology-related expenditures, total Sources Under Uses would be ($931,692).
C) The approximately $60 million reflected in the Capital Improvement Projects (CIP) PDF represents the total potential project costs and is not anticipated to be fully expended within FY 2026–2027. Also important to note is that grants provide over $35 million of the $60 million in the CIP, which through reimbursement typically resolve to zero net impact to the General Fund. The FY 2026–2027 budget may initially appear to reflect significantly higher CIP expenditures, transfers in, and transfers out when compared to FY 2025 –2026. This is primarily due to all CIP now active being accounted for within the City’s CIP Fund in FY 2026 –2027.
Additionally, the FY 2025–2026 detailed budget did not fully reflect all CIP activity within the CIP Fund, despite the CIP’s fund balance being included as part of the overall General Fund balance in the audited FY 2023–2024 financial statements.
The ($10 million) in projected (Under) Uses represents the potential deficit that would occur if every CIP project identified within the CIP schedule were completed during FY 2026–2027. Historically, not all identified projects are undertaken within a single fiscal year. Project timing depends upon available funding sources, staffing capacity, and evolving City priorities and needs. As a best practice, the City includes all desired and potential projects within the CIP schedule to assist with long-term planning and to position the City to pursue and obtain outside funding opportunities when available.
D) The projected ending fund balance for FY 2026–2027 may initially appear concerning or relatively low. However, this projection was calculated using the audited FY 2023–2024 General Fund balance of $31.9 million and adjusted using budgeted (under) uses for FY 2024–2025 and FY 2025–2026 rather than actual year- end results. Both fiscal years were budgeted conservatively. Additionally, CIP projects are budgeted annually, and projects not completed within a fiscal year are typically carried forward into subsequent f iscal years, which may result in projects appearing to be budgeted more than once. As FY 2024 –2025 and FY 2025–2026 are finalized and closed, the fund balance is expected to be positively adjusted to reflect projects and expenditures that were not completed or fully incurred. Throughout FY 2026–2027, additional financial reports and updates will be presented to the City Council as prior fiscal years are closed and finalized.
E) For FY 2026–2027, attention is drawn to the projected Sources Under Uses of approximately ($1.46M) in Column A and ($932K ) in Column B. The variance between the two presentations reflects the treatment of General Fund software and hardware expenditures and is provided to assist Council in evaluating the City's budgetary position under each methodology. The proposed FY 2026–2027 Operating Budget was developed using a conservative approach with careful scrutiny applied to expenditures while continuing to maintain service levels and operational needs. Revenue projections were also budgeted very conservatively based on current trends and available information, while expenditures reflect anticipated salary adjustments, operational costs, and broader organizational needs. Staff will continue to monitor revenues and expenditures throughout the fiscal year and provide updates to the City Council as necessary.
A few key factors help contextualize the ($1.4M) (under) uses. First, there is a one- time increase of approximately $1.9M in interest income from FY 2024–2025 that is not currently reflected in the overall fund balance. In addition, VLF Swap Property Tax revenues in FY 2024–2025 exceeded budget by approximately $829K; however, it is uncertain whether this higher level of revenue will continue in future years, and this amount is likewise not r eflected in the projected fund balance.
Lastly, salary projections have been budgeted conservatively to reflect a one-step increase for eligible employees during FY 2026–2027. Benefit costs have also been budgeted conservatively using the highest-cost employer health plan option.
F) The original Staff Report reflected Sources Under Uses of ($1,364,572). The revised amount of ($1,418,572) represents a difference of $54,000, which is attributable to a budget input correction for Police Department software costs that was discussed during the Strategic Planning Workshop.
CIP Additions
A new CIP project titled “Server Upgrade” totaling $250K has been added to the FY 2026– 2027 Capital Improvement Program. This reclassifies the expenditure from operating costs to a one -time capital expense within the CIP. As a result of this reallocation, the Information Technology budget’s professional services line item has been reduced by $119K.
Subsidy Overview
During the May 13 , 2026 City Council Department Budget Meeting, Coun cil approved continuation of the $60K Water Subsidy. During that discussion, Council requested information regarding the subsidy results from prior fiscal years. At present, participation appears to be oversubscribed, and it has been noted that program participation has not been formally audited in prior years. The Finance Department will conduct an internal audit of the Water Subsidy program and will report back to Council upon completion of the review.
Next Steps:
If the General Fund has no further items to address, then Finance will continue with the process to Adopt the Annual Operating Budget and Adopt the Capital Improvement Program at the June 16, 2026 regular meeting.
Fiscal Impact:
No fiscal impact.
Attachments:
None