CITY OF
Item No. 20
AGENDA REPORT
DATE: May 12, 2025
TO: Honorable Mayor and City Council
FROM: Jennifer Crawford, Interim City, ager
Phil White, Director of Finance
SUBJECT: Draft Fiscal Year 2025-2026 Budget
RECOMMENDATION:
That the City Council review the draft fiscal year 2025-2026 budget and provide direction to staff as appropriate; and
2. That the Successor Agency to the Yucaipa Redevelopment Agency review the draft fiscal year 2025-2026 budget and provide direction to staff, as appropriate; and
3. That the Yucaipa Housing Authority review the draft fiscal year 2025-2026 budget and provide direction to staff, as appropriate.
BACKGROUNDMISCUSSION:
Staff is pleased to present the draft fiscal year 2025-2026 budget (FY26 Budget) for the City Council/Successor Agency/Housing Authority consideration. Feedback provided by the City Council will be gathered and incorporated into the FY26 Budget, which will be presented for the City Council's adoption at the scheduled June 9, 2025, City Council meeting.
The draft FY26 Budget is the City's spending plan for the fiscal year beginning July 1, 2025. The spending plan continues delivering public protection, development services, and community services. General government support continues to operate lean under this plan. In lieu of a strategic plan providing guidelines for programming and service delivery, staff reviewed existing programming and projected the costs to deliver those programs next fiscal year.
City Manager's Budgetary Directives
An option of a FY26 balanced budget will be delivered to the City Council for adoption. To deliver that option, the following series of directives were provided by Interim City Manager Jennifer Crawford:
➢ Public safety contracts will not include service reductions in FY26. Public safety contracts were prioritized by the City Council. The Schedule A Contract with the San Bernardino County Sheriff will include the same number of deputies, sergeants, lieutenants, captains etc..., as FY25. The LG1 contracts for Fire Protection and Paramedic services with CalFire will also not have personnel reductions in FY26. The structure used by CalFire is being changed and a position for an additional battalion chief is being mandated. With this prioritization, all other activities and programming (code enforcement, development services, community services, and general government support) need to limit spending to the availability of remaining resources.
➢ Controllable costs outside of the public safety contracts will not be increased. The City's costs outside of public safety contracts include other contracts ranging from building and safety to landscaping, salaries and benefits for front line and support employees, capital costs, programming costs, insurance costs and other miscellaneous operating costs. While the controllable components of these costs are limited, staff was charged with meeting a 0% increase.
➢ Programming may need to be prioritized within each department. To achieve the 2nd tier prioritization objective, each division/department prioritized activities. Activities were added to the spending plan up to the directed level. Any programming with a cost beyond the threshold was tracked for the City Council's consideration.
The directives were successfully implemented in the preparation of the draft FY26 Budget.
Assumptions Used for Unknown or Incomplete Items
The spending plan includes many estimates. When developing the estimates, the better the input the better the result. There are a few areas of the preliminary spending plan in which the estimate is based on unknown or incomplete data so staff used best informational available as follows:
➢ The Schedule A provided by the San Bernardino County Sheriff is usually the only input used for the police contract. This year, the Schedule A was presented with the additional context that labor negotiations are ongoing and the financial impacts of those negotiations are not included in the Schedule A. Accordingly, a secondary input to capture the entire anticipated cost has been added to the estimate. The basis for the secondary estimate is strictly internal and actual results could significantly differ. ➢ City employee labor negotiations are not complete; however, staff have included conservative estimates in the draft FY26 Budget. Significant changes in the compensation model because of the citywide classification and compensation study are included in the model. The implementation of that model is pending a labor agreement. Various inputs such as cost -of -living -adjustments and benefit changes are also subject to change pending final agreement. The estimates in the draft FY26 Budget are subject to change as the negotiations progress.
FY26 Fund Structure
In FY25, several changes to the accounting fund structure were made. In FY26, the changes are less significant, but two are notable.
Continuing the model implemented in the FY25 Budget to provide greater clarity for the City Council to make informed decisions, public safety costs are consolidated in the Public Safety Special Revenue Fund. To better reflect current operations, the Code Enforcement Division has been moved from the General Fund to the Public Safety Fund beginning in FY26.
In the General Fund, the Governmental Affairs Department has been eliminated and some expenditures have been absorbed into the City Manager Department.
Status of Balanced Budget Directive
The "balanced budget" directive is a reference to the General Fund and Public Safety Fund, the primary operating funds of the City of Yucaipa. Over the past several years, these reporting units have consistently reported a budgetary deficit, culminating in a $7.3 million shortfall in the adopted FY25 Budget. Although a balanced budget is a minimum acceptable directive for financial health, staff is pleased to deliver a balanced budget in FY26 as the General Fund and Public Safety Fund reflect a net $0 between estimated inflows and outflows.
Municipal accounting requires each reporting fund to have its own budget. The City has budgetary surplus in some reporting funds and budgetary deficit in others. These accounting funds, special revenue funds and capital projects funds, are not intended to have financial resource flow in balance each fiscal year. Accordingly, the one-year status is less meaningful than the operating funds such as the General Fund or Public Safety Fund.
The City's development services activities are reported in both the General Fund and capital projects funds. Budgeting for these activities has an added layer of complexity in that many of these projects take multiple years to complete. These multi -year projects have budgets that carry over from one year to the next until the project is complete. That is, the City Council authorizes the spending only once as part of the Capital Improvement Program (CIP) and the budget remains intact until the project is completed. As such, included in the expenditure budgets in capital projects funds are both the operating budgets that will lapse at the end of the year and the multi -year capital budgets that will roll over to the subsequent year.
Highlights of the draft FY26 Budget
The City collects "general revenues" and "program revenues".
General Revenues
General revenues can be used for any legitimate public purpose. Property tax ($15 million) and sales tax ($11.7 million) which include $6 million from Measure S continue to be the primary sources. Franchise fees ($4 million) and Motor Vehicle In -Lieu ($7 million) are also significant sources of general revenues of the City.
Program Revenues
Program revenues are funds directly generated by a specific program (charges for service) or from sources outside the general taxpayer base (operating and capital grants). Program revenues are typically found throughout all accounting funds and not just the General Fund.
Expenditures
The City continues its three service lines: public safety, development, and community service. This report is structured to provide a summary by service line.
Police/Fire/Paramedic - Public Safety Special Revenue Fund Public safety contracts were the stated prioritization in the compilation of the draft budget. These contracts represent the majority of spending for the City and approximate $22 million in FY26.
Yucaipa contracts with the San Bernardino County Sheriff for police services and CalFire for fire protection and paramedic services.
The preliminary contract for police services reflects $13.6 million, which was flat with FY25 also at $13.6 million. Ongoing labor negotiations are likely to have an impact on the final contract so a budgetary contingency has been included. Non -contract costs of $900 thousand ($900 thousand FY25) bring the total for police services to $14.5 million.
The fire protection services contract is $6.2 million ($5.3 million FY25). Costs beyond contractual obligations total $3.3 million and include the budget for two engines ($2.5 million) for a total fire protection expenditure budget of $9.5 million. Budgetary revenues to pay for fire protection total $5.3 million with the difference being withdrawn from the Fire Fund "savings account".
Paramedic services are estimated to be $2.4 million ($2.2 million FY25) with budgeted revenues from the longstanding special assessment of $1.1 million. The financial shortfall for paramedic operation is also withdrawn from the Fire Fund savings account.
Not included in the FY26 draft budget is the request for a paramedic squad and related equipment and vehicles. That request has been made for several years; however, budget constraints have prevented the activity from being authorized.
It should be noted that, based on budgetary activity, the Fire Fund savings account will be fully depleted during FY26. Once the savings account is depleted, the General Fund will become the backstop for fire and paramedic operations.
Code enforcement has been included in the Public Safety Fund beginning in FY26 with budgetary costs of $1.1 million ($900 thousand FY25). Supporting costs are captured for budgetary costing purposes and allocated to the non -departmental section of the Public Safety Fund. A transfer from the General Fund backfills any budgetary or actual shortfall in the Public Safety Fund. For FY26, budgetary costs of all public safety activities are $31 million. The budget summary for the Public Safety Fund is included as Attachment 3. Putting these costs into perspective, total property tax (including the paramedic assessment) and sales tax (including Measure S) approximates $27.8 million.
Development Services — General Fund and Other Funds
Continuing last year's directive, the use of General Fund money is being reserved for programming only after restricted money is fully utilized. Any opportunities to defer capital acquisition should be exercised. Completing existing projects continues to be the focus rather than starting new ones.
Capital projects are typically accounted for in capital projects funds and not the General Fund. The use of restricted resources for road maintenance continues in the draft FY26 budget. This activity is accounted for in special revenue funds including the Gas Tax Fund rather than the General Fund.
Public Works is included in the General Fund and the backlog in citywide deferred maintenance has been programmed beginning in FY26. Engineering, Planning, Building & Safety and Economic Development are also General Fund Divisions.
Community Services — General Fund and Other Funds
Community Services is a unique operation that can recover some of its costs. The department is continuing its effort to maximize cost recovery. Policies and programs continue to be modified and revised to continue to deliver high level programming while pursuing cost recovery. In order to limit net cost, the Five -Winds Festival, the 41h of July event, and Camps programming are not included in the draft FY26 Budget. Outside of the General Fund, STARS programming is included in the STARS special revenue fund.
Support Services — General Fund
All other departments are considered support services and exist for the sole purpose of supporting the service lines. These include City Council, City Manager, Finance and General Services. These support services balance efficient local government operation with the cost of doing so. Budget guidelines employed this year were to continue to limit requests to the minimal level necessary to operate and to continue to defer any new projects or activities to an extent practical. These costs are charged to the General Fund.
A balanced budget in the General Fund is reported based on these guidelines. This means that the annual cost to deliver services levels is equal to estimated revenues at approximately $42 million.
The General Fund Summary is included as Attachment 4.
Other Funds
Budgetary challenges exist in other accounting funds as well. Various capital projects funds continue to reflect accumulated deficits and bringing those to balance will take a multi -year strategy.
Although headed in the right direction, the interfund payable in the Development Impact Fee Fund continues to be a significant challenge. Another $1 million is expected to be repaid in FY26.
Special revenue funds are utilized to report accumulated restricted or committed resources. These accounting funds are designed to accumulate revenues and then spend them on allowable activities.
The intent of these funds is to provide services for a restricted use and therefore can operate in surplus or deficit in any given year.
Activity on individual accounting funds is included in the All Funds Summary schedule included as Attachment 2. Additionally, in order to deliver a balanced budget and provide context and transparency to the spending plan, a partial list of programming excluded from the draft FY26 Budget is included as Attachment 1.
FISCAL IMPACT:
Although the recommendations do not result in a fiscal impact, the budget provides the spending plan.
Direction provided will be incorporated into the final document to be provided to the City Council for adoption in June 2025.
Attachments:
1. Excluded Programming
2. All Funds Summary
3. Public Safety Fund Summary
4. General Fund Summary
ATTACHMENT
Amount
Exciuded Programming
Description
142,000
Tree City USA - Annual Tree Maintenance Program ($110 thousand) and onetime cost ($32 thousand)
60,000
Replacement Vehicle - Public Works - Streets Division
74,000
Community Services - Camps Program
100,000
Community Services - 4th of July Event
5,000
Community Services - Movies in the Park
20,000
Community Services - Concerts in the Park
8,000
Community Services - Easter Eggstravaganza
915,000
Community Services - Five Winds Music Country Music Festival 22,000
Community Services - Make a difference Day
190,000
Fire Protection - Fire Inspector and Vehicle
11,000
Public Safety - Events Booth Materials - Police and Fire 2,300,000
Paramedic Services - Paramedic Squad, Gear, Vehicle
4,000
Police - Volunteer and Explorer Uniforms
50,000
Code Enforcement - Hearing Officer Code Enforcement
30,000
Placer Al - Economic Development Software
30,000
Economic Development Residential Loan Program
55,000
Economic Development Commercial Fagade and Retaurant Loan Program
2,200,000
Remaining Deferred Maintenance - Public Works
40,000
Travel and Meetings - Citywide
6,256,000
Total
ATTACHMENT 2
City of Yucaipa Budget Summary
General Fund and Special Revenue Funds
General Fund
Special Revenue Funds
Air Quality Improvement
American Rescue Plan Act
CA Dept. of Transportation (CaITRANS)
Development Impact Fees (DIF)
Fire Services Fund
Gas Tax
Landscaping & Lighting Maint. Districts
Measure I (Arterial)
Measure I (Local)
Miscellaneous Special Revenue
Paramedic Zone
Public Educational & Gov't Access (PEG)
Public Safety Fund
Road Maintenance & Rehab. Account (S131)
State Law Enforcement Grant
Total Special Revenue Funds
Proposed
Proposed
Proposed
Revenues
Expenditures
Transfers -in
2025-2026
2025-2026
2025-2026
Proposed
Transfers -Out
2025-2026
Net Estimated
Change in
Fund Balance
$ 41,452,710
$ 21,191,805
$ 38,020
$ 20,298,925
$ -
67,000
-
-
67,000
-
879,437
-
-
879,437
-
1,467,249
-
-
1,269,335
197,914
2,510,000
-
-
2,510,000
-
-
125,203
150,000
4,273,478
(4,248,681)
1,553,940
2,103,506
-
139,720
(689,286)
1,056,782
1,115,322
-
-
(58,540)
10,215,759
-
-
10,970,757
(754,998)
1,237,534
-
-
2,201,374
(963,840)
3,090,775
3,096,342
17,000
2,606,466
(2,595,033)
-
-
-
1,844,918
(1,844,918)
77,000
25,000
-
-
52,000
6,720,000
30,427,687
23,707,687
-
-
1,435,283
-
-
1,350,000
85,283
100,000
100,000
-
-
-
$ 30,410,759
$ 36,993,060
$ 23,874,687
$ 28,112,485
(10,820,099)
ATTACHMENT 3
Public Safety Fund - 201
Inflows
Committed Property Tax
$ 5,200,000
Paramedic Assessment
1,090,000
Other
380,000
Transfers In
23,757,687
30,427,687
Outflows
Police
14,523,774
Fire
9,503,478
Paramedic
2,364,188
Code Enforcement
1,127,502
Administration
2,908,745
30,427,687
ATTACHMENT 4
General Fund -100
I nflows
Property Tax
$ 10,252,000
Sales Tax
11,700,000
Franchise Fees
3,965,000
Licenses and Permits
1,439,610
Charges for Services
3,408,397
Intergovernmental
7,550,000
Investment Income
1,000,000
Other
2,137,703
Transfers In
38,020
41,490,730
Outflows
General Government
6,338,428
Community Development
1,785,266
Building and Safety
1,355,130
Public Works
6,760,143
Community Services
4,952,838
Transfers Out
20,298,925
41,490,730