Capitola City Council members on May 29 reviewed a draft fiscal 2025–26 budget staff described as “structurally balanced” but squeezed by rising pension costs and dependence on volatile sales and transient occupancy taxes.

Finance Director Jim Mulberg told the council the proposed budget still showed a limited ending fund balance for June 2026 — “an estimated ending fund balance of June of 20 26 of 653,000” — and later presented a corrected estimate of roughly $753,000 after several technical adjustments.

The shortfall stems largely from a jump in the city’s CalPERS unfunded actuarial liability (UAL). Mulberg reported the UAL rose from about $21,000,000 to $35,000,000 in two years and the city’s annual CalPERS payment increased from roughly $2,100,000 to $2,900,000 over that period. He said Measure Y revenue (estimated at just over $1,100,000) was largely matched by new personnel-related costs tied to the Measure Y implementation.

Why this matters: council members and staff said the combination of pension cost increases and heavy reliance on sales tax and TOT — revenues that can swing with the economy — leaves little flexible money for new programs and projects. Mulberg and other staff urged caution and recommended preserving a reserve target near $500,000.

Council discussion and follow-up: council members pressed staff for clearer breakdowns of Measure Y receipts and spending, and asked for routine reporting on Measure Y and related multiyear projections. Staff said the Finance Advisory Committee (FACT) reviewed and largely supported staff recommendations and that any FACT recommendations from its June 17 meeting would be brought back to council at the June 26 adoption meeting.

Allocations and vote: during deliberations the council agreed to a small set of one-time allocations funded from the available balance. Councilmember Morgan moved to allocate funds as proposed; the final, amended package approved by roll call vote (Johnson, Morgan, Orbach, Clark) totals $150,000 and is itemized below under "Votes at a glance." Council also agreed to cancel the remaining special budget hearings and proceed toward final budget adoption on June 26.

Other budget items noted: staff said a $100,000 set‑aside remains for an employee down-payment assistance program (a reusable ‘‘silent second’’ loan) that to date has had limited uptake; officials also confirmed corrections to earlier line items (for example, portable toilet contract costs were reduced after a misplaced digit) and noted FEMA/Cal OES reimbursements from storm response remain pending.

Ending note: staff emphasized the city’s exposure to economic swings through sales tax and TOT and recommended continued conservatism in multi-year budgeting while pursuing economic development opportunities that could expand stable revenue over time.

Votes at a glance

- One-time allocation package (motion by Councilmember Morgan; second not specified): approved 4–0 (Councilmember Johnson — aye; Councilmember Morgan — aye; Councilmember Orbach — aye; Mayor Clark — aye). Final amended allocations accepted by council: RRFB (rectangular rapid-flashing beacon) crosswalk: $10,000; Monterey Park playground design/matching seed: $10,000; Esplanade Park planning/match: $50,000; Park Avenue traffic-calming/striping project: $60,000; Economic development consultant/strategy seed funding: $20,000. Total: $150,000. Motion outcome: approved.

- Cancellation of remaining special budget hearings and direction to proceed to final budget adoption at the June 26 council meeting: council consensus recorded and staff to return with FACT recommendations from June 17; motion outcome: consensus/approved.