City presents FY 2026 general-fund forecast showing $7 million gap; council to set budget goals next week

City finance staff presented a financial forecast for the FY 2026 general fund that shows an anticipated gap of roughly $7 million between projected revenues and the 20% reserve requirement.

Amy (last name not provided), director of budget and performance (presentation delivered by finance staff), told the council the forecast assumes 0.5% growth in existing property valuations and 2% growth from new property values for an overall 2.5% property-tax revenue increase in FY 2026. Staff also noted prior policy changes — a larger homestead exemption and related adjustments adopted in FY 2025 — reduced property-tax revenue by approximately $12 million compared with prior baseline assumptions.

Staff listed several assumptions built into the forecast: no additional transfers from the general fund to streets beyond previously planned amounts; continuation of collective-bargaining agreements for police (year three of a four-year agreement, roughly $900,000) and fire (year two of a four-year agreement, roughly $1.5 million); a placeholder of $2 million for a 3% average performance-pay pool; increased health-benefit contributions after FY 2025 drew down the health fund balance (roughly $13 million); and a 10% placeholder for commodities/equipment increases (about $1.5 million in the general fund forecast).

Under those assumptions staff estimated FY 2026 general-fund revenues of about $341.5 million and expenditures of about $351.7 million, leaving an ending fund balance that would be roughly $7 million below the city’s 20% policy reserve requirement. Staff emphasized the gap results from a combination of slowed revenue growth (notably flat sales-tax outlook) and built-in cost increases.

Council members asked about next steps. Staff said they began working with departments earlier in the year to identify efficiencies and asked departmental leaders to examine possible 10% adjustments to their FY 2025 budgets as a planning exercise. Council scheduled a budget-goal-setting session for May 8 and staff said the administration will provide departmental reduction ideas, potential fee adjustments and other revenue options before the July budget proposal.

Mayor Paulette Guajardo and other council members asked for additional detail on debt-service obligations and how recent or proposed state legislation (notably HB 19-related proposals) could affect capital borrowing and debt capacity; staff said debt-service and bond impacts will be included in next week’s goal-setting discussion.

Staff emphasized the budget process will continue through July, with department presentations, refinement of assumptions and further council direction before the formal proposed budget is released.