Atherton finance director previews FY 2025–26 budget; town shows small midyear improvement, pension and ERAF shortfalls remain

Atherton’s finance director told the Town Council and Audit Finance Committee on March 5 that the town’s midyear financial update narrows its projected fiscal 2024–25 deficit and outlines revenue and reserve assumptions the council will use during the FY 2025–26 budget process.

“This is a high level overview,” Finance Director Robert said, describing the presentation as a forecast, not the detailed expenditure plan staff will return with later in the budget cycle.

The presentation showed the general fund revenue forecast rising at midyear from $25.5 million to $26.3 million and expenditures increasing slightly to about $21.2 million. Transfers out were listed at $5.3 million, including roughly $861,000 in Certificates of Participation (COP) debt service related to the Town Center project and about $4.5 million allocated to COP projects. Staff reported a midyear projection for fiscal 2024–25 that narrows the anticipated deficit from about $830,000 to approximately $196,000.

The nut of the outlook, staff said, is that the town expects to end FY 2024–25 with a total fund balance near $12.4 million, of which roughly $6.3 million is the combined emergency and operating reserve requirement (15% emergency, 15% contingency as calculated in the staff report). That produces an estimated unallocated fund balance around $6.04 million available for one-time uses, capital projects or other allocations, subject to council direction.

Staff emphasized three revenue items that drive the five‑year forecast: property taxes, building fees and excess ERAF receipts. The five‑year forecast uses midrange growth assumptions for property taxes (4.5% in near years, increasing to 5.5% later in the window), building fees projected at 2–4% depending on the year, and a conservative $2.5 million per year assumption for excess ERAF in the forecast even though the town received about $2.7 million this year.

“The VLF shortfall is another revenue that’s part of the property tax roll up,” Robert said, referring to the Vehicle License Fee (VLF) and its interaction with ERAF (the Educational Revenue Augmentation Fund) and school funding formulas. Staff highlighted an ongoing, multi‑county shortfall the town is monitoring—roughly $1.414 million across fiscal years cited in the presentation—and noted the town’s lobbyists have previously worked with the Legislature to seek backfill for these gaps.

Pension liabilities and the town’s CalPERS unfunded actuarial liability (UAL) were a major discussion point. The staff report and the town’s actuarial materials show an increase in the town’s total pension liability to about $19.1 million (up roughly $1 million year over year). The town currently projects UAL payments of about $1.83 million for FY 2025–26 (approximately $1.2 million for public safety and $618,000 for miscellaneous plans). Finance committee members and volunteers discussed the effect of an earlier $5 million additional discretionary payment (ADP) to CalPERS and differing calculations of its long‑term savings.

Volunteer commenter Bill Pulido, who has analyzed the ADP result, told the council the payment reduced future liabilities more than the staff’s year‑to‑year comparison implied and estimated a larger long‑term savings. “The reduction in payments over the life of those mortgages was in the neighborhood of $11,000,000,” Pulido said, describing the UAL layers as comparable to mortgage amortizations. Staff and finance committee members said they will return to the council with a more detailed assessment and a recommendation at an upcoming finance meeting.

Staff flagged that the unallocated fund balance is the pool that could be used for a future ADP or additional capital spending, but cautioned the council that using that unallocated balance in FY 2024–25 would flow through and reduce available balances in subsequent forecast years. “If you take that $6 million, it flows all the way through,” Robert said. Staff said the operations budget review will return to the council on April 2, the capital improvement budget study session is scheduled for May 7, and the consolidated budget study session is planned for June 4 ahead of potential adoption on June 18.

The presentation included a list of grant and donation funds that currently augment general fund operations and capital needs, including a roughly $240,000 package of donations earmarked for police wellness and training. Staff also noted a remaining county advance for library funding of about $1.5 million that the town expects to retire by the 2025–26 fiscal year.

Council members asked staff to return with specific options and analyses for the pension ADP, the five‑year CIP prioritization and the detailed impact on FY 2025–26 reserves if council chooses to allocate one‑time funds. Staff committed to produce updated financial spreadsheets and to present options that preserve the town’s reserve policy while showing tradeoffs between ADP and CIP investment.

Looking ahead, staff recommended continuing to monitor ERAF and VLF developments at the state level and to update the council as legislative or actuarial changes affect the five‑year outlook. The council directed staff to bring back detailed operational and capital budget materials in the schedule shown so elected officials could make formal budget choices during the regular study and adoption meetings in April–June.

The council did not take any formal action during the study session; staff will return with proposed options and analyses for council decisions later this spring.