Finance committee presses staff to trim or reprioritize capital projects as infrastructure reserve dips

The finance committee took a detailed look at the city’s Capital Improvement Program (CIP) on May 6, with staff presenting a five‑year portfolio and warning officials the infrastructure reserve is projected to fall below the city’s $3 million target in fiscal 2026.

Public Works and budget staff said the proposed five‑year CIP programs about $316 million in capital spending (enterprise and non‑enterprise projects combined) and that the capital improvement fund (the city’s principal general‑fund capital account) is heavily dependent on transfers from the General Fund and a mix of grant and other revenue.

Staff noted two related problems: reappropriations of prior‑year project funding inflating the FY2026 spending line and cost increases or scope shifts on several projects. Paul Harper (budget manager) and Holly Boyd (Assistant Director, Public Works) identified projects that were moved out of FY2026 during development — for example, elements of Mitchell Park were deferred two to three years, and Rinconada Park phase 2 was pushed into later years to balance the plan.

Reserve pressure and funding mix Staff reported the capital improvement fund’s infrastructure reserve dips to about $1.6 million in FY2026 under the proposed plan, below the city’s $3 million target. Harper highlighted that transfers from the General Fund (base transfer, TOT, interest and project‑specific transfers such as Measure K and UUT) are the largest revenue source for the CIP; staff showed a five‑year transfer total of roughly $189 million with a $35.5 million transfer proposed for FY2026.

Grade separation, Measure K and Measure B A major subset of the CIP is the rail grade separation projects. Transportation staff confirmed some Measure K (local business tax) dollars were programmed to help match federal and regional grants for preliminary engineering and environmental work. The transportation office noted an FRA grant was being used as a local match but could be uncertain; in that case staff said they had discretion to use local Measure K dollars or other local appropriations as needed. Committee members asked whether the city could use its local Measure B (VTA) allocation instead of Measure K for grade separation local match, and staff explained VTA Measure B funds intended for grade separations have eligibility rules and cannot be used as local match for the same Measure B program in some circumstances; staff said they will follow up with VTA coordination and identify alternatives.

Cost increases flagged in the CIP Staff pointed to two examples of cost increases that contributed to the reserve shortfall: about $1.6 million for additional phases of University Avenue streetscape and roughly $1.5 million to align Fire Station 4 costs with current estimates. Staff also identified new projects added to the plan: EV charging maintenance, library furniture replacement and irrigation work at Lucy Stern, among others.

Committee direction Committee members asked staff to return with concrete options to reduce the General Fund transfer to CIP by roughly 5 percent and 10 percent, and to show the specific projects or transfers that could be delayed or reduced to achieve those savings. The committee also asked for a reconciliation between utility revenue forecasts and the utility users tax (UUT) forecast, because members noted rate increases but relatively flat UUT projections.

Staff committed to follow up with: a prioritized list of CIP items that can be deferred or reduced by stated percentages; a crosswalk showing the FY2025 adopted/midyear/proposed changes in CIP funding by project; and clarification on Measure K vs. Measure B eligibility for the grade separation local match.

Ending The committee directed staff to return with scenarios and a recommended list of potential deferrals — staff said it will provide a set of options for committee consideration as the budget process continues.