Walnut Creek staff outline $108 million two‑year capital budget and proposed FY26–27 general fund balancing steps

City staff presented the proposed fiscal year 2026–27 operating budget and the first two‑year cycle of a 10‑year capital improvement program at the Walnut Creek City Council meeting on May 6, asking the council for feedback before the Finance Committee review and final adoption in June.

The proposal shows a projected ongoing general‑fund deficit of $4.97 million in FY26 and $6.33 million in FY27 before budget balancing actions. To address that gap, staff proposed a package of revenue adjustments, operations and maintenance reductions, personnel changes and one‑time measures, and asked the council to provide direction before returning to Finance Committee on May 15 and scheduled adoption on June 17.

Why this matters: the draft budget funds core services (police, public works, arts and recreation) while preserving reserves for defined emergencies, but relies on short‑term budget balancing steps that staff said should be monitored and reversed when revenues normalize. The capital program includes several grant‑funded transportation and bridge projects and advances the Heather Farm Aquatic and Community Center toward construction, which will require long‑term financing.

Staff presentation and topline figures Rindy Azzavito, the city’s budget and procurement manager, framed the council’s role: “The action that's requested tonight is that you provide input and feedback regarding the development of the balanced budget for FY 2627.” She said baseline revenues and expenditures would produce the multi‑million‑dollar deficits cited above before any balancing actions.

Staff projected general‑fund revenues of roughly $107.35 million in FY26 and estimated general‑fund expenditures of about $106.99 million in FY26 and $110.90 million in FY27 after the package of proposed adjustments. Major revenue drivers noted were property tax, sales tax and transient occupancy tax; staff described property tax growth as slowed by commercial vacancies and sales tax growth as flat in FY26 with modest recovery in FY27.

Balancing strategies proposed Staff outlined four buckets of balancing actions: (1) modest revenue changes (fee updates and transfers); (2) operations and maintenance reductions (professional services, travel, program marketing and some maintenance deferrals); (3) personnel adjustments (eliminations, reclassifications, hiring delays and overtime reductions); and (4) short‑term one‑time measures.

Key proposed items include: - Revenue adjustments and fee increases projected at $180,000 in FY26 and $640,000 in FY27 (details to be presented with the master fee schedule in June). - Operations and maintenance reductions of just over $2.0 million per year, primarily professional services, travel and supplies. - Personnel and overtime savings of about $1.27 million per year (including proposed reductions equal to 3.75 full‑time equivalents citywide and an overtime reduction of roughly $477,000, with approximately $450,000 of that coming from the Police Department). - A budgeted vacancy rate increase to 6% (from 5%) that staff estimated would yield approximately $580,000 annually in salary savings as a short‑term measure. - Use of pension trust resources under the council’s March 18 policy: $1.0 million in FY26 and $2.0 million in FY27 to help offset CalPERS unfunded liability cost increases. - One‑time funding requests totaling $1.82 million in FY26 (and $290,000 in FY27), including $1.23 million proposed from the general‑fund contingency to support the general‑fund portion of the General Plan update.

Staff cautioned that some one‑time measures are not sustainable and recommended monitoring and returning to normal reserve and vacancy assumptions when possible.

Discussion highlights and concerns from council and staff Council members asked about programmatic impacts and timing: - On service impacts: staff said proposed custodial reductions and less frequent proactive maintenance would increase reactive repairs and could shorten equipment life; parks maintenance and graffiti response times could slow if positions are eliminated. - On hiring delays: city management said delaying new hires (several limited‑duration or vacant positions were identified) would produce near‑term savings but could slow project delivery and the pace of council‑priority work; hires would generally take months to complete even if authorized. - On vacancy rate assumptions: staff noted historical actual vacancy has averaged 9–11% since COVID, but that modeling a higher budgeted vacancy rate creates future obligations if the city later dips below that assumption. - On police staffing and overtime: Chief Jamie Knox described current recruitment challenges and recent retirements. He confirmed that the proposed overtime reduction had been chosen as the least‑impactful area to cut within the department but warned that reducing overtime could slow investigations and records processing in high‑demand periods.

Capital budget and 10‑year CIP: main projects and funding Alex Wong, senior civil engineer, presented the draft 10‑year capital improvement program (CIP) and the FY26–27 capital budget (the CIP’s first two‑year cycle). The two‑year capital budget totals about $108 million and blends asset‑management (maintenance), discretionary enhancements and multiple grant programs.

Notable capital items called out by staff: - Heather Farm Aquatic and Community Center: the program remains the largest capital commitment; staff described prior reserves and annual set‑asides and reported a projected need for additional financing for construction. Staff said a variety of financing scenarios are being evaluated and emphasized the objective to time bond issuance so repayment aligns with Measure O’s term. - South Main Street bridge replacement: design and right‑of‑way phases funded in the CIP; staff said the project has a federal bridge grant covering roughly 89% of eligible costs for design/right‑of‑way and that construction funding allocation is pending. - Ignacio Valley Road intersection improvements and several safety grants: a mix of developer mitigation dollars and state/federal highway‑safety grants will fund intersection and pedestrian improvements at several crossroads along Ignacio Valley Road. - North Locust parking garage deck repairs and other downtown maintenance projects. - Sustainability and green‑infrastructure work, including EV charging and stormwater treatment improvements required by state regulation.

Staff noted developer fee receipts (traffic impact and in‑lieu park dedication fees) remain lower than historic averages, while grant awards have been comparatively strong this cycle.

Votes and council direction at the meeting Council approved multiple consent‑calendar items earlier in the meeting; specific vote outcomes recorded at the time included: - Consent calendar (items 2a–d, g, h): motion carried on roll call (ayes recorded). - Item 2e, master consultant services agreement (eight firms; $300,000 cap per firm over five years): motion to approve carried on roll call (ayes recorded). - Item 2f, parking program adjustments (staff presentation noted ~45,000 parking citations annually and about $32 average revenue per citation; parking fine revenue flows to the Parking Enterprise Fund): motion to approve carried on roll call (ayes recorded).

Council direction and next steps City staff asked the council for input and signaled they will return to Finance Committee on May 15 with updated materials (including the master fee schedule) and will bring the budget back to council in June for adoption (final adoption scheduled for June 17). Staff also requested feedback on areas such as outdoor dining incentives, downtown vitality and the balance between short‑term budget measures and long‑term fiscal health.

Ending note Staff emphasized the draft budget is intended to sustain essential services while adapting to slower revenue growth and rising costs; multiple council members said they supported the approach of shared departmental contributions and requested continued attention to downtown public safety, outdoor dining options, and monitoring recruitment and vacancy trends.

Votes at a glance: approved actions recorded in the meeting - Consent items 2a–d, g, h: approved (roll call; no further detail specified in transcript). - Item 2e (master consultant services agreement; up to $300,000 per firm; 8 consultants): approved (roll call). - Item 2f (parking program / citation revenue): approved (roll call).

Council will consider any final changes after the Finance Committee review on May 15 and expects to adopt the FY26–27 budget on June 17.