City presents FY2026 general‑fund forecast showing $7 million gap; council begins budget goal setting

City finance staff briefed the council on the FY2026 general‑fund forecast during the May 1 meeting and identified a projected budget gap of about $7 million under current revenue and expense assumptions.

The forecast incorporates a range of assumptions: modest property‑value growth (0.5% existing values and 2% new values yielding a combined 2.5% revenue change under staff assumptions), no sales‑tax growth for FY2026, renegotiated industrial‑district payments that staff project will increase industrial‑district revenue materially, and no additional transfers from the general fund to street funds beyond the baseline. Staff also assumed cost increases for collective bargaining agreements (fire and police agreements in years 2–3 of multi‑year deals), an average 3% performance pay pool for eligible employees, and a health‑benefit contribution increase to replenish the health plan reserve used in FY2025.

Taken together, those assumptions produce an opening fund balance of roughly $73.5 million and a required reserve near $70.3 million, leaving the $7 million gap. Staff said the FY2026 forecast does not assume any increase to the current tax rate and noted certified property values from the appraisal district are still forthcoming; staff expected preliminary values the next day and certified values by July 25.

Council and staff discussed options for closing the gap. Staff said departments are already reviewing operations and identifying potential savings and that leadership had asked general‑fund departments to consider a 10% reduction target and to examine whether services can be delivered differently, whether fees can be adjusted, or whether nonessential programs can be reduced. City Manager Peter Zanoni and finance staff said the budget process would include department‑level discussions, a budget goal‑setting workshop, and a series of reviews culminating in a balanced proposed budget in July.

Councilmembers raised additional items to monitor, including the debt service impact of new bonds and pending state legislation that could limit local debt issuance. Several council members asked staff to present the debt‑service picture and consent‑decree spending at the upcoming budget workshop so the council can consider both operating and capital obligations together.

Staff emphasized that across‑the‑board cuts are undesirable and that the goal is to find targeted reductions or revenue options to preserve core services. The council set a budget goal‑setting session for next week and directed staff to return with more detailed analysis and proposed options.