Tracy Council Accepts Five‑Year Forecast; Staff Flags Potential $5M Sales‑Tax Drop in FY29

Tracy city council on April 1 accepted the city finance director’s five‑year forecast, which projects short‑term revenue growth and flags a possible general‑fund revenue decline beginning in fiscal year 2029 should proposed sales‑tax allocation changes be adopted at the state level.

Finance Director Sarah Castro presented the forecast and preliminary considerations for the fiscal year 2025–26 operating and capital budget. Castro said the city’s finances remain stable, with expected short‑term growth in property tax (2–3 percent) and sales tax (about 2.5 percent for the next year). She noted the city’s median home price and ongoing economic development work to broaden the tax base.

But Castro told council that a longer‑term change under discussion at the state level could reduce Tracy’s sales tax allocation by a meaningful amount. She described a Cal Cities working‑group compromise that would allocate sales tax 50% on point‑of‑sale and 50% on point‑of‑destination with a 10 percent variance and a five‑year phase‑in; staff modeled an initial $5 million general‑fund reduction in fiscal 2029 as a working assumption.

Council was also briefed on planned fiscal sustainability strategies. Castro said staff proposes prefunding liabilities and deferred maintenance to reduce future budget pressure, including retiree liabilities and a backlog of capital maintenance. The forecast as presented budgets fiscal sustainability strategies through fiscal year 2028 and estimates roughly $17.5 million in allocations to those strategies in the upcoming budget year.

Castro said the city expects to maintain a general‑fund surplus for the next three fiscal years under current projections and will continue to monitor federal and state developments, including tariffs that could affect fleet and capital purchases and state budget actions that could change revenue sharing. The city is negotiating labor contracts that expire June 30; those negotiations will be incorporated into the final budget as details are settled.

Councilmembers asked about energy audits and staff timelines for environmental sustainability planning; Castro said energy audits are planned as part of the sustainable action plan update and would require outside consulting, with initial updates to the environmental sustainability commission expected in the fall.

After discussion and no public comment on the forecast item, council voted to accept the five‑year forecast. Staff will return with more detailed budget options, refined fiscal‑strategy recommendations and a proposed budget schedule with committee dates and a June adoption target.