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Cotati staff presents two-year general fund preview; insurance and flat sales tax top budget risks
Summary
Staff presented the general fund operating section for the proposed 2025–26 and 2026–27 budgets; revenues are expected to remain largely flat while expenses — particularly insurance — are increasing, though officials said the proposed operating budget currently balances.
City staff presented the general fund operating preview for the two-year proposed budget (2025–26 and 2026–27), outlining revenue assumptions, expense drivers and next steps in the budget calendar.
Staff said the general fund’s largest revenue sources are sales tax (about half of general fund revenue) and property tax, and both are projected to be largely flat over the two-year horizon absent major development or taxable-turnover changes. The packet includes conservative assumptions for permit-related and other revenues and does not currently assume any transient occupancy tax revenue.
On the expense side, staff highlighted several upward pressures: insurance premiums that staff said exceed $1 million annually, continued personnel costs and pension payments, higher credit-card processing fees tied to increased merchant use, and contract-service cost increases. Staff also noted that capital outlay timing changed in their accounting; vehicle and equipment replacement was moved to the repairs-and-maintenance category and vehicle-replacement fund processes will follow from that schedule.
A staff summary presented the following key points:
- Operating reserve: the city has a policy targeting a 25% operating reserve. - Revenues: staff described 2024–25 revenues as increased from 2023–24 estimates but projected 2526 and 2627 revenues as largely flat or with modest increases (under 2–3%). Sales tax uncertainty and a higher consumer savings rate were cited as reasons for conservative revenue projections. - Expenses: staff used a 0-based budgeting approach for 2526, building detail for each line item. For 2627 staff applied an assumed escalator (about 2.8%) where exact numbers were not yet available. Insurance projections were noted in the 10–20% range depending on line item. - Special items: a discretionary prepayment for CalPERS was included in 2024–25 but no additional discretionary payments are assumed in the two-year proposal; the budget does include full staffing and expected MOU impacts where applicable.
Council and staff also discussed department-level items flagged in the plan: public-works project timing, re-bidding landscaping and janitorial contracts, police technology and vehicle replacement timing, recreation merchant fees and continued normalization of code-compliance costs. Staff said transfers for capital projects and some final contract costs remain to be added and will be addressed in the next study session before budget adoption. Staff reiterated that, with current assumptions, the operating revenues cover operating expenditures and the proposed budget is balanced; council directed staff to return with additional detail at a follow-up session.
No budget adoption vote occurred at the meeting; staff said a final budget, together with updated policies and the salary schedule, is targeted for council adoption in June.
