Tracy Finance Committee Reviews Five‑Year Forecast; Staff Recommends $17.5M in One‑Time Fiscal Sustainability Payments

The Tracy finance committee on Oct. 22 reviewed a five‑year forecast for the general fund and heard staff recommend about $17.5 million in one‑time fiscal sustainability actions for FY25‑26, including prefunding CalPERS liabilities, prefunding retiree medical, and funding deferred maintenance for streets and parks.

Finance Director Sarah Castro told the committee the forecast covers fiscal years 2025 through 2030 and incorporates recent strategic priorities, local economic indicators and assumptions about revenue growth. “In Tracy, we are seeing that the local economy is remaining stable,” Castro said, citing a December 2024 median home price of $652,500 and a local unemployment rate of 4.6 percent.

Castro said the forecast projects short‑term growth for property tax and sales tax (2–3 percent on property tax in the short term; about 2.5 percent sales tax growth in the coming fiscal year). She warned of a potential sales‑tax revenue decline beginning in fiscal year 2029 tied to a possible change in state allocation methodology for e‑commerce sales tax; staff modeled a $5 million reduction in the first year of the phase‑in, growing to about $10 million later in the forecast.

Castro described the city’s “fiscal sustainability strategies,” which were adopted earlier and allocate percentages of revenue to prefund liabilities and maintenance: 2 percent for CalPERS prepayment, 2 percent for retiree medical, 3 percent for streets deferred maintenance, 2 percent for parks deferred maintenance and 3 percent for program increases (the presentation noted staff adjusted some percentages from the original ad hoc proposal). Castro said the FY25‑26 plan would begin with roughly $17.5 million to fund those prepayments and program increases.

Assistant City Manager Karen Schneider, who participated in the earlier ad hoc process, said the percentages were chosen as a practical, repeatable approach and that council direction had refined the final mix. She said the categories were selected to address the city’s largest long‑term liabilities and deferred maintenance obligations.

On CalPERS and retiree medical, staff said the city has established a CalPERS Section 115 trust and has placed roughly $4 million into that trust to date, with about $500,000 earned in interest. Staff reported an additional $4 million has been placed into the retiree medical reserve. Officials said the funds reduce the city’s unfunded liability and provide a resource to make future CalPERS payments if revenues decline.

Castro and Schneider also explained deferred maintenance: staff have been funding the pavement management plan and parks projects annually, and past budget adjustments placed roughly $3 million into those efforts last year. Committee members asked for estimates of total deferred maintenance; staff said past pavement management planning estimated roughly $100 million over five years (about $20 million per year) to fully catch up, and that the city has been funding a portion annually.

Members of the public and committee members discussed priorities and tradeoffs. Several committee members asked staff to return with budget options showing potential reallocation scenarios (for example, modestly reducing prefunding percentages to increase funds for streets and parks) and comparisons with peer cities. Finance staff agreed to bring options to the next budget meeting.

The committee approved a motion to receive the five‑year forecast and provide direction on the preliminary FY25‑26 operating and capital budget; staff will present the forecast to the full city council on April 1 and return to the finance committee in May for a special budget meeting prior to June budget adoption.