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Carmel council reviews FY 2025–26 budget workshop; staff recommends use of $5M fund balance and 50% reserve policy
Summary
At a May 21 workshop, Carmel-by-the-Sea finance staff presented the recommended FY 2025–26 budget, proposing a $31.9 million operating plan, nearly $8 million of new CIP and the use of about $5 million in fund balance, and recommending a 50% reserve target and a guideline to hold operating spending to 90% of revenue.
The Carmel-by-the-Sea City Council received the Finance Department’s recommended FY 2025–26 budget at a May 21 workshop, including revenue forecasts, proposed operating spending and a $7.99 million list of new capital improvement projects (CIP).
Jamie (finance director) told the council the city’s top three revenue sources — sales tax (Bradley-Burns and Measure C), property tax and transient occupancy tax (TOT) — make up about 82% of general revenue. Staff’s baseline forecasts assume 2.5% property‑tax growth, 1.72% sales‑tax growth and a 2% TOT decline. Based on department requests and subsequent adjustments, staff presented an operating budget of about $31.9 million and a proposed use of roughly $5.0 million of general‑fund balance to cover the current package of operating and CIP spending.
Staff also recommended two policy changes: (1) a formal, citywide reserve target equal to 50% of non‑CIP operating costs (roughly a six‑month reserve); and (2) a guideline to limit operating expenditures to 90% of budgeted revenue so the remaining 10% could be dedicated to capital investments. Staff said the 90%/10% approach is intended to create an ongoing funding stream for CIP and to promote more disciplined operating decisions.
Council members debated the 90% operating guideline. Council Member Jeffrey Barron supported aiming for the policy this year and suggested concrete cuts; Council Member Hans Booter and others warned the threshold is a forcing function that should be balanced with a simultaneous look at revenue options. Several members asked staff to bring options for revenue increases, noting that some cuts to services could reduce sales tax or TOT and worsen the fiscal picture.
The council also discussed the city’s unfunded pension liability (the CalPERS UAL). Staff presented an actuarial projection showing contributions rising to a peak in the early 2030s and declining thereafter; staff said the city’s Section 115 trust (a prefunded reserve) could be used to dampen near‑term spikes in employer pension contributions. Staff presented the trust and how it might be deployed to smooth contributions and reduce the immediate operating pressure.
Multiple community representatives spoke during public comment on budget priorities. Amy Herzaga, executive director of Visit Carmel, said the city’s investment in destination marketing supports hotel occupancy and TOT — Visit Carmel’s budget is roughly $2 million and the organization claimed its work has helped TOT grow. Several business and nonprofit leaders (Sunset Cultural Center, hotel owners) described that marketing and hotel reinvestment have supported local revenue growth and urged the council to maintain funding for tourism marketing and critical community facilities.
Council gave staff direction to refine the budget, provide options for closing the operating gap (further cuts, a hiring‑pause scenario and revenue options), and bring the package back for adoption at the June meeting. No final appropriations were adopted at the workshop.
