Cupertino council accepts midyear financial report, approves midyear budget modifications

The Cupertino City Council on Tuesday accepted the city manager's midyear financial report for fiscal year 2024'25 and adopted a midyear budget modification that adjusts appropriations and revenues.

The midyear presentation, led by Christine Alfaro, director of administrative services, and Tony Oase Anderson, acting budget manager, summarized actions taken after a 2021 sales-tax audit and a later dispute with the California Department of Tax and Fee Administration. Alfaro told the council that staff and departments reduced the budget by about $23.8 million across fiscal years 2023 and 2024 and that the city avoided layoffs by eliminating 13 vacant positions and cutting materials and contract costs.

The report matters because it updates a 10-year forecast that the city uses to judge structural balance and long-term risks. Staff said forecast changes and one-time settlements have improved the 10-year outlook: the year-10 deficit the council had previously projected was narrowed and, after midyear adjustments, staff said the model now shows a modest surplus in that same 10th year. But presenters warned surpluses thin toward the end of the forecast and remain vulnerable to slower revenue growth.

Alfaro outlined major drivers behind the midyear changes. Revenue increases included higher-than-budgeted property tax and franchise fee receipts and a one-time payment tied to a 12-year lease of the water system; staff said those items added roughly $5.95 million to the forecast. On the expenditure side, council's decision to make an additional discretionary payment (ADP) toward the city's CalPERS retirement liability and an updated vacancy-savings assumption (increasing an assumed vacancy rate from 2% to 4%) reduced ongoing expenditures in the model while using some fund balance in the near term.

Tony Oase Anderson gave a general-fund midyear snapshot: budgeted revenues in the general fund remain about $122.1 million, while expenditures increased to about $129.8 million from the first-quarter report, driven primarily by the ADP and related transfers. Anderson said the ADP and related actions increased the reported use of fund balance by roughly $7.7 million. He also noted a change in how the council treated the sales-tax repayment reserve: the council left $64.5 million in a committed reserve category, which contributed to a drop in the unassigned fund balance from about $106.2 million to $25.3 million.

Council members pressed staff on several topics in follow-up: Councilmember Mohan noted the scale of staffing reductions in prior years and asked about timing to prepare for the sunset of the Utility User Tax (UUT) in 2030. Director Alfaro said the UUT has a sunset clause that requires returning to voters to extend it and that staff expects to bring the topic back for council consideration well before the sunset so the city can assess options and timing. Councilmember Wong questioned the assumptions underpinning projected property-tax growth given local population and market conditions; staff said the forecast uses conservative assumptions grounded in recent actuals and county assessments.

Two members of the public praised staff's work. Resident Jean Bedard commended staff and council for difficult reductions and called the updated forecast conservative with respect to future property-tax gains. A caller identified as Sanar urged the council to prioritize hiring for core finance and maintenance functions rather than other executive hires and urged against new tax increases as a first option.

Council action: Councilmember Mohan moved to accept the midyear financial report and a related resolution to adopt budget modification No. 242425-383 (resolution No. 25-018). The motion was seconded and passed. The clerk recorded that Councilmember Wong voted no; council discussion and the record did not identify a roll-call tally for all members in the transcript excerpt.

Staff noted next steps: staff will return with the proposed capital improvement program (CIP) in April and the proposed budget in May, with final budget adoption expected in June 2025. Staff also said upcoming requirements tied to Assembly Bill 2561 will add a required public report on vacant positions as part of the proposed budget process.

The council's acceptance of the midyear report and approval of the midyear modification do not change the city's long-term forecast assumptions; staff said they will continue to monitor revenues and return to council with updates as new data arrives.