Folsom finance staff outlines budget process, warns of maintenance funding gap

City finance staff led a workshop Feb. 28 to brief the Folsom City Council on how the city prepares its annual budget, how funds are constrained by legal restrictions, and where shortfalls are most likely to appear.

The presentation explained that the budget and accounting framework is guided by national accounting standards, the Folsom Municipal Code and best-practice recommendations from the Government Finance Officers Association (GFOA). Finance staff said the city follows a policy range of 17 to 20 percent for unassigned general fund balance and maintains an operating contingency of at least 1 percent, but that funding for ongoing building, equipment and technology replacement is insufficient.

Finance staff said the city's overall adopted budget for fiscal year 2024'25 was roughly $247 million, with about $117 million appropriated in the general fund and approximately $115 million in general-fund revenues budgeted for the year. Major general-fund revenue sources cited were property tax (about 39 percent of general-fund revenue) and sales tax (about 25 percent). Staff noted the city uses conservative revenue forecasting and engages external consultants for major sources such as sales and property taxes because projections must be made many months in advance of cash receipts.

Stacy (Finance presenter), identified in the workshop as the staff member leading the briefing, described how the city separates resources into enterprise funds, special revenue funds, capital projects funds, internal service funds and fiduciary funds. She said enterprise fund rate revenues (for water, wastewater and solid waste) cannot be used for general-fund operations; impact fees collected for new development are legally restricted to specified capital uses (parks, fire stations, police facilities, library, etc.); and internal service funds (for example, the risk management fund that pays benefits) are billed to departments and are intended to be neutral in effect.

"Revenue estimates do not pay bills," Stacy said during the presentation, summarizing the GFOA guidance that overly optimistic revenue forecasts often precede fiscal stress.

On reserves and one-time revenues, staff reiterated the city's policy that nonrecurring revenue should not be used for ongoing operations. Finance staff pointed to the city's practice of dedicating one-time federal funds (for example, ARPA in previous years) to one-time projects or to reducing long-term liabilities.

Multiple council members and department heads raised follow-up questions in the workshop. Questions focused on the composition of the internal service/risk management fund (staff confirmed it carries roughly $20 million in budgeted expenses and that each operating fund pays an overhead allocation for benefits), the need to quantify an appropriate annual contribution for building and equipment replacement, and the city's plan to implement OpenGov budgeting software to give the public and council easier access to line-item data.

Stacy said the city updated its fund-balance policy in December 2023 to a 17'20 percent target for unassigned general-fund balance and that any balance above the policy was designated for capital to reduce long-term obligations. She also said the city currently lacks a dedicated replacement fund for major financial systems and has no set-aside for a significant future software upgrade.

Council members and department directors repeatedly raised the maintenance backlog and deferred capital-renewal spending as a priority. Several participants said that while the city has planning policies and a capital improvement program (CIP), much of recent CIP spending has been for new facilities associated with growth rather than the renovation or replacement of existing assets. Staff acknowledged they are not currently budgeting at the levels the city's financial policies recommend for orderly lifecycle replacement of fleet, facilities and parks.

No formal decisions or votes were taken at the workshop; staff said the proposed FY 2025'26 budget will be presented May 27, with a public hearing and first opportunity for adoption June 10 and a final adoption deadline of June 30, per the municipal code. Finance staff said that if the council does not adopt a budget by June 30, the manager's proposed budget is deemed adopted under the code.

The discussion produced a set of follow-up items staff said it would pursue ahead of the formal budget season, including: providing a quantified assessment of required annual funding for building-and-equipment replacement, preparing public-facing OpenGov budget pages, and continuing conservative revenue forecasting.

Ending: The briefing identified fund-type constraints and long-term obligations as the principal drivers of near-term fiscal choices and flagged deferred maintenance and capital-renewal funding as the highest priorities for follow-up in the coming budget cycle.