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Finance staff says sales‑tax growth flips projected deficit to a $3.3M surplus; available fund balance about $8.3M
Summary
City finance staff reported that revenues through January exceeded budgetary expectations, reversing a projected deficit into a roughly $3.3 million surplus and a projected $21.7 million ending fund balance for FY25–26; after reserves and restrictions staff estimated $8.3 million available for council consideration.
Carolina, a finance staff member presenting the fiscal‑year 2025–26 budget update, told the council that the city’s revenues have outperformed conservative projections through January, driven primarily by stronger sales tax and business activity. She said revenues are presently running about 113% of the budgeted forecast, producing an expected surplus of approximately $3.3 million and a projected ending general fund balance of $21.7 million (that figure includes restrictions and set‑asides).
Staff described the composition of the windfall: steady retail growth and business‑to‑business sales were the largest contributors; one‑time elements such as art sales had previously created spikes in other years. Carolina noted a range of revenue streams — property tax increases tied to completed developments and future reassessments, sales tax gains (including a Bradley‑Burns component estimated at roughly $11 million), TOT and business license upticks — and said the city is working with a sales‑tax analyst to monitor legislation that could affect future pools.
On audits and credit rating, Carolina said the FY23 annual comprehensive financial report has been completed and FY24 audit work is underway with a draft expected by the end of the month and final by mid‑April; staff plans to submit audited financials to S&P in April to seek reinstatement of the city’s prior bond rating once FY24 is complete.
Carolina walked through reserves and restrictions: policy set‑asides and multi‑year contract restrictions reduce the headline ending balance; she said about $9.2 million is held for recession/unanticipated events and annual fluctuation, another $4.2 million for restrictions, leaving about $8.3 million available. She cautioned that the improvement is sensitive to changes in sales tax, large employer moves, county reassessment timing (e.g., the Prologis/Calers property assessment delay) and potential cost increases (construction, energy, CalPERS assumptions).
Council members asked for clarifications about when FY24 audited statements and the S&P submission would be completed; staff answered that submission could occur in April and S&P’s process could take a few weeks to a month. Members also probed which revenue categories were responsible for the gains and asked staff to return with the posted ACFR if it was not yet visible online. Carolina said staff will continue conservative budgeting, bring fee studies (master fee and business license) to council in April/May, and recommended setting a longer‑term strategy to use the additional available balance for capital, reserves and deferred maintenance rather than one‑time spending.
