Budget study session: city projects structural deficit; reserves to smooth near-term cost of MOUs

Budget Manager Janelle presented the finance update and the first study session on the FY26-27 general fund budget. Through the third quarter of FY25-26 the city had received about 67.9% of projected revenue; timing differences explain some categories appearing under target. Staff said property tax and Measure L remain stable sources while sales tax showed mixed sector trends.

The midyear projection shows a FY26 deficit of approximately $3.6 million, which the council previously planned to offset with programmed fund balance. For FY27, staff presented an initial budget showing a roughly $11.5 million list of un‑funded departmental requests; after reductions and programmed use of fund balance (including a $4.2M drawdown to offset MOU increases), the FY27 general fund projection shows ongoing structural annual operating deficits (about $5.8M in FY27, rising in out years). Staff highlighted drivers: salary and MOU cost increases ($4.3M), higher PERS normal and unfunded liability payments, rising health-care and insurance costs, and capital/maintenance backlogs.

Council asked clarifying questions about the duration of reserve usage, feasibility of program cuts, and the assumptions behind property-tax and sales‑tax forecasts. Staff said reserves and a pension‑stabilization fund can be used to smooth near‑term impacts but are not a permanent fix; many departments were asked to identify $2.8M in cuts and certain capital contributions may be delayed. Schedule: staff will return with further budget study sessions focused on enterprise funds, general- fund balancing options and adoption timelines ahead of June adoption.

No action was required tonight — the session was informational and sets the schedule for further council decisions.