Temecula council affirms budget priorities and asks ad hoc to refine debt and pension policies

City budget staff presented the council with a review of fiscal-year 2026–27 budget policies and recommended policy refinements intended to preserve long-term fiscal health.

Jennifer Hennessy, speaking for finance staff, said the city uses a Fund Balance and Reserve policy that sets 20% of general-fund operating expenditures aside as a reserve for economic uncertainty; staff projects that reserve to be just over $20.9 million at the end of the current fiscal year. A secondary reserve set at 5% is projected at about $5.2 million, and unassigned (available) fund balance is estimated near $6.6 million. Hennessy described the intent to use available fund balance only for one-time projects and to prioritize public-safety and capital investments in line with Measure S guidance.

Hennessy outlined other policy elements staff recommended for refinement: a capital-improvement threshold of $30,000, asset-replacement thresholds (vehicles/equipment $10,000; technology $5,000), and a pension-rate stabilization trust policy that allows up to $2 million per year from year-end surplus transfers. She said the city’s debt-paydown strategy — originally framed as a seven-year effort — has accelerated payments and now projects payoff in 2027. "We have pushed out the deficit and flattened the curve through conservative budgeting and debt paydown," Hennessy said.

Council discussion focused on guardrails for future borrowing, transparency and metrics such as whether debt should be capped as a percent of the operating budget. Councilmembers agreed these topics merit subcommittee work. Councilmember Zach Schwenk moved the staff recommendation to work with the Strategic Fiscal Services Ad Hoc Subcommittee to refine debt and unfunded-liability policies; the motion passed 4–0.

The council unanimously approved the staff direction; staff will return proposed policy changes for full council consideration at the budget workshop on May 21.