FY 2026-27 Proposed Midcycle Budget

COMPLIANCE WITH THE CONSOLIDATED FISCAL POLICY Policy on Balanced Budgets The proposed budget is a balanced budget that limits appropriations to the total of estimated revenues and unallocated fund balances projected to be available at the close of the current fiscal year. Appropriated transfers from unallocated fund balance are only included when such fund balance is reasonably expected to exist by the end of the current fiscal year.     Use of One-Time Revenues The proposed budget does include the use of one-time revenues for ongoing purposes. This is a departure from how the City normally balances its budget, and is due to the revenue losses brought on by the effects of the pandemic and the reduction in revenue generated from the real estate transfer tax (RETT), Business License Tax and Sales Tac. This leaves the City facing significant structural imbalances in the GPF in the FY 2026-27 budget. As such, in this midcycle, the City is temporarily suspending Part D Section 2 of the CFP so it can use one-time revenues to maintain basic services. The resolution accompanying the Budget contains the necessary explanations for the need to use one-time revenues for purposes other than those established in the CFP.     Use of Excess Real Estate Transfer Tax (RETT) Revenues Excess Real Estate Transfer Tax (RETT), defined as any amount of projected RETT revenues that exceed 15% of General Purpose Fund Tax Revenues.   This excess Real Estate Transfer Tax, per the CFP, is to be used in the following manner and appropriated through the budget process:   At least 25% shall be allocated to the Vital Services Stabilization Fund, until the value in such fund is projected to equal to 15% of total General Purpose Fund revenues over the coming fiscal year; and At least 25% shall be used to fund debt retirement and unfunded long-term obligations such as negative fund balances, Police and Fire Retirement System (PFRS) unfunded liabilities, CalPERS pension unfunded liabilities, paid leave unfunded liabilities, and Other Post-Employment Benefits (OPEB) unfunded liabilities; and The remainder shall be used to fund one-time expenses or to augment reserves.   In this proposed budget, due to RETT remaining below the 15% threshold, there is no excess RETT projected in this proposed budget.     Reserve Funds The proposed budget is consistent with the General Purpose Fund Emergency Reserve Policy to maintain in each fiscal year a reserve equal to 7.5% of the General Purpose Fund (Fund 1010) appropriations as unobligated fund balance. For FY 2026-27, the Emergency Reserves would need to have $60,964,387 to meet the 7.5% requirement. The estimated unobligated fund balance at the beginning of FY 2026-27 is $87.43 million. There are no appropriations made from the General Purpose Fund Emergency Reserve in the FY 2026- 27 Proposed Budget.   The proposed budget temporarily suspends the Vital Services Stabilization Fund (VSSF) policy and does not make additional contributions to the fund. The legislation accompanying the Budget contains the necessary explanations for the VSSF policy other than those established in the CFP.   The proposed budget makes no additions to the Capital Improvements Reserve Fund. Capital needs for the City are being fulfilled through appropriations from Measure KK and Measure U bond proceeds. 80