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ACCEPT THE FISCAL YEAR 2025-26 THIRD QUARTER BUDGET STATUS UPDATE
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution to accept this budget status report on the unaudited results through the third quarter of Fiscal Year (FY) 2025-26.
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Summary
City staff analyzes the City’s expenditures and revenues quarterly and provides reports to the City Council and the public to increase transparency, make financial recommendations in response to financial activities, and perform routine financial operations that require Council’s authority to complete.
As of March 31, 2026, the City’s General Fund revenues reflect approximately 63% of the anticipated budget. This variance, however, is related to the timing of receipts, as tax remittances are usually remitted from the collection agencies to the city 60 to 90 days after the monthly period closes.
Actual expenditures through the third quarter also reflect a 63% utilization rate, with $239.2 million of the $377.0 million General Fund budget having been spent. The main factors driving this level of underutilization are salary savings from vacant positions, capital project expenditures not yet being fully allocated to the funding source, and debt service charges that have not been posted. Debt service and capital project expenditures for the year are usually fully allocated by the fourth quarter.
DISCUSSION
Background
One of the strategic initiatives developed to support the City’s long-term fiscal sustainability was to provide quarterly analysis and reporting on the City’s financial status. We note, however, that the mid-year quarter reports are not fully closed or audited, so these numbers may change in the fourth quarter report as departments and Accounting reconcile their books and complete closing entries.
Present Situation
General Fund Revenues
The General Fund Revenues are detailed in Attachment B. As of March 31st, revenue has come in at approximately 63% of budgeted revenues. This is generally consistent with previous third quarter results due to the timing of receipt of certain revenue streams.
General Tax Revenues make up 90% of the budgeted revenues in the General Fund. As remittances from the collection agencies can take up to 90 days to post to the General Fund, only sales tax revenues through January 2026 are reflected in this report, with receipts totaling 63.8% of the annual estimate. Timing issues are normal and overall General Fund revenues are projected to meet their target.
General Fund Expenditures
The General Fund Expenditures are detailed in Attachment A, which reflects our current year-end projections and estimated ending fund balance. Expenditures for the third quarter reflect budget utilization of 63%, which is due to several factors.
Salary Savings Across the Board have resulted in mild-to-moderate savings in most program expenditures. Several departments continue to experience staff vacancies. As of March 31, 2026, 1,551 out of 1,799 authorized positions had been filled Citywide, with 72 sworn and 61 civilian public safety positions vacant. While the city has made comprehensive efforts to recruit and retain positions in a highly competitive environment, including expanding benefits and wellness efforts for employees, we still have several areas where salary savings are generated.
Timing with Multi-Year Program and Capital Improvement Expenditures has resulted in these expenses being understated in the third quarter. Economic Development and capital improvement budget lines both show underutilization due to contracts that have not been fully expended. Capital Improvement expenditures will not be reconciled until after the year-end close. In addition, much of the Capital Improvement budget of approximately $17.4 million is reserved for future years’ expenditure.
Continuation of FY 2025-26 Appropriations
Pursuant to Section 1908 of the City Charter, operating budget appropriations lapse at the end of each fiscal year if not expended or encumbered. With this requirement in place, programs lose funding at year-end unless the Council takes action to continue the appropriation into the following fiscal year. Following a review of budgets and activities in FY 2025-26, departments have identified funded programs that could not be encumbered or completed prior to the end of the fiscal year on June 30, 2026. Staff will bring a request to council to continue the funds to FY 2026-27 to complete these programs. A preliminary estimate of $4.5 million is included in Attachment A. This largely consists of multi-year projects and contracts, including a 3-year parks maintenance restoration project of $1.3 million that will continue until FY 2027-28.
FINANCIAL SUMMARY
This report provides a review and analysis of FY 2025-26 revenue and expenditures through the third quarter of the fiscal year. The unaudited 9-month period review indicates General Fund revenue increases and expenditure savings are estimated to result in a year-end balance that can fully fund the Working Capital reserve.
The following is the recommended action:
1. Accept this budget status report on the unaudited results through the third quarter of FY 2025-26.
Attachment A - FY 2025-26 General Fund Third Quarter Budget Update
Attachment B - FY 2025-26 General Fund Third Quarter Revenues