Title
FY 2026 Mid-Year Financial Report as of December 31, 2025, and Proposed Adjustments to the FY 2026 Adopted Budget
Staffreport
CITY COUNCIL PRIORITY
• Fiscal Sustainability and Transparency
SUMMARY
The FY 2026 Mid-Year Financial Report provides an overview of the City’s budgetary position through December 31, 2025. This report is informational.
This report presents the mid-year review of the proposed adjustments to the FY 2026 Adopted Budget to the Finance Committee for consideration and recommendation to the full City Council for consideration and adoption.
RECOMMENDATION
Staff recommend that the Finance Committee review the FY 2026 Mid-Year Financial Report as of December 31, 2025.
Additionally, staff recommend that the Finance Committee review and forward the proposed FY 2026 Adjusted Budget, including revenue and expenditure appropriations, to the City Council for consideration and approval.
BACKGROUND
The financial review provides the mid-year budget update to the Finance Committee for the current fiscal year. Analysis of the revenues collected and all expenditures through December 31, 2025, measuring operational adherence to the budget allocation plan.
During the mid-year process of the current fiscal year, staff may propose adjustments to ensure budget alignment with revenue and expenditure projections for the current fiscal year. The City Council adopted the FY 2026-2027 Biennial Budget on June 16, 2025. The approved budgets present the annual expenditure and resource allocation plan that guides the implementation of City Council budget policies and priorities. The budget provides funding direction for a broad range of services that meet the needs of the community in accordance with City Council policies.
Analysis and Discussion
FY 2026 Mid-Year Financial Report
Attachment A is the FY 2026 Mid-Year Financial Report as of December 31, 2025, and provides a revenue and expenditure summary for the General, Enterprise, Internal Service, and Parking Fund. The report provides detailed revenue and expenditure comparisons to the prior year while also focusing on variances in financial plans and budgeted allocations.
FY 2026 mid-year revenue through December 31, 2025 totals $56.2M, 37% of the budget of $150.0M, which mirrors similar results in FY 2025. FY 2026 mid-year expenditures total $68.8M, 42% of the anticipated total of $165.5M, compared with 39% in FY 2025. The base budget expenditures are expected to be within the FY 2026 budget appropriation. Several budget adjustments are proposed to reflect increased programming through Recreation and Parks Department, which is offset with proposed increases in revenue projections. Costs will continue to be closely monitored throughout the year.
Enterprise, Internal Services, and Special Revenue Funds mid-year revenue and expenditure variances are within anticipated levels as compared to FY 2025. Several budget adjustments are proposed to align with anticipated activity.
FY 2026 Mid-Year Budget Amendments
The City Council approves budgets based on the best revenue and expenditure data available prior to adoption of the budget appropriations. As a result, budget adjustments are periodically necessary for changes that arise requiring amendments to revenue projections and/or expenditure budget appropriations. The City Council approved the FY 2026-27 Biennial Budget on June 16, 2025. Based on current financial trends, staff propose FY 2026 mid-year budget adjustments to revenues and expenditures as follows:
General Fund
The General Fund finances the operations of the City having no special or dedicated revenue sources and pays for core municipal services. The FY 2026 Amended General Fund budget forecasts revenues totaling $150.0M, with a proposed net reduction of $0.6M, bringing the proposed FY 2026 Adjusted Budget revenue budget to $149.4M. Expenditures for the FY 2026 Amended General Fund Budget total $165.5M, including FY 2025 approved budget carryovers for purchase order encumbrances and ongoing initiatives previously approved by City Council. Staff propose expenditures totaling an increase of $0.3M, with a decrease in transfers of $0.4M, resulting in a net decrease in General Fund appropriation of $0.1M.
General Fund Revenue
It is still early in the fiscal year, and revenue trends are still developing. For example, remittances for certain taxes (e.g., Sales Tax, Utility Users Tax, etc.) allow tax remitters 30 days to pay which results in a lag in terms of when revenue is received and recorded. After a thorough review of current revenue trends in comparison to prior year revenue trends at the same point, staff recommend amending the FY 2026 General Fund revenue projections by a net decrease of $0.6M from what was anticipated at the time of adoption on June 16, 2025. Highlights of the significant revisions for key revenue sources are outlined below with changes outlined in Attachment B page titled, “General Fund Revenue Adjustments”.
Sales Tax - (FY 2026 Amended Budget of $54.9M, reduced by $2.8M or 5% to $52.1M) Recent sales tax projections provided by the City’s sales tax consultant forecast a significant decrease in this key revenue stream. Updated revenue projections will result in a decrease of $2.8M over what was projected at the time of adoption. Personal consumption on taxable goods continues to decline as consumers prioritize spending on services, utilities, and other core living expenditures. This trend continues to have an impact on sales tax revenue.
Utility User Tax (UUT) - (FY 2026 Amended Budget of $13.9M, adjusted by $0.3M or 2% to $14.1M) Based on current trending, UUT is projected to increase by $0.3M over what was projected at the time of adoption. This is primarily attributed to UUT related to electricity consumption.
Franchise Fees - (FY 2026 Amended Budget of $7.4M, adjusted by $0.05M or 1% to $7.5M) Based on current trending, Franchise fees are projected to increase by $0.05M over what was projected at the time of adoption. This is primarily attributed to franchise fees related to electricity.
Interest and Property Income - (FY 2026 Amended Budget of $3.6M, adjusted by $0.7M or 18% to $4.2M). The proposed increase is mainly related to interest income as the City holds more of its assets in higher yielding investments as well as maturing securities to meet liquidity requirements.
Charges for Services - (FY 2026 Amended Budget of $3.6M adjusted by $0.3M or 8% to $3.9M) The proposed increase reflects a planned increase in Recreation and Parks programming.
Business License Tax - (FY 2026 Amended Budget of $6.6M, adjusted by $0.2M or 4% to $6.8M) Based on current business license activity, business license revenue is projected to increase by $0.2M. Renewals are due in January, and receipts are primarily recorded in the second half of the fiscal year.
Intergovernmental - (FY 2026 Amended Budget of $1.0M adjusted by $0.6M or 67% to $1.6M). The proposed amendment primarily reflects FEMA reimbursements for prior year emergency expenditures that cannot be precisely timed.
Other/Transfers - (FY 2026 Amended Budget of $0.8M, adjusted by $0.01M) reflects updated Cherry Festival revenue projections.
General Fund Expenditures
Mid-year expenditures were $68.8M, 42% of the budget of $165.5M while 50% of the year has passed. The operational expenditure rate is consistent with the five-year average of 40% at the mid-review of the fiscal year and all departments are expected to operate within budget.
Several budget adjustments are proposed to reflect budgetary needs and increased programming through Recreation and Parks Department for a recommended increase of $0.3M primarily offset by revenue adjustments. The $0.3M Parking Fund subsidy transfer is also proposed to be eliminated for FY 2026. Overall, a net reduction of $0.1M to the General Fund is presented for Committee consideration. These adjustments are outlined in Attachment B on the page titled, “FY 2026 Proposed General Fund Expenditure Adjustments”.
Enterprise, Internal Service Funds, and Parking Fund
The City's business-type operations are made up of four Enterprise Funds: Water Pollution Control Plant Fund, the Environmental Services Fund, the Shoreline Enterprise Fund, and the Storm Water Fund. Enterprise Funds are City municipal operations designed to fully recover costs through user fees. Internal Service Funds also operate as business activities, exclusively supporting the City's internal operations, which include Facilities Maintenance, Information Technology, Insurance Services, and Equipment Maintenance.
The Parking Fund provides for parking meters and parking lot operations and maintenance at the Downtown Parking Structure.
Revenues and expenditures in these funds are as expected at this point in the fiscal year. Several adjustments are proposed below to align with updated revenue projections and unexpected expenditures.
Enterprise, Internal Service Funds, and Parking Fund Revenue
Special Grants Fund
Staff propose a revenue budget increase in the amount of $1.0M due to timing of receipt for the Federal HUD Community Project Funding (CPF) earmark related to the Lewelling Interim Housing Project. The Grant was awarded and expended in FY 2025 with reimbursement received in FY 2026.
Shoreline Enterprise Fund (FY 2026 Amended Budget of $1.0M, adjusted by $2.1M to $3.1M). The adjustment accounts for accrued interest related to the Shoreline Developer loan default.
Enterprise, Internal Service Funds, and Parking Fund Expenditure
Budget expenditure adjustments are proposed in the Environmental Services Fund, Stormwater Fund, and Facilities Maintenance Fund due to align the FY 2026 appropriation with expected expenditure activity. Details of these proposed budget adjustments can be found in Attachment B on the pages titled, “FY 2026 Proposed Non-General Fund Expenditure Adjustments”.
Capital Projects Fund
Staff propose an increase in the FY 2026 budget appropriation in the amount of $0.3M for the urgent repair of the Fire Station 12 parking lot that was budgeted for FY 2027.
FISCAL IMPACT
The staff recommendation to reduce the FY 2026 General Fund revenue by $0.6M and decrease the General Fund expenditure appropriation by $0.1M.
For the Shoreline Enterprise Fund, the $2.1M in additional revenue will offset expenditures associated with the Shoreline Development Project bankruptcy proceedings.
The appropriation of $0.1M to the Facilities Maintenance Fund will draw from fund balance. There are sufficient reserves to cover the cost.
The appropriation of $0.02M to the Environmental Services Fund will draw from fund balance. There are sufficient reserves to cover the cost.
The reduction of $0.3M to the Stormwater Fund will return funds to fund balance in the current year, and will be included in the FY 2027 Mid-Cycle update for Council consideration.
The appropriation of $0.3M to the Capital Projects Fund. This is a re-appropriation of from FY 2027 to FY 2026.
ATTACHMENTS
Attachment A: FY 2026 Mid-Year Financial Report as of December 31, 2025
Attachment B: FY 2026 Mid-Year Financial Review & Update Presentation
PREPARED BY
Felicia Silva, Assistant Finance Director
Nicole Gonzales, Finance Director