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HomeMy WebLinkAboutCC 2026-05-26_11b Preliminary FY 26-27 Mid Cycle Budget UpdateItem 11.b. MEMORANDUM TO: City Council FROM: Matthew Downing, City Manager BY: Nicole Valentine, Director of Administrative Services SUBJECT: Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report DATE: May 26, 2026 RECOMMENDATION: Review the preliminary Fiscal Year (FY) 2026 -27 Mid-Cycle Budget Update Report, receive a presentation from staff, and provide feedback in preparation for the public hearing scheduled for June 9, 2026, to consider the FY 2026-27 Mid-Cycle Budget Update. IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: The proposed FY 2026-27 Mid-Cycle Budget Update Report recommends approximately $55 million in expenditures including operating costs such as salaries, benefits, services, supplies, maintenance, debt service, and capital related items. The proposed FY 2026-27 Budget General Fund budget utilizes excess fund balance reserves to pay for a combination of one -time and ongoing expenditures that will exceed expected revenues to address several goals. However, as presented, fund balance reserves are expected to remain at 17.8%, above the fund balance minimum target of 15%. BACKGROUND: Each year the City Council adopts a budget, which commits resources for the next Fiscal Year. The City Council adopted the FY 2025-27 Biennial Budget on June 10, 20251. The biennial budget process includes updates each quarter of the first year, a Mid -Cycle Update at the beginning of the second year that also includes appropriation of the second- year budget and updates each quarter of the second year. Quarterly updates for FY 2025- 1 https://pub-arroyogrande.escribemeetings.com/filestream.ashx?DocumentId=14866 Page 436 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 2 26 have been provided on January 13, 20262, February 10, 20263, and May 26, 2026, Item 9.c. On January 27, 20264, the City Council approved an update on City Council Goals and Priorities for FY 2025-27. Additionally, on May 12, 20265, the City Council adopted a resolution approving the 10-Year Capital Improvement Program (CIP) budget and the 10- Year Measure O-06 and Measure E-24 Local Sales Tax Fund Expenditures Programs. The prioritization and direction provided by the City Council at these previous meetings have been incorporated into the FY 2026-27 Mid-Cycle Budget Update. ANALYSIS OF ISSUES: General Fund Overview Item 9.d. of the City Council agenda packet reviewed the FY 2024 -25 Annual Comprehensive Financial Report (ACFR) summarizing the Fund Balance at the end of FY 2024-25. The Consolidated General Fund Balance can be reviewed in the followin g table: Table 1: Beginning and Ending Balances as of June 30, 2025 The ACFR reports a General Fund total fund balance of $15.9 million. However, a small amount of the fund balance is considered non -spendable because it is held as inventory ($1,063,999). The City’s Fiscal Policy establishes the maintenance of a fund balance reserve goal of 20% of expenditures, with a minimum of 15% in the General Fund. Based on available General Funds, the reserve was 37.3% and exceeded the City’s reserve goal at the conclusion of Fiscal Year 2024-25. Though General Fund expenditures are expected to outpace revenues in FY 2026 -27 by $2.3 million, as shown in Table 2, the year will end with a healthy projected fund balance of $4.9 million (see “2026-27 Proposed Budget” column). This projected fund balance is 2 https://pub-arroyogrande.escribemeetings.com/filestream.ashx?DocumentId=17181 3 https://pub-arroyogrande.escribemeetings.com/filestream.ashx?DocumentId=17335 4 https://pub-arroyogrande.escribemeetings.com/filestream.ashx?DocumentId=16946 5 https://pub-arroyogrande.escribemeetings.com/filestream.ashx?DocumentId=18941 General Fund Measure O-06 Local Sales Tax Fund Measure E-24 Local Sales Tax Fund OPEB Total Beginning Fund Balance 7/1/24 11,604,740$ 5,017,872$ -$ 1,288,901$ 17,911,513$ Revenues 23,227,799 3,191,022 1,412,063 169,234 28,000,118 Expenditures (25,365,466) (4,633,451) (3,035) - (30,001,952) Net Change in Fund Balance (2,137,667)$ (1,442,429)$ 1,409,028$ 169,234$ (2,001,834)$ Fund Balance: Nonspendable 1,063,999$ -$ -$ -$ 1,063,999$ Assigned for capital projects - 3,406,182 1,409,028 - 4,815,210 Assigned for post employment benefits - - - 1,458,135 1,458,135 Unassigned 8,403,074 169,261 - - 8,572,335 Ending Fund Balance, 6/30/25 9,467,073$ 3,575,443$ 1,409,028$ 1,458,135$ 15,909,679$ Page 437 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 3 higher than what was originally projected in the adopted FY 2025-27 Biennial Budget due to the higher than anticipated Beginning Fund. Table 2: Status Quo General Fund Budget & Available Fund Balance in thousands Table 2 reflects anticipated adjustments in FY 2026-27 between the Adopted Budget and Proposed Budget. The revenue estimate decreased by $279,700. The Proposed Budget does not include the same level of projected growth for sales tax and Transient Occupancy Tax (TOT) that was anticipated when the budget was originally adopted. Revenues are still expected to remain stable and consistent with prior -year levels; however, staff is recommending a more cautious approach by reducing projected growth estimates based on current economic conditions and recent revenue trends. Table 2 also reflects anticipated adjustments in FY 2026-27 expenditures between the Adopted Budget and Proposed Budget. The expenditure estimate increased by $207,470 primarily due to higher-than-anticipated workers’ compensation and liability insurance costs. The Adopted Budget assumed an approximate 10% increase in insuranc e premiums; however, updated projections now reflect increases closer to 30%, resulting in the proposed expenditure adjustment. The tables in the following pages identify specific budget request items in the FY 202 6- 27 Biennial Budget in the areas of services and supplies. Proposed Services and Supplies Request The preliminary proposed budget includes six Services and Supplies change requests. The Police Department has successfully completed a 60 -day pilot of an AI-powered report-writing application. This solution has proven to be a viable, cost-effective tool for modernizing investigative processes and aligning with the IT Strategic Plan. The 2024-25 ADOPTED ADJUSTED ESTIMATED ADOPTED PROPOSED ACTUAL BUDGET BUDGET ACTUAL BUDGET BUDGET Beginning Fund Balance $11,604 $7,460 $9,467 $9,467 $5,703 $7,206 Revenues 20,477 20,305 20,303 20,444 21,180 21,025 Transfers In 2,751 2,940 2,952 2,852 2,987 2,863 Total Revenues 23,228 23,245 23,255 23,296 24,167 23,888 Salaries and Benefits 13,509 14,292 14,358 14,384 14,880 14,909 Services and Supplies 9,222 10,288 10,276 10,141 10,609 10,788 Debt Service 302 294 294 294 283 283 Capital Outlay 380 13 50 51 52 52 Transfers Out 1,952 115 687 687 115 115 Total Expenditures 25,365 25,002 25,665 25,557 25,939 26,147 Revenue minus Expenditures (2,137) (1,757) (2,410) (2,261) (1,772) (2,259) Available Fund Balance $9,467 $5,703 $7,057 $7,206 $3,931 $4,947 Reserve %37.3%22.8%27.5%28.2%15.2%19.0% 2025-26 2026-27 Page 438 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 4 department will reduce the administrative burden on personnel, allowing officers to shift their primary focus from desk work to fieldwork and critical duties. This service level enhancement is expected to improve reporting accuracy and data quality while accelerating overall case processing times. The IT Strategic Plan included a Business Resilience Plan. This project involves developing or updating a comprehensive Business Resilience Plan, centered on a formal Business Impact Analysis. This analysis will identify mission-critical applications, evaluate the operational risks of system downtime, and establish strict timeframes for service restoration. To support these findings, a Disaster Recovery Plan will be created to provide a technical roadmap for restoring IT services and applications following a natural or man - made disaster. This initiative ensures the City can maintain essential operations and quickly recover vital public safety and administrative systems during an emergency. The IT Strategic Plan also included a Cyber Security Plan. The City currently follows good cybersecurity practices on an ad-hoc basis, but lacks a formal, documented Cyber Security Plan that clearly outlines roles, procedures, risk priorities, incident response steps, and ongoing protection strategies for City systems and data. Without this comprehensive plan, the City remains more vulnerable to growing cyber threats—like ransomware, phishing attacks, or data breaches—that commonly target local governments holding sensitive resident information (such as personal records, financial details, police records, and utility data), potentially causing service disruptions, financial losses, privacy violations, or compromised public safety operations. Developing a comprehensive plan would establish clear guidelines to identify risks, strengthen defenses, train staff, respond quickly to incidents, and recover effectively aligning with best practices recommended for municipalities to protect essential services and build public trust. The City is currently working with other cities in the county regarding a potential response to a future EMS RFP. Funding is provided in support of this effort. The original Elections budget included $60,000 for the November 2026 election based on costs from 2024. The County provided an updated cost estimate that is approximately $80,000. The $20,000 increase to the Election budget is included in this service level request. The Police Department server room currently relies on a single air conditioning unit, creating a critical "single point of failure." If this unit fails, servers could rapidly overheat, leading to hardware damage and the shutdown of vital systems like public safety communications and body-worn camera storage. This project will install a secondary backup cooling system to ensure constant, reliable temperature control even during primary equipment failure or routine maintenance. Table 3 is a summary table reflecting the proposed service and supplies change impacts. Page 439 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 5 Table 3: Proposed Services and Supplies Requests On May 12, 2026, the City Council adopted a Resolution adjusting the Comprehensive User Fee Schedule, which included fees related to Adult Softball, Adult Basketball , and Trash Dumpster & Service. There will be an increase in revenues and expenditures that will be offset based on participation and use of the city facilities. These adjus tments are shown in Table 4. Table 4: Revenue & Expenditures Offset When the requests listed in Tables 3 and 4 are incorporated into the FY 2026 -27 Mid- Cycle Budget Update, the impact at the end of FY 2026-27 is projected to be a fund balance of $4.7 million, which represents 17.7% of total operating expenditures in the General Fund. This will be $500,000 below the reserve policy goal of 20% but above the reserve policy minimum of 15%, as shown in Table 5. Services & Supplies Ongoing One-time FY 2026-27 Purchase of AI Software "Code 4" for Report Writing & Investigative Applications X 8,900 Business Resilience Plan X 50,000 Cyber Security Plan X 35,000 EMS MOU #3 X 24,600 Elections - County X 20,000 PD Redundant Cooling System for PD Server Room X 5,000 143,500 Revenue & Expenditures Offset FY 2026-27 Increased Fee for Adult Softball and Adult Basketball Officials X (28,300) Increased Cost for Adult Softball and Adult Basketball X 28,300 Increased Fee Trash Dumpster & Service X (2,000) Increased Cost Trash Dumpster & Service X 2,000 - Page 440 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 6 Table 5: General Fund Budget & Available Fund Balance in thousands with Service Level Requests incorporated Local Sales Tax Fund The General Fund is the primary operating fund of the City, which accounts for resources and services traditionally associated with government. The General Fund provides administrative, financial, police protection, community development, public works, fire, and recreation services to the community. The General Fund accounts for revenues that have unrestricted uses and are not required legally or by contractual agreement to be accounted for in another fund. The City has historically reported on the General Fund separately from the Local Sales Tax Fund, although the City’s auditors traditionally combine this information in the ACFR as shown above in Table 1. The City now has two Local Sales Tax Fund accounts for Measure O-06 and Measure E-24. The Measure O-06 Fund is from revenue received through a half-cent sales tax approved by the City's voters in November 2006. Measure O-06 included advisory measures when passed, providing guidance on the uses to which the funding should be allocated. To ensure accountability, the measure included a provision requiring the City to publish and distribute an annual report to each household on the revenues and expenditures from the sales tax proceeds. To aid in the collection and reporting of this information, the City has accounted for this fund in a separate account. The Measure E-24 Fund is from revenue received through a 1% sales tax approved by the City's voters in November 2024. Measure E-24 is intended to fund City services, such as fixing potholes, maintaining city streets, sidewalks, parks, aging infrastructure, and community facilities; providing local fire protection, police, and 9-1-1 emergency services; 2025-26 2026-27 2024-25 ADOPTED ADJUSTED ESTIMATED PROPOSED PROPOSED ACTUAL BUDGET BUDGET ACTUAL BUDGET BUDGET Beginning Fund Balance $11,604 $7,460 $9,467 $9,467 $5,703 $7,206 Revenues 20,477 20,305 20,303 20,444 21,180 21,055 Transfers In 2,751 2,940 2,952 2,852 2,987 2,863 Total Revenues 23,228 23,245 23,256 23,296 24,167 23,918 Salaries and Benefits 13,509 14,292 14,358 14,384 14,880 14,909 Services and Supplies 9,222 10,288 10,276 10,141 10,609 11,074 Debt Service 302 294 294 294 283 283 Capital Outlay 380 13 50 51 52 52 Transfers Out 1,952 115 687 687 115 115 Total Expenditures 25,365 25,002 25,665 25,556 25,939 26,433 Revenue minus Expenditures (2,137) (1,757) (2,410) (2,261) (1,772) (2,515) Available Fund Balance $9,467 $5,703 $7,057 $7,206 $3,931 $4,691 Reserve %37.3%22.8%27.5%28.2%15.2%17.7% 2025-26 Page 441 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 7 cleaning up litter/graffiti, and addressing homelessness. To aid in the collection and reporting of this information, the City has accounted for this fund in a separate account. For the purpose of providing the City Council and the community the full picture of the City revenues, expenditures, and ending fund balance, staff has combined these three funds for information purposes into a Consolidated General Fund in this report as shown in Table 6. Table 6: FY 2026-27 Consolidated General Fund Budget & Available Fund Balance in thousands The projected fund balance for the Consolidated General Fund at the end of FY 2026 -27 is $6,558,426 or 18.4%. Proposed Budget The FY 2026-27 Mid-Cycle Budget Update presents a balanced budget, with excess revenues and fund balance sufficient to cover recommended work plan and capital project budget expenditures. The FY 2026-27 Mid-Cycle Budget Update proposed budget includes a total of $32.8 million in revenues and $35.7 million in operating and capital budget for a net of $2.8 million more expenditures than revenues. Fund balances accumulated over time offset the additional expenditures. Consolidated General Fund Revenues As shown in Chart 1, Sales and Property Taxes comprise the largest source of revenue in the General Fund, together accounting for approximately 7 4% of revenue within that fund. Given this dependence on just two revenue sources, fluctuations in the amount of taxes received can have profound impacts on the Cit y’s ability to provide services. Fortunately, as long as the real estate market stays reasonably strong, property taxes are a relatively stable revenue source. Beginning Fund Balance 7,205,860$ 943,263$ 1,290,888$ 9,440,011$ Revenues: Revenues 21,055,350 2,975,500 5,936,000 29,966,850 Transfers In 2,862,500 - - 2,862,500 Total Revenues 23,917,850 2,975,500 5,936,000 32,829,350 Expenditures: Salaries and Benefits 14,908,800 - - 14,908,800 Services and Supplies 11,073,570 1,415,800 32,500 12,521,870 Debt Service 282,786 - - 282,786 Capital Outlay 51,529 - - 51,529 Transfers Out 115,000 1,984,750 5,846,200 7,945,950 Total Expenditures 26,431,685 3,400,550 5,878,700 35,710,935 Total Operating Incr/(Decr)(2,513,835) (425,050) 57,300 (2,881,585) Available Fund Balance 4,692,026$ 518,213$ 1,348,188$ 6,558,426$ Year end Reserve %17.8%15.2%22.9%18.4% General Measure O-06 TotalMeasure E-24 Page 442 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 8 Chart 1: FY 2026-27 Consolidated General Fund Revenues - $32.8 million Overall, General Fund tax revenues have been trending upward over the past several years but are expected to remain flat in the FY 2026-27 Budget. Based on the latest information provided by the County Auditor-Controller’s Office, property taxes are expected to increase by 4.25%. This is the result of an increase in the assessed valuation of properties in Arroyo Grande and a housing market that has remained robust throughout the past year. Sales tax receipts have remained flat throughout the past year; the City’s sales tax consultant projected a reduction in sales tax revenues due to an anticipated minor economic slowdown. These projections reflect expected declines in categories like automobiles and transportation, building and construction, and food & dr ug consumer goods. The lower projections in these categories are the result of lower expected consumer demand in the short term. Page 443 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 9 Chart 2: Consolidated General Fund Tax Revenues - $32.8 million Consolidated General Fund Expenditures The following two charts show the proposed $35.6 million Consolidated General Fund expenditure budget for FY 2026-27, both in terms of the relative size of each department as well as the total dollars budgeted for each department. As the charts show, the Police Department and Capital Improvement Program are the City’s largest functions, with 22% of the budget, respectively. Fire services for FCFA will receive 12% of the Consolidated General Fund and Measure O-06 budget. Public Works receives 10% and Community Development will receive 6% of FY 2025-26 budget resources. The “Non-Departmental” category represents 11% of the General Fund budget and includes items that affect all departments, such as the annual payment on the City’s Unfunded Actuarial Liability (UAL), property and general liability insurance, and transfers to the Street fund. Page 444 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 10 Chart 3: FY 2026-27 Consolidated General Fund Expenditures by Department $35.7 million Chart 4: FY 2026-27 Consolidated General Fund Expenditures by Department $35.7 million Enterprise Funds Though the focus of this report has been on the City’s General Fund, it is important to point out that the City’s two enterprise fund programs, Water and Wastewater, reflect rate adjustments approved by the City Council on March 8, 2022, based on the Water and Wastewater Rate Study. Table 7 details a consolidated look at these enterprise funds. It should be noted that the continued cost of Lopez Lake litigation will need to be addressed in a rate increase that staff is continuing to review. Page 445 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 11 Table 7: Consolidated Enterprise Funds Special Revenue Funds Special Revenue Funds are a governmental fund type used to account for specific revenues that are legally restricted to expenditures for particular purposes. The Mid-Cycle Budget Update for FY 2026-27 proposes changes to 4 of the 24 Special Revenue Funds. Only the Special Revenue Funds with changes will be highlighted in this section. Fund 213 Park Facilities Fund The Fund 213 Park Facilities Fund accounts for the receipts of park-in-lieu (Quimby) fees and grant revenues that are used for construction, park acquisition, and development of park facilities. The anticipated revenues remained consistent compared to the current budget. The expenditure budget decreased by $135,000, is related to the Capital Improvement Project Design phase of the Short Street Plaza being moved from FY 2026- 27 to FY 2031-32. The anticipated fund balance at the end of FY 2026 -27 is $1.6 million as shown in Table 8. 2023-24 2024-25 ADOPTED AMENDED ESTIMATED CURRENT PROPOSED ACTUAL ACTUAL BUDGET BUDGET BUDGET BUDGET BUDGET Beginning Working Capital 7,483$ 5,856$ 5,357$ 4,857$ 4,857$ 5,746$ 4,763$ Revenues: Revenues 7,026 9,436 10,562 10,562 10,562 10,873 10,877 Transfers In 4,803 4,779 5,684 5,727 5,684 4,082 4,789 Total Revenues 11,829 14,215 16,247 16,289 16,247 14,955 15,666 Expenditures: Salaries and Benefits 1,266 1,164 1,364 1,364 1,364 1,419 1,476 Services and Supplies 4,854 6,624 5,142 5,381 5,381 5,094 5,802 Debt Service 55 - - - - - - Capital Outlay 851 112 129 229 229 381 281 Capital Improvement Program 76 684 800 1,193 710 1,217 743 Transfers Out 6,353 6,631 8,018 8,624 8,657 8,364 7,246 Total Expenditures 13,456 15,214 15,453 16,790 16,340 16,475 15,548 Total Operating Incr/(Decr)(1,627) (999) 794 (501) (94) (1,520) 118 Available Fund Balance 5,856$ 4,857$ 6,151$ 4,356$ 4,763$ 4,225 4,881 2025-26 2026-27 Page 446 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 12 Table 8: Park Facilities Fund Fund 220 Streets Fund 220 Streets accounts for receipts and expenditures of money apportioned by the State under Streets and Highway Code. The use of gas tax revenues can only be used to construct and maintain streets, roads and highways. The anticipated revenues increased by $12,400 compared to the current budget due to more consumers driving and the increase in gas costs. The expenditure budget also increased by $11,700 related to increased employee costs. The anticipated fund balance at the end of FY 202 6-27 is $6,991 as shown in Table 9. Table 9: Streets Fund Fund 224 Transportation Facilities Fund The Fund 224 Transportation Facilities Fund includes impact fees collected from developers paid to protect the public health, safety, and welfare by maintaining the existing level of public services for existing and future residents within the City of Arro yo Grande. The anticipated revenues remained consistent compared to the current budget. 2023-24 2024-25 ADOPTED AMENDED ESTIMATED CURRENT PROPOSED ITEM ACTUAL ACTUAL BUDGET BUDGET BUDGET BUDGET BUDGET Beginning Fund Balance 1,430,686$ 1,490,533$ 1,630,136$ 1,630,136$ 1,630,136$ 1,686,136$ 1,686,136$ Revenues: Revenues 59,846 139,603 56,000 56,000 56,000 56,000 56,000 Transfers In - - - - - Total Revenues 59,846 139,603 56,000 56,000 56,000 56,000 56,000 Expenditures: Salaries and Benefits - - - - - - - Services and Supplies - - - - - - - Capital Outlay - - - - - - - Transfers Out - - - - - 310,000 175,000 Total Expenditures - - - - - 310,000 175,000 Change in Fund Balance 59,846 139,603 56,000 56,000 56,000 (254,000) (119,000) Ending Fund Balance 1,490,533$ 1,630,136$ 1,686,136$ 1,686,136$ 1,686,136$ 1,432,136$ 1,567,136$ 2025-26 2026-27 2023-24 2024-25 ADOPTED AMENDED ESTIMATED CURRENT PROPOSED ITEM ACTUAL ACTUAL BUDGET BUDGET BUDGET BUDGET BUDGET Beginning Fund Balance 81,325$ 3,569$ (969)$ (969)$ (969)$ 61$ 61$ Revenues: Revenues 995,352 1,042,786 1,044,700 1,044,700 1,033,000 1,059,800 1,072,200 Transfers In 474,996 520,703 695,000 695,000 708,900 730,000 730,000 Total Revenues 1,470,348 1,563,489 1,739,700 1,739,700 1,741,900 1,789,800 1,802,200 Expenditures: Salaries and Benefits 618,732 528,655 623,100 623,100 623,100 647,300 659,000 Services and Supplies 346,722 321,253 382,700 382,700 382,700 382,700 382,700 Debt Service 8,369 8,369 8,369 8,369 8,369 8,369 8,369 Capital Outlay 14,127 122,076 140,000 140,000 140,000 140,000 140,000 Transfers Out 560,154 587,673 586,700 586,700 586,700 605,200 605,200 Total Expenditures 1,548,105 1,568,027 1,740,870 1,740,870 1,740,870 1,783,569 1,795,269 Change in Fund Balance (77,757) (4,538) (1,170) (1,170) 1,030 6,231 6,931 Ending Fund Balance 3,569$ (969)$ (2,139)$ (2,139)$ 61$ 6,291$ 6,991 2025-26 2026-27 Page 447 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 13 The expenditure budget increased by $361,500, is related to the Capital Improvement Project in FY 2026-27 to pay for the potential Huasna Roundabout totaling $1,600,000. The anticipated fund balance at the end of FY 2026 -27 is $1.2 million, shown in Table 10. Table 10: Transportation Facilities Fund Fund 271 State COPS Block Grant The Fund 271 State COPS Block Grant Fund accounts for the receipt and use of monies from the State of California and is restricted to the purchase of police equipment and technology for crime prevention. The anticipated revenues remained consistent compared to the current budget. The expenditure budget increased by $150,000, related to the Capital Improvement Project to upgrade the Report Management System to coincide with the San Luis Obispo Sheriff’s Department upgrade. The expenditure budget increased by $50,000 to purchase a drone related to mapping traffic collisions and an electric bike or vehicle. The anticipated fund balance at the end of FY 2026-27 is $622,880 as shown in Table 11. Table 11: State COPS Block Grant Fund 2023-24 2024-25 ADOPTED AMENDED ESTIMATED CURRENT PROPOSED ITEM ACTUAL ACTUAL BUDGET BUDGET BUDGET BUDGET BUDGET Beginning Fund Balance 2,682,500$ 2,835,751$ 3,084,459$ 3,084,459$ 3,084,459$ 2,744,459$ 2,744,459$ Revenues: Revenues 153,251 248,708 60,000 60,000 60,000 60,000 60,000 Transfers In - - - - - - - Total Revenues 153,251 248,708 60,000 60,000 60,000 60,000 60,000 Expenditures: Salaries and Benefits - - - - - - - Debt Service - - Capital Outlay - - - - - - - Transfers Out - - - 400,000 400,000 1,238,500 1,600,000 Total Expenditures - - - 400,000 400,000 1,238,500 1,600,000 Change in Fund Balance 153,251 248,708 60,000 (340,000) (340,000) (1,178,500) (1,540,000) Ending Fund Balance 2,835,751$ 3,084,459$ 3,144,459$ 2,744,459$ 2,744,459$ 1,565,959$ 1,204,459$ 2025-26 2026-27 2023-24 2024-25 ADOPTED AMENDED ESTIMATED CURRENT PROPOSED ITEM ACTUAL ACTUAL BUDGET BUDGET BUDGET BUDGET BUDGET Beginning Fund Balance 683,208$ 787,470$ 942,280$ 942,280$ 942,280$ 831,570$ 872,080$ Revenues: Revenues 129,558 235,134 140,800 140,800 167,300 140,800 140,800 Transfers In - - - - - - - Total Revenues 129,558 235,134 140,800 140,800 167,300 140,800 140,800 Expenditures: Salaries and Benefits - - - - - - - Services and Supplies 240 - 12,500 12,500 12,500 - 20,000 Capital Outlay 25,056 80,325 25,000 25,000 25,000 25,000 55,000 Transfers Out - - 200,000 444,300 200,000 125,000 275,000 Total Expenditures 25,296 80,325 237,500 481,800 237,500 150,000 350,000 Change in Fund Balance 104,262 154,809 (96,700) (341,000) (70,200) (9,200) (209,200) Ending Fund Balance 787,470$ 942,280$ 845,580$ 601,280$ 872,080$ 822,370$ 662,880$ 2025-26 2026-27 Page 448 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 14 Summary The proposed FY 2026-27 Budget recommends approximately $55 million in expenditures, including operating costs such as salaries, benefits, services, supplies, maintenance, debt service, and capital-related items, as shown in the consolidated fund summary as shown in Table 12. Table 12: FY 2026-27 Consolidated Fund Summary Next Steps The FY 2026-27 Mid-Cycle Budget Update will be presented to the City Council at a Public Hearing held on June 9, 2026. Once approved by the City Council, FY 2026- 27 funds will be appropriated on July 1, 2026. ALTERNATIVES: The following alternatives are provided for the Council’s consideration: 1. Review and provide direction on the Preliminary FY 2026-27 Mid-Cycle Budget Update; or 2. Provide other direction to staff. ADVANTAGES: Providing direction will assist staff in developing the Preliminary FY 202 6-27 Mid-Cycle Budget Update Report that is responsive to the City’s needs and community priorities, while maintaining economic feasibility. DISADVANTAGES: The recommendations do not fully address the long-term replacement needs of all City equipment and infrastructure, including the City’s streets, sidewalks, and stormwater facilities. Limited staffing levels continue to be a challenge for accomplishing all desi red City priorities in a timely manner. Significant cost increases related to pensions and insurance are still threats that will require close monitoring. The performance of the Beginning Fund Balance 7,205,860$ 943,263$ 1,290,888$ 4,763,064$ 13,143,442$ 5,109,805$ 32,456,321$ Revenues: Revenues 21,055,350 2,975,500 5,936,000 10,876,832 2,522,991 423,944 43,790,617 Transfers In 2,862,500 - - 4,789,480 730,000 - 8,381,980 Total Revenues 23,917,850 2,975,500 5,936,000 15,666,312 3,252,991 423,944 52,172,598 Expenditures: Salaries and Benefits 14,908,800 - - 1,475,700 659,000 - 17,043,500 Services and Supplies 11,073,570 1,415,800 32,500 5,802,225 1,011,941 7,900 19,343,936 Debt Service 282,786 - - - 8,369 382,944 674,099 Capital Outlay 51,529 - - 1,024,256 195,000 - 1,270,785 Transfers Out 115,000 1,984,750 5,846,200 7,246,069 1,318,000 179,900 16,689,919 Total Expenditures 26,431,685 3,400,550 5,878,700 15,548,250 3,192,311 570,744 55,022,239 Total Operating Incr/(Decr)(2,513,835) (425,050) 57,300 118,062 60,680 (146,800) (2,849,642) Available Fund Balance 4,692,026$ 518,213$ 1,348,188$ 4,881,126$ 13,204,121$ 4,963,005$ 29,606,680$ TotalGeneral Measure O-06 Measure E-24 Enterprise Funds Special Revenue Funds Agency Funds Page 449 of 466 Item 11.b. City Council Review Preliminary FY 2026-27 Mid-Cycle Budget Update Report May 26, 2026 Page 15 economy in general, and the impacts of specific economic development activitie s, will also affect the financial condition and sustainability of City operations. ENVIRONMENTAL REVIEW: The development of the FY 2026-27 Mid-Cycle Budget Update Report is not a project subject to the California Environmental Quality Act (“CEQA”) because it has no potential to result in either a direct, or reasonably foreseeable indirect, physical change in the environment. (State CEQA Guidelines, §§ 15060, subd. (b)(2)-(3), 15378.) Individual projects listed herein may be subject to CEQA and environmenta l reviews will be conducted at the appropriate time during implementation of those projects. PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted at City Hall and on the City’s website in accordance with Government Code Section 54954.2. Page 450 of 466