Richard Roth will receive the 2024 City Spirit Award; Council will consider updates to the Senior Rental Assistance Program and updates to speed up the review of new project development plans.
The City Council unanimously approved a cautious $382.2 million general fund budget Tuesday, June 18, deferring millions in spending as federal policy changes and inflation create economic uncertainty.
The amended budget represents a $10.4 million increase from the originally adopted $371.8 million general fund budget, while the Measure Z budget — funded by the city's 1-cent sales tax measure — rises to $167.3 million from the previously approved $101.6 million.
Despite economic challenges, City Manager Mike Futrell highlighted the city's fiscal strength.
"The city is still in a very strong fiscal position with record level reserves that can help the city during tough economic times," Futrell said.
"A cautious approach is the most prudent strategy to preserve the city's financial resources during economic uncertainty," said Deputy Finance Director Sergio Aguilar during his presentation to the council.
Revenue Challenges
The city faces significant revenue challenges for fiscal year 2025-26. Sales tax projections dropped by 2.6% in the general fund and 3.4% in Measure Z compared to adopted budget projections. These reductions align with forecasts from the city's sales tax consultant HDL, which cited reduced consumer and business spending, declining oil and gas prices and overall economic uncertainty.
Property tax growth, which has been substantial in recent years, will slow due to high interest rates, refinancing costs and elevated housing prices that have reduced consumer demand. The city cut property tax projections by 0.8%, or $750,000, primarily due to anticipated reductions in property transfer tax revenue.
Business license tax revenue will decrease by 14.6% or about $1.9 million, while developer fees and charges will increase by 12.2%, or just over $1 million, reflecting recently adopted fee increases approved by the City Council in April.
Spending Cuts and Deferrals
To address the revenue shortfalls and increased costs, the city will defer $16.3 million in spending on various programs. The largest reduction affects forestry and landscaping equipment, cut by $950,000.
Parks capital improvement funding faces a temporary $1 million reduction, maintaining $2.5 million for next fiscal year. Citywide deferred maintenance will see a $1.5 million cut while preserving $2.5 million, still $1 million higher than the baseline allocation provided in fiscal year 2023-24.
The city also cuts citywide fleet replacement funding by $1 million, leaving $600,000 available, and reduces Public Safety and Engagement Teams by $383,000 due to vacant positions.
New Initiatives and Transfers
The budget includes a one-time $7.37 million transfer from Measure Z to the general fund to support increased public safety costs, including police union agreement increases and rising fire department overtime expenses.
Personnel costs drive significant budget increases, stemming from recently approved memorandums of understanding with various employee unions and rising California Public Employees' Retirement System unfunded liability costs. The city will use an additional $7.7 million from its Section 115 set-aside funds to help offset these pension-related expenses.
New spending priorities include $200,000 for a building and safety consultant to streamline permit processes, $210,000 for economic development promotional activities, and $100,000 for data-driven decision-making platforms in the city manager's office.
The budget also addresses critical infrastructure needs, including $400,000 from the general fund infrastructure reserve for bathroom renovations at the Janet Goeske senior center.
Council Reaction and Next Steps
Council members expressed confidence in the budget while acknowledging economic challenges ahead.
"I think this is a strong budget. I know you weren't expecting CalPERS to send another $3 million bill to you, but it's impressive that you have the ability to absorb that," said City Councilmember Chuck Conder.
Councilmember Clarissa Cervantes, who represents Ward 2, raised concerns about potential impacts on the city's immigrant community, noting that economic uncertainty affecting residents directly impacts city revenues.
"People aren't showing up to work, people aren't going out to the grocery store, people aren't going out shopping," she said.
The city will pace discretionary spending strategically during the first two quarters of fiscal year 2025-26 and monitor monthly sales tax receipts, quarterly revenue performance and weekly auto sales data to adjust for any deviations from projections.
The budget takes effect July 1, 2025, when the new fiscal year begins.
Richard Roth will receive the 2024 City Spirit Award; Council will consider updates to the Senior Rental Assistance Program and updates to speed up the review of new project development plans.
