HomeMy WebLinkAbout12 YEAR-END UPDATE FOR FISCAL YEAR 2024-2025Docusign Envelope ID: 7573C612-77F6-4535-B95E-2F8B74E33879 12
Agenda Item
Reviewed:
1W AGENDA REPORT City Manager rinitial
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Finance Director
MEETING DATE: OCTOBER 21, 2025
TO: ALDO E. SCHINDER, CITY MANAGER
FROM: JENNIFER KING, FINANCE DIRECTOR/CITY TREASURER
SUBJECT: YEAR-END UPDATE FOR FISCAL YEAR 2024-2025
SUMMARY:
This report provides the City Council with an update of the Fiscal Year 2024-2025 preliminary
operating results based on actual year-end revenues and expenditures. General Fund operating
revenues are approximately $3 million higher than the amended budget, whereas General Fund
expenditures are approximately $2.6 million lower than the amended budget. Therefore, instead
of ending the year with a $1.3 million deficit, the year ended with a $4.4 million surplus.
The General Fund reserves, excluding impact of the Navy North Hangar Fire Incident, are
expected to be at $35 million as of June 30, 2025 (or 38% of the General Fund's total recurring
operating expenditure). This reserve level exceeds the City Council's target reserve policy of 20%.
RECOMMENDATIONS:
It is recommended that the City Council:
1. Receive and file this report;
2. Approve revenue budget and expenditure appropriation of $2,500,000 for the Navy North
Hangar Fire incident above -ground cleanup work authorized under the seventh amendment
to the Navy's Co -Operative Agreement;
3. Approve supplemental appropriations incurred to operate various City programs and services
identified in this report; and
4. Approve appropriations to carryover for purchases identified in this report.
FISCAL IMPACT:
There are sufficient revenues or reserves in respective funds to fund the supplemental appropriations
and carryover appropriations identified in this report.
CORRELATION TO THE STRATEGIC PLAN:
The recommendations correlate to the strategic plan by implementing Goal C, sustain long-term
financial strength with adequate reserves and enhanced capacity to provide a sustainable level of
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City Council Agenda Report
Fiscal Year 2024-2025 Year -End Update
October 21, 2025
Page 2 of 7
City services. Specifically, periodic review of the City's financial position supports prudent
management of public funds.
BACKGROUND AND DISCUSSION:
The mid -year budget review projected the General Fund revenues to be approximately $99 million
for Fiscal Year 2024-2025. However, now that the books have been closed, revenues (unaudited)
are approximately $3 million higher than the projection.
Recurring Operating Revenues
Property Tax
Sales Tax
Franchise Fees
Transient Occupancy Tax
Other Tax Revenue
Departmental Revenue
Use of Money & Property
Fines & Forfeitures
Transfers and Reimbursements**
Other Revenues***
Subtotal Recurring Revenues
Non -Recurring Revenues:
from Land Sale Proceeds for Annex
from CIP for Main St Improvements
Housing Returning Advance
One -Time ARPA Funding
Subtotal Non -Recurring
Audited Amended Unaudited Budget
FY 23-24 FY 24-25 FY 24-25 Variance
$26,205
$27,287
$27,348
$61
35,403
35,500
37,378
1,878
1,864
1,848
1,778
(70)
2,392
2,200
2,240
40
1,479
1,509
1,408
(100)
5,068
4,904
4,680
(224)
5,409
4,023
4,702
680
961
800
924
124
9,502
11,956
11,521
(436)
2,416
1,650
2,763
1,113
90,701
91,676
94,742
3,066
- 600
600 -
- 3,170
3,170 -
- 467
460 (6)
4,297 3,216 3,216 -
4,297 7,452 7,446 (6)
* Excluding Navy North Hangar Fire incident reimbursements.
**Majority of transfers and reimbursements in the General Fund are related to ongoing program costs and/or services
funded by restricted funds.
***Other revenues include federal and state grants, street and curb permit revenue, and service recovery charges, etc.
The higher -than -expected operating revenues are largely due to the following:
Sales Tax was approximately $2 million higher than projected. This surprising increase is
mainly attributed to strong -than -expected gross domestic product (GDP) growth and resilient
consumer spending. Staff expect economic conditions to level off in 2025-2026 and taxable
sales return to a normal pace.
Use of Money and Property was approximately $0.7 million higher than projected, which is
mostly from increased investment earnings generated by strong market performance.
Docusign Envelope ID: 7573C612-77F6-4535-B95E-2F8B74E33879
City Council Agenda Report
Fiscal Year 2024-2025 Year -End Update
October 21, 2025
Page 3 of 7
Other Revenues were $1.1 million higher than projected primarily due to several one-time
grants, cost recovery items, and reimbursements.
General Fund Expenditures
At Mid -Year, the General Fund's expenditures were projected to be $100.4 million for Fiscal Year
2024-2025. Actual (unaudited) total expenditure amounted to $97.8 million, which is approximately
$2.6 million lower than projected. Personnel cost was 1 % under budget from vacancy savings. Non -
personnel cost was 4% under budget.
Audited
FY 23-24
Amended
FY 24-25
Unaudited
FY 24-25
Budget
Variance
Recurring Operating Expenditures
City Council
$62
$141
$110
$31
City Clerk
824
1,125
1,109
16
City Attorney
792
900
743
157
City Manager
800
981
939
42
City Manager/Real Property
2,021
2,060
1,772
288
Finance
1,891
2,026
2,006
21
Human Resources
1,301
1,638
1,575
64
Community Development
5,103
5,976
5,309
667
Public Works
16,075
17,761
17,009
752
Police Services
34,725
38,770
38,292
479
Fire Services
10,703
11,045
11,189
(144;
Parks and Recreation
5,650
6,195
6,151
43
Transfers for Others
3,536
2,241
2,198
43
Non -Departmental
1,718
2,804
3,006
(202;
Subtotal
85,200
93,664
91,408
2,255
Non -Operating Expenditures:
Temporary Emergency Shelter
414
45
- 45
Affordable Housing
467
15
4 11
Required Pension UAL
5,361
6,626
6,297 328
Capital Proj/Equip/Vehicles
4,200
53
53 -
Subtotal
10,442
6,739
6,354 385
Excluding Navy North Hangar Fire incident costs.
General Fund Reserves
One of the goals of the City's long-range financial planning is to identify sufficient reserves to provide
resources for future years where operating expenditure exceeds operating revenue. The General
Fund, as the City's primary operating fund, has more exposure to changes in economic conditions,
Docusign Envelope ID: 7573C612-77F6-4535-B95E-2F8B74E33879
City Council Agenda Report
Fiscal Year 2024-2025 Year -End Update
October 21, 2025
Page 4 of 7
inflationary adjustments, and increasing CaIPERS pension costs, all of which have significant
impacts on the General Fund's fiscal health.
The General Fund reserves are expected to be at $35 million as of June 30, 2025 (or 38% of the
General Fund's total recurring operating expenditure). This reserve level continues to exceed the
City Council's target reserve policy of 20%.
It should also be noted that the 2024-2025 amounts referred to in this report are unaudited. The
financial audit for Fiscal Year 2024-2025 is expected to be completed by December 2025. The
audited financial reports will be presented to the City Council upon its completion.
Navy North Hangar Fire Incident Response Reimbursements
In November 2023, the Navy and the City entered into a Co -Operative Agreement for the Navy North
Hangar Fire incident responses. The Co -Operative Agreement has been amended seven times,
authorizing reimbursements to the City for incident -related responses. Amendment Number Seven
for above -ground cleanup work increased the authorized amount by an additional $2.5 million for a
total of $105.8 million to reimburse the City.
As of the date of this report, the City has submitted reimbursement requests to the Navy totaling
$104 million. The Navy has reimbursed $79 million to the City to date, and the City expects to
continue to receive payments through the reimbursement process.
Water Enterprise Fund Review
The financial health of the Water Enterprise Fund has continued to improve following the second
approved rate adjustments in January 2025. The actual (unaudited) operating revenues totaled
$24.7 million, which is 12% higher than Fiscal Year 2023-2024. The actual (unaudited) operating
expenses for Fiscal Year 2024-2025 totaled $20 million, resulting in a net operating surplus of
$4.3 million before depreciation, capital spending, and debt service costs. The positive operating
result allows the Water Enterprise Fund to fulfill its bond covenants while also replenishing its
capital reserve for forthcoming water CIP projects.
Docusign Envelope ID: 7573C612-77F6-4535-B95E-2F8B74E33879
City Council Agenda Report
Fiscal Year 2024-2025 Year -End Update
October 21, 2025
Page 5 of 7
Audited
Amended
Unaudited
Budget
FY 23-24
FY 24-25
FY 25-26
Variance
Operating Revenue
$22,053
$25,403
$24,694
($709)
Operating Expenditures
(17,959)
(20,870)
(20,389)
482
Net Operating Change
4,094
4,533
4,306
(227)
Capital Project Expenditures
(617)
(3,340)
(340)
3,000
Depreciation
(2,450)
-
(2,387)
(2,387)
Debt Related
(1,567)
(1,418)
(1,538)
(120)
* Excluding bond proceeds, General Fund loan, and Main Street Treatment Plant capital contributions.
Request for Supplemental and Carryover Appropriations
Supplemental Appropriations
It is recommended that the City Council approve the following supplemental appropriations for the
Fiscal Year 2024-2025. These expenditures were incurred as part of the normal operations of the
various City programs and services. Each fund has sufficient revenues or reserves to offset the
supplemental appropriations.
• Fund 102 PARS Pension Trust Fund. Increase appropriation by $6,600 to account for trust
administration costs. This increase in expenditure is offset by the trust's investment earnings.
• Fund 135 Federal Asset Forfeiture Fund. Increase appropriation by $34,500 to cover
allocated annual subscription for the Police Department's vehicle license plate reader
program. The fund has sufficient reserve for this appropriation.
• Fund 183 Unemployment Compensation Fund. Increase appropriation by $17,500 to
account for higher claim costs. The fund has sufficient reserve for this appropriation.
• Fund 300 Water Enterprise Fund. Increase appropriation by $289,500 to cover higher water
supply costs. The fund has sufficient reserve for this appropriation.
Carryover Appropriations
Staff recommend that the City Council approve the following appropriations to be carried over and
added to the Fiscal Year 2025-2026 budget.
• Fund 184 Equipment Replacement Fund —Vehicle and equipment purchase total $1,176,576
approved by the Council in 2024-2025. This total includes two pickup trucks, four flatbed
vehicles, two utility vehicles, one riding mower, five Dodge Durango police pursuit -rated
vehicles and vehicle conversion packages, and remodel of the Police Department's
Docusign Envelope ID: 7573C612-77F6-4535-B95E-2F8B74E33879
City Council Agenda Report
Fiscal Year 2024-2025 Year -End Update
October 21, 2025
Page 6 of 7
equipment room. The vehicles and equipment have been ordered and expected to be
delivered in 2025-2026. The equipment room remodel was in progress as of June 30, 2024,
and will be completed in 2025-2026.
• Fund 300 Water Enterprise Fund — One vehicle purchase of $53,085 approved by the
Council in 2024-2025. The vehicle has been ordered and will be delivered in 2025-2026.
Pension Update
The City's net pension liability represents the total liability for pension benefits earned by employees
to date, offset by the market value of assets held by CalPERS on behalf of the City. When the market
value of those assets rises, the net pension liability declines. When the market experiences a
downturn, the net pension liability increases.
The City's net pension liability excluding its pension trust was $86 million or 77% funded as of June
30, 2024, which is based on the most recent CalPERS actuarial report issued in July 2025. CalPERS
finished fiscal year 2024-2025 with a net investment gain of 11.6%, which far exceeded the pension
plan's discount rate of 6.8%. The 11.6% investment gain will be reflected in the actuarial valuation
report to be issued in July 2026. Staff estimate that the 11.6% investment gain reduces the City's
pension liability by approximately $13 million as of June 30, 2025, and increases the funding
percentage to 82% excluding the pension trust balance as described below.
To manage its pension liability, the City has implemented a five-year pension funding plan. Spanning
from 2022 to 2026, the funding plan makes annual discretionary paydowns to CalPERS and deposits
additional funds annually into a separate Pension Trust, which is held by Public Agency Retirement
Services (PARS). The trust funds can be used to pay down pension liability. As of June 30, 2025,
the PARS Pension Trust had a balance of approximately $17 million, which brings the City's
estimated net pension liability to $69 million or 87% funded as of June 30, 2025.
10-year Fiscal Sustainability Strategy
At the May 20, 2025 budget workshop, a 10-year Fiscal Sustainability Strategy, built on principles
outlined by the Government Finance Officers Association (GFOA) was presented to facilitate the City
Council's goal of achieving a structurally balanced budget. GFOA defines a structurally balanced
budget as one that aligns annual recurring revenues with annual recurring expenses. GFOA also
recognizes maintaining a sustained reserve level as a practical sign that the budget is structurally
balanced.
The City's 10-year Fiscal Sustainability Strategy seeks to achieve these goals by implementing the
following objectives:
Docusign Envelope ID: 7573C612-77F6-4535-B95E-2F8B74E33879
City Council Agenda Report
Fiscal Year 2024-2025 Year -End Update
October 21, 2025
Page 7 of 7
1. Increase General Fund recurring revenues by advancing development of City owned
properties, which will generate recurring revenues such as sales tax and property taxes.
2. Decrease General Fund recurring expenses including analysis to explore new pension
paydown strategies.
3. Utilize non -recurring revenues to fund the following:
a) Uphold the City Council's General Fund Reserve Policy to maintain a reserve of at
least 15% to 20% of annual General Fund operating expenditure
b) Implement pension paydown strategies
c) Operations and programs, if needed, to maintain existing service levels
As an implementation step toward achieving objective number two of 10-year Fiscal Sustainability
Strategy, at the June 2025 budget adoption for Fiscal Year 2025-2026, the City Council directed staff
to work with an outside consultant on a study of the City's Unfunded Accrued Liability (UAL) and a
new pension funding plan. The project is underway and will incorporate impacts from CalPERS 2024-
2025 investment gains and balance from the PARS pension trust. Staff expect to present results of
the study and funding options for the City Council's consideration as part of the 2025-2026 Mid -Year
Budget Review in February 2026.
Signed by:
4D86AFAFFF77473...
Jennifer King
Finance Director/City Treasurer