Review and approve the Fiscal Year 2026-27 Fiscal Strategy and Budget Policies; receive a presentation on the Fiscal Year 2025-26 mid-year fiscal review; and approve mid-year budget amendments. (Fiscal Impact: General Fund, $376,000; HHSA, $245,000; Roads Fund, $2,062,766; IHSS Authority, $117,000; Capital Improvement Fund, $55,150; Fleet Management Fund, $526,209; 5th Street Parking Garage, $7,000; Animal Shelter, $121,872; not budgeted; discretionary). [4/5 vote required]

The City Council will review and approve the Fiscal Year 2026-27 Fiscal Strategy and Budget Policies. This includes a proposed modification to the Budget Policies regarding General Fund Contributions to non-General Fund departments, which will now involve an annual analysis rather than an automatic transfer for Roads, Housing and Community Services, and Fire.

Additionally, the council will receive a presentation on the Fiscal Year 2025-26 mid-year fiscal review. This review indicates that the General Fund is projected to end the fiscal year with an available balance of approximately $11.2 million, an increase from the adopted budget projection. This positive variance is attributed to lower-than-expected revenues (primarily property, sales, and transient lodging taxes) offset by significant decreases in expenditures, including reduced transfers to the Fire and Housing & Community Services funds due to their sufficient fund balances. However, there are also expenditure increases, such as salary adjustments for the Deputy Sheriff's Association and increased costs for leased office space.

The council is also asked to approve mid-year budget amendments totaling $376,000 for the General Fund, primarily to cover new contractual obligations. These amendments are offset by the use of available fund balance. Other funds also have proposed amendments, some of which are budget-neutral or utilize their respective fund balances.

Key Financial Impacts of Mid-Year Amendments:

• General Fund: $376,000 (use of available fund balance)
• HHSA: $245,000 (offset by increased state funding and transfer)
• Roads Fund: $2,062,766 (partially funded by SB1, remainder from fund balance)
• IHSS Authority: $117,000 (use of available fund balance)
• Capital Improvement Fund: $55,150 (offset by transfer)
• Fleet Management Fund: $526,209 (non-cash transaction for depreciation)
• 5th Street Parking Garage: $7,000 (use of available fund balance)
• Animal Shelter: $121,872 (offset by increased donations)

Future Stress Factors identified for the General Fund include expenditure growth outpacing discretionary revenue, rising insurance and health costs, the General Plan update, storm damage repairs, aging facilities, and potential state/federal funding pressures.