Report Prepared by: Scott McBride, City Manager and Venus Rodriguez, Finance Officer
Title
SUBJECT: Continued Public Hearing to Allow Interested Persons to be Heard Regarding the City Council, Public Financing and Economic Development Authority, Parking Authority, and Successor Agency to the Redevelopment Agency of the City of Merced Fiscal Year 2025-26 Budget, Adoption of the Budget with Revision(s), and Appropriation of the Revenue and Approval of the Capital Projects for Each Respective Budget
REPORT IN BRIEF
Continued Public Hearing and adoption of the Fiscal Year 2025-26 City Council, Public Financing and Economic Development Authority, Parking Authority, and Successor Agency to the Redevelopment Agency of the City of Merced Budget.
RECOMMENDATION
City Council - Adopt a motion:
A. Adopting Resolution 2025-42, Resolution of the City Council of the City of Merced, California, Revising the General Fund Reserve Policy; and,
B. Adopting Resolution 2025-43, Resolution of the City Council of the City of Merced, California, Revising the Affordable Housing Fund Policy; and,
C. Adopting Resolution 2025-44, Resolution of the City Council of the City of Merced, California, Adopting the Budget and Appropriating Revenue for Fiscal Year 2025-2026; and,
D. Approving capital projects based upon the Planning Commission’s May 21, 2025, finding of consistency of Capital Improvement Program with the General Plan and as modified by recalculation of carryover projects to reflect actual balances as of June 30, 2025.
Public Financing and Economic Development Authority - Adopt a motion:
A. Adopting Resolution PFA 2025-01, Resolution of the City of Merced Public Financing and Economic Development Authority, adopting the Budget and Appropriating Revenue for Fiscal Year 2025-2026; and,
B. Approving capital projects based upon the Planning Commission’s May 21, 2025, finding of consistency of Capital Improvement Program with the General Plan and as modified by recalculation of carryover projects to reflect actual balances as of June 30, 2025.
Parking Authority - Adopt a motion:
A. Adopting Resolution PA 2025-01, Resolution of the City of Merced Parking Authority, adopting the Budget and Appropriating Revenue for Fiscal Year 2025-2026; and,
B. Approving capital projects based upon the Planning Commission’s May 21, 2025, finding of consistency of Capital Improvement Program with the General Plan and as modified by recalculation of carryover projects to reflect actual balances as of June 30, 2025.
Successor Agency to the Redevelopment Agency of the City of Merced - Adopt a motion:
A. Adopting Resolution SA 2025-02, Resolution of the Successor Agency to the Redevelopment Agency of the City of Merced Adopting the Budget and Appropriating Revenue for Fiscal Year 2025-2026; and,
B. Approving capital projects based upon the Planning Commission’s May 21, 2025, finding of consistency of Capital Improvement Program with the General Plan and as modified by recalculation of carryover projects to reflect actual balances as of June 30, 2025.
Body
ALTERNATIVES
1. Approve, as recommended; or
2. Approve, subject to other than recommended (identify specific findings and/or conditions amended to be addressed in the motion); or
3. Deny; or,
4. Refer to City Manager for reconsideration of specific items (specific items to be addressed in the motion); or,
5. Continue to a future meeting (date and time to be specified in the motion).
AUTHORITY
Charter of the City of Merced, Sections 1104 and 1105.
DISCUSSION
The City’s budget relies on a variety of revenue sources which are used to fund public services in many areas. Because the General Fund provides the most flexibility in expenditures and is the primary source of funding for Public Safety, as well as Parks and Community Services, the overall health of this fund is extremely significant.
City staff presented the recommended City Manager budget to the City Council on May 19th and June 2nd. After a lengthy discussion the City Council directed staff to make several changes to the proposed budget.
Based on City Council direction and staff recommendations the following summary of Errata items are changes to the budget and if adopted will be included (see attachment for details):
• Add Community Funding $ 30,000
• Add Arts Project Funding $ 75,000
• Add back unfunded Zookeeper position $ 65,085
• Reduce General Fund Reserve to 30% $1,899,280
• Cover the General Fund Deficit with over funded
General Fund Reserve set aside $ 494,460
• Add back unfunded Firefighter position to Measure C $ 143,140
• Add back 4 unfunded Police Officer positions to Measure C $ 623,488
• Add back 1 unfunded Dispatcher position to Measure C $ 106,078
• Add back 1 deleted Lead Dispatcher position to Measure C $ 113,903
• Increase CDBG HUD Allocation $ 32,846
• Decrease HOME HUD Allocation $ 3,053
• Net decrease in several Maintenance Districts operating
expenses to align with Public Hearing Report $ 443
General Fund revenue for the 2025/26 fiscal year is estimated to increase 6.5%, approximately $4.1 million from FY 2024/25 Budget. Property and Sales Tax are approximately 40%. Vehicle in Lieu fees represent another 15% of the revenue for this fund. Although we see increases to revenue, the City’s expenditures are outpacing the revenue by nearly 50%. Operating expenditures in the General Fund are reflected in the proposed budget with an increase of 10.5%, $6.4 million. This is after additional reductions to departments, moving operational costs to other funding sources for Public Safety, and deleting or freezing positions.
Given the current economic climate, the proposed budget for 2025/2026 prioritizes fiscal responsibility by adhering to the following principles: 1) Strategically allocating resources for investments in essential areas such as deferred maintenance of facilities, park restrooms, and safety purposes. 2) Enhancing allocations to reserves and contingencies to safeguard against potential economic fluctuations.
Incorporating City Council directed changes from June 2, 2025, Council Meeting, the City proposed budget for FY 2025-26 is $439.9 million. It includes the deletion of 10 positions and adds 13 positions, with a net addition of 3 new position, totaling 562 full-time positions. Two .5 Peer Support Specialists in the City Manager’s office are unfunded since the CalVIP grant which funds them will expire 12/31/2025.
As proposed, the General Fund estimated revenue is $67.6 million and estimated total operating expenditures is $67.6 million. The operational deficit of $494,460 is covered by a transfer in from the General Fund Reserve set aside. The General Fund also includes non-operating expenditure recommendations for City Clerk’s office safety improvements, replacement of the Civic Center skylight and exhaust, maintenance funding for Community Park 42 and continued set-aside funding for the Community Funding, Arts Projects, Enterprise Resource Planning system, Economic Development Opportunity Fund, Trust 115-Pension, and Affordable Housing.
On June 20, 2023, the City Council adopted the Affordable Housing Fund Policy to support the development of affordable housing within the City of Merced. In accordance with City Council direction, staff have included a revised Affordable Housing Fund Policy to include the use of funds towards administrative costs due to working on any of the items listed in the policy in supporting the efforts of affordable housing.
In November 2020, the City Council adopted the General Fund Reserve Policy and Reserve. On June 2, 2025, the City Council directed staff to propose a reduction to the General Fund Reserve Requirement. Included with this administrative report is a Resolution adopting a 30% reserve requirement, reducing it from the currently adopted policy of 35%. The proposed budget includes a reserve of 30% of annual operating expenses. For Fiscal Year 2025-26, 30% of annual operating expenses equals $20,283,659, of which 25% is $16,903,049 to be set-aside in a separate fund. Fund 1001-General Fund Reserve currently has $18,364,854. With this balance the set aside currently exceeds the required level of reserve. No additional transfer has been included in the proposed budget and $494,460 of the excess has been included to transfer back to the General Fund to balance the budget. The remaining General Fund Reserve of 5%, equaling $3,380,610 will remain in the General Fund for contingency purposes but not available for spending. There will still be an excess of $967,345 in the General Fund Reserve set aside if this proposed policy is approved as is. Based on the policy the City Council can propose what to do with this excess.
Based on the method of allocation per adopted City Council policies, the amount proposed to be allocated for future planning in the City Manager’s recommended budget are as follows:
|
Future Planning Resources |
Amount |
|
General Fund Reserve-30% |
$0 |
|
Economic Development Opportunity Fund |
$675,000 |
|
Trust 115-Pension |
$1,687,500 |
|
Affordable Housing |
$1,012,500 |
Staff presented the City Manager recommended FY 2025-26 budget to the Tax Transparency Commission for approval on May 14, 2025, before the City Council directed changes to add back seven Public Safety positions into the old Measure C 2001 Fund. The Measure C proposed budget includes a total of 13.3 fire and 23.49 police authorized positions. The ordinance adopted as part of the new Measure C ballot requires the Sales and Transaction Tax revenue be split 95% to Public Safety and 5% to Roads maintenance. Fund 2030-Measure C Public Safety includes projected revenue of $8.6 million and 2031-Measure Roads projects $457,000. There is estimated to be $4 million left in the old Measure C Fund 2001. In next year’s budget, $150,000 in operating expenditures for Police and Fire was moved to Measure C from the General Fund to help the challenge in balancing the budget. The Fire Department has included the purchase of a Type 6 Engine in the amount of $400,000. Measure C is proposed to fund 50% and Measure Y the other 50%. The proposed fund balance in Measure C meets the GFOA recommended minimum of $1,579,572 per City Council policy. The new Measure C ordinance also requires that the city meet FY 21-22 levels of spending in Police, Fire, and Roads. Based on the City Attorneys determination we are required to allocate a minimum of $36,898,630 for Police and Fire between the General Fund, CFD’s, Measure Y, and Abandoned Vehicle Abatement funds. In FY 25-26 between these four funds the budget total is $52,632,342 for Police and Fire. The Tax Transparency Commission accepted the City Manager Recommended Measure C proposed budget for FY 25-26 before City Council directed changes.
The Measure Y proposed budget was also presented at the same meeting. Measure Y Cannabis Tax ballot measure requires funding be used Police 20%, Fire 20%, Parks and Recreation 20%, and 40% as discretionary but only to be used for these same three areas per Council direction. Measure Y is continuing to see declines in receipts. Revenue projection is $1.6 million. Police transferred $124,000 and Fire transferred $50,000 of operating expenditures from the General Fund to help reduce the deficit. The 40% discretionary portion of the revenue is continuing to be used for parks maintenance and recreation programming. The Tax Transparency Commission accepted the Measure Y proposed budget for FY 25-26.
Parks and Community Services continues to see challenges in balancing their operating budget due to expanding programming in FY 20-21 and 21-22 when significant revenues were received from Measure Y-Cannabis Tax. After 2020-21 cannabis tax began to significantly decline from $3.1 million to current projections of $1.6 million. City Council approved the use of 40% discretionary Measure Y revenue to keep Parks and Community Services operating budget sustainable. The City Council directed to add back a zookeeper proposed to be deleted with that change staff is proposing the following for programming:
• Allocate the Measure Y- Parks and Recreation 20% revenue of $337,300.
• Allocate 50% of the Measure Y-Discretionary 40% revenue of $337,300.
• Increase transfer from the General Fund by 5.4% (additional $87,735) totaling $1,707,088.
• Increase revenues by applying for contributions for youth sports from Merced School District.
• Reducing the Boys and Girls lease contract by $25,000 which would bring it to $0 and reduce other service agreements by $5,000.
• Eliminating Summer Camp
• Eliminating Stick to Fitness Sports Clinics
• Eliminating Block Party Trailer for Community Reservations (would still use for internal events)
The five-year Capital Improvement Program (CIP) was reviewed by the Planning Commission at the May 21, 2025, meeting and was found to be consistent with the General Plan as required by State Law. The General Plan has many policies which are supported through the implementation of the proposed CIP projects. Examples include:
• T 1.2 - coordinate circulation and transportation planning with pertinent regional, state and federal agencies
• T 1.4 - promote traffic safety for all modes of transportation
• T 2.6 - maintain and expand the community’s existing bicycle circulation system
• T 2.7 - maintain a pedestrian friendly environment
• T 3.4 - reduce rail system impacts on circulation in the urban area
• P 1.1 - provide adequate public infrastructure and municipal services to meet the needs of future development
• P 1.2 - utilize existing infrastructure and public service capacities to the maximum extent possible and provide for the logical, timely, and economically efficient extension of infrastructure and services
• P 2.1 - maintain and enhance public protection facilities, equipment, and personnel to the maximum extent feasible within the resource constraints of the City to serve the City’s needs
• P-3 Water - ensure that adequate water supply can be provided within the City’s service area, concurrent with service expansion and population growth
• P-4 Wastewater - provide adequate wastewater collection, treatment, and disposal capacity for existing and projected future needs
• P-5 - provide effective storm drainage facilities for future development
• P-6 - establish programs to recover recyclable materials and energy from solid waste generated within the city
• OS 1.5 a - preserve and enhance water quality
• OS 3.1 - provide high quality park and open space facilities to serve the needs of a growing population
• OS 3.2 - maintain and expand the City’s bikeway and trail system
• OS 3.3 - maintain the City’s existing high-quality open space facilities
• S 3.2a - maintain essential services in the event of flooding or dam failure
• S 4.2 - maintain a reasonable level of accessibility and infrastructure support for fire suppression, disaster, and other emergency services
ATTACHMENTS
1. Resolution 2025-42 Revising General Fund Reserve Policy
2. Resolution 2025-43 Revising Affordable Housing Policy
3. Resolution 2025-44 Adopting City Budget
4. Resolution PFA 2025-01
5. Resolution PA 2025-01
6. Resolution SA 2025-02
7. City Manager Budget Letter
8. Errata List
9. Fund Summary
10. Presentation