Report Prepared by: Scott McBride, City Manager and Venus Rodriguez, Finance Officer
Title
SUBJECT: Public Hearing to Allow the Interested Public an Opportunity to Provide Input on the Content of 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 2026-27 Proposed Budget and After Hearing all Comments Continue the Public Hearing to June 15, 2026
REPORT IN BRIEF
Public Hearing to afford the interested public an opportunity to provide input on the content of the 2026-27 City Council, Public Financing and Economic Development Authority, Parking Authority, and Successor Agency to the Redevelopment Agency of the City of Merced Proposed Budget.
RECOMMENDATION
City Council/Public Financing and Economic Development Authority/Parking Authority/Successor Agency to the Redevelopment Agency of the City of Merced - It is recommended that the City Council/Authorities/Successor Agency conduct the Public Hearing and provide direction to the City Manager on the content of the Fiscal Year 2026-27 Budget; and adopt a motion continuing the Public Hearing to the June 15, 2026, Council Meeting.
Body
ALTERNATIVES
1. Approve, as recommended by staff; or
2. Approve, subject to other than recommended by staff (identify specific findings and/or conditions amended to be addressed in the motion); or,
3. Deny; or.
4. Refer to staff 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, Section 1104.
DISCUSSION
Fiscal Year 2026-27 Proposed Budget
The Fiscal Year 2026-27 recommended budget reflects the City Council’s priorities, resident feedback, and the City organization’s commitment to responsible fiscal stewardship. The budget balances operational needs with long-term planning while continuing investment in public safety, infrastructure, parks, economic development, and neighborhood quality of life.
As the City continues to grow and evolve, maintaining financial flexibility and operation resilience remains critical. Through strategic investment, collaboration, and continued community engagement, the City of Merced remains focused on building safe, vibrant, and economically strong future for residents and businesses alike.
On May 18, 2026, staff presented the City Council with the City Manager recommended budget for Fiscal Year 2026-2027. The total City proposed budget for FY 2026-27 is $461.2 million. It includes the deletion of 5 positions and adds 9 positions, with a net addition of 4 new position, totaling 566 full-time positions.
As proposed, the General Fund estimated revenue is $67.2 million and estimated total operating expenditures is $68.5 million, which leaves an operational deficit of $1.3 million. The General Fund FY 2026-27 proposed budget does not include community funding. It does include carry over funding for arts projects that was allocated in prior years. It also includes non-operating expenditure recommendations for district elections, compensation study, Bob Hart Fountain repairs, ¾ ton truck for Parks Maintenance, and extra help for enterprise resource planning implementation and continued set-aside funding for Economic Development Opportunity Fund, Trust 115-Pension, and Affordable Housing.
In November 2020, the City Council adopted the General Fund Reserve Policy and Reserve. Which set the policy reserve at 35% of annual operating expenses. On June 16, 2025, with the adoption of FY 2025-26 budget, the City Council adopted Resolution 2025-42 to decrease the reserve to 30% of annual operation expenses. For Fiscal Year 2026-27, 30% of annual operating expenses equals $20,556,982, of which 25% is $17,130,819. Fund 1001-General Fund Reserve currently has $17,870,394. Based on the proposed General Fund operating budget it is over funded by $739,576. The remaining General Fund Reserve of 5%, equaling $3,426,164 will remain in the General Fund for contingency purposes but not available for spending.
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 |
$405,000 |
|
Trust 115-Pension |
$1,012,500 |
|
Affordable Housing |
$607,500 |
Staff presented the City Manager recommended FY 2026-27 budget to the Tax Transparency Commission for approval on May 12, 2026. The Measure C proposed budget includes a total of 11.3 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 to be split 95% to Public Safety and 5% to Road’s maintenance. Fund 2030-Measure C Public Safety includes projected revenue of $8.8 million and 2031-Measure Roads projects $465,900. There is estimated to be less than $1 million left in the old Measure C Fund 2001. The Police and Fire Departments continue to include increasing operating costs in Measure C. In addition, the Police Department has included the replacement of duty weapons of $105,000 and part-time Community Service Officers to increase efforts of Code Enforcement. The proposed fund balance in Measure C meets the GFOA recommended minimum 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 26-27 between these four funds the budget total is $52,782,133 for Police and Fire. The Tax Transparency Commission accepted the Measure C proposed budget for FY 26-27.
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. The Police Department is also using Measure Y to fund part-time Community Service Officers to augment Code Enforcement. Fire is proposing to fund cardiac monitors, weed abatement, and a narcotics safe. 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 26-27.
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 as a way to keep Parks and Community Services operating budget sustainable by proposing the following for programming:
• Allocate the Measure Y- Parks and Recreation 20% revenue of $321,590.
• Allocate 50% of the Measure Y-Discretionary 40% revenue of $321,590.
• Increase transfer from the General Fund by 4% (additional $68,284) totaling $1,775,372.
• Council Approved Program Fee increases approved December 2025 and incorporated into budget revenue estimates.
• Second Year of Three-Year Zookeeper Donation $76,200.
• Merced City School District Agreement to provide funding for 500 participants of youth sports $196,850.
• Central Valley Opportunity Fund grant for outdoor recreation program $124,725.
Options to address the shortfall in the General Fund of $1.3 million were provided to the City Council during the May 18, 2026, presentation of the FY 26-27 budget, which included:
1. Leave as is since there is availability in the fund balance of the General Fund to absorb the deficit.
2. A combination of transferring back the overfunded amount in the General Fund Reserve, transferring PD and Fire operating costs to the CFD and Measure C, and transferring funding from the Pension 115 Trust Fund.
3. A combination of transferring back the overfunded amount in the General Fund Reserve, reducing identified expenditures, and transferring from the Pension 115 Trust Fund.
If there are any requested changes by City Council or staff, a revised version of the budget with an Errata list will come to the City Council on June 15, 2026, for final approval.
ATTACHMENTS
1. June 1, 2026, Budget Presentation
2. May 18, 2026, Budget Presentation