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 2026-27 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 2026-27 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 2026-35, a Resolution of the City Council of the City of Merced, California, Adopting the Budget and Appropriating Revenue for Fiscal Year 2026-2027; and,
B. Approving capital projects based upon the Planning Commission’s June 3, 2026, 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, 2026.
Public Financing and Economic Development Authority - Adopt a motion:
A. Adopting Resolution PFA 2026-01, a Resolution of the City of Merced Public Financing and Economic Development Authority, adopting the Budget and Appropriating Revenue for Fiscal Year 2026-2027; and,
B. Approving capital projects based upon the Planning Commission’s June 3, 2026, 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, 2026.
Parking Authority - Adopt a motion:
A. Adopting Resolution PA 2026-01, a Resolution of the City of Merced Parking Authority, adopting the Budget and Appropriating Revenue for Fiscal Year 2026-2027; and,
B. Approving capital projects based upon the Planning Commission’s June 3, 2026, 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, 2026.
Successor Agency to the Redevelopment Agency of the City of Merced - Adopt a motion:
A. Adopting Resolution SA 2026-01, a Resolution of the Successor Agency to the Redevelopment Agency of the City of Merced Adopting the Budget and Appropriating Revenue for Fiscal Year 2026-2027; and,
B. Approving capital projects based upon the Planning Commission’s June 3, 2026, 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, 2026.
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,
AUTHORITY
Charter of the City of Merced, Sections 1104 and 1105.
DISCUSSION
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 operational 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.
City staff presented the recommended City Manager budget to the City Council on May 18th and June 1st. After a lengthy discussion the City Council directed staff to make 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 increase to City Council stipend as recommended by
the Stipend Setting Commission and approved by Council
on 6/1/26. $ 23,575
• Cover portion of General Fund Deficit with overfunded
General Fund Reserve set aside $ 733,682
• Cover portion of General Fund Deficit with Trust 115 $ 582,608
• Add Bell Station Budget due to delay of sale $ 27,690
• Increase CDBG HUD Allocation $ 145,361
• Increase HOME HUD Allocation $ 102,366
There was some discussion to add funding for tenant relocation and youth jobs program. Another discussion was the financial policy allocations and reducing or eliminating them in next year’s budget. Ultimately, there was no unanimous direction to make these changes in the proposed budget.
Incorporating City Council directed changes from June 1, 2026, Council Meeting, the city proposed budget for FY 2026-27 is $461.5 million. It includes the deletion of 5 positions and adds 9 positions, with a net addition of 4 new positions, totaling 566 full-time positions.
As proposed, the General Fund estimated revenue is $68.5 million and estimated total operating expenditures is $68.5 million. The operational deficit of $1,316,290 is covered by transfer ins from the General Fund Reserve set aside ($733,682) and from Trust 115 for pension ($582,608). The General Fund also includes non-operating expenditure recommendations for district elections, compensation study, Bob Hart Fountain repairs, ¾ ton truck for Parks Maintenance, community funding 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 the 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 $20,564,055, of which 25% is $17,136,712. Fund 1001-General Fund Reserve currently has $17,870,394. Based on the proposed General Fund operating budget it is over funded by $733,682, which the City Council has directed to use to reduce the shortfall by transferring it back to General Fund 1000. The remaining General Fund Reserve of 5%, equaling $3,427,342, 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 |
The amount to allocate is calculated from the prior years audited unreserved fund balance at June 30, 2025. That proposed General Fund unreserved fund balance amount is $7,939,657. As the audit and financial statements have not been finalized there is a possibility this amount may change. If the amount changes it would mean potential changes to the recommended allocations. If this is the case, staff will update the City Council at a later date and request direction if needed.
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 by the end of FY 26-27. 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.
The five-year Capital Improvement Program (CIP) was reviewed by the Planning Commission at the June 3, 2026, 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 2026-35 Adopting City Budget
2. Resolution PFA 2026-01
3. Resolution PA 2026-01
4. Resolution SA 2026-01
5. City Manager Budget Letter
6. Errata List
7. Fund Summary
8. Presentation