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 2025-26 Proposed Budget and After Hearing all Comments Continue the Public Hearing to June 16, 2025
REPORT IN BRIEF
Public Hearing to afford the interested public an opportunity to provide input on the content of the 2025-26 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 2025-26 Budget; and adopt a motion continuing the Public Hearing to the June 16, 2025, 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 2025-26 Proposed Budget
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.
General Fund revenue for the 2025/26 fiscal year is estimated to increase 5.7%, approximately $3.6 million from FY 2024/25 Budget. Property and Sales Tax are approximately 41%. 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 over 50%. Operating expenditures in the General Fund are reflected in the proposed budget with an increase of 10.3%, $6.3 million. This is after additional reductions to departments, moving operational costs to other funding sources for Public Safety, and deleting or freezing several 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.
On May 19, 2025, staff presented the City Council with the City Manager recommended budget for Fiscal Year 2025-2026. The total City proposed budget for FY 2025-26 is $438.5 million. It includes the deletion of 12 positions and adds 13 positions, with a net addition of 1 new position, totaling 560 full-time positions. Seven positions, four police officers, one dispatcher, one firefighter and two .5 Peer Support Specialists in the City Manager’s office are unfunded. There would be 553 of the 560 positions funded.
As proposed, the General Fund estimated revenue is $67.1 million and estimated total operating expenditures is $67.5 million, which leaves an operational deficit of $429,375. The General Fund FY 2025-26 proposed budget eliminates community funding and arts projects. It does include 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 Enterprise Resource Planning system, Economic Development Opportunity Fund, Trust 115-Pension, Affordable Housing and the General Fund Reserve.
In November 2020, the City Council adopted the General Fund Reserve Policy and Reserve. The adopted policy sets the reserve at 35% of annual operating expenses. For Fiscal Year 2025-26, 35% of annual operating expenses equals $23,641,489, of which 30% is $20,264,133 to be set-aside in a separate fund. Fund 1001-General Fund Reserve currently has $18,364,854. To meet the required level of reserve an additional transfer of $1,899,280 has been included in the proposed budget. The remaining General Fund Reserve of 5%, equaling $3,377,356 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% |
$1,899,280 |
|
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. The Measure C proposed budget includes a total of 10.3 fire and 17.49 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 in order 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 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 Measure C proposed budget for FY 25-26.
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 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 $337,300.
• Allocate 50% of the Measure Y-Discretionary 40% revenue of $337,300.
• Increase transfer from the General Fund by 1.4% (additional $22,650) totaling $1,642,003 which would become the new base.
• 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.
• Deleting a Full Time Zookeeper
• Eliminating Summer Camp
• Eliminating Stick to Fitness Sports Clinics
• Eliminating Block Party Trailer for Community Reservations (would still use for internal events)
At the last City Council Meeting several requests were made for additional information or to continue discussion to help guide budget direction:
ü Department Positions, vacancies, and vacant position cost summary is attached. (Xiong)
ü City PBID assessments is attached. (Xiong)
ü Revenue and Expense analysis for the Senior Center and McCombs Youth Center is attached. (Xiong)
ü Roads Project List where PTBD funding could be allocated is attached. (Xiong)
ü Fitness Equipment in the Parks quote provided by Youth Leadership Institute attached for discussion. (Boyle)
ü Costs of frozen public safety positions:
Police Officer $155,869 x 4 frozen positions = $623,476
Dispatcher $106,082
Firefighter $143,145
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 16, 2025, for final approval.
ATTACHMENTS
1. Position/Vacancy/Cost Summary
2. City PBID Assessments
3. Senior Center and McCombs Analysis
4. Roads Project List
5. Fitness Equipment Quote (parks)
6. June 2, 2025, Budget Presentation
7. May 19, 2025, Budget Presentation