REPORT TO COUNCIL
SUBJECT
Title
Study Session to review Proposed FY 2025/26 and FY 2026/27 Biennial Operating Budget and FY 2025/26 Capital Improvement Program Budget Changes
Report
COUNCIL PILLAR
Enhance Community Engagement and Transparency
BACKGROUND
City Charter Section 1302 Budget - Submission to City Council requires that at least 35 days prior to the beginning of each fiscal year, or at such prior date thereto determined by the City Council, the City Manager shall submit a proposed budget to the City Council. The Proposed Budget was released on May 1, 2025, and is included as Attachment 1 to this memorandum and can be found online at: <https://www.santaclaraca.gov/home/showpublisheddocument/86913/638817079281508561>.
In addition, a summary of the Proposed Budget has been prepared. The Budget-in-Brief is included as Attachment 2 to this report and posted on the City’s website at: <https://www.santaclaraca.gov/home/showpublisheddocument/87059/638832534582286497>.
As part of the 2025 City Council Priority Setting session, the City Council identified priority areas of focus as displayed below. These help provide a policy framework for budget decisions.
In addition, the Proposed Budget includes a set of Budget Principles that provide a general framework and approach for developing the City’s budget, ensuring fiscal stability by considering both the short and long-term impacts of any funding decisions. In recent years, the Budget Principles have included an exception to the Council policy that would set the Budget Stabilization Reserve (BSR) at 25% of expenditures, allowing the BSR to be set at a minimum of 15% given the City’s fiscal challenges. For FY 2025/26, this exception has been removed along with other changes that reflect the current forecast. These principles are incorporated as part of the actions considered in the Proposed Budget. The FY 2025/26 Budget Principles can be found in the Budget and Fiscal Policies section of the budget document.
On May 13, 2025, the first Study Session was held to allow the City Council and public to review and provide input on the Proposed Budget. Responses to questions from that Study Session are included as Attachment 3 to this report. The public hearing and planned budget adoption are scheduled for June 10, 2025.
DISCUSSION
The annual budget serves as a financial plan and operational guide that reflects the policies, goals, and priorities of the City Council and community while also maintaining fiscal stability.
The City’s financial position has improved since the adoption of the last biennial operating budget. When looking at projected revenue and expenses, the Ten-Year General Fund Forecast is positive by $9.3 million in FY 2025/26 and projects a deficit of $0.1 million in FY 2026/27. Small deficits and surpluses are projected for the remaining years of the forecast as summarized in the Ten-Year Financial Forecast section of the Proposed Budget document. This outlook depicts a stable General Fund budget; however, the forecast does not include the capacity to fully restore prior cuts, add capacity to support new service areas and growth in the City, and to fully fund capital infrastructure maintenance and replacement.
This improved financial picture provides for targeted investments that fund many of the City Council’s identified priorities as well as enhance the City’s operating reserves, restoring the BSR to the Council policy level of 25% of expenditures. The budget includes enhancements to key City services and funding for the implementation of Measure I - General Obligation (GO) Bond approved by the voters in November 2024. The Proposed Budget also includes one-time expenses, and associated reimbursement, to ensure the safety of our community during major events planned at the Stadium, including the Super Bowl LX and FIFA World Cup matches.
Proposed FY 2025/26 and FY 2026/27 Biennial Budget
The expenditure budgets total $1.5 billion in FY 2025/26 and $1.4 billion in FY 2026/27, which are down from the $1.6 billion in FY 2024/25. Changes in planned debt issuances, enterprise funding, and capital budget funding are major drivers of the variances from year to year. The budget for capital funds in FY 2025/26 is currently well below FY 2024/25 primarily because the carryover of capital funds from FY 2024/25 to FY 2025/26 has not yet been factored into the budget. These carryover adjustments will be brought forward as part of the FY 2025/26 budget adoption actions on June 10, 2025.
The Proposed Budget funds 1,198.50 positions in FY 2025/26 and 1,196.50 positions in FY 2026/27.
The Enterprise Funds, consisting of SVP, Water and Sewer utilities, Solid Waste, the Convention Center, and the Cemetery, represent the largest share of the City’s budget. With the exception of the Cemetery Fund that relies on General Fund support, the budget for each enterprise is balanced within the resources available for that enterprise. These functions are primarily supported by user fees and charges.
The table below summarizes the Proposed Budget for FY 2025/26 and FY 2026/27 by fund group.
The FY 2025/26 and FY 2026/27 Proposed Budget incorporates actions to address needs throughout the organization within the available resources of each fund. Staff has carefully analyzed department budget proposals, considering the fiscal year projected resources, anticipated service impacts to Santa Clara residents and businesses, and City Council goals, principles and priorities. The Proposed Budget also factors in recommended changes to FY 2025/26 capital projects.
With the projected General Fund surplus of $9.3 million in FY 2025/26 and small shortfall of -$0.1 million, the budget balancing strategy for the FY 2025/26 and FY 2026/27 Biennial Operating Budget includes targeted investments and contributions to the Budget Stabilization Reserve as shown below.
Following is a summary of the budget balancing components that are also discussed in more detail in the individual department sections of the budget document:
• Funding Sources: The funding available for allocation in the Proposed Budget includes the FY 2025/26 forecasted surplus of $9.3 million along with additional fund balance from FY 2024/25 generated from the Stadium performance rent and higher than budgeted revenue, particularly in the Sales Tax category. It is assumed that a portion of this additional one-time funding will be set aside in a Reserve for FY 2026/27 Budget Balancing and carried over from FY 2025/26 to FY 2026/27 to balance the FY 2026/27 budget. A limited amount of reimbursement funding from the Technology Fee Reserve to support a Business Analyst in the Community Development Department and from the Utilities to support Finance positions in the Municipal Services Division is also factored into the Proposed Budget.
• Expenditure Changes: The expenditure changes address City Council priorities identified during the Council Priority Setting session, such as funding for library materials, a public art master plan, a fiber optics network study and a Tasman/Lafayette walkway study. There are also targeted departmental investments, such as the continuation of 12.0 firefighter positions after the end of the SAFER grant, the restoration of 3.0 sworn police positions in FY 2026/27, the addition of positions to support efforts related to housing and homelessness, the addition of fee-supported staff and contractual services to improve development services, the addition of staff to improve customer support for the City’s utilities, and additions to support City administration functions (e.g., City Attorney, Finance, Information Technology, Human Resources). In addition, funding is added for General Obligation Bond implementation staffing. These investments are summarized in the Transmittal Letter under Proposed Budget Highlights and described in the City Departments section of the Proposed Budget.
• Changes to Reserves: The Proposed Budget allocates a portion of the one-time funding to the Budget Stabilization Reserve and brings the reserve to the Council policy level of 25% of expenditures. This is a prudent use of one-time funding and better positions the City to address unexpected revenue and/or expenditure fluctuations in the future.
Proposed FY 2025/26 Capital Improvement Program Amendments
The City Council approved the FY 2024/25 and 2025/26 Biennial Capital Budget in June 2024. This action approved a two-year capital budget and presented a five-year capital improvement program plan. While the focus of this year’s budget is operations, several budget amendments to the FY 2025/26 Adopted Capital Budget are also recommended, including new funding for a Public Art Master Plan and a Walkway/Stairway Tasman to Lafayette Feasibility Study that were identified as City Council priorities. Other budget changes include added funding for the Henry Schmidt Park Rehabilitation Project, the Central Park Access and Parking Improvements project, and the Distribution System Replacement/Restoration project (Water Utility), and new project funding for the Public Works Paving Project Support - Sewer project and the Public Works Paving Project Support - Water project. Further detail can be found in the Appendices section of the Proposed Budget.
May 13, 2025 Study Session
At the first Study Session on the Proposed Operating Budget held on May 13, 2025, the City Council provided general comments regarding the budget, budgeting practices, Council priorities and other funding needs. This included the need for fiscal sustainability; the importance of restoring the Budget Stabilization Reserve and identifying ongoing funding to support the City’s infrastructure; interest in restoring funding in particular areas, such as library materials; and the value of Silicon Valley Power (SVP) in supporting the City.
The City Council also had several questions regarding specific aspects of the budget. Responses to questions from the Study Session are included in Attachment 3 to this report.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environment Quality Act (“CEQA”) pursuant to section 15378(a)(4) of Title 14 of the California Code of Regulations in that it is a fiscal activity that does not involve any commitment to any specific project which may result in a potential significant impact on the environment.
FISCAL IMPACT
The FY 2025/26 and FY 2026/27 Proposed Biennial Operating Budget totals $1.18 billion and $1.25 billion, respectively. The Capital Budget totals $366.3 million in FY 2025/26.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Review and provide input on the Proposed FY 2025/26 and FY 2026/27 Biennial Operating Budget and FY 2025/26 Capital Improvement Program Amendments.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. FY 2025/26 and FY 2026/27 Proposed Biennial Operating Budget and FY 2025/26 Capital Improvement Program Amendments
2. FY 2025/26 and FY 2026/27 Proposed Biennial Operating Budget-in-Brief
3. Responses to questions and comments from the May 13, 2025 Budget Study Session