REPORT TO COUNCIL
SUBJECT
Title
Public Hearing: Action on Adoption of the Proposed FY 2026/27 & FY 2027/28 Biennial Capital Improvement Program Budget, Approval of FY 2026/27 Operating Budget Amendments, and Adoption of the FY 2026/2027 Housing Authority Budget, and Sports and Open Space Authority Budget
Report
BACKGROUND
City Charter Section 1302 Budget - Submission to City Council requires that at least thirty-five days prior to the beginning of each fiscal year, or at such prior date determined by the City Council, the City Manager shall submit to the City Council the proposed budget.
This budget continues the biennial budget process that alternates between an operating and capital budget. This year’s budget focuses on the capital infrastructure, supporting the facilities that serve our residents and community. Amendments to the FY 2026/27 Adopted Operating Budget are also included. The Proposed Budget is attached to the memorandum as Attachment 1 and can be found online at: https://www.santaclaraca.gov/our-city/departments-a-f/finance#docaccess-403832be86ca37ea9ad81f99cd0cf602 <https://www.santaclaraca.gov/our-city/departments-a-f/finance>.
In addition, a summary of the Proposed Budget has been prepared. The Budget-in-Brief is included as Attachment 2 to this report and is posted on the City’s website at: https://www.santaclaraca.gov/our-city/departments-a-f/finance#docaccess-4dffa809279e7780410e24fc7ba1d94c <https://www.santaclaraca.gov/our-city/departments-a-f/finance>.
The City Council approves a set of Budget Principles each year. These Budget Principles 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. For FY 2026/27, the proposed principles are revised to 1) include a new item to focus on fiscal sustainability efforts to better position the City long-term, 2) revise an existing item that would explore expanding existing revenue sources and/or add new revenue sources by specifying that these efforts would address targeted needs; and 3) revise the employee engagement item to include language to inform
employees on the content of the budget and priorities for the upcoming year. The City’s Budget and Fiscal Policies are also recommended to be updated to 1) define the Biennial Budget Cycle and 2) update the Capital Projects Reserve section to include the use of this reserve in conjunction with the new Infrastructure Replacement Capital Fund that services as a sinking fund. The proposed FY 2026/27 Budget Principles and Budget and Fiscal Policies are included as Attachment 3 to this report, with the changes to the Budget and Fiscal Policies in bold. These documents also can be found in the Budget and Fiscal Policies section of the Proposed Budget.
Study Sessions were held on May 5, 2026 and May 19, 2026 to allow the City Council and public to review and provide input on the Proposed Budget. At the May 19th City Council meeting, the City Council set the public hearing for the budget on June 9. Responses to questions from the Study Sessions are included in this report.
As required by California Government Code Section 65401, the FY 2026/27 and FY 2027/28 Biennial Capital Improvement Program Budget was reviewed and approved by the Planning Commission for conformity with the City of Santa Clara 2010-2035 General Plan at their May 20, 2026 meeting.
DISCUSSION
City Charter Section 1303 requires that the City Council hold a public hearing on the proposed budget, at which interested parties shall be given an opportunity to be heard. Accordingly, a Public Hearing for this purpose was noticed and scheduled as part of this item after which Council will consider and act on the Proposed FY 2026/27 and FY 2027/28 Biennial Capital Improvement Program Budget, FY 2026/27 Operating Budget Amendment, and the FY 2026/27 Housing Authority Budget and Sports and Open Space Authority Budget.
In addition, the City is required to calculate the expenditure appropriation limit from tax proceeds to determine compliance with Propositions 4 (Gann Initiative) and 111 (Spending Limitation Act of 1990). The City’s Appropriations limit is included as a separate report for Council action. As stated in this companion report, the City’s Proposed Budget is in compliance with the Appropriations Limit.
Total Budget Overview
The annual budget serves as a financial plan and operational guide that reflects the policies, goals, and priorities of the City Council and community. The capital budget guides the City in the planning, scheduling, and budgeting of capital investments within the City.
The FY 2026/27 Proposed Budget, which includes appropriations for all operating and capital expenditure activities totals $2.16 billion. Table 1 below summarizes the total budgets by fund group.
*Adjusts for transfers, contributions and reserves to avoid double counting of the same funds (e.g., internal service funds are excluded).
The FY 2026/27 Proposed Budget of $2.16 billion reflects a 9.8% increase from the FY 2025/26 Adopted Budget of $1.97 billion. The FY 2026/27 Proposed Budget is above the FY 2025/26 Adopted Budget primarily due to increases in the General Fund and the Enterprise Funds. The FY 2026/27 Proposed Budget is $760.5 million above the FY 2026/27 Budget approved in June 2025 primarily due to the inclusion of the CIP carryovers and additional planned investments in the capital budget as well as increases in the General Fund and Enterprise Fund budgets.
Biennial Capital Budget
The CIP guides the City in the planning, scheduling, and budgeting of capital investments within each of the twelve theme areas. The FY 2026/27 and FY 2027/28 Biennial Capital Budget and planned CIP is a carefully balanced budget that reflects the City Council priorities and continues strategic investments in the City’s infrastructure. The Proposed Biennial Capital Budget totals $1.07 billion and the five-year CIP totals $1.44 billion.
Capital Highlights
Of the $1.44 billion CIP, $1.12 billion (78%) funds capital projects for the City’s utilities and there is sufficient funding in the associated utility funds to support these projects. The other projects total $321.2 million (22%) and fund improvements to the parks, trails, libraries, transportation system, storm system, and other City facilities. Additional investments in these areas are possible due to the voter approval of Measure I in November 2024 that allows the issuance of $400 million in general obligation bonds as well as the use of the General Fund Capital Projects Reserve. With these funds, the City will address many critical infrastructure needs. However, a funding gap remains and unfunded projects identified in this budget total $252.9 million over the next five years. This funding gap does not fully represent all the unmet/deferred infrastructure needs throughout the City beyond the five-year CIP period that total over $1 billion.
Following are some of the key investments by theme in this CIP that are detailed in the Capital Improvement Program section of the Proposed Budget:
• Administrative Facilities - General Obligation Bond Projects include Fire Station 5 Replacement ($2.0 million), Fire Station 7 Replacement ($3.5 million), Fire Training Tower Renovation ($0.8 million), Fire Station Security Upgrade ($1.9 million), Real Time Intelligence Center Feasibility ($0.2 million), Police Training Facility Feasibility and Assessment ($0.3 million), Police Drone First Responder Infrastructure ($0.1 million), and Triton Museum Renovation ($1.0 million).
Other major projects include Public Buildings Parking Lot Improvements ($1.6 million), ADA Transition Plan Implementation (Public Buildings) ($1.8 million), and Electric Vehicle Charging (Fleet) ($1.7 million).
• Community Facilities - General Obligation Bond Projects include Renovation/ Expansion of 3 Public Libraries (Central Library Restrooms & Access Control Redesign; Central Library Lighting Control System Replacement; Central Library Entry Auto Door System Replacement; and Central, Mission, and Northside Libraries Renovation Design) ($1.9 million), Community ISC Aquatic Facility Renovation/ Replacement (Phase 2) ($2.0 million).
Other major projects include Central Park Library - Carpet Replacement ($1.1 million) and Central Park Library - Repaint Interior ($1.0 million).
• Convention Center - It is anticipated that a portion of the funding budgeted in FY 2025/26 will be carried over to FY 2026/27 to continue to complete various projects that are underway; no additional funding is allocated in the CIP.
• Electric Utility - Major projects include CAISO 3rd 230V T-Line into NRS ($109.4 million), Transmission Loop 1 ($106.9 million), Spare Equipment Strategy & Procurement ($44.0 million), New Business Estimate ($43.3 million), Homestead Substation Rebuild ($40.0 million), Agnew Rebuild and Expansion ($38.4 million), Transmission and Distribution Capital Maintenance and Betterments ($35.7 million), Major Engine Overhaul and Repair ($34.0 million), South Loop Reconductor ($30.2 million), and DVR Spare Engine Procurement Project ($30.0 million).
• Other Community Projects - Projects include General Obligation Bond Implementation ($10.0 million, supported by the General Fund), Measure I Fixture, Furniture, and Equipment ($5.0 million, supported by the General Fund), Related Santa Clara ($3.8 million), Tasman East Specific Plan Infrastructure Fee Administration ($0.2 million), and ADA Self Evaluation and Transition Plan Update ($50,000).
• Parks and Trails - General Obligation Bond Projects include Warburton Park Playground Renovations ($3.0 million) and Henry Schmidt Park Playground Renovations (funding in FY 2025/26).
Other major projects include Earl Carmichael Park Playground Rehabilitation ($5.7 million), Maywood Park Playground Rehabilitation ($2.8 million), Mary Gomez Park Playground Rehabilitation ($1.8 million), Warburton Park Playground Rehabilitation ($1.1 million), and Park Improvements ($1.0 million).
• Sewer Utility - Major projects include San José-Santa Clara Regional Wastewater Facility ($124.1 million), Sanitary Sewer Capacity Improvements ($14.5 million), Sanitary Sewer System Improvements ($10.0 million), and Sanitary Sewer System Condition Assessment ($5.0 million).
• Solid Waste - Projects include Sanitary Landfill Development - Post Closure ($4.4 million) and Emergency Backup and Collection System Enhancements for Closed Landfill ($2.6 million).
• Storm Drain - General Obligation Bond Projects include Green Storm Drain Infrastructure Design & Construction ($6.1 million), Storm Drain System Improvements ($5.0 million), Bowers Ave Underpass SDPS Rehabilitation ($1.7 million), and Storm Drain Renovations ($0.2 million).
Other major projects include Storm Drain Pump Station RTU Upgrade ($1.8 million), Storm Drain Renovations ($0.8 million), Storm Drain Master Plan Update ($0.7 million), Lickmill Storm Drain Pump Station Rehabilitation ($0.4 million), Fairway Glen Storm Drain Pump Station Rehabilitation ($0.4 million), Tri-Level Underpass Storm Drain Pump Station Rehabilitation ($0.2 million), and Anna Drive Neighborhood Flood Protection ($0.1 million; remaining FY 2025/26 funding will be carried over to FY 2026/27).
• Technology and Equipment - The projects include Geospatial Information System (GIS) Enterprise System ($1.7 million), Replacement VOIP Phone System for Aging Mitel Connect ($0.2 million), Permit Information System ($50,000), and Fire Station 3 Sprinklers ($31,000).
• Transportation - General Obligation Bond Projects include Street Resurfacing and Rehabilitation ($15.2 million), ADA Improvements ($5.0 million), Creek Trail Rehabilitation ($2.3 million), and Bicycle Wayfinding ($0.3 million).
Other projects include Annual Street Maintenance and Pavement Rehabilitation ($45.6 million), Tasman Complete Streets Plan 2021 Improvements Phase I - North San Jose Settlement ($2.9 million), Uncontrolled Crosswalks Improvements ($2.5 million), Sidewalk, Curb and Gutter Repair ($1.9 million), Cupertino-Santa Clara On-Demand Shuttle Project ($1.8 million), Santa Clara Vision Zero Plan - Infrastructure Implementation ($1.3 million), Monroe Street Class II Buffered Bicycle Lane Improvements ($1.3 million), Bridge Maintenance Program ($1.2 million), ADA Transition Plan Implementation (Public Right of Way) ($1.0 million), Traffic Signal Interconnect Upgrade ($0.9 million), Citywide Traffic Intelligence ($0.9 million), Traffic Signal Enhancements ($0.8 million), Quick Build Bike and Pedestrian Safety Project ($0.7 million), and Neighborhood Traffic Calming ($0.6 million).
• Water and Recycled Water Utilities - The major projects include Distribution System Replacement/ Restoration ($15.0 million), New and Replacement Wells ($4.5 million), Buildings and Grounds ($1.9 million), Public Works Paving Support - Water ($1.5 million), and Supervisory Control and Data Acquisition (SCADA) Improvements ($0.9 million).
Unfunded Projects
While there is funding available to support the capital projects for the City’s utilities, there is insufficient funding to meet the infrastructure needs in many other areas. Table 3: Unfunded CIP Projects by Theme identifies unfunded projects of $252.9 million that were itemized as part of this CIP process.
Descriptions of the unfunded projects are provided in the Capital Improvement Program section of the Proposed Budget by theme.
The unfunded projects identified in the Proposed Budget represent only a portion of the unmet/deferred infrastructure needs in the City, with many significant needs spread across the capital theme areas, including:
• Parks and Recreation Master Plan Phase 1 (Years 1-5 in 2025 dollars) - $185 million to $260 million; new facilities planned for the later phases of the master plan
• Library Facilities Master Plan - over $55 million for existing and new facilities (2025 dollars)
• Vision Zero Action Plan - $350 million (2025 dollars) of capital improvements on the citywide high-injury network
• Storm Drain Master Plan - $290 million (in 2018 dollars) and the Storm Drain Pump Station Evaluation identified $3 million (2018 dollars) annually for pump station repair, maintenance and upgrades
• Santa Clara Bicycle Plan Update 2018 - $39.3 million (in 2018 dollars)
• Santa Clara Pedestrian Master Plan - $194.0 million (in 2019 dollars)
• Americans with Disabilities Act Self-Evaluation and Transition Plan (Draft) - $758.5 million (in 2024 dollars)
• Public buildings (e.g., new City Hall, existing City Hall, historic buildings, corporation yard)
FY 2026/27 Operating Budget
The Proposed Budget includes updates to FY 2026/27 for all operating funds as reflected in the Source and Use Statements and described in the operating budget changes in the Appendices section of the Proposed Budget document. This includes updated revenue and expenditure estimates for each fund.
FY 2026/27 Operating Budget Amendments
The City Council approved the FY 2025/26 and 2026/27 Biennial Operating Budget in June 2025. While this year’s budget is focused on the capital budget, amendments to the FY 2026/27 Adopted Operating Budget are necessary to reflect the updated revenue estimates and to account for updated labor and non-personnel costs in the General Fund and other funds. With the improved General Fund Forecast, there are a number of service enhancements that are recommended for funding in FY 2026/27, including:
• $2.0 million in the General Fund for City Council priorities; the City Council will determine the use of these one-time funds.
• $1.0 million from the General Fund transferred to the Measure I Bond Projects Furniture, Fixtures and Equipment project in the General Government Capital Fund to cover project related costs that are ineligible for bond proceeds.
• $10.4 million from the General Fund transferred to a new Infrastructure Replacement Capital Fund to replace capital assets that have reached the end of their useful life.
• $3.0 million from the General Fund allocated to a Position Restorations Reserve to unfreeze positions that were frozen to address budget shortfalls in previous years.
• $4.8 million from the General Fund allocated to the Pension Stabilization Reserve; this contribution is equivalent to one percent of the unfunded liability and is consistent with the targeted annual contribution set forth in the City’s Budget and Fiscal Policies.
• Position changes based on organizational reviews conducted for the Public Works and Parks and Recreation Departments to improve effectiveness and service delivery in those departments. Additional organizational reviews are underway and position changes are expected to be brought forward in FY 2026/27 and/or during the FY 2027/28 and FY 2028/29 Proposed Operating Budget process. Additional positions are also recommended to address specific needs.
The 2026/27 Proposed Budget document reflects an increase of 30.25 positions from the 2026/27 Budget approved in June 2025 as detailed in the Budgeted Positions section of this document. This includes a net 6.0 positions that were added during FY 2025/26 after the adoption of the budget (1.0 position added through Report to Council 25-773, 3.0 positions added through Report to Council 25-725, and a net 2.0 positions added through Report to Council 26-249). An additional 24.25 positions are proposed in this budget, including the following: 13.0 positions associated with organizational reviews for the Parks and Recreation and Public Works Departments; 6.0 positions supported by the Electric Utility (Electric Utility, Finance and Human Resources positions); 3.0 positions in Human Resources, 2.0 positions in the City Manager’s Office; and 0.25 position in the Library Department.
Recommended Changes to the Proposed Budget
A number of changes are recommended to the Proposed Budget as itemized in Attachment 4, including the following:
• Capital Project Carryovers: The carryover of capital funds from FY 2025/26 to FY 2026/27 to complete capital projects totals $476.5 million.
• Operating Budget Carryovers/Other Adjustments: The carryover of operating funds from FY 2025/26 to FY 2026/27 to complete specific purchases and other adjustments, both to operating and capital, total $17.1 million. This incorporates several actions that occurred after the development of the Proposed Budget:
– Adds $400,000 to support efforts to prioritize the Downtown to address feedback from the May 5th Budget Study Session;
– Transfers $200,000 from the General Fund Capital Projects Reserve to the General Government Capital Fund for the painting of the Morse Mansion to address feedback at the May 5th Budget Study Session;
– Transfers $100,000 from the General Fund Capital Projects Reserve to the Public Buildings Capital Fund for the repair of the Berryessa Adobe porch to address feedback at the May 5th Budget Study Session;
– Adds 1.0 Police Captain to the Police Department;
– Adds 1.0 Human Resources Technician and 1.0 Senior Human Resources Technician to the Human Resources Department to support SVP;
– Adds 1.0 Electric Program Manager to support cybersecurity and 1.0 Electric Program Manager to support information technology/operational technology infrastructure projects in the Electric Utility;
– Adds $23,250 for deferred compensation program fiduciary liability insurance;
– Adds $1.2 million for a new Pruneridge Complete Streets Plan in the Streets and Highways Capital Fund, funded by a Federal earmark grant ($1.0 million) and matching funds ($0.2 million) from the General Fund Capital Projects Reserve;
– Updates to the Housing and Urban Development Annual Action Plan;
– Adds $17,000 to the Downtown Parking Maintenance District Fund for maintenance of the fountain at Franklin Mall;
– Recognizes funding of $39,750 from the Library Foundation to support the Read Santa Clara ESL Program;
– Carryover of General Fund savings from FY 2025/26 to FY 2026/27 to support projects and programs in the Fire Department, Human Resources Department, and Non-Departmental; and
– Carryover of FY 2025/26 savings to FY 2026/27 in the City Affordable Housing Fund, the Expendable Trust Fund, the Information Technology Services Fund, the Other City Departments Operating Grant Trust Fund, and the Police Operating Grant Trust Fund to support the continuation of projects and programs.
Allocation of FY 2025/26 General Fund Excess Revenue / Future Budget Actions
It is anticipated that additional funding from FY 2025/26 will be available in the General Fund from excess revenue and expenditures savings. Budget actions are expected to be brought forward on June 23, 2026 to have a discussion and possible action on the allocation of available fund balance. This is expected to include increasing the transfer to the new Infrastructure Replacement Fund by approximately $7 million to bring the funding allocation to 5% of General Fund expenditures as well as increasing contributions to the General Fund Capital Projects Reserve and the Unrestricted Ending Fund Balance for future use.
In addition, separate actions will be brought forward to address critical needs at the Convention Center, potentially partially or fully funded from the General Fund Capital Projects Reserve or FY 2025/26 available fund balance. Lastly, an action is also expected to be brought forward to increase funding for community events (e.g., additional night markets) based on an evaluation of potential options, funded from available General Fund fund balance and any sponsorships and/or other sources.
Appropriation Schedules
The appropriation schedules detailing the FY 2026/27 and FY 2027/28 Capital Budgets by fund and the FY 2026/27 Operating Budgets by fund are included as Attachment 5 to this report.
May 5th and May 19th Budget Study Sessions
At the May 5th Study Session, the City Council and public provided feedback and had questions regarding the Proposed Budget. At the May 19th Study Session, staff provided an overview of the budget and responses to questions from the May 5th Study Session; the City Council planned to submit any additional questions to staff for follow-up.
Responses to the questions from the Study Sessions are included in Attachments 6 and 7 to this report.
Housing Authority Budget
The Housing Authority Fund expenditure budget totals $474,519 in FY 2026/27 as shown in the Proposed Budget. The budget allows the City of Santa Clara Housing Authority to continue to manage and monitor housing assets from the dissolution of the Redevelopment Agency. Additionally, funding will be used to support loan monitoring, administration, and other programs and projects related to affordable housing.
Sports and Open Space Authority Budget
The Sports and Open Space Authority expenditure budget totals $12,000 in FY 2026/27 as shown in the Proposed Budget. The purpose of the Sports and Open Space Authority is to support the acquisition and preservation of open space within the City and the development of local sports.
ENVIRONMENTAL REVIEW
The actions being considered do 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 they are fiscal activities that do not involve any commitment to any specific project which may result in a potentially significant impact on the environment.
FISCAL IMPACT
The Proposed Biennial Capital Budget totals $838.7 million in FY 2026/27 and $232.7 million in FY 2027/28, and the five-year Capital Improvement Program totals $1.44 billion. The Proposed Operating Budget for FY 2026/27 is $1.33 billion. The combined proposed capital and operating budgets for FY 2026/27 totals $2.16 billion.
COORDINATION
This report has been coordinated with the City Attorney’s Office.
PUBLIC CONTACT
On May 20 and May 27, 2026, notices of the public hearing were published in the Santa Clara Weekly. 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 or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
That the City Council, and the City Council acting as the Governing Boards of the Housing Authority and the Sports and Open Space Authority take the following actions:
1. Approve the Proposed FY 2026/27 and FY 2027/28 Biennial Capital Budget, including the recommended revisions, as detailed in Attachment 4 (Majority Affirmative Council Votes Required);
2. Approve the FY 2026/27 Operating Budget changes included in the recommended revisions, as detailed in Attachment 4 (Five Affirmative Council Votes Required);
3. Approve the Appropriation Schedule for capital funds totaling $840,899,634 in FY 2026/27 and $234,169,955 in FY 2027/28 and the FY 2026/27 Appropriation Schedule for operating funds totaling $1,766,093,782, as detailed in Attachment 5 (Majority Affirmative Council Votes Required);
4. Approve the Housing Authority FY 2026/27 expenditure budget of $474,519 as presented in the Proposed Budget (Majority Affirmative Council Votes Required);
5. Approve the Sports and Open Space Authority FY 2026/27 expenditure budget of $12,000 as presented in the Proposed Budget (Majority Affirmative Council Votes Required); and
6. Approve the FY 2026/27 Budget Principles and the revised Budget and Fiscal Policies (Majority Affirmative Council Votes Required).
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. FY 2026/27 & FY 2027/28 Biennial Capital Improvement Program Budget and FY 2026/27 Operating Budget Changes
2. FY 2026/27 & FY 2027/28 Proposed Biennial Capital Improvement Program Budget-in-Brief
3. FY 2026/27 Budget Principles and Budget and Fiscal Policies
4. Recommended Revisions to the FY 2026/27 & FY 2027/28 Proposed Biennial Capital Improvement Program Budget and FY 2026/27 Operating Budget Changes, including the carryover of FY 2025/26 funds to FY 2026/27
5. FY 2026/27 and FY 2027/28 Appropriation Schedules
6. Responses to Questions from the May 5th Budget Study Session
7. Responses to Questions from the May 19th Budget Study Session