REPORT TO COUNCIL
SUBJECT
Title
Study Session: Review of the Proposed FY 2026/27 & FY 2027/28 Biennial Capital Improvement Program Budget and FY 2026/27 Operating Budget Amendments
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 thereto determined by the City Council, the City Manager shall submit the proposed budget to the City Council.
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 and can be found online at: https://www.santaclaraca.gov/home/showpublisheddocument/89480/639129921984993075.
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 proposed FY 2026/27 Budget Principles can be found in the Budget and Fiscal Policies section of this document.
Budget Study Sessions are scheduled for May 5, 2026 and May 19, 2026 and the public hearing and budget adoption are scheduled for June 9, 2026.
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. The capital budget guides the City in the planning, scheduling, and budgeting of capital investments within the City.
Total Budget Overview
The FY 2026/27 Proposed Budget totals $1.67 billion. This budget figure includes adjustments for transfers, contributions and reserves to avoid double counting of the same funds (e.g., internal service funds are excluded). 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 $1.67 billion is below the FY 2025/26 Adopted Budget of $1.97 billion primarily because the carryover of capital funds from FY 2025/26 to FY 2026/27 has not yet been factored into the budget. These carryover adjustments are expected to be brought forward later in the budget process and incorporated into the FY 2026/27 Adopted Budget. The FY 2026/27 Proposed Budget is $270.1 million above the FY 2026/27 Budget approved in June 2025 primarily due to additional planned investments in the capital budget, including the first tranche of Measure I Bond Projects. Proposed augmentations to various department staffing and planned debt issuances also contribute to the increase from the previously adopted FY 2026/27 budget.
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 2027/28 Biennial Capital Budget and CIP is a carefully balanced budget that continues strategic investments in the City’s infrastructure. The Proposed Biennial Capital Budget totals $593.1 million and the five-year CIP totals $1.11 billion.
Table 2: Proposed CIP by Theme is a breakdown of the capital budget by theme.
Capital Highlights
Of the $1.11 billion CIP, $928 million (84%) 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 $185 million (16%) 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), Mahor 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), Lick Mill 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 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.
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 potentially significant impact on the environment.
FISCAL IMPACT
The Proposed Biennial Capital Budget totals $360.3 million in FY 2026/27 and $232.7 million in FY 2027/28, and the five-year Capital Improvement Program totals $1.11 billion. The Proposed Operating Budget for FY 2026/27 is $1.31 billion. The combined proposed capital and operating budgets for FY 2026/27 total $1.67 billion.
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 or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Review and provide input on the Proposed FY 2026/27 & FY 2027/28 Biennial Capital Improvement Program Budget and FY 2026/27 Operating Budget Changes.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan Grogan, City Manager
ATTACHMENT
1. FY 2026/27 & FY 2027/28 Biennial Capital Improvement Program Budget and FY 2026/27 Operating Budget Changes