In accordance with Carmel Municipal Code Section 3.06.020, prior to the beginning of each fiscal year, the in accordance with Carmel Municipal Code Section 3.06.020, prior to the beginning of each fiscal year, the City Administrator shall prepare and submit to the City Council a proposed operating and capital budget for the forthcoming fiscal year. The proposed budget, referred to as the Fiscal Year 2025-2026 (FY 25-26) Recommended Budget of $39.9 million is submitted for Council’s consideration (Attachment 1).
The City today brings back a revised budget for a workshop, after considering the City Council’s initial input. The purpose of this workshop is to understand the full scope of information and analysis incorporated in the budget, consider a list of potential additional changes, then move the budget to final adoption.
BACKGROUND
At the May 6th meeting, the budget had a deficit of $5 million which means that it would be using existing fund balance to pay for its extensive capital projects. In addition, while budgeted revenues are sufficient to pay for budgeted operating costs, those costs exceed the Council’s newly instated budget guideline that seeks to limit operating costs to be no more than 90% of budgeted revenue.
Since the last meeting, the details of the capital projects and operations included in the budget have been reviewed and changes have been made. Table 1, shown below, outlines the progression of the proposed fiscal year 2025-2026 budget from initial department requests, through refinements by City Administration and the Financial Stewardship Workgroup, and ultimately to the draft presented today which incorporates direction from the May 6th meeting.
Table 1: Timeline of Changes Made to Budget
The budget originated from Departmental Requests that were formed based on current year operations, and planned projects for the coming year. City management reviewed the detail of those requests with department heads and identified areas where current operating costs could be redirected, new projects and new positions eliminated, additional revenues identified and revenue assumptions made less conservative. This review resulted in the budget that was presented to the City Council on May 2, 2025.
After the May 6th meeting, the City considered the list of questions and ideas presented by the Council and public both at that meeting and submitted subsequently and again reviewed and revised the budget along with the Financial Stewardship Workgroup, resulting in the budget presented here today.
Changes since the last presentation include:
- Reduction of ambulance salary costs and increase of contract services costs.
- Reclassification of the Project Manager’s salary to capital projects (to reflect correct accounting and be consistent with how outside project manager costs are handled).
- Elimination of operating costs and projects.
- Increase in revenue to reflect increased ambulance activity.
Changes not made:
- Cuts to existing salaries are not proposed, as the high cost of turnover, recruiting and vacant positions generally offsets much of the salary savings.
- Ambulance billing for new services, as research is currently underway but the potential amounts are unknown.
- Unbilled tree appeals, as the total number of instances does not appear to be large, procedures will be reviewed and updated but the forecast amount is not material.
SUMMARY OF BUDGET PRESENTED
For fiscal year 2025-2026, the City is budgeting $34.9 million of revenues, $31.9 million of operating expenditures and $7.9 million of capital project expenditures. Operating expenditure represents 91% of budgeted revenues, which is $572 thousand in excess of the 90% budgetary guideline. Capital Project expenditures represent 23% of budgeted revenues, which is $4.5 million in excess of the 10% budgetary guideline.
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FY25-26 Proposed Revenues
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$34,915,081
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General Fund Expenditures
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28,778,542
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Debt Service Expenditures
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509,100
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Pension Unfunded Liability Mitigation Expenditures
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2,708,158
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Capital Outlay Expenditures
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7,999,000
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FY25-26 Proposed Expenditures
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$39,994,800
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Use of Fund Balance for Capital Projects
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$5,079,719
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Funded Full Time Equivalent (FTE) positions
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90.50
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The City anticipates a nominal increase in revenues for FY 25-26. Additionally, the City also expects its expenditures to grow in FY 25-26, primarily related to increased staffing, pension costs, general operating costs, and a robust Capital Improvement Plan.
Highlights of the budget include:
- Salary and benefit costs of approximately $15.1 million in funding for maintaining 90.5 full-time equivalent (FTE) positions comprised to support daily citywide operations, Council prioritized projects, and capital projects.
- Pension costs of approximately $2.7 million for the City’s annual unfunded accrued liability (“UAL”) payment to CalPERS, in addition to the normal pension costs included in salary and benefits.
- Services and supplies costs of approximately $13.7 million to fund contractual services, fuel and vehicle maintenance, supplies and materials, utilities, fire services, insurance premiums, Sunset Center, staff training, marketing and other operational costs.
- $8 million for capital projects and vehicle and equipment.
- $509,000 for debt service payments on the City’s three existing bonds.
In order to get to the newly initiated 90% budget guideline, additional changes to the budget would be required. The City has developed a list of potential changes based on its review of the proposed budget and the ideas the Council presented at the last meeting. See Table 2, shown below.
Table 2: List of Potential Additional Changes to the Budget
It is important to note that these suggested cuts come on top of the $2.1 million of revenue additions and $1.8 million of cuts already made through this year’s budget process. The budget presented includes no increases to budgeted costs for inflation and no new services.
Going forward into future years, this simple process of cutting the budget will most likely not be sufficient to balance the budget within the stated guidelines. Instead, significant changes to operations, including realignment to focus operations on essential, priority services while eliminating non-essential services, will need to take place, as the forecast discussed in previous City Council meetings shows us that growth in operating costs outpaces growth in existing revenue sources. In addition, new sources of revenue will have to be identified by the City and supported by the community.
It is also important to note that the projected cost for Capital Projects to be completed in the current year 2024-2025 is $5 million. Combined with the fiscal year 2025-2026 budget of $8 million for CIP, we see that the ending unallocated fund balance is projected to be $7 million (see Table 3, below). While the City is still in the process of gathering updated budgets for repairs to its deferred maintenance and aging infrastructure, it is most likely that the $7 fund balance plus an annual allowance of 10% of total revenue (approximately $3.5 million) will not be sufficient to fully fund the five year CIP and beyond.
Table 3: Forecast of Fund Balance
FUTURE
With the aid of several new Department Heads and an eye to the use of technology, the City will review its operations in detail, looking at efficiencies and outcome-focused expenditures. It will also be working closely with the City Council and the community to identify sustainable revenue sources.
CURRENT STATUS
Staff provided a brief overview of the budget as part of the May 6, 2025 Council meeting. At the May 21, 2025 budget workshop, staff will present a detailed review of the budget as well as present responses to any questions that staff have received (Budget Q & A - Included as Attachment 2).
Staff will receive direction from Council on the budget and this direction will be incorporated into the FY 25-26 Recommended Budget, which will be considered for adoption by Council on June 3, 2025.