Resolution 2025-052 Adopting the Fiscal Year 2025-2026 Annual Operating and Capital Budget (Estimated time - 60 min)

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 $39.8 million is submitted for Council’s consideration. The proposed expenditures totaling $39.8 million, include the General Fund operating budget ($28.8 million), debt service ($509,100), pension unfunded liability ($2.7 million),and capital budget ($7.8 million). The proposed revenues totaling $34.9 million include property taxes ($9.2 million), sales tax ($10.4 million), transient occupancy tax ($9.1 million), and other revenue ($3.2 million). The FY 25-26 Recommended Budget requires the use of $4.9 million in prior years’ savings ("unassigned fund balance") specifically to fund deferred Capital projects.

The total fund balance is estimated to end the current FY 24-25 at $40.6 million which includes all restricted, reserves and unassigned funds. Unassigned fund balance is estimated to be $14 million of that.

As the economy remains unpredictable, the City remains cautious and anticipates a conservative increase in revenues for FY 25-26. Conversely, 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 million with a -6.75 decrease to FTE over prior FY for a budgeted 90.5 total FTE total.  Six of the decrease in FTE were due to the new Ambulance contract with the City of Monterey.

• Pension costs of approximately $2.7 million.  Additionally, the City will restrict $1 million by transferring funds into the City’s established Section 115 Trust.

• Services and supplies costs of approximately $10.7 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.

• $7.8 million for capital projects and vehicle and equipment purchases in the following categories: forest/beach/parks ($2.4 million), streets/sidewalks ($1.1 million), facilities ($1.7 million), drainage ($350,000), IT ($90,000), fleet ($1.1 million), and CIP Contingency ($500,000).  NOTE: At the May 21st budget workshop, Council made minor cuts to the draft CIP as detailed below, so the original $7.8M list has stayed largely intact.  As part of the staff presentation on June 3rd, Council will receive the same list of CIP projects, with a handful of them highlighted as options for the Council to consider if they wish to reduce the FY25/26 CIP.  Staff will be prepared to provide rationale for each item that is highlighted as a potential cut from the FY 25/26 CIP.   

• $509,100 for debt service payments.
  
  

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 presented a detailed review of the budget, and received questions and feedback from both the public and Council.  At the direction of Council at the budget workshop, the Recommended Budget was updated to remove two Library CIP projects from FY25-26.  Those projects were Library Master Plan Administration and UV Film replacement for HML windows. Devendorf Park Improvements and Rio/Junipero Median Enhancements were also both reduced at the direction of Council. With respect to the operating budget, and Council's new policy of capping operating expenses at 10% of revenues, Council made no further cuts to operating expenditures and directed using approximately $500K of fund balance to meet the 10% goal.  Additionally, the Recommended Budget Book has been revised to reflect updates to the Capital Improvement Plan narratives and Table: FY 25-26 Capital Projects (see Attachment 2) and the Question & Answer report has been updated for questions received since it was published for the May 21 meeting (see Attachment 3).   

The FY 24-25 Recommended Budget totals $39,829,800 and uses $4,915,000 in prior years’ savings ("unassigned fund balance") largely to fund capital projects.

Council received a presentation regarding the Five-Year CIP on March 24, 2025. Council received a presentation regarding the FY 25-26 Recommended Budget, inclusive of the Capital budget, on May 6, 2025. Council held a FY 25-26 budget workshop on May 21, 2025.