Item 21 - Early Direction for the Fiscal Year 2026-27 Budget

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Early Direction for the Fiscal Year 2026-27 Budget April 7, 2026 Page 2 5 6 9 0 the City Council. City Council is scheduled to review the proposed budget in May, followed by a public hearing in June. Community Engagement City staff presented the FY 2026–27 Budget Calendar and Community Engagement Plan to City Council on December 5, 2025. Community engagement activities began in January 2026. These initial efforts marked the start of a broader outreach process designed to provide residents with multiple opportunities to learn about the budget and share input on spending priorities. Engagement activities will continue throughout early 2026 through Listening Tour visits in each City Council ward, where City staff will meet with residents to discuss the budget and hear their priorities for FY 2026–27. These visits will take place at neighborhood association meetings and community events across the City. Feedback gathered through these discussions, along with responses from the City’s year-round budget priorities survey available on the Budget Office website, will be summarized and shared with the City Council during scheduled budget workshops. Budget Process The City Manager’s Office and Finance and Management Services Agency have conducted internal budget meetings with departments to review budget requests and staff priorities. After reviewing these requests alongside City Council priorities identified during the Early Direction discussion and community input gathered through the budget outreach process, Finance will work with the City Manager’s Office to develop a proposed budget for City Council consideration in May. General Fund While the current FY 2025-26 General Fund budget is balanced, the City’s Ten-Year Outlook projected a potential deficit of approximately $8.5 million in FY 2026-27, indicating that expenditures were expected to outpace revenues in future years. During the City Council Goal Setting meeting on January 23, 2026, staff provided an updated early look at the FY 2026-27 budget reflecting new information and updated assumptions. Since the prior outlook was presented, additional cost pressures have emerged, including higher labor costs, updated CalPERS actuarial information, and revised revenue estimates. Based on updated information, the FY 2026-27 deficit could be as much as $19.0 million. The budget is still under development and this estimate will likely change as revenue estimates and expenditure costs are finalized. General Fund Ten-Year Outlook Assumptions The General Fund Ten-Year Outlook has been updated to reflect the latest available information. The following assumptions were used: Only recurring revenues and spending were included.