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 8 5 6 9 0 remain below the City’s target reserve level of 80% of actuarially determined liabilities. As of June 30, 2026, the actuarial present value of General Liability claims is approximately $18.6 million. The City’s target reserve level is approximately $14.9 million. The estimated ending fund balance of $13.2 million reflects a reserve shortfall of approximately $1.7 million relative to the City’s policy target. The General Liability Fund is used to pay claims and legal settlements arising from incidents involving the City. The City currently has various matters in different stages of review and litigation, including recent case developments that may not yet be fully reflected in prior actuarial projections. Maintaining adequate reserves supports the City’s ability to respond to potential claim activity and manage financial exposure. To strengthen the Fund’s reserve position, meet the City’s target-goal, and provide additional capacity for potential claim obligations, staff recommends a one-time General Fund transfer of $1.7 million to the General Liability Fund. Future Pension Costs Set-Aside – Section 115 Trust Since 2021, the City Council has consistently set aside funds in the Section 115 Trust as part of its long-term pension cost management strategy. The Council has approved deposits during each annual budget cycle when financially feasible, including a $1 million allocation in the current fiscal year. As of December 2025, the Section 115 Trust has a balance of approximately $49.8 million. The purpose of the Trust is to help mitigate future volatility in CalPERS-required contributions. CalPERS assumes an annual investment return of 6.8%. When investment performance falls below this assumption, the City’s unfunded liability increases, leading to higher required contributions in future years. Based on CalPERS’s latest projections, the City is expected to require approximately $189.2 million in contributions above the current budget level over the next 10 years. Consistent with the City Council’s adopted “Unfunded Employee Pension Liability Cost Reduction Policy,” staff recommends an additional one-time $1.5 million allocation to the Section 115 Trust for FY 2026-27 and requests City Council concurrence. This proposed deposit would continue the City’s multi-year strategy of proactively setting aside funds to earn investment returns and help offset future pension cost increases. Street Sweeping The Sanitation Fund supports the City’s street-sweeping program, which is provided under contract by Athens Services and billed on a per-curbed-mile basis at a rate of $54.87 per mile (rising to $56.52 per mile on July 1st). Based on current service levels, the City sweeps approximately 45,000 curb miles annually. Residential streets account for approximately 33,300 of those curb miles, representing the majority of total sweeping activity and cost. At current service levels, residential sweeping is estimated to cost approximately $1.8 million annually.