MEETING DATE:
June 9, 2026
SUBJECT:
Title
RESOLUTION NOS. 2026-9613 & 2026-9614 - ADOPTING THE OPERATIONS & MAINTENANCE BUDGET OF THE CITY OF SAN MARCOS FOR THE FISCAL YEAR BEGINNING JULY 1, 2026; THE CAPITAL IMPROVEMENT PROGRAM BUDGET FOR THE FIVE FISCAL YEARS ENDING 2030-31; APPROPRIATING MONEY OUT OF THE TREASURY FOR BUDGETARY PURPOSES; AND AUTHORIZING APPROPRIATION AND TRANSFER OF FUNDS FOR THE ESTABLISHMENT OF AN APPROPRIATED RESERVE FOR FUTURE EXPENDITURES AND/OR CONTINGENCIES FOR FISCAL YEAR 2026-27
Body
Recommendation
Recommendation
ADOPT the following:
1) Resolution adopting the Operations & Maintenance Budget of the City of San Marcos for the Fiscal Year beginning July 1, 2026 and the Capital Improvement Program Budget for the five fiscal years ending 2030-31, and appropriating money out of the treasury for budgetary purposes; and
2) Resolution authorizing the appropriation and transfer of funds for the establishment of an appropriated reserve fund for future expenditures and/or contingencies for FY 2026-27.
Body
Board or Commission Action
The City Council met during a Budget Workshop on April 28, 2026; and seven public meetings were held between the Budget Review Committee who last met on May 20, 2026, and the Measure Q Citizens Oversight Committee who last met on March 26, 2026 to provide guidance for the development of the proposed Fiscal Year 2026-27 Operations & Maintenance Budget and Capital Improvement Program Budget.
Relevant Council Strategic Theme
Planning for the Future
Relevant Department Goal
Not applicable.
Executive Summary
Each year the City Manager, Finance Director, and all City departments collaborate and analyze their future operational needs to create a budget plan that aligns with priorities of the City Council that includes requests for items typically associated with recurring programs/projects as well as one-time needs. The proposed Operations & Maintenance Budget for Fiscal Year 2026-27 includes requests recommended by the City Manager for approval by the City Council.
Prior to presenting the budgets to the City Council for consideration, the City Council-appointed citizen Budget Review Committee and Measure Q Citizens Oversight Committee held meetings to review and discuss the proposed budgets and to address the projected budget needs for the Fiscal Year 2026-27 Operations & Maintenance Budget. The proposed FY 2026-27 Operations & Maintenance Budget is balanced and is the financial plan that funds the Council’s continuing commitment to providing high levels of service to the City’s residents, visitors, and business community.
City Council approval of the proposed Fiscal Year 2026-27 Operations & Maintenance Budget will also continue to maintain an unassigned fund balance consistent with the General Fund Reserve Policy and the Fiscal Management Policy.
Discussion
The proposed Operations & Maintenance Budget for Fiscal Year (FY) 2026-27 and Capital Improvement Program Budget for FY 2026-27 through FY 2030-31 represent collaboration and analysis by the City Manager, Finance Director and all City departments that reflect the priorities of City Council. As part of the budget process, departmental budget requests are submitted for items typically associated with ongoing or recurring operations, programs, projects, and one-time needs for consideration, as well as providing current fiscal year updated projections. Prior to presenting the City Manager-recommended budgets to the City Council for consideration, the City Council-appointed citizen Budget Review Committee and Measure Q Citizens Oversight Committee held meetings to review and discuss the proposed budgets to address the operational needs of the departments. City staff and City Council also hosted a public City Budget Workshop on Aprill 28, 2026 to solicit public comments about the City’s budget and determine council recommendations for optimal service delivery.
In addition to the priorities of City Council, the General Fund Reserve Policy and the Fiscal Management Policy guide the budget decision-making process. These policies include the establishment and maintenance of General Fund operating reserves as well as funding for City vehicle and equipment acquisition/replacement fund, facility replacement/rehabilitation fund, and infrastructure replacement/rehabilitation fund. The Fiscal Management Policy will be met via transfers to the three replacement/rehabilitation funds from Measure Q fund (Fund 606), which is above the required policy minimum of 6% of the prior fiscal year adopted General Fund operating expenditure budget. The proposed FY 2026-27 General Fund Operating Budget includes a temporary use of One-Time Recurring Savings/Opportunity reserves for the construction of Fire Station 5, as Council directed during the Fire Station 5 Planning Workshop in July 2025. The requested use will result in the unassigned reserves temporarily being below the minimum 40% threshold, however a proposed reserve replenishment schedule has been included in the request per the General Fund Reserve Policy (2012-7631). The Council direction to use the One-Time Recurring Savings/Opportunity reserves is the most fiscally responsible option saving the City over $1.5M in today’s dollars for borrowing costs associated with a loan of equal value borrowed from an external lender, and interest payable to reserves will be part of the required replenishment plan. Furthermore, the remaining unassigned reserves are projected to still meet the City’s immediate financial needs for basic operating expenses for approximately 90 days, as outlined by the General Fund Reserve Policy.
The proposed FY 2026-27 Operations & Maintenance Budget includes normally anticipated annual increases related to Sheriff contract costs, scheduled merit step progression for eligible employees, negotiated employee groups Memorandums of Understanding, retirement and health care costs, contracted services, and nondiscretionary business cost increases for categories such as utilities, fuel, and insurance that cannot be delivered via an alternative method
In order to address ongoing cost pressures such as increasing public safety costs, inflationary pressures, and employee costs, City departments continue to implement operational improvements and service delivery enhancements focused on efficiency, accountability and long-term sustainability. These efforts continue to support fiscal sustainability as well as core community priorities and services. Staff also continue to focus service efforts on strategic investments in infrastructure for long-term sustainability, and certain eligible services were strategically aligned to the Measure Q funding source to maintain essential services and infrastructure needs. As a result of staff’s continued fiscal discipline and operational efficiency measures, the proposed General Fund appropriation of approximately $103.9 million reflects continued investments in public safety, infrastructure maintenance, and essential community services.
Continued efforts to operate like an efficient business has helped to balance increasing costs with the projected FY 2026-27 overall General Fund revenue of about $104 million. Despite economic uncertainties observed in the market, there is modest growth in the City’s revenue sources. Most of the City’s major revenue sources saw positive, if modest, increases over prior year adopted. Major revenue increases included property tax, which saw a 5% increase over prior fiscal year adopted resulting from significant new residential construction over the past two fiscal years, as well as an increase in In Lieu Vehicle License Fee receipts and Redevelopment Property Tax Trust Fund passthrough revenue. Charges for services also saw a 7% increase over FY 2025-26 adopted budget due to higher anticipated development-related service charges and Fire service reimbursements. Sales tax remained level to FY 2025-26 adopted budget which is reflective of statewide trends for sales tax projections.
Real estate portfolio revenue, which includes all City-owned properties leased to external entities as well as a real estate partnership, is projected to increase by about $2 million over FY 2025-26 adopted due to the completion of major capital projects in the City’s portfolio, which allows the City to recognize higher net revenue from leased assets. The maintenance of revenue-generating real estate assets has allowed the portfolio funds to be a stabilizing factor for the City providing some insulation from significant economic uncertainties observed in the market and strengthens the City’s long-term financial health.
The FY 2026-27 budget represents the second full fiscal year of a 10-year lifespan of the Measure Q 1% sales tax passed by San Marcos voters in November 2024. Measure Q funds are in a separate fund (Fund 606) so taxpayers can easily track how these funds are being spent. Measure Q expenditures proposed for FY 2026-27 represent significant investment in the areas most important to voters: Roads and Infrastructure Maintenance, Public Safety and Emergency Response, and Parks and Community Spaces.
In keeping with the community needs to keep San Marcos safe, clean, and well-maintained, Measure Q expenditures in FY 2026-27 include $10.6M in operational services such as landscape maintenance, parks landscape and trail maintenance, facility repair and maintenance, fire equipment repair, fire personnel constant staffing, and other operational activities. Measure Q will also fund $5.2M towards the City’s Capital Improvement Program budget, and transfer $8M toward projects in the City’s three acquisition/replacement/rehabilitation funds for eligible projects. The $8M in funding toward the City’s acquisition/replacement/rehabilitation funds represents a projected funding level above the City’s 6% of prior fiscal year’s adopted General Fund budget minimum funding level per policy. The operational, capital and infrastructure investments funded by Measure Q are critical to maintaining essential City services at optimal levels to sustain a high quality of life in the City. The expenditures in FY 2026-27 will also continue to invest in critical deferred infrastructure needs, which will provide long-term savings for the City because maintenance issues will be addressed before costly failures, further demonstrating the City’s commitment to fiscal responsibility. The Measure Q fund is annually reviewed by an independent audit firm for compliance with Ordinance 2024-1554 with a report available in January.
The City’s proposed FY 2026-27 Operations & Maintenance Budget includes appropriations for the General Fund ($103.9 million), Special Revenue Funds ($17.2 million), Debt Service Fund ($1.3 million), Enterprise Funds ($20.5 million), Measure Q Fund ($19.6 million), and various other funds essential to city operations ($32.9 million). The Capital Improvement Program budget appropriation for FY 2025-26 totals $21.7 million and includes funding from some of the funds mentioned above. The FY 2026-27 proposed budget is consistent with the City Council’s continuing commitment to providing high levels of service to the community while maintaining a high level of fiscal responsibility. Staff recommend adoption of the proposed budget to continue to deliver essential city services, ensure public safety, and maintain important City infrastructure.
In addition to the financial information presented in the attachments, the budget book, which will be produced and available to community members online by July 1st, contains general department information including organizational charts and department information. The City Manager’s budget transmittal letter provides background to the budget document, overall economic factors that were considered in the development of the budget as well as community highlights and future planning.
Fiscal Impact
The proposed Operations & Maintenance Budget appropriation for FY 2026-27 is $195.4 million across all City funds. The Capital Improvement Program Budget appropriation for FY 2026-27 is $21.7 million.
Attachments
1) Proposed Annual Operations & Capital Improvement Program Budget
2) Resolution Adopting Budgets for FY 2026-27
3) Resolution Establishing Reserves for FY 2026-27
4) Exhibit1 FC021 Funding Plan and Reserves Replenishment Plan
Prepared by: Janet Brotherton, Budget and Analysis Manager
Submitted by: Janet Brotherton, Budget and Analysis Manager
Reviewed by: Donna Apar, Finance Director
Approved by: Michelle Bender, City Manager