MEETING DATE:
June 10, 2025
SUBJECT:
Title
RESOLUTION NOS. 2025-9445 & 2025-9446 - ADOPTING THE OPERATIONS & MAINTENANCE BUDGET OF THE CITY OF SAN MARCOS FOR THE FISCAL YEAR BEGINNING JULY 1, 2025; THE CAPITAL IMPROVEMENT PROGRAM BUDGET FOR THE FIVE FISCAL YEARS ENDING 2029-30; 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 2025-26
Body
Recommendation
Recommendation
ADOPT the following resolutions:
1) Resolution 2025- 9445 adopting the Operations & Maintenance Budget of the City of San Marcos for the Fiscal Year beginning July 1, 2025 and the Capital Improvement Program Budget for the five fiscal years ending 2029-30, and appropriating money out of the treasury for budgetary purposes; and
2) Resolution 2025-9446 authorizing the appropriation and transfer of funds for the establishment of an appropriated reserve fund for future expenditures and/or contingencies for FY 2025-26.
Body
Board or Commission Action
The City Council met during a Budget Workshop on April 22, 2025 and the Budget Review Committee met on May 28, 2025 to provide guidance for the development of the proposed 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 2025-26 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 met to review and discuss the proposed budgets and to address the projected budget needs for the Fiscal Year 2025-26 Operations & Maintenance Budget. The proposed FY 2025-26 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 2024-25 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) 2025-26 and Capital Improvement Program Budget for FY 2025-26 through FY 2029-30 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 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 met to review and discuss the proposed budgets to address the budget needs of the departments. City staff and the Council also hosted a public City Budget Workshop on Aprill 22, 2025 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, facility replacement/rehabilitation, and infrastructure replacement/rehabilitation. The proposed FY 2025-26 General Fund Operating Budget meets the City Council policy of setting aside a minimum of 40% of General Fund annual operating expenditures in cash reserves. The Fiscal Management Policy will be met via transfers to the three replacement/rehabilitation funds from Measure Q fund (Fund 606).
The proposed FY 2025-26 Operations & Maintenance Budget includes normally anticipated annual increases related to Sheriff contract costs, scheduled merit step progression for eligible employees, 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. The recommended budget also includes projected compensation for newly negotiated Memorandums of Understanding with the employee groups effective July 1, 2025, as well as for unrepresented employees.
In order to mitigate known normal anticipated expenditure increases, City departments continued to implement the favorable results of eight best value analyses completed to date to recognize expenditure savings of approximately $700,000 per year on average by re-aligning optimal service delivery for various City functions. Staff also implemented other operational efficiencies such as increasing maintenance work done via staff versus contracted services in order to reduce annual expenditure increase over prior year, and re-aligned some services to the Measure Q fund where appropriate. As a result of ongoing best value analysis and realignment of essential service delivery and operations to the new Measure Q funding source, the proposed General Fund appropriation of about $97.9 million is an overall expenditure increase of about 5%.
In addition to continued efforts to operate like an efficient business, the proposed FY 2025-26 budget projects about a 5% overall revenue increase over the prior year adopted, illustrating that the City revenue sources remain stable, despite exposure to some economic uncertainties observed in the market. Sales tax, for instance, represents a 2.5% decrease over FY 2024-25 adopted as a result of lower fuel prices and usage and slight downturns in discretionary consumer spending in categories such as home furnishing, home improvement projects, and auto purchases. The decrease in sales tax was offset by an estimated 5% increase in property tax over prior fiscal year adopted resulting from significant new residential construction over the past two fiscal years, thus the rate of property tax year-over-year increases is anticipated to slow down in future years due to slower housing stock turnover and the current high interest rate environment leading to lower home purchases. However, after completion of tenant improvement capital projects, the City’s investments in revenue-generating real estate assets are a major contributor to the FY 2025-26 revenue increase.
Real estate portfolio revenue, which includes all City-owned properties leased to external entities as well as a real estate partnership, increased $2.4 million over FY 2024-25 adopted excluding FY 2024-25 one-time revenue source. The maintenance of enterprise real estate portfolio funds ensures the City is insulated from significant economic uncertainties observed in the market and strengthens the City’s long-term financial health. Additionally, in keeping with the City’s continual pursuit of grants and other funding, FY 2025-26 revenues include reimbursements for development-related activity.
The FY 2025-26 budget represents the first 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 tracked in a separate fund (Fund 606) so taxpayers can easily track how these funds are being spent. Measure Q expenditures proposed for FY 2025-26 represent significant investment in the areas most important to voters: Roads and Infrastructure Maintenance, Public Safety and Emergency Response, and Parks and Community Spaces.
Measure Q expenditures in FY 2025-26 include $6.8M in operational services such as landscape maintenance, parks landscape and trail maintenance, facility repair and maintenance, fire equipment repair, and other operational activities. Measure Q will also fund $7.3M towards the City’s Capital Improvement Program budget, and transfer $7.8M toward the City’s three infrastructure funds for eligible projects. The $7.8M in funding toward the City’s infrastructure funds represents a funding level of 8.3% of the prior year’s adopted general fund budget, well above the City’s 6% 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 2025-26 will also invest in critical deferred infrastructure needs, which will save the City money in the long-term because maintenance issues will be addressed before costly failures, further demonstrating the City’s commitment to fiscal responsibility. The Measure Q funds expended in FY 2025-26 will be reviewed by an independent audit firm, with a report available in January 2027.
The City’s proposed FY 2025-26 Operations & Maintenance Budget includes appropriations for the General Fund ($97.9 million), Special Revenue Funds ($23.5 million), Debt Service Fund ($0.4 million), Enterprise Funds ($17.3 million), Measure Q Fund ($14.6 million), and various other funds essential to city operations ($31.6 million). The Capital Improvement Program budget appropriation for FY 2025-26 totals $19.1 million and includes funding from some of the funds mentioned above. The FY 2025-26 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 is confident that the budget will be sufficient 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 2025-26 is $185.3 million. The Capital Improvement Program Budget appropriation for FY 2025-26 is $19.1 million.
Attachments
1) Proposed Annual Operations & Capital Improvement Program Budget
2) Resolution 2025- 9445 Adopting Budgets for FY 2025-26
3) Resolution 2025- 9446 Establishing Reserves for FY 2025-26
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