PREPARED BY: ARTURO CASTILLO DATE OF MEETING: 04/08/2026
SUBJECT:
TITLE
CONSIDER PRELIMINARY DRAFT BUDGET FOR FY 2026-27 AND FY 2027-28 BIENNIAL OPERATING BUDGET AND CAPITAL IMPROVEMENT PROGRAM (CIP) BUDGET
CEQA: This proposed action is not a project as defined by CEQA.
Label
CITY MANAGER RECOMMENDATION
Recommendation
Approve by minute order; and provide further majority vote direction to the City Manager on finalizing proposed Preliminary DRAFT Budget and CIP Budget for formal adoption in June 2026.
Body
Compliance statements
Continue Best Management Practices, Fiscal Excellence, and Fiscal Transparency is a major policy goal contained in the FY 2024-26 City Council Priority Workplan, effective April 7, 2025.
BACKGROUND
As required by San Pablo Municipal Code §§ 3.04.240 and 3.04.250, the City Manager presented the Preliminary Draft FY 2026-27 and FY 2027-28 Biennial Operating Budget and Capital Improvement Program (CIP) Budget to the Budget, Fiscal and Legislative Standing Committee on April 1, 2026. The City Council called for a public hearing on the Biennial Operating Budget and CIP Budget at a Special Meeting on April 8, 2026.
Preliminary DRAFT Fiscal Year 2026-27 and Fiscal Year 2027-28 Biennial Budget
The Preliminary DRAFT Biennial Operating Budget and the Capital Improvement Program serve as a guide to the community and staff for the City Council’s financial priorities and goals for the upcoming fiscal years. These financial documents are updated with the most current economic, revenue and expenditure information and projections available to City staff.
In December 2023, the Council received a Long-Term Financial Forecast prepared by PFM Asset Management. This report identified a 10-year cumulative General Fund deficit of $44.1M beginning with a $2.1M deficit in FY 2024-25. Since this time, the City staff have worked diligently through zero-based budgeting and targeted cost reductions to mitigate the projected deficit, however certain costs outside of staff control have continued to increase faster than projected, including general liability insurance premiums, CalPERS Unfunded Accrued Liability (UAL) payments, and OPEB retiree healthcare obligations.
The proposed Preliminary DRAFT FY 2026-27 & FY 2027-28 Biennial Budget reflects the most current economic, revenue, and expenditure information available to City staff.
General Fund Overview
The General Fund is the main operating fund for the City. It accounts for sources and uses of resources that (primarily) are discretionary to the City Council in the provision of activities, programs and services deemed necessary and desirable by the community. It accounts for all general revenues of the City not specifically levied or collected for other City funds, and the related expenditures. The major revenue sources for this fund are casino revenue, sales taxes, property taxes, franchise fees and utility users’ taxes. Expenditures are made for community development, community services (i.e., parks and recreation), police services, public works, and other services.
The proposed All Funds budget totals $72.42M in revenue sources and $73.23M in expenditures for FY 2026-27, and $74.63M in revenue sources and $75.84M in expenditures for FY 2027-28.
The General Fund proposed baseline revenue is $56.76M for FY 2026-27 and $58.48M for FY 2027-28. After applying budget balancing measures including zero-based budgeting, revenue adjustments, and cost reductions, the remaining shortfalls of $812,975 in FY 2026-27 and $1,214,065 in FY 2027-28 are proposed to be balanced using General Fund Designated Reserves (GFDR Fund 110) of $250,000 per year, the Sales Tax Reserve Fund (Fund 103) of $250,000 per year, and the Casino Sustainability Fund (Fund 180) of $312,975 in FY 2026-27 and $714,065 in FY 2027-28, in accordance with the Fiscal Resiliency Reserve Policy (FRRP No. 5).
Other Funds Overview
Special revenue fund type is the most common of all the governmental fund type. Special revenue funds are intended to be used to report specific revenue sources that are restricted by law to being used for a particular purpose. These funds are established to collect money that must be used for a specific purpose. Special revenue funds provide an extra level of accountability and transparency to taxpayers that their tax dollars will go toward an intended purpose.
Capital project funds are financial accounts that are used to track the building, renovating, or purchase of equipment, property, facilities, parks, and other infrastructure or information technology systems which are to be used as a public asset or to benefit the public.
Debt service funds account for the repayment of debt. If a government is accumulating resources for the purpose of making debt service payments, it should report them in a debt service fund. In reality, some resources intended to finance debt service payments can be found in other government funds. These resources are reflected as transfers out in the other funds.
The proposed Special Revenue Funds budget totals $6.07M in revenue and $9.91M in expenditures for FY 2026-27, with the General Fund subsidizing operating shortfalls through interfund transfers totaling $4.01M. For FY 2027-28, Special Revenue Funds revenue totals $6.31M with expenditures of $10.39M and General Fund subsidies of $4.25M. Total annual debt service is $2,724,920 for FY 2026-27 and $2,727,920 for FY 2027-28, funded through General Fund transfers.
Capital Improvement Program Overview
The Capital Improvement Program (CIP) includes $1,000,000 in project appropriations for each of FY 2026-27 and FY 2027-28. Project funding in the CIP is derived from different funding sources including the General Fund Designated Reserve (GFDR), federal, state, and regional grants. The CIP includes continuing projects for various paving and streetlight upgrades and other infrastructure improvements.
City Manager Budget Message
The City Manager has prepared a Preliminary DRAFT Budget Message (Message) to meet Municipal Code requirements in Sections 3.04.080 through 3.04.110. The attached Message summarizes all final budget adjustments, financial concerns, fiscal condition, and policies regarding the City’s Fiscal Years 2026-27 and 2027-28 Two-Year Biennial General Fund Operating and CIP Budgets.
Budget, Fiscal & Legislative Standing Committee Review
On April 1, 2026, the BFLSC members, consisting of Mayor Pabon-Alvarado and Councilmember Ponce, reviewed the Preliminary Draft Budget for FY 2026-27 and FY 2027-28 Biennial Operating Budget and Capital Improvement Program (CIP) budget, and recommended its formal consideration and review at the Special City Council Meeting on April 8, 2026.
Following City Council review this evening, the City Council will direct the City Manager via minute order to prepare budget enabling Resolutions for final adoption of the Final FY 2026-27 & FY 2027-28 Two-Year Biennial GF Operating Budget (Final Budget) and CIP Budget in June 2026 for Consent Calendar approval action. Following adoption of said budget enabling Resolution(s), the new Final Budget and CIP Budget become effective July 1, 2026.
FISCAL IMPACT
The Preliminary DRAFT City’s Operating and Capital Improvement Project Budgets for Fiscal Year 2026-27 and Fiscal Year 2027-28 have been prepared for City Council review. All budget figures will be appropriated for expenditure by the City Departments by enabling adopted Resolution prior to July 1, 2026. Specific contracts over the City Manager’s contracting authority of $50,000 will still require separate Council approval even if amounts are budgeted.
ATTACHMENTS:
Att A - City Manager Budget Message
Exh 1 - FY 2026-27 & FY 2027-28 Proposed Biennial Budget
Exh 2 - CIP Biennial Budget