TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Tanner Benson, Financial Analyst
SUBJECT:
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Fiscal Year 2026/27 Budget Update
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ABSTRACT
This report presents the proposed Fiscal Year 2026/27 budget update, including adjustments to revenues, expenditures, and authorized staffing to reflect organizational, operational, and financial changes since adoption of the biennial budget in June 2025. The proposed amendments incorporate previously approved City Council actions, including labor agreements, grant funding, and budget modifications, while updating appropriations across the City's major operating funds to align with current revenue projections and expenditure needs. The report also includes an updated Schedule of Authorized Positions and affirms the City's continued commitment to maintaining long-term fiscal sustainability through prudent financial management and adequate reserve levels.
RECOMMENDATION
recommendation
Approve amendments to the Fiscal Year 2026/27 Operating Budget as defined in this report; and
Approve the updated Schedule of Authorized Positions.
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PRIOR ACTION/VOTE
On June 3, 2025, the City Council, the Boards of Directors of the Murrieta Fire District (MFD), the Community Services District (CSD), the Murrieta Library District (MLD), the Housing Authority (HA), and the City Council acting as Successor to the Redevelopment Agency (SA), adopted a joint Resolution (25-4837, MFD 25-225, CSD 25-285, MLB 25-201, RSA 25-35, and MHA 25-45) approving the Operating Budgets for Fiscal Years 2025/26 and 2026/27 (Vote: 5-0).
Subsequently, the City Council, the Boards of Directors of the MFD, CSD, MLD, SA, and the HA approved amendments to the Fiscal Year 2025/26 Operating Budget on December 2, 2025, March 3, and June 3, 2026 (Vote: 5-0).
CITY COUNCIL GOAL
This item aligns with the City Council goal to maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
DISCUSSION
The City of Murrieta (City) adopts a biennial budget every two (2) years, starting in odd-numbered years. The budget period runs from July 1 to June 30. The Fiscal Year (FY) 2026/27 budget was adopted on June 3, 2025. At the time of adoption, the City had budgeted revenues of $199,633,571 and expenditures of $191,293,957. Since the budget was adopted, updates to the FY 2026/27 budget have been brought before the City Council and approved. These changes have already been applied to the budget with the City Council’s approval and will thus be labeled the Amended Budget. These City Council-approved updates resulted in a revenue budget of $202,764,635, up $3.1 million, due to higher anticipated revenues from SB1 Road Maintenance State funding and the addition of the third year of the Encampment Resolution Funding Grant, awarded to the City in 2025. The amended expenditure budget is now $194,491,848, primarily due to the inclusion of the third year of approved Encampment Resolution Funding Grant expenditures. Additionally, since the budget was adopted, the City Council has approved several labor group agreements. This report incorporates increases to the salary and benefits budgets associated with those agreements. The purpose of this budget update report is to:
1. Update the Fiscal Year 2026/27 Operating Budget to request appropriations for items not included in the original budget adoption and adjust budgets for various revenue and expenditures accounts detailed in Attachment 1; and
2. Approve the updated Schedule of Authorized Positions.
Economic Factors
Several economic factors over the past fiscal year had the potential to negatively impact sales tax generation. In addition, sales tax revenue has remained relatively flat over the past four (4) years. Recognizing this trend, the City has adjusted its sales tax revenue budget based on historical collection patterns. As a result, actual sales tax revenues have continued to perform generally in line with the City's budget projections. Sales Tax, Property Tax, and other revenue, along with potential proposed changes, will be presented during a budget update later in the year, when analysis of Fiscal Year 2026/27 revenues is possible. The Federal Reserve has maintained interest rates at their current level. While the Federal Reserve has not indicated that a rate change is imminent, it continues to evaluate economic conditions and has stated that future policy decisions will remain data dependent.
Budget Strategies
Historically, the City has maintained a conservative budget approach to ensure long-term fiscal sustainability. However, the FY 2025/26 and FY 2026/27 adopted budgets incorporated more aggressive budget forecasts and assumptions to balance the budget. This included a higher salary savings rate for personnel forecasting, a reduction in the departments’ budget requests, and the use of Unassigned Fund Balance to fund one-time expenditures.
The City continues to maintain a strong financial position, supported by an operating reserve of at least 25% of the operating expenditure budget and sufficient unassigned fund balance to address short-term budget fluctuations and one-time expenditures. With a balanced budget and healthy operating and sustainability reserves, the City remains well-positioned to maintain fiscal stability while responding to future financial needs and priorities. While the City’s key revenue sources fluctuate, it has the capacity to address unforeseen economic changes by implementing successful cost-saving measures and using available unassigned fund balance. The adopted precautionary measures ensured the City is in a very good fiscal position while maintaining the current level of services for residents.
Fiscal Year 2026/27 Proposed Adjustments
This report outlines the proposed changes for the five (5) major funds (General Fund, Measure T, Fire District, Community Services District (CSD), and Library). Attachment 1 contains a detailed list of all proposed budget adjustments, and Attachment 2 provides a summary of the proposed budget adjustments for the five (5) major funds, as well as a summary of the total operating budget for all funds.
General Fund Budget Adjustments
The proposed General Fund revenue changes reflect an overall decrease of $1,261,865, or two percent (2%). These changes are necessary to align projected revenue collections with what is now anticipated to be received for this fiscal year. This overall decrease is due to reallocation of interest revenues and a reduction in anticipated County reimbursements. The most significant proposed changes are listed below:
• Interest income reallocation of $1,200,000 from the General Fund to the Measure T Fund. As of the Second Quarter of FY 2025/26, the City determined that Measure T interest income should be recorded in the Measure T Fund rather than grouped with the General Fund. From the FY 2025/26 second quarter interest allocation onward, staff will be recording Measure T Fund and General Fund interest allocations separately; and
• Decrease anticipated Riverside County reimbursements for Police Department (PD) programs of $61,865.
The proposed expenditure budget is being increased by $1,075,079. This amount includes both the net of decreases and increases in different expenditure accounts. When the City Council adopted the biennial operating budget in June 2025, the budget included assumptions for Cost-of-Living Adjustments (COLAs) for miscellaneous employee groups only, as negotiations with the public safety labor groups had not yet been completed.
Since the adoption of the budget, the FY 2026/27 COLA for the miscellaneous employee group has been finalized in accordance with the applicable labor agreement. In addition, labor negotiations with the public safety groups have concluded, resulting in newly approved labor agreements that increase personnel costs. The new public safety Memorandum of Understanding (MOUs) for Fire and PD were approved by City Council on June 16 and July 7, 2026, respectively.
Accordingly, this report recommends budget increases to reflect the approved salary and benefit increases for the public safety labor groups and to update the personnel budgets for the miscellaneous employee groups based on the finalized FY 2026/27 COLA calculation. The budget also includes the reallocation of the legal costs budget and the addition of a few items omitted during the Biennial Budget process. A summary of the changes is as follows:
• Personnel-There has been an overall expenditure increase of $793,808, mainly due to the newly approved public safety related labor agreements, increases related to City Council-approved updates to the Salary Schedule, reallocating personnel budget due to the formation of the Municipal Services Department (MSD), and adjustments to the miscellaneous employee groups’ personnel budget as a result of the final calculation of the FY 2026/27 COLA.
• Operations & Maintenance Expenditures - An overall decrease of $269,406.
o A net decrease of $48,000 is in the operations & maintenance budget for contract services - legal services, reflecting the reallocation of the budget to departments and other funds based on historical expenditure activity. Additionally, there is an $80,000 increase in other contract services, reallocating budget from Measure T Fund to the General Fund.
o An increase of $187,584 across various accounts associated with the lease and utilities for the City’s annex building. Additional increases of $49,822 are associated with other activities omitted during the Biennial Budget development process. These activities include Citywide holiday décor, the Police Department’s Halloween “Dark in the Park” event, and an increase in PD’s training budget to match budgeted reimbursements.
• Allocations - Increase of $11,865 for the City’s Vehicle Replacement Program’s internal service program due to updated estimates of the future costs of various Fire Department vehicles. This results in an increase in annual allocations for the General Fund and Measure T Fund.
Based on the proposed adjustments identified above, the General Fund proposed amended revenue budget is $78,817,509, while the amended expenditure budget is $81,660,723, as shown in the table below. Assuming all revenue and expenditures are collected and spent as budgeted, the projected use of unassigned fund balance is $2,843,214.
Measure T Fund Budget Adjustments
The proposed revenue budget increase is $1,200,000, or four percent (4%), due to the way interest income is being recorded. As discussed in the General Fund section, Measure T Fund interest income will be recorded in Measure T rather than grouped with the General Fund going forward.
Likewise, staff proposes a net increase to the Measure T expenditure budget of $808,702. This includes both decreases and increases across the expenditure accounts listed below:
• Personnel - An increase of $167,111 due to the newly approved public safety labor agreements and adjustments to the miscellaneous employee groups COLA. The new public safety MOUs for Fire and PD were approved by Council on June 16 and July 7, 2026, respectively.
• Operations & maintenance - A decrease of $80,000 in contract services that is associated with a planned PD expense that is being reallocated to the General Fund; and
• Allocations - Increase of $24,796 for the City’s Vehicle Replacement Program’s internal service program due to updated estimates of the future costs of various Fire Department vehicles. This results in an increase in annual allocations for the General Fund and Measure T Funds.
• Transfers Out - Staff also proposes to increase the transfers out for the Measure T Fund by $696,795. This is to account for the proposed changes in expenditures for the Fire District, Community Services District (CSD), and Library Funds. The City’s Measure T transfers out are utilized to cover Fire, CSD, and Library when their expenditures exceed their revenues and are true up at the end of the fiscal year.
As shown in the table below, the Measure T Fund's proposed amended revenue budget is $30,753,592, while the proposed amended expenditure budget is $29,688,532. Assuming all revenue and expenditures are collected and spent as budgeted, the projected contribution to unassigned fund balance is $1,065,060.
Fire District Fund Budget Adjustments
Staff recommends increasing the budgeted transfer from the Measure T Fund by $533,483 to fund the proposed increase in the Fire District's expenditures to support their operations and maintain a balanced budget. This includes both decreases and increases in different expenditure accounts, listed below:
• Increases in personnel costs associated with newly approved public safety related labor agreements, which resulted in an increase of $563,483.
• Similar to the General Fund, there is a net decrease of $30,000 is in the operations & maintenance budget for contract services - legal services, reflecting the reallocation of the budget to departments and other funds based on historical expenditure activity.
CSD Fund Budget Adjustments
The proposed revenue budget for the CSD Fund reflects an increase of $170,626, or three percent (3%). This increase is attributable to a higher transfer from the Measure T Fund to maintain a balanced budget and support the proposed increase in expenditures.
Likewise, staff proposes an increase in the expenditure budget of $169,067, reflecting decreases and increases in different expenditure accounts, including:
• An increase of $174,067 due to reallocating personnel budgets due to the formation of the Municipal Services Department (MSD) and due to adjustments to the miscellaneous employees group COLA.
• A decrease of $5,000 in the operations & maintenance budget for contract services - legal services, reflecting the reallocation of the budget to departments and other funds based on historical expenditure activity.
Library Fund Budget Adjustments
The proposed revenue budget decrease is $7,314, or three percent (3%). This proposed decrease is for the transfer in that the Library receives from the Measure T Fund to maintain a balanced budget and support the Library operations.
Likewise, the staff proposes an expenditure budget decrease of $7,315. This includes both decreases and increases in different expenditure accounts, including:
• A decrease of $10,315, which is due to the COLA adjustments for the miscellaneous employee groups' labor agreements. As previously discussed, the COLA adjustment were slightly below the assumptions made at the time of the budget adoption. The Library Fund personnel budget is reduced because the original budget assumption exceeded the final negotiated COLA.
• An increase of $3,000 in the operations & maintenance budget for contract services - legal services, reflecting the reallocation of the budget to departments and other funds based on historical expenditure activity.
Staffing Changes
Staff regularly brings the Schedule of Authorized Positions to the City Council to reflect new position requests and position title reclassifications. This proposed schedule update adds the net of two (2) Full-Time Equivalent (FTE) positions for FY 2026/27. This brings the total to 481.09 FTE positions (Attachment 3). This request includes four (4) new positions, one (1) title reclassification, and one (1) promotion, as part of a proposed organizational realignment. This report also includes a reduction of two (2) positions due to an oversight in the last Schedule of Authorized Positions. The total FTE count includes three (3) new Firefighter positions approved by the City Council on June 3, 2025, to support the scheduled arrival of the tiller fire truck in early 2027. Additional recommended position adjustments include:
• The Traffic Signal/Lighting Superintendent position is recommended to enhance business continuity and support the City's long-term goal of internalizing streetlight and traffic signal maintenance services.
• Landscape design and plan check review services are currently outsourced. The proposed Landscape Architect position will strengthen the City's in-house landscape design and plan check review capabilities while providing additional support to both the Development Services Department and the Municipal Services Department.
• The Housing Specialist position will support the Murrieta Housing Authority by assisting with annual reporting requirements, administration of the revolving loan fund, and other housing-related functions, thereby reducing the workload currently managed by senior staff.
• The proposed position title reclassification and promotion will enhance business continuity by strengthening succession planning and ensuring continued operational effectiveness.
• On July 7, 2026, City Council meeting, the Schedule of Authorized Positions presented with the amendment and restatement of the Comprehensive Pay Schedule inadvertently double-counted two (2) Associate Civil Engineer positions. This report makes the adjustment to rectify the oversight.
These changes are intended to enhance operational efficiency and effectiveness, improve organizational alignment, and support the City's employee recruitment and retention efforts. The budgetary impact for these positions will be included in the FY 2026/27 First Quarter Budget update report.
Unassigned Fund Balance
The General Fund is proposed to draw on the unassigned fund balance of $5,449,854 for FY 2026/27. Of that, approximately $2,843,214 is allocated to balance the budget as a result of an operating budgetary deficit (budgeted revenues less than budgeted expenditures), and $1,750,000 is allocated to the FY 2026/27 Capital Improvement Plan to fund the Equestrian Center maintenance, City Hall first-floor improvements, and Citywide Beautification projects. Lastly, as part of the biennial budget adopted on June 3, 2025, the City committed $856,640 of the General Fund's unassigned fund balance to maintain the Operating Reserve at approximately 30% policy level. After accounting for the planned use of unassigned fund balance to support City operations, Capital Improvement Program (CIP) projects, and this reserve commitment, the General Fund's estimated unassigned fund balance is projected to be $25,300,062.
The Measure T Fund is expected to contribute $18,823 to its unassigned fund balance. Of that, $1,065,060 is an operating surplus (budgeted revenues exceeding budgeted expenditures), and it also includes $204,761 net allocation to the Capital Improvement Plan budget for several projects, funding, and other defunding. Lastly, as part of the biennial budget adopted on June 3, 2025, the City committed $841,476 of Measure T Fund unassigned fund balance to maintain the Operating Reserve at approximately 30% policy level. After accounting for the planned contribution of unassigned fund balance to support City operations, Capital Improvement Program (CIP) projects, and this reserve commitment, the Measure T Fund's estimated unassigned fund balance is projected to be at $18,659,534.
The Fire District's budget is currently balanced through a budgeted transfer of $7,009,004 from the Measure T Fund. Because the Fire Fund relies on the Measure T Fund to cover its operating shortfall, the transfer amount will be trued up at fiscal year-end based on actual operating results.
The CSD Fund's budget is currently balanced through a budgeted transfer of $2,767,301 from the Measure T Fund. Because the CSD Fund relies on the Measure T Fund to cover its operating shortfall, the transfer amount will be trued up at fiscal year-end based on actual operating results.
The Library Fund's budget is currently balanced through a budgeted transfer of $30,348 from the Measure T Fund. Because the Library Fund relies on the Measure T Fund to cover its operating shortfall, the transfer amount will be trued up at fiscal year-end based on actual operating results.
The estimated unassigned fund balances for the funds mentioned above are subject to change for the following reasons:
• As of the writing of this report, the FY 2025/26 audit has not been completed. Therefore, the estimated beginning unassigned fund balance for FY 2026/27 is subject to change; and
• Operating financial activities through FY 2026/27 can differ from the estimated operating budget due to economic changes, unanticipated expenses or revenues, and budgetary savings.
Below is a summary of this information. Attachment 4 includes a table with all funds and the fiscal impact of these proposed changes.
Operating and Sustainability Reserve
The City maintains a Fund Balance and Reserve Policy to promote sound fiscal management, support long-term financial planning, and ensure the continued delivery of essential services to the Murrieta community. The table below summarizes the City's current Operating and Sustainability Reserve balances.
PUBLIC NOTICING
The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item).
CEQA AND REGULATORY OVERVIEW
This action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly.
FISCAL IMPACT
The proposed amendments to the Fiscal Year 2026/27 Operating Budget include a $27,764 net decrease in revenue, a $ 964,095 net increase in expenditures, and a $696,795 net increase in Transfers In/Out. Unassigned fund balance is available to cover the budgetary deficits within each applicable fund. Attachment 1 includes a complete list of the requested changes by the General Ledger Account.
ATTACHMENTS
ATT 1 - FY 2026/27 Proposed Budget Adjustments by Account (Detail)
ATT 2 - FY 2026/27 Proposed Budget Adjustments by Fund (Summary)
ATT 3 - FY 2026/27 Schedule of Authorized Positions
ATT 4 - FY 2026/27 Fund Balances for All Funds (Estimate)