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 2025/26 Third Quarter Financial Status Report and Proposed Budget Adjustments
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ABSTRACT
This Third Quarter Budget Update reports on Fiscal Year 2025/26 through March 31, 2026, and requests approval of budget adjustments. General Fund and Measure T revenues are tracking as expected, and expenditures are near the quarter mark, reflecting approved staffing updates and early capital outlay activity. Staff recommends targeted budget amendments to align revenues and expenditures with actual activity and updated projections. Overall, the budget is tracking largely as planned.
RECOMMENDATION
recommendation
Receive and file the report; and
Approve the adjustments to the Fiscal Year 2025/26 Operating Budget as referenced in the Fiscal Impact section of this report.
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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, and March 3, 2026 (Vote: 5-0).
STRATEGIC ALIGNMENT
This item aligns with the City Council goal of: maintaining a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency relating to an administrative priority.
DISCUSSION
The City of Murrieta (City) adopts a biennial budget every two years, starting in odd-numbered years. The budget period runs from July 1 to June 30. The Government Finance Officers Association (GFOA) recommends that all governments implement a formal process to compare the budget to actual results to monitor financial performance. To comply with these best practices, staff prepares quarterly budget reports for the City Council to review and consider. These reports ensure transparency and provide opportunities for staff to adjust the Operating Budget based on analyzed trends.
This Third Quarter Budget Update Report serves two (2) purposes:
1. Provide a Fiscal Year 2025/26 Budget Update through the Third Quarter of the Fiscal Year (July 1 - March 31, 2026); and
2. Request City Council approval of Revenue budget adjustments based on year-to-date actuals and appropriate Expenditure budgets for several accounts in Attachment 3;
Third Quarter Budget Updates provide an update on Revenue collections and Expenditures to date. Staff has provided the City Council with two (2) significant budget updates to Revenues and Expenditures at the December 2, 2025, and March 3, 2026, City Council Meetings. This budget update includes a few new Expenditure budget requests and adjustments. This budget update also includes modifications to Revenue budgets based on year-to-date collections, all of which will be discussed later in the report.
The table below provides a Summary of General Fund Revenues collected through the end of the Third Quarter, March 31, 2026. The discussion regarding Expenditures, Measure T, and Citywide Proposed Adjustments will follow the Revenue discussion.
General Fund Revenues
As of March 31, 2026, the City’s General Fund has collected $43,271,828, which is approximately 55% of the $79,159,440 Amended Revenue Budget. Some revenues, such as Property Taxes and Franchise Taxes, are not received monthly, unlike expenses for routine services and personnel that can be anticipated monthly. Therefore, the General Fund, as well as other funds with certain semi-annual revenue collections, will not always reflect their expected balances until the Fiscal Year has closed.
• Sales Tax receipts are collected on a two-month delay. As of March 31, 2026, the City has collected Sales Tax receipts through January. For this year, Sales Tax was budgeted three percent (3%) higher than the Fiscal Year 2024/25 Amended Budget, or approximately two percent (2%) higher than the Fiscal Year 2024/25 final sales tax revenue. For the seven months of collections, Sales Tax receipts are tracking 3.6%, or $554,606, higher than at this point in the prior year. Shortly after preparing this report, the February 2026 Sales Tax receipts were reported, and collections came in lower than anticipated. Based on collections received through February 2026 and the Sales Tax forecast for the remainder of the fiscal year, staff now projects revenues will fall short of the amended budget by approximately $267,000, or 1%.
• The City has several Property Tax accounts that typically receive revenues at various points during the Fiscal Year, typically ranging from October through June. In the Third Quarter, Staff can gauge if revenues will be in line with the proposed budget. Staff conducted a year-over-year analysis on Property Tax revenues, and the revenues overall appear on track with the current budget. However, staff will propose minor budget updates for these accounts later in this report to better align the budget with the anticipated revenues.
• The Other Miscellaneous Revenues category includes Interest Earnings, Miscellaneous Revenues, and Revenue from Other Agencies. These revenues are trending lower than expected through the Third Quarter, to 43% of the Amended Budget. There are two (2) main accounts that are causing the Misc. Revenues to appear lower: Interest Income and Intergovernmental Revenues for the Police Department (PD):
o At the time this report was prepared, Interest has been recorded for the First and Second Quarters. Additionally, in the Third Quarter, it was determined that Measure T Interest Income should be recorded in Measure T rather than grouped with the General Fund. From the Second Quarter Interest Allocation onward, staff will be recording Measure T and General Fund Interest Allocations separately. Staff will propose a movement of budget from the General Fund to Measure T in this account to reflect this decision later in this report.
o The Police Department has an agreement with the City of Menifee to provide Dispatch Services. These services are billed quarterly after each quarter is completed. The City’s billings are currently up to date through the Second Quarter of the Fiscal Year and are tracking at 61% of the budget. The third quarter billing is likely to occur between May and June 2026. The fourth quarter billing is expected shortly after the end of the fiscal year, and it will be accounted for as part of the 4th quarter year-end budget report.
• License and Permit Fees are continuing to trend higher, at 83% of the budget. The City has collected an additional $415,530 during the Third Quarter of the Fiscal Year. This collection builds on the 759 Multi-Family residential unit permits issued in the First Quarter and the additional 17 residential permits issued during the Second Quarter. During the Third Quarter, the City issued permits for two (2) multi-family buildings (12 units total), a single-family residential improvement, an attached Accessory Dwelling Unit (ADU), and two (2) detached ADUs. Additionally, the City issued 59 Commercial Permits for various projects, including solar projects, additions to commercial buildings, and cell sites.
The remaining revenue sources are tracking close to or as expected based on the Amended Budget and the timing of revenue receipts/collections. Any revenue adjustments based on year-to-date actuals will be addressed later in the report, along with proposed Expenditure adjustments.
General Fund Expenditures
Certain Expenditures, such as salaries and internal service charges (allocations), remain consistent throughout the year. However, other Expenditures, such as Capital Outlay, are usually one-time purchases and may therefore not be evenly distributed throughout the year. Below is a table reflecting the General Fund’s Expenditures through the Third Quarter.
The General Fund has an Amended Expenditure Budget of $82,158,005, out of which $58,142,632, or approximately 71%, has been spent as of March 31, 2026.
• Personnel expenditures are tracking slightly behind the point expected for the end of Quarter 3 at 71% due to some unfilled positions. Had staff not implemented a Vacancy Factor for all departments as part of the Biennial Budget, Personnel costs would be even lower at approximately 67% of the budget. Considering that certain benefit-related costs, such as accrual buyouts, occur in December and June each year, staff is proposing to maintain the personnel budget as currently forecasted.
• Capital Outlay Expenditures are typically one-time purchases for vehicles, fixtures, and equipment. As of March 31, Capital Outlay expenditures have increased by 14%, with 94% of the total budgeted expenditures utilized. The primary increase in the Third Quarter was due to PD's Vehicle Upfitting, which prepared four (4) of their vehicles for service.
• One-Time Expenditures have been separated from routine O&M and Capital Outlay Expenditures, isolating costs that are for one-time charges. Currently, the One-Time expenses for the General Fund have been marginally utilized. The expenses in this category currently are for Special Event Items, kitchen appliances for the Community Center, and door repair maintenance.
• Capital Improvement Plan (CIP) Expenditures are budgeted in the Capital Improvement Budget, which is budgeted in a sub-ledger of the Operating Budget; however, when CIP Projects incur expenses, the Expenditures are reflected on the General Ledger and appear in the total Expenditures to date. The CIP Budget provides for the non-routine maintenance or replacement of existing public facilities and assets, as well as the construction or acquisition of new facilities and assets. Funding for these expenditures typically utilizes assigned fund balance and/or sustainability reserves set aside for Capital Projects. These expenditures have been categorized separately to indicate that they differ from the Operating Budget.
Measure T
Revenues
As of March 31, 2026, Measure T has collected $17,642,564, which is approximately 60% of the $28,881,479 Amended Revenue Budget.
• Sales Tax receipts are the primary source of revenue for Measure T. As mentioned above in the General Fund section, Sales Tax is collected with a two-month delay. Measure T has collected Sales Tax receipts through January. Similar to the General Fund Sales Tax, the Measure T Sales Tax receipts are tracking 3.3%, or $617,116, higher than at this point in the prior year. Shortly after preparing this report, the February 2026 Sales Tax receipts were reported, and collections came in lower than anticipated. Based on collections received through February 2026 and the Sales Tax forecast for the remainder of the fiscal year, staff now projects revenues will fall short of the amended budget by approximately $265,000, or 0.9%.
• In the Third Quarter, it was determined that Measure T Investment Interest Income should be recorded in Measure T rather than grouped with the General Fund. From the Second Quarter Interest Allocation onward, Staff will be recording Measure T and General Fund Interest Allocations separately. As such, the Other Miscellaneous Revenue category will see a significant increase in revenue, and staff will propose an adjustment to the Other Miscellaneous Revenue budget later in the report. At the time of this report, the Quarter 2 Investment Interest Allocation is the only revenue received in Measure T’s Other Miscellaneous Revenue category.
Expenditures
Measure T has an Amended Expenditure Budget of $32,507,631, out of which $25,566,797, or approximately 79%, has been spent as of March 31, 2026.
• Personnel expenditures are slightly behind the mid-year point at 69% due to some unfilled positions and some positions that were charged to other Funds but have since been corrected and added to the Measure T Fund. Had the budget not included a Vacancy Factor, Personnel costs would be close to 65% of the budget. Similar to the General Fund, and considering that certain benefit-related costs, such as accrual buyouts, occur in December and June each year, staff is proposing to maintain the personnel budget as currently forecasted.
• Operations and maintenance (O&M) expenditures are 49% of the budget, which is expected due to the irregular timing of expenditures throughout the Fiscal Year. O&M expenditures grew 11% during the Third Quarter. Some of the larger contributors to this increase from the Second Quarter are Fire expenditures for Safety equipment and for the emergency radio subscription agreement with the County. Additionally, the Weed Abatement Program has begun activity in the Third Quarter and is likely to continue through the end of the Fiscal Year.
• Capital Improvement Plan (CIP) Expenditures are budgeted in the Capital Improvement Budget, which is budgeted in a sub-ledger of the Operating Budget; however, when CIP Projects incur expenses, the Expenditures are reflected on the General Ledger and appear in the total Expenditures to date. The CIP Budget provides for the maintenance or replacement of existing public facilities and assets, as well as the construction or acquisition of new facilities and assets. Funding for these expenditures typically utilizes Reserves set aside for Capital Projects from Special Revenue Funds. These expenditures have been categorized separately to indicate that they differ from the Operating Budget.
• One-Time Expenditures have been separated from the standard O&M and Capital Outlay to show the difference between recurring costs to keep the City operating and costs that are isolated or that are one-time charges. Currently, the One-Time expenses for Measure T are at 49% of the Amended Budget, increasing 12% from the Second Quarter. The expenses in this category currently are for Fire facility repairs and furniture replacement.
• Measure T Transfers Out exceed what would typically be expected for the midpoint of the FY by 9%. This is due to a one-time lump-sum transfer to establish the Fleet Replacement Fund.
Third Quarter Adjustments
Occasional adjustments to the Operating Budget are necessary. Considering that the City prepares a biennial budget, it is challenging to anticipate every need over a two-year timeframe and to predict changes in economic conditions. Furthermore, it is common for items to be overlooked and inadvertently excluded from the budget. This Budget Update requests a few department-requested Expenditure appropriations based on the actual costs of budgeted items, for unplanned expenditures, and for expenditure budgets that were inadvertently excluded during the Biennial Budget development process.
The proposed Citywide (all-funds) adjustments include an increase in budget Expenditures of $348,971 and a net increase in budget Revenues of $672,270. The following table summarizes the proposed Citywide changes.
Revenues
• Staff conducted a year-over-year analysis on Property Tax revenues for the General Fund, the Fire District, and the Library. Overall, the revenues appear on track with the current budget. Based on staff review and analysis, staff is proposing a net decrease of $104,154 in the budget for Property Tax revenues for the General Fund. This is primarily the result of increases in current and unsecured Property Tax revenues, partially offset by significant reductions in supplemental and prior-year Property Tax levies. Similar to the General Fund, the net decrease in Property Tax revenue for the Fire District Fund is $74,200, with a similar impact on the specific Property Tax category. Lastly, the Library District Fund experienced similar trends within the Property Tax revenue categories, resulting in a net proposed reduction of $7,000. Staff is also proposing to increase the VLF Property Tax budget in the General Fund by $601,700.
• Staff proposes a net increase in Revenues for the Other Miscellaneous Revenues category by $259,816.
o Staff recommends reallocating $1,200,000 of the budget for Investment Interest Income from the General Fund to the Measure T Fund. During the Third Quarter, it was determined that Measure T Investment Interest Income should be recorded in the Measure T Fund rather than grouped with the General Fund. From the Second Quarter Investment Interest Allocation onward, Staff will be recording Measure T Fund and General Fund Interest Allocations separately. This budget adjustment has no budgetary impact on the overall budget.
o Additionally, staff proposes to add a budget to the City’s Federal Treasury Asset Forfeiture Fund revenue account for $259,816. This is to account for revenues earned in a prior period and that were received throughout the current FY.
• Staff also proposes two changes in revenues for Charges for Services. In total, staff is proposing a net decrease of $3,892 to Charges for Services.
o Staff proposes to decrease Charges for Services for Other Fire Services by $37,000. These Other Fire Services revenues are typically earned from Fire’s support and time at events held by the City and other entities. This decrease in anticipated revenues is based on Fire’s anticipated events for the remainder of the FY.
o Additionally, staff proposes an increase to Charges for Services for Vehicle Services of $33,108. This revenue is recorded as internal service revenue for the City’s Vehicle Replacement Program and will be offset by the increase in Allocation expenses.
Below is a summary of the Expenditure appropriations being requested:
• Staff proposes $294,847 in budgetary adjustments to the O&M Budget for the following reasons:
o The Police Department requested $112,416 in additional budget to cover High Profile Out of State case costs, and for PD Forensic lab services that have arisen over the course of the Third Quarter.
o Due to the rising fuel costs, staff proposes increasing the Fire and PD Vehicle fuel budgets by $56,600. Increasing PD’s fuel budget by $8,000 and the Fire’s fuel budget by $48,600.
o The remaining budget appropriation requests in O&M total $125,831 for items that were either inadvertently excluded or items that have arisen since its adoption.
• A Capital Outlay increase of $21,016 for the purchase of playground equipment for staff to repair the playground at Vintage Reserve Park within Lighting & Landscape District 12.
• Allocations for the City’s Vehicle Replacement Program’s internal service allocation charge are proposed to increase by $33,108. This increase is due to updated estimates of the future costs of various Fire Department vehicles. This results in increases to annual Allocations for the General Fund and Measure T of $11,520 and $21,588, respectively.
Schedule of Authorized Positions
New positions, staffing changes, or position reclassifications are sometimes necessary to ensure operational efficiency and effectiveness. Staff is proposing no changes to the Schedule of Authorized Positions, and the total Full-Time Equivalent positions is 472.09. The full detail Schedule of Authorized Positions is included in this report as Attachment 5.
Fund Balance
The General Fund is projected to have an available or Unassigned Fund Balance of $30,749,916 at the end of Fiscal Year 2025/26. This balance takes into account a negative variance of approximately $3.9 million between budgeted Revenues and Expenditures (or use of Unassigned Fund Balance), a $7,365,435 million planned contribution to Operating Reserves, a planned use of reserves of Operating Reserves of $2,275,000, and Capital Improvement Project allocations of approximately $1.2 million.
Measure T Fund is projected to have an Unassigned Fund Balance of $18,640,711 at the end of the Fiscal Year. This balance takes into account an approx. $2.5 million negative variance between budgeted Revenues and Expenditures (or use of Unassigned Fund Balance), a $1,070,504 million planned contribution to Operating Reserves, $6,280,521 million planned use of reserve towards Capital Improvement Projects and the Vehicle Replacement Program, and Capital Improvement Project allocations totaling $4,649,767 million.
The most appropriate time to report the Unassigned Fund Balance is at the end of the fiscal year, typically upon completion of the audit and the Annual Comprehensive Financial Report. All other times are projections and subject to change.
The Fire District, Community Facilities District, and Library District Funds are projected to end the fiscal year with no available fund balance, as these departments’ operations are supported by the Measure T Fund. These funds will be true-up at the end of the fiscal year and reported in the Fourth Quarter budget update report. Below is a summarized version of this information. A complete list of the overall changes by fund is included in Attachment 4.
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 Third Quarter budgetary amendments to the Fiscal Year 2025/26 Operating Budget include a $348,971 net increase in Expenditures appropriation and a net $672,270 increase in revenue. Attachment 3 includes a comprehensive list of the requested appropriations by the General Ledger account.
ATTACHMENTS
ATT 1 - FY 2025/26 Third Quarter Budget to Actual Report - Major Funds
ATT 2 - FY 2025/26 Third Quarter Budget to Actual Report - All Funds
ATT 3 - Proposed Third Quarter Budget Requests
ATT 4 - Fund Balances for All Funds (Estimated)
ATT 5 - Fiscal Year 2025/26 Authorized Position List