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 Second Quarter Financial Status Report and Proposed Budget Adjustments
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ABSTRACT
This Second Quarter Budget Update reports on Fiscal Year 2025/26 through December 31, 2025, and requests approval of budget adjustments and an updated Schedule of Authorized Positions. General Fund and Measure T revenues are tracking as expected, and expenditures are near the mid-year mark, reflecting approved staffing updates and early capital outlay activity. Staff recommends targeted budget amendments to align revenues, expenditures, and transfers with actual activity and updated projections. Overall, the budget is tracking largely as planned.
RECOMMENDATION
recommendation
Receive and file the report;
Amend the Fiscal Year 2025/26 Operating Budget and approve the Second Quarter Proposed Budget Adjustments as referenced in the Fiscal Impact statement; and
Approve the Updated Schedule of Authorized Positions List.
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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 (Vote: 5-0)
CITY COUNCIL GOAL
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 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 staff with opportunities to adjust the Operating Budget based on the analyzed trends and the needs of the organization.
This Second Quarter Budget Update Report serves three (3) purposes:
1. Provide a Fiscal Year 2025/26 Budget Update of activities through the Second Quarter of the Fiscal Year (July 1 - December 31, 2025);
2. Request City Council approval of adjustments to the budget based on year-to-date actuals and department needs for several Revenue and Expenditure accounts as outlined in Attachment 3; and
3. Requests approval of the Updated Schedule of Authorized Positions List.
The Mid-Year Budget Update Report typically includes appropriations to true up revenues and expenditures needed for the remainder of the Fiscal Year. This Mid-Year Update includes a few changes to Revenues and Expenditures that will be discussed later in the report. The Third Quarter Budget Update will be another opportunity to update Revenues that are typically not received until later in the Fiscal Year. The table below provides a Citywide Summary of Revenues collected through December 31, 2025. The discussion of Expenditures will follow the discussion of Revenue.
General Fund Revenues
As of December 31, 2025, the City’s General Fund has collected $20,512,860, which is approximately 26% of the $78,836,996 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 track at 50% of the budget through the first six months of the Fiscal Year. While Revenue for a few Property Tax accounts has been received, the balance of the first installment receipts for Property Taxes will be received in late January; hence, these revenues will be reflected in the Third Quarter Budget Update.
• Sales Tax receipts are collected on a two-month delay. As of December 31, 2025, we have collected Sales Tax receipts through October. We budgeted Sales Taxes three percent (3%) higher than the Fiscal Year 2024/25 Amended Budget. For the four months of collections, Sales Tax receipts are tracking modestly 1.75% higher than originally projected. We will discuss proposed adjustments to the Sales Tax budget later in this report in the “Proposed Changes” section.
• License and Permit Fees are continuing to trend higher at 64% of the budget. The City has collected an additional $334,264 during the Second Quarter of the Fiscal Year. This collection builds on the 759 Multi-Family residential unit permits issued in the First Quarter by adding 12 additional Multi-Family Residential units, 4 Accessory Dwelling Units, and 1 Single-Family Residential permit.
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 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 Second Quarter.
The General Fund has an Amended Expenditure Budget of $81,787,415, out of which $39,024,812, or approximately 48% has been spent as of December 31, 2025.
• Personnel expenditures are tracking slightly behind the mid-year point at 47% 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 43% of the budget.
• Capital Outlay Expenditures are typically one-time purchases for vehicles, fixtures, and equipment. As of December 31, 80% of the Capital Outlay Expenditures budgeted have been utilized. The total expenses are primarily for PD's purchases of a Motorola Radio Lease and Upfitting to get their vehicles ready 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 not been utilized.
• Capital Improvement Plan (CIP) Expenditures are budgeted in the Capital Improvement Budget. 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 Reserves set aside for Capital Projects. These expenditures have been categorized separately to indicate that they differ from the Operating Budget.
• Transfers Out for the General Fund exceed what would typically be expected for the midpoint of the FY by 18%. This is due to a one-time lump-sum transfer to establish the Fleet Replacement Fund.
Measure T
Revenues
As of December 31, 2025, Measure T has collected $9,649,477, which is approximately 34% of the $28,731,479 Amended Revenue Budget. Sales Tax receipts are the primary source of revenue for Measure T. As mentioned above in the General Fund section, Sales Taxes are collected with a two-month delay. Measure T has collected Sales Tax receipts through October. Similar to the General Fund Sales Tax, the Measure T Sales Tax is trending slightly higher than initial projections by 1.5%. Proposed increases to Sales Tax are discussed later in this report in the “Proposed Changes” section.
Expenditures
Measure T has an Amended Expenditure Budget of $35,933,847, out of which $18,336,590, or approximately 51% has been spent as of December 31, 2025.
• Personnel expenditures are slightly behind the mid-year point at 46% due to several unfilled positions. Had the budget not included a Vacancy Factor, Personnel costs would be close to 42% of the budget.
• Operations and maintenance (O&M) expenditures are 38% of the budget, which is expected due to the irregular timing of expenditures throughout the Fiscal Year. One of the larger contributors to this variance is the Weed Abatement Program. This program typically sees most of its activity later in the Fiscal Year.
• Capital Outlay expenditures are typically one-time purchases. As of December 31, Capital Outlay Expenditures budgeted in the Operating Budget have consumed 52% of the Amended Budget. The budget and expenditure in Measure T’s Capital Outlay are for PD and Fire safety supplies.
• 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 ones. 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 37% of the Amended Budget. The expenses in this category currently are for Fire facility repairs and furniture replacement.
• Similar to the General Fund, Measure T Transfers Out exceed what would typically be expected for the midpoint of the FY by 4%. This is due to a one-time lump-sum transfer to establish the Fleet Replacement Fund.
Second Quarter Adjustments
Occasional adjustments to the Operating Budget are necessary. Considering the City prepares a biennial budget, it is challenging to anticipate every need over two years 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 missed during the Biennial Budget process.
The proposed Citywide (all-funds) adjustments include an increase in Expenditures of $457,168, a net increase in Revenues of $8,120,832, and a decrease of $3,500,000 to both Transfer In and Out. The following table summarizes the proposed Citywide changes.
Revenues
• Staff reviewed the Sales Taxes collected to date for General Fund and Measure T and reviewed the projections to update the budget revenues. Based on the review, staff is proposing to increase the budget for Sales Tax revenues by $200,000 for the General Fund and $150,000 for Measure T.
• Staff proposes increasing Revenues for Other Misc Revenues by $7,470,178.
o Developer Impact Fees (DIF) are recommended to be increased by $7,313,078. DIF revenues were conservatively budgeted due to the impact of Senate Bill 937, which allows qualified residential projects to defer payment of their DIF fees to final occupancy rather than paying them prior to permit issuance.
o Additionally, other proposed increases totaling $157,100 for various other revenues, such as CalOES revenues for Strike Team reimbursements for providing mutual aid to other agencies, and one-time revenues for Risk management.
• Staff also proposes to increase the revenues for Charges for Services, Property Taxes, License and Permits, and Sales for Capital Assets, $300,654. These increases are to true up revenues earned throughout the FY, adding budget to revenues that exceeded the budget or were unexpected and not previously budgeted.
Below is a summary of the Expenditure appropriations being requested:
• Total increases to the Personnel Costs are $222,139 to implement various adjustments to positions approved at the December 16, 2025, City Council Meeting. Additionally, a budget for Fire benefits was omitted from the Biennial Budget.
• Staff proposes $167,241 in adjustments to the O&M Budget for the following reasons:
o The Fire Department receives enhancement fees from American Medical Response (AMR) when the ambulance provider arrives at an emergency location later than the contracted response time. This Revenue is to be used for specific purposes as outlined in the AMR Enhancement Fee Agreement. Staff requests a $50,000 budget reduction due to less revenue anticipated this FY.
o The costs of $186,934 associated with the City’s Annex lease, utilities, and lease interest were inadvertently omitted from the Biennial Budget.
o A reduction of $100,618 under the Library DIF fund to remove the principal payment expense for the construction fund, which is not needed as the repayment of the loan will be accounted for on the balance sheet accounts.
o The remaining budget appropriation requests in O&M total $130,926 for items that were either inadvertently missing budget or items that have arisen since its adoption.
• Net $20,405 adjustments for Capital Outlay. An increase of $58,405 for a Purchase Order that needed to be rolled forward from the prior year, and a reduction of $38,000 to move the budgeted expenditure from Capital Outlay to O&M.
• One-Time Expenses of $47,383 for emergency repairs that were made at the Fire Fleet Maintenance building.
Staffing Changes
New positions, staffing changes, or position reclassifications are sometimes necessary to ensure operational efficiency and effectiveness. The proposed action includes one new position, two relocated positions, four title changes, and one eliminated position. The net impact on the Schedule of Authorized Positions is a net zero Full-Time Equivalent (FTE) position for FY 2025/26, which maintains the FTE at 467.09 FTE positions (Attachment 5).
o New Fire Prevention Battalion Chief Position in the Fire Prevention Division.
o Audio Visual Technician was relocated from Information Services to the City Manager’s Office.
o An Office Assistant was relocated from the Administrative Services Department to the City Manager’s Office.
o One IT Systems Administrator from Information Services was reclassified to a Sr Network Systems Engineer.
o The Assistant to the City Manager position was reclassified as the Director of Executive Services.
o The Economic Development Director position was reclassified as a Deputy City Manager.
o An Administrative Assistant position in Municipal Services was reclassified as an Executive Assistant.
o The Communication Specialist position was eliminated from the City Manager’s Office. Eliminating this position reduces the FTE count by 1.
The fiscal impact for the four reclassified positions is included in the Proposed Second Quarter Adjustments discussed earlier. The fiscal impact of the new Fire Prevention Battalion Chief position will be included in a future budget update. The table below summarizes the requested changes discussed above.
FISCAL IMPACT
Staff recommends amending the FY 2025/26 Operating Budget based on the proposed Second Quarter amendments, which include a $457,168 request to increase Expenditures and an $8,120,832 request to increase Revenue. The requested Transfer In and Transfer Out budgets are proposed to be decreased by $3,500,000. Attachment 3 contains the details of the proposed budget adjustments.
ATTACHMENTS
ATT 1 - FY 2025/26 Second Quarter Budget to Actual Report - Summary of Major Funds
ATT 2 - FY 2025/26 Second Quarter Budget to Actual Report - Detail of All Funds
ATT 3 - FY 2025/26 Proposed Second Quarter Budget Amendments
ATT 4 - FY 2025/26 Estimated Unassigned Fund Balance
ATT 5 - FY 2025/26 Schedule of Authorized Positions