TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Tanner Benson, Financial Analyst
SUBJECT:
title
Adoption of the Fiscal Year 2025/26 and 2026/27 Operating Budgets
end
RECOMMENDATION
recommendation
Adopt Joint Resolution No. 25-4837, MLB 25-201; CSD 25-285, RSA 25-35, MHA 25-45 entitled: A Joint Resolution of the City Council of the City of Murrieta, and the Boards of Directors of the Murrieta Library District, Murrieta Community Services District, the Successor Agency to the Murrieta Redevelopment Agency, and Murrieta Housing Authority, approving the Operating Budget for Fiscal Years 2025/26 and 2026/27, Authorizing Unassigned Fund Balances to be Set Aside in Various Operating and Sustainability Reserves, Approve the use of Previously Set Aside Sustainability Reserves and Authorize the Transfer of Those Funds;
Approve the Preliminary Operating Budget for Fiscal Years 2025/26 and 2026/27 for the Murrieta Fire District and set June 17, 2025, as the date of the Public Hearing for the final adoption; and
Approve the Schedule of Authorized Positions.
body
PRIOR ACTION/VOTE
On February 10, 2025, the City Council held a goal-setting workshop. No formal action was required.
On May 6, 2025, the City Council conducted a budget workshop, during which a draft of the proposed biennial budget for Fiscal Years 2025/26 and 2026/27 was presented. No formal action was required; however, direction was given to include City Manager recommendations suggested during the workshop.
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
In each odd-numbered year, the City of Murrieta (City) adopts a biennial (two-year budget) that provides the spending plan to govern city operations. The proposed budget under consideration was developed with input from the City Council and members of the community during the goal-setting workshop held on February 10, 2025, as well as oversight by the City Manager and input from the City’s department directors, and the City’s applicable consultants and advisors. The preliminary Operating Budget was first presented to City Council during a budget workshop held on May 6, 2025. The workshop gave the City Council and Murrieta residents the first opportunity to review and discuss the budget, and provide direction and comments to staff about budgetary changes they would like included in the final draft. Further discussion of the changes is mentioned later in the report. As presented, the budget is reflective of the City Council’s stated priorities: maintain existing levels of services and programs, manage staffing levels consistent with the workload, and maintain fiscal stability. Since the budget workshop, staff has made numerous final adjustments to the preliminary Operating Budget. A brief list of those final edits made to both Revenues and Expenditures for all applicable funds is included in Attachment 5.
After including the aforementioned final edits, the proposed overall Operating Revenue Budget is $195,464,253 for Fiscal Year 2025/26 and $199,633,571 for Fiscal Year 2026/27. The proposed overall Operating Expenditure Budget, excluding operating transfers, is $182,131,287 for Fiscal Year 2025/26 and $191,293,957 for Fiscal Year 2026/27. The proposed spending plan for the City’s Operating Funds-the General Fund and Measure T Fund-takes a conservative approach to ensure that ongoing revenues sustainably support ongoing expenditures.
In Summary, the proposed citywide biennial budget is balanced and ensures that the City continues to maintain or enhance current service levels to the community. The schedule below summarizes the biennial budget by Account Category. A listing of each proposed budget, by General Ledger Account, is included in Attachment 3.
Staff performed a 10-year revenue study and analyzed other key drivers that impacted various revenue sources in order to project realistic revenue estimates. The main revenues analyzed were Sales Tax, Property Tax, Business License Tax, and Transient Occupancy Tax (TOT). The City uses a third-party consultant to forecast Sales Tax utilizing advanced economic modeling and trend analysis. The proposed sales tax revenue budget includes a combination of the third-party consultant forecast and current Sales Tax revenue trends. The other revenue projections included in the proposed budget are based on current economic conditions; however, various uncertainties in the economy, including the implementation of the proposed tariffs and the possibility of two reductions in the interest rate from the Federal Reserve, could impact future revenue collections. The Finance Department will monitor economic changes and recommend adjustments during quarterly budget update presentations, as needed.
Expenditure forecasts were made based on current economic trends and operational needs. The most significant changes came from: personnel costs based on approved labor agreements, workers’ compensation costs, CalPERS regular and unfunded liability costs, and increases in expenditures in the internal services charges for Information Services and Risk Management. A vacancy factor based on historical trends was included in the proposed budget to account for typical vacancies that occur throughout the year
The proposed budget also includes funding for capital equipment, contract services, continued funding of other post-employment benefits, and the addition of a fleet replacement program and annual allocation to set funds aside to replace fleet vehicles as they age or for new vehicles needed for new employees.
As a percentage of the overall Operating Budget for Fiscal Year 2025/26, the General Fund budget represents approximately 51%, Measure T Fund is approximately 10%, the Fire District Fund is 16%, Community Services District Fund is seven percent (7%), Library Fund is two percent (2%), and the remaining funds account for approximately 14%. Some examples of the remaining funds include Lighting and Landscape Districts, Development Impact Funds, Housing Authority, and grant-related funds. The table below summarizes the overall operating budget by fund, and the subsequent chart depicts the funds as a percentage of the overall operating budget.
.The majority of funds remain flat between Fiscal Year 2025/26 and Fiscal Year 2026/27, except the Fire District and All Other Funds, which grow by 1% between the two fiscal years.
The schedule below summarizes the Proposed Biennial Budget by Expense Category, and the subsequent chart shows the percentage of the overall Operating Budget by Expense Category. Personnel Costs represent the highest expense category, at approximately 56%
There is a one-percent difference between Operations & Maintenance and All Other Expenditures for Fiscal Year 2026/27; the percentages of all other categories remain the same, as shown in the chart below.
City Manager’s Recommendations
The City Manager aimed to establish a foundational budget aligned with the operational needs of the current year and to consider where adjusting service levels would best reflect the needs of the community. Departments were instructed to submit a baseline budget and to submit all new budget proposals for operations and maintenance (O&M), capital outlay, new personnel requests, and any reclassifications related to the organizational structure. The City Manager evaluated all the requests and made a recommendation at the City Council workshop on the items that would be included in the operating budget. Following concurrence from the City Council during the workshop, these requests were integrated into the final draft of the budget. The following table shows the cost of the approved recommendations. All Personnel Changes based on the City Manager’s Recommendation will be discussed in the following section of this report.
Staffing Levels
Residents, businesses, and visitors to Murrieta have come to expect and appreciate above-average to outstanding service from city staff. To maintain these expected service levels, earlier this year, the City Manager worked with each Department Director to identify future staffing needs. As part of this Biennial Budget process, the City Manager requested all Departments to submit requests for new or reclassified staff for review. Taking into account the needs of each department and the importance of maintaining a balanced budget, the City Manager presented staffing recommendations during the Budget Workshop. . The recommendation was to reclassify seven (7) positions and add two (2) positions in Fiscal Year 2025/26 and three (3) positions in Fiscal Year 2026/27.
Additionally, during the review of Schedule of Authorized Positions, Finance noted three (3) Limited-Term positions that will come to an end as of June 30, 2025. The City Manager also proposed removing the vacant Assistant City Manager position from the Authorized Positions to contribute to balancing the budget with additional budgetary savings.
In summary, the proposed operating budget includes five (5) additional positions to be added over the course of the next two (2) years that include a grant-funded Fire Inspector, a Deputy City Clerk to reduce the dependency on staff from the City Attorney’s office, and three (3) additional Firefighter/Paramedics to staff the new tiller truck with a four (4)person crew. It is noteworthy to mention that the three (3) additional Firefighter/Paramedics positions can be accomplished with funding provided by Measure T.
Seven (7) positions are proposed to be reclassified in Fiscal Year 2025/26 to improve efficiencies and better manage the workload within the respective departments. Six (6) positions are to be removed due to department efficiencies and needs and for limited-term positions that have reached the end of their assignments.
All of these changes result in a net reduction in year one (1) of four (4) positions and an increase of three (3) positions in the second year of the budget. At the end of Fiscal Years 2025/26 and 2026/27, the total number of City staff positions will be 465.09 and 468.09 FTEs, respectively. The table below lists the proposed changes to the Schedule of Authorized Positions and the year in which they are proposed to be filled or removed in this biennial budget. Attachment 4 contains a complete list of all positions for Fiscal Year 2025/26 and Fiscal Year 2026/27, which includes the five (5) new positions, seven (7) reclassified positions, and the six (6) removed positions.
Transfers to Operating and Sustainability Reserves
The City Council’s Reserve Policy states that a 25% Operating Reserve must be maintained for each significant fund. Staff proposes to assign available (unassigned) fund balances from the General Fund and Measure T to increase Operating Reserves to a collective total of 30% for the five major funds (General Fund, Measure T, Fire Districts, Community Services District, and the Library). The second year of the proposed budget has additional increases to the Operating Reserves to maintain the 30% Reserve level. An additional recommendation is requested to appropriate $6 million in the Economic Contingency Reserve using General Fund unassigned fund balance.
As part of this Biennial Budget, staff also recommends transferring the Fleet Replacement and Fire Fleet Replacement Reserves to our Fleet Replacement Fund for the newly established Fleet Replacement Program. Additionally, Staff recommends transferring $3.5 million from the CSD Facility Repair Reserves, where Measure T funds were set aside in prior years, for the Loan to the Library for the Library’s children's expansion project. The complete list of proposed reserve funds to be set aside and appropriated, and their purposes can be found in Attachment 6.
FISCAL IMPACT
Establish Revenue and Expenditure Budgets for Fiscal Years 2025/26 and 2026/27 as summarized below. A listing of all proposed budgets listed by General Ledger Account is included in Attachment 3.
ATTACHMENTS
1. Joint Resolution No. 25-4837, MLB 25-201; CSD 25-285, RSA 25-35, MHA 25-45
2. Draft Fiscal Years 2025/26 and 2026/27 Operating Budget Book
3. Proposed Budgets listed by General Ledger Account
4. Schedule of Authorized Positions
5. Citywide Adjustments Since the Workshop
6. Proposed Operating and Sustainability Reserves for Fiscal Year 2025/26 and 2026/27