TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Tanner Benson, Financial Analyst
SUBJECT:
title
Fiscal Year 2025/26 First Quarter Financial Status Report and Proposed Budget Adjustments
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RECOMMENDATION
recommendation
Amend the Fiscal Year 2025/26 Operating Budget and approve the First Quarter Proposed Budget Adjustments as referenced in the Fiscal Impact statement;
Amend the Fiscal Year 2025/26 Capital Improvement Plan (CIP) budget to establish budget appropriations for Capital Improvement Project Nos. 08303, 13058, 22035, and 22036 as detailed in the Fiscal Impact statement;
Approve the use of Assigned Fund Balance for the Fire Fund and establish expenditures budget as allowed in the AMR Enhancement Fee Agreement; 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, the Community Services District, the Murrieta Library District, the Housing Authority, and the City Council acting as Successor to the Redevelopment Agency, 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 FY 2025/26 and 2026/27 (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.
This First Quarter Budget Update Report serves four (4) purposes:
1. Provide a Fiscal Year 2025/26 Budget Update through the First Quarter of the Fiscal Year (July 1 - September 30, 2025);
2. Request City Council approval of adjustments to the budget based on year-to-date actuals for several Revenue and Expenditure accounts as outlined in Attachment 3;
3. Approve the establishment of budget appropriations and the transfer of funds for several Capital Improvement Projects; and
4. Requests approval of the updated Schedule of Authorized Positions list.
Revenues Collected Through September 30, 2025
First Quarter revenue does not provide adequate data to conduct a thorough year-end trend analysis. Typically, the most relevant revenue analysis at the end of the First Quarter is to compare the First Quarter data between the current and prior Fiscal Year, since most revenues are not received evenly throughout the year. For example, the City receives property taxes in January and May for the December and April tax bill installments. The table below reflects Citywide Revenues collected through the First Quarter.
• Sales Tax receipts for the current year, Fiscal Year (FY) 2025/26, were 5% greater than the base year, FY 2024/25. This increase is in line with the statewide estimates provided by the City’s Sales Tax consulting firm (HdL). The City anticipates Sales Tax revenue will remain consistent, heading into the Second Quarter, possibly increasing slightly if the Federal Reserve continues to reduce interest rates.
• Charges for Services saw a large decrease in collections compared to the base year; the City collected approximately 22% less than the base year. Overall charges for services, including inspections, plan checks, special services (e.g., Notary, photocopy, and General Plan fees), and recreation programs, are all trending lower than in the prior year. The largest variance is in Public Works Plan Checks, which went from collecting $670,976 in FY 2024/25 to $159,990 in the current FY.
• Other Miscellaneous Revenues category includes Interest Earnings, Miscellaneous Revenues, Revenue from Other Agencies, Development Impact Fees, and Grant-Related Revenue, which are trending higher than what would normally be collected through the First Quarter. The continued higher interest rates are generating higher interest earnings from the City’s short and long-term investment accounts. This Revenue category fluctuates annually due to the nature of the revenues collected. Grants are not cyclical and are often one-time revenues. The same can be true for monies collected from Other Agencies.
o A substantial part of the increase in Other Miscellaneous Revenues is due to the collection of Developer Impact Fees, also known as DIF Fees. The increases are primarily due to collecting greater revenues than anticipated in both the Park Land DIF and Freeway, Streets, and Bridges DIF funds, totaling $4.4 million across the two funds.
• Transient Occupancy Tax, or TOT, is trending higher in the First Quarter of FY 2025/26 than it did in the base year by 51%. The increase is due to collecting greater revenues across two (2) months of TOT from the Murrieta Hot Springs Resort. Revenues from other hotels, such as Holiday Inn and Courtyard, are also trending higher during this quarter compared to the same period last year.
• License and Permit Fees are trending higher than what would normally be collected through the First Quarter. The City collected $480,945, or 115%, more than what was collected in the First Quarter of FY 2024/25. The increase is due to a higher collection of License and Permit fees for Residential Properties, specifically for multifamily units. There were 759 multifamily unit permits issued in the First Quarter this year, compared to last year.
Any revenue adjustments based on year-to-date actuals will be addressed later in this Budget Update Report, along with proposed adjustments for Expenditures. Revenues in total will be evaluated as part of the Mid-Year Budget Update and adjustments requested, if necessary, at that time.
Expenditures through September 30, 2025
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, therefore, may not be evenly distributed throughout the year. Hence, it is most relevant to compare the current year to the prior year, as was done with revenue. Below is a table reflecting the Citywide Expenditures through the First Quarter.
The City has expended $38,786,381 of its expenditure budget so far this FY. This is $5,512,539, or 12%, less than what was spent in the First Quarter of FY 2024/25.
• Personnel costs for the current year have increased slightly compared to the previous year. The 5% increase is in line with what was anticipated based on the MOUs, as it accounts for salary increases such as a 4% cost-of-living adjustment (COLA) for public safety labor groups and a 2.6% COLA for the miscellaneous labor groups, plus any positions eligible to receive a 5% merit increase and increases in other benefits (pension costs, workers’ compensation, health benefits, etc.)
• In contrast, Operations & Maintenance costs were 35% (or $7,176,357) lower than the base year.
o As a whole, spending in the City’s Contract Services category decreased by $261,017. The greatest reduction in spending was in the Contract Services - Other category, which decreased in the First Quarter by $196,253. The next highest reduction in expenditures was in Contract Services - Legal category, where expenditures were $74,244 less compared to the base year.
o City-wide Claims are lower when compared to the base year by $472,471, with the largest contributor being a reduction in Workers’ Compensation Claims by $421,183. The payment of claims is not made on a monthly basis, nor is each claim paid out for the same amount; rather, claims are paid when a resolution or decision is made, based on the severity of the claim, resulting in fluctuations in claims.
o The annual Debt Service payment for the Bonded Mello-Roos Districts is not recorded until the Trustee accounts are reconciled. The Debt Service payment occurs on the September statements, which are not made available to the City until October. As of the date of this report, the statements were prepared, but not reviewed or posted. This difference totaled $7,351,929.
o The City did see an increase in certain Insurance Expenditures in the current Fiscal Year. In FY 2025/26, the City spent $1,039,437 more on insurance expenses than in the base year. This was due to substantial rate increases from the City’s insurance provider, PERMA. The average increase over the prior year was 28%. General Liability and Workers’ Compensation had the largest value increases with $558,640 and $289,777, respectively.
• Capital Outlay is trending lower in the First Quarter of the current fiscal year when compared to the base year by $173,169, or 19%. The main cause of the difference is that fewer purchases were made by the Police Department for machinery, equipment, and vehicles in the current fiscal year. Vehicle purchases are dependent on availability, so the annual vehicle purchases may not be made at the same time each year.
• 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 significant 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 fund balance set aside for Capital Projects of Special Revenue Funds. These expenditures have been categorized separately to distinguish them from the Operating Budget.
• Transfers In and Out for the City are significantly greater in the current FY than in the base year. The primary driver for the increase is $7,048,443 being transferred from the General Fund and Measure T Fleet Reserves to Fund 715, which is the City’s Fleet Replacement Program. This Transfer was made as a lump sum, as opposed to monthly installments, so that the funds could begin generating interest for future fleet purchases. Otherwise, Transfers would be less than the prior year by $615,083.
First Quarter Adjustments
Occasional adjustments to the Operating Budget are necessary. Given that the City prepares a biennial budget, it is challenging to anticipate every need over the course of 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 $743,611, a net increase in Revenues of $10,049, and an increase of $728,508 to both Transfer In and Out. The following table provides a summary of the proposed Citywide changes.
Staff propose increasing Revenues for Charges for Services for Community Financing District (CFD) administration by $9,549 to align them with the Expenditure side of the budget. An increase of $500 to the Police Department’s Miscellaneous Donation account is also proposed to account for donations received for the Dark in the Park event.
Below is a summary of the expenditure appropriations being requested:
o As part of this Budget Update, there is a request to increase Personnel Costs for Police Department Overtime under the Crime Prevention Fund, which was intended to be included in the Biennial Budget. The overtime is used for the Citizens Academy, Team Kids (previously DARE), Youth Court, and the Every 15 Minutes and Explorer programs. There is also an increase for Building and Safety to migrate their contracted temporary Office Assistant into a full-time permanent position, which totals $88,425.
o Requested net adjustments totaling $12,466 to the Insurance Expense accounts to align the budget with actual costs.
o The Police Department was unable to spend the requested budget appropriation of $36,500 from the FY 2024/25 Third Quarter Budget Update; as such, the unspent funds revert back into Unassigned Fund Balance in the Special Revenue Fund 411 (Supplemental Law). The Police Department is resubmitting its budget request, including an additional $13,000, for a total of $49,500 to purchase radios and safety equipment. Additionally, the Police Department is requesting to appropriate the Unassigned Fund Balance in Special Revenue Fund 404 (Seized Asset Fund) to establish a budget of $182,773, which will be used to purchase additional safety supplies for the department.
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. Funds were collected last year, but were unspent, so they were set aside in an Assigned Fund Balance. Staff requests to appropriate those funds totaling $321,463 now, so they can be used this FY.
o The remaining budget appropriation requests total $88,984 for items that were either inadvertently excluded from the Biennial Budget or have arisen since its adoption.
Staffing Changes
Staffing changes or position reclassifications are sometimes necessary to ensure operational efficiency and effectiveness. The proposed action includes four requests and two cleanup items. The proposed changes to the Schedule of Authorized Positions have a positive net effect of two positions on the Full-Time Equivalent (FTE) count for FY 2025/26, which will increase the FTE count to 467.09 FTE positions (Attachment 5). The proposed changes include:
o Reclass of the City Clerk’s Executive Assistant to an Assistant Management Analyst. This change in position has a net zero (0) impact on FTE and will utilize the budgetary savings from the vacant Executive Assistant position to cover the costs for the current FY.
o Reclass of the Economic Development Manager to an Economic Development Coordinator or Specialist. This change in position has a net-zero (0) impact on the FTE and will utilize the budgetary savings from the vacant Business Development Manager position to cover the costs.
o A grant-funded Administrative Assistant position was approved by the City Council at the April 1, 2025, meeting. The position was not added to the Schedule of Authorized Positions at that time. Staff is requesting that this position be added to the Schedule of Authorized Positions. This additional will result in an FTE increase of one (1).
o As part of budget adoption, a few positions within the Human Resources Division were incorrectly adjusted. The Human Resource (HR) Analyst was added instead of an HR Technician, and the elimination of an Office Assistant under Administrative Services was made, but it should have been under Human Resources. Correcting these changes results in a reduction of one (-1) FTE.
o Additionally, there are movements of other positions that will provide greater efficiency. An Office Assistant from Building and Safety is being reassigned to Planning. A permanent Office Assistant is being created from a temporary, contracted Office Assistant, which will add one (1) FTE. An Office Assistant position is being created at the Senior Center, which will add one (1) FTE.
o The remaining changes pertaining to the Municipal Services Department will be discussed in the following section.
The table below summarizes the requested changes discussed above.
Municipal Services Department
Prior to the adoption of the Biennial Budget, the Municipal Services Department (MSD) was created, which removed all maintenance functions from the Public Works/Engineering Department. It was too late in the budget development process to move the budget from one department to the newly created department. It was then determined that the separation of these two departments would occur as part of this budget update.
As part of this budget update, staff proposes updating the Operating Budget and the Schedule of Authorized Positions to reflect the movement of the budget and personnel into the newly created MSD. Several divisions are impacted by the change, which include Public Works Maintenance, Public Works Streets, and Public Works Facilities. The budgets related to Community Services Department (CSD) Support associated with Park Maintenance are also moving to MSD. The movement of these budgets has a net zero impact on the budget overall. Attachment 3 contains the details of the budget movements.
The majority of the position changes involve a transfer from one department to another. However, two positions are being downgraded to produce budgetary savings, which will ultimately provide better efficiency within the new department by affording the creation of another Management Analyst to support the Department's needs. Attachment 5 includes position changes as shown in the graphic below, in addition to the staffing changes discussed above.
CIP Changes
The City Council approved a development agreement, which may result in the City Council considering the acquisition of right-of-way needed for the construction of improvements at the intersection of Sparkman Drive and Murrieta Hot Springs Road, in order to satisfy Environmental Impact Report (EIR) traffic mitigation requirements. If the City Council elects to assist with the acquisition of the necessary real property, including temporary construction easements, to accommodate road widening, drainage improvements, utility relocations, and other public purposes, the City’s estimated cost could be $700,000, for which a budget is being requested.
During the Fiscal Year 2025/26 CIP budget adoption and closeout process, some project funding sources were inadvertently defunded, and others incurred cost overruns due to unforeseen logistical issues. The remaining CIP budgetary requests total $190,147.14 and are explained in the Fiscal Impact section.
FISCAL IMPACT
Staff recommends an amendment to the FY 2025/26 Operating Budget and approves the proposed First Quarter amendments, which include a $743,611 request to increase Expenditures and a $10,049 request to increase Revenue. The requested Transfer In and Transfer Out budgets are proposed to be increased by $728,508.
Staff also recommends an amendment to the FY 2025/26 Capital Improvement Plan budgets as follows:
o Establish an appropriation of $700,000 in the General Fund Capital (112) for Monroe Avenue Project CIP 13058;
o Establish an appropriation of $133,610.93 in the CFD’s Bond Proceeds Capital Fund (576) and $42,411.57 in the Landscape & Lighting District Fund (221) for Palomar Park Tot Lot CIP 22035 and North Star Park Tot Lot CIP 22036 using Unassigned Fund Balance for Fund 221. Fund 576 has adequate funds in the Improvement Fund, which are currently being held in Trust with US Bank; and
o Establish an appropriation of $14,124.64 in the 2007 TAB Obligation Fund (513) for I-215/Clinton Keith Interchange CIP 8303.
Operating Budget Request for Transfers:
o Establish appropriation to transfer $700,000 from the General Fund (110) to the General Fund Capital (112) related to the Monroe Avenue Project CIP 13058; and
o Establish appropriation to transfer $28,508 from the Undercover Operations (405) to the General Fund (110).
Attachment 3 includes a comprehensive list of the requested appropriations by the General Ledger account.
ATTACHMENTS
1. FY 2025/26 First Quarter Budget to Actual Report - Major Funds
2. FY 2025/26 First Quarter Budget to Actual Report - All Funds
3. FY 2025/26 Proposed First Quarter Budget Amendments
4. FY 2025/26 Estimated Unassigned Fund Balance
5. FY 2025/26 Schedule of Authorized Positions