Title
Fiscal Year 2026/27 Proposed Budget Overview
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FileID
File ID: 2026-00777
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Location
Location: Citywide
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Recommendation
Recommendation: Review, comment, and provide direction.
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Contact
Contact: Peter Coletto, Finance, (916) 808-5416, pcoletto@cityofsacramento.org; Mirthala Santizo, Budget Manager, (916) 808-5078, msantizo@cityofsacramento.org; Department of Finance
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Presenter
Presenter: Peter Coletto, Finance, (916) 808-5416, pcoletto@cityofsacramento.org; Mirthala Santizo, Budget Manager, (916) 808-5078, msantizo@cityofsacramento.org; Department of Finance
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Attachments
Attachments:
1-Description/Analysis
2-FY2026/27 Proposed Budget
3-2026-2031 Proposed Capital Improvement Program
4-FY2026/27 Proposed Budget Reductions Strategies - Used
5- FY2026/27 Proposed Budget Reductions Strategies - Not Used
6-Supplemental Budget Information [05/05/2026 @ 10:55AM]
7-Presentation
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Description/Analysis
IssueDetail
Issue Detail: The City Charter, Article IX Section 111, requires the City Manager to deliver budget recommendations no later than 60 days prior to the start of the new fiscal year. The Fiscal Year (FY) 2026/27 Proposed Budget (Budget) was released on April 29, 2026. This report transmits the Budget (Attachment 2) and the 2026-2031 Capital Improvement Program (CIP), which includes the FY2026/27 CIP Budget (Attachment 3) to Council for consideration and is available at https://www.cityofsacramento.gov/finance/budget.
Introduction
The Budget is balanced and closes a $66.2 million funding gap. The Budget totals approximately $1.7 billion from all funding sources and supports 4,822.07 full-time equivalent (FTE) positions. This includes $898 million for General Fund operations and capital projects, and $830 million for the City’s enterprise and other fund activities.
Structural Budget Deficit
In February, the City released its updated financial forecast which projected a $66.2 million budget deficit for FY2026/27 with deficits increasing annually throughout the forecast period. While the forecast assumes increasing revenues due to continued economic growth, the growth of expenses outpaces revenues. The fundamental imbalance in the City’s budget is known as a structural deficit. The structural deficit is the result of decisions that the City and voters have made over the past few years along with macroeconomic forces such as inflation and imposed tariffs. These decisions include expanding into new service areas, increased costs of prior labor contracts, increasing staffing levels, and ballot measures redirecting general revenues for specific purposes. Substantial federal aid to assist local governments mitigate COVID-19 pandemic impacts allowed the City to fund the cost increases. However, the federal funding was a one time disbursement, while many of the increased costs are ongoing. The City is not facing a budget deficit due to a recession or economic downturn. Instead, the structural budget deficit is due to the City offering more services with a higher cost base which can no longer be sustained with existing revenues.
Ongoing Labor Negotiations
In addition to the structural deficit, the City has been in negotiations with all eleven recognized employee organizations (REO) over the past 10 months. Eight of the eleven REOs now have labor contracts with the City and two of the remaining three REOs are close to being finalized. Updated labor contract costs increased the overall deficit by $11.3 million in FY2026/27. The additional costs are included in the Budget and the forecast. The City is still in active negotiations with the Sacramento Police Officers Association (SPOA) and Local Area Firefighters 522 (522). The Budget and the forecast include costs that have been proposed to SPOA and Local 522 to date.
Budget Modifications - Reductions
The Budget seeks to address the City’s structural deficit while maintaining core City services and taking a strategic approach to revenue enhancements and expenditure reductions instead of simply pursuing across-the-board cuts.
As part of the budget development process departments were instructed to submit reduction plans that totaled 15% of their General Fund discretionary funding and were given a framework designed to protect core services and Council priorities. Departmental reduction strategies were categorized on a one through four scale based on impact on residents and communities, with one being a low impact and four being resulting in a severe impact. There were a combination of 208 revenue enhancements, expenditure reductions and Citywide reduction strategies totaling $109 million.
Proposed solutions to close the $66.2 million funding gap and cover $11.3 million in labor contract increases include a combination of one-time and ongoing strategies totaling $70.2 million. The Budget also includes other adjustments including the utilization of State homelessness funding and incorporating augmentations necessary to continue to deliver Council approved programs and services.
Although the Residential Permit Parking Program and increased parking meter rates proposals are included in the Budget book, they will be excluded from the Budget. The decision to exclude them was made after the Budget book was finalized. In addition to the exclusion of the Residential Permit Parking Program, an addition of a 1.0 FTE Customer Service Representative (including offsets) for the program will also be removed. An additional $1.4 million in Homeless Housing, Assistance, and Prevention (HHAP)-6 funding will be swapped for the excluded proposals. This change does not change the reduction of $70.2 million, which includes $51.2 million in ongoing solutions and $19.0 million in one-time solutions; but it does reduce the total FTEs from 4,822.07 FTE positions to 4,821.07 FTE positions.
The chart below summarizes the strategies proposed to balance the budget including the elimination of both filled and vacant full-time equivalent (FTE) positions. The net reduction of 145.16 full-time equivalent (FTE) positions includes the termination of the Regional Transit and Natomas School Resource Officer contracts (-14.00 FTEs) and net additions (9.42 FTEs), including reversal of the additional 1.0 FTE Customer Service Representative from the exclusion of the Residential Permit Parking Program proposal. Reductions include the elimination of 101.92 vacant FTE positions, the elimination of 46.06 filled FTE positions, the planned conversion for the Single Role program conversions (an addition of 8.00 FTEs), and a reduction of 0.60 FTEs in position add/deletes. Unfortunately, the Budget would eliminate 46.06 filled FTE positions. However, not all employees in the eliminated filled positions will be separated from the City. Some may be moved to other vacant positions, and no sworn Police of Fire personnel will be separated from the City due to budget reductions.
Details of the proposed strategies can be found in Attachment 4. All strategies that were not utilized can be found in Attachment 5.
Other Modifications - Augmentations and Position Add/Deletes
There were $1.3 million in modifications to General Fund departments and a net reduction of 4.58 FTEs related to augmentations, position add/deletes and positions reductions due to the termination of the Regional Transit and Natomas School Resource Officer contracts in the Police department, including the reversal of the additional 1.0 FTE Customer Service Representative from the exclusion of the Residential Permit Parking Program proposal.
Finally, the Budget includes $1.6 million in modifications to other funds and a net reduction of 18.6 FTEs for augmentations, position add/deletes and position reductions due to the loss of Expanded Learning Opportunities Program (ELOP) funding from the Robla Unified School District in the Youth, Parks and Community Enrichment department.
Additional information for all reductions modifications can be found in the Budget (Attachment 2).
Revenue Overview
The Budget includes modest citywide revenue growth. Property taxes continue to show resilience, and utility user taxes are projecting growth. However, sales tax revenues continue to struggle amid challenging market conditions and are projected to remain flat for the coming fiscal year, with modest growth in the out-years. Most citywide revenue growth can be attributed to higher projected investment income. More substantial revenue growth is projected for department revenues, which are comprised of various fees and charges for City services.
The following table highlights the forecast for the top three General Fund revenue sources representing 66% of all general revenues.
CIP Overview
The Proposed 2026-31 CIP totals $2.5 billion in capital needs with $0.5 billion in identified funding leaving an unfunded balance of $2 billion. Funded projects in the CIP total $512.6 million, including $77.4 million in General Funds. The FY2026/27 CIP budget totals $129.8 million, including $14.2 million in General Funds. Additional projects and maintenance beyond the 5-year CIP are estimated to bring the total unfunded capital needs to approximately $10.1 billion.
A summary of the modifications included in the CIP is provided below, and additional information can be found in the 2026-2031 Proposed CIP (Attachment 3).
Policy Updates
The recommended policy updates detailed below are included in the FY2026/27 Budget Resolution (Section 31) of the Budget (Attachment 2).
• Advancing one of Council’s top three priorities, a new Economic Development Department will be created, within existing resources, to coordinate and advance initiatives which will grow the local economy, attract investment, and revitalize the City’s commercial corridors. To ensure that the City Manager has the required authority to create the new department, Section 8.8 is proposed to be added to the FY2026/27 Budget Resolution, which would authorize the City Manager to conduct necessary classification changes of existing positions.
• The EUR balance is estimated to be $88.2 million on July 1, 2026, which is approximately 9.2% of budgeted FY2026/27 General Fund revenues and below the target by $7,340,700. Staff recommends modifying Section 5.3 to the FY2026/27 Budget Resolution, which would authorize the City Manager to maintain an EUR reserve below the minimum threshold prescribed in the Council-adopted EUR Policy.
• Section 17.2 (D) authorizes the Public Works department to adjust revenue and expenditure budgets for providing facility maintenance and repair services to outside agencies and entities for private property concrete maintenance and sidewalk repairs. They also conduct private property hollow sidewalk repair, which is not listed. Staff recommend modifying Section 17.2 (D) to include all services provided.
• On January 27, 2026, Council adopted a Resolution establishing the SB 720 Red Light Camera Fund (Fund 2040) as a new special revenue fund account for revenue generated through the SB 720 Red Light Camera program and expenditure required to run the program (Resolution No. 2026-0013). Staff recommend adding Section 17.2 (K) to the FY2026/27 Budget Resolution to allow the Public Works department to adjust the revenue and expenditure budgets for the SB 720 Red Light Camera Fund (Fund 2040) based on actual citation revenues collected.
• On May 13, 2025, Council adopted a Resolution to establish Capital Project Fund (Fund 3705) for Animal Care Services Capital Campaign and accept a bequest from the Estate of Edward L. Prindle in the amount up to $2 million (Resolution No. 2025-0115). The Animal Care Services Capital Campaign Fund would allow the Community Development department (CDD) to accept the bequest as well as any future bequests and/or capital campaign donations with a similar purpose that could be collected and expended over multiple years. Staff recommends adding Section 17.2 (L) to the FY2026/27 Budget Resolution to allow CDD to adjust the revenue and expenditure budgets in Animal Care Services Capital Campaign Fund (Fund 3705) based on actual revenues donated.
• Staff recommends modifying Section 17.4 (A) to update outdated language. Section 17.4 (A) currently states “Adjust the revenue and expenditure budgets in the Old Sacramento Garbage Service Courts (M17700000), Old Sacramento District Improvements (M17700100), and the Joe’s Crab Shack & Rio City Cafe Repairs and Maintenance (B18119000) CIPs based on actual rent proceeds available after payment of all fees to the State of California and funding of annual required maintenance costs.” “Garbage” was removed from the CIP title of M17700000 and “& Rio City Café” was removed from the CIP title of B18119000.
• Staff recommends modifying Section 17.6 (A) to update the multi-year project number of I02000200, which is no longer active. The Homeless Housing Initiatives MYOP number is now I23001000.
Supplemental Budget Information (SBI)
Any request for budgetary and/or programmatic information related to the budget process is put in a SBI log. As departments complete requests, an updated SBI log along with the requested information is provided to Council. Attachment 6 includes an up-to-date SBI log along with any completed requests.
Budget Hearings
The Council will consider the Budget during regularly scheduled meetings in May and June, with final budget adoption scheduled for June 9, 2026. The tentative hearing schedule is reflected below:
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PolicyConsiderations
Policy Considerations: The Budget reflects direction provided by Council and prioritizes maintaining core City services and advancing Council priorities while closing the budget gap in FY2026/27. The Budget includes continued resources for essential core services and Council’s top three priorities, as identified on September 30, 2025: Economic Development, Homelessness, and Public Safety. The strategic approach to include specific revenue enhancements and expenditure reductions instead of simply pursuing across-the-board cuts minimizes program and service impacts to the community to the extent possible.
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EconomicImpacts
Economic Impacts: Not applicable.
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EnvironmentalConsiderations
Environmental Considerations:
California Environmental Quality Act (CEQA): This report concerns administrative activities and government fiscal activities that do not constitute a “project” as defined by the CEQA Guidelines sections 15378 and California Public Resources Code section 21080 and are not subject to the provisions of CEQA (CEQA Guidelines section 15060(c)(3)). CEQA review for any project, which utilizes funds allocated under the FY2026/27 CIP Budget, has been or will be performed in conjunction with planning, design, and approval of each specific project as appropriate.
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Sustainability
Sustainability: None.
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Commission/CommitteeAction
Commission/Committee Action:
Budget and Audit Commission: The Budget and Audit Committee will review the Budget and any other budgetary changes from previous Council meetings on May 26, 2026.
Planning and Design Commission: Sacramento City Code Section 17.912.010 requires the Planning and Design Commission to review the City’s five-year CIP for consistency with the City’s General Plan and to report its findings to the City Council. The 2026-2031 Proposed CIP was approved by the Commission on April 23, 2026. The General Plan Consistency Memo will be included in the Adopted Budget staff report.
Measure U Commission: The Budget and CIP will be presented to the Commission on May 18, 2026.
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RationaleforRecommendation
Rationale for Recommendation: The actions recommended in this report address the structural budget gap by making strategic revenue enhancements and expenditure reductions in FY2026/27 and future fiscal years.
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FinancialConsiderations
Financial Considerations: The City’s Budget is balanced and reflects adopted Council policies, goals, and planning/programming guides. The following five-year forecast provides a multi-year view of revenues and expenditures, allowing an assessment of the fiscal consequences of both prior and current funding decisions in the context of forecasted revenues and expenditures. While the recommended reduction strategies help close the funding gap in FY2026/27, these efforts do not completely fill the gaps in future fiscal years. The current five-year forecast is presented below.
Additional challenges in the General Fund forecast are detailed below:
• California Public Employees’ Retirement System (CalPERS) unfunded liability costs will increase by $16.6 million (14.7%) over the next four years.
• Liability insurance premiums are estimated to increase by $37.3 million (69%) over the next four years.
• Unknown future labor costs. Although the Budget and the forecast include costs that have been proposed to date, the costs may differ.
• Approximately $2.0 billion in unfunded capital needs between 2026 and 2031 are not included in the forecast. Unfunded capital needs consist of the maintenance and repairs of existing City facilities and assets, and the purchase of new assets required to maintain a consistent level of service to City residents.
• Homeless services will cost approximately $168 million over the next four years, and future State funding may not be allocated to the City as the Governor did not include an additional round of HHAP program funding in his January Budget proposal.
With the exception of unfunded capital needs and unknown final labor contract costs, estimates for the above challenges have been included in the forecast as presented.
Enterprise and Other Funds: The City’s Enterprise and other funds are included in the Budget. Five-year forecasts for each of the enterprise funds are available in the Forecast section of the Budget (Attachment 2).
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LocalBusinessEnterprise
Local Business Enterprise (LBE): Not applicable.
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