Title
Fiscal Year (FY) 2025/26 Budget Update and FY2026/27 Budget Development Process
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FileID
File ID: 2026-00578
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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, Director, (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, Director, (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-Presentation
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Description/Analysis
IssueDetail
Issue Detail: As the City prepares for the upcoming budget cycle, the mid-year forecast shows the City continues to be in a structural deficit with a budget gap of $66.2 million projected for FY2026/27 that continues to grow in the future years of the forecast. This is not due to an economic downturn but is a fundamental imbalance between City expense growth and revenues. While the current fiscal year remains balanced, the proposed budget commitment of remaining resources will support financing potential additional current year costs associated with labor negotiations as well as closing the FY2026/27 projected budget gap.
Fiscal Year 2025/26 Update
Based on citywide revenue performance throughout the first five months of FY2025/26, staff recommended several revenue adjustments resulting in a net increase of $2.9 million, as reflected below:
The General Fund will also have $0.9 million in reduced expenses associated with lower Cannabis Business Operations Tax revenues as the Measure L contribution to the Children’s Fund will be lower. Overall, this results in $3.8 million in additional projected General Fund balance for the current fiscal year. The five-year forecast has been updated to reflect the citywide General Fund revenue and expenditure adjustments specified above.
While these projections are positive, the City is also currently in active negotiations with most of its bargaining units. Since the City has made formal proposals, staff are including the cost of City proposals to labor unions in the forecast. The cost of those proposals is approximately $3.6 million in the current fiscal year.
In addition to the proposed General Fund changes, staff recommended an increase of $801,867 to the Community Center Fund revenue budget from $53.2 million to $54.0 million. This increase is based on revenue performance throughout the first five months of FY2025/26.
General Fund Updated Forecast
The updated FY2025/26 forecast below includes changes to revenues and expenditures as approved by Council on February 10, 2026. While FY2025/26 is balanced, the City continues to face a structural budget deficit with expense growth outpacing revenues growth over the term of the forecast. The budget gap for FY2026/27 is projected to be $66.2 million and grows to $81.8 million in FY2027/28.
The forecast includes costs associated with formal proposals the City has made to labor unions. The forecast excludes potential State funding from the seventh round of the Homeless Housing, Assistance and Prevention (HHAP) program. Staff are waiting for more information from the State regarding the timing and potential additional requirements to receive funding.
It is important to note that the updated forecast also does not project a recession; if a recession were to occur the projected deficits would become much larger. The updated forecast also does not include potential losses of federal funds, changes in legislation, or directives of Federal agencies. Losses of federal funds would also worsen the City’s projected deficits.
A detailed forecast is included in the Financial Considerations section below.
Prior Year Savings
As presented in the FY2024/25 Annual Comprehensive Financial Report (ACFR), year-end net results (revenues less expenditures) resulted in one-time General Fund budgetary resources of $14.8 million, with $2.8 million from revenues and City operations and $12.0 million due to the repayment of unrealized investment losses on the treasury pool from prior years.
From the $14.8 million result, $7.1 million was used to fund the costs associated with an arbitration decision related to the Sacramento Police Officers Association (SPOA) labor agreement that expired on January 24, 2025. The City and SPOA engaged in negotiations but reached impasse on July 10, 2025. Pursuant to City Charter § 503 Impasse Resolution Procedures, the dispute was submitted to an Arbitration Board. The decision of the Arbitration Board is final and binding for both the City and SPOA. On September 9, 2025, Council passed a resolution (Resolution No. 2025-0248) to reflect those binding changes in the Citywide Salary Schedule. As stated in the staff report (File No. 2025-01382), the funding for FY2025/26 would be paid with the year-end balance. Due to this action, the final year-end result is $7.7 million.
Given the updated FY2025/26 General Fund five-year forecast projects a $66.2 million deficit in FY2026/27, on February 10, 2026, Council committed the $7.7 million for potential current year labor negotiation costs with any remainder towards FY2026/27 budget development; in compliance with the guidelines set in the Council-approved Prior Year Savings Policy.
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PolicyConsiderations
Policy Considerations: City Council Ordinance 2024-0039, adopted September 24, 2024, outlines the purpose and the powers and duties of the Measure U Community Advisory Commission (Commission); specifically, to ensure that the expenditures of City resources reflect Council and community priorities, the commission shall review, report, and make non-binding recommendations on revenue and expenditures of certain funds from the Transactions and Use Tax imposed under Sacramento City Code chapter 3.27 (Sacramento City Code chapter 2.114).
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EconomicImpacts
Economic Impacts: None.
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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 in this report, 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: Not applicable.
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RationaleforRecommendation
Rationale for Recommendation: A primary purpose of the Commission is to ensure that the City Council’s Measure U spending decisions reflect community priorities. Providing an update on the City’s fiscal condition will aid the Commission’s timely input into the FY2026/27 Budget adoption schedule.
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FinancialConsiderations
Financial Considerations: The five-year forecast in expanded detail:
Ongoing reduction strategies adopted by Council during the FY2026/27 budget process will reduce the projected budget deficits in the future fiscal years of the forecasts.
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LocalBusinessEnterprise
Local Business Enterprise (LBE): No goods or services are being purchased under this report.
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