Agenda Item Wording:
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Fiscal Year 2025-26 mid-year review- Review fiscal year 2025/26 mid-year projections, review the General Fund surplus policy, and appropriate funds for various capital projects.
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Agenda Date: 04/20/2026
Prepared by: Renee Nagel, Finance and Technology Director,559-713-4375, Renee.Nagel@visalia.gov, Amee Swearingen, Budget Analyst, 559-713-4170, Amee.Swearingen@visalia.gov
Department Recommendation: That the City Council receives the Mid-Year budget update for the General Fund for this current fiscal year (FY 2025/26), review the General Fund surplus policy, and appropriate three capital projects for a total of $2,717,100.
Summary:
The annual mid-year budget review is a crucial component in ensuring financial transparency and stability. It allows the City Council to assess major operating funds like the General Fund Budget, make adjustments if needed, and gain a clear understanding of the City's current financial health. General Fund revenues are up in the major revenue categories, and departments are controlling their expenditures where practical, and working to enhance revenue collection where possible. Overall, the City continues to be in good financial shape. However, like all government agencies throughout California, the City is faced with higher contributions to fund pension obligations, technology cost increases, higher costs due to continued inflation, minimum wage increases, and the possibility of a recession.
Background Discussion:
Annually the Finance Department presents a mid-year budget report to City Council that compares the budget to the current financial status. On years when the two-year budget is being prepared, mid-year projections only focus on the General Fund. The General Fund is the largest fund for essential services and its revenue source can fluctuate with the economy. Mid-Year projections prepared in off budget years focus on all operating funds. The City is currently in the process of preparing the two-year budget for FY 26/27 and 27/28, therefore is only reporting projections for the General Fund. There are no notable changes for the Enterprise and Internal Service funds.
The current budget was adopted in June of 2024. The adopted budget surplus for this fiscal year was $4.8 million and is currently projected to be $4.5 million as shown in Table 1- FY 25/26 General Fund Mid-Year projections. This surplus is mainly due to revenues being up from budget by $9.5 million.
Table 1
FY 25/26 General Fund Projection
General Fund Revenues are projected to be higher than budgeted by $9.5 million. The majority of the increase is due to Sales Tax, Property Tax, Vehicle License Fee Swap, and All Other Revenue categories. The revenues for the adopted budget were conservative for anticipation of a possible recession.
Sales Tax is the largest revenue source for the General Fund and is projected to increase from budget by $2.3 million (5%). Compared to last year’s revenues, sales tax is projected to increase by $1.4 million (3%). Chart 1, Actual and Projected Sales Tax, shows the projected sales tax revenue has been above the 15-year average growth of 5.5% since 2011. In the time span, the largest growth was in FY 20/21 and FY 21/22 which had a total growth of 29% due to the Covid Stimulus Funds. Over the next several years, sales tax is projected to realign to the 15-year trend line shown in the chart. In addition, sales tax continues to compete with the high cost of living such as rent, utilities, health care, and entertainment. These items decrease the amount of money available to spend on tangible items which results in less sales tax.
The 3% projected growth is the highest growth since FY 21/22. This increase reflects the City’s diverse economic structure, including business-to-business activity within the industrial park. Continued residential and commercial development is also strengthening the sales tax base and drawing additional taxable activity that might otherwise occur in neighboring cities.
Chart 1
Actual and Projected Sales Tax
Property Tax is the second largest revenue source for the General Fund and is projected to increase from budget by $3.7 million (17%). Compared to last year’s revenues, property tax is projected to increase by $2.2 million (10%). This is due to an increase of assessed property values from the County and the continued real estate transactions with higher prices. Visalia’s property values continue to increase, which creates higher property taxes when the property is sold. In addition, new commercial and residential growth has continued in Visalia. This projection is provided to the City by the County which is based on the property assessments calculated for the year in September.
Property Tax - VLF Swap revenues are projected to increase from budget by $1.7 million (9.1%) and from last fiscal year by $1 million (5.3%). The Property Tax VLF swap was put in place in 2004 to fund the Vehicle License fees (VLF) that was taken from Cities when the VLF rate was reduced in 1998 from 2% to 0.65%. This revenue has increased significantly over the last three years due to the rise in vehicle prices and demand for new vehicles. This number is provided by the County.
Franchise Fees are projected to be slightly down than budget by $0.9 million (-26.4%). Compared to last year’s fees received, the revenues are projected to be slightly up by $64,700 (2%). Over the last three years the Franchise Fee has increased due to increased utilities and customers. Electricity is still increasing; however, it is offset by a decrease in natural gas prices and a continued decrease due to technological advances.
Transient Occupancy Tax (TOT) is projected to have an increase from the budget of $407,600 (8%). Compared to last year, TOT is projected to be up from last year by $100,000 (2%). The projected increase is due to the continued enforcement of short-term rental compliance.
Business License is projected to slightly decrease from budget by $-131,100 (-4%). Compared to last year, Business License is projected to increase by $63,600 (2%). The increase is due to new businesses and increased business gross receipts from the prior year.
All Other Revenues are projected to increase from budget by $2.4 million (21.3%). Compared to last year’s, all other revenues have decreased by $3.7 million (-32.5%). Majority of the increase from the budget is from interest earnings of $0.4 million, Fire strike team reimbursements of $0.2 million, capital grants of $0.5 million, Engineering fees of $1 million, and State mandated costs reimbursements of $150,000. State mandated reimbursements typically take 1-2 years to receive, so they are never for the current year’s expenses and may include more than one year. The capital grants are budgeted in the year the project is appropriated. Grant reimbursements cross years as the projects are completed. These grants are also why the projected is down from last fiscal year as well.
General Fund Expenditures
Operating Expenditures - are projected to be higher than the budget by $3.9 million mainly due to wage and benefit increases that were negotiated with the bargaining units after the budget was prepared. The total number of vacancies has become less overall, and staff anticipates that this will continue as the negotiated wage increases occur. This fiscal year is year two of a three-year contract.
Overall, total operating expenditures is up from last fiscal year by $5.2 million mainly due to salary and benefits.
Allocations Net Reimbursements - Annually the City prepares a cost allocation plan that is based on prior two-year actuals. This plan is prepared according to Federal OMB A-87 guidelines. The allocation plan charges out the central service division costs (Finance, Human Resource, Risk, IT, etc) to other divisions to get the true cost of performing the services required. Allocations allow for General Fund expenditures to be reimbursed from other funds (Enterprise & Special Revenue Funds) and grants. The amounts budgeted are not based on the calculated plan due to timing. The plan uses expenditures from two years prior.
Transfers Out to Other Funds is projected to be up from budget by $3.2 million and down from last year’s actuals by $10.9. The “Transfer Out” category is for transferring General Fund money to other funds for Council authorized items such as debt payments, fund subsidies, and fund set asides for future obligations. This category does not include fund advances which are loans to other funds.
The Transfer Out category is projected to be higher than budget due to the amount of capital projects for the Convention Center being more than the amount set aside for their projects. The Convention Center currently has $1.4 million set aside and $4.6 million budgeted for capital projects. The extra transfer will set aside enough money to fund all budgeted projects. The projection is less than last fiscal year due to the implementation of Governmental Accounting Standards Board Statement No. 101 (GASB 101), which is a required accounting change that updates and standardizes the recognition and measurement guidelines for compensated absences (employee earned vacation and sick time). The $4.28 million transfer was for FY 23/24 and 24/25. Another large transfer in this fiscal year is for the capital improvements at Rawhide to bring the stadium to Major League standards for an additional $2.7 million per the agreement.
Capital - Capital expenditures were budgeted with the two-year budget that was presented in June 2024 and are revised throughout the year at regular Council meetings.
General Fund Additional Capital Appropriations
The Six Year Capital Plan is adopted with the two-year budget. The first two years of the plan are the only two years that are appropriated. During the two-year budget, projects will arise due to unforeseen issues, maintenance, etc. These projects can be brought to Council throughout the fiscal year or during the mid-year budget report. Staff is recommending funding 3 capital projects for FY 25/26 totaling $2,717,100. All projects being requested are listed below:
1. Comprehensive General Plan Update - $2,500,000: This project will establish the long-range framework to guide Visalia’s growth and development over the next 20 years. The City will conduct a competitive RFP process to retain aa qualified consultant team to assist staff in preparing a comprehensive update to the existing 2030 General Plan (adopted in 2014). The update will include required elements such as the Open Space Element in compliance with AB 1425, as well as a comprehensive environmental analysis. The project also includes development and implementation of a public outreach and engagement strategy to ensure meaningful input from residents, businesses, public agencies, and key stakeholders. The updated General Plan will provide policy direction to guide land use, infrastructure planning, and future community development. Staff is requesting to appropriate $2,500,000 from the General Fund.
2. Replace SWAT Body Armor (22) full sets - $90,100: This project replaces existing SWAT body armor that is approaching the end of its useful life. The current equipment was purchased in 2018 and has exceeded manufacturer warranty coverage, with recommended replacement after approximately eight years. Due to evolving threats and advancements in protective technology, updated body armor is necessary to maintain officer safety and operational effectiveness. Aging equipment increases vulnerability to ballistic impacts and may reduce mobility and performance in high-risk situations. Replacement of these units will ensure officers are equipped with modern, properly functioning protective gear that supports a range of tactical operations, including high-risk entries and extended field deployments. Staff is requesting to appropriate $90,100 from the General Fund.
3. Replace BearCat Glass Panels - $27,000: This project is to replace the bullet-resistant glass panels on the Police Department’s BearCat armored vehicle. The front passenger windshield panel recently received significant damage during a tactical operation making it temporarily inoperable and requiring immediate replacement. The Department is recommending replacement of the remaining bullet-resistant glass panels on the vehicle as the BearCat is 18 years old and the glass panels are showing signs of delamination affecting visibility and the integrity of the bullet-resistant glass. Staff is requesting to appropriate $27,000 from the General Fund.
4. The Independence Spectacular - $100,000: The Independence Spectacular is a large-scale community celebration hosted annually by the City of Visalia and held at Riverway Sports Park. The event is expected to draw over 7,000 attendees and features free admission, live musical entertainment, a children’s amusement area, community information booths, food and boutique vendors, and a designated beer garden. The evening concludes with a professional 15-minute aerial fireworks show, featuring more than 7,500 shells, in recognition of America’s semi-quincentennial. The 2026 Independence Spectacular project includes support event production, public safety staffing, entertainment, equipment rentals, and operational needs. The project currently has $40,000 appropriated. Staff is requesting to appropriate an additional $100,000 from the General Fund.
General Fund Emergency Reserves
The General Fund Emergency Reserve Fund is a designated fund where unspent resources are saved to ensure financial stability and flexibility during tough times. These funds act as a safeguard, allowing the city to address economic downturns without disrupting essential services. By establishing an emergency reserve, the City is proactively planning for long-term sustainability.
The current surplus/reserve policy was adopted in March 2024. The policy states that any revenues in excess of actual expenditures would continue to be deposited in the emergency reserve to maintain the reserve at a maximum of 30% of operating expenditures and then all remaining surplus is to be deposited into the Civic Center Reserve Fund. The reserve balance as of June 30, 2025 was $24 million (27.5% of operating expenditures).
The projected surplus for FY 2026 is $4.6 million ($7.3 million estimated surplus minus the recommended capital appropriations of $2.7 million that is listed above). Based on the Mid-Year Budget projections, $2.8 million of the surplus will be transferred at year end to bring the reserve balance plus interest earnings of $0.6 million totaling $27.4 million keeping the reserves at 30% of operating expenditures as shown in Table 2 General Fund Emergency Reserve Balance.
Table 2
General Fund Emergency Reserve Balance
(All Amounts in Millions)
General Fund Surplus
The remaining surplus of $1.8 million will be deposited into the Civic Center/Public Safety Facility Reserve Fund according to Council’s policy. This policy can be changed at Councils direction. In the past, these funds have played a vital role in being able to purchase and develop the Riverway Sports Park, purchasing the East Regional Park land, Recreation Park Stadium Improvements,198 Open Space, and now constructing the Civic Center Phase II which includes a Council Chamber, Public Safety Building, Evidence Building, and infrastructure for the entire campus. The Civic Center Campus still needs Phase III which is to design and construct City Hall.
Large projects are difficult to fund in any given year due to funding availability. Majority of the surplus is typically from vacancies savings which can be set-aside to fund large projects. The surplus can be set-aside for one project or split amongst multiple by having a policy that assigns a percentage of the surplus to each project.
Preliminary Forecast for FY 26/27 - 31/32
The projection for FY 26/27 builds upon this year’s budget forecast and continued growth in revenues and expenditures. The revenue projection is conservative and assumes the following:
*Sales Tax and Property Tax represents 80% of the General Fund total revenues.
The expenditure forecast assumes the following:
1) Wages and Benefits - The City entered into a three-year (FY 24/25, 25/26, 26/27) MOU with the Bargaining groups which increases wages. FY 26/27 wage increase is 2% (July 2026) + 2% (Oct 2026) if sales tax is equal or greater than $46.6 million. FY 26/27 projection is based on budget plus MOU changes. The remaining years include the following:
• The projected increase is for additional allocated positions and wage adjustments due to merits and reclassifications. FY 26/27 assumes 4% increase per MOU meeting Sales Tax requirement. Future wage increases will be negotiated with bargaining groups and approved by Council.
• PERS is projected to grow at 4%. However, PERS does not typically grow at a flat percentage because it consists of two rates that change annually: (1) Employer Contribution rate (based on payroll); and (2) Unfunded Liability Payment (based on schedule provided by PERS).
• Health insurance is projected to grow 4% annually. The total health insurance increase is projected to be 8% each year. Per the City’s MOU’s the employees pay half of the increase. This number could be higher due to the number of health claims and size of claim.
• Assumes zero vacancies for full-time and hourly employees. In the past the City has realized savings from vacancies and it is believed that we are safe to assume there will be a savings of $1.5 to $2 million. This savings has not been included in the projection. Staff is working diligently to reduce number of vacancies and recruitment time.
2) Operating Expenditures - 4% due to additional parks and more technology which results in higher annually maintenance costs.
3) Service Provided - 3% annual increase. This is a charge from other funds for Services such as fleet maintenance, fuel, and parts.
4) Allocations/Reimbursements - 2% annual increase.
5) Transfers Out/Debt - 3% annual increase. Transfers are for funds that are subsidized by the General Fund.
6) Capital - $3.0 million annually. This can be reduced as in the past by deferring maintenance. This is not recommended due to the specific maintenance needs of the City’s facilities and assets.
Table 3
General Fund Forecast
The forecast shows the City having a surplus in all five years. However, the surplus decreases each year due to expenditures increasing more than revenues. Most of this increase is due to employee costs rising along with operational costs such as utilities, technology service agreements, and costs of goods (chemicals, fuel, parts, etc). This is a conservative and optimistic forecast that does not include a recession or decrease in revenue growth.
Conclusion
While the City is in overall sound financial shape today, we must be cautious in making expenditures that will impact the City in the long term. Majority of the revenue forecasts are showing growth; however, we must recognize that other foreign and domestic factors (i.e. inflation, housing prices, supply chain disruptions, etc.) could negatively impact the growth and expansion of our local economy. Any of these factors could also cause another economic downturn.
The State of California has recently released its forecast and like many others, is projecting a large deficit. The City should continue to hold a conservative and watchful course to be ready if and when a recession begins. Staff is optimistic but acknowledges the City should also be fiscally responsible by having sufficient reserves, balanced budgets, and prudent spending policies. Staff will be returning in few months with the proposed two-year budget.
Fiscal Impact including annual maintenance and operating costs: None
Alternatives: None
Recommended Motion (and Alternative Motions if expected):
recommendation
Receive the Mid-Year budget update for the General fund for FY 2025/26, amend the General Fund surplus policy per staff recommendation, and appropriate funds for capital projects totaling $2,717,100 as outlined in the report.
Environmental Assessment Status: N/A
CEQA Review: N/A
Deadline for Action: 06/30/2026
Attachments: None
Strategic Goal: Indicates which City Strategic Goal(s) this item supports. Check all that apply.
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