City Council study session for Tuesday, August was today.

25th, thank you.

2026.

We're gonna ask Councilmember Collins to lead us in the Pledge of Allegiance.

All right.

Um this is not a regular meme.

There's no attendance to be taken.

So we'll go right into the agenda.

The agenda items are swapped.

They meant to actually put the second quarter 2026 budget and financial update first.

So we will go straight to that.

City Manager Martinez.

Thank you, everybody, and welcome to our 2027-28 budget session.

I've stopped me if you've heard this before, but doing what you're doing tonight and participating in our budget session is one of the most important things you as council can do.

In fact, I think it's the most important thing because it really does set the I think I hit them all in that one sentence.

Um it does set the tone for everything that we're gonna do the next two years, uh, and it gives you and the public a better understanding of how your tax dollars are being spent.

Not even a better understanding, it is how your tax dollars are being spent.

So with that, um it's an interesting budget year, and I'll talk a little bit more about our budget as we get into the budget portion of things.

But first I wanna kick things off with our financial update.

Uh we started doing this a couple of years ago to give you a better financial picture of where we are and where we're going for the next couple of years.

And with that, I will turn it over to Katrina.

Thank you, Michael, and good evening, council members.

Uh yeah, a few years ago we started doing this Q2 financial update along with the budget discussion.

And I um I really like that we do these together because uh we'll be covering um, you know, kind of where we are now, where some of our reserves are, what the economy is looking like right now, all things that are really helpful for you to have it kind of fresh in your brain as you then go into the budget team's um presentation about all of the different things we want to do next year.

So um so I appreciate being able to share this um to go through this presentation with you.

Um so I'll give my regular caveats and disclosures.

This is unaudited information, we're presenting information through June 30th.

Um so there have been some actions in July, but we will not be, those are not included here.

Um we'll be talking about primarily the governmental funds.

Um the proprietary funds are your um utility funds.

We don't get go into those in as much detail in this report or in this presentation, but you do have a longer report in your packet and it ends up online on the city's webpage that goes into a lot more detail about each of those funds.

Um but for today today we'll focus quite a bit on the governmental funds.

Uh but again, first I'm going to kind of change around the order of things a little bit and talk about the economy because there's a lot going on right now.

If you follow the economy, if you're nerdy about that like I am.

Um, there's a lot of news.

It feels like everyday things are changing, and that makes predicting things very hard for uh those of us that are trying to keep track of things.

But I want to hit on a couple of things here to be keeping in mind as we go through um the evening.

So first thing is inflation.

So inflation's a pretty big driver for us for expenses, but also for revenues.

So when we're looking at inflation, um, we use that as an index for some of our rates and our fees.

Um and then we also use that to look at what we think we're gonna be spending in the future as costs grow.

So um the city uses the Denver Aurora Lakewood CPI for July as that indicator for us when we're looking at what inflation rates are for for uh budget planning purposes.

Um inflation right now um is driven by and large by fuel prices and the uncertainty of that conflict that's going on in Iran.

So that's been a really big part of the inflation movement um in the recent months.

Um inflation back in May was up five percent for our area.

Um as of July, it's only up 3.9, but that's still very high.

That's still pretty high compared to what we've seen in recent years and well above what the federal uh reserve would like it to be, which is two to two and a half.

So local inflation is 3.9, national inflation is 3.4.

So we're a bit higher than the national average for inflation here.

One big important thing I want to point out is that energy costs are up 17.2% and gasoline costs specifically are up 25.6%.

So those are really big numbers and a big driver of that 3.9% overall inflation that we're seeing.

So when gas prices are up, that increases the price of just about everything because everything's gotta be moved around, right?

So gas prices, um, you I'm sure feel it when you're going to the pump to fill up your car.

But what we see kind of on the ground level for us is that when people have a fixed amount of money to spend in a month and they have and their gas prices go up, they will tend to buy that gas because they need to get to their jobs and they need to get their kids to school.

So if gas prices, if gas costs take up more of their monthly income, they have less money to spend on groceries and other discretionary items.

We see that as a decline in our sales tax revenue.

So it's an interesting thing to see how a geopolitical situation that's so far away from us has a very direct impact on our sales tax revenue here at the city.

And you know, talking with friends and colleagues in other cities are seeing very similar trends where their sales tax revenue is being impacted by inflation.

On jobs, job numbers in general, what we're seeing is we're in a what they call a low hire, low fire scenario.

So unemployment has dropped a bit, but also there's fewer people in the market looking for jobs.