Business session.

Our first item is approval of minutes from business session of January 15th, 2026.

Is there a motion?

They moved in second.

Is there any further discussion?

Hearing none.

All in favor indicated by saying aye.

Aye.

All opposed.

Motion passes.

Our item for today is discussion of the budget.

Submitted budget presentation.

Give a shout out to Councilwoman Andrea Boo, our finance chair who's virtual with us today.

And uh take it away, finance team.

Good afternoon, Mayor Lucas, City Manager Vasquez, members of the City Council.

I'm Brenton Saturley, Deputy Director of Finance.

I have with me here today, interim director William Choi and budget manager uh Teresa Danielson.

And we're here to discuss the fiscal year 27 2027 submitted budget.

Over the course of the today's presentation, we'll be revisiting the original five-year forecast we presented to city council back in October, as well as the city's fund balance policy, steps taken during the budget formulation process, and the role priority-based budgeting played in this in the submitted budget, an overview of the submitted budget itself, as well as revisiting budget investments and key key changes within the budget, and then walking through the budget document and upcoming budget dates.

Mr.

Mayor, it's kind of hard for us to hear.

Can you pull the microphone closer?

Thank you.

Sorry.

Holly down a little bit.

Yeah.

Yeah, and talk more directly into it than you.

Perfect.

Better?

Better.

Yep.

I'll try not to turn around and like.

So looking at the five-year financial forecast from adopted by the city council back in October.

Originally, the city estimated that fiscal year 27 would have an operating deficit of almost 100 million dollars with an ending balance of 169.4 million dollars.

This was 42.6 million dollars below the 25% balance target.

City's fund balance policy itself states that this the general fund reserve should not be lower than 17% or above 25% of general fund operating expenses.

Um this fund balance policy is the guiding principle for staff when developing budgeting and financial planning efforts.

It is incredibly important, particularly when we uh have discussed the city's finances with rating agencies, and in fact, last year Moody's noted that a reduction in fund balance below the 25% of target could lead to a downgrade of the city's ratings.

Stepping into the budget formulation and priority-based budgeting process.

Uh immediately during the discussions regarding the financial uh forecast, the city manager took steps to address the fork to address the operating deficit.

Those included directing departments to build their budget around a 0% targeted growth rate, limiting funding requests for mandatory expenditure increases or changes in service levels only, and submitting all requests to fill vacant positions through the position review committee, with exception for aviation, water, fire, and those covered by the CBA.

Or those positions covered by CBAs.

This review process remains in effect with additional exceptions for certain high turnover positions like maintenance positions or uh the to be established department of community service uh safety.

Other general budget assumptions included a two percent salary increase for non-represented employees, a five percent increase for health care costs, sufficient funding to meet the actuarily determined pension contributions, and a 10% vacancy rate utilized to account for uh employee attrition.

Additionally, the direction was given to make sure that priority-based budgeting was used across all funds as a part of this year's budget development.

Just revisiting a little bit about the process behind priority-based budgeting as part of their department budget submissions, departments scored all programs based off of their alignment with the citywide business plan and basic program attributes.

Those include things like cost recovery, how the program is able to recover costs through charges for services, demand, increases of demand or decreases in demand could impact the program's um program attribute score, mandate requirements, whether it's fund required by federal, state, or local government, population alignment, how well it serves the targeted population that's meant to target, as well as reliance.

Are there other entities beyond the city that could provide the same service at a lower cost?

After departments submitted their budget their budgets, those programs were then also scored by peers, including other department directors, deputy directors, and members of the of the city manager's office.

Approximately 75% of a program's final score is based and weighted towards the citywide business plan, meaning that 75% of each program score is based on the goals and objectives set by the city council.

Following the score, programs are distributed almost like a bell curve, where further and in one of four quartiles.

First quartile representing those programs that are most aligned with the goals and objectives of the citywide business plan, second quartile being more aligned, third quartile less aligned, fourth quartile least aligned.

Again, programs from all funding sources, special revenue, general fund, and enterprise funds were scored as part of priority based budgeting this year.

Slide eight out reflects that bell curve type distribution of program scores, where you see about 31 programs reflected most aligned with the citywide business plan, 76 more aligned, and then less and least aligned programs.

It's important to note that while these programs are distributed on a bell curve, the funding itself does not necessarily follow that same curve.

So looking at just general fund programs, 10% of funding from the general fund reflected in the most aligned quartile of program scoring.

Those programs included examples like public works, solid waste, neighborhood programs, municipal court, um, as well as various others.

More aligned programs reflected 34% of general fund expenses, included things like housing, tenant advocacy, homeless prevention, and various police programs.

In the least aligned category represented about 5% of general fund expenses, and that reflected city manager communications and neighborhoods environmental quality.

Now, all that being said, priority based budgeting does provide provides a very more detailed and granular approach to how we view our budget.