City Council Study Session on FY 2026-27 Budget - May 6, 2026

This was the second day of a two-day regular meeting study session (continued from May 5, 2026) focused on the proposed Fiscal Year 2026-27 Operations and Maintenance Budget and Capital Improvement Program (CIP) budget. No formal action was taken; the session was for information and discussion. Councilmember Eddie Alvarez was absent, and Vice Mayor Jeff Okrepkie participated remotely from Lahaina, Hawaii under traditional teleconferencing provisions of the Brown Act. The meeting was called to order at 9:02 a.m. and adjourned at 11:55 a.m.

Public Comments & Testimony

• No public comments were made during the meeting.

Discussion Items

Housing Authority Funds

• Megan Basinger, Housing and Community Services Director, presented the Housing Authority budget, which covers mobile home rent stabilization, administration, rental assistance (supporting approximately 1,700 households through the Housing Choice Voucher Program), and the Housing Trust for affordable housing production.
• Highlights: one position is being eliminated (a COVID-era rent program ending in 2026); rental assistance costs are increasing due to rising rents; the Housing Trust is decreasing because HUD reallocated funding for Housing Opportunities for Persons with AIDS (HOPWA) to the state.

Internal Service Funds (IT, HR, Risk, Fleet)

• CFO Scott Wagner presented on internal service funds, which allocate costs across departments. Key points:
  • IT Fund: The city spends 2.12% of its total budget on IT, well below the expected 3.5%–4%. An additional $6 million investment is needed. No staffing changes proposed (33 staff). The budget increased 7.4%, partly due to upfront costs for Excel software.
  • Human Resources: No staffing reductions proposed; one employee was shifted from general fund to risk fund. Overall HR budget increased 9.4%, mostly driven by risk management.
  • Risk Fund: Covers workers’ compensation, general liability, property insurance, and city health plans. Health premiums are jumping 30% due to a catch-up from last year’s underestimation and a demographic shift to family plans. The reserve is at actuarially recommended levels.
  • Fleet Fund: Replacement and repair funds are separate. Fleet reductions have occurred to mitigate budget pressures. Parts and new vehicle costs continue to rise, especially for police vehicles.

Enterprise Funds

• Transit: Director Dan Hennessy reported a structural deficit: major revenue sources (sales-tax-based, fares) are not keeping pace with costs. The transit fund is using $1.3 million in reserves to balance the FY 2026-27 budget. The city has 58 bus operator positions but intentionally keeps vacancies due to recruitment challenges. The fleet is aging; 12 buses have been replaced, and an additional 6 electric buses are pending grant obligation. The transit reserve is about $8–10 million, but service changes may be needed next year. The Veterans Ride Free program continues with $30,000 general fund transfer.
  • Parking: The parking enterprise fund is drawing $812,000 from reserves. The budget is conservative and does not fully account for recent rate increases. Parking enforcement staffing is short; a strategy using non-permanent positions is proposed. The reserve is $5 million, but deferred maintenance needs in garages are in the tens of millions.
  • Bennett Valley Golf Course: The general fund subsidy remains at $500,000 per year. Needed equipment replacements (roof, kitchen, beverage cart) are included. The debt service on bonds for the clubhouse and restaurant is scheduled to be paid off in 2031, but major infrastructure needs (e.g., $10 million irrigation system) remain. Councilmember Rogers expressed concern about a permanent subsidy. Assistant City Manager Jason noted that the next RFP for the operations contractor will aim to strengthen public-private partnerships.
  • Santa Rosa Water: Director Jennifer Burke presented the water enterprise budget, which is fully recommended by the Board of Public Utilities. Key changes: a 6% rate increase for water and 5% for wastewater, as previously adopted. The budget includes $156,000 for emergency storm drain repair, a $3.7 million increase due to Sonoma Water’s 8.21% wholesale rate increase, and $600,000 more for water CIP. The wastewater treatment plant is the largest electricity user in the county. No staffing changes are proposed. The stormwater fund includes a 2.49% CPI increase.

Capital Improvement Program (CIP)

• Director Hennessy presented the citywide CIP budget of $76.5 million, similar to last year. Breakdown: 60% water funds, ~30% TPW, ~10% parks, ~1% fire and PED.
  • Parks: Nearly $9 million for park improvements, mostly from park development impact fees. The proposal includes borrowing from northwest and southwest quadrants to fund Martin Luther King Park and other southeast quadrant projects, with repayment next year. Councilmember Rogers emphasized tracking quadrant funds to ensure district benefits.
  • Pavement Maintenance: $12.8 million allocated (including $10.5 million for Oakmont paving). The city’s pavement condition index (PCI) is 61. The number of roads in very poor condition has doubled in five years; 44 centerline miles need $42 million to repair. The city focuses on preventative maintenance for arterials, but residential streets are deteriorating. CFO Wagner and Director Hennessy discussed potential bond measures for streets, but noted legal restrictions. City Manager Farrell indicated staff will bring recommendations on reinvestment.
  • Transportation Safety: Fatal and serious injury crashes dropped from about 40 annually to 15 in 2025, a 60% reduction. Director Hennessy attributed this to safety improvements and noted Santa Rosa is being highlighted as a case study by the Insurance Institute for Highway Safety.

Year 2 Budget Impacts and Potential Cuts

• CFO Wagner outlined the structural deficit and the need for year-two corrections. If a $13.8 million deficit were to be closed entirely through cuts, it would likely result in the loss of approximately 60 employees, including:
  • Fire: blackout of one truck company (half of the city’s ladder resources).
  • Police: consolidation or elimination of specialized units (gangs, narcotics, traffic, downtown enforcement, SET).
  • Recreation: elimination of adult recreation programs (e.g., adult softball league).
  • Public Works: significant reduction in street and park maintenance.
  • Planning: slowed permit processing, reduced community promotion.
  • IT: potential reduction in cybersecurity investment.
• Wagner emphasized that the city has reached the end of administrative cuts and that further cuts will directly impact services. The current Measure Q sales tax (half-cent) sunsets in 2030–31, which would remove $25 million in ongoing revenue. He called for proactive revenue solutions.

Key Outcomes

• No formal votes were taken; the study session was for information and council direction.
• Councilmembers expressed support for prioritizing public safety, infrastructure, and transparency. Several members (Fleming, Rogers, Bañuelos, MacDonald) stressed the need for bold revenue measures and community engagement.
• City Manager Farrell announced next steps: the budget will be brought for adoption on June 16, 2026, incorporating council feedback from the two-day study session. In July, additional study sessions will discuss year-two service impacts and potential revenue options.
• The city has cut approximately 75 positions over two years if the proposed budget is adopted, bringing staffing to Great Recession levels.
• Council directed staff to continue exploring innovative funding strategies, including bond measures for street repairs and enhanced public-private partnerships for the golf course.