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HomeMy WebLinkAboutItem 09a - FY 2026-27 Operating Budget and CIP and Equipment Plans STAFF REPORT OFFICE OF THE CITY MANAGER DATE: June 2, 2026 TO: Honorable Mayor and City Council FROM: Dominic Lazzaretto, City Manager Henry Chen, Administrative Services Director SUBJECT: RESOLUTIONS RELATING TO THE ADOPTION OF THE FISCAL YEAR 2026- 27 OPERATING BUDGET AND THE FISCAL YEARS 2026-27 THROUGH 2030-31 CAPITAL IMPROVEMENT AND EQUIPMENT PLAN RESOLUTION NO. 7696 ADOPTING A BUDGET FOR FISCAL YEAR 2026-27 AND APPROPRIATING THE AMOUNTS SPECIFIED THEREIN AS EXPENDITURES FROM THE VARIOUS FUNDS CEQA: Not a Project Recommendation: Adopt RESOLUTION NO. 7697 ADOPTING A CAPITAL IMPROVEMENT AND EQUIPMENT PLAN FOR FISCAL YEARS 2026-27 THROUGH 2030-31 CEQA: Not a Project Recommendation: Adopt SUMMARY Sections 1204 and 1205 of the Arcadia City Charter require a public notice and a public hearing for consideration of the proposed Operating Budget and Five-Year Capital Program for the ensuing fiscal year, which is required to be adopted by July 1. The recommended actions are necessary to implement the budget for Fiscal Year 2026-27. Recent shifts in federal and state economic policy, persistent inflationary pressures, evolving trade and tariff conditions, and continued volatility in financial markets have created heightened uncertainty for both the national and regional economy, reinforcing the importance of prudent fiscal planning for the upcoming fiscal year. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 2 of 25 Due to Arcadia’s longstanding commitment to fiscal discipline and conservative budgeting practices, the City remains in a strong financial position and is well prepared to navigate potential economic challenges. While the City’s fiscal outlook remains stable, Arcadia will continue to maintain a cautious approach in implementing the FY 2026–27 Budget. This measured strategy positions the City to sustain high-quality public services, preserve financial flexibility, and proactively prepare for potential economic slowdowns or revenue fluctuations. Given these dynamics, the FY 2026–27 Budget reflects a cautious but balanced fiscal strategy. City departments have carefully prepared the annual spending plan to maintain essential service levels while avoiding structural cost increases, where possible. The Budget can be considered a “status quo” type document with some proposed increases to address staffing needs and to enhance transparency and technological capabilities. The proposed FY 2026-27 General Fund Operating Budget outlines Total Operating Revenues of $96.6 million and Expenditures of $100.1 million (including new programs). After accounting for all Transfers In and Out, the General Fund is expected to end the Fiscal Year with a positive net balance of $276,000. At the end of FY 2026-27, the projected Fund Balance of the General Fund Operating Budget is expected to be $21.7 million. The General Fund Operating Budget is summarized in the table below: FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 3 of 25 GENERAL FUND SUMMARY FY26-27 Budget Beginning Fund Balance 21,454,300$ Estimated Revenues 96,563,100 Transfers In 9,516,000 Budgeted Expenses (99,605,900) Transfers Out (912,000) New Programs (485,200) Revenue over Expenses 5,076,000$ Transfer to Equipment Replacement (1,900,000) Transfer to Capital Improvement Fund (2,900,000) Total Transfer Out (4,800,000) Subtotal Operating Balance 276,000 Ending Fund Balance 21,730,300$ Overall, new programs proposed for the City’s Operating Budget demonstrate Arcadia’s commitment to being responsive to community needs. In alignment with the City's long-term financial strategy, the proposed FY 2026-27 Budget allocates funds for addressing long-term liabilities. To this end, $1.5 million has been allocated for the City’s Pension and Other Post Employment Benefits (“OPEB”) Trust accounts, which help address future employee benefits costs, especially in times of economic constraint. The $1.5 million allocation is in addition to required payments to CalPERS, retiree healthcare premiums, and pension obligation bond payments. This year’s budget process started with a Budget Study Session with the City Council on May 5, 2026. After the initial study session, minor modifications were made to the proposed capital and equipment budgets. An additional $25,000 for traffic signal improvements was added from the Proposition A Fund, bringing the total expenditure in the Capital Improvement Plan to $17,285,100. For the Equipment Replacement Fund budget, some adjustments to the cost estimates for vehicles and communications equipment decreased the budgeted amount by $148,000, to $6,942,300. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 4 of 25 The Capital Improvement Fund plays a vital role in funding crucial maintenance projects, including pavement rehabilitation, building repairs, and parks maintenance. In the FY 2026-27 Budget, $4.8 million will be transferred into the Capital Improvement and Equipment Replacement Funds, with the Equipment Fund receiving $1.9 million, and the Capital Improvement Fund receiving $2.9 million. The transfer amounts equate to approximately the 10-year average spend in each account, collectively, with actual deposits being sent to the Fund with the greatest needs the in the near term. Several key projects are budgeted within the Capital Improvement Fund, including facility improvements at the Arcadia Public Library, Council Chambers, and Community Center, as well as Citywide LED lighting upgrades. In response to increasingly stringent water quality standards, significant investment is also planned to expand the treatment capacity of the Orange Grove Well. The total proposed allocation for projects within the Capital Improvement Fund is $7.3 million. When combined with capital projects funded through all sources, total capital investment for the Fiscal Year is budgeted at $17.3 million. The Equipment Replacement Fund is utilized to replace assets that have reached the end of their useful service life, including computers, vehicles, and major office equipment, thereby ensuring continuity in City operations. For FY 2026–27, a total of $4.4 million is budgeted for equipment replacement activities. Notable expenditures include $1.5 million for the replacement of the Police Department’s computer-aided dispatch and records management system, $926,800 for vehicle replacements within the Streets Division, and $286,300 for vehicle replacements within the Police Department. It is recommended that the City Council determine that these actions do not constitute a project under the California Environmental Quality Act (“CEQA”); and: 1) Adopt Resolution No. 7696, adopting a Budget for Fiscal Year 2026-27 and appropriating the amounts specified therein as expenditures from the various funds; and 2) Adopt Resolution No. 7697, adopting a Capital Improvement and Equipment Plan for Fiscal Years 2026-27 through 2030-31. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 5 of 25 BACKGROUND Sections 1204 and 1205 of the Arcadia City Charter require a public notice and a public hearing for consideration of the proposed Operating Budget and Five-Year Capital Program for the ensuing fiscal year. The annual Budget and associated documents are required to be adopted by July 1 each year. The recommended actions in this report are necessary to implement the Budget for Fiscal Year 2026-27. This year’s budget process started with a Budget Study Session with the City Council on May 5, 2026. Inclusive in the draft budget were all operating funds, including General, Special Revenue, Enterprise, and the Successor Agency. Additionally, the City Council received the Capital Improvement and Equipment Replacement Fund budgets in a separate document. All funds total $206.4 million in expenditures, of which, the General Fund’s budget is $105.8 million (including Transfers Out as noted below). After the initial study session, some modifications were made to the proposed Capital Improvement and Equipment Replacement Fund budgets. An additional $25,000 for traffic signal improvements was added from the Proposition A Fund, bringing the total expenditures in the Capital Improvement Plan to $17,285,100. For the Equipment Replacement Fund budget, some adjustments to the cost estimates for vehicles and the communications equipment decreased the budgeted amount by $148,000 to $6,942,300. DISCUSSION As the Fiscal Year 2025–26 Operating Budget was being developed, the economic environment reflected elevated levels of uncertainty at global, national, and regional levels. The Fiscal Year 2026-27 Budget is being developed in a similar environment. Current economic forecasts point to moderating but persistent inflation, slower economic growth, evolving federal and state policy decisions, and continued volatility in financial and energy markets. In California and the greater Los Angeles region, economic conditions remain mixed, with strength in technology and investment sectors offset by slower labor market growth, affordability challenges, and ongoing pressure on consumer costs. Continued trade and tariff uncertainties, military FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 6 of 25 actions worldwide, higher borrowing costs, and future inflationary pressures further contribute to an unpredictable fiscal outlook. Given this complex and evolving environment, a wide range of economic outcomes remains possible, requiring cities to remain adaptable and fiscally prudent. Arcadia is maintaining a conservative and flexible budgeting approach to ensure the City can respond effectively to changing economic conditions, while continuing to provide high-quality public services and preserve long-term financial stability. As in previous fiscal cycles, this discussion centers primarily on the General Fund, as Special Revenue, Enterprise, and Debt Service funds are restricted for specific purposes. Staff will continue to closely monitor economic trends throughout FY 2026–27 and return to the City Council with any recommended mid‑year adjustments that may be necessary to maintain fiscal balance and service continuity, should conditions change significantly over the year. Summarized in the table below is the General Fund Operating Budget, inclusive of the FY 2025-26 Year-End Estimates; FY 2026-27 Proposed Budget; FY 2027-28 Preliminary Budget; and the Ending Fund Balance, which is projected to reach $21.5 million by the end of FY 2025-26, without any additional transfers into long-term savings accounts. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 7 of 25 THREE-YEAR GENERAL FUND BUDGET SUMMARY FY 25-26 FY 26-27 FY 27-28 Estimates Budget Budget Beginning Fund Balance 29,319,400$ 21,454,300$ 21,730,300$ Estimated Revenues 94,031,900$ 96,563,100$ 98,074,500$ Transfers In 6,088,300 9,516,000 7,016,600 Expenses & Uses (92,273,300) (99,605,900) (102,130,800) Transfers Out (912,000) (912,000) (912,000) New Programs 0 (485,200) (345,500) Revenue over Expenses 6,934,900$ 5,076,000$ 1,702,800$ Transfer to Equipment Replacement Fund (1,900,000) (1,900,000) (1,900,000) Transfer to Capital Improvement Fund (2,900,000) (2,900,000) (2,900,000) Total Transfer Out (4,800,000) (4,800,000) (4,800,000) Subtotal Operating Balance 2,134,900 276,000 (3,097,200) Special One-Time Transfer (10,000,000) - - Ending Fund Balance 21,454,300$ 21,730,300$ 18,633,100$ As shown in the table above, City staff had originally anticipated only a modest surplus for FY 2025–26; however, due to favorable revenue performance and effective expenditure management, the current Fiscal Year is now projected to close with an operating surplus of over $2 million. The FY 2026–27 budget is currently projected to generate a surplus of approximately $276,000, while the FY 2027–28 forecast reflects a projected deficit of approximately $3 million based on standard growth assumptions and currently known economic indicators. This projected deficit is similar to the situation encountered in the previous Fiscal Year, where the out-year also forecast a potential shortfall. The City’s Executive Management Team will continue to closely monitor revenue trends, expenditure levels, and broader economic conditions throughout the Fiscal Year. As part of the City’s ongoing commitment to fiscal responsibility, any necessary adjustments to revenues, expenditures, or operational assumptions will be evaluated to ensure that a balanced and sustainable budget is presented for adoption in the following Fiscal Year. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 8 of 25 FY 2026-27 Expected Revenues When staff began formulating the FY 2026–27 Budget, economic trends and available data were presenting mixed and, at times, conflicting signals regarding the overall direction of the economy. In the absence of a clear and consistent trend, a conservative and cautious forecasting approach was adopted across the City’s major revenue sources. For FY 2026-27, total General Fund revenues are expected to increase 2.62% when compared to FY 2025-26 Year-End Estimates. The largest revenue source for the City’s General Fund are taxes and fees. The key revenues under these two groups are: Sales & Use Tax, Property Tax, Utility Users’ Tax, Transient Occupancy Tax, and Motor Vehicle License Fees. The projected receipts for each tax are shown in the tables below: GENERAL FUND REVENUES FY 25-26 FY 26-27 Estimates B udget $ % Taxes 64,113,300$ 64,862,900$ 749,600$ 1.16% License & Permits 6,788,300 7,919,300 1,131,000 14.28% Fines & Penalties 430,700 551,500 120,800 21.90% Use Money & Property 3,190,000 3,134,000 (56,000)-1.79% Revenue from Other Agen 10,124,100 10,315,100 191,000 1.85% Charge Current Services 5,478,700 5,512,000 33,300 0.60% Library 98,000 102,000 4,000 3.92% Recreation 1,355,600 1,642,000 286,400 17.44% Other Revenue 2,453,200 2,524,300 71,100 2.82% Total Revenue 94,031,900$ 96,563,100$ 2,531,200$ 2.62% Changes FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 9 of 25 GENERAL FUND TAX REVENUE SUMMARY Description FY 2025-26 Estimate FY 2026-27 Budget Difference % Change Sales and Use Tax $ 24,962,900 $ 25,305,100 $ 342,200 1.35% Property Tax 21,468,900 22,023,900 555,000 2.52% Utility Users’ Tax 9,807,400 9,999,400 192,000 1.92% Transient Occupancy Tax 5,508,100 5,126,600 (381,500)-7.44% Motor Vehicle License Fees 9,818,500 10,029,100 210,600 2.10% Sales and Transaction Use Tax: For Sales and Transaction Use Tax, total estimated revenues for the upcoming Fiscal Year are projected at $25.3 million, representing a 1.35% increase over the current year’s estimates. Recent retail data indicates moderate growth driven by regional consumer spending and continued inflationary impacts on taxable goods and services. Although overall economic growth is expected to remain modest, taxable sales activity in sectors such as retail, food services, technology, and construction materials continues to support local revenue generation. At the same time, increased volatility related to interest rates, tariffs, and the potential risk of an economic slowdown may affect the stability of future growth trends. All things considered, current trends continue to support a moderate level of sales tax revenue growth for the next Fiscal Year. A key part of the Sales Tax projection is Measure A, a 0.75% Transaction and Use Tax approved by Arcadia voters in June 2019. Since its adoption, Measure A has strengthened the City’s long-term fiscal stability and supported the continued delivery of essential municipal services. In Fiscal Year 2025–26 alone, Measure A is estimated to generate approximately $11.7 million in revenue. The ongoing performance of Measure A has played a critical role in supporting the City’s operational and financial needs, particularly during periods of economic uncertainty and rising service costs. Property Tax: Property tax revenues for Fiscal Year 2026–27 are expected to be supported by continued increases in assessed property valuations and new development activity, resulting in moderate growth. However, growth trends are expected to be constrained relative to historical averages due to higher interest rates, slowing real estate market conditions, and broader economic uncertainty. The FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 10 of 25 City’s reputation for providing a high quality of life, well-maintained neighborhoods, and highly regarded public schools is recognized as a key factor in sustaining long- term residential desirability. These conditions support steady housing demand, even during periods of elevated interest rates and broader economic uncertainty. These factors will contribute to a moderate growth in property taxes next Fiscal Year. For Fiscal Year 2026–27, property tax receipts are estimated to increase by approximately 2.52%, to $22 million. Utility Users’ Tax (“UUT”): The projected revenue from the Utility Users' Tax is $9.9 million, representing a 1.9% increase compared to the previous Fiscal Year. For Fiscal Year 2026–27, UUT revenues are generally expected to experience minimal growth, with performance primarily influenced by utility rate adjustments and shifts in household utility usage, rather than broader economic expansion. The rate changes are primarily driven by the need for utilities to invest in infrastructure resiliency compounded with expected increases in energy and water prices. These increases are expected to be partially offset by structural changes in telecommunications consumption, as usage continues to shift toward services that may be exempt from UUT under existing tax provisions. Transient Occupancy Tax (“TOT”): The TOT revenue is projected to be $5.1 million in FY 2026-27, representing a 7.4% decrease compared to the current Fiscal Year. Continued downward pressure on TOT revenues is expected to be driven by an uncertain travel and tourism environment, including ongoing geopolitical uncertainty. A current indicator of this uncertainty is the unexpectedly soft demand for 2026 World Cup tickets, and related hotel bookings. In addition, a portion of the decline is expected to result from the planned closure of up to two local hotel properties in the near term. As a result, overall hotel occupancy levels and related taxable room revenues are expected to soften, contributing to the projected decrease of $381,500 in TOT collections for the upcoming Fiscal Year. Motor Vehicle License Fees (“VLF”): The Motor Vehicle License Fees ("VLF") tax is projected to increase by 2.1%, generating $10.0 million in revenue next Fiscal Year. Since the State implemented a formula-based adjustment that links the City’s VLF allocation to annual assessed property valuations, VLF revenue growth in Arcadia has been consistently healthy. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 11 of 25 Most other revenue areas are projected to be fairly flat or growing slightly during the upcoming Fiscal Year. A minor exception to this is the 1.79% expected decrease in the Use of Money and Property category, where declining federal interest rates will reduce the potential growth in the City’s investments. License and permit revenue is projected to increase 14.28% in Fiscal Year 2026–27, due primarily to higher building permit activity. The increase reflects continued development activity within the City, including both mixed-use and new hotel construction. Development, and permit-related revenues, are inherently variable and can fluctuate significantly from year-to-year based on the timing, size, and volume of construction activity within the City. Revenue from fines and penalties is expected to increase $120,800 in Fiscal Year 2026–27, primarily due to an increase in the number of citations issued, and an improved collection rate for delinquent citations. The increase reflects ongoing enhanced collection procedures that have contributed to higher overall revenue recovery. Recreation revenues are forecasted to increase by 17.44% in Fiscal Year 2026–27, driven primarily by expanded programming. A significant factor contributing to the increase is the addition of the America’s 250 Anniversary Event, which is expected to generate sponsorship and ticket revenues. Additional growth is also assumed from the expansion of recreation leagues and classes, reflecting continued demand for community-based programs and services. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 12 of 25 FY 2026-27 Proposed Expenses GENERAL FUND EXPENDITURES BY DEPARTMENT The proposed FY 2026-27 Operating Budget sets total operating expenditure at $99.6 million, representing an 8.8% increase compared to the previous year's Revised Budget of $91.5 million. Much of this increase can be attributed to contractual increases from multi-year service agreements, higher costs for supplies and materials due to increased pricing pressures, and the expected increases in salary and benefits for employees. The increases can generally be attributed to a high inflationary environment nationwide and particularly in the Southern California area. Furthermore, the budget continues to allocate "prefunding" of long-term benefit accounts, including the City's Retiree Medical Benefit (Other Post Employee Benefit liabilities) and the contribution to the City’s Pension Trust Account. The proposed budget includes a total of $1.5 million for those accounts ($750,000 each). CITY MANAGER $2,877,400 3% ADMIN SVRCS $4,387,000 4% HUMAN RESOURCES $1,439,500 1%POLICE $34,921,700 35% FIRE $27,667,200 28%PUBLIC WORKS $7,046,900 7% DEV. SVCS $7,138,900 7% RECREATION $5,464,400 6% LIBRARY & MUSEUM $5,663,200 6% GENERAL CITY $2,999,700 3% FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 13 of 25 New Programs Proposed New services and programs are presented by various departments to respond to emerging operational needs and direction from the City Council. Most of the new programs support a combination of technology modernizations and providing greater transparency throughout the organization. New programs proposed for the FY 2026-27 Budget total $485,200 and are described in the following sections. City Clerk’s Office: Public Records Software ($20,000): The volume of California Public Records Act (CPRA) requests received and processed by the City has nearly doubled over the past three years alone. Currently, the process is fully manual and handled by a single employee, leading to inefficiencies and delays. The proposed software would support records request processing across all departments, except Police and Fire, which have dedicated staffing and handle records with greater levels of protected information. To manage the growing demand, the City Clerk’s Office is pursuing an AI-driven solution to more effectively identify, locate, retrieve, and respond to public records requests. City Clerk’s Office: Document Management System ($40,000): Arcadia currently uses a document management system to store and access public records and City documents, which include meeting agendas and minutes for City Council and City Boards and Commissions, contracts, permits, licenses, agreements, bids, and much more. Digital records date back to the 1950's and are available to the public through a portal on the City's website. Currently, the system contains over 245,000 documents, for a total of 1.9 million pages and 735 gigabytes of storage space. The current contract for document management services will expire in June 2026, and a Request For Proposals (“RFP”) process is underway to source a replacement system. The City uses a legacy version of Laserfiche that stores documents on a local server managed by City staff. It is expected that a new system would utilize cloud-based storage and be and managed by the vendor. This approach will provide more reliable uptime, regular upgrades, and the ability for more users to simultaneously access documents and records. To reflect a new contract period at a higher level of service and sophistication, a $40,000 budget is being requested to cover potential new costs. The requested amount will be refined based on RFP results. The City's current contract covers Police separately from the rest of the City, and both total approximately $25,000 annually. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 14 of 25 Administrative Services Department: IT Coordinator ($30,300): Increased reliance on technology across City operations necessitates the establishment of a centralized coordination function to support the planning, development, and implementation of the City’s information technology roadmap. This position would serve as a key liaison across departments to collect, assess, and prioritize technology needs, ensuring that operational requirements are clearly defined and aligned with the City’s broader strategic objectives. The coordinator would be responsible for researching, evaluating, and recommending technology solutions, as well as assisting in the management of project resources to support the successful deployment of systems and services. This role would also support the coordination of implementation efforts across departments, helping to ensure that projects are delivered on time, within scope, and in alignment with established standards and goals. The request would be for a part-time employee or contractual hours with the City’s current service provider, which are separate from routine help desk and maintenance type activities. Administrative Services Department: User and Impact Fee Update ($100,000): The City’s last comprehensive User Fee Study was conducted in 2019. Since then, fees have been updated annually based on standard inflationary factors. The City’s user fees are intended to cover the reasonable cost of providing specific services to individuals or entities, rather than relying on the general taxpayer. When fees are outdated, the gap between actual costs and collected revenues grows, effectively subsidizing fee-supported services with General Fund resources. Updating these fees ensures a fair allocation of costs, promotes fiscal sustainability, and preserves limited public funds for broader community priorities. The City’s current Park and Traffic Impact Fees have not been updated since 2007 and 2016, respectively. During this time, the cost of maintaining infrastructure and accommodating growth has increased significantly. As a result, existing fees may no longer reflect the true cost of service delivery or the impacts generated by new development. Adjusting fees brings them into alignment with current economic realities and ensures that revenue keeps pace with expenditures. A total of $100,000 is requested for a joint study of Citywide User Fees and an update to both the Park and the Traffic Impact Fees. Future revenues collected from these updates will recover the cost of these efforts. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 15 of 25 Police Department: Digital Forensics Lab ($15,000): Increasingly, evidence stored by the Police Department is in the form of digital information from cell phones, laptops, and the internet. To ensure digital records are securely stored, maintain legally defensible chains of custody, and protect against hacking and other cyber intrusions, the Department is requesting $15,000 to upgrade its Digital Forensics Lab. These funds would be used to procure, replace, and upgrade specialized equipment necessary to ensure the lab continues to function effectively, and remain aligned with current investigative and evidentiary standards. Police Department: Civic Plus NextRequest Document Management ($16,300): NextRequest is a cloud-based, public records request software designed for government agencies to manage public records requests from submission to fulfillment. It acts as a centralized portal that streamlines workflows, reduces compliance risks, and provides a transparent way for the public to request, view, and receive documents. Requests processed through the portal enhance efficiency and allow for a more streamlined process. Automating the public records request process significantly reduces the burden on staff, allowing them to focus on more critical tasks that require human insight and judgment. The portal also helps staff address challenges such as managing the volume and complexity of requests, tracking requests, decentralization, concerns around data security, and redaction capabilities. This system would be designed specifically to meet federal and state security and privacy standards for policing agencies. This system will also be coordinated with the City Clerk’s Document Management System upgrade to ensure all systems work seamlessly. Fire Department: Local Hazard Mitigation Plan ($100,000 with FEMA grant potentially paying 75%, with remaining $25,000 from the General Fund): Local governments are required to have an approved Local Hazard Mitigation Plan in place to receive pre-disaster and post-disaster mitigation federal funding. The City's Local Hazard Mitigation Plan (LHMP) was last approved by FEMA on May 2022 and must be updated every five years. Thus, an LHMP Update must be submitted to FEMA before May 2027. The LHMP update is to address modern threats to the community and to adhere to federal standards and guidelines. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 16 of 25 The City is currently in the process of securing a FEMA grant that can fund up to 75% of its total eligible cost, with the remaining 25% to be funded by the City. FEMA can fund most activities related to developing or updating the LHMP. All grant documents have been submitted, and the approval of its sub-application is pending. The preliminary cost for securing a contractor specializing in the LHMP update is approximately $100,000. The FEMA share, if approved, could be up to $75,000 of the project's total cost. After the LHMP update has been completed, an estimated $5,000 is planned for its ongoing maintenance annually. Public Works Services Department: Arborist ($202,100): The establishment of an Arborist position is necessary to ensure continued management of the City’s urban forestry program and to maintain a healthy and sustainable tree population, while reducing risks associated with tree-related hazards. The Arborist function has traditionally been an ancillary responsibility of the Streets Superintendent in the Public Works Services Department; however, as the City’s urban forest matures and legal requirements become more complex, a dedicated position is more essential to reduce risk and better manage the health of City trees. This position would be responsible for conducting systematic assessments of trees for structural integrity and potential safety concerns, maintaining comprehensive inventories of tree species and conditions, and developing long-term strategies for urban forestry management and infrastructure protection. The Arborist would also play a critical role in planning and implementing preventative maintenance programs designed to promote tree health, extend asset life, and minimize conflicts with public infrastructure. In addition, following major storm events or emergency conditions, having an in-house arborist would ensure timely inspections and expert evaluation of damaged or hazardous trees. This capability would allow for informed and efficient decision-making regarding the removal or mitigation of dangerous trees, thereby enhancing public safety and improving the City’s overall emergency response capacity. Development Services Department: Downtown Parking Study ($29,500): The proposed parking study would evaluate current parking patterns within the Downtown area and assess the effectiveness of existing timed parking regulations in light of significant private development that is either underway or nearing completion. The study would also consider whether adjustments to parking time FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 17 of 25 limits and management strategies are warranted to better accommodate changing demand conditions. Following the opening of the A Line, ridership increased significantly, with the parking structure adjacent to the Transit Plaza frequently reaching capacity on most days of the week, approximately three years after commencement of service. In June 2019, when LA Metro implemented parking fees at its facilities, some transit users began shifting to free on-street parking in surrounding neighborhoods and City-owned parking lots within the Downtown area. In response, additional 4-hour parking restrictions were implemented on streets adjacent to the A Line station and within Downtown parking areas to help manage spillover demand. Given the continued evolution of the area, including the near completion of developments such as the Alexan Azalea Apartments, the anticipated Alexan Arroyo project, and other future private developments, it is timely to update the 2019 Downtown Parking Study. In addition, the A Line has expanded eastward again, potentially changing parking patterns near stations along the route. The updated analysis would ensure that parking policies remain aligned with current and projected demand, support economic development, and maintain accessibility within the Downtown core. Recreation and Community Services Department: Lunar New Year Red Envelope ($7,000): During the Lunar New Year period, it is traditional for friends, families, and organizations to exchange red envelopes to celebrate and bring goodwill in the coming year. With this new program, the City of Arcadia would participate in this cultural tradition by providing patrons who visit a City facility with a specially designed red envelope that includes a message and a coupon for a giveaway. Giveaways could include items such an Arcadia sticker, gift certificates to local businesses, or themed merchandise. Gift amounts would be nominal in value but could be enhanced with support from local businesses. The table below summarizes the New Programs included in this proposed budget. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 18 of 25 NEW PROGRAMS FY 2026-27 Ongoing Annual Proposed New Programs Start Up Costs Costs City Clerk Public Records Software 20,000$ 20,000$ Document Management 40,000 40,000 Administrative Services IT Coordinator 30,300 32,000 User and Impact Fee Updates 100,000 - Police Digital Forensics Lab 15,000 15,000 Civic Plus - Document Management 16,300 15,000 Fire Local Hazard Mitigation Plan 25,000 Public Works Services Arborist 202,100 208,500 Development Services Downtown Parking Study 29,500 Recreation Services Lunar New Year Red Envelopes 7,000 15,000 Total New Programs 485,200 345,500 Capital Improvement and Equipment Replacement Funds The City strategically allocates resources to the Capital Improvement Fund and the Equipment Replacement Fund to support significant, non-recurring expenditures that occur on an intermittent basis. The balances in these funds have been reinforced over time through prudent fiscal management and the transfer of year-end General Fund surpluses. The City’s ongoing objective is to maintain annual General Fund contributions at a level consistent with the 10-year average expenditures from each respective fund, thereby ensuring long-term funding stability and continuity. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 19 of 25 This proactive funding approach is essential to preserving the integrity of the City’s infrastructure systems and ensuring that staff have the necessary capital assets and equipment to provide essential services. For the FY 2026-27 Budget, a total transfer of $4.8 million from the General Fund is proposed, with $2.9 million allocated to the Capital Improvement Fund and $1.9 million allocated to the Equipment Replacement Fund. Collectively, these amounts reflect the 10-year average expenditure levels for these funds. The FY 2026-27 Capital Improvement Plan entails 35 projects, with a total expenditure of $17.3 million. Of this amount, $7.3 million will be funded from the Capital Improvement Fund. The Capital Improvement Fund primarily supports crucial maintenance initiatives such as pavement rehabilitation, building repairs, and parks maintenance. The following table provides a summary of the major projects proposed for the upcoming year. FY 2026-27 MAJOR CAPITAL IMPROVEMENT PROJECTS Project Description Project Budget Funding Source Sewer Main Replacement $1,350,000 Sewer Fund Arboretum Sewer Project $1,000,000 Sewer Fund Pavement Rehabilitation Program $2,500,000 Capital Improvement $1.0M & RMRA (SB1) - $1.5M LED Lighting Conversion $1,120,000 Capital Improvement Fund Annual Slurry Seal Program $1,400,000 Capital Improvement Fund Downtown Parking Lot $1,150,000 Capital Improvement Fund FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 20 of 25 The Equipment Replacement Fund plays a critical role in funding essential equipment, such as computers, vehicles, and major office equipment. The budgeted annual transfer of $1.9 million properly funds current spending levels and allows the City to replace equipment before it becomes obsolete. In the proposed budget, there are several vehicle replacements planned – specifically, heavy-duty vehicles used by the Public Works Services and Police Departments. In addition, there is a project to upgrade the Police Department’s computer dispatch and records management (CAD/RMS) software that is critical to maintaining reliable operations, compliance, and interoperability with regional partners. The Equipment Replacement Fund encompasses a comprehensive list of 30 equipment purchases, totaling $6.9 million. Sixty-four percent (64%) of the $6.9 million (or $4.4 million) will be funded by the Equipment Replacement Fund. The table below summarizes some significant equipment purchases for the upcoming period. FY 2026-27 MAJOR EQUIPMENT REPLACEMENT PURCHASES Equipment Replacement Description Replacement Budget Funding Source Water Vehicle Replacements: • Crane Truck • Heavy Duty Dump Truck • Compact Pickup Truck • ¾ Ton Pickup Truck • Installation of Equipment and Accessories $932,400 Water Fund Police Department: • 2 New Patrol Vehicles • ½ Ton Pickup Truck • Radio Replacement • Installation of Equipment and Accessories $286,300 Equipment Replacement FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 21 of 25 FY 2026-27 MAJOR EQUIPMENT REPLACEMENT PURCHASES Equipment Replacement Description Replacement Budget Funding Source Police Department: • CAD/RMS Upgrade $1,500,000 Equipment Replacement Police Department: • Reconstruction of Radio Communication Tower $1,321,100 Equipment Replacement/Insurance Streets Vehicle Replacements: • 2 ¾ Ton Pickup • New CNG Street Sweeper • Installation of Equipment and Accessories $926,800 Equipment Replacement OVERALL ECONOMIC OUTLOOK The General Fund FY 2026–27 Operating Budget was developed based on expectations of moderate and steady economic growth, although broader economic conditions are anticipated to remain uncertain and uneven throughout the Fiscal Year. Economic forecasting for FY 2026–27 has proven challenging due to the presence of conflicting economic indicators regarding the overall direction of the economy. While certain measures, including employment levels, consumer spending, and property valuations have continued to demonstrate relative strength and stability, other indicators have reflected slowing economic growth, persistent inflationary pressures, elevated interest rates, and increased market volatility. Additional external factors, including geopolitical uncertainty, global trade concerns, supply chain adjustments, and fluctuations in energy prices, are also expected to continue contributing to economic uncertainty. Consumer spending patterns have shown signs of moderation as households continue adjusting to higher living costs and changing financial conditions. Collectively, these factors have created an economic environment in which long-term trends and revenue projections have become more difficult to evaluate with a high degree of certainty. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 22 of 25 Despite these uncertainties, the overall economic outlook is expected to remain generally stable, with moderate growth anticipated during Fiscal Year 2026–27. Nevertheless, the proposed budget has been prepared using conservative forecasting assumptions intended to preserve fiscal stability, maintain operational flexibility, and position the City to respond appropriately to evolving economic conditions throughout the Fiscal Year. The City’s General Fund reserve has grown over the past several fiscal years, increasing from approximately $30.5 million in Fiscal Year 2020–21 to $82.9 million in Fiscal Year 2024-25. This substantial growth reflects the City’s long-term focus and fiscal prudence. Maintaining healthy reserve levels strengthens the City’s financial stability and provides flexibility to address unforeseen expenses, economic uncertainty, or revenue shortfalls. As a result, the City is well-positioned to weather potential economic downturns while continuing to maintain essential services and respond to community needs. $- $10 $20 $30 $40 $50 $60 $70 $80 $90 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 Mi l l i o n s General Fund Reserve General Fund Reserve Emergency Reserve Capital and Equipment Self Insurance Other FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 23 of 25 CONCLUSION The proposed FY 2026-27 General Fund Operating Budget demonstrates a balanced financial position, with a projected surplus of $276,000. This surplus is the result of Total Operating Revenues and Transfers In, amounting to $106.1 million, net of Operating Expenditures and Transfers Out, totaling $105.8 million. Arcadia’s commitment to careful budgeting has resulted in a strong financial buffer, positioning the City to better withstand periods of short-term economic uncertainty. The General Fund reserve balance, at approximately $21.5 million, provides the City with the flexibility needed to respond to unforeseen events and emerging fiscal challenges. The City’s ability to sustain essential services during periods of economic volatility reflects its fiscal discipline, adaptability, and commitment to maintaining service continuity for residents and businesses. Looking ahead, these foundational strengths are expected to be maintained by the City’s management team through continued prudent financial planning and disciplined resource allocation. As a result, the City is expected to remain well- positioned to deliver effective, efficient, and fiscally responsible municipal services, while maintaining long-term financial stability. To move forward with the proposed budget and ensure effective financial planning, it is recommended that the City Council adopt the proposed resolutions, which include enacting the FY 2026-27 Operating Budget as well as the Five-Year Capital and Equipment Replacement Plans. Attached to this staff report are the following: • Exhibit “A”: A summary of Sources and Uses for All Funds reflecting the proposed FY 2026-27 Operating Budget presented to City Council for adoption. • Exhibit “B”: A summary of the proposed Five-Year Capital Improvement and Equipment Replacement Plan. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 24 of 25 ENVIRONMENTAL ANLYSIS The proposed actions do not constitute a project under the California Environmental Quality Act (“CEQA”), based on Section 15061(b)(3) of the CEQA Guidelines, as it can be seen with certainty that they will have no impact on the environment. Many of the budgeted items in the attached documents may require their own environmental review, which will be conducted when each project is brought forward for consideration. FISCAL IMPACT The General Fund Operating Fund Balance is projected to reach $21.0 million by the end of FY 2025-26, providing the necessary reserves to sustain operations throughout the Fiscal Year. The proposed budget is balanced, with revenues exceeding expenditures by $276,000. In accordance with the City's financial policies, which recommend maintaining a 20% balance in the Emergency Reserve Fund relative to annual operating expenditure, a transfer of $427,000 is expected to be made to the Emergency Reserve Fund at the conclusion of FY 2025-26. In total, the City has $82.9 million in unrestricted reserve funds to address future needs, emergencies, and unexpected circumstances that may arise in the future. RECOMMENDATION It is recommended that the City Council determine these actions do not constitute a project under the California Environmental Quality Act (“CEQA”); and: 1) Adopt Resolution No. 7696 adopting a Budget for Fiscal Year 2026-27 and appropriating the amounts specified therein as expenditures from the various funds; and 2) Adopt Resolution No. 7697 adopting a Capital Improvement and Equipment Plan for Fiscal Years 2026-27 through 2030-31. FY 2026-27 Operating Budget and CIP and Equipment Plans June 2, 2026 Page 25 of 25 Attachments: Resolution No. 7696 Resolution No. 7697 Exhibit “A” – All Funds Fiscal Year 2026-27 Operating Budget Summary Exhibit “B” – Five-Year Summary of Capital and Equipment Plan 1 RESOLUTION NO. 7696 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, ADOPTING A BUDGET FOR FISCAL YEAR 2026-27 AND APPROPRIATING THE AMOUNTS SPECIFIED THEREIN AS EXPENDITURES FROM THE VARIOUS FUNDS WHEREAS, on June 2, 2026, the City Manager submitted to the City Council a proposed Budget for Fiscal Year 2026-27, a copy of which is on file in the Office of the City Clerk; and WHEREAS, Section 1204 of the Arcadia City Charter requires notice and hearing for consideration of a proposed operating budget and its adoption by resolution; and WHEREAS, the aforementioned proposed Budget includes the budget for the ensuing Fiscal Year 2026-27; and WHEREAS, notice of the public hearing on the proposed Budget and a summary of the proposed Budget were published on May 22, 2026; and WHEREAS, the duly noticed public hearing was conducted by the City Council on June 2, 2026. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, DOES HEREBY FIND, DETERMINE AND RESOLVE AS FOLLOWS: SECTION 1. That certain “City of Arcadia Budget, Fiscal Year 2026-27”, as on file in the office of the City Clerk, together with any approved amendments thereto, is hereby adopted, in pertinent part, as the official budget of the City of Arcadia for 2 the Fiscal Year 2026-27 and the amounts specified therein as expenditures from the funds indicated are hereby appropriated for the purposes specified therein. SECTION 2. The City Clerk shall certify to the adoption of this Resolution. Passed, approved and adopted this 2nd day of June, 2026. ______________________________ Mayor of the City of Arcadia ATTEST: __________________________ City Clerk APPROVED AS TO FORM: __________________________ Michael J. Maurer City Attorney RESOLUTION NO. 7697 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, ADOPTING A CAPITAL IMPROVEMENT AND EQUIPMENT PLAN FOR FISCAL YEARS 2026-27 THROUGH 2030-31 WHEREAS, on June 2, 2026, the City Manager submitted to the City Council a proposed plan entitled, “Capital Improvement and Equipment Plan, Fiscal Years 2026-2031”, a copy of which is on file in the office of the City Clerk; and WHEREAS, Section 1205 of the Arcadia City Charter requires notice and hearing for the consideration of a capital program and its adoption by resolution of the City Council; and WHEREAS, notice of the public hearing on the proposed Capital Improvement and Equipment Plan was published on May 22, 2026; and WHEREAS, the duly noticed public hearing was conducted by the City Council on June 2, 2026. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, DOES HEREBY FIND, DETERMINE AND RESOLVE AS FOLLOWS: SECTION 1. That certain “Capital Improvement and Equipment Plan, Fiscal Years 2026-2031”, as on file in the office of the City Clerk, together with any approved amendments thereto, is hereby adopted, in pertinent part, for Fiscal Year 2022-2027. SECTION 2. The City Clerk shall certify to the adoption of this Resolution. Exhibit "A" Ending Fund Fund Beginning Outside Transfer Total Appropriation Transfer Total Balance Fund FY Sources In Out FY General Fund 21,454,300 96,563,100 9,516,000 127,533,400 100,091,100 5,712,000 105,803,100 21,730,300 Narcotic Seizure Federal 227,000 21,800 0 248,800 0 0 0 248,800 COPS 311,600 207,800 0 519,400 215,600 0 215,600 303,800 Medical/Dental 490,700 0 4,432,000 4,922,700 4,200,000 2,000 4,202,000 720,700 Local Law Enforcement 900 155,800 155,800 312,500 311,600 0 311,600 900 IRS Task Force 517,800 17,900 0 535,700 0 0 0 535,700 Worker Compensation/Liability 5,918,400 147,000 3,585,000 9,650,400 4,179,600 0 4,179,600 5,470,800 Homeland Security 0 100,000 0 100,000 100,000 0 100,000 0 Library State Grant 600 0 0 600 0 0 0 600 Homelessness Plan 2,500 318,000 0 320,500 318,000 0 318,000 2,500 Office of Traffic Safety Grant 3,400 110,000 0 113,400 110,000 0 110,000 3,400 California OES HSGP (32,500)75,000 0 42,500 50,000 0 50,000 (7,500) Autotheft Prevention Taskforce 0 0 0 0 0 0 0 0 Emergency Reserve 18,737,800 0 0 18,737,800 0 0 0 18,737,800 America Rescue Plan Act 0 0 0 0 0 0 0 0 Public, Educational/Governmental Access 1,396,600 99,900 0 1,496,500 15,000 0 15,000 1,481,500 Parks & Recreation 6,218,400 1,674,200 0 7,892,600 0 0 0 7,892,600 Fire Facilities Fund 460,500 136,500 0 597,000 0 0 0 597,000 Used Oil Grant 17,800 8,300 0 26,100 8,200 0 8,200 17,900 DOC Beverage Grant 80,100 16,200 0 96,300 14,100 0 14,100 82,200 Traffic Safety 0 142,800 0 142,800 0 142,800 142,800 0 Solid Waste 2,751,600 910,500 0 3,662,100 609,300 300,000 909,300 2,752,800 Measure W - Safe Clean Water Program 4,222,300 1,122,800 0 5,345,100 2,037,800 0 2,037,800 3,307,300 Dow Settlement Fund 14,111,800 423,400 0 14,535,200 0 0 0 14,535,200 State Gas Tax 12,100 1,646,700 0 1,658,800 104,500 1,600,000 1,704,500 (45,700) Road Maintenance/Rehabilitation Act 2,471,700 1,657,700 0 4,129,400 1,500,000 0 1,500,000 2,629,400 Air Quality Management District 278,400 81,900 0 360,300 62,700 0 62,700 297,600 Community Development Block Grant 0 260,000 0 260,000 257,600 0 257,600 2,400 Santa Anita Grade Separation 824,600 20,600 0 845,200 0 0 0 845,200 Transit 0 3,849,800 663,400 4,513,200 3,845,500 0 3,845,500 667,700 Proposition A 5,049,900 1,569,200 0 6,619,100 447,800 1,498,900 1,946,700 4,672,400 Transportation Impact Fund 684,500 417,100 0 1,101,600 659,900 0 659,900 441,700 TDA Article 3 Bikeway 4,600 44,700 0 49,300 40,000 0 40,000 9,300 STPL & ITS Special Fund 0 0 0 0 0 0 0 0 Measure M 2,534,300 2,580,800 0 5,115,100 3,449,500 0 3,449,500 1,665,600 Capital Improvement 23,697,300 877,400 2,900,000 27,474,700 24,064,200 0 24,064,200 3,410,500 City Hall Reserve 100 0 0 100 0 0 0 100 Lighting Maintenance 310,900 1,542,300 922,600 2,775,800 1,537,700 0 1,537,700 1,238,100 Water Fund (7,519,300)19,445,000 0 11,925,700 20,513,400 0 20,513,400 (8,587,700) Sewer Fund 8,535,400 3,019,900 0 11,555,300 4,646,200 0 4,646,200 6,909,100 Par 3 Golf Course Fund 3,124,700 1,819,200 0 4,943,900 1,569,000 0 1,569,000 3,374,900 Equipment Replacement 18,281,500 1,508,400 1,900,000 21,689,900 5,583,200 36,600 5,619,800 16,070,100 Redevelopment Successor Agency 233,000 2,430,600 0 2,663,600 2,663,600 0 2,663,600 0 General Obligation Bond 2012 400,600 410,000 0 810,600 410,100 0 410,100 400,500 General Obligation Bond 2011 554,500 534,600 0 1,089,100 524,400 0 524,400 564,700 Pension Obligation Bonds 2020 0 5,874,600 0 5,874,600 5,874,600 0 5,874,600 0 Total 144,415,000 154,075,700 24,074,800 322,565,500 195,922,900 10,484,100 206,407,000 116,158,500 CITY OF ARCADIA SUMMARY BY FUND FISCAL YEAR 2026-2027 PROPOSED BUDGET SOURCES OF FUNDS USES OF FUNDS ESTIMATED ESTIMATED PROPOSED ESTIMATED FUNDS FIVE-YEAR FIVE-YEAR FUNDS 7/01/2026 REVENUE EXPENDITURE 6/30/2031 CAPITAL OUTLAY FUND 23,697,300 25,034,500 (38,093,700) 10,638,100 AMERICAN RESCUE PLAN FUND 3,042,700 - (3,042,700)- PARK AND RECREATION FUND 6,218,400 6,291,800 (7,900,000) 4,610,200 FIRE FACILITIES FUND 460,500 613,700 - 1,074,200 MEASURE W CLEAN, SAFE WATER PROGRAM 4,222,300 5,523,100 (5,960,800) 3,784,600 GAS TAX (HUTA) FUND 12,100 8,256,200 (8,122,500) 145,800 ROAD MAINTENANCE AND REHABILITATION PROGRAM 2,471,700 8,351,600 (6,600,000) 4,223,300 AQMD 278,400 415,600 (153,500) 540,500 PROP C LOCAL RETURN 4,478,000 6,194,800 (10,077,900) 594,900 TRANSPORTATION IMPACT FUND 684,500 1,324,300 (959,900) 1,048,900 MEASURE R LOCAL RETURN 1,104,500 4,516,100 (8,648,700) (3,028,100) MEASURE M LOCAL RETURN 2,534,300 6,837,600 (7,319,500) 2,052,400 WATER FACILITY RESERVE 11,445,900 275,600 (19,883,900) (8,162,400) WATER EQUIPMENT RESERVE (1,989,400)- (2,274,500) (4,263,900) SEWER FUND 8,535,400 15,143,000 (22,332,100) 1,346,300 EQUIPMENT FUND 18,281,500 11,884,600 (22,510,500) 7,655,600 CITY OF ARCADIA SUMMARY OF PROPOSED FIVE YEAR CAPITAL PROGRAMS FISCAL YEAR 2026-27 THROUGH 2030-31 Exhibit "B"