CITY COUNCIL REGULAR MEETING AGENDA PACKET 2-17-26

Page 10 of 13 Baseline Scenario Financial assumptions drive the forecast model. Assumptions used to generate the General Fund Budget and Ten-Year Financial Forecast are based on recent historical actuals, the updated mid-year revenue and expenditure projections, as well as any known future revenues, commitments, and/or obligations. FY 2025/26 and FY 2026/27 revenues are updated based on current revenue trends and estimates provided by the City’s property and sales tax consultant. Expenditures are projected based on recent actuals and the FY 2025/26 mid-year budget update, which incorporates information not available during the development of the biennial budget, including new Council-approved salary and cost-of-living adjustments and updated estimates of unfunded pension liability payments. Beyond FY 2026/27, the key fiscal assumptions driving the baseline forecast scenario include: • Property Tax increase will range from 3.7 percent to 3.8 percent per year. • Sales Tax increase will range from 2.8 percent to 3.0 percent per year. • Business License Tax will increase 3.0 percent per year. • Transient Occupancy Tax will increase 2.0 percent per year. • Franchise Fees will increase 2.5 percent per year. • Permits, Charges for Services, Recreation Revenues, and Interfund Charges will increase 3.0 percent per year. • Other Operating Revenues will increase 2.0 percent per year. • Salaries and Benefits are projected to increase by 6.0 percent in FY 2027/28, but the rate of increase is expected to come down to the 2.0 to 3.0 percent range in later years mostly due to decreasing annual unfunded pension liability estimates starting in FY 2029/30. It should be noted that CalPERS achieved investment returns higher than its target of 6.8 percent over the past two fiscal years. Unfunded pension liability estimates are highly dependent on annual investment returns and can fluctuate from year to year. • Non-Personnel costs collectively will increase between 3.0 and 4.0 percent per year. Additional General Fund functional assumptions include: • Operating transfers to support other programs range from $1.18 million to $1.46 million. • Capital Project Transfer from the General Fund will range from $3.50 million to $5.25 million based on a $0.25 million increase every year. Except for the last two forecast years, the contribution in the first eight years falls short of the City’s $5.00 million minimum goal. The contributions for FY 2025/26 and FY 2026/27 are $1.00 million and $3.25 million. • To address the City’s deferred maintenance needs, additional contributions for deferred maintenance range from $5.63 million to $6.25 million. The contributions for FY 2025/26 and FY 2026/27 are $5.22 million and $5.54 million. Please note these are the same numbers included in the prior forecast model. Additional cost estimates from the Asset Management Plan are expected later this fiscal year. Based on the project update presented to the City Council in December 2025, funds needed to maintain the General Fund-supported assets were estimated at approximately $63 million per year. • The forecast does not include the use of pension/other reserves, as drawdowns on reserves require further direction from the City Council. Page 79 of 144