TO: ADAM PIRRIE, CITY MANAGER
FROM: JEREMY STARKEY, FINANCE DIRECTOR
DATE: OCTOBER 27, 2026
Reviewed by:
City Manager: AP
SUBJECT:
Title
2025-26 GENERAL FUND FINANCIAL UPDATE (UNAUDITED)
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SUMMARY
Staff provides a financial update for the General Fund after the end of each fiscal year. The information in this report represents unaudited information for the General Fund. The audited financial statements for all funds, including the General Fund for 2025-26, will be published at the end of this calendar year as part of the City’s Annual Comprehensive Financial Report (ACFR). In prior years, information provided in this report has generally not deviated materially from the final annual audited statements.
At the close of 2025-26, a projected General Fund surplus of $3,239,993 was realized from General Fund operations for the fiscal year. The following report details the staff recommendation for the allocation of the 2025-26 General Fund surplus.
RECOMMENDATION
Recommended Action
Staff recommends the City Council:
A. Allocate $688,415 of the 2025-26 General Fund surplus to the City’s Operating and Environmental Emergency Reserve, bringing the reserve balance to $12,301,475 or thirty percent of budgeted 2026-27 General Fund operating expenditures and transfers out;
B. Allocate and appropriate $1,000,000 of the 2025-26 General Fund surplus for an additional discretionary payment to CalPERS to pay down the unfunded liability on the City’s employee pension plans;
C. Allocate and appropriate $500,000 of the 2025-26 General Fund surplus for a contribution to fund the City’s Section 115 Pension Trust;
D. Allocate and appropriate $450,000 of the 2025-26 General Fund surplus to fund a permit and business license software implementation project; and
E. Allocate $601,578 or any remaining 2025-26 General Fund surplus after completion of the annual audit to the City’s Equipment and Facility Revolving Reserve.
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ALTERNATIVES TO RECOMMENDATION
In addition to the recommendation, there is the following alternative:
A. Request additional information.
B. Authorize alternative allocations of the 2025-26 General Fund surplus.
FINANCIAL REVIEW
General Fund revenues and transfers in for 2025-26 totaled $44,015,844, exceeding the adopted budget of $36,739,605.
General Fund expenditures and transfers out originally budgeted for ongoing operations totaled $40,906,176, consisting of $39,034,151 in expenditures and $1,872,025 in transfers out. Actual expenditures and transfers out attributable to current-year operations were $40,775,851, which was $130,325 below budget.
Comparing current-year revenues and transfers in of $44,015,844 to current-year expenditures and transfers out of $40,775,851, the General Fund generated an operating surplus of $3,239,993 at the close of 2025-26. This surplus reflects the excess of revenues received during the fiscal year over the cost of providing current-year services and operations.
In previous years, General Fund surpluses have allowed the City to allocate funds to various set asides such as adding to the City reserves and making additional discretionary payments to CalPERS and the City’s Section 115 Pension Trust Fund. The staff recommendations for the allocations of the 2025-26 General Fund surplus are discussed later in this report.
The staff cost to conduct research and prepare this report is estimated at $2,320 and is included in the operating budget of the Financial Services Department.
ANALYSIS
General Fund Revenues
General Fund revenues and transfers in for 2025-26 totaled $44,015,844 against an adjusted full year budget of $36,739,605. Actual revenues represent an excess of revenues relative to the adjusted budget of $7,276,239. Explanations of the major sources of additional revenue are described below:
1. Property Tax: Revenues for 2025-26 were approximately $839,744 higher than the full-year budget of $13,537,252. Growth in Property Tax is based on increases in the assessed value of taxable real property in Claremont, driven by the cost-of-living increase of up to two percent pursuant to Proposition 13, as well as the reassessment of property when it is sold. The growth in assessed value exceeded the four percent increase budgeted from the prior year, resulting in additional revenues for 2025-26.
2. Sales Tax: Revenues for 2025-26 were budgeted at $8,737,000. Actual sales tax receipts for 2025-26 were $11,467,667, an excess of approximately $2,730,667 over the adopted budget. The increase in sales tax was a result of increases in auto sales, with higher allocation of sales tax resulting from online sales via the County pool, increases in restaurant sales, and higher gas prices at fuel and service stations.
3. Utility User Tax (UUT): At $5,931,383, revenues for 2025-26 were approximately $659,383 higher than the budgeted figure of $5,272,000. The excess of revenues was the result of higher electricity and water costs and the resulting tax on these services.
4. Transient Occupancy Tax (TOT): Revenues of $1,709,363 were approximately $77,363 higher than the budget of $1,632,000 during the fiscal year.
5. Licenses and Permits: Revenues exceeded the budgeted amount of $1,470,500 by approximately $1,254,000 in 2025-26 due to increases in fees from building, grading and public works permits. Construction activities related to residential, commercial and Colleges development remained strong during 2025-26, contributing to the excess of permit revenues.
6. Charges for Services: Revenues were higher than budgetary estimates by approximately $267,387 due to the collection of development review and plan check fees, again related to the development taking place throughout the City.
7. Use of Money and Property: This revenue category includes interest earnings on the City’s investment portfolio and the revenue associated with the rental of City facilities. In 2025-26, revenues exceeded the budget of $771,546 by approximately $1,127,260. This was due in large part to interest earnings, which increased significantly as a result of higher interest earnings rates with the City’s investments in the State Controller’s Local Agency Investment Fund (LAIF), Certificates of Deposit (CDs) and US Treasuries.
Other revenues that exceeded budget included Business License Taxes by $126,293, Fines and Forfeitures by $20,235 for collections of traffic and code enforcement citations, Miscellaneous Revenue by $127,527 resulting from mandated cost reimbursements and settlements, and Other Taxes by $83,789 from document transfer taxes.
General Fund Surplus
Staff recommends the following actions relating to the General Fund surplus of $3.24 million for 2025-26:
1. Operating and Environmental Emergency Reserve: The City’s current Operating and Environmental Emergency Reserve balance stands at $11.6 million representing 28.5 percent of 2025-26 General Fund expenditures and transfers out. Staff recommends allocating $688,415 of the surplus to the Operating and Environmental Emergency Reserve. Doing so would increase this reserve balance to $12,301,475, equal to 30 percent of estimated 2026-27 General Fund expenditures and transfers out.
2. Pension Funding: The City Council allocated $2,000,000 in additional funding towards its unfunded pension liabilities from the 2022-23 General Fund surplus, an additional $2,250,000 of the General Fund surplus from 2023-24 and an additional $1,500,000 of the General Fund surplus from 2024-25 to prefunding employee pensions. Staff recommends continuing this practice and proposes to direct $1,500,000 of the General Fund surplus from 2025-26 to prefunding employee pensions. Staff recommends making a $1,000,000 additional discretionary payment directly to CalPERS to reduce the unfunded accrued liabilities (UAL) on the City’s safety and miscellaneous employee pension plans and a $500,000 contribution to the City’s Section 115 Trust. Funding in the Section 115 Trust allows local control over the investment of funds allocated for future pension payments; it offsets the Net Pension Liability reported in the City’s annual financial statements and allows higher investment returns than in the City’s investment portfolio.
3. Permit and Business License Software Implementation Project: Over the last two years, the City implemented a financial ERP system to replace its legacy financial system that was approaching end of life and adding many enhancements to the financial transaction processing and reporting capabilities for the City. Staff is actively exploring replacements and upgrades for the Community Development Department’s permitting and land management software, as well as the Financial Services Department’s business licensing software. Both of the City’s current systems are outdated and near the end of their useful lives. Staff recommends allocating $450,000 from 2025-26 General Fund surplus to this project to cover one-time implementation costs.
4. Equipment and Facility Revolving Reserve: In 2012, the City Council established the Equipment and Facility Revolving Reserve to set aside funding for equipment and facility maintenance expenses above those included in the City’s operating budget. Eligible expenditure of these reserve funds include renovation projects, replacement and refurbishments of furniture and equipment, and facility enhancements. The current balance in this reserve is $2,027,577. Staff recommends allocating $601,578 or any remaining surplus after the completion of the 2025-26 audit to this reserve. The allocation of $601,578 would increase its balance to approximately $2,629,155. The reserve will be available to fund equipment replacements or facility improvements with City Council approval. Upcoming projects to be funded with this reserve may include seismic and safety improvements at the Police Department, improvements to the exterior of the historic Claremont Depot, and other deferred maintenance items related to City facilities.
RELATIONSHIP TO CITY PLANNING DOCUMENTS
Staff has evaluated the agenda item in relationship to the City’s strategic and visioning documents and finds that it applies to the following City Planning Documents: Council Priorities, Economic Sustainability Plan, General Plan, and the 2026-28 Budget.
CEQA REVIEW
This item is not subject to environmental review under the California Environmental Quality Act (CEQA).
PUBLIC NOTICE PROCESS
The agenda and staff report for this item have been posted on the City website and distributed to interested parties. If you desire a copy, please contact the City Clerk’s Office.
Submitted by:
Jeremy Starkey
Finance Director