Title
Recommendation to Approve the Budget Policy. (Finance)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
This report provides a summary of the City of Alameda’s (City) first Budget Policy. This Budget Policy was first presented to City Council on October 21, 2025, as a part of the Fiscal Sustainability Workshop.
BACKGROUND
The City Council adopted the Biennial Budget for Fiscal Years (FY) 2025-27 on June 17, 2025, which incorporates direction received during two budget workshops in May. The budget establishes the financial framework for City operations, with the General Fund, the main operating fund, accounting for 42% ($152.2 million) of the total budget ($361.2 million) in FY 2025-26 and 43% ($153.8 million) of the total budget ($358.3 million) in FY 2026-27. The City’s budget funds 514 full time equivalent positions (FTEs) in 2025-26 and 515 FTEs in 2026-2027, excluding Alameda Municipal Power (AMP) positions.
With projected revenues covering 96.5% of ongoing expenses, the City faced a budget shortfall for the remaining 3.5%. To balance the budget, $6.2 million of residual fund balance (surplus) was used in FY 2025-26 and $3.1 million in FY 2026-27. The fund balance above required reserve was estimated at $21.4 million to begin FY 2025-26, and after using a portion to close the shortfall and City Council approved capital project expenditures, staff estimates a fund balance of $9.5 million as of June 30, 2027. This fund balance is in addition to the City’s required reserves of 25% of the City’s General Fund budget, intended to fund several months of operations in case of a natural disaster or sudden economic downturn.
At the Fiscal Sustainability Workshop on October 21, 2025, City staff returned to City Council with a fall budget update to provide ongoing communications on the City’s financial status and to identify policies to support a stable City budget, including a draft Budget Policy. The City Council reviewed and supported a draft the Budget Policy at the October 21st meeting. The Budget Policy would be the City’s inaugural policy on its budget, budget development, and other important fiscal policies that contribute to long-term fiscal sustainability for the City.
DISCUSSION
The budget is, arguably, one of the most important policy documents that a local government produces. The budget determines how the community’s resources will be allocated between services like public safety, health, mobility, education, and more, all of which are needed for a thriving community. It is best practice for a city to have a budget policy that provides a framework for responsible financial management that aligns public resources with community goals, ensures fiscal transparency, and guides decision-making about public services and infrastructure. There are many benefits to adopting budgetary and financial policies, some of which are the safeguarding of resources and providing guidance for the development and administration of the operating budget and long-term financial plan. By providing a strategic, long-term financial plan, a budget policy helps a city allocate limited funds effectively, respond to changing needs, maintain public trust, and meet legal and strategic objectives.
The proposed City of Alameda Budget Policy (Exhibit 1) was created to fulfill this purpose. It sets clear policies so the City can attain and maintain financial sustainability and accountability. It identifies and follows best practices in budgeting, reserves, and grants. It has mechanisms for ensuring compliance so a culture of fiscal prudence is established citywide. It contains three major sections: Budget Practices, Reserves & Revenue Practices, and Reporting and Planning Practices. Below are key highlights from each section:
Section 1 - Budget Practices:
• The City’s Budget will be structurally balanced
• 5-year fiscal forecasting will be a part of the Biennial Budget process
• One-time revenues will be used for only one-time purposes
• Capital Projects will be budgeted for both capital and operating costs
Section 2 - Reserve & Revenue Practices:
• Adequate reserves will be maintained
• Revenue projections will use a reasonably conservative methodology
• Only the stable portion of revenues will be used for ongoing operations
• Grants that are deemed appropriate will be actively sought out
Section 3 - Reporting and Planning Practices:
• Financial status of major City funds will be periodically reviewed
• Long-term General Financial Plan will be produced and maintained
• Financial policies will be periodically reviewed
To achieve the goal of fiscal sustainability, staff recommends City Council approval of the Budget Policy.
ALTERNATIVES
• Approve the Budget Policy as presented
• Provide direction on changes to the Budget Policy
• Direct staff to return to City Council at a later time with additional information
FINANCIAL IMPACT
While there is no short-term financial impact to the City from approving its first Budget Policy, clarification on how the City makes financial decisions will lead to measurable positive financial impacts over time. Such impacts include structural fund balance and clarity, more explicit fund reserve objectives, formalized long-term planning, and improved budget controls and accountability.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The City of Alameda’s Strategic Plan includes as a priority area to Practice Fiscally Responsible, Equitable, and Inclusive Governance.
ENVIRONMENTAL REVIEW
This action does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Approve the Budget Policy.
Respectfully submitted,
Ross McCarthy, Finance Director
By,
Ecaterina Burton, Budget Manager
Exhibit:
1. Budget Policy