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Workshop to Discuss City of Alameda’s Fiscal Sustainability Including Reviewing the Current Financial Status of the City Budget, and Seeking Feedback on Future Revenue Measure Opportunities, an Improved Collections Process and a Draft Budget and Financial Accountability Policy. (City Manager)
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To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
As discussed as part of the recent adoption of the Fiscal Year (FY) 2025-27 Biennial Budget, City of Alameda (City) staff are monitoring carefully the current financial status of the City and returning to the City Council to provide an update on the City’s budget, as well as to seek input from the City Council on opportunities to increase revenues, and plan for greater fiscal sustainability. In particular, this staff report seeks Council direction on exploring a revenue measure opportunity, implementing an improved and more equitable collection process to increase revenues, as well as adopting a draft budget policy that helps ensure long-term fiscal accountability.
BACKGROUND
The City Council adopted the Biennial Budget for FYs 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.
Due primarily to uncertain economic conditions and increased programmatic and other expenses over the last several years, the City’s adopted Biennial Budget estimates using revenues to cover 96.5% of ongoing expenses, resulting in a budget shortfall of 3.5% of operating expenses. In response to this constrained fiscal situation and after numerous cost saving measures were incorporated into the budget, City Council approved the use of $6.2 million in residual fund balance (surplus) in FY 2025-26 and $3.1 million in FY 2026-27.
Overall, the City is in a financially stable position, given property taxes, the City’s largest General Fund revenue base, are anticipated to continue increasing, and the City maintains a substantial Residual Fund Balance, above its 25% operating reserves, due to growth and major development transactions in recent years.
As the City Manager identified during the budget adoption process, despite the FY 2025-27 budget being stretched during these uncertain economic times, the City has a comprehensive financial plan that reflects its commitment to maintaining high quality services that improve the quality of life for all residents and businesses. This report follows up on City staff’s commitment to bring a fall budget update to City Council, provide ongoing communications on the City’s financial status, and share opportunities identified to support a stable City budget.
Staff did not identify a need for significant changes in the adopted FY 2025-27 budget and will continue providing budget updates to City Council in Spring 2026 with the Mid-Year and Mid-Cycle budgets. Additionally, City staff seek input on several fiscal sustainability measures, including revenue measure opportunities, an improved and more equitable collections process, and a draft budget and financial accountability policy, as outlined in greater detail below.
DISCUSSION
I. Budget Update: Current Financial Status of the City Is Stable and Residual Fund Balance Is Slightly Improved
Staff Recommendation: No need for significant changes to adopted FY 2025-27 Biennial Budget, and continue carefully monitoring of financial status.
The City’s Finance Department is still finalizing the FY 2024-25 annual external audit, so while financial information provided here are subject to change, staff identified trends that are worth noting.
Revenue Increases
Increases in two large one-time revenue sources: Transfer Tax and Interest Income.
• Transfer Tax: Revenue exceeded projections and prior year collections by $2.7 million, representing a 20% increase from the prior year. This increase is attributable to three large real-property sales netting $2.9 million.
• Interest Income: Interest income exceeded projections by $3.3 million, driven by a combination of recent high interest rates and a strong cash balance.
Property Tax, the City’s largest and most consistent revenue source, accounting for 46% of the General Fund’s prior year revenue, exceeded projections by approximately $1.0 million in Fiscal Year 2025. This illustrates that the City is in stable condition and is still considered a desirable place to live and work, with a consistently growing stable tax base and high quality of life.
Revenue Declines
Sales Tax, a core ongoing revenue source and one of the City’s four ongoing major tax and fee revenues, declined by $1.6 million from FY 2023-24 to FY 2024-25. While staff anticipated a 12% reduction due to the departure of a major taxpayer, the actual total decline was 14.5%.
While these are preliminary results, it’s important to point out that the Transfer Tax is a volatile revenue source that can change greatly from year to year and therefore, not a stable source of ongoing operating revenue. Sales Tax, on the other hand, is generally a much more stable source of revenue, so its subsequent dip could be indicative of larger economic forces at play in our local economy. Additionally, in light of the recent federal government shutdown and changes to federal grant requirements subject to an injunction, the City’s federal funding situation is highly uncertain, creating some limited financial risk to the City.
Overall, it is anticipated that the City’s operating revenue increases (i.e., property taxes) and decreases (i.e., sales taxes) will generally offset each other and the residual fund balance will be slightly improved by approximately $3 to $5 million due to one-time property transfer tax and interest income increases. As a result, City staff recommend no significant changes to the adopted FY 2025-27 Biennial Budget and to continue carefully monitoring the financial status of the City.
II. Revenue Measure: Upcoming Poll Is an Opportunity to Explore Revenue Measures that Enhance Fiscal Sustainability
Staff Recommendation: Provide direction on which revenue measure opportunities to explore in an upcoming statistically valid poll later this year.
The City’s Strategic Plan identifies the following projects under the priority area Practice Fiscally Responsible, Equitable, and Inclusive Governance:
GOV15: Explore potential revenue measures that increase fiscal resilience and implement the City Council's Strategic Priorities
GOV15b: Explore an infrastructure bond to fund deferred maintenance and new infrastructure needs.
Stronger Together Campaign
Staff is committed to engaging community members about the City’s significant infrastructure and public safety needs while exploring potential funding solutions.
This summer, the City launched the Stronger Together campaign and published a website (www.alamedaca.gov/strongertogether <http://www.alamedaca.gov/strongertogether>) with information about Alameda’s infrastructure and public safety needs and the ability for Alameda residents and businesses to share feedback directly with staff that will be compiled and shared with the City Council. A series of four City Council workshops are scheduled to discuss the City’s backlog of maintenance needs and facility upgrades needed to meet current standards:
• Streets, Traffic Safety: Sept 2
• City Facilities, Public Safety: Oct 7
• Libraries, Recreation and Parks: Nov 4
• Flood Protection, Sea Level and Ground Water Rise, Disaster Preparedness: Dec 2
Below are a few examples of how campaign information is shared on social media:
Following the fall engagement efforts, the City will work with FM3 Research to conduct a statistically significant poll to determine if there has been a shift in priorities over the last year and identify the community’s most pressing needs.
In 2026, staff proposes conducting in-person and online community engagement, including publishing online surveys, social media posts, email bulletins, and direct mail to gather more detailed resident input on project proposals. Based on this comprehensive outreach and the feedback received, the City Council will be better positioned to determine whether 2026 is the right time to proceed with a revenue measure to address these pressing needs.
Potential Revenue Measures
Staff is actively exploring potential revenue measures to address critical funding gaps, including infrastructure needs and ongoing public safety service demands. Recently the City has seen strong support for local revenue measures by Alameda voters. In 2024, 76.15% of Alameda voters approved Measure E, the Alameda Unified School District’s parcel tax, signaling strong community support for funding local priorities.
The City plans to use the upcoming poll results to understand the priorities of Alameda voters when it comes to both the mechanics of a potential revenue measure and the projects and programs that could be funded. Staff recommend exploring both an infrastructure bond and an ongoing public safety revenue measure in the upcoming poll:
Infrastructure Bond: In a June 2024 poll, when asked specifically about a local funding measure dedicated to City infrastructure improvements, 68% of Alameda respondents were supportive or leaning in that direction. At that time, staff proposed a General Obligation bond for infrastructure funding in the amount of $150 million. If a bond had been placed on the ballot and approved by Alameda voters, property owners would see a levy of $29 per $100,000 of assessed value per year while the bonds are outstanding.
Staff recommends updating this information and reviewing the costs and benefits of a $200 million General Obligation bond for infrastructure and facility needs in the poll.
Revenue Measure to Address Ongoing Public Safety Needs: To address critical, ongoing public safety needs and increasing operating and programmatic expenses, such as police officer hiring and the alternative mental health response CARE team, staff also recommend evaluating a dedicated Public Safety Parcel Tax in the poll.
The City has not previously explored a public safety parcel tax. However, neighboring cities including the City of Berkeley have successfully utilized this approach. In 2020, City of Berkeley voters passed Measure FF, a parcel tax that generates $8.5 million annually to fund fire services, emergency medical response, 9-1-1 communication, hazard mitigation, and wildfire prevention. The tax is calculated based on the square footage of improvements on a property, and funds can be used for personnel, equipment, and infrastructure related to public safety.
Staff recommends exploring the potential voter support for a public safety parcel tax in the upcoming poll.
III. Improved Collection Process: Enhancing the City’s Collection Process Increases Revenues and Services, and Is More Equitable
Staff Recommendation: Provide direction on improving the City’s collections process consistent with best practices and other surrounding jurisdictions and return to City Council later this year with formal next steps.
As of June 30, 2025, the City had more than $1.4 million in outstanding unpaid receivables across multiple revenue streams. Of this $1.4 million, roughly $660,000 is attributable to the General Fund, with the largest uncollected revenues being Fire Prevention Fees at $375,000 and Business Licenses at $258,000. The two largest uncollected revenues outside the General Fund are for the Rent Program at $470,000 and Traffic Mitigation at $183,000. Here are the past-due receivables by program as of June 30, 2025:
*FY 24-25 Traffic Mitigation is not yet in collections
**Sidewalk Program started FY 24-25
While staff efforts are made to recover these balances, the lack of a formal collection process and enforcement limits the City’s ability to maximize recovery before debts become uncollectible. Establishing a structured collections process promotes equity and fairness among taxpayers and businesses by discouraging non-payment and reinforcing compliance. It would also create an opportunity to recover lost revenue that will be invested back into essential City services.
Most Bay Area cities have delinquent revenue collection processes in place, ranging from internal escalation to third-party recovery efforts, and vary by type of revenue. These programs often include safeguards such as hardship provisions, payment plans, and appeals to ensure fair treatment of residents and businesses. If the City adopts a similar framework, it can stay aligned with Government Finance Officers Association’s (GFOA) Timely Billing and Collections best practices and unlock important revenue opportunities to enhance fiscal sustainability and fairness. Given the steep decline in collection success as debts age, it is essential that the City initiate discussions now on how to design and implement a process best suited to the Alameda community’s needs. Peer cities such as Berkeley, Concord, and Emeryville have adopted collection tools such as small claims and property liens to strengthen revenue recovery efforts and ensure equitable treatment of all residents and businesses.
Staff recommend a proposed collection process aimed at increasing transparency and providing a clear process for how the City manages unpaid accounts consistent with best practice and surrounding jurisdictions. The recommended collection process would include the following steps:
• Send Past Due Notice after 30-Day Payment Period. When an invoice is issued, the payer has 30 days to make a payment. If no payment is received within this period, a Past Due Notice will be sent, followed by an additional 30 days for the payer to settle the account. This is already standard practice for the City and the City recovers approximately 25% for these efforts.
• Send First and Last Collections Notices. If payment is still not received, the past-due receivable will be referred to the City of Alameda Internal Collections Unit, and a $50 collection fee will be added. The Collections Unit will then send a First Collections Notice, then a Final Collections Notice. Both notices will provide the payer with 30 days to make a payment. This is already standard practice for the City and the City recovers approximately an additional 10% for these efforts.
• Implement Enforcement Action with Appropriate Hardship and Appeals Process. Accounts that remain unpaid after this stage would move to a final phase with stronger enforcement options such as small claims actions, State intercept programs, or property liens, depending on the type of revenue. It is anticipated that the City could recover 75% of its delinquent debt through more equitable and proactive collections, which would return approximately $550,000 per year into City funds, roughly half of which would be attributed to the General Fund. Assigning authority and establishing a formal process will allow the City to pursue collection efforts effectively, promote fairness, and prevent the loss of valuable revenue while also providing options for hardship provisions, payment plans and an appeals process. This is not currently the standard practice of the City and it is estimated that the City loses approximately $550,000 annually by not enforcing compliance with its payment process. Based on discussions with other cities, stricter enforcement only affects approximately 2-4% of payors after taking all of the previous steps in the compliance process.
Staff recommend returning to City Council later this year with the formal next steps needed to implement an improved and more equitable collections process to increase revenues and enhance services consistent with other surrounding jurisdictions.
IV. Budget Policy: Adopting a Budget and Financial Policy Helps Ensure the City Holds Itself Accountable to Best Practices and Plans for Long-Term Fiscal Sustainability
Staff Recommendation: Provide feedback on draft budget and financial accountability policy and return to City Council later this year for formal approval.
The budget is, arguably, one of the most important policy documents that a local government produces. The budget decides 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. A city should have a budget policy to provide a framework for responsible financial management, enabling it to align public resources with community goals, ensure fiscal transparency, and guide 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 (see Exhibit 1) was developed in alignment with the GFOA’s Best Practices for Achieving a Structurally Balanced Budget and Fund Balance Guidelines for the General Fund to fulfill this objective. It sets clear policies so that 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 that a culture of fiscal prudence is established citywide. It contains three major sections: Budget Practices; Reserves & Revenue Practices; and Reporting and Planning Practices. Here 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
Conclusion
The budget process included making difficult choices to protect the City’s fiscal sustainability. Staff will continue to monitor expenditures carefully and maximize new and existing funding. For example, staff quickly updated a request for federal funding for shoreline adaptation along the City’s northern shoreline to prevent losing the funding altogether. Additionally, staff is closely reviewing and monitoring City contracts, especially major General Fund contracts; regularly assessing the risks of federal funding losses; seeking new opportunities for Strategic Plan projects that are not fully funded; and implementing Community Facilities Districts to fund the fiscal impacts of large-scale new development in the City.
When the City is fiscally sustainable, the City will be better positioned to maintain a high-level of operational performance and customer service for the Alameda community; achieve City Council’s Strategic Priorities; be efficient with limited resources; attract and retain an exceptional workforce; and successfully weather economic downturns, federal uncertainty, emergencies and disasters and other unforeseen circumstances.
ALTERNATIVES
• Review the current financial status of the City and provide direction on the following:
o Revenue measures, such as an infrastructure bond and public safety tax;
o Improved collections process; and
o Draft Budget Policy.
• Provide alternative direction to staff.
FINANCIAL IMPACT
There is no financial impact to the City from discussing Alameda’s fiscal sustainability. However, identifying fiscal opportunities that are subject to subsequent City Council approval could have future financial impacts and taking proactive measures and actions to be fiscally sustainable will have a positive long-term financial impact on the City.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The City of Alameda’s Strategic Plan includes GOV15: Explore potential revenue measures that increase fiscal resilience and implement the City Council's strategic Priorities; and GOV15b: Explore an infrastructure bond to fund deferred maintenance and new infrastructure needs.
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
Discuss the City’s fiscal sustainability including reviewing the current financial status of the City budget, and seeking feedback on future revenue measure opportunities, an improved collections process and a draft budget and financial accountability policy.
Respectfully submitted,
Sarah Henry, Communications and Legislative Affairs Director
Ross McCarthy, Finance Director
Financial Impact section reviewed,
Ross McCarthy, Finance Director
Exhibit:
1. Draft City of Alameda Budget Policy