CITY COUNCIL SPECIAL MEETING AGENDA PACKET 2

Page 2 of 7 • Capital Improvement Project: A Capital Improvement Project is for the construction, upgrade, or major renovation of assets that enhances the long-term value or functionality of a property or facility. These projects are typically large in scope, involve new construction or significant improvements, increase the overall capacity or value of the infrastructure and are often completed through development of plans and specifications and publicly bid. • Repair and Replacement Project: A Repair and Replacement Project focuses on fixing or replacing worn-out, damaged, or outdated parts of an existing structure or system. These projects are usually more routine and maintenance-oriented, aiming to restore functionality or prevent further deterioration, and are often completed through as- needed contracts and requests for proposals. CIP Purpose and Process The City updates its five-year Capital Improvement Plan biennially, incorporating both Capital Improvement Projects (CIPs) and Repair and Replacement (R&R) projects. The upcoming five-year CIP for FY 2026-2030 will be recommended for adoption in June 2025. A newly- developed and more systematic process, the Capital Improvement Program Process and Prioritization (CIPPP), was adopted by the City Council in December 2024 and guided project prioritization. As noted, Capital Improvement Projects focus on new construction or significant asset replacement, while R&R projects ensure the continued functionality of existing infrastructure. Deferred maintenance refers to postponed repairs that often lead to higher costs if not addressed. It is important to note that this report does not address the entire CIP. Rather, this report presents high-priority General Fund-supported projects and excludes core and enterprise- funded projects, such as water, sewer, and storm drain projects that are funded through various restricted funds (e.g., Gas Tax, Measure BB, Developer Impact Fees) and grants. DISCUSSION Infrastructure Assessment and Asset Management Program An internal assessment estimated $900 million in CIP and R&R needs over the next decade, prior to the implementation of the Asset Management Program (AMP), to maintain infrastructure and other assets in a “state of good repair”. As presented in an update to the City Council on February 4, 2025, when completed by year-end, the AMP will provide a complete asset list with high-level condition assessment and a prioritized implementation plan linked to a long-term funding strategy. Given these pending results, staff recommends limiting capital investments in the current budget cycle to the most critical projects. Staff may provide additional recommendations to adjust the FY2026-2030 Capital Improvement Program during the two-year budget cycle, based on the results of the AMP. CIP Project Prioritization and Funding Availability As part of the CIP planning and budget development process, all City departments were asked to submit “high-priority projects.” In total, 27 such projects requiring General Fund Page 32 of 40