CITY COUNCIL WORKSHOP AGENDA PACKET

Page 7 of 16 the budget for the next two fiscal years. As a full-service city, the City provides a wide range of services and programs to the community, for which it prepares an Operating Budget and a Capital Budget. The Operating Budget focuses on essential City services such as police and fire, community services, community development, economic development, and sewer and water operations. Costs include personnel costs, annual facility/system operating costs and other operating expenses. These expenses are funded largely by tax revenues, fees and charges, interest income, intergovernmental funds and other smaller sources of revenue. The Capital Budget focuses on the design, construction and maintenance of city infrastructure. The City develops a four-year Capital Improvement Program (CIP) to plan for these costs. Funds are assigned in the budget to cover the first two years of the plan and the remaining two years are presented for planning purposes. Capital investments are critical in building and maintaining infrastructure to support a livable, vibrant community. Once the City’s Asset Management Plan has been developed, it will also help to guide the development of the CIP, especially related to capital improvements (to enhance the value of a property) versus repair and replacement. The City’s funds include the key categories described below. Special Revenue Funds and Enterprise Funds are restricted funds that cannot be used to support essential services such as public safety. Capital Projects Funds are also restricted funds unless the funding sources are from the General Fund. Internal Service Funds are designated for repair and replacement and employee benefits. • General Fund – The City’s primary unrestricted operating fund • Special Revenue Funds – A fund used to collect money that must be used for specific purposes (e.g., housing impact fee, grants, special assessments, and donations) • Capital Projects Funds – A fund that accounts for capital improvements (e.g., Measure BB, Gas Tax, and Transportation Impact Fee) • Enterprise Funds – A self-supporting fund that sells goods and services for a fee/service charge (e.g., Water, Sewer, Golf, and Cemetery operations) • Internal Service Funds – A fund used to track goods and services provided between departments and funds (e.g., building maintenance, vehicle replacement, and IT replacement). For context, the size of the total City operating budget for FY 2024/25 is about $240.0 million, and the capital budget is about $57.0 million. The General Fund portion of the operating budget is approximately $154.0 million. Please refer to the slides attached to this staff report regarding the City’s revenue sources, restricted vs. unrestricted sources, cost of services, and capital financing. Reference materials related to the basics of municipal revenue, glossary of financial management terms, and financial management for elected officials are also attached to this staff report. City Budget Update As the City started to develop its FY 2023/24 and FY 2024/25 budgets in early 2023, financial challenges were identified in the operating and capital budgets. The City was lacking financial resources to fund priority community projects. As a result, in March 2024, Page 9 of 109