Novato projects balanced budget with new tax infusion

Novato might have a balanced budget for the first time in years.

The City Council, reviewing a projected fiscal year 2025-26 budget at a study session last Tuesday, saw projections of a budget that breaks even with the help of the first round of Measure M tax money. The city has struggled with deficits for the last six fiscal years.

“With the passage of Measure M, the city is strategically positioned to meet the needs of our community in a sustainable and effective manner,” Mayor Tim O’Connor said. “As a City Council, we are committed to prioritizing and addressing the most pressing issues faced by our community in the coming budget cycle.

“I anticipate a significant increase in investments toward the city’s infrastructure, a concerted effort to reduce turnover and stabilize our workforce and a focused approach to rebuilding our reserves,” O’Connor said. “These steps will ensure that Novato is on a path toward long-term financial stability.”

Jennifer Maldonado, a city analyst, said revenues for next fiscal year are expected to come in at $58.7 million and expenses at $58.7 million. Without Measure M, the three-quarter-cent sales tax approved by voters in November, the city would be looking at a $3.7 million deficit.

The deficit will be backfilled with Measure M funds, leaving around $6 million of Measure M funding for city services, reserves, compensation, pension trusts and capital projects. About $2 million more will go toward capital improvement projects, $1.2 million to employee retention and staff resources, $1.5 million to the city’s emergency fund, $1 million for pension reserves and $500,000 for deferred maintenance.

Staff also proposed setting aside $150,000 from Measure M to start saving for replacing the city’s financial system, and $100,000 for a downtown tenant improvement grant program.

The city expects to bring in $41.9 million in taxes alone — not including Measure F funds — another $4.4 million from service charges and $1.7 million from licensing and permit fees.

Maldonado said the city’s utility costs increased $83,000 for a total of $1.6 million. Its unfunded liability payments for employee pensions increased by $741,000 for a total of $6.2 million. Additionally, the budget includes four new staff positions and a $500,000 contract to help with public works maintenance.

“As we were doing community outreach around Measure M, we spoke to a lot of people, we heard from a lot of folks,” O’Connor said. “One of the things we heard repeatedly was the importance of gender equity particularly in sports and different facilities that are out there. As we’re looking forward, focusing on improving sports facilities, primarily for girls-focused sports, I think is really important.”

O’Connor said there are some projects that would improve sports equity in the city’s parks master plan — like at Marion Park — but asked if the Parks and Recreation Department has the capacity to start the planning process. Katie Gauntlett, the department’s director, said she would have to coordinate with the public works office.

“Given public works’ lengthy CIP list already, my recommendation would be to look for an outside consultant to help support that kind of planning process,” Gauntlett said, referring to capital improvement projects.

O’Connor asked if there was any financial amount that would help get “the ball rolling.” Gauntlett said she could bring some proposals back at a future budget discussion.

At the same meeting, the City Council approved a structurally balanced budget policy aimed at moving Novato to long-term financial sustainability. The policy states that the city’s ongoing revenues have to be equal or greater than its ongoing expenditures.

Carla Carvalho-DeGraff, the city finance director, said the policy will help ensure the city does not reduce its reserve in a “haphazard manner;” is deliberate in how the budget is adjusted each year; and remains flexible in the case of a major economic event.

“This is fabulous work, and I’m so appreciative of where we are,” Councilmember Mark Milberg said.

The City Council will hold a budget hearing on June 10.