Foster City cautiously optimistic over budget: Projections show operating surplus that will go toward infrastructure fund

“Those are all surpluses in each year. Each year, the operating revenue is covering the operating expenses,” Finance Director Nate Cruz said during a recent City Council meeting.

However, most of those gains will zero out after transferring funds to its capital improvement fund, which is separate from the city’s operating fund, as it finances infrastructure-related projects.

“The operating budget breaks even,” Cruz said.

Property tax revenue is projected to grow at nearly 3% annually, and sales tax is growing at roughly 2.5%, though the figures may end up slightly lower, according to the presentation. While transient occupancy tax, or hotel tax, was on a downward trend for a while, it’s projected to start increasing again over the next several years.

The most unpredictable revenue source is revenue tied to vehicle license fees, a complicated reimbursement that the state historically provides to Peninsula cities each year, though most jurisdictions have failed to receive the full amounts over the last couple years. That has triggered a lawsuit between the county and state, and as a result, many cities, including Foster City, are either lowering their projected VLF revenue or removing it from their budget estimates altogether.

“The VLF shortfall reimbursement, inflation and how CalPERS performs — those are the things that can cause huge swings,” Cruz said.

Councilmember Suzy Niederhofer said she’d like to update financial policies that take into account actual general fund revenue and expenses before determining the final amount that is transferred out to other funds, such as the CIP.

“I’m still a little bit uneasy about the CIP,” Niederhofer said during the council meeting. “For the projects that we’ve added, I just want to make sure that we have a plan for what we can afford.”

Another budget public hearing is set for June 1, with final adoption planned for June 15.