Consider and adopt the LAFCo Draft Budget for fiscal year (FY) 2026/27

Receive staff information, provide direction, and adopt the LAFCo Draft Budget. Direct staff to transmit the draft budget to the County and four Cities for review and comment. 

The attached Draft Budget (Attachment A) shows a 5% overall budget increase from $691,291 to $723,907 (a $32,616 increase) due to employee salary increases and a 3% cost of living adjustment (COLA) tentatively assumed by the County pending its negotiations. Staff is anticipating discussion and direction on whether it would like to make any adjustments, as discussed in the Background Section below. 

In accordance with the Cortese-Knox-Hertzberg (CKH) Act Section 56381 (a) The commission shall adopt annually, following noticed public hearings, a proposed budget by May 1 and final budget by June 15. At a minimum, the proposed and final budget shall be equal to the budget adopted for the previous fiscal year unless the commission finds that reduced staffing or program costs will nevertheless allow the commission to fulfill the purposes and programs of this chapter. The commission shall transmit its proposed and final budgets to the board of supervisors, to each city, and to each independent special district. Following approval of the final budget and no later than July 1, the County Auditor requests payment from each agency. In order to meet these timelines, the final budget is scheduled to be adopted at our May 28, 2026, meeting.

The Cities and County split the cost of LAFCo funding 50/50. A formula for the apportionment of the Cities’ share is outlined in Government Code Section 56381(b)(1), in proportion to a city’s overall revenue, or an alternative method approved by a majority of the cities. Beginning in fiscal year 2007/08, the Cities agreed to an alternative formula to apportion their half of LAFCo funding by averaging a city’s general tax revenue and population. LAFCo sources city tax revenue from the State Controller's Office database and population data from the State Department of Finance. 

When LAFCo staff presented our "roadshows" last fall, one comment often heard was the appreciation of being such a lean organization. Unfortunately, the downside of that leanness is the inability to absorb cost increases easily. The Draft Budget reflects increased costs without making any adjustments, pending Commission direction. Please refer to Attachment A as you read the discussion below. 

Revenues (City/County Costs)
Even though our Draft Budget shows an overall increase of $32,616, because we have less fund balance available to offset needed revenues, agency costs go up by $95,976 (~3x more). Staff acknowledges this is a particularly difficult budget year and does not take this lightly. Potential levers to reduce this cost can be implemented, but staff sees no realistic scenario where we can keep agency costs flat. LAFCo's budget could remain flat, but agency costs cannot remain flat without some significant adjustments. 

Potential Levers (highlighted in green on the attached budget):

• Assume some revenue for LAFCo anticipated application fees. One project requiring annexation has been approved by the City of Davis already and a second is in process. However, both are subject to a local Measure J vote (in June and November 2026), and therefore, uncertain. LAFCo has not assumed any application fee revenue in years past to be conservative, but could in order to offset agency LAFCo costs. It would be reasonable to assume $7,500 for each annexation. 

Expenditures
Salaries and Benefits expenditures are up 6%, due to salary increases (a net increase of $34,702). In addition, the County is tentatively assuming 3% COLA increases pending its negotiations, although LAFCo staff are unrepresented, and it may be more likely COLAs will actually be 1.5% or 2%. We likely will not know the COLA before the final budget is adopted May 28, 2026. LAFCo does not have any position vacancies (required to note per AB 2561). 

Services and Supplies expenditures are down 3% (a net decrease of $3,086). This is primarily due to fewer travel costs because the Annual Conference is in Sacramento this fall, and we stopped paying for OnBase permit tracking software because it was cumbersome and staff wasn't using it. The Draft Budget assumes $30,000 of professional service costs, which is the same as last year (and we went over budget in this account due to the Elkhorn Reorganization). We may need to adjust this amount depending on any consulting services associated with the Commission's direction regarding the Fire Services MSR. 

Potential Levers (highlighted in green on the attached budget)

• Adjust Executive Officer FTE down from 70% to 60% (-$19,832 change)
• Assume COLAs will be 2% (-$1,854 change)
• Reduce professional services consultant costs

Fund Balance/Contingency Reserve
We have $100,000 in contingency reserve ($25,000 appropriated and $75,000 held in fund balance). LAFCo has a policy to “strive” to maintain a fund balance equal to 20% of our budget, and $100,000 is 14% of our Draft Budget.

Potential Levers (highlighted in green on the attached budget)

• Reduce our contingency to offset some agency costs. Per CKH, the budget cannot be less than last year unless specified findings are made, so $32,616 is the most that can be cut to maintain the same budget.

Next Steps
Following Commission discussion and direction, staff will revise the Draft Budget accordingly and email it to the City and County managers for review and comment. The Public Hearing on the Final Budget will be May 28, 2026.