Agda Pkt 2026.07.27 Joint SA PFA

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City of Redwood City Management’s Discussion and Analysis (Unaudited) (Continued) For the Year Ended June 30, 2025 19 ECONOMIC OUTLOOK AND NEXT FISCAL YEAR’S BUDGET While the City’s fiscal year 2024-25 results are encouraging, the City’s financial outlook for fiscal year 2025-26 and beyond remains uncertain. Despite a year-over-year increase in unassigned fund balance for the General Fund, there a number of concerning economic trends that have informed the most recent update of the General Fund’s long-term forecast, which suggests a structural imbalance that will require thoughtful solutions moving forward. Property tax is the largest of the General Fund’s resources and is expected to increase in fiscal year 2025-26, fueled by continued resilience in the residential housing market, driving strong secured tax revenues. While this is encouraging, the City continues to face significant uncertainty related to the backfill of the Vehicle License Fee shortfall from the State. The backfill payment for 2023-24, which was made in August 2025, only covered two-thirds of the obligation. This was the first year that the State did not backfill 100 percent of the obligation, which will impact how this revenue source is forecasted going forward. Sales tax had its second consecutive year of decline in fiscal year 2024-25, and hotel taxes have yet to fully recover from pandemic-era lows. Sales tax revenues are expected to decline again slightly in fiscal year 2025-26 before modest growth is projected to resume, and the hotel tax is expected to increase slightly in fiscal year 2025-26. Fiscal year 2025- 26 will be the first year that the City sees the full benefit of the approval of Measure BB, the voter-approved initiative to modernize the business license tax structure, which is expected to result in a significant increase in this revenue source and will help to offset declining or modestly increasing revenues elsewhere. On the expenditure side, the City continues to see upward pressure in fiscal year 2025-26 on salary and benefit costs as it works to hire and retain a high-quality workforce in a tight labor market. With labor costs being such a significant portion of the General Fund operating budget, the continued trend of labor cost increases outpacing the growth in revenues will exacerbate the pressure on the City’s ability to sustain service levels going forward. As the current fiscal year progresses, staff will update financial projections based on actual revenues and expenditures to date, as well as any new data, economic factors, and assumptions that are available. This information will guide the development of the next version of the 10-year general fund forecast and the fiscal year 2026-27 budget and will determine whether any changes to existing fiscal strategies are warranted. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City of Redwood City’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to: City of Redwood City Attn: Finance Division 1017 Middlefield Road Redwood City, CA 94063 7.C. - Page 51 of 269 70