Item 20 - Proposed Fiscal Year 2025-26 Mid-Year Budget Update

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Proposed Fiscal Year 25-26 Mid -Year Budget Update, Appropriation Requests, Workforce Changes, and Capital Improvement Program Amendment March 3, 2026 Page 8 appropriate $50,000 to the incentives account, aligning the budget with prior -year actuals. The incentives account provides financial incentives to employees for participating in the clean -air Rideshare program or for expenses related to program administration. There is sufficient fund balance to support this appropriation increase. Measure M- Street Construction Fund PWA requests two housekeeping adjustments for separate capital projects. The first adjustment would appropriate $537,796 for the Warner Avenue Improvements Project to align the project budget with the approved award amount. The second adjustment would appropriate $433,314 for the OC Streetcar Project to reflect the full $1.5 million cooperative agreement with the Orange County Transportation Authority (OCTA) and allow the City to bill and receive the remaining reimbursable funds. The cooperative agreement provides fully reimbursable funding for City costs associated with supporting delivery of the OC Streetcar Project, including plan review, inspections, approvals, coordination, and work within the public right-of-way. Workers' Compensation Fund Human Resources requests a one-time use of $3,815,800 from the Workers' Compensation Fund balance to cover estimated workers' compensation costs for the current fiscal year. These costs include employee wage continuation, medical treatment, and legal expenses for workers' compensation claims. The City's third -party administrator, AdminSure, supports claims administration by tracking, evaluating, and processing claim activity. Based on costs incurred in the first half of the fiscal year, a review of recent claim activity, and approximately one year of actual expenditures, staff expect similar cost levels to continue for the remainder of the fiscal year, driven in part by scheduled surgeries and claim settlements. The estimated workers' compensation benefit payments for the current fiscal year total $9.7 million, which includes the recommended one-time use of $3.8 million from the Workers' Compensation Fund balance. Compared to FY24-25 actual benefit payments of $7.6 million, which increased by approximately $1.7 million from FY23-24, and consistent with an upward trend in recent years, this estimate reflects continued cost pressures in the current year. As discussed in the August 5, 2025, staff report on Citywide insurance premiums, Workers' Compensation reserves were already below the City's target reserve levels. The additional one-time appropriation requested in this report will leave reserves even further below those targets. Staff is currently updating overhead charges to various City programs for Workers' Compensation costs and may return during the FY 2026-27 budget process to request one-time funding to help rebuild reserves and support the fund's long-term stability. To lower benefit payment expenditures, HR is actively working with AdminSure, City departments, and the City Attorney's Office to reduce workers' compensation claims. Risk Management has begun meeting with each department to offer Workers'