City on track to close fiscal year with nearly $7 million surplus, report shows

Palm Springs city officials presented a mid-year budget update Wednesday showing the city’s General Fund is on track to close fiscal year 2025-26 with a projected surplus of $6.9 million, as revenues from the city’s top three tax sources continue to outpace the prior year.

Director of Finance and Treasurer Kristopher Mooney told the City Council the General Fund ended the first half of the fiscal year with total operating revenues of $56.3 million, up $3.8 million or 7.2% from the same period in the prior fiscal year.

The city’s three core revenue sources — Transient Occupancy Tax, Property Tax, and Sales and Use Tax — are up a combined 11.5% from the prior year’s mid-year numbers, according to the staff report prepared for the Council.

The city is forecasting total operating revenues of $174.1 million for the full fiscal year, slightly above the adopted budget of $173.1 million. Total operating expenses are projected at $165.8 million, just under the budgeted $166.3 million.

On the expense side, Mooney said the city’s soft hiring freeze, approved when the biennial budget was adopted, is working as intended. The city is on track to meet or exceed its targeted vacancy savings of $4.2 million, and all departments are projected to close the year within their adopted budgets.

City Manager Scott Stiles said departments have been cooperative in holding the line on spending.

At the same time, Mooney cautioned that the bulk of the city’s annual revenue is still to come. He noted only 33% of the annual operating revenue budget was collected in the first half of the fiscal year, with March and April representing the city’s peak tourism and tax collection period.

Mooney also flagged a continuing decline in Utility User Tax revenue, which is projected to fall $0.7 million or 7% below the adopted budget by year’s end. Staff said they are seeking answers from Southern California Edison to determine whether the decline is isolated to Palm Springs or part of a broader regional trend.

Cannabis Tax revenue also continues to fall, dropping 28% from the prior year’s mid-year total. City staff attributed the decline to fewer active dispensaries and ongoing pressure from the illegal market, though one official noted the remaining 13 licensed dispensaries are beginning to stabilize, with five trending upward on a monthly basis.

The city’s total General Fund balance is projected to reach $126.1 million at the end of fiscal year 2025-26, up $6.9 million from the beginning balance of $119.2 million.

Looking ahead, Mooney cited several development projects expected to contribute to future revenue, including a Chick-fil-A in the permitting process with a planned opening in the first half of 2027, an In-N-Out Burger in the entitlement process targeting a late 2027 or early 2028 opening, a College of the Desert Palm Springs campus planned to open in 2027, and the Convention Center Modernization project, with Phase 1 improvements expected to begin in the middle of 2026.

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