The City of Cupertino’s budget is split into various funds, which is called fund accounting. The General Fund is the City’s largest fund and is mostly funded with tax dollars. The General Fund supports essential services such as public works, parks and recreation, law enforcement, and community development.

In the General Fund, 69% of total revenue comes from taxes. These taxes include property tax (39% of total General Fund revenue), sales tax (14%), and transient occupancy tax (9%).

The City is expected to experience an ongoing 73% or $30 million decline in sales tax revenue, equivalent to an overall reduction in total revenue of 28%.

These challenges require corresponding expense reductions to ensure a balanced budget.

For more information on the City's budget, please refer to the links provided in the left-hand column. Additionally, the remainder of this page will explain the reasons behind the current revenue reduction.

The California Department of Tax and Fee Administration (CDTFA) is a state agency responsible for administering the collection and administration of sales and use taxes, which is a major revenue source for the state and local governments. For more information, please visit their website at cdtfa.ca.gov.

Businesses collect sales tax from customers and forward it to the CDTFA, which then distributes the revenue to local agencies, including the City. The City uses its share of this sales tax revenue to fund its services and programs. The CDTFA also conducts audits to ensure tax compliance.

In December 2021, the CDTFA notified the City that they were auditing one of the taxpayers in the City. In October 2023, the City received an audit decision from the CDTFA.

Despite facing challenging times, the City of Cupertino maintains a strong financial position with significant advantages. These include an unassigned General Fund balance exceeding $20 million, a fully funded retiree healthcare program, and a Section 115 Pension Trust to mitigate revenue losses. These resources provide a buffer and flexibility in managing finances effectively. With prudent planning, the City is poised to navigate uncertainties while upholding its commitment to staff and community.

The impact of this loss on the budget is significant, and as a result, the City is actively exploring various strategies to balance the shortfall. It's worth noting that these strategies will lead to service level reductions for the community, and the impacts will be shared across all expenditure categories. In addition to cutting expenses, the City is also evaluating various revenue-generating strategies to help alleviate the budget shortfalls caused by the audit. By taking a proactive approach and considering multiple options, the City hopes to minimize the impact on its staff and residents.

 The Council has taken the following steps to address the revenue loss.

Regular reports on the City’s budget will communicate progress on the CDTFA audit and strategy to balance the budget.

To encourage community involvement, interactive town hall meetings in February and April will engage residents, businesses, and stakeholders. These sessions aim to enhance transparency and collaboration, fostering inclusive decision-making processes.