San Diego officials have significantly stabilized the city\u2019s long-term finances in the last year thanks to budget cuts and rising revenues \u2014 but the city still faces a projected $110 million deficit in the 2026-27 fiscal year.<\/p>\n
Despite that deficit, a new five-year analysis<\/a> of city finances released Friday shows dramatic improvement compared to what similar studies found in fall 2023 and fall 2024.<\/p>\n The combined deficits San Diego faces from\u00a0fiscal year 2027 through 2031 total $538.4 million. That\u2019s far less than the combined deficits the city faced in the two previous five-year outlooks \u2014 $1.32 billion in last fall\u2019s outlook and $1.07 billion in the fall 2023 outlook.<\/p>\n But city finance officials warn that San Diego still faces many challenges.<\/p>\n The city can\u2019t fund a $1.7 billion plan to get its roads into overall \u201cgood\u201d condition, and it\u2019s short another $6 billion needed to pay for a variety of deferred infrastructure projects that include storm channels\u00a0and sidewalks.<\/p>\n The city\u2019s reserves of $207 million are far below recommended levels of roughly $400 million, even though many economists are predicting a recession \u2014 a situation where reserves would be even more\u00a0badly needed to mitigate potentially sharp drops in tax revenue.<\/p>\n City officials say, however, that they\u2019d rather deal with those challenges than the one\u00a0they faced last winter and spring: a one-year deficit of more than $300 million that required immediate and decisive action.<\/p>\n \u201cWe did make a considerable dent in the structural deficit, but we were really tackling a deficit of more than $300 million,\u201d said Rolando Charvel, the city\u2019s chief financial officer.<\/p>\n The structural deficit is the difference between the city\u2019s ongoing, long-term revenues and its ongoing, long-term expenses. Officials say San Diego\u2019s structural deficit has been hidden in recent years by $550 million in federal pandemic aid and other temporary funding and financial gimmicks.<\/p>\n \u201cWe are really close to being structurally balanced,\u201d Charvel told The San Diego Union-Tribune. \u201cWe made a lot of progress last year. We need one more push to get us there.\u201d<\/p>\n Cuts to library hours, management jobs and other expenses have helped, but the main driver of the city\u2019s recovery has been higher revenue.<\/p>\n The city began collecting this fall about $100 million per year from single-family homes and small apartment complexes that have to start paying for trash pickup under a successful 2022 ballot measure.<\/p>\n And the city is getting another $32 million per year from Measure C, a hotel-tax hike that the courts validated recently after years of litigation.<\/p>\n Mayor Todd Gloria and the City Council also raised millions more by increasing fees for a variety of city services, doubling parking meter rates and agreeing to start charging for parking in new places like Balboa Park.<\/p>\n The cuts and new revenue have helped the city overcome the challenge of giving nearly all of its nearly 12,000 employees incremental raises totaling more than 20% over three years.<\/p>\n Charvel estimates San Diego has shrunk its structural deficit from about $310 million to about $89 million.<\/p>\n Matt Yagyagan, the mayor\u2019s policy director, agreed.<\/p>\n \u201cWe feel like we\u2019ve done the lion\u2019s share of the work,\u201d he said this week.<\/p>\n Charvel notes that the $89 million structural deficit projected for the new fiscal year includes highly conservative estimates for sales tax and hotel revenue because of the iffy economy.<\/p>\n City officials are projecting a roughly $30 million annual increase in major tax revenues, about half of the $60 million to $70 million yearly rise the city typically experiences.<\/p>\n But the $89 million structural deficit rises to a $110.5 million deficit because of a projected $15 million jump in spending on homelessness programs and nearly $7 million to staff and maintain some new city parks and recreation facilities.<\/p>\n Beyond the $110.5 million deficit the five-year outlook projects for fiscal 2027, the analysis estimates shortfalls of $138.8 million in fiscal 2028, $91.1 million in fiscal 2029, $94.4 million in fiscal 2030 and $103.6 million in fiscal 2031.<\/p>\n City revenues are projected to rise from $2.17 billion to $2.49 billion over that five-year period, while expenses are projected to rise from $2.17 billion to $2.59 billion.<\/p>\n Charvel said the main driver in the projected deficit shrinking in fiscal year 2029 is the city\u2019s pension payment, which is\u00a0projected to drop by $60 million that year.<\/p>\n That\u2019s according to a nearly year-old projection from the actuary for the city\u2019s pension system. But city officials say recent strong performance of the stock market makes the city\u2019s pension outlook more likely to improve than regress.<\/p>\n The actuary is scheduled to unveil an updated analysis in January.<\/p>\n Ben Battaglia, the city\u2019s finance director, said the city also faces additional potential challenges in the next fiscal year, which begins July 1.<\/p>\n Delays in implementing the city\u2019s new trash system could cost roughly $3 million. And the city is facing other losses from a delay in establishing parking fees in Balboa Park.<\/p>\n The city\u2019s contract with the Humane Society for animal services is slated to get more expensive, and the city is facing millions in election costs in 2026 for council races in Districts 2, 4, 6 and 8 and possible ballot measures.<\/p>\n The city is also launching new contract negotiations soon with each of its six labor unions that could lead to raises larger than the 2.94% annual hikes built into the five-year outlook.<\/p>\n In addition to negotiated pay hikes, city workers get \u201cstep and column\u201d increases when they reach certain years-of-service milestones.<\/p>\n Charvel said the city also must figure out how to tackle its relatively low amount of reserves after several years of canceling scheduled contributions because of its budget crunch.<\/p>\n He said the city may veer from the recommended standard of maintaining reserves equal to 16.7% of its overall budget \u2014 two months of operating expenses.<\/p>\n \u201cWe\u2019re working on revising the contribution,\u201d said Charvel, suggesting a proposed policy change should be ready this winter. \u201cWe\u2019re looking at what other cities are doing. We\u2019re doing some benchmarking.\u201d<\/p>\n Battaglia said city department heads will soon be asked to propose budget cuts to help close the projected $110.5 million deficit. He said the size of cuts the mayor will request will be decided in roughly a week.<\/p>\n City officials have also begun discussing new efforts to increase revenue, including possibly charging fees<\/a> to park at beaches and bays.<\/p>\n