Pacifica staff flags structural budget shortfall; recommends short‑term uses of one‑time revenue and longer‑term revenue strategies

Pacifica staff told the City Council on April 14 that the city faces a structural budget gap that will widen in coming years without a mix of short‑term patching and longer‑term revenue growth. Assistant City Manager Yulia Carter and City Manager Kevin Woodhouse presented the long‑term financial forecast and proposed preliminary budget strategies to guide the FY2025–26 budget process.

The staff forecast shows operating expenditures outpacing revenues under current service levels; staff emphasized the problem is not a single line item but a sustained gap driven by rising operating costs and flat or uncertain recurring revenues. Carter told councilors the forecast assumes current services continue, and it excludes any new, unapproved service enhancements or capital investments. The presentation reiterated that some revenue streams (notably vehicle license fee/ERAF backfills and short‑term rental/TOT receipts) are variable and the city’s financial plan must address that uncertainty.

Three preliminary strategies presented to council: retain VLF/ERAF backfill in general fund (short term), set aside an assigned general‑fund reserve to mitigate the risk if the state’s ERAF/VLF backfill does not materialize, and prioritize longer‑term revenue generation by facilitating property and hotel development and other tax‑yielding growth.

1) VLF/ERAF treatment. Staff recommended, on a short‑term basis, keeping the city’s VLF/ERAF (vehicle license fee / ERAF) backfill revenues in the general fund to help cover operating costs rather than directing them to restricted or quasi‑restricted funds. Council received a staff note that several nearby Bay Area cities use VLF/ERAF revenues for general‑fund purposes; staff emphasized this is a short‑term, pragmatic step to avoid immediate service cuts while pursuing longer‑term solutions.

2) Risk‑mitigation reserve. Because the state’s VLF/ERAF payments are subject to change, staff proposed assigning a portion of the general‑fund balance as a designated reserve to backfill the city’s operating budget if the state fails to make the expected payments. In practice the city would budget the expected VLF/ERAF receipts to balance next year’s budget but simultaneously assign contingency resources so the city could cover a revenue shortfall without emergency cuts if the payments do not arrive.

3) Prioritize revenue‑generating development. Staff reiterated the council’s strategic‑plan direction that long‑term stability requires expanding the city’s tax base. That implies aggressive, long‑range work to facilitate residential and visitor‑serving (hotel/TOT) development and to seek other taxable development and economic‑development projects that increase property tax and sales tax receipts. Woodhouse told the council that large‑scale development, if successfully facilitated and consistent with planning rules, would generate recurring property tax revenue that helps close the long‑term structural deficit.

Next steps: staff will return to council on May 12 with a detailed base budget, the capital improvement program (CIP) for Planning Commission review, and refined assumptions. Council will then have a second and third study session before adopting the FY2025–26 budget. Staff also noted the need for clearer public explanations and increased transparency on the forecast, and agreed to provide more thorough details at the next study session.

Public comment: speakers urged transparency, urged the city to pursue revenue‑generating projects (including potential quarry redevelopment and reuse of city sites), and asked for staff to make detailed budget materials publicly accessible to allow community members and qualified volunteers to help review the books.

Ending: Council did not adopt budget measures tonight but instructed staff to incorporate council feedback into the May budget study session. Staff also will examine reserve levels and present options for using one‑time and uncertain revenues to bridge near‑term operating needs while preserving fiscal discipline and pursuing long‑term revenue solutions.