County projects $138.5M structural gap for FY25‑26; board approves targeted mid‑year appropriations

County finance staff warned the Board of Supervisors that San Diego County faces a tightening fiscal outlook going into the FY25‑26 budget cycle, driven by slowing sales‑tax growth, rising operating costs and federal and state budget uncertainty.

Chief Administrative Office staff and Amy Thompson, Executive Finance Director, said second‑quarter projections show the county is on track to end the current fiscal year with total fund balances of about $75.7 million and a $31.0 million projected year‑end general fund balance (about 0.4% of the general fund budget). Thompson said the most significant drivers of the current‑year balance include FEMA reimbursement for prior emergency response, contingency appropriations that will likely not be required, and a one‑time correction to prior state sales‑tax allocations; those improvements are partially offset by weaker investment earnings and the county’s use of one‑time ARPA funds.

Looking ahead, county staff presented a five‑year projection that shows a projected ongoing budget gap of approximately $138.5 million for FY25‑26 unless mitigations are adopted. The CAO’s office and Economic Development and Government Affairs director Matthew Parr highlighted two external risks: (1) potential federal budget reconciliation proposals that in some versions would reduce Medicaid (Medi‑Cal) and other safety‑net funding — staff noted roughly $580 million in federal Medi‑Cal funding flows through to county operations and could be at risk depending on enacted federal changes — and (2) state‑level pressures tied to wildfire response and other spending that may alter the governor’s proposed budget.

Staff outlined mitigation options used in budget development: prioritize mandated programs, delay or defer non‑critical capital and IT requests, pursue alternative funding, seek fee‑recovery increases and evaluate targeted program reductions. The CAO recommended continuing to pursue outside funding for behavioral‑health expansion while warning that federal changes could jeopardize some sources.

After the briefing and public comment (more than 30 speakers, many county employees urging pay and staffing investments), the board approved a set of time‑sensitive mid‑year appropriations and directed staff to return with the CAO’s recommended operational plan on May 1. Board action at the meeting advanced a subset of mid‑year adjustments (items numbered by staff); after discussion the board voted to approve items 1, 6, 7, 12, 15 and 18 now and have staff return with the rest during the third‑quarter adjustment in May.

Why this matters: The county faces a structural budget gap driven by slower discretionary revenue growth (notably sales tax) and rising costs; the board’s early direction and approval of select mid‑year adjustments are meant to protect near‑term operations while staff develops a structurally balanced FY25‑26 proposal.