San Luis finance director warns of multi‑year shortfalls; staff proposes property tax, fee and rate changes

SAN LUIS — The city of San Luis faces multi‑year budget shortfalls that could drive its general fund reserves below policy levels within three years unless the council adopts new revenue measures and spending controls, Finance Director Rola Encinas told the City Council during an informational presentation.

Encinas outlined a five‑year forecast that assumes modest annual revenue growth, rising costs for salaries and maintenance, and no new long‑term grants. "This discussion is crucial because our budget is facing several upcoming challenges, and we need to prepare for how these changes may impact our city services and operations," Encinas said as she began the report.

The finance presentation highlighted several risks: a state proposal to remove the food sales tax that could cut San Luis sales tax receipts by about $4,000,000; a $2,500,000 reduction in state shared revenue already realized in the current fiscal year under a flat 2.5% state income tax arrangement; and potential federal grant freezes. Encinas said those and other pressures leave the city with a structural deficit under current policies and revenue streams.

Why it matters: The general fund supports police, fire, parks and other core city services and also subsidizes some enterprise activities. Encinas told the council that the city is required to maintain at least four months of operational expenditures in reserve and that, under the forecast, reserves fall below that policy by fiscal year 2028. "By fiscal year 30, the fund balance will drop to $6,800,000, significantly below the necessary reserve level," she said.

Key details from the presentation - Projected general fund revenue for fiscal year 2026: approximately $33,900,000, with an assumed 2% annual growth rate; expenditures exceed revenues in the forecast, producing an annual structural deficit. - Potential state action on the food tax could reduce sales tax revenue by roughly $4,000,000; Encinas told the council that the current forecast does not assume that loss unless the state action occurs. - Encinas said the city will propose a property tax in a special election in May 2025 and estimated that passage would add about $2,500,000 in recurring revenue per year. - The council was told the city will maintain a four‑month operational reserve policy and that any use of reserves must include a structured repayment plan within three fiscal years.

Enterprise funds and capital projects Encinas reviewed individual fund forecasts and capital needs. Highlights included: - Highway user (road) fund: currently balanced but reliant on transfers from the general fund; continued transfers may be unsustainable if the general fund weakens. - Water fund: a large $7,000,000 water system project is budgeted for fiscal year 2029; without new grants or rate changes the fund balance would decline. Encinas said grants typically require a city match of about 20%. - Wastewater fund: the city anticipates debt proceeds in fiscal years 2026–27 for a treatment plant expansion; a major East Wastewater Treatment Plant project in fiscal year 2029 is budgeted at about $15,250,000. Encinas said the wastewater fund could fall into a negative balance by fiscal year 2030 unless additional revenue is secured. - Solid waste fund: begins in deficit in the forecast year but is expected to improve and reach positive balance by fiscal year 2030, assuming proposed utility rate changes. - Ambulance fund: begins fiscal year 2026 with a positive balance but drops into a growing deficit in the forecast, reaching roughly negative $1,950,000 by fiscal year 2030. Encinas and the fire chief told council that low Medicare and Medicaid reimbursement rates, a high share of non‑paying transports (including migrant transports), and rising costs are primary drivers.

Recommended steps presented by staff Encinas and staff urged a mix of revenue and expenditure measures: pursue new revenue sources (including the proposed property tax), diversify income (apply for grants, adjust fees, consider utility rate changes), protect reserves and limit nonessential capital spending. Encinas said the finance department will recommend a utility rate review in fiscal year 2027 and noted the city already uses a conservative 2% growth assumption in the forecast.

Council reaction and next steps Council members asked for specifics on which services would be affected and whether the forecast accounted for the $2,500,000 reduction in state revenue; Encinas confirmed the state income tax impact is reflected in the current year but the possible food tax repeal was not included in the baseline projection. Several council members urged conservative spending and earlier action on rate studies; others said they would prioritize outreach to voters ahead of the proposed May 2025 property tax election.

No formal budget actions were taken at the meeting. The presentation was informational; council directed staff to return with more detailed options, including revenue scenarios and prioritized capital projects.

Ending Staff recommended that the council consider a package of measures — revenue, fee and rate adjustments, targeted project deferrals, and reserve protections — to preserve core services while evaluating voter support for a property tax in 2025.