Santa Rosa finance staff report $5 million operating shortfall, warn of $17 million structural gap

City of Santa Rosa officials on Tuesday gave a midyear general fund update that showed the city finished the year with smaller losses than projected but still faces a multi‑million dollar structural deficit.

Interim Chief Financial Officer Scott Wagner and Budget Manager Veronica Connor told the City Council that one‑time gains and midyear reductions produced better-than-expected results, but the city’s long‑term outlook remains problematic. "We still remain in a structural deficit,” Wagner said, adding staff’s current projection shows a gap of about $17.5 million that will require either revenue increases or service reductions.

Wagner told council that a combination of actions adopted over the past 18 months — $15.2 million in ongoing reductions, $10.4 million of one‑time project spending reallocated to shore up reserves and $3.7 million of ongoing revenue from voter-approved measures — improved results. He said the city’s reserves increased by roughly $9.5 million this year, and that investment returns added about $4.4 million to reserves. “Investment portfolio performance is dynamic,” Wagner said; staff recommended not budgeting operations on those gains.

Why this matters: sales tax, the city’s largest revenue source, is flat and down from about $70 million to roughly $69 million year over year, Wagner said. That stagnation, together with rising CalPERS unfunded liabilities and higher utility and personnel costs, is driving the long‑term shortfall. Wagner described the city as ‘‘in a much better place’’ than a year and a half ago but warned the emerging deficit trajectory is unsustainable without policy changes.

Council members pressed staff for detail. Council Member Victoria Fleming and others asked for department‑level “menu” options showing the operational impact of possible tiered cuts — distinguishing low‑service‑impact reductions from those that would affect response times or core services. Wagner said staff is preparing department-specific tiered options and emphasized the intent to prioritize targeted reductions rather than across‑the‑board cuts.

On the expenditure side, Wagner and Connor said total expenditures exceeded final budgets by about $1.7 million (0.8 percent), with notable overages in Fire (overtime) and Public Works (utility costs and PG&E impacts). Wagner said strike team reimbursements offset portions of the fire overage.

Public commenters urged the council to keep equity and community building in mind as it considers changes. Janice Carmen, a frequent public speaker, urged attention to technology and AI costs; two community members who described being assaulted in separate incidents asked the council to ensure timely police follow‑up. Councilmembers said they want quarterly updates and more detailed midyear information when staff runs the payroll model in January, which will provide a more complete picture of FY 2026–27 projections.

The council did not take formal action Tuesday. Staff said it will return with department menus, refined reserve principles and updated projections after January payroll modeling.