San Mateo finance director outlines FY25-26 proposed budget, warns of recurring shortfall and $352M of unfunded capital needs

Finance Director Karen Hwan presented the City of San Mateo's fiscal year 2025-26 proposed budget and five-year capital improvement program on June 2, 2025, calling attention to a multi-year structural shortfall and an extensive list of unfunded capital needs.

"Tonight, I'm here to present the fiscal year 2025, 26 proposed budget and the 5 year capital improvement plan," Hwan told the council. Her staff later published the full proposed budget in the agenda packet.

Why it matters: Hwan said the city faces a structural funding gap because key tax revenues are flat or constrained, and the state's distribution mechanism for vehicle license fees (VOF) is uncertain. The proposed citywide budget totals about $333.5 million for FY25-26; the general fund budget projects $187.7 million in expenditures and $172.5 million in revenue. After planned contributions to capital and other uses, staff estimated a $15.2 million gap for the coming year.

Key points from the presentation: - Revenue assumptions: assessed value growth and property taxes are projected conservatively; sales tax is assumed flat. Major revenue sources (property tax, sales tax, property transfer tax) supply roughly 80% of general fund revenues. - Structural issue: the VOF backfill from the state has declined and remains uncertain; Hwan presented scenarios showing material downside risk if state backfills are reduced. - Personnel and containment: proposed personnel spending was contained through a mix of vacancy management, reduced set-asides for workers' compensation and increased chargebacks to capital projects; without those measures personnel costs would rise more strongly. - Capital program: the five-year CIP presented a $61.5 million budget for FY25-26 and an estimated $270 million across five years from all funds; staff also listed roughly $352 million in unfunded projects (estimate based on prior costings and in need of refresh).

CIP highlights: Hwan said key commitments include the wastewater treatment plant digester project, East Hillsdale Park playground improvements, the Marina branch library construction start, street rehabilitation and continued investments in storm and flood control and LED streetlight conversion. She noted the unfunded list likely understates current costs because many cost estimates were prepared before recent construction inflation.

Council discussion and next steps: Council members thanked staff for the analysis and asked several follow-ups about fee structures, parking revenues and use of underutilized parking assets. Mayor Robert Newsome Jr. asked for a ballot-measure study group to explore a revenue measure to fund ongoing services and capital needs; Council members Nicole Fernandez and Daniel Swierko Guditsky volunteered to serve on an ad hoc committee to explore a potential measure for a future ballot. Hwan and staff will return for a second public hearing and a scheduled adoption vote at the June 16, 2025 council meeting.

What council asked staff to return with: analyses of parking-rate and permit options, revenue and fee alternatives, the specific staffing and budget implications of transportation and public-works requests, and refreshed cost estimates for the unfunded capital list. Hwan also flagged completed actions and near-term steps (revised reserve policy, department discretionary reductions, and work on grant applications).

Status: no final budget adoption occurred June 2; the council held the required initial public hearing and directed staff to return with requested follow-up information ahead of adoption on June 16.