National City budget briefing warns rising pension and insurance costs will widen gaps; staff propose new CIP fund and revenue ideas

National City officials presented a preliminary budget briefing at a special City Council meeting, saying the city faces a multiyear budget gap driven by rising unfunded pension liabilities and insurance costs and outlining options to narrow the shortfall.

Finance Director Bruce Fultz and City Manager Scott framed the conversation as an early-stage briefing rather than a final operating budget. Fultz said the city manages roughly $151 million in total expenditures and $142 million in total revenues across all funds and that General Fund revenues are concentrated in property and sales taxes, which together account for about 79% of General Fund receipts. He told the council the city is projecting a roughly $3.3 million deficit for the current fiscal year and a preliminary $8.2 million deficit for fiscal year 2026 if no changes are made.

The figures matter because the city’s long-term liabilities are rising. Fultz said the General Fund’s required contribution to the CalPERS unfunded actuarial liability (UAL) is projected to be about $3.0 million next year (FY2026) and that pension obligation bond (POB) debt service and transfers will make the city’s non‑departmental budget substantially larger. He said the proposed reclassification of UAL and POB payments into a single non‑departmental line results in a non‑departmental total of about $13.4 million next year, including a $4.8 million POB payment and a $2.2 million General Fund portion of the UAL payment.

Fultz summarized revenue and expenditure drivers: property tax collections are seasonally timing‑sensitive (about 50% collected to date with the major installment due in May) and sales tax receipts lag by two months; development fees are trending below budget; and reimbursable fire overtime this year temporarily increased expenditures but also generated offsetting revenue. He said the General Fund preliminary unassigned fund balance stood at about $24.5 million in FY2023 audit results and that, under current projections and without added revenue, reserves could fall below target levels by 2027.

City Manager Scott urged a mix of revenue generation and prudent spending, saying staff would bring policy options and studies back to council. “Failure isn’t an option,” Scott said, urging the council to consider public‑private strategies and to treat city assets more like capital investments.

Staff proposals and next steps

Fultz described several staff proposals and near‑term steps: move capital improvement program (CIP) projects out of the General Fund into a separate CIP fund to improve cash‑flow tracking; transfer $1 million from the General Fund to the new CIP fund next year (the presentation called for a $1,000,000 transfer); and continue aggressive pursuit of grants. He also identified planned changes to internal service charge formulas, and a proposal to budget higher police and fire overtime based on recent trends (police overtime proposed at $1.3 million and fire overtime proposed at $1.8 million, with $500,000 in anticipated reimbursable fire overtime).

Public Works Director Steve Manganel outlined capital needs and the CIP funding gap. “If we are to properly maintain our systems and add new projects and amenities, our true target is about $20,000,000 a year,” Manganel said, and he showed a multi‑year portfolio of grant‑funded and locally funded projects including the Bayshore Bikeway and other active‑transportation and stormwater priorities.

Staff also flagged several operational and structural cost increases: a projected $3.0 million increase in CalPERS UAL contributions next year (general‑fund portion), a roughly $1.0 million increase in general liability insurance premiums tied to statewide wildfire and flood risks, and full‑year costs from mid‑year cost‑of‑living adjustments previously approved (6% COLA for some employee groups, representing a full‑year impact next fiscal year).

Revenue ideas under study

Council and staff discussed a menu of revenue‑generation options that staff said they will analyze further: a vacant property tax, revisiting transient occupancy tax (TOT), reviewing business license and franchise fee structures, optimizing sales tax attribution with the city’s consultant (HDL), expanding billboard or sponsorship programs, creating parking districts or shared‑parking arrangements, and more aggressive use or disposition of underutilized city real estate including the Bay Marina parcels. Staff said a comprehensive fee study for service charges is nearing completion and expected to be presented to council in June (or August if delayed), and an update to development impact fees is expected in August.

Staff also noted that TOT and how hotels report gross room revenues are the subject of broader regional legal and policy work; councilmembers signaled interest in seeking changes that could increase local TOT receipts.

Labor and hiring; reserves

Fultz said the city has roughly 22 vacant positions across departments and that the current budget presents a status‑quo staffing level (no net new FTEs budgeted) but includes full‑year COLA costs where applicable. He confirmed that positions already budgeted may be filled but that hiring will be evaluated by the city manager in light of the fiscal situation. Councilmembers and staff agreed to review vacancies strategically to balance service continuity against short‑term savings.

On reserves, Fultz said the city’s unassigned fund balance is healthy relative to policy minimums today but under the current trajectory could be depleted by FY2027 absent new revenues or expenditure reductions. He reviewed separate reserve policies for facility maintenance, a pension trust, and an OPEB trust and said policy targets for some reserve buckets would require additional contributions to reach recommended levels.

Quotes and council response

“Moving CIP projects out of the General Fund will allow us to track those projects separately and keep the operating fund focused on day‑to‑day services,” Fultz said during the presentation. Manganel emphasized grant dependence and long lead times for large capital projects: “We will be delivering roughly $60 million of projects over the next one to three years, but that requires grant and local match coordination.” Councilmembers asked staff to return with more detail on administration costs, the impact of reclassifying UAL and POB payments, and options to accelerate revenue‑generating projects.

What’s next

Staff said the service‑fee study should be returned to council in June (or August if delayed) and the development impact fee update in August. Councilmembers requested additional sessions to review vacancies, labor negotiations and options to raise revenue or reduce operating costs. No formal budget decisions or votes were taken at the special meeting.

Ending note

Councilmembers and members of the public repeatedly framed the briefing as an opportunity to rethink asset use and to develop long‑term revenue strategies, while emphasizing an imperative to preserve critical services. Staff returns to council with refined proposals, studies and a timeline for budget adoption in the coming weeks.