City manager previews FY 2025–26 budget, warns of pension and waterfront shortfalls

City Manager Mike Watsanski told the Public Amenities Commission that he expects to deliver a proposed FY 2025–26 budget to the City Council in mid‑May and asked the commission for priorities to inform his office’s proposal.

Watsanski said the charter requires submission of the budget by May 16 and that the city is trying to present a structurally balanced operating budget for 2025–26 while absorbing several one‑time and ongoing pressures.

The nut graf: Watsanski highlighted two near‑term fiscal pressures — a sizable employer payment tied to the city’s pension system and continued operating shortfalls related to harbor uplands and tidelands — and urged commissioners to submit any budget items early so staff can consider them ahead of the council’s June deliberations.

At the meeting Watsanski summarized the city’s revenue and cost outlook and identified the biggest near‑term budget drivers. "The charter requires me to deliver that budget each year by May 16," he said, and added the city hopes "to be structurally balanced next fiscal year from an ongoing operating revenue standpoint versus ongoing operating expenditure standpoint." He also warned of an upcoming pension payment, saying the city faces "unfunded accrued liability payments ... a little bit over $4,000,000 in the next fiscal year." He described the harbor uplands and tidelands as still recovering from the pandemic and noted "a fairly healthy expenditure pressure" from multi‑year labor agreements that increase wages and benefits.

Watsanski identified some revenue offsets: openings or improved performance at local hotels and continued growth in property tax assessments, which he said are expected to increase about 5 percent year‑over‑year for the 2025–26 roll. "We expect to see the Legado Hotel open and operational next fiscal year, which should generate new transient occupancy tax for us," he told commissioners. He also pointed to strong restaurant sales in Riviera Village and improving private investment along the waterfront as positive signs for lease and sales taxes.

On reserves and smoothing strategies, Watsanski said the city has an economic contingency reserve of about $9,000,000 (roughly 8.33 percent of operating budget) and a separate pension‑related reserve of roughly $8,000,000 that staff use to smooth spikes in the unfunded actuarial liability (UAL) payments. "Do I think we may be using some one‑time funds to smooth? Yes," he said, adding that he hopes to avoid service cuts but may use reserves to bridge the gap. He described more austere options — hiring freezes or holding positions vacant — as possible further steps if pressures continue.

Commissioners asked for clarifications about grants and service funding. Watsanski said the city is careful to avoid using one‑time grants for ongoing staffing and that most grant funding is used for capital projects, amenities and materials rather than recurring operations. He singled out a small set of federal programs the city monitors closely — Community Development Block Grant (CDBG), Federal Transit Administration (FTA) funds and HUD housing dollars — because services tied to those grants could be vulnerable if federal allocations change.

The city manager encouraged the commission to send written priorities and, if desired, a formal letter so staff can try to fold commission requests into the draft budget. He also noted that once the manager’s proposed budget is delivered to the council in May, commissions have a second opportunity to comment during the council’s public deliberations in June.

Ending: Watsanski closed by asking commissioners to provide early input and to use the subsequent council review as another chance to weigh in. He said staff will continue to provide updates as the finance team finalizes revenue estimates and the single‑audit/GASB work completes.

Speakers quoted: Mike Watsanski, City Manager.