Milpitas council hears budget plan to close FY26 shortfall without tapping reserves; hiring freeze instituted

City of Milpitas staff presented an updated operating budget forecast and a set of proposed actions to eliminate a projected fiscal year 2025–26 shortfall while preserving the city’s budget stabilization reserve, at a special City Council study session on April 2.

The finance director, Luz Capricci Howe, reported an updated forecast showing a persistent structural deficit that staff estimated at about $3.1 million for FY26 prior to corrective action. Staff proposed a mix of revenue recognition and recurring and one‑time expenditure reductions that, together, would close the FY26 gap without drawing on reserves. “We have an updated forecast … and we are proposing revenue increases and expenditure reductions that would allow us to balance FY26 without using the reserves,” the finance director said.

What staff proposed - Revenue adjustments (one‑time and ongoing): Staff recommended recognizing stronger‑than‑expected property and sales tax receipts (about $785,000 total) and reducing an earlier conservative set‑aside for educational revenue augmentation funds, contributing roughly $952,000 of additional available resources this year. Transient occupancy tax estimates were reduced by about $125,000 based on current occupancy trends. - Expenditure reductions: Staff proposed recurring reductions totaling roughly $1.55 million and one‑time reductions of about $1.6 million. Recurring proposals include eliminating or reclassifying several vacant or underused positions (for example, a vacant building inspector and building plan reviewer), moving one housing administrative support position to be funded from housing funds instead of the general fund, and trimming some non‑personnel budgets across departments. Nonrecurring reductions include timing and program adjustments. - Immediate administrative step: City Manager Ned announced a temporary hiring freeze implemented April 1 to control payroll growth while staff and departments analyze vacancies and priorities. Staff estimated that an across‑the‑organization freeze (depending on positions held) could yield roughly $1.0 million in near‑term savings; vacancy savings from normal workforce turnover could add about $1.5 million, staff said.

Council response and direction: councilmembers expressed concern about impacts to community programs and services. Several members requested that staff preserve highly visible community services where possible and seek alternatives such as smoothing IT replacement costs over multiple years, pursuing grant or developer funding where appropriate, and continuing a collaborative conversation with Milpitas Unified School District about crossing‑guard costs. On the crossing‑guard program staff said 12 of the 33 locations previously funded do not meet state pedestrian‑count thresholds; police and public works staff proposed evaluating low‑count intersections for alternate safety investments (signage/lighting) or district cost‑sharing.

Next steps and schedule: Staff said they will return at a May study session with additional detail: a prioritized list of remaining reduction options, a full inventory of vacancies and active contracts, updated labor‑cost assumptions, and a refined proposal for smoothing the IT replacement plan. The city must have an adopted and appropriated FY26 budget by June 30.

Ending: Council recorded consensus direction to staff on a preliminary package of recurring reductions totaling roughly $1.0 million and asked staff to return with the remaining proposals and supporting data in May. Staff also committed to providing contract and vacancy detail to inform the next decisions.