City officials warn of large midyear shortfall; recommend $76 million in cuts and $190 million in solutions

City officials presented a midyear financial report to the City Council Budget and Finance Committee on Feb. 18, saying the city faces a larger-than-expected revenue shortfall and will need reductions and other measures to preserve reserves.

The city’s CEO presentation, delivered by the official identified in the meeting as Señor Sable, told the committee that year-to-date receipts are trailing the adopted plan and that the city is missing roughly $13 million in anticipated revenue in the current period. The presentation said projections based on current trends could put the city more than $100 million below the adopted budget by year end and raised a four-year shortfall scenario that would reach several hundreds of millions of dollars if current patterns persist.

The report recommended an initial package of roughly $190 million in solutions and adjustments to protect the city’s reserves. That package included balance and reconciliation actions and proposed $76 million in targeted midyear reductions developed with departments, the presentation said. Officials described the $190 million as an opening set of solutions and told the committee larger, more consequential actions will likely be necessary in the next budget cycle if revenue declines continue.

Why it matters: committee members were repeatedly told that maintaining a prudent reserve level requires immediate steps. The CEO’s office said the reserve level is approaching the city’s emergency threshold and that without near-term actions the city could face “difficult and painful” choices when constructing the fiscal 2025‑26 budget.

Key details from the presentation included the following numbers, as stated at the meeting: the city has realized a shortfall of about $13 million relative to midyear expectations; taxes and sales-tax-related revenues are weaker than projected; one internal controller analysis cited in the presentation estimated a potential $140 million decline by year end; and staff presented a multi-year scenario in which revenue could be several hundred million dollars below prior multi-year projections.

Officials said major drivers of the current pressure include (1) reduced property and sales tax receipts, (2) higher public-safety costs tied to recent large fires (including overtime and litigation), and (3) federal policy and economic factors that could slow recovery funding. The presentation noted that the city has submitted FEMA reimbursement applications for disaster response and debris removal and that FEMA’s process controls the timing of reimbursements.

Departmental impacts discussed during the meeting were framed as preliminary and subject to further refinement. Presenters and department heads said the $76 million midyear-reduction target was developed with departments to minimize direct service impacts; staff emphasized that some recommendations are timing delays (for example, pausing expansions) rather than immediate staff layoffs. Departments discussed possible effects on specific programs:

- Fire Department: the presentation projected an overage in public-safety spending driven by labor and overtime tied to large fire responses. Officials said overtime and labor settlement impacts contributed materially to the projected overspend.

- Streets and Pavement (DOT / SRF): Street-repair funding from the city’s special repair/paving fund (SRF) is running tens of millions of dollars below prior expectations. Department leaders warned that delays to paving and pothole programs would lengthen project timelines and could increase future liability if infrastructure failures persist.

- Sanitation / Homeless encampment cleanup: Department staff said a possible shift from more frequent cleanups to a “two-to-five day” window for certain activities would reduce near-term outlays but could affect the city’s ability to clear and remediate encampments quickly. Sanitation requested limited hiring exemptions to meet a target five-day service level once funding permits.

- Department of Disability and public-health prevention programs: the report proposed a $312,000 reduction in certain contract-funded prevention services tied to slower-than-expected contract execution. Department staff warned the cut could reduce distribution of syringe services, naloxone and related harm-reduction interventions unless funding is restored.

- Cannabis grant funding: the cannabis office reported a multi-jurisdictional issue tied to state grant eligibility. Staff said delays and state eligibility rulings left roughly $10 million of previously budgeted grant spending ineligible, a matter the city attorney and state officials are reviewing.

Council reactions and next steps: committee members pressed staff for more detail on timing and impact, requested follow-up reports, and proposed several amendments and motions. Committee members asked that departments provide service-specific timelines showing how long deferred projects would take to complete under the revised funding assumptions.

Votes at a glance: the committee approved consent items (items 2–12, 14–18 and 20) and approved the midyear report and related motions as presented with several amendments and direction to staff to return with more detailed follow-ups. Roll-call votes were recorded on the public record during the meeting and are summarized below (as recorded in the meeting transcript):

- Consent items 2–12, 14–18 and 20: approved, roll call recorded as five yes votes. - Item 13 (as considered separately): passed with a recorded vote of four yes and one no (Councilmember Hernández recorded as no in the roll call on that item). - Final approval of the report and related recommendations at the close of the public session: recorded as five yes votes.

What the committee asked staff to do next: staff was asked to return promptly with (1) a detailed plan for FEMA reimbursement timing and estimated cashflow; (2) a service‑level impact table for proposed midyear reductions and timing for deferred expansions; (3) an analysis of potential risk and liabilities tied to delayed street repairs and other infrastructure projects; (4) a report on the cannabis grant eligibility issue with legal analysis; and (5) a multi‑year budgeting framework showing options for addressing the projected 2025‑26 gap.

The committee’s discussion made clear that staff view the $190 million package as a first step and that additional, more consequential reductions or revenue actions will likely be required if revenues do not recover. Committee members directed the CEO’s office and departments to return with more granular impact analyses in the coming weeks.

Evidence supporting this article is drawn from the committee’s public comments and the CEO’s midyear presentation, including statements about projected revenue declines, recommended reduction targets and department-level impacts as recorded in the meeting transcript.