National City Council accepts midyear budget report; projects deficit down to about $3.3 million

The National City Council voted to accept the fiscal year 2025 midyear budget status report after staff told the council the city’s projected general fund deficit would shrink to roughly $3.3 million by fiscal year end, down from a previously reported shortfall of about $7.5 million.

The midyear report, presented by Bruce Fultz, finance director, reviewed revenues and expenditures through the first seven months of the fiscal year and recommended adjustments including recognizing additional reimbursements and interest, delaying some capital projects and shifting $1.5 million of planned general fund capital spending to American Rescue Plan Act (ARPA) funds.

Why it matters: the report outlines the city’s near-term financial position and recommended changes that officials said will reduce the use of unassigned fund balance this fiscal year while deferring some capital work to the next fiscal year.

Fultz said property and sales taxes make up the majority of the general fund—property tax about 23% and sales tax about 56%—and that the city had received about 52% of budgeted property tax revenue through January. He also reported several midyear revenue adjustments: an expected roughly $500,000 in state reimbursement for fire overtime, an additional $276,000 from vehicle license fee-related property tax receipts, and higher interest income that staff expect will total more than $1 million for the year. Fultz said the city’s sales-tax consultant recommended reducing the current-year sales-tax projection by about $94,000.

On the expenditure side, staff recommended roughly $3 million in reductions, including $2 million of capital improvement project spending moved off the general fund—$1.5 million by using ARPA funds and $500,000 by deferring a project tied to environmental permitting—plus savings from contract and other items. Those adjustments brought the midyear projection to the $3.3 million deficit figure. Fultz presented unaudited fund balances and said the city’s unassigned fund balance was about $24.5 million (unaudited) and that, with the projected deficit, the unassigned balance would be approximately $21.1 million by the end of the fiscal year in June.

Council members asked staff for additional detail about the timing and sources of the revenue adjustments and the items listed as savings. Vice Mayor Maria L. Bush urged the city to seek new revenue sources and to look at better use of existing assets, such as the municipal pool. Council Member [name not specified] asked whether federal tariffs could materially affect sales-tax projections; Fultz replied that the effects were uncertain and could increase or decrease sales tax depending on price and volume changes.

Steve Manganiello, director of engineering and public works, explained the ARPA decision: the city shifted roughly $1.5 million of projects previously planned for the general fund to ARPA because of an ARPA obligation deadline. “We had an obligation deadline of 12/31/2024 to award contracts for ARPA funds,” Manganiello said, and staff recommended using ARPA on certain high-priority capital work so those general-fund dollars could be redirected to other needs or delayed to the next fiscal year. He said projects prioritized in earlier community ARPA workshops—restrooms and pool support at Las Palmas Park and lighting at Kimball Park—remain funded and are proceeding either with ARPA or other funding identified by staff.

Council members raised concerns about positions included in the budget enhancements that remain unfilled. Fultz said about $1.2 million of staffing enhancements had not been filled and that the city anticipated savings from those vacancies; council members noted continued lean staffing increases workload for existing employees.

Division Chief Robert Hernandez of the National City Fire Department addressed entries in the midyear report related to fire inspection revenue. “We have not decreased any type of services provided to any of the businesses. We continue to do inspections as we always have and as we've had since 1956,” Hernandez said. He said staff are preparing an ordinance, expected in April, to ensure certain inspections currently not captured by the health and safety code are covered by local authority so fees can be applied where appropriate.

City Manager Seth (last name not specified) and other staff emphasized the report is a midyear “snapshot” and said they would continue to refine revenue and expenditure estimates and present additional detail, including a five-year forecast that will address anticipated pension cost increases from CalPERS.

A motion to accept the midyear budget report passed; council did not record a roll-call tally in the meeting transcript other than the chair’s announcement that the motion passed. The council adjourned after the vote.

Public comment at the start of the meeting included appeals for continued city support for the National City Historical Society and questions about ARPA and budget assumptions from residents who asked the council to provide more clarity in future reports.