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City reports $62.2 million FY25 gap; prior‑year savings and department strategies will be used to shape cuts and revenue options
Summary
City finance staff told the council the mid‑year general‑fund gap for FY25 is $62.2 million driven by structural revenue/expense shifts and a steep cut in state HAP allocations; staff proposed applying $23.5 million in prior‑year gains and asked departments to return reduction strategies and revenue options ahead of a balanced budget proposal.
City finance staff presented a mid‑year update showing a projected fiscal‑year 2025 general‑fund gap of roughly $62.2 million and outlined steps to close that shortfall as the council begins its budget process.
Finance Director Pete Coleto said the city closed FY24 with positive results, including approximately $23.5 million in available prior‑year gains that arose partly from realized investment gains as long‑maturing assets matured and were reinvested. "About $12.7 million is from restoring unrealized treasury losses that matured and were reinvested," Coleto said, and staff recommended applying those prior‑year savings to the FY26 budget gap to lessen near‑term impacts.
Budget Manager Mercala Santizo and Coleto outlined revenue changes: sales tax and Measure U sales tax are projected below budget due to shifting consumer spending from taxable goods to non‑taxable services; property tax, property transfer tax, utility user tax and cannabis business‑operations tax were tracking above budget. Santizo said the FY25 adopted budget had closed a prior gap by a combination of position deletions, departmental reductions and revenue strategies, and that departments had been asked to submit additional strategies to reach a 15 percent reduction target so the city can choose strategic options.
Staff also told the council the city’s Homelessness Accelerated Program (HAP) allocation for the current funding round fell about 40 percent compared with HAP‑5 (a roughly $5.4 million reduction compared with staff estimates). City leaders said that shortfall will require shifting city funds if the state amount is not restored and that staff will pursue legislative, CalAIM reimbursement and other avenues.
Coleto and Santizo said the city is continuing to finalize departmental proposals and will publish every strategy with estimated financial and service impacts. The city manager and budget staff emphasized a preference for minimizing service and staffing impacts and focusing reductions on noncore activities where possible; the council directed staff to return with a balanced budget proposal by April 30 and budget adoption on the June calendar.
The council authorized staff to apply the $23.5 million prior‑year gains toward budget needs; council also heard that several risk factors remain, including possible further federal funding changes and recession risks. The motion to apply the prior‑year gains and move forward with the budget timeline passed unanimously by voice vote.
