Milpitas council hears preliminary FY 2026–35 forecast, staff warns of structural deficit

Milpitas — At a Feb. 18 special meeting, Milpitas finance staff presented a preliminary fiscal-year 2026–35 general fund forecast and told the City Council the city faces a structural deficit that will require difficult choices on spending and new revenues.

The forecast presentation, led by Finance Director Caprice Howe and budget manager Alice Birch, reviewed recent accomplishments, community-survey results, economic indicators and a 10-year projection. "We do have a structural deficit," Finance Director Caprice Howe told the council during the discussion, adding that the city should focus on the current year and the next few years while planning longer-term changes.

Why it matters: Finance staff said Milpitas relies heavily on a small number of general fund revenue sources and that salaries and benefits account for roughly 80% of general‑fund spending. Staff outlined options including targeted spending reductions, fee reviews, pursuing new or modernized business taxes, and selective use of one-time funds or reserves while engaging the community on priorities.

Forecast, reserves and short-term options

Finance staff told the council the city has audited general fund reserves of $85,300,000 as of June 30, 2024. Two reserve buckets — the general fund contingency reserve and the budget stabilization reserve — each held about $20,800,000, which staff said would cover roughly two months of payroll if the city received no revenues.

Staff said that, under current projected revenue and expenditure assumptions, those reserves and a mix of one-time funds could get the city through the near term but warned that relying on one-time money to preserve ongoing services is not sustainable. "We have to make some difficult decisions about those services over the next year and a half," Howe said, urging a measured approach that combines expense reductions, pursuit of new revenues and careful use of reserves.

Council response and timetable

Councilmembers expressed differing views on timing. Councilmember Chua pressed for faster cuts and said the council should act now rather than waiting a year and a half. Other members, including Councilmember Lam, urged collaboration and warned against hasty cuts that sharply reduce services or staff.

Staff outlined a schedule for community engagement and budget actions: community outreach in March–April, follow-up briefings on the Capital Improvement Program (CIP) and fees in April, and formal budget actions leading to a June adoption. Staff also said a business tax modernization effort is under consideration and could be placed on the November 2026 ballot if the council directs further work and a funding path.

One-time funds and program funding

Staff identified approximately $508,000 of one-time funding available from previously approved allocations (transitioned from American Rescue Plan Act spending to a new "Community Investment Fund") that could be allocated to council priorities in the current budget cycle. Staff said several council priorities (for example, a planning-commission stipend and a business-tax modernization effort) would require additional one-time funding if the council wishes to proceed.

Other items discussed

Staff reviewed results from the recent community survey showing high overall satisfaction with city services but persistent concerns about housing affordability and cost of living. Staff also discussed implementation timelines for a new enterprise HR/finance system (finance modules scheduled to go live July 1, HR to follow) and flagged a pending legal matter related to allocations to charter schools that staff are setting aside funding to cover should litigation be decided against the city.

A brief separate discussion covered artificial turf at the city sports center; staff noted Milpitas has a single turf field installed in 2016 and that replacement planning will come when the field nears its useful life.

Next steps

Staff will return with more detailed analyses of revenue scenarios, service-level options, the CIP and fee updates in coming weeks and will run community engagement on budget priorities in March and April. The council asked staff to present a clearer path for balanced-budget options and to bring the CIP back for a review before the April adoption date.

Votes at a glance

Approve agenda as presented — Motion by Councilmember Chua; seconded by Vice Mayor Barbadillo; vote: Vice Mayor Barbadillo, Councilmember Chua, Councilmember Lam, Councilmember Lietz and Mayor Montana — Aye. Outcome: approved.