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Tracy finance committee warned of near-term shortfall after major fulfillment center shifts operations
Summary
City finance staff told the Tracy Finance Committee that a major fulfillment center’s planned conversion to a distribution facility could reduce sales-tax receipts by about $13 million and contribute to an estimated $4.6 million general-fund shortfall in fiscal year 2026–27; staff proposed using reserves and other measures to balance the budget.
The Tracy Finance Committee on March 10 heard a five-year forecast from Sarah Castro, the city’s finance director, that identified a potential near-term general-fund shortfall tied largely to one large fulfillment center converting to a distribution warehouse.
“The change is estimated to see a reduction in sales tax of nearly $13,000,000,” Castro told the committee, saying the company will go offline for retrofitting and that it is not yet known whether fulfillment activity will remain in Tracy. Staff said the conversion could produce a net reduction in general-fund revenue of roughly $4.6 million in fiscal year 2026–27 after some offsets from rising property tax collections.
Castro presented the forecast as a planning tool and described the city’s revenue mix — sales tax remains the largest contributor to the general fund, supplemented by property tax, business license revenue and transient-occupancy tax. She noted that the state-level allocation methodology for ecommerce transactions has been the subject of proposed changes and Cal Cities discussions; staff said recent recommendations to change allocation rules were not adopted in a recent Cal Cities board vote, but other potential reallocations (including out-of-state ecommerce revenue) could still affect the city’s share.
Committee members pressed staff for dollar estimates and timing. Castro said short-term property-tax growth of 4–5% equates to roughly $5–6 million in additional property-tax revenue in the near term, and reiterated that the full sales-tax impact will only show up after the facility reopens and transactions are recorded in 2026.
The forecast shows the city can cover the initial shortfall in FY26–27 by drawing on unassigned reserves; staff projected an estimated $18.5 million in unassigned fund balance at the end of FY26. Castro said staff will continue to monitor the fulfillment facility’s status, state-level allocation discussions, and federal or state budget actions that could affect local revenues, and will update the committee and council as new data become available.
The committee was told the forecast will be presented to the full city council on March 17; staff plan additional committee briefings in April and will present the proposed FY27 operating budget and capital plan in May, with budget adoption targeted for June 2.
