City releases unaudited FY25 results showing improved position but exhaustion of one-time reserves

The Department of Finance told the San Diego City Council on Oct. 27 that unaudited fiscal year 2025 results improved relative to the third-quarter projections by roughly $10.1 million, limiting the need to tap the general fund stability reserve.

Ben Battaglia, assistant director in the Department of Finance, said revenues were about $6.2 million above the third-quarter projection and expenditures came in about $3.9 million below projection, producing the net improvement. He said the city still expects to exhaust about $105 million in excess equity that had been carried from prior years, leaving the general fund without that one-time cushion heading into FY26.

“Based on these unaudited actuals, it is now anticipated that the general fund will end the fiscal year with a negative $105,000,000 in net projected activity,” Battaglia said during the presentation. He added that intentional mitigating actions — including additional departmental revenues, reimbursements from the EMS fund and other one-time measures — closed the gap that the third-quarter report had projected.

The Office of the Independent Budget Analyst (IBA) provided a parallel review. Jillian Andelina of the IBA told council members the IBA’s review found major revenue shortfalls relative to the adopted budget, driven principally by sales tax and transient occupancy tax (TOT) collections that fell short of 2024 assumptions; those declines were almost fully offset in the year by higher departmental revenue and a $15.2 million transfer tied to EMS reimbursements.

Amy Lee of the IBA emphasized the risk of relying on one-time or unsustainable revenue sources, noting that a roughly $2.9 million projected ending balance for the EMS Fund makes large, recurring transfers unsustainable. “The largest increase in general fund revenues was in the departmental revenues category, which reflected a $15,200,000 transfer from the EMS fund,” she said.

Council members pressed staff on drivers of the variance: higher overtime in Fire and Police that increased salary costs but were partly offset by reimbursements from strike team deployments; lower interest earnings; and delayed reimbursements tied to litigation over Measure C affecting TOT availability. Finance staff said the city does not expect to draw down the stability reserve this year because of the combination of mitigating actions.

The IBA and Finance both said that the city will release an updated five-year financial outlook in November and that the absence of excess equity will make future fiscal mitigation more difficult. Council members asked staff to prepare clearer documentation of ongoing exposure, how reserve policy might be revised, and whether revenue trends are durable.

The presentation was an information item and required no vote. Officials urged continued monitoring and public engagement as the city develops its FY27 budget and five-year outlook.