San Diego finance officials flag $22.9 million projected FY26 shortfall; five‑year outlook shows larger structural gaps

City finance officials on Monday told the San Diego City Council that their first‑quarter monitoring report projects a net $22.9 million shortfall to the general fund for fiscal year 2026, and a separate five‑year financial outlook shows growing structural gaps that will require mitigation.

Ben Battaglia, the city’s director of finance, said the first‑quarter report is limited in scope but outlines several revenue and expenditure trends that together create the projected near‑term shortfall. “This report was developed in coordination with departments and utilizes data available during the first three months of the fiscal year,” Battaglia said during the presentation. He and staff cited a decline in transient occupancy tax (TOT) and sales tax as primary drivers of the revenue shortfall.

The Department of Finance estimated major general fund revenues would be about $1.8 million below budget at the time of the report and cited a larger projected bottom‑line impact once departmental revenue adjustments and expenditure variances are tallied. Chris Purcell and other staff described department‑level declines including an updated estimate that Balboa Park parking revenues will be lower than budgeted due to a delayed implementation and fee adjustments.

The IBA’s review largely confirmed the DOF findings. The Office of the Independent Budget Analyst noted that general fund TOT revenue is now forecast to finish the year several million dollars below adopted assumptions and that parking and certain departmental revenues contributed meaningful downside risk to the forecast. The IBA also drew attention to projected reserve shortfalls, including a general fund reserve gap and deficits in multiple risk management reserves.

Public‑safety overtime was another notable expenditure pressure. Finance staff told the council that combined fire rescue and police overtime is projecting increases compared with budgeted levels; fire overtime was cited as rising roughly $4.6 million while police overtime was forecast up about $3.0 million, partly offset by reimbursements.

Council members pressed staff on the status of Cal OES reimbursements for winter‑storm costs and other disaster claims. “To date, we’ve submitted about $14,000,000 worth of what we feel are eligible costs to be reimbursed,” DOF staff said; they reported meeting with Cal OES and described progress in the agency’s review but stopped short of guaranteeing full reimbursement within the fiscal year.

The city’s five‑year outlook, presented by Chief Financial Officer Rolando Trevail, extended the budgeting horizon and flagged baseline deficits that increase over time absent new revenues or expenditure reductions. The outlook assumes baseline service levels and factors in operating costs for planned facilities, pension payment changes and debt service; Trevail said the FY27 baseline shortfall under current assumptions would be material and ongoing mitigation will be necessary.

Both DOF and the IBA urged caution about relying on one‑time resources. Staff noted that the FY26 adopted budget used one‑time funding to achieve balance and that excess equity is not projected to be available going into FY27. The IBA recommended that council and administration explore mitigation strategies, reserve policy revisions, and prioritized reductions or revenue options during the midyear process.

What happens next: the Department of Finance and the IBA said they will continue to refine midyear projections and that the mayor has circulated a memorandum asking departments to curtail discretionary spending and nonessential overtime. Councilmembers said they expect additional follow‑up at midyear and asked DOF for further detail on specific mitigation opportunities and timing of reimbursements from state agencies.