National City staff warn reserves will shrink without new revenue; council weighs taxes, land sales and fees

National City officials told the City Council a combination of slower revenues and rising liabilities has pushed the city toward a multi-year shortfall that will require new revenue or spending changes.

"We basically have $151,000,000 in expenditures and about $142,000,000 in revenues," City Manager Scott Fultz said during the staff briefing, framing the situation as a long-term structural challenge rather than a single-year gap. Finance staff highlighted several cost drivers, including a growing CalPERS unfunded actuarial liability (UAL) and higher insurance premiums.

Bruce, the finance director, told the council that some revenue categories are on track but others pose risk: "So far for this year, we've only collected 58% of our property tax," he said, noting a major installment is usually received in May and collections continue into August. He also said the city is budgeting a $1,000,000 general-fund transfer to the newly created CIP fund while the true capital need for maintaining streets, sewers and facilities is far larger.

Staff presented specific projections and stress points: an audit-based unassigned fund balance of about $23,000,000 for FY23 and preliminary FY25 figures near $24,500,000; a projected drawdown of roughly $3,300,000 for the current year; and a preliminary projected deficit of about $8,200,000 for fiscal year 2026 under the status-quo assumptions. Bruce said the city expects the UAL payment to more than double (to roughly $3,000,000 next year from about $1,500,000 this year) and that the non-departmental accounting for pension and bond payments will make the non-department category appear larger in the proposed budget.

Councilmembers pressed staff on both expense-side and revenue-side tools. Proposals discussed included a vacant-property tax, revisiting franchise-fee agreements, increasing the transient occupancy tax (TOT), revising business license fee tiers for large operators, and pursuing city-controlled development or leasing of underutilized parcels around Bay Marina Way. Several council members described using a limited portion of reserves strategically to catalyze development that could increase recurring revenue.

Mayor Morrison emphasized long-term constraints: "Housing does not pay for itself," she said, warning that residential growth can increase service demands without producing equivalent revenue. Council members said they would prioritize options that protect critical programs while still moving to stabilize the city's fiscal position.

Next steps: staff said two studies are forthcoming (an update to development impact fees and a review of service fees) and recommended follow-up budget workshops to give council time to consider policy choices, timing and legal requirements for any tax or fee changes.

This briefing did not include final budget decisions; the council directed staff to return with more detail and to schedule additional budget sessions.