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Menlo Park staff warn of multi-year structural deficit; council to review fee, tax and project options
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Summary
The city—s finance presentation said a reduced state vehicle-license-fee backfill and underfunded replacement funds create an $8 million average structural deficit; staff proposed updating fees, pursuing revenue measures and reprioritizing CIP projects to avoid reserve depletion.
Menlo Park—s Assistant Administrative Services Director Fenny Lai told the City Council on March 21 that the city faces "significant financial challenges that will require thoughtful consideration." Lai said the city—s long-standing vehicle license fee (VLF) revenue has been reduced and the state—s backfill via an ERAF swap has been cut, creating a major driver of the updated structural deficit.
Lai said the city projects a roughly $8 million average structural deficit if current assumptions hold and that the reduced state VLF backfill could produce an estimated $7,000,000 impact over the next five years; Menlo Park has already experienced about $3,800,000 of that shortfall. Under the presentation—s base scenario, Lai said the city—s unassigned reserves are projected to be fully depleted by fiscal year 2026-27 and that without adjustments the general fund could be exhausted within several years.
To address the gap, staff outlined a set of balancing strategies: update fees and overhead allocations based on the recent cost-of-service study; improve business license compliance and enforcement; consider voter-approved revenue measures (a business license tax or a half-cent sales tax were cited as options); realign departmental budgets and prioritize critical hires; and explore debt issuance and targeted parcel taxes for infrastructure needs. Lai said updating the master fee schedule and a potential business license tax could meaningfully reduce the structural gap if implemented.
Council members asked about timing and voter processes. Council member Cecilia Taylor asked whether a business license tax could be placed on the November ballot; staff said it is technically possible but timelines to submit measures to the county were short. Lai said the recommended master fee schedule study session is already scheduled for March 24 and that other budget steps will follow through the April-May calendar leading to a June 23 budget adoption.
The presentation included details council members flagged for follow-up: the citywide vacancy rate (presented as 12.9%), an internal service fund shortfall for vehicle and equipment replacement, an assumed $1.7 million annual contribution to the vehicle replacement ISF in the forecast, and successor agency property tax wind-down that is expected to provide roughly $900,000 annually after related obligations conclude. Staff will bring a detailed balancing plan and options to the council as the budget process proceeds.
