Mayor presents FY2026 May revision as council wrestles with FY25 shortfall and possible reserve use

San Diego Mayor Todd Gloria and Department of Finance officials presented the city's fiscal outlook on May 19, telling the City Council that revenues are weaker than expected and that the city faces continuing budget pressures as it finalizes the FY2026 budget.

The mayor said the May revision maintains the administration's stated priorities — public safety, homelessness services, neighborhood infrastructure and equity programs — but acknowledged the city must balance the budget under state law. He urged council members to propose implementable amendments that either identify new revenue or offsetting cuts.

Finance staff detailed the third‑quarter monitoring report and the numbers underpinning the May revision. Department of Finance staff said general fund revenues are projected to end the fiscal year about $17.9 million under the current budget and expenditures about $12.8 million over, producing a projected net negative position of roughly $115.2 million. Personnel costs were cited as a primary driver, with an unanticipated $36.3 million in personnel expenditures; staff also attributed a large part of the variance to reductions in franchise fee revenue, chiefly a year‑to‑year decline in SDG&E payments. The report lists mitigation steps already taken this fiscal year, including a hiring freeze, fee and rate adjustments (parking meter, citation and cannabis taxes), and reallocations of some capital funds to shore up general fund cash.

To close the current fiscal year, staff proposed bringing a budget resolution on June 10 seeking authority to appropriate from the city's stability reserve as needed to ensure a balanced FY2025 closeout; the amount discussed in the presentation was up to about $10.1 million (later reduced in projections to approximately $8.1 million after a last‑minute $2.0 million settlement was recorded). Staff cautioned that the exact year‑end number depends on accruals and revenue recognition and that a final reconciliation will emerge in the months after the fiscal year end.

Council members extensively questioned the assumptions and timing of revenue estimates — especially sales tax and transient occupancy tax projections — and pressed staff about accelerating revenue sources (including Balboa Park parking and other nonresident fees) and finding internal savings to avoid service cuts. Several councilmembers and the Independent Budget Analyst said they would seek targeted restorations and additional data in written memos ahead of the June adoption deadlines.

The presentation and figures set the backdrop for a lengthy public hearing and dozens of community groups that urged the council to protect libraries, parks and recreation hours and to avoid shifting costs onto low‑income residents.

The council set deadlines for members' proposed modifications and scheduled further budget review committee and council actions ahead of the planned June 10 adoption. As staff emphasized, the mayor and council must still agree on specific revenue or cuts before the budget becomes final.