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Fullerton audit reclassifies $10 million; staff warns of deeper budget gap without cuts
Summary
City staff told the Fullerton City Council that a FY24‑25 audit and accounting adjustments reclassified about $10 million from unassigned to allocated funds, leaving available reserves lower than previously reported and projecting a $13.7 million baseline gap for FY26‑27 unless the council adopts revenue or expenditure changes.
Interim administrative services director Steven Avalos told the City Council on March 17 that the city’s FY24‑25 audit identified accounting adjustments that change how roughly $10 million of reserve funds are presented and reduce the city’s available general fund balance.
"The city ended the fiscal year with approximately $30,000,000 in total general fund balance," Avalos said during the presentation of the second‑quarter financial report and proposed midyear amendments. He said about $10.2 million is now recorded as allocated for specific purposes and $19.8 million represents the available general fund balance and contingency reserve.
Why it matters: staff said the change does not mean money disappeared but that funds previously treated as unassigned were properly booked to earmarked accounts (for example, downtown parking and general plan fees) after auditors and staff reconciled FY24‑25 records. Still, the reclassification combined with prior operating results means the city faces an estimated operating deficit of about $3.7 million for FY25‑26 and a preliminary baseline shortfall of about $13.7 million for FY26‑27 if no policy changes are made.
Council reaction: Council member Zara pressed staff for accountability, asking why a $2.9 million successor‑agency sale had been recorded to the general fund and whether the larger $10 million shift represented a clerical error. "That was an error," staff said about the successor‑agency booking; staff and the auditors explained the audit sampling process and said the shifts reflect proper earmarking rather than disappearance of funds.
What staff recommended: the report recommends the council receive and file the second‑quarter financial report and approve midyear budget amendments that, staff said, primarily formalize earlier council approvals (for example, financing and budgeting related to the purchase of fire apparatus). Staff also scheduled a fiscal sustainability ad‑hoc committee meeting for March 30 to review options including cost containment and revenue opportunities.
Next steps: staff will bring options for addressing the multiyear structural gap to budget study sessions this spring and summer. The council approved the midyear amendments on a roll‑call vote at the meeting.
Sources: presentation and Q&A with Steven Avalos and deputy city manager Daisy Perez; council discussion and public comment during the March 17 council meeting.
