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National City officials flag $16.1 million preliminary FY27 deficit; schedule second workshop to close remaining gap
Summary
City staff presented a preliminary FY27 general‑fund budget with a $16.1 million estimated shortfall and calculations showing the city could exhaust its unassigned reserves; councilmembers pressed for department‑level actuals, asked for a 0‑based review option, and instructed staff to return with detailed options at a second workshop focused on a remaining $3.0 million gap.
Mayor Morrison convened a special daytime budget workshop where finance staff presented the National City preliminary general fund budget for fiscal year 2027 and councilmembers pressed for more detailed backup and next steps.
Paul Valadez, the city's budget manager, said the preliminary general fund budget includes 382 full‑time equivalent positions (276 in the general fund) and anticipates rising pension and insurance costs. He listed several drivers of increased spending — labor agreements, inflation, contract adjustments and unfunded liabilities — and said the preliminary FY27 general‑fund deficit is estimated at $16,100,000, compared with a $9,300,000 shortfall in the FY26 adopted budget. Valadez also noted $1,900,000 in additional unfunded pension liability in the FY26 budget, $1,400,000 in general‑liability insurance premiums, and $1,000,000 in new general‑fund CIP funding.
Valadez explained how the FY26 gap was closed, saying the city used $8,300,000 of unassigned fund balance and $1,000,000 of an economic contingency allocation. Using the FY25 ending balance presented in staff slides, he calculated an estimated unassigned fund balance of roughly $13,100,000 at the end of FY26 before applying the FY27 shortfall, which would exhaust much of the city's unassigned reserves if the current preliminary budget remains unchanged.
Acting City Manager Steve Manganiello said staff will schedule a second workshop that will be a deeper, department‑by‑department review to pursue potential savings (including vacancy freezes) and revenue initiatives that could materialize in 12–18 months. Manganiello asked the council to identify questions that require additional research so staff can prepare the follow‑up materials.
Councilmembers repeatedly asked for more granular actuals. One member asked where the CalPERS unfunded actuarial liability (UAL) appears in prior budgets; Valadez and the finance director confirmed the FY27 general‑fund portion of the retirement payment is about $4,400,000 and that the CalPERS invoice is typically processed for payment by July 1. The finance director said the city had funding available to process that payment on schedule.
Several councilmembers urged consideration of a 0‑based budgeting approach — starting budget lines at zero and rebuilding them from actuals and documented need — and asked staff to produce line‑by‑line actuals for overtime, consultant services and department salaries so the council can consider reductions without trimming core services. Staff said much of that detail will be presented at the second workshop, and that the current presentation was intended to show the big picture rather than every account.
The mayor cautioned against relying on one‑time funds for ongoing services and asked the council and staff to produce a near‑term, midterm and long‑range set of options at the next workshop. The council closed the meeting with an instruction to staff to prepare requested backup and department presentations for the follow‑up session.
Ending: Staff will schedule a second, deeper budget workshop; no formal vote or budget adoption occurred at the meeting.
