Pacific Grove officials outline $21M infrastructure gap and propose 3/8¢ sales tax to close recurring shortfalls

Pacific Grove officials told residents during a public forum that the city faces a structural budget challenge and long‑term infrastructure shortfalls that will require new revenue and spending decisions.

Deputy City Manager Joyce Hallaby and Administrative Services Director Fred Marsh presented a five‑year fiscal forecast showing revenues modestly rising from about $33 million to $35 million while expenses grow faster, producing a recurring annual shortfall. The city’s capital planning exercise identified roughly $21,000,000 in unmet infrastructure needs over the next 10 years, including immediate work in the first five years.

"We have an annual shortfall each year between the revenue that we are bringing in and the expenses that it takes to run the city," Hallaby said, warning that the city’s reserves—which the council policy sets to 25%—are projected to decline from about 41% to roughly 21% if the gap continues.

To address the imbalance, staff outlined a suite of options: increases to cost recoveries and fees, parking rate adjustments, pursuing more grants, evaluating program contributions (including museum support), and a proposed general sales tax measure. Marsh said the council is considering placing a three‑eighths‑of‑one‑cent (0.375%) general sales tax on the November 2026 ballot.

"We're proposing to have it go as a general measure, which would require 50% plus 1 vote to the public for approval," Marsh said. He and staff estimated the measure would generate about $1,000,000 a year if approved; because it would be a general tax, council would be able to use the revenue for a broad set of purposes including streets, sidewalks, parks, public safety and emergency services.

Staff said the city has already identified near‑term cost reductions—such as renegotiated credit‑card processing arrangements and insurance deductible adjustments—and longer‑term savings including pension‑related bond retirements that will free up roughly $1.6 million per year when they mature. Still, officials stressed those steps alone would not eliminate the structural gap.

The city is undertaking community outreach to gauge support. Hallaby noted a prior scientific poll showed positive results but said staff wanted broader input and invited residents to complete a QR‑linked survey on the city’s funding update webpage.

The forum closed with staff directing residents to the funding update webpage for more details and next steps. The council has not yet set a final ordinance or ballot language; if council places the measure on the ballot, it would appear on the November 2026 ballot and require voter approval to take effect.