All the New Fees Still Not Enough to Cover City Budget Deficit

This post has been updated.

Last month, Mayor Todd Gloria sent a memo to department heads directing them to cut costs. 

The mayor told them to suspend non-essential overtime and spending on training and supplies. He also wants them to only fill vacant positions that the city deems critical.

On top of that, he wants staff to review contracts with equipment rental companies, homeless service providers, and other companies to find opportunities to renegotiate or terminate.  

Contract spending can add up quickly. Last year, a city audit found staff spent more than $6 million on rental equipment without approval from the City Council in 2023.  

“Every dollar that you’re spending on contracts needs to be justified,” said Rolando Charvel, the city’s chief financial officer, about how the departments need to review contracts. “We start from zero and build the contracts budget from there.”  

City department leaders are required to submit their projections to the Department of Finance on Dec. 18.  

A representative from the mayor’s office explained why they are taking these steps. 

“It is important that we take early, responsible steps to manage costs,” said David Rolland, interim director of communications, in an email statement to Voice of San Diego. 

“When we see signs that our budget is tightening, acting early lets us make thoughtful adjustments instead of rushed or painful cuts later.” 

… 

By law, the city must pass a balanced budget every year. This year, the City Council had to eliminate a more than $300 million deficit.  

Some of this is a structural deficit, caused by ongoing spending from the city, without the revenue sources to match those dollars. Instead, over the last few years, the city had been relying on one-time grants from the federal government, like Covid relief funds, to cover those ongoing expenses.  

The Council and mayor made some cuts but to be able to pay for the spending they wanted to keep doing, they had to raise revenue to match expenses. That’s what’s led to many unpopular decisions. 

They cut Sunday library hours to reduce spending and implemented paid parking in Balboa Park and the trash fee to generate revenue. The goal: put a big dent in the structural deficit. 

The new revenues were not enough. In the memo, the mayor said the deficit for the next fiscal year, which begins July 1, 2026, is currently projected at $88.8 million. Charvel said expenses are growing faster than revenues even with all the new fees.  

That number could grow to $110 million based on operational needs, such as staffing for new parks, and the expected loss of one-time homelessness grant funding. 

About $52 million of the deficit is structural in nature, meaning it requires ongoing solutions – which could be a mix of budget reductions and permanent revenue sources, said Charvel in an interview with Voice. “The rest can be addressed with one-time sources.” 

According to the city’s five-year outlook, fiscal year 2029 is when the revenue and spending should start to match up. The gap between projected costs for ongoing services and expected revenue shrinks because the city is paying off a large part of its pension debt that year.  

Striking a balance this year wasn’t easy. Tough budget negotiations about what to cut, what to keep and how to bring in more money brought the mayor and Council to a head. The mayor  vetoed a handful of the Council’s proposed actions this year, like more spending on stormwater and brush management.  

Or when the Council wanted to eliminate some deputy chief operating officers as a cost-saving measure, the mayor said no. But two of those people left the city anyways earlier this month in what the mayor called an “organizational realignment.” Gloria later appointed two new executive team members to replace those who left.

The city’s four main general fund revenue sources are property taxes, sales taxes, transient occupancy taxes (TOT), and franchise fees. These sources account for 69 percent of the city’s general fund.  

The first quarter report for the fiscal year shows TOT and sales tax are coming in under budget, and property tax is over budget. Franchise fees have remained consistent. 

The city also anticipates $76.9 million from Measure C, a TOT tax passed earlier this year after years of court battles. The measure would fund homelessness services, a revamp of the Convention Center, and street repairs. 

Between May and June, which is FY25, the city collected over $14 million from the measure. So far for FY26, the city has collected over $26 million. But it’s unclear when the City Council will bring an ordinance to set up the timelines to begin expending these funds. 

City officials were also looking at a projected $15.5 million in revenue from Balboa Park parking and San Diego Zoo parking. Instead, the latest estimates show an $8.5 million budget shortfall. In partnership with the city, the zoo decided to start charging for parking but we still don’t know how much of those dollars it will share with the city.  

The city will release a mid-year report at the end of January that will include any proposed budget changes or cuts for the fiscal year. The report will also detail updated actual and projected revenues. 

“Upon adoption of the FY2026 Budget, I called for early and frequent monitoring of expenses and revenue. Taking early action can prevent painful and deeper cuts when considering mid-year adjustments,” said Council President Joe LaCava in an email statement to Voice. 

“The mayor’s memo reflects my thinking, and the Council stands ready to consider further cuts and explore new revenue.”  

The mayor has the authority to reduce any programs or spending at any time during the year. But prior to any big reductions he must notify the City Council so they can take the debate to the Council’s Budget Committee. 

Correction: An earlier version of this story misstated the mayor’s plan for current and formerly vacant positions. Gloria has asked city staff to only fill vacant positions that are deemed critical and has appointed two new executive team members to replace two officials who recently departed City Hall.