San Diego officials drew $4.7 million from the city’s general‑fund reserve at the close of fiscal year 2026, marking the first such use in more than ten years. The move was made to balance the budget while the city awaits a delayed $7.4 million reimbursement from the California Governor’s Office of Emergency Services (Cal OES) for flood‑related emergency costs incurred in January 2024.
Council reaction and concerns
During the Oct. 21 City Council Budget and Government Efficiency Committee meeting, several councilmembers voiced alarm. Councilmember Vivian Moreno expressed disappointment, noting the city avoided tapping reserves during the Covid‑19 pandemic. “The fact that we’re doing so now raises serious concern about our financial stability and our ability to prepare for future emergencies,” she said.
Mayor Todd Gloria, who has recently highlighted the city’s stronger financial footing, acknowledged the reserve draw adds to ongoing worries about the structural deficit – a situation where ongoing expenses exceed ongoing revenues.
Independent analysis
Independent budget analyst Charles Modica told Voice of San Diego that the structural deficit has shrunk over the past two years but remains unresolved. “There is a persistent structural deficit that still needs additional action to address,” he said. Modica emphasized the city does not plan to rely on reserve draws as a regular practice and noted the recent pull is noteworthy because “prior to this, we had not had any draws on the general fund reserve in recent memory.”
State reimbursement delay
The primary cause of the shortfall is the delayed Cal OES reimbursement. City officials expect the funds in fiscal year 2027, and Cal OES spokesperson Matt Notley confirmed the agency is still awaiting complete documentation from the city. “We work closely with local agencies to help them access state funding for eligible recovery costs, providing guidance and technical assistance through a reimbursement process,” Notley said.
Officials warned that if the reimbursement does not arrive promptly, the city could face additional budget risks. Their projections indicated the general fund balance would have increased by $1.7 million with an earlier reimbursement, but the delay left a $4.7 million hole that required the reserve draw.
Long‑term fiscal outlook
San Diego’s City Council recently closed a $118 million budget deficit through cuts after a $258 million shortfall the prior year. Yet, councilmember Kent Lee cautioned that continued reliance on one‑time options, such as reserve pulls, could jeopardize future stability. “We can’t – we won’t continue to be able to keep pulling from some of these reserve pools without creating further risk down the road,” he said.
Modica estimates the city will need to address a $15‑30 million deficit for fiscal year 2028. He suggests two paths: cutting program spending or securing a reliable, recurring revenue source beyond one‑time grants.
Reserve policy and future goals
The reserve draw reduced the city’s combined savings from roughly $207 million to $202 million, about 11 percent of operating revenues. This falls short of the current target reserve policy of 14.1 percent, with a goal of 14.7 percent for the next year and a long‑term aim of 16.7 percent by 2030, aligning with Government Finance Officers Association best practices.
The Department of Finance has pledged to replenish the $4.7 million gap once the Cal OES reimbursement arrives, and any additional state funds could be allocated to other needs. City officials plan to update the reserve policy before year‑end and present a five‑year financial outlook.
Mayor’s office response
Mayor Gloria’s office did not respond to a request for comment on the reserve draw.
Original reporting: Voice of San Diego — read the source article.
