Regular-General Government # 23.
Board of Supervisors
Financial Services
- Meeting Date:
- 01/27/2026
- Brief Title
- Preliminary Budget Assessment Workshop Part 2
From:
Tom Haynes, Chief Financial Officer, Department of Financial Services
Staff Contact:
Laura Liddicoet, Chief Budget Official, Department of Financial Services, x8825
Supervisorial District Impact:
Countywide
Subject
Continue discussion on the budget outlook for fiscal year 2026-27, approve the 2026-27 Budget Principles and Budget Development Calendar and provide staff direction on the 2026-27 budget development process and scenarios to address the structural budget deficit. (No general fund impact) (Haynes/Liddicoet) (Est. Staff Presentation: 15 min)
Recommended Action
- Continue discussion on the budget outlook for fiscal year 2026-27;
- Approve the 2026-27 Budget Principles and Budget Development Calendar; and
- Provide staff direction on the 2026-27 budget development process and scenarios to address the structural budget deficit.
Strategic Plan Goal(s)
 |
In Support of All Goals (Internal Departments Only) |
Reason for Recommended Action/Background
On January 13, 2026 the Department of Financial Services (DFS) presented the preliminary budget outlook for fiscal year 2026-27 and reviewed the Five-Year General Fund Forecast. According to the forecast, staff anticipate a General Fund budget deficit of approximately $27 million in 2026-27, growing to more than $47 million by 2030-31. This situation reflects a structural budget deficit, whereby ongoing expenditures exceed and are outpacing ongoing revenues.
The presentation on January 13 also touched on potential options to address the County’s structural deficit, which will require some combination of revenue increases and expenditure reductions. While the Board has initiated a discussion on new revenue options, many options require voter approval and cannot be implemented immediately. As such, expenditure reductions will be required in 2026-27 in order to make progress on addressing the structural deficit.
On January 27, 2026, staff will present a continuation of the budget outlook discussion. The presentation will again review the Five-Year General Fund Forecast and other financial metrics, discuss more specific options for addressing the structural budget deficit including a staff recommendation, and review the proposed 2026-27 Budget Principles. In order to guide the 2026-27 budget development process, staff are requesting the Board to approve the 2026-27 Budget Principles and provide direction on the approach to addressing the structural deficit, specifically with respect to assumptions of new revenues and the timeline for implementing expenditure reductions.
Five-Year General Fund Forecast & Other Financial Metrics
As discussed on January 13, the Five-Year General Fund Forecast (Attachment C) provides a baseline for future budgetary discussions. The Forecast is a projection of General Fund revenues and expenditures based on historical trends and numerous other assumptions. Absent corrective action, the Forecast projects a General Fund budget deficit of approximately $27 million in 2026-27, increasing to more than $47 million by 2030-31.
While the Five-Year General Fund Forecast is the best projection of future budgetary conditions based on staff’s professional judgment, it is still simply a forecast. Inevitably, actual circumstances will differ from current projections, either positively or negatively. However, there are a number of other key metrics that also indicate the increasing financial challenges that the County is facing. These financial metrics include the following:
The presentation on January 13 also touched on potential options to address the County’s structural deficit, which will require some combination of revenue increases and expenditure reductions. While the Board has initiated a discussion on new revenue options, many options require voter approval and cannot be implemented immediately. As such, expenditure reductions will be required in 2026-27 in order to make progress on addressing the structural deficit.
On January 27, 2026, staff will present a continuation of the budget outlook discussion. The presentation will again review the Five-Year General Fund Forecast and other financial metrics, discuss more specific options for addressing the structural budget deficit including a staff recommendation, and review the proposed 2026-27 Budget Principles. In order to guide the 2026-27 budget development process, staff are requesting the Board to approve the 2026-27 Budget Principles and provide direction on the approach to addressing the structural deficit, specifically with respect to assumptions of new revenues and the timeline for implementing expenditure reductions.
Five-Year General Fund Forecast & Other Financial Metrics
As discussed on January 13, the Five-Year General Fund Forecast (Attachment C) provides a baseline for future budgetary discussions. The Forecast is a projection of General Fund revenues and expenditures based on historical trends and numerous other assumptions. Absent corrective action, the Forecast projects a General Fund budget deficit of approximately $27 million in 2026-27, increasing to more than $47 million by 2030-31.
While the Five-Year General Fund Forecast is the best projection of future budgetary conditions based on staff’s professional judgment, it is still simply a forecast. Inevitably, actual circumstances will differ from current projections, either positively or negatively. However, there are a number of other key metrics that also indicate the increasing financial challenges that the County is facing. These financial metrics include the following:
- After hitting a peak in 2022-23, General Fund unassigned fund balance has been steadily decreasing for the past four years. This reflects increasing financial strain, and is quickly depleting a resource that has been used to balance the budget.
- Since 2020-21, an increasing amount of vacancy savings has been required to balance the budget. While this was initially done to reflect vacancy trends during and after the pandemic, the magnitude of vacancy savings included in the budget now prohibits some departments from filling vacant positions. The increased use of vacancy savings has also partly contributed to the decline in fund balance.
- The initial starting base budget gap, which reflects the funding required to maintain status quo operations, has increased from $9.3 million in 2022-23 to nearly $40 million in 2025-26. This reflects the increasing challenge in balancing the budget, particularly in light of declining fund balances.
- Since 2017-18, there has been an increasing trend of relying on unassigned fund balance to balance the recommended budget. This trend is problematic, as the recommended budget includes limited one-time expenditures, meaning that an increasing amount of fund balance has been used to fund ongoing operational costs.
- General Fund contributions to reserves and contingency appropriations have steadily declined over the last several years, reflecting less financial capacity to provide for budgetary safeguards.
- Increasingly aggressive measures have been required to balance the budget in recent years, including unfunding General Fund positions, reducing travel and training budgets, utilizing policy reserves, eliminating the supplemental pension charge, and utilizing temporary funding from the Chula Vista fund.
These metrics indicate that since approximately 2021-22, the County increasingly has had to rely on a variety of budgetary maneuvers to balance the budget, including reduction or elimination of contributions to reserve and contingencies, cessation of the supplemental pension charge, and increased reliance on vacancy savings. These budgetary maneuvers reflect actions to begin “right sizing” the organization. Along with the Five-Year Forecast, these metrics also indicate the deteriorating financial capacity of the County’s General Fund and the need to continue “right sizing” expenditure to align with current revenues. However, many of the less disruptive budgetary tools have already been utilized, meaning that further right sizing will require reductions in both vacant and filled positions.
Options to Address the Structural Budget Deficit
As noted on January 13, based on the Five-Year General Fund Forecast, solving the structural deficit will require approximately $47 million in combined revenue increases and expenditure reductions over the next five years. While the Board has initiated the discussion on new revenue options, many of those options require voter approval or other legislative processes and thus will take time to implement. In addition, there is no certainty about the outcome of such efforts.
As such, staff believe that expenditure reductions should be incorporated into the 2026-27 budget in order to begin addressing the structural deficit. However, the magnitude of such reductions depends on assumptions of new revenues in the future and how aggressively the Board wishes to address the structural deficit.
Staff recommend an approach that would allow the County to resolve the structural deficit over a reasonable time period in the event that new revenues are not attained, but simultaneously continue to evaluate and strategize on new revenue options. Specifically, staff recommend the following:
Options to Address the Structural Budget Deficit
As noted on January 13, based on the Five-Year General Fund Forecast, solving the structural deficit will require approximately $47 million in combined revenue increases and expenditure reductions over the next five years. While the Board has initiated the discussion on new revenue options, many of those options require voter approval or other legislative processes and thus will take time to implement. In addition, there is no certainty about the outcome of such efforts.
As such, staff believe that expenditure reductions should be incorporated into the 2026-27 budget in order to begin addressing the structural deficit. However, the magnitude of such reductions depends on assumptions of new revenues in the future and how aggressively the Board wishes to address the structural deficit.
Staff recommend an approach that would allow the County to resolve the structural deficit over a reasonable time period in the event that new revenues are not attained, but simultaneously continue to evaluate and strategize on new revenue options. Specifically, staff recommend the following:
- Implement expenditure reductions to resolve the structural deficit over a period of three years
- Set initial reduction targets with the assumption of no material new revenue sources, resulting in reduction targets of $15 million in each of the next three years
- Continue to evaluate and develop strategies and timelines for future revenue enhancements
- Adjust reduction targets in future years if new revenue options are attained.
In essence, this recommendation reflects a dual track approach that ensures the County is positioned to make the necessary progress toward financial sustainability but in a manner that is congruent with the potential for new revenues in the future. This recommended approach also largely preserves the County’s primary reserves, including the General Reserve and Pension Trust, which have both steadily increased for many years. While some use of these reserves may still be necessary to plug budgetary gaps in the coming years, significant use or liquidation of these reserves to balance the budget would leave the County vulnerable to impacts from unanticipated events such as a widespread economic recession or natural disasters.
Beyond the staff recommended approach, the Board could direct staff to pursue a course of action under different scenarios or assumptions. While numerous potential approaches exist, two contrasting scenarios are highlighted below:
Beyond the staff recommended approach, the Board could direct staff to pursue a course of action under different scenarios or assumptions. While numerous potential approaches exist, two contrasting scenarios are highlighted below:
- Direct staff to implement expenditure reductions over one or two years to aggressively resolve the structural deficit with no assumption of new revenues. This would allow the County to achieve structural balance quickly and preserve our reserve balances; however, there would be an immediate and significant impact to County programs and services.
- Direct staff to spread reductions out over four or five years and pair reductions with some assumption of new revenues. This would reduce the reductions needed in 2026-27 and potentially reduce overall reductions if new revenues come to fruition; however, it would largely deplete the County’s reserve balances and risk larger reductions in future years if new revenues do not materialize.
Ultimately, staff considered these and other alternatives and believe that the recommended approach strikes the appropriate balance of moving deliberately to address the County’s structural deficit while preserving our reserve balances and allowing flexibility in future reductions if new revenues materialize.
2026-27 Budget Principles
Staff recommend approval of the 2026-27 Budget Principles as reflected in Attachment A. The Budget Principles incorporate Board feedback from the January 13 Board, and serve to highlight and reinforce best practices and guide the budget development process for the coming year. A few notable provisions from the 2026-27 Budget Principles include:
2026-27 Budget Principles
Staff recommend approval of the 2026-27 Budget Principles as reflected in Attachment A. The Budget Principles incorporate Board feedback from the January 13 Board, and serve to highlight and reinforce best practices and guide the budget development process for the coming year. A few notable provisions from the 2026-27 Budget Principles include:
- The budget shall strengthen financial sustainability by taking meaningful steps towards achieving a structurally balanced budget. Initially, this will be accomplished primarily through expenditure reductions while options for ongoing revenue enhancement continue to be evaluated.
- The budget will continue to identify one-time funding sources and implement short-term budgetary solutions as required to achieve a balanced budget while a longer-term plan to address the structural budget deficit is implemented.
- Augmentation requests that require General Fund support should be limited to resources needed to comply with mandated programs or address urgent health and safety concerns.
The 2026-27 Budget Principles also include the budget reduction principles that were approved by the Board during the 2025-26 budget development process. These budget reduction principles serve to guide staff's efforts in identifying and developing budget reduction options for the Board's consideration. No changes are currently proposed to the budget reduction principles.
The proposed 2026-27 Budget Development Calendar is also includes as Attachment B. Key dates in the budget development process include:
The proposed 2026-27 Budget Development Calendar is also includes as Attachment B. Key dates in the budget development process include:
| January 28 | Budget Instructions released to departments |
| February 27 | Budget requests due from departments |
| March 24 | Budget Development Update to Board |
| April 28 | Budget Development Update to Board |
| June 2 | 2026-27 Recommended Budget Book and Staff Report released |
| June 9 | 2026-27 Recommended Budget Hearing |
Collaborations (including Board advisory groups and external partner agencies)
The Department of Financial Services has worked closely with the County Administrator's Office, the Budget Ad Hoc Subcommittee, and the Department Head Budget Working Group on issues related to the County's 2026-27 Budget and structural deficit.
Competitive Bid Process/Vendor Performance
N/A
Fiscal Impact
No Fiscal Impact
Fiscal Impact (Expenditure)
- Total cost of recommended action:
- $ 0
- Amount budgeted for expenditure:
- $
- Additional expenditure authority needed:
- $
- On-going commitment (annual cost):
- $
Source of Funds for this Expenditure
- General Fund
- $0
Further explanation as needed:
There is no fiscal impact associated with this update.
Attachments
- Att. A. 2026-27 Budget Principles
- Att. B. 2026-27 Budget Calendar
- Att. C. Five-Year Forecast
- Att. D. Revenue Enhancement Options
- Att. E. Statewide County Sales Tax Information
- Att. F. Presentation
Form Review
| Inbox | Reviewed By | Date |
|---|---|---|
| Tom Haynes | Laura Liddicoet | 12/19/2025 03:05 PM |
| Financial Services (Originator) | Laura Liddicoet | 01/22/2026 01:49 PM |
| Tom Haynes | Tom Haynes | 01/22/2026 03:51 PM |
| County Counsel | Phil Pogledich | 01/22/2026 04:07 PM |
| Cindy Perez | Julie Dachtler | 01/22/2026 04:39 PM |
| Yen Nguyen | Yen Nguyen | 01/22/2026 04:50 PM |
- Form Started By:
- Laura Liddicoet
- Started On:
- 12/19/2025 03:03 PM
- Final Approval Date:
- 01/22/2026