BUSINESS & FISCAL SUSTAINABILITY PLAN
(FY 2027 – 2031)
What is Fiscal
Sustainability?
FISCAL SUSTAINABILITY
• The ability of a government to sustain:
• Current spending
• Tax and other policies
• Long-term view
• Without threatening government solvency
• Without excessive debt accumulation
• Without defaulting on its liabilities or promised
expenditures
Why Reserves Matter
STUFF HAPPENS
• Economic downturns
• Pandemics
• Geopolitical Crises
• Uncontrollable Impacts
• Unfunded mandates
• Insurance Costs
• Pension Obligations
• Natural or Manmade Disasters
• Missed Opportunities (Grant Matching)
Fiscal Sustainability Theory Informs Policy
Decisions
IT GUIDES
• Debt management strategies
• Fiscal rules & targets
• Crisis response planning
Multi-year General Fund Trend
Fiscal Year GF Revenue GF Expenditure Gap How Balanced
FY 2024 (actual) $75.8M $70.1M ~$5.7M surplus Surplus
FY 2025 (unaudited) $78.6M $78.1M $500,000 surplus Surplus FY 2026 (adopted) $73.7M $83.0M ~$9.3 M projected deficit Drawdown of reserves FY 2027 (adopted) $76.4M $89.3 M ~$12.9M projected deficit Drawdown of reserves FY 2027 Estimated Revenue Detail
Revenue Source FY 2026 Adopted FY 2027 Adopted Change
Sales & Use Tax $24,261,000 $24,723,000 +1.9%
District Transaction Tax (Prop. D) $16,868,000 $18,125,000 +7.5% Property Tax $5,082,384 $4,946,900 (2.7%)
Property Tax Allocated (pass-through) ($2,296,946) ($2,243,150) (2.3%) Property Tax in Lieu of VLF $9,837,550 $9,896,000 +0.6% Other Revenues $19,946,009 $20,987,153 +5.2%
Transfers-in $5,500 $5,500 —
Total $73,703,497 $76,440,403 +3.7%
FY 2027 Preliminary Expenditure Detail
Category FY 2026 Adopted FY 2027 Adopted Change
Personnel Services $54,165,445 $60,450,247 +11.6%
Maintenance & Operations $9,890,698 $9,048,130 (8.5%)
Capital Outlay $255,773 $255,773 0%
Debt Service $554,377 $418,913 (24.4%)
Internal Service Charges $8,113,199 $9,538,530 17.6%
Transfers Out $9,993,791 $9,615,358 (3.8%)
Total $82,973,283 $89,326,951 +7.7%
GF Reserves: The Closing Window
Item Amount
Total GF reserve balance (June 2025 snapshot) ~$51M, about $9M above policy target Unassigned fund balance + economic contingency
reserve (2024)
>$37M
Same reserves, projected end of FY 2027 <$20M
Projected ending unassigned fund balance, FY 2025 $23,394,613 Less: FY 2026 deficit (based on Q3 projections) ($10,255,467) Projected ending unassigned fund balance, FY 2026 $13,139,146 Less: FY 2027 deficit ($12,886,548)
Projected ending unassigned fund balance, FY 2027 $252,598 • Highest per-capita sales tax revenue in San Diego
County
• Strategic location near downtown San Diego, the
U.S.-Mexico border, and San Diego Bay
• 150 acres of underused public tidelands with an
approved redevelopment entitlement
• Prior proactive pension management: $84M in
2021 Pension Obligation Bonds reduced the
effective interest rate from 7.0% to 6.8% to save
roughly $20M over term of bond
• Voter-approved dedicated revenue streams already
in place: Proposition D (transactions/use tax),
Measure C (hotel tax)
SWOT Analysis - Strengths
• Structural deficit for FY 2027 and beyond, which
exhausts reserves in FY 2028
• Revenue base overweighted in sales tax (41%)
which is stagnant (1.9% growth) and cyclical
• Below county average household income and
above average poverty limit
• Local tolerance for new taxes/fees
• Recent compensation and staffing increases were
approved without a matched, identified revenue
offset
• National City is built out, which will require more
expensive infill redevelopment to reach its housing
targets and expand commercial/retail uses,
particularly in the downtown urban core
SWOT Analysis - Weaknesses
• National City Balanced Plan waterfront
redevelopment
• Business license tax modernization from flat fee to
tiered/gross receipts model
• Continued growth of Proposition D district
transaction tax
• Redevelopment Successor Agency residual
balance distributions continuing as a recurring
“other revenue” line
• Cannabis business tax revenue and further
cannabis license expansion
• Redevelopment Successor Agency property sale or
long-term ground lease
SWOT Analysis - Opportunities
• California’s state level structural deficit limits the likelihood of new state aid to cities
• November 2026 statewide ballot initiative would raise the voter-approval threshold for local revenue
measures from a simple majority to two-thirds and
could retroactively unwind existing voter-approved
property related taxes
• Organized business community opposition to the
business license tax reform from the San Diego
Regional Chamber of Commerce and the South County
Rental Housing Association.
• Continued softening of brick and mortar retail sales tax nationally
• Rising CalPERS costs and general liability insurance
premiums outside city control
SWOT Analysis - Threats
1. Eliminate the structural General Fund deficit within three fiscal years without depleting reserves below
policy minimums.
2. Diversify General Fund revenue so no single source
exceeds roughly one-third of unrestricted revenue by
FY 2031.
3. Rebuild reserves to at least the Council’s target plus a genuine contingency cushion, reversing the current
drawdown trend.
4. Advance the National City Balanced Plan waterfront
development to convert underused tidelands into
recurring, growing hotel tax and lease revenue stream.
5. Modernize revenue administration (business licensing, short-term rental taxation, fee schedules) so revenue
keeps pace with actual economic activity in the city.
6. Protect core services – public safety, libraries, parks, and recreation – throughout the balancing process.
STRATEGIC GOALS
1. Implement Priority Based Budgeting
2. Business License Tax Reform
3. National City Balanced Plan
4. More robust, diversified economic development
strategy
5. Prioritize outreach for big box commercial
6. Proposition D District transaction tax growth
7. Franchise Fee Review (electric, waste)
8. Cannabis business tax and licensing expansion
9. Fee Study/cost recovery update for permits, recreation, and development services
10. Grant capture
REVENUE ENHANCEMENT STRATEGY
1. Implement Priority Based Budgeting
2. Position control
3. Compensation discipline
4. New-hire moratorium
5. Pension cost management
6. Insurance and risk management review
7. Internal services and overhead review
8. Convert one-time costs to one-time funding
9. Quarterly budget-to-actual reporting
EXPENDITURE MANAGEMENT AND COST
CONTAINMENT
1. Formally re-commit to the Council’s reserve policy
targets and prohibit further net reserve draws once
the unassigned fund balance reaches the policy
floor
2. Treat FY 2027 as the “line in the sand” budget; any
gap not closed by previously outline actions must
be closed with identified structural solutions, not
additional reserve draws
3. Once structural balance is achieved (target: FY
2029), redirect a defined share of new hotel tax
and business license revenue growth into
rebuilding reserves until policy targets are restored
RESERVE POLICY & FUND BALANCE
STABILIZATION
ILLUSTRATIVE MULTI-YEAR PATH TO
BALANCE
Fiscal Year Projected Structural
Gap (status quo)
Plan Actions Applied Residual Gap After Plan
FY 2027 ~$16.1M Hiring freeze, contract renegotiation, one-time Successor Agency/CIP fund shifts
Reduced but likely still a moderate
reserve draw
FY 2028 Grows further under status
quo
Business license tax reform revenue (if approved
2027) begins flowing; Proposition D growth
continues
Materially narrowed
FY 2029 — First full year of reformed business license tax; hotel RFP/lease progress
Target: structural balance achieved
FY 2030 — First hotel(s) potentially breaking ground/opening; reserve rebuilding begins
Surplus directed to reserves
FY 2031 — Full waterfront hotel TOT/lease revenue online Reserves restored to policy target + buffer