Cerritos confronts a roughly $4 million shortfall; council directs study of 1% sales tax, dual budgets and resident task force

Cerritos officials told the City Council on March 9 that the city’s midyear budget forecast has widened from a planned $400,000 deficit to roughly $4 million for FY2025–26, driven by a mix of lower revenues and higher operating costs. The council voted to ratify second‑quarter budget amendments and to approve the midyear adjustments with follow‑up direction to staff.

Finance and Budget Manager Peter Kemp and Director of Administrative Services Drew Schneider detailed the drivers at a lengthy presentation: lower sales tax and lease revenues, lower performing theater ticket receipts, increased imported‑water costs tied to a well outage and higher utility and operating costs. Kemp summarized the audit position: the city received an unmodified opinion from Clifton Larson Allen but faces structural pressures in the long‑term forecast.

On revenue options, staff presented a menu—utility users tax, parcel or transfer taxes, a transient occupancy tax (hotel bed tax) increase, and a transactions & use tax (TUT, i.e., local sales tax). Schneider said staff recommends further evaluation of a 1% TUT, which the city’s sales‑tax consultant estimated could produce roughly $19 million annually for the city, and noted that consultants estimate more than half of that revenue would come from non‑residents. Council members and residents disputed precise shares but agreed the city’s regional retail draw is a core revenue source.

After public comment both opposing and supporting new revenue measures, the council gave staff the following directions: (1) ratify the second‑quarter amendments and approve the midyear adjustments; (2) further evaluate and advance study of a 1% transactions & use tax (TUT) including community engagement and polling; (3) adopt a dual‑budget planning framework for FY2026–27 (one budget assuming additional ongoing revenue, one assuming no new revenue); (4) convene a resident budget task force to inform priorities and outreach; and (5) approve a contract extension (not to exceed $75,000) with a communications firm to support community engagement.

Mayor Prom Johnson emphasized the local character of Cerritos’s retail base and said the council needs to weigh the limited impacts on local taxpayers against the risk of repeated cuts that would reduce services and delay capital projects. Council members raised alternate options: trimming discretionary events (staff identified modest midyear savings such as delaying a 5K and an event contribution), vacancy management, and exploring development opportunities (including hotel feasibility) to broaden future TOT revenue.

What the council approved in brief:
- Midyear budget amendments and ratification of prior adjustments (approved by council vote).
- Direction to staff to return with a more detailed evaluation of a 1% TUT and community outreach plan; staff will prepare dual budget scenarios for FY2026–27.
- Formation of an advisory resident budget task force and authorization to engage a consultant to facilitate resident workshops (not‑to‑exceed $75,000) to support outreach.

Next steps: staff will present refined sales‑tax modeling, polling and a recommended outreach plan ahead of the FY2026–27 budget process, and will return with dual budget scenarios that show service levels under both revenue outcomes. Any placement of a new tax on a ballot would require a later, separate council decision and legal review.