Pacifica warns of $3.1–$3.4M operating gap and jeopardized VLF backfill in FY 2026–27 budget kickoff

At the budget study session on April 13, interim City Manager Julia Carter and Finance Director Marisol Gomez presented the 2026–27 budget calendar, a 10‑year forecast and preliminary strategies to address an operating shortfall.

Staff said the city’s modified zero‑based approach shows core services at risk absent corrective actions and estimated a preliminary operating deficit of approximately $3.1–$3.4 million for 2026–27. A key near‑term revenue risk is the Vehicle License Fee (VLF) backfill: the county distributes delayed state payments and three counties have experienced withheld funds, creating a significant potential shortfall for Pacifica. Staff said the council and county are pursuing advocacy and coordinated action to restore expected payments, but the risk remains.

Preliminary strategies: Staff proposed five actions to reduce the gap for 2026–27 and to improve long‑term sustainability:
- Keep the full allocation of excess RAF (Transient Occupancy/Excess Educational/related funds) in the general fund for 26–27 (estimated conservatively at $3.9M projection).
- Plan for VLF backfill uncertainty and consider short‑term mitigation while seeking permanent fixes at county/state level.
- Accelerate economic‑development efforts to grow the tax base and fill commercial vacancies.
- Complete a cost‑allocation plan and derive fully burdened rates (to guide internal cost recovery and grant overhead claims).
- Undertake a user‑fee and development‑impact fee updates to ensure cost recovery where appropriate.

Process and timing: Staff will bring a refined base budget and position control for council review at the May 11 study session and present decision packages and recommended policy options at a June meeting, with final budget adoption planned for June 22. Councilors and staff discussed the need for public outreach and for department‑level service classification (mandated, core, discretionary) to guide reductions or prioritization.

Next steps: Council directed staff to continue the work plan, accelerate economic development initiatives where feasible and prepare detailed trade‑off packages for the May/June decision cycle. Citizens were encouraged to follow the public process and staff to continue county‑level advocacy on the VLF issue.