The mid-year budget update for 2025-26 presented that the current financial performance of the city aligns with the projections, including the $3.7 million operating deficit, which will bring the current $19.8 million reserve down to $16.1 million. For 2026-27 there will be a drastic reserve decline.
If no adjustments are made, the total baseline budget gap could reach $13.7 million by the end of 2025-26 and reserve levels could decline to 2% by the end of the fiscal year 2026-27.
“The jump in a $3.7 million deficit to a $13.7 million deficit is a little misleading,” said City Manager Eddie Manfro. “The $3.7 million deficit when budget productions started was closer to $9 million, and then the city manager and staff worked on ways to bridge that gap, and that was bridged with reserves, and that was bridged with one time uses of internal service funds.”
The city reserve policy states that 10% minimum reserve level is required, with a 17% target reserve. The current available contingency reserve is $19.8 million at the 14% level as of fiscal year 2024-25. The city in 2024-25 was below the 17% target, but remained above the minimum.
“All that bragging at state of cities of our great 17% reserve, turns out is was a clerical error, of $10 million,” said Councilmember Ahmad Zahra. “Next year we’re looking at massive cuts, a 2% projected reserve, meaning we’re under the state law by 8%.”
The last time Fullerton had the target contingency balance was 2023-24, having $21.1 million in reserves and an extra $10 million in unassigned funds.
The unassigned funds that the city had from 2021 to 2024 — totaling up to $33 million — were part of the American Rescue Plan Act for the pandemic recovery.
$5,714,308 of the unassigned fund balance was used in 2024-25 to fund the city’s deficit. The remainder was used to adjust the Annual Comprehensive Financial Report, of which an extra $1,247,917 was needed coming from the contingency reserve. By the end of the fiscal year, the unassigned fund balance was zero and the contingency reserve balance dropped from $21,075,598 to $19,827,681.
During the presentation, the city council explained that $2.9 million was mistakenly deposited to the general fund, when it should have been booked to the successor agency.
“We have to be able to count on the underlying fundamentals of the revenue side of the budget being correct, because if they’re not, we’re setting ourselves up to fail,” said Mayor Pro Tem Nick Dunlap. “Staff kinda shot us in the foot by including those flawed figures in the revenue to start with.”
After the meeting, a statement was released on Friday stating that “no money was lost, missing, or improperly spent,” and that $2.7 million funds were reclassified to serve specific purposes, and a $2.9 million adjustment “corrected the appropriate account for those funds.”
By the end of the 2025-26 fiscal year, it is predicted that the city’s budget will sit at a $26.3 million total – around $4 million less than last year. Moreover, $16.1 million is part of the contingency reserve, which is the general fund balance, and $10.2 million of allocated funds is unspent balances for specific programs or policies.
This will place the city’s contingency reserve at 12%, only 2% away from the minimum.
The general fund budget amendments were mostly supported by the fire department’s launch of a city-operated ambulance program. The contract change required $1,955,000 in bond proceeds for the purchase of seven ambulances and equipment. The contact savings help support the first debt payment of $181,133 due in May of this year.
The next Ad Hoc Committee meeting will be on March 30 presenting the updated 2025-26 budget and financial position. Throughout early April, a budget community meeting will be held, and a study session either by the end of April or May. The 2026-27 budget will be adopted in June of this year.
“We knew three years ago, four years ago actually, that we would exhaust ARPA funds inside of three years, we all knew that,” said Mayor Fred Jung. “This will require some heavy discussions as we move forward with next year’s budget.”