National City is staring down a projected $16.1 million budget deficit heading into fiscal year 2026-27 — a gap large enough to exhaust the city’s remaining financial cushion and leave it roughly $3 million in the red. How to address and interpret it, however, is a matter of sharp disagreement among city leaders.
The figures were laid out Monday during the city’s first budget review workshop for the upcoming fiscal year, begining July 1, where city staff presented a preliminary $92.5 million general fund budget. The city’s primary spending drivers are police and fire, with personnel costs projected to rise $7.2 million from the prior year — a product of recently negotiated labor agreements, a spike in pension liability payments and a significant increase in general liability insurance premiums.
On the revenue side, the city’s two main sources — sales and property taxes — are growing modestly, at 1.9% and flat, respectively. The city also collects franchise fees, transient occupancy tax, cannabis fees and other revenues, but none large enough to offset the expenditure growth.
The city’s financial buffer — known as the unassigned fund balance, essentially a municipal checking account for undesignated savings — has dropped sharply. It stood at $23.4 million at the end of fiscal year 2025. After absorbing a projected $10.3 million deficit in the current fiscal year, that balance is estimated to fall to $13.1 million by June 30. The preliminary FY2027 budget would consume what remains, leaving the city an additional $3 million short.
While not all council members share the same level of alarm, Mayor Ron Morrison said the trajectory is cause for serious concern.
“You never use one-time money for ongoing expenses except just on an emergency basis only,” Morrison said. “Some drastic changes need to be made.”
Morrison has long argued that the city’s finances have been heading toward this moment, pointing to years of expenditure growth that outpaced revenues and a council, he said, that has been too willing to lean on reserves. He confirmed the city brought employee wages up to median market levels in recent years — a move he supported — but said he flagged it at the time as financially unsustainable.
Councilmember Marcus Bush said the $16.1 million figure should not be taken as a fixed reality, adding the council has not dipped into its reserves and does not expect to.
“That’s not really a real number because that’s status quo — that’s only if we go to the same projected expenditures and enhancements that we are at,” Bush said. “And we’ve already said we’re not doing that.”
Councilmember Jose Rodriguez noted that city policy sets the unassigned fund balance target at 10% of general fund expenditures — roughly $8 million — meaning the projected $13.1 million balance at the end of the current fiscal year still exceeds the policy threshold.
Rodriguez directed attention toward what he called the city’s deeper structural problem: a revenue base that simply has not kept pace with neighboring cities.
“We can’t act like our neighbors and expand our budget,” Rodriguez said, pointing to National City’s landlocked geography, limited hotel stock and lack of a direct revenue mechanism tied to the vehicle import industry operating at the National City Marine Terminal.
Rodriguez is among those pushing for new revenues, including a gross receipts tax on large businesses that he said could generate $6 million to $7 million annually if approved by voters. A ballot measure is being considered for this November. He also cited a recently passed short-term rental ordinance — an extension of the city’s transient occupancy tax — expected to bring in about $1 million per year once implemented.
Morrison struck a skeptical tone on the revenue-through-taxation approach, saying the city’s focus should be on attracting more businesses rather than increasing the burden on those already operating.
“If you try to make it hard for businesses to do business here, they’ll go somewhere else,” Morrison said. “And then those resources go to that community, not our community.”
Rodriguez said they are not ready to cut programs, while Bush was clear “everything has to be on the table” in terms of cuts.
“No cuts have been proposed yet,” Bush said. “But everything’s on the table — I mean, where it makes sense — because there has to be a shared sacrifice.”
Morrison, for his part, said he is focused on what is achievable within the current budget cycle and is organizing potential solutions into three timeframes — immediate, intermediate and long-range — to bring clarity to what can realistically be done and when.
“I think we need to learn what our limits are and how we can even stay within those limits,” he said.
Rodriguez was pointed about the ethical stakes, specifically referencing the city’s nutrition center, which provides meals to seniors and is subsidized by $675,000 in general fund money annually.
“I feel morally torn when we would be not asking these businesses to pay their fair share that operate in our city and make millions of dollars on a regular basis, and at the same time cutting the most essential programs we have in our community,” Rodriguez said.
The city is required by law to adopt a balanced budget by June 30.