San Diego on track to erase deficit in next fiscal year, but billion-dollar infrastructure backlog still looms large

The city of San Diego will head into the next fiscal year with a balanced budget and no need for the type of additional cuts in services and programs that have led to protracted budget battles in recent years, officials said Friday.

The five-year financial outlook released by San Diego’s Finance Department, predicts that the city will have erased a years-long structural deficit thanks to decisions made at City Hall.

“In plain terms: The money the city expects to take in next year covers what we expect to spend,” said the city’s Chief Financial Officer Rolando Charvel. “Because of this administration’s fiscal discipline and tough decisions, the city will not have to start its budget process by deciding which services to cut, unlike each of the last several years.”

In this year’s budget cycle, for example, some library and recreation center hours and positions in the San Diego Fire-Rescue Department were cut in order to balance the budget. In Fiscal Year 2025, San Diego faced a $136.8 million deficit, which ballooned to a $258 million deficit in FY26, then fell to an $88.8 million deficit in the current fiscal year.

‘We fixed it’

The financial outlook projects the city’s general fund revenues will cover operating expenses without relying on one-time funding.

“Every fall, the city looks five years down the road and asks a simple question: Will the money coming in cover expenses? For years, the forecast has opened with a gap. This one does not,” Gloria said. “We made a lot of hard choices and asked a lot of our employees and of San Diegans. Today, I can tell San Diegans that those decisions worked. We did not paper over this problem or push it to the next administration. We fixed it.”

The mayor releases his proposed budget for the city in April, when it will be taken up by the city council. A final, balanced budget is due at the end of June.

The report released Friday came in a week that opponents announced a recall effort against Gloria, who has faced various challenges since his 2024 re-election, including widespread community dismay over proposed budget cuts, while being stymied in some attempts to raise more revenue for the city.

He has repeatedly pointed to the need for the city to make “responsible choices” regarding the budget. The five-year outlook offers details of what that includes – $180 million saved from position cuts, and $143 million generated annually from fees and taxes.

The latter figure is comprised of $80 million through a new trash fee and around $63 million from the Measure C hotel tax.

‘Not finished’

However, the news does not mean the city now has a surplus, Gloria said.

“Balanced does not means finished,” he said. “We still have more infrastructure needs than resources to pay for them, and I won’t pretend otherwise. But there is an enormous difference between facing that challenge from a stable foundation rather than where every conversation starts with what we have to cut.”

And the city has copious capital needs – valued in the billions, not millions.

According to a report by the city’s Independent Budget Analyst, San Diego has a projected $12.8 billion in such needs over the next five years, with only $5 billion expected to be available.

This is dominated by stormwater upgrades and construction, which make up 65% of the total funding gap.

“But here’s the truth,” said Bethany Bezak, the city’s new chief operating officer, “San Diego is still facing significant infrastructure needs that extend beyond what is incorporated into this outlook. With a nearly $8 billion need to repair city infrastructure, there’s no belt tightening that we can use to close the gap, and we need a sustainable, dedicated source of funding.”

A finance department release, noted, though that “financing projects with long useful lives allows the city to spread those costs over time.”

Tessa Balc contributed to this report.