National City’s City Council this week adopted a $89.1 million general fund budget for fiscal year 2026-27, approving a spending plan that still carries a $12.7 million deficit — but one significantly reduced from where the city stood just weeks ago.
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The adopted budget reflects roughly $3.5 million in reductions from the preliminary spending plan presented May 4, when staff projected a $16.1 million deficit large enough to exhaust the city’s unassigned fund balance and leave it an additional $3 million short. The city’s unassigned fund balance, the most liquid and accessible of the city’s overall reserve balance, stood at $23.4 million at the end of fiscal year 2025. It has since fallen to an estimated $13.1 million and is projected to sit at approximately $500,000 by June 30, 2027.
What that figure means for the city’s fiscal health, however, was a point of disagreement on the council. Mayor Ron Morrison viewed the near-depletion of the unassigned balance as a serious warning sign, while Councilmember Jose Rodriguez argued it represents just one account within a much larger reserve structure.
Morrison said the near-depletion of the unassigned fund balance is cause for alarm — and warned that the city’s spending problem will follow it into next year. He noted the $12.7 million shortfall carries over, with an additional roughly $2 million in pension payments due on top of that.
“Absolutely,” Morrison said when asked if the reserve outlook is concerning, but described the adopted budget as a legal requirement rather than a finished product. “This is just what we’re turning into the state and we’ll be back at it in August.”
Rodriguez, who championed final passage, offered a different read on the city’s fiscal position. He pointed to a city investment report presented at the same meeting showing the city’s combined reserves — spread across various accounts, much of which is restricted or designated for specific purposes — at approximately $98 million as of last December, arguing the unassigned fund balance is just one piece of that larger picture.
“We can’t tell people we’re broke when we have a hundred million in the bank,” Rodriguez said. He also contended the $12.7 million deficit overstates the real structural gap, arguing vacant positions and understated investment earnings could reduce the actual annual shortfall to somewhere between $5 million and $7 million. “It comes from a scarcity mindset, that we’re running out of something we’re really not. And telling people that creates an undue sense of panic.”
Acting City Manager Stephen Manganiello credited staff with the deficit turnaround, calling the reductions a strong first step while acknowledging more difficult decisions lie ahead.
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“If we are going to get the city on a path to fiscal sustainability, we’re all going to have to work together with the staff, with the council, with the community to make some difficult decisions over the next six to 12 months,” Manganiello said.
The budget’s largest drivers remain police and fire, with personnel costs rising $7.2 million from the prior year due to recently negotiated labor agreements, increased pension liability payments and higher general liability insurance premiums. Revenue growth has been modest — sales tax up 1.9%, property tax flat.
An amendment to the city’s nutrition center budget, which preserves the program’s daily meal cap at 250 rather than reducing it to 200 as per staff recommendation, sparked the meeting’s sharpest exchanges. Rodriguez argued the $235,000 difference was a matter of priorities.
“$235,000 will not make or break us,” Rodriguez said. “The purpose of the county program is to provide food for needy individuals in our community.”.
Morrison pushed back, making a substitute motion to adopt the budget as presented by staff and revisit the item in August. That motion failed 3-2 — with Morrison and Councilmember Luz Molina casting dissenting votes — before the council returned to the original motion. It passed 4-1 as Morrison cast the lone dissenting vote.
“It’s always easy to say it’s just $235,000 when it’s somebody else’s money,” Morrison said. “It’s not ours.”
With the budget now adopted, Manganiello said staff will convene a series of strategic planning workshops beginning in August, focused on priority-based budgeting and continued pursuit of revenue initiatives including business license tax reform, a short-term rental ordinance and digital billboard expansion.
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