City staff walked the Fullerton City Council and the public through the Fiscal Year 2026-27 proposed budget on July 14, presenting a $290.4 million all-funds spending plan, a $28.9 million capital program, and three competing scenarios for closing a General Fund deficit that has already been cut from $13.7 million to roughly $3.8 million.

City Manager Eddie Manfro set the tone before the department presentations began. “I personally don’t take any of this lightly,” he told the Council, adding that there was “not a scenario presented before you this evening, including A, that they like, that they would recommend” — referring to his executive team.

City Engineer David Grantham opened with the Capital Improvement Program, proposed at $28,883,342 — lower than recent years, he acknowledged. The largest categories are street rehabilitation at $11,309,000, grant-funded street improvements at $5,098,000, water system work at $6,950,000, sewer at $2,500,000 and traffic systems at $1,101,342. City facilities are budgeted at $875,000, storm drains at $600,000, miscellaneous projects at $400,000 and city parks at just $50,000.

Grantham said the park’s figure is low because the city is waiting for developers to pay park-dwelling fees. “We can’t allocate something we don’t have,” he said. Storm drain systems, he added, are “woefully underfunded,” and the sewer program is drawing $1.5 million out of fund balance to cover large projects.

He also cautioned that the street numbers are “a little deceiving, but in a nice way.” Street rehabilitation typically runs $8 million to $9 million; this year, it reaches $11 million due to roughly $1 million in one-time grant funding and a reallocation of funds that would otherwise have gone to traffic systems. Of the grant-funded street improvements, $4.6 million was approved by Council years ago and is being allocated now for the construction phase.

Planned work includes arterial rehabilitation on State College Boulevard, Harbor Boulevard and Rosecrans Avenue, with design only for Euclid Street and Yorba Linda Boulevard; residential projects in the Cannon-Shepard, Courtney-Ash, Rancho-Verona-Yucca and Yale-Santa Fe-Princeton areas — the last of which is CDBG grant-funded; slurry seal and pavement treatment on various streets; water main replacement, PFAS management and SCADA upgrades; and traffic signal synchronization done in partnership with neighboring cities.

Interim Administrative Services Director Steven Avalos followed with a primer on municipal finance, stressing that the $290.4 million total is not one pool of money. It is divided among legally separate funds:

• The General Fund at $150,462,773 (about 52% of the citywide budget),
• The Water Fund at $45,973,797 in operating costs,
• Special revenue funds at $39,878,224 (14%),
• The CIP at $28.9 million,
• Other enterprise funds at $13,623,759, and
• The Successor Agency at $11,603,925
• Baseline General Fund revenues are projected at $141.4 million, up 3%.
• Property tax, at $66,680,723, is the largest single source and the only one growing meaningfully at 6%.
• Sales tax, the second largest at $31,308,118, is essentially flat.
• Transient occupancy tax is down 1% to $3.4 million, and
• Charges for services are down 7% to $16,505,687
• Baseline expenditures total $150,462,771.
• Police ($70,987,843) and Fire ($40,185,696) together consume roughly 74% of the General Fund.
• Human and leisure services — the Library and Parks & Recreation — total $12,694,048.
• Public Works accounts for $11,570,625 of General Fund spending, a figure Avalos called “slightly misleading,” since the department’s larger footprint sits in the water, sewer and capital funds.

How $13.7 million became $3.8 million

The city opened with $26,288,246 in total General Fund balances per the audited FY 2024-25 financial statements. Subtracting $10,214,077 that is restricted or set aside leaves $16,074,169 available. Since the March forecast, staff closed nearly $10 million of the projected gap.

On the revenue side: $461,557 in one-time restricted downtown parking and general plan update funds repurposed for operations; $1,247,297 in one-time revenues, including roughly $800,000 in unclaimed engineering development bonds and a $400,000 withdrawal from the city’s Section 115 pension trust; and $742,000 in sharpened ongoing revenue estimates.

On the expenditure side: $2,781,968 from unfunding nine vacant full-time-equivalent positions, $1,820,560 in operations and maintenance reductions, and $2,256,971 in reduced allocations to the workers’ compensation and liability internal service funds.

Transfers in rise to $2,373,087, including a $1.5 million one-time payback from the equipment maintenance fund. Transfers out total $5,017,131 — dominated by the $3,978,225 infrastructure fund contribution required by municipal ordinance, plus $500,000 to the CIP for residential streets and $538,906 for IT projects, down from $938,906.

The result: a $3,811,272 net deficit, an ending available fund balance of $12,262,897, and a contingency reserve at 8.5% — below the city’s 10% policy minimum and far below its 17% long-term goal.

Avalos defined the underlying problem as a structural deficit, one that occurs “when the recurring cost of providing municipal services grows faster than the recurring revenues available to support those services.” He pointed to negotiated salary increases — FY 2026-27 is the final year of increases under current labor agreements — rising CalPERS unfunded liability costs, and revenue growth that has not kept pace.

Three scenarios

Manfro framed the remaining choice simply: use reserves to cover the $3.8 million, or cut deeper and leave reserves alone.

Scenario A — Baseline Services and Use of Reserves. $4,602,528 in reductions, nine vacant positions unfunded, and $3,811,272 drawn from reserves. Reserves fall to 8.5% this year, 6.3% in FY 2027-28 and 3.0% by FY 2028-29.

Scenario B — Balanced Budget for FY 2026-27 (Year 1 only). $6,165,500 in reductions and 24 unfunded positions, achieved by adding 15 more vacancies ($1,472,366), a $1.5 million payback from the building maintenance internal service fund, and $838,906 in deferred maintenance and reduced IT capacity. The year ends perfectly balanced at $16,074,169 — 11.1% reserves — but slips to a $925,561 deficit in year two and $3,157,757 in year three, ending at 7.8%.

Scenario C — Balanced Budget FY 2026-27 through FY 2028-29. $6,997,193 in reductions and 32 unfunded positions, with one-time funds spread across three years. Reserves hold at $16,074,169 in all three years — 11.1%, 10.8% and 10.4%.

The Cuts

Manfro explained the three-year horizon: the city is not adopting a three-year budget, but with a deficit of $3.8 million and likely to grow, “three years is about what we would be able to sustain before getting very close to zero.“

Administration ($422,415, identical across all three scenarios): on-site security at City Hall would be discontinued, with Utility Services counter staff redirecting visitors and police responding to disruptive incidents. The Deputy Director of Administrative Services and an Administrative Assistant-Confidential would be held vacant; the HR Director position would be filled at the Deputy Director level.

Community and Economic Development ($148,339 / $432,875 / $771,409): the department processes more than 8,700 permit transactions and 1,200 plan checks a year, carries over 1,000 open code cases and sees roughly 600 customers a month, its director Sunaina told the Council. “Every scenario on this slide cuts into the people managing that workload, not necessarily the workload itself.” Scenario A cuts building professional services 31%, which she said hits the 24-hour inspection policy. Scenario C freezes everything, “slowing the same functions that generate” revenue.

Fire ($666,343, identical in all scenarios): unfunding the Deputy Chief/Fire Marshal at $527,343. Chief Lozier said the position oversees the in-house ambulance program — worth $6 million to $7 million a year — plus a three-year grant funding 12 new firefighters, state emergency reimbursement coordination, fire investigations, and complex plan review. In nearly nine years as chief, he said, he had never been without the position; it has been vacant a month and a half, and he has absorbed the work. “It is a lot.“

Library ($361,060 in A and B; $508,849 in C): overnight security at Hunt Library would be reduced, and the collection budget eliminated — not just adult and teen sections, Anita of the Library clarified, but “children’s and all related collections.” The Library Foundation and Friends have tentatively agreed to sponsor the collection “for an undetermined amount of time.” Scenario C adds a vacant Library Technology Assistant, which she said would bite hardest on evenings and Saturdays when citywide tech support is unavailable.

Parks & Recreation ($907,000 / $1,218,045 / $1,433,589): all three scenarios reduce the Fourth of July to fireworks only ($175,000), eliminate the city’s $325,000 First Night contribution, move the recreation brochure online ($86,000) and reduce security at the Fullerton Community Center ($80,000). Scenario B unfunds four vacant positions; Scenario C adds two recreation coordinators — one earmarked for the reopening of Independence Park gym, one for an upcoming retirement in youth and senior programming. Staff noted $300,000 of the special events budget comes from Republic Services, and the pending trash RFP could reshape the final plan.

Police ($1,588,506 / $2,188,948 / $2,188,948): Chief Reedus said the department is authorized for 131 sworn officers but is effectively operating at 127 because of holds already in place. The scenarios would take it to 127 or 125 on paper. He put Fullerton at 0.8 sworn officers per 1,000 residents, against an Orange County benchmark near 1.15, a California range of 1.8 to 2.2 and a national average of 2.4. Comparing Fullerton to Orange — 143,000 residents versus 139,000, 82,000 calls for service versus 83,000, 6,001 arrests versus 4,146 — he noted Orange fields 165 sworn positions. The cuts could force the Community Services Bureau to collapse, to staff patrol and reduce Investigations and Traffic; the department is already down to two motorcycle officers from a previous 13, plus two supervisors. Reducing specialty assignments, he warned, drives laterals to other agencies and “could have a cascading effect.“

Public Works ($508,865 / $875,814 / $1,005,640): graffiti abatement drops from two trucks to one ($150,000), and a one-time $250,000 reduction to the facility capital repair allocation defers work on more than 30 city facilities. Director Bice said Scenario B “is where we really start to feel the pain” — six of eight positions are field staff in entry-level, high-turnover classifications. Freezing them, he said, is “a hard 6, but like a soft 10.” Residents would see slower landscape maintenance and “honestly more potholes.“

Ann Lane, Director at Grant Thornton, which reviewed the forecast under a change order to an existing engagement, called the assumptions generally reasonable but the margin thin. Labor agreement increases, and PERS costs are properly built in, she said, and focusing reductions on vacant positions avoids grievance risk — though service-level impacts still need monitoring.

She flagged police overtime as a live risk: the forecast carries $1.8 million against a historical average of roughly $2.45 million. Solid waste franchise revenue depends on contract implementation, and fire apparatus debt service rests on preliminary financing terms.

Her chart showed the shortfall against the 10% minimum reserve over four years. Scenario A is below the minimum the entire time, ending at $15.5 million under. Scenario B holds for two years, then falls $3.8 million short in FY 2028-29 and $8.7 million in FY 2029-30. Scenario C stays above the line for three years before dropping $3.67 million under in FY 2029-30. None reached the 17% goal at any point.

Her conclusion was blunt: “There are only so many expenses that can be cut before there starts to be a major negative impact on the citizens of the city. Eventually, there needs to be consideration of revenues.“

Staff also reported to the Fiscal Sustainability Ad Hoc Committee, reconvened in FY 2025-26 to evaluate sales tax ballot measure options. Two members backed a half-cent dedicated add-on sales tax for infrastructure paired with a 5% reduction in the operating budget; two backed a 1-cent general add-on sales tax with the same 5% reduction; and three supported exploring a sale of the city’s water utility system. Generally, staff said, members favored both increasing revenue and reducing expenditures.