Redwood City Council approves $410 million budget amid deficits

This upcoming year, the city anticipates less revenue than previous years — which is not “huge on a dollars basis” Finance Director Beth Goldberg said — but external economic factors are giving the city less wiggle room.

“We’re in inflationary times, and costs are increasing and the fact that revenues are tempered is a changing dynamic,” Goldberg said.

Although the voters recently approved an update in the city’s business license tax through Measure BB in 2024, the revenue generated from it is not only slightly less than anticipated, but economic factors have made any increase in revenue generated through this tax almost insignificant, Goldberg said.

“This was supposed to be our pathway to nirvana or budget bliss, but simultaneously the world is striking out against us,” Goldberg said.

Weaker revenue can be attributed to the state’s withholding of in-lieu vehicle licensing fee returns to the county and its cities — which is estimated at $5.3 million for Redwood City alone — and the dwindling down of one-time funds and grants, Goldberg said.

In reference to the VLF refunds, Councilmember Diane Howard said it is pertinent the city continues to lobby at the state level to secure these funds.

“If you don’t become the thorn in their side, we’re going to be treated like [we] can do without $5 million. Well, we can’t,” Howard said.

The city and county’s lobbying in Sacramento to secure the refunds have proven to move the needle. 

Nearly $77 million of VLF funding has been included in a budget proposal from the legislature, last week, which would fund around 65% of what is owed to the county and its cities. Cities will receive approximately 40% of that $77 million, distributed by size. 

However, the included funding must still be signed off by the governor’s office by July 1, and Redwood City is remaining wary of including any new revenue in its Fiscal Year 2026-27 budget. 

“Until the budget is finalized, including any action by the governor, the city is being cautious about making assumptions regarding the final amount or timing of any funding Redwood City may receive,” Jeanne Sullivan, a spokesperson for the city, said in a statement Tuesday. 

The city is continuing to evaluate the potential impacts on the upcoming budget, and will only have true clarity once the final state budget is enacted, Sullivan said. 

Sales tax revenue has also gone down since a peak in 2022, which has been experienced in many other cities and counties as well. However, this revenue is expected, yet again, to increase in the next few years, Goldberg said.

Still, the 10-year forecast isn’t particularly bright in the city, Goldberg said.

Previous fiscal years had deficits but were closed with other funds. The upcoming fiscal year projects a $12.9 million shortfall and will also be closed via other sources, however, staff warned the one-time funds won’t always be available for future years.

While unassigned fund balances can help balance the budget to accommodate those shortfalls, in fiscal year 2026-27, there starts to be a gap that will require the city to dip into its trust money, as well.

In the next nine years following, the projected deficits are far more staggering and will require initiatives and new revenue sources to be addressed, Goldberg said.

“Our work, once we get this budget adopted, is to figure out how we are going to start closing those gaps,” Goldberg said. “This is the work ahead of us.”

Navigating through the tough financial position the city is in will require discipline and restraint, City Manager Patrick Heisinger said.

“As we weather this storm, I think we could show leadership to the community about not chasing every regulation out there, keeping us focused,” Heisinger said.

As the city weighs this balance, Councilmember Chris Sturken also shared his desire for the city to hire another crisis response clinician to support the one person currently holding the role.

“The number of contacts with individuals experiencing a mental health crisis who were referred to a mental health facility for admission was over 300,” Sturken said. “That’s a lot. That’s almost one a day.”

While more than 90% of police officers in Redwood City have completed mental health crisis response training, Sturken emphasized that this is not their primary job and there needs to be more people on the ground able to respond to needs.

The city is maintaining reserves around 15% of the budget, however, the funds are reserved for the most critical and emergent needs.

The budget will return to the dais at the council’s June 22 meeting for public hearing and final adoption.