South San Francisco deficit for current fiscal year is a fraction of prior estimates

Still, the city anticipates a $5.5 million operating deficit for the upcoming year, though it proposes closing the gap via an unassigned general fund balance, or funds that have accumulated over prior years and are not earmarked for specific services.

"This is not a panic button moment," Finance Director Christie Donnelly said during a recent council meeting. "We do remain strong and in a position to be able to manage the immediate shortfall without cutting services or dipping into our policy reserves … However, this is also not a moment for complacency."

The main financial hit the city is taking is related to a revenue source tied to vehicle license fees, a complicated reimbursement that the state historically provides to Peninsula cities each year, though most jurisdictions have failed to receive the full amounts over the last couple years. That has triggered a lawsuit between the county and state, and as a result, many cities, including South City, are either lowering their projected VLF revenue or removing it from their budget estimates altogether.

In addition to excluding the reimbursement in future fiscal planning, South City’s budget is also not incorporating a $5.2 million reimbursement owed to the city from 2024-25.

“We’re absorbing a hit from Sacramento that we didn’t cause or we didn’t vote for,” Councilmember Eddie Flores said during the meeting. “This is the state's problem landing on our doorstep, and really, we're handling it the best way that we can and we’re handling it responsibly as financial stewards of this city."

Mayor Mark Adiego also echoed the frustration, noting that a billboard along Highway 101, which is meant to depict the city’s VLF predicament, needs to convey a stronger message.

“It does nothing,” Addiego said. “[We need to] show Sacramento lifting dollars out of the South San Francisco treasury, because what’s up there now, nobody even notices it.”

The city also projects that personnel costs, which comprise about three-quarters of the general fund budget, will continue increasing by at least 3.4%. CalPERS liability payments and health insurance premiums are increasing rapidly as well.

The council will review the budget again in June for final adoption.