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Redwood City remains in good financial shape for now, but faces structural deficits over the foreseeable future.
At its June 23 regular meeting, the City Council approved a balanced budget for the 2025-26 fiscal year. The spending plan includes general-fund revenues totaling $206.9 million against expenditures of $201 million.
“With some significant economic uncertainty and the changes at a federal level having unpredictable impacts for us locally, we have employed several strategies to develop this year’s budget,” City Manager Melissa Stevenson Diaz said during the meeting.
“First, we’ve spent the last year really strengthening our forecasting capabilities and looking for opportunities to free up funds that we can use for one-time investments,” Stevenson Diaz said. “We’ve also taken a hard look at our revenue forecasts and developed a more realistic forecast to better align with our past trends.”
She noted that the general fund is a large part of the city’s budget.
“This is our main source of funding for paying for core services such as public safety, libraries, parks, recreation and community services,” she said.
The budget maintains the city’s normal 15% reserve. But on top of that, the city has established a so-called economic stability reserve to help guard against future financial volatility.
“This will be helpful so that we can not only have a little buffer (or) extra buffer with the economic uncertainty but also have some resources in case things do not play out with the state budget in the way that we currently expect,” Stevenson Diaz said.
City staff had recommended that the economic stability reserve be set at $5 million, but the council asked that $2 million of that be redirected toward road repaving and management efforts.
Among the key budget priorities that the city has identified are fixing potholes and repairing streets and sidewalks, reducing flooding and water pollution, maintaining workforce levels in public safety, and supporting programs aimed at housing and homelessness.
“I’m very proud that this is a really people-centered budget,” Mayor Elmer Martínez Saballos said before he and his council colleagues unanimously voted for the plan, “and it’s really focused on the services that we’re providing our community members.”
Council members cited last year’s voter approval of Measure BB – revamping an outdated business license tax – as a significant boost to the city’s economic health. Updating the tax was projected to bring an estimated $7 million annually to the city’s general fund.
“What this money is going to enable us to do is bring staffing up to levels where we can start taking care of a lot of business in Redwood City that hasn’t been done for some time – keeping up on infrastructure and certainly in public safety,” Council member Diane Howard said.
Besides the business license tax, the city said, improved projections on other revenues and the use of the pension trust to offset peak pension obligations have contributed to expected balanced budgets over the next four fiscal years.
However, annual operating deficits could start appearing in 2029-30. That year could show a deficit of nearly $6 million, followed by $12.7 million in 2030-31 and $13 million in 2031-32, according to the city.
If those forecasts bear out, Stevenson Diaz said, “we would need to make adjustments either on expenditures or on revenues.”
But the city “can’t actually have multiple years of deficits,” she said. “Unlike any other levels of government, we do have to present a balanced budget each year. So we would not actually ever be in a position where you would see multiple years of deficits.”
Another fiscal challenge that’s even more immediate stems from the Capital Improvement Program, which identifies city facility needs. Over the next five budget years, the city said, that program is bracing for a shortfall of approximately $243 million.
“We do plan to work with the City Council’s Finance and Audit Subcommittee over the next year to help us develop strategies to increase funding for these longstanding capital needs,” Stevenson Diaz said.
