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The Redwood City Council on Monday received a proposed budget of over $410 million for Fiscal Year 2026-27 that included “doom and gloom,” “reality checks,” and the controversial tapping of its emergency reserves.
Increased expenditures, limited revenue growth, inflation and funding shortfalls, along with ongoing economic uncertainties, have contributed to a cautious budget intended to close a $12.9 million gap to maintain core services and address these fiscal challenges, according to city staff.
“There are asks about using one-time reserves and that makes me nervous,” said Redwood City Manager Patrick Heisinger. “The reason why I say it makes me nervous is it’s something that I will not recommend doing a second year.”
In February, the city projected up to $19.7 million in annual deficits starting in Fiscal Year 2028-29, which was at least $6.3 million more than what was expected in June 2025. To maintain city services, the plan is to use the remaining one-time unassigned fund balance of $8.7 million and about $4 million from its nearly $36 million Section 115 Pension Trust.
“Once it’s gone, it’s gone,” City Finance Director Beth Goldberg said, “so we need to be judicious about how we use that.”
City staff does not want to pull from its General Fund emergency reserve, which Goldberg said is fully funded at just over $30 million. Once the council adopts the budget, the city intends to then “start figuring out” how to close gaps through potential budget reductions, combining revenues and strategically applying reserves.
Several factors are contributing to the budgetary challenges Redwood City faces, including the loss of unassigned funds, which it used to address “long-standing needs” for Fiscal Year 2025-26, Goldberg said. Nonetheless, the city plans to use the rest of this one-time balance.
The Vehicle License Fee backfill saga has also created an unexpected $5.3 million loss in revenue for Redwood City’s 2026-27 budget. The state has provided Redwood City with this funding for years, even though the state is now signaling it will no longer pay.
Sales tax, which largely stems from car sales in Redwood City, has continued to decline since its unsustainable post-COVID stimulus peak in 2022-23. Also hampering revenue is the business license tax measure, BB, which was approved by voters in November. BB has performed slightly below forecast, Goldberg said, which has been a big disappointment.
“This was supposed to be kind of our pathway to Nirvana, or whatever, budget bliss,” Goldberg noted, “but simultaneously, the world is striking out against us.”
In response, the city has turned to one of its consultants, HDL, to ensure this tax payment is enforced, which would bring the city millions, as well as about $380,000 from prior-year delinquent payments.
The loss of federal grant revenue, the sale of commercial properties at lower valuations that will temper property tax revenue, and a number of macro factors all stand to harm the city’s financial health.
Among these markers of economic uncertainty are the state’s potential changes to its pension program that would impose far greater costs on cities. Tech layoffs, the U.S. war on Iran, and new rent control requirements could have immediate impacts on the city’s budget, further exacerbating fiscal challenges, Goldberg said.
The city has looked to residents to inform budgetary priorities for 2026-27, which have centered on quality of life, public safety and infrastructure interests. That said, 65% of the proposed budget would go to the Redwood City police and fire departments.
To address concerns related to issues such as illegal dumping, encampment remnants and parking, the city is interested in introducing a three- to four-person “Neighborhood Response Team.” The team would report to Assistant City Manager Derek Wolfgram and would be deployed immediately to address issues in the field.
The city also intends to invest in comprehensive facility infrastructure and zoning code amendments, while seeking to reduce costs through customer service improvements.
Council member Chris Sturken said that in one year, the city’s mental health crisis response clinician in Redwood City made over 300 contacts. Because of such demand, Sturken would like to see the city bring on another clinician, because the calls are “like almost one a day” and the clinician “doesn’t work 365 days a year.”
He requested that the city start to gather more data to determine whether and when an additional clinician could be needed. Mayor Elmer Martínez Saballos supported the idea of bringing on another crisis response clinician.
Council member Jeff Gee requested that the city begin providing the council with more frequent revenue reports, at least quarterly rather than yearly, to “see where we’re headed.” He also wants the city to find out how policies have made residency less attractive to employers, given the numerous vacant offices.
The council unanimously approved the recommended budget, as-is, to be tabled at its June 22 meeting for a public hearing and potential adoption. Council member Isabella Chu was absent for the vote.
