DAVIS, CA – Interim City Manager Kelly Stachowicz will present the City of Davis’ proposed biennial budget to the Davis City Council for fiscal years 2025/26 and 2026/27, setting the stage for what she describes as a “bittersweet” financial roadmap.
The budget, totaling $246.3 million in the first year and $253.2 million in the second for all city funds, comes at a pivotal time as the city attempts to maintain service levels amid rising costs, sluggish development, and lingering economic uncertainty.
In her transmittal letter to the City Council, Stachowicz struck a balance between appreciation and caution. Voters’ approval of Measure Q—a one-cent sales tax increase passed in November 2024—is projected to generate approximately $11 million annually, providing a critical cushion for the city’s General Fund.
This new revenue stream, she said, has helped Davis avoid the service cuts and deficits facing many neighboring jurisdictions.
“Measure Q is playing a critical role in keeping the City financially stable,” she wrote. “The community’s support is directly contributing to the City’s ability to meet its obligations and plan responsibly for the future.”
However, the letter also outlines serious fiscal headwinds.
The city’s expenditures are being driven up by inflationary pressures—particularly in construction and insurance costs—as well as delays in anticipated revenue from major development projects that have not yet broken ground.
“Measure Q is playing a critical role in keeping the City financially stable.” – Kelly Stachowicz
Federal relief funds used during the pandemic have been exhausted, leaving the city to absorb costs previously covered by stimulus.
One of the budget’s key challenges is the disconnect between projected and actual development activity.
Several projects approved in recent years have yet to move forward, leading to shortfalls in expected impact fees and other development-related revenues.
Compounding the issue, construction costs have soared, making it difficult for the city to fully fund capital projects despite long-term savings.
“While the City has saved for capital projects that require multiple years of funding, the overall cost of projects has increased dramatically and several projects continue to face funding shortages,” the letter notes.
The uncertainty is compounded by potential federal tariffs and continued volatility in key revenue streams like cannabis taxes.
Despite these obstacles, the city aims to preserve existing service levels, support a skilled municipal workforce, and strategically invest in Council priorities.
Personnel costs remain the largest portion of the General Fund budget, with salaries and benefits accounting for approximately 67% of expenditures in FY 2025/26 and rising to 69% the following year. Labor agreements with eight bargaining units, mostly settled through 2028, include 2-4% cost-of-living adjustments, providing budgetary predictability.
The city also plans to add two new General Fund positions: a police officer to bolster downtown presence and an aquatics maintenance technician to support facilities including the new Central Park splash pad. Two limited-term accountants and three enterprise-funded positions are also included to address operational gaps.
At the same time, many staff requests went unfunded. Departments had asked for the equivalent of 22 new full-time positions, including fire inspectors, economic development staff, and maintenance workers. These were deferred in light of budget constraints, underscoring the city’s commitment to fiscal restraint.
The General Fund budget is set at $96.9 million for FY 2025/26 and $98.2 million for FY 2026/27, with revenues conservatively estimated at $93.8 million and $95.4 million, respectively. This includes an anticipated boost from Measure Q and modest growth in property and transient occupancy taxes.
Key property tax gains are expected from developments such as Plaza 2555, Greenhaus, and Bretton Woods.
Still, the city has pegged its reserve target at a cautious 10%—approximately $10 million annually—despite a stated long-term goal of reaching 15%.
“Additional work will need to be undertaken over the next fiscal year to determine whether the City is able to generate new sources of revenue, needs to reduce expenditures, or should engage in a combination of both,” Stachowicz wrote.
In light of funding uncertainties, the city is pursuing a restrained capital improvement strategy. General Fund capital spending focuses primarily on pavement maintenance to leverage SB1 state funding. Other funded projects include stormwater improvements, fire station upgrades, the completion of Community Park restrooms and skate park, and infrastructure work at Well 30 and the 8th Street Water Tower.
Several major initiatives are on hold due to unresolved funding gaps. These include the I-80/Richards Boulevard interchange (with a $6.5 million shortfall) and the Amtrak ADA improvements and Olive Drive Access project, which still needs $5 million. Playground replacements, streetlight upgrades, and the continuation of the Downtown Streets Team program are also unfunded.
The transmittal letter also highlighted a number of accomplishments from FY 2024/25: completion of 28 capital projects over two years, hiring of a new police leadership team, renewed labor agreements, and reinvigoration of the city’s economic development program. New outdoor community spaces, such as the G Street activation area and Natalie Corona Splashpad, were completed with grant support.
Looking ahead, the city will continue using a long-range financial forecasting model developed by Baker Tilly to inform future decision-making. The 20-year tool provides scenario analysis for pension costs, infrastructure liabilities, and potential revenue changes.
“This budget positions the City to adapt to changing conditions and invest in the future with a focus on stability, service and community resilience,” Stachowicz concluded.
While acknowledging the difficult trade-offs involved, she expressed confidence in Davis’ ability to navigate a turbulent fiscal landscape.
A budget workshop is scheduled for May 27, with additional reviews to follow in the coming weeks.
There are two glaring omissions from this report.
(1) No mention of roads and bikeways maintenance. I am sure that Dan Carson and Elaine Roberts Musser will be weighing in on this glaring omission. Our City streets continue to crumble under us.
(2) No mention of the fact that the 2021-2022 Audited Financial Statement is now more than two years overdue, the 2022-2023 Audited Financial Statement is now more than one year overdue, and the 2023-2024 Audited Financial Statement is more than 4 months overdue. The City is out of compliance with both State and Federal laws with all three of those Financial Statements.
In personal communication initiated by me, the City has indicated, “ At this point, I am hesitant to give you an estimated completion date,” and then went on to say, “I have asked staff to provide you with additional information, including an anticipated release date and confirmation that the audit will include an unqualified, or “clean” opinion.” That was more than 45 days ago and I have yet to receive that additional information from staff.
” . . . is projected to generate approximately $11 million annually, providing a critical cushion for the city’s General Fund.”
And was already overspent before it was even born.
“This new revenue stream . . . has helped Davis avoid the service cuts and deficits facing many neighboring jurisdictions.”
And kept alive the idea that Davis CAN afford to build and subsidize endless housing for anyone who wants to live here.
“The city’s expenditures are being driven up by inflationary pressures—”
Thanks Joe, for that massive regressive tax :-|
“particularly in construction and insurance costs—”
Just those that will bankrupt us and every other city.
“as well as delays in anticipated revenue from major development projects that have not yet broken ground.”
Maybe stop anticipating them then.
“Measure Q is playing a critical role in keeping the City financially stable.”
Vote no on Measure Q: Keeping hope alive that we can subsidize developments and rents so everyone CAN live here.
“Federal relief funds used during the pandemic have been exhausted”
And were used on some really stupid S.
“leaving the city to absorb costs previously covered by stimulus.”
How about not every relying on ‘stimulus’ to feed the budget? And by the way, the ‘stimulus’ (a drug by any other name) is what caused the inflation which is destroying the budget. But who believes in economics anymore . . . :-|
“One of the budget’s key challenges is the disconnect between projected and actual development activity.”
Also not helped by inflation, the regressive tax that kills. But at least we got free ‘stimulus’ money for a few years!
“[unfunded projects include] the I-80/Richards Boulevard interchange (with a $6.5 million shortfall) and the Amtrak ADA improvements and Olive Drive Access project, which still needs $5 million.”
Well that all sucks. How about we subsidize rents and ‘affordable’ housing and make sure these transportation projects are NEVER built? I think we CAN, I think we CAN, I think we CAN !!!
“streetlight upgrades”
Streetlight upgrades? What upgrades? We just replaced every streetlight in the city not many years ago, half of them twice due to the white-light debacle. What upgrades?
Alan says: “And was already overspent before it was even born.”
It’s similar to building additional freeway lanes – results in “induced demand”.