DAVIS, Calif. — The Davis City Council is poised to adopt a $500 million two-year budget on Tuesday, June 17, finalizing allocations for fiscal years 2025–26 and 2026–27 across all city departments and funds.
The staff report accompanying the proposed budget outlines a number of short-term service expansions and operational investments—but also delivers a stark warning about the city’s long-term fiscal trajectory, calling for major reforms to close a growing structural deficit.
Prepared by City Manager Kelly Stachowicz and Finance Director Elena Adair, the report notes that the city’s General Fund—responsible for core services such as police, fire, parks, transportation, and planning—will account for approximately $98 million in expenditures annually. The overall city budget totals $250.6 million in 2025–26 and $252.8 million in 2026–27, including all enterprise, special revenue, capital, and internal service funds.
While the budget technically balances on paper, city staff warn that reserves are being drawn down, and without new revenue or cost reductions, Davis is on track for a prolonged period of fiscal imbalance.
“With the proposed budget, it is projected that the City will maintain an available fund balance in its General Fund of approximately $11.2 million or 11.5% as of June 30, 2026 and $10.9 million or 11.1% of General Fund total expenditures for the following fiscal year,” the report notes. “Even with these changes, the General Fund available reserve does not meet the City Council policy of 15% of total expenditures and does not address the structural deficit.”
A special budget workshop held on May 27 featured a presentation from fiscal consultant Bob Leland of Baker Tilly, who unveiled a 20-year forecast model based on the city’s most recent revenue and spending data. That forecast reveals a persistent shortfall in the General Fund through at least 2035, with expenditures exceeding revenues year after year. Under current conditions, the city is not expected to meet its 15% reserve policy until 2040.
“The forecast showed that, under the current trajectory, Davis will spend more from its General Fund than it is receiving in revenue through 2035,” the report states. “As this is not an acceptable situation, the recommendation is to spend time over the next year to restructure the FY2026/27 budget and achieve up to $3 million in savings (or in additional revenues, or a combination).”
The proposed budget includes some new investments, including the addition of a downtown police officer, an aquatics maintenance technician, and General Fund allocations for homelessness services and urban forestry. Staff also proposed additional funds to cover increasing costs in parks irrigation and tree maintenance.
Notably, the city plans to spend approximately $10.2 million on pavement maintenance in FY 2025–26. This includes a mix of funding from the General Fund, the state Road Maintenance and Rehabilitation Account (SB 1), and federal grants. However, only $3.28 million of that total comes from the General Fund, the same level as in prior years. In FY 2026–27, the General Fund contribution to pavement maintenance falls further to $1.09 million.
By contrast, the city estimates that $14 million per year is needed to stabilize road and bike path conditions. Without that level of investment, pavement conditions are expected to deteriorate further, increasing long-term costs.
In discussing road infrastructure, the report acknowledges the limitations of the current budget: “The General Fund does not have adequate flexibility to meaningfully increase pavement investment at this time. Staff recommend that the Council revisit this issue as part of broader fiscal policy discussions over the next year.”
The capital improvement plan confirms the shortfall. The FY 2025–26 allocation for the “Annual Pavement Maintenance” project is $5.99 million, with most funding sourced from SB 1 and other external funds. In FY 2026–27, that amount drops to $3.8 million, again primarily funded through outside sources.
Despite these constraints, the Council in early June approved new labor agreements that include employee compensation increases, which some observers say further limits the city’s fiscal flexibility.
Staff are also confronting operational challenges in the Finance Department itself. Due to staffing shortages and turnover, the city remains behind on completing its annual financial statements—known as the Annual Comprehensive Financial Reports (ACFRs)—which are required for transparency and access to federal grants. The budget includes funding for two limited-term accountant positions to help catch up on outstanding audits, including for FY 2022 through FY 2024.
To address the long-term fiscal outlook, city staff propose launching a deeper review of both revenues and expenditures over the next 12 months. “City Council directed staff to return in the next six months with further large policy discussions,” the report states. “In addition, City Council committed to work with staff in the next 12 months to right-size the General Fund spending and review revenue performance starting with FY2026/27.”
The city is also expected to bring forward policy discussions later this year on the urban forestry program, homelessness services, and unfunded liabilities, each of which could have significant budgetary implications.
Though staff are recommending budget adoption, they emphasize that it is not the final word on the city’s financial future.
“This is a working plan,” the report concludes. “Additional work will need to take place over the next year to align expenditures and revenues in FY2026/27 and beyond.”
Still, the budget has drawn criticism from some residents.
In a public op-ed, former Councilmember Dan Carson and longtime civic volunteer Elaine Roberts Musser criticized the City Council for what they characterize as a misuse of Measure Q funds—revenues generated by a voter-approved sales tax increase. The Measure Q ballot statement promised investments in pothole repair and bike path maintenance, but critics say those funds have instead been absorbed by rising employee compensation.
“This is a bait and switch,” Musser wrote. “Voters were told this money would fix our roads and make our city safer for bicyclists. Instead, the infrastructure is getting worse, and we’re headed toward insolvency.”
Carson noted that the city’s own forecast shows it will be nearly $5 million short of maintaining its reserve target next year, even after spending down all available Measure Q revenue.
