The Sacramento City Council Tuesday approved a $1.7 billion fiscal plan Tuesday night to bridge a $66 million structural gap.
City officials attribute the structural deficit to ongoing escalating costs combined with revenues that have not kept pace.
After closing the projected deficit in the upcoming fiscal year, California's capital and sixth-most-populous city estimates it will face a $34.5 million deficit in the next fiscal year.
The contentious budget resolution, which drew vocal demonstrations that briefly halted the session, reinstated funding for municipal swimming pools and youth-focused violence prevention. It passed on a 7-2 vote.
While the city maintained funding for vacant law enforcement roles, it moved to eliminate several unoccupied positions within parking enforcement.
Councilmembers Mai Vang and Lisa Kaplan voted against the budget. Vang said she could not support the plan because it did not go far enough in reducing vacant police department positions.
The budget comes after weeks of council meetings and debate over how to address the city's shortfall.
"This budget contains a lot of difficult decisions and trade-offs, but advances council priorities to preserve its core services," City Finance Director Pete Coletto told the council.
"This was a difficult budget," Coletto said. "We closed a large budget gap. The council had to make a lot of difficult decisions. But we made real progress in addressing our structural deficit."
"Last year, we picked the low-hanging fruit by sweeping reserves and vacant positions," Mayor Kevin McCarty said in a statement. "Unfortunately, while deeper cuts were made with this budget, we built a stronger foundation for future budgets and protected what is most important for the City of Sacramento: our employees and core city services."
The original budget proposal included pay cuts for some city workers and the elimination of 46 unfilled positions, and another 100 vacant jobs.
City leaders are attempting to address the deficit by freezing vacant positions, shifting funds and reducing expenses.
Like many cities, Sacramento's costs for goods, services and labor have surged due to inflation.
The city also has spent heavily on programs to combat homelessness, an area that generally falls under the fiscal purview of county government in California, leading to massive ongoing financial commitments.
Shrinking federal and state funding for housing and homelessness has also taken its toll.
While property tax revenues are up, sales tax collections have fallen slightly and remain flat.
In addition to the structural deficit, the city must address its long-term liabilities to ensure its fiscal stability, according to
"The updated five-year Capital Improvement Plan identifies approximately $2.0 billion of unfunded capital projects and deferred maintenance costs on city-owned properties that, if not addressed, will increase dramatically as buildings and infrastructure continue to age," the document said.
The city is also grappling with ongoing pension liabilities that burden the general fund.
"The city's unfunded pension liability is approximately $1.5 billion as of the most recent California Public Employees' Retirement System (CalPERS) Actuarial Valuation report," the budget document said.
The budget included a
Sacramento maintains strong overall bond ratings.
Fitch Ratings assigns its issuer default rating of AA-plus with a stable outlook. Various revenue and lease bonds issued by the city, including the Golden 1 Center basketball arena lease revenue bonds,
S&P affirmed its AA-plus issuer default rating with a stable outlook in July 2025. Moody's affirmed its Aa2 rating with a stable outlook in August 2025.
"The rating reflects our view of Sacramento's strong economy, robust management profile, and stable financial performance," S&P analysts wrote in the report. "Although the city's finances have been stable over the past decade, it forecasts material deficits in the next few years, which could alter our view of the city's financial profile."
S&P did add the caveat that "although the city's finances have been stable over the past decade, it forecasts material deficits in the next few years, which could alter our view of the city's financial profile."
The city has posted balanced or positive operations for the past decade, S&P analysts wrote. Those results were driven by consistent growth in its main revenue sources, including property tax collections, which are 34% of revenues and sales tax collections, which are 17% of revenues. Though the city expected balanced results for 2025, according to S&P, it had forecast material deficits in each of the next four years, which could result in a notably "diminished reserve" position.
"The anticipated deficits are primarily caused by increases in salary and general government expenses, and expanded workforce and services, and the reduction in one-time funds related to the pandemic," S&P analysts wrote.
"Despite these various budgetary pressures, we believe the city is well-positioned to address any financial hurdles in the next few years, supported by its strong track record of positive operations, willingness to make budgetary adjustments, conservative budgeting practices and its charter, which mandates balanced budgets," S&P analysts wrote.
Fitch said its AA-plus issuer default rating is supported by "continued population growth, the city's large size, diverse economy and above-average education retainment levels. The city's unemployment rate consistently tracks above the national rate, and income levels are slightly below Fitch's portfolio median (when adjusted for price parity), resulting in a midrange demographic level assessment, Fitch analysts wrote in the report.
The city's long-term liability burden is weak given its high debt and net pension liabilities when compared with both resident personal income and total revenues, Fitch analysts wrote in the report. "Fixed costs associated with debt service and adjusted for benefits contributions accounted for about 19% of total governmental expenditures in fiscal 2024, which is on the higher range in Fitch's portfolio," according to the rating agency.
The city had about $1.2 billion in outstanding debt, consisting of $472 million lease revenue bonds, $195 million senior lien transient occupancy tax bonds, $61 million subordinate lien TOT bonds and $454 million in business activities debt, primarily water and wastewater revenue bonds in August 2025, according to Moody's. The city sold $57.6 million in lease revenue bonds in August.
