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Mayor McCarty Memo

2025-2026 Budget

Mayor McCarty Memo

2025-2026 Budget

Sacramento’s 2025-2026 Budget goes into effect today, July 1. This budget was a hard-fought collaborative win, protecting our core services – parks, youth, police, and fire – with no layoffs and overcoming a $62.2M deficit.

Unlike the budget crisis during the Great Recession, this deficit was caused not by poor economic conditions but by a structural deficit. During the Great Recession, Sacramento faced double-digit unemployment, massive foreclosures, and major drops in property taxes. But right now, we’re not in a recession; our revenue has not decreased. So, why are we in a budget deficit?

In short, the City regularly spends more than it generates in revenue. In previous budgets, City Council approved expenditures exceeding forecasted revenues. The current City Council has inherited this imbalance. The City, unlike the federal government, cannot take on debt or print new money; we must truly and honestly balance our budget and set ourselves up to move forward within our means.

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This year’s deficit was compounded by a Feb. 24 announcement that the State would sharply reduce our homelessness funding by $10.9M. Although the $62.2M deficit accounted for some loss in funding, it had not anticipated the full extent. Despite this, we successfully passed a budget that protects our homelessness response and core services – parks, youth, police, and fire, without layoffs. How did we accomplish this?

The City Council took action to lower the budget deficit by $23.5M by approving the use of prior savings from last year. These savings came from higher-than-expected major tax revenues (mainly property tax), departmental budget savings, and the recovery of unrealized investment losses caused by Federal Reserve rate hikes. These initial cost-saving measures decreased the deficit to $44.1M. But these savings alone were not enough to close the deficit or prevent deficits in future years.

City departments were instructed to propose budget strategies that reduced the funding they would need from the General Fund by 15%. The menu of strategies, which included eliminating vacant and filled positions, was presented to the Mayor and Councilmembers. All pathways to a balanced budget came with their own challenges and sacrifices.

Over the course of two meetings, the City Council discussed the proposed budget and strategies. The final $1.67B budget was a major success, protecting filled positions, youth programs, and core services. Instead of layoffs or service cuts, City Council shifted 22.7 full-time equivalent (FTE) positions out of the general fund, funding them instead through specialized pools of money aligned with the job function, and eliminated 62.6 vacant FTE positions.

In this budget, we not only protected but doubled the funding Sacramento puts toward youth by leveraging Measure L, the Sacramento Children’s Fund. Through Measure L, we allocated $17.9M to 24 organizations across all 8 Council Districts. The competitive, open, and transparent process prioritized demonstrated experience and success, cultural humility and lived experience, grassroots organizations, and fund goals:

Prevent and reduce child and youth homelessness
Support the mental and emotional health of children and youth
Prevent youth violence
Prevent and reduce youth substance abuse
Support the healthy development of children ages 0 to 5

Additionally, we preserved funding to address homelessness. The Department of Community Response renegotiated contracts and prioritized resources, freeing up funding for micro-communities, a cost-effective homelessness solution focused on those most vulnerable.

This year’s budget win is only a first step. Next year, we face a $60M deficit. To balance our budget long-term, we must grow our economy to increase revenue.

Through public-private partnerships and adaptive reuse projects like the Railyards, we are bolstering our economy. And, with our Streamline Sacramento initiative, we’re making it easier and more efficient to build housing and start and run businesses.

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