The city of Vallejo’s budget, explained

VALLEJO – Vallejo city officials are getting ready to shape the city budget for the coming fiscal year, which will determine how the city provides its many services and programs to residents.

Earlier this year, the city projected a $28.5 million deficit for the upcoming fiscal year. City spokesperson Robert Briseño explained that the city estimated the deficit by applying a 3% cost escalation, anticipated new expenses, and the full time employee count to the current-year spending.

According to the proposed budget for the upcoming year that was published on May 15, Vallejo is looking at $326.8 million in total revenue and $337.5 million in total expenditures, a $10.7 million deficit. Briseño noted that an updated proposal will be published on June 9 and that these projections could change.  

Much of the next few weeks will be focused on how the city can find savings to balance the funds available for the coming year without cutting the services that are the highest priority.

A lot of these numbers and estimates will get revised this month, so here’s what to understand about the city budget as these talks begin.

Who suggests budget priorities for the city? 

The city’s charter, established in 1911, states that it’s the city manager’s job to recommend policy, program, and budget priorities to the City Council. The council then develops legislation and policies based on those recommendations.  

The city manager’s office and the finance department work together to oversee the process. This year, former Stockton City Manager Harry Black is serving as Vallejo’s interim city manager and will lead the process along with Assistant City Manager Nalungo Conley.

How is the budget decided? 

To create a new budget, typically Vallejo would use a “status quo” approach, where the finance department would look at past years and make incremental changes based on projected revenue and expenses.

City staff would include any mid-year adjustments approved by the City Council, and reduce it for any one-time revenues and expenditures. Other city departments would provide their baseline budgets and instructions and request changes. City staff would then tally everything up and publish a proposed budget. 

Because of the deficit, city staff have already directed all departments to reduce services and supplies by 20%, reduce the number of full-time city employees, and adjust how they fund retiree health benefits and pensions.

City staff say that these cuts need to be made because they expect revenue to be the same or decline compared to last year, due to several factors that include inflation, the war in Iran, and severe reductions in federal funding and grants that are impacting all local municipalities. 

The revised budget is typically brought back in June. At times, adjustments are required for a final revision, which the City Council has to approve. 

Briseño said that this year, the council will consider three options with different numbers of full-time employees. He did not provide responses to questions about what the suggested total number of city employees could look like in each scenario, and in which departments the city may make cuts.

Where does the city get its revenue? 

The city has a number of revenue streams that feed into the general fund, which is the city’s general operating budget. 

The general fund makes up 46% of the city’s total budget and covers everything that doesn’t fall under various special funds, which have restricted purposes, and enterprise funds, which are separate municipal accounts which fund certain city services entirely through user fees and charges, rather than using general tax dollars. 

Last year, revenue for the general fund was $132,792,597. The projected revenue for this fiscal year is $132,772,545. 

There are several kinds of revenue that make up the general fund: sales tax, property tax, utility users tax, and other special taxes. These taxes make up 84% of the general fund; the remainder comes from program revenue, which are funds generated by the police, fire, and public works departments and reinvested back into each individual department. 

Here’s what to understand about each of these taxes.

Sales Tax

This is the largest revenue source for the general fund as a result of Measure P, which was passed in 2022 and added a 0.875% sales tax, making the city’s current tax rate 9.25%. Measure P was added on top of two older tax increases, Measures B and V. Most of the sales tax rate – 7.25% – goes to the state and not the local government.

Sales tax revenue can vary a lot depending on the economy. For the upcoming year, the City Council is anticipating a 1.5% decrease compared to last fiscal year due to inflation, consumers spending less, and global economic uncertainty.

With Measures B, V, and P included, city staff predict this revenue stream will bring in $57 million. Without Measure P, the amount would be $38 million.

Councilmembers have in the past criticized the city’s over-reliance on Measure P funds, noting that the city has to make more sustainable structural changes rather than rely on an additional sales tax. Measure P funds are only intended for specific projects, like road maintenance, crime prevention, fire protection, and homelessness. 

Property Tax

This is the second largest source of revenue for the general fund and is an annual fee levied by local governments on the value of a property. In California, the base tax rate is 1% of the assessed value of the property. That tax is collected by the county. The city then receives about 19% of that 1% for every property located within the city’s limits.

Staff predict this will increase by 5% this year, bringing in nearly $43 million. 

Utility Users Tax

This is the third largest source of revenue and is paid by residents. The city imposes a 7.3% tax on all telecommunications and video services. It also charges a 7.5% tax for electricity and natural gas delivered to customers. These taxes are collected by the utility service provider and transferred to the city. 

According to a KQED analysis, customers’ PG&E bills in California have increased by 67% since 2020. But staff predict this revenue will decrease next year to around $15 million as customers cut back on online streaming and cooling/heating to save money. 

Franchise Tax

While the utility users tax is paid by the consumers, the franchise tax is paid by the utility companies. This is a tax on cable, TV, electricity, gas, and garbage services, and can change if more people move into a city and start using these services. 

Because of the rising cost of these services, staff expect this revenue will increase by 13%, bringing in $8 million. 

Transient Occupancy Tax 

This is an 11% tax imposed on any person who stays in a Vallejo hotel or motel for 30 days or less. Hotels then pay this tax to the city. Last year, this tax brought in $1.7 million.

Since this is dependent on tourism to Vallejo, the amount that the city receives from this tax varies a lot with the economy. Projections for this revenue fell short this year, and staff are estimating that this revenue will decrease by 13% for the new fiscal year as economic uncertainty continues.

Property Transfer Tax

This is a tax that’s collected when someone sells a property in the city. The city gets $3.30 per $1,000 of the sale price, which amounts to about $2.5 million in annual revenue. 

This revenue only accounted for $2.4 million of the general fund in the current cycle, and the city predicts it will stay pretty static. 

On May 6, the council discussed putting a measure on the November ballot to change this rate from $3.30 to anywhere from $7 to $15 per $1,000 in order to address the city’s deficit. If it passed, the new rates would begin in January 2027.

Business License Tax 

This is a tax paid by businesses that operate within the city. During the current cycle this tax brought in around $2 million to the general fund. The city is projecting just $1.8 million for 2026-2027, a 9% decrease in revenue.

Vallejo lost a number of businesses this fiscal year, including two Walgreens and a CVS.

Cannabis Tax

The city levies a 7% tax on cannabis sales. Those taxes are collected by the merchant and transferred to the city every month.

In the past, cannabis sales have brought in about $2 million a year, but staff estimate this will decline to $1.6 million in the coming years because of market saturation. 

Where does Vallejo’s money go? 

The city’s budget draft shows how the general fund stands for the year. Measure P is accounted for separately and used for specific services and projects.

General fund expenditures totaled $136,878,948 for the current fiscal cycle without Measure P. The proposed expenses for 2026-2027 is $138,041,778, also without Measure P.

Over 70% of the general fund goes toward salaries, benefits, pensions, overtime, workers’ compensation, and leave payouts for city workers, including administrative staff, public works, police officers, and firefighters. The annual cost of pensions for the police and fire department, in particular, are significant — around $130,000 per employee.

The remainder covers a wide variety of other expenses, including office supplies, utilities used at city facilities, animal control services, vehicle maintenance, dues to county and state associations, and technology, to name a few. 

The city spends the most money on funding the police department. During the last fiscal year, $58 million went to the police, representing 45% of the general fund. This cycle, the city projects spending $63 million on the department. This includes employing up to 114 officers. The department currently employs about 80 officers, who make an average salary of $152,487, according to the budget document. 

The next largest expenditure is the fire department, with 29% of the general fund, or $36 million, funding its services last cycle; the city projects the fire department will cost $41 million this cycle. 

The third largest expense is for city administration. This includes the city manager’s office, city attorney’s office, finance department, and economic development department. Last cycle, $20 million went to city staff, and this cycle the city projects it will cost $22 million. 

The fourth largest expense is the public works department, which was budgeted for $11.2 million in 2025-26 and is projected to cost $13.6 million in 2026-27.

The role of Measure P

The city accounts for Measure P funds separately. When voters passed the tax measure in 2022, the city made commitments to only use the funds for street repairs and other public improvements and created the Measure P Oversight Committee to make recommendations about its use. But the city may also use the funds when facing a general fund deficit.

Ultimately, the City Council has final authority over how Measure P funds are allocated and spent.

Why is Vallejo in a deficit? 

Despite predictions that some revenue streams will increase by 2031, this year the city projects a $6 million shortfall in the general fund. 

A number of reasons have been given for this shortfall: rising inflation from the war in Iran, shrinking home sales, declining sales tax revenue due to residents generally shopping less, declining utility user tax as people use less gas and electricity, and the loss of federal grants. 

It remains to be seen in this cycle how much the projections will change with the coming budget. The City Council rejected staff suggestions for mid-year budget adjustments in March. On May 6, the council discussed increasing the property transfer tax, as well as potentially pursuing an update to the business license tax. 

Public hearings and formal adoption of the budget must take place during June, when the council can make changes or further cuts to ensure that general fund proposed expenditures will not exceed the estimated revenue.

The City Council will discuss the proposed budget for the first time Tuesday. Vallejo residents can expect at least one more City Council meeting in June where elected officials and city staff will review the draft budget. 

Feedback helps shape the city’s fiscal future, and public calls for improvements to delivering high-priority services including road repair and public safety assistance have grown within the last year. But the city faces a difficult task in balancing these demands with a likely reduction in staffing and spending across the board.