San Diego Faces Record Budget Crisis, Forced to Tap Savings as Pension Costs Skyrocket

City grapples with $258 million deficit, proposes sweeping cuts to libraries, recreation centers, and essential services while pension payments reach unprecedented $533 million

By [Reporter Name] - May 30, 2025

SAN DIEGO — The City of San Diego is confronting its most severe budget crisis in years, facing a projected $258 million deficit for fiscal year 2026 that has forced Mayor Todd Gloria to propose sweeping cuts to city services and tap into emergency reserves for the first time in recent memory.

The unprecedented financial strain comes as the city's mandatory pension payment has reached a record-breaking $533.2 million — a staggering increase that accounts for nearly half of the entire budget deficit and represents the first time San Diego's annual pension obligation has surpassed $500 million.

Record Pension Costs Drive Crisis

The city's pension board unanimously approved Friday a record-high $533.2 million annual pension payment for the city due July 1, according to recent reports. The half-billion-dollar payment, which comes with the city facing a large budget deficit of roughly $250 million, is $44 million higher than last year and $35 million higher than the pension system's actuary had projected last spring.

The dramatic increase stems from multiple factors, including generous pay raises granted to city workers and the legal reversal of pension reforms. Incorporating affected employees into the legacy pension system is expected to cost San Diego $142 million, most of which became debt, and raised the city's required yearly pension contributions for 2025 by $48 million. This year, San Diegans are paying $490 million for city pensions.

The pension crisis traces back to the 2012 voter-approved Proposition B, which replaced traditional pensions with 401(k)-style plans for new hires. However, the reform was later overturned by courts following union challenges. San Diego's pension system improved during the reform, increasing from only 66% funded in 2012 to 82% funded in 2021. Today, however, the San Diego City Employees' Retirement System is back down to 75% funded, sticking taxpayers with $3.3 billion in pension debt.

Tapping Emergency Reserves

To help balance the budget, the city is taking the unusual step of delaying contributions to its emergency reserves. The draft budget proposes $175.9 million in reductions across all City departments. That includes a $30.5 million reduction in personnel costs, a $46.4 million reduction in other costs, a $35 million reduction in contracts with external companies, and a savings of $64 million by delaying contributions to City reserves.

The cuts amount to roughly one-third of the mayor's efforts to close the projected deficit. Another key part of his strategy is delaying $64 million in scheduled contributions to city reserves. The city's general fund reserve would remain at about $208 million, according to Mayor Gloria's proposed budget.

Proposed Budget Cuts and Their Consequences

The mayor's draft budget proposes painful reductions across numerous city services:

Libraries and Recreation Centers

Library closures: All city library branches every Sunday and Monday, affecting all 37 branches
Recreation centers: Cut recreation center hours by more than 30%, reducing weekly hours from 60-65 down to 40
Consequences: For many San Diegans, libraries are for more than checking out books. They're places to access homework help, computer classes and Wi-Fi. According to the San Diego Library Foundation, they're a lifeline for the 53,000 households in the city that lack broadband internet

Parks and Public Amenities

Beach fire rings: Eliminate all of the city's 184 beach and bay fire rings
Restroom closures: The city is planning on "reductions" — either layoffs or not filling job vacancies — of 13 full-time positions of city workers who maintain the bathrooms, whether those are Port-a-Potties or "comfort stations"
Consequences: Residents worry about public health and safety impacts, particularly in tourist areas and for homeless populations

Public Safety Adjustments

Fire department: Eliminating firefighting fast-response squads downtown and near Safari Park, saving $1.5 million
Police overtime: The Department will take a minor $3 million reduction in overtime costs
However, both departments receive overall budget increases to maintain core services

Arts and Animal Services

Arts funding: 10% cut to arts funding, reducing funding from $15.3 million to $13.8 million
Animal services: San Diego Humane Society is voicing concern over San Diego Mayor Todd Gloria's proposed Fiscal Year 2026 budget, which includes a 20% — or $3.5 million — cut to the organization's contract for providing animal services

Personnel Reductions

The personnel cuts propose eliminating 393 positions, 160 of which are currently filled. The vast majority of employees in those filled positions are eligible to be transferred to other positions within the organization.

Community Impact and Inequity Concerns

The across-the-board nature of the cuts has drawn criticism from community leaders and city council members who argue the reductions disproportionately affect low-income neighborhoods. Community leaders in City Heights spoke out Tuesday against proposed cuts to San Diego's libraries and recreation centers. "We cannot afford to lose funding in spaces where hope and opportunity still exist for families who cannot afford private camps or after school programs for their children," said Jimmy Figueroa, the Chicano Federation's director of advocacy and community organizing.

San Diego City Councilmember Sean Elo-Rivera, whose district includes City Heights, said: "What we are fighting back against is the idea that all communities are starting from the same place and in the same position to absorb the cuts that are being proposed".

Revenue Challenges and Failed Tax Measure

The budget crisis was exacerbated by voters' narrow rejection of Measure E in November 2024, a proposed one-cent sales tax increase that would have generated approximately $400 million annually. In November's election, voters declined the San Diego Transaction and Use Tax, which would have increased the tax on transactions in the city by 1%, bringing the total sales tax to 8.75%.

The city has implemented some revenue increases to help close the gap, including updating parking meter rates and parking citation penalties; modernization of various user fees and the retail cannabis tax; and two voter-approved revenue measures – one that allows the City to levy a fee to cover the cost of residential trash collection (Measure B), as well as an increase to the City's hotel-room tax (Measure C).

Looking Ahead

The budget crisis is expected to worsen in coming years. The Department of Finance estimates from 2026 to 2030 that city budget deficits could total $1.03 billion. The pension actuary has already projected that next year's payment will be even higher at $547.6 million, though stock market performance could affect that figure.

City Council members will review the proposed budget during public hearings from May 5-9, with Mayor Gloria expected to release a revised budget on May 14. The council must adopt a final balanced budget by June 15.

As the city grapples with these unprecedented financial challenges, the debate over priorities continues. While Mayor Gloria has emphasized protecting core services like public safety while making difficult cuts elsewhere, community advocates argue that libraries, recreation centers, and other neighborhood services are equally essential to public safety and community wellbeing.

The crisis highlights the long-term consequences of pension commitments and the ongoing struggle many California cities face in balancing employee compensation with taxpayer affordability.

Sources

San Diego to use $10.1M in reserves to balance current fiscal year's budget | KPBS Public Media

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