Is Davis's budget getting better or worse? A June forecast projects tighter years before pension costs ease in the 2030s

Davis's general fund, which pays for police, fire, street maintenance, parks and most other city services outside the utilities, is projected to get tighter before it gets better, according to the long-range forecast that the city's financial consultant, Bob Leland of Baker Tilly, presented to the City Council on June 16, 2026. Even with the roughly $11.4 million a year that 2024's Measure Q sales tax added, the forecast shows the general fund spending about $2.7 million a year more than it takes in, on average, from the 2024-25 through 2029-30 fiscal years, which run July through June. It projects the fund's unassigned balance falling below the city's 15% reserve goal from 2027-28 through 2032-33, then recovering in the 2030s as pension costs level off and decline. That recovery depends on the forecast's assumptions, including CalPERS investment returns averaging 6.5%, no added staff, cost-of-living raises of 2.5% a year and at least $3 million a year for streets and bike paths. Leland concluded that reserves are trending down in the near term but that Davis is in better shape than many other cities facing deficits, crediting Measure Q and the reductions built into the 2026-27 adopted budget with giving the city some breathing room.

On the revenue side, Leland traced the city's reliance on voter-approved taxes to a smaller tax base than other cities of similar population, which the presentation attributes to Davis's demographics and slow-growth policies. With a median age of 24.7 and relatively few prime working-age adults, Davis ranked 368th of 483 California cities in sales tax per capita in 2024, collecting just over half the median for cities of 50,000 to 100,000. At the median, the presentation says, the city would receive about $6.9 million a year more. It lists the local taxes voters have approved since 1998: a park maintenance tax, renewed in 2018; local sales tax increases in 2004, 2014 and 2024 (Measure Q); a hotel tax increase in 2016; and a cannabis tax in 2018, whose revenue has fallen from a peak of $2.8 million a year to $1.2 million.

On the cost side, the forecast's general fund charts show pension costs growing 17-fold since 2000-01, driven mainly by the unfunded liability that CalPERS charges like a mortgage payment; pensions make up 17.8% of the fund's budgeted 2026-27 spending. Other personnel costs, which the presentation says are over half of general fund spending (51.2% in 2026-27), have grown 39% since 2020-21 because of 22.5 added positions outside the utilities and negotiated salary and benefit increases. Non-personnel operating costs doubled from 2020-21 to 2025-26, with professional and contract services rising from $1.8 million to a projected $5.4 million in 2026-27 and insurance from $0.7 million in 2019-20 to $4 million. The forecast's assumption of no added staff, it says, will constrain the city's ability to respond to future workload and population growth, and even putting every dollar above the reserve goal into infrastructure would fund about 65% of identified needs.

Leland laid out three ways to close the near-term gap: one-time spending cuts set each budget year, peaking at about $3.5 million for two years; an ongoing $1.5 million reduction starting in 2027-28 and lasting through 2030-31, which would leave a smaller gap; or drawing $9 million from the trust the city keeps for retiree medical costs over three years, 2026-27 through 2028-29. The presentation recommends evaluating the trend annually and adjusting. The forecast already assumes moderate recessions starting in 2027-28 and pension investment returns below CalPERS's own assumption. Risks it lists include an earlier or deeper recession, federal research cuts and immigration and visa policies that could hurt UC Davis, lower CalPERS returns, and the city adding staff or granting cost-of-living raises above 2.5%. A higher staff vacancy rate could lower near-term personnel costs, it says, but also reduces productivity and the city's ability to deliver services.

The June 16 presentation was informational, and the council took no vote on the alternatives. Council members' questions focused on the retiree medical trust, which staff confirmed is roughly half funded. Leland said the city could decide year by year how much to draw, but that if the gap grew larger and trended toward a deficit, the city couldn't keep drawing on the trust. One council member suggested combining the second and third alternatives: cuts of $1 million to $1.5 million and possibly less than the full $9 million from the trust. The council was told the discussion would continue with its long-range fiscal subcommittee.

Some cuts are already in place. On June 2, the council adopted a mid-cycle update to the 2026-27 budget that staff said included $1.4 million in ongoing spending reductions and $500,000 in one-time reductions. Among them: eliminating a vacant media services specialist position and an irrigation technician position, suspending the engineering intern program, pausing the first tier of a supervisor training academy, and closing more than $500,000 in open purchase orders. Staff projected the general fund would end 2026-27 with $13.3 million in reserves, 13.7% of spending, still below the 15% goal, and said revenues still trailed spending by about $2 million. Without more revenue or lower spending, staff wrote, the reserve will continue to decline. The city manager is developing a larger reorganization plan, tied to upcoming retirements, to present in February 2027; staff said it is expected to produce additional ongoing savings to close the remaining gap.

Parts of the forecast rest on estimates rather than audited results. When it was presented in June, the city had just completed its audited financial statements for 2022-23, with 2023-24 and 2024-25 still to go, and the forecast assumed the city would spend its full 2025-26 budget, which the presentation says may overstate expenses. Audits have already moved the numbers: staff's reserve projection rose from 8.95% of spending in March to 13.7% in May, which staff attributed to completed prior-year audits and corrections as well as cost cuts. In May, staff said it expected to finalize the outstanding audits by December 2026. As of Oct. 30, the city's financial reports page lists the 2023-24 report as its most recent and says staff and the city's outside auditors are working to complete the 2024-25 report.