The City is facing a projected $66.2 million budget deficit as it begins work on the fiscal year 2026–27 budget, as presented to the City Council on Feb. 10.

The deficit is not the result of a recession but rather reflects a long-term structural imbalance in the City’s finances, where ongoing expenses continue to grow faster than ongoing revenues.

“This budget moment requires us to make hard choices, but also smart ones,” City Manager Maraskeshia Smith said. “We cannot cut our way out of a structural deficit. Our focus must be on stabilizing the budget while also growing Sacramento’s economy, improving efficiency and making sure we are delivering the services residents expect.”

Sacramento’s structural deficit has developed over several years and is driven by multiple factors, including expanded services such as homelessness response and sheltering, new labor contracts, inflation and rising pension and insurance costs.

Voter-approved measures have also redirected some General Fund resources, while revenue growth has not kept pace with these commitments.

“This week, we began our 2026 budget process by redirecting $7.7 million in current-year savings to help soften the impact of our ongoing deficit,” said Mayor Kevin McCarty. “We still have a significant deficit, and, over the next three months, we’ll target strategic budget reductions that minimize impacts on core city services like public safety and parks. Moving forward, we can’t just slash budgets; we need to invest in policies and tools to grow our economy.”

Last year, the City closed a $62 million budget gap without major service cuts or layoffs by using one-time funds, year-end savings, fee increases and program adjustments. While those actions stabilized the budget in the short term, they did not fully resolve the underlying imbalance.

The City is currently bargaining with most labor units. The updated forecast includes the costs of the City’s formal proposals already submitted. Any additional increases beyond those proposals would add to the projected deficit.

Budget schedule and how to stay involved

Budget discussions will continue in the coming months, with several opportunities for public input:

• March: City departments will share proposed budget-balancing strategies
• April: A balanced proposed fiscal year 2026–27 budget will be presented
• May: Public hearings and City Council discussions on the proposed budget
• June: City Council adoption of the final fiscal year 2026–27 budget

Residents are encouraged to attend public meetings, submit e-comments and contact the Mayor or their City Council representative to share priorities and feedback.

More information about the budget process, meeting dates and opportunities for public engagement is available on the City’s budget website.