I heard the City lost $10M. Is that true?

No. No City funds were lost, misused, or embezzled. The $10.1 million figure that has been referenced reflects several separate and explainable financial items that affected the City’s reserves.

These include:

$5.7 million: A planned budget deficit in FY 2024–25, where expenditures exceeded revenues and had to be covered using reserves.

$2.7 million: Restricted revenue (such as parking and other special revenue funds) that was incorrectly recorded in the General Fund and later reclassified to the correct funds.

$2.9 million: An accounting correction related to how a City asset was recorded between funds, which required an adjustment to properly reflect ownership.

In addition to the drawdown of unassigned fund balance, the City also used approximately $1.2 million from its contingency reserve to help cover the overall budget gap. 

When all of these factors are combined, they explain the overall reduction in reserves reflected in the financial results. Importantly, these are accounting and budgeting adjustments, not losses of City money.

Does this structural deficit mean City services will be cut?

The City is exploring every option to maintain service levels. That includes operational efficiencies, potential new revenue sources and community input on priorities. Proposed changes will be presented to the public at workshops in July and community members will have an opportunity to present their thoughts on various priorities.

Why was there a financial audit, and what did it find?

An independent financial audit was conducted to provide a clear and objective review of the City’s finances and to better understand recently identified accounting issues.

The audit confirmed the City’s initial findings, including accounting errors, the use of certain reserve funds, and the misclassification of some reserves. It also confirmed that City expenditures have been higher than revenues, meaning costs are growing faster than available income, which could lead to larger financial challenges if not addressed.

In addition, the audit identified issues with how certain budget information was presented, highlighting opportunities to improve how financial information is organized and reported to ensure it is clearer and more accurate in the future.

Overall, the audit provides a clearer picture of the City’s financial condition and helps guide improvements to financial practices and transparency. The full audit results are available here.

Why wasn't something done about this sooner?

This is a fair question, and city leadership takes it seriously. The imbalance between what the City spends and what it brings in developed gradually over several years and was not the result of a single decision or budget cycle. Over time, rising costs such as pensions, labor, and infrastructure needs grew faster than revenues, which widened the gap.

Staff was made aware of the City’s updated financial position as part of the Fiscal Year 2024–25 Annual Comprehensive Financial Report (ACFR), which was finalized in early 2025. That report also reflected a $2.9 million correction related to prior accounting errors, which further clarified the City’s financial position.

Since then, the City has been working to fully understand the causes of these issues and address them in a transparent and responsible way. The focus now is on making long-term changes that improve financial stability and avoid relying on short-term fixes.

How can I trust the information the City is sharing?

We are committed to full transparency. All financial documents, audit results and budget proposals are publicly available. The community workshops are designed for two-way dialogue, not one-way presentations. We encourage you to attend and ask tough questions.

Are roads and infrastructure still being maintained?

Yes. Road and infrastructure maintenance remain among the City’s highest priorities and continue to be supported through the dedicated Infrastructure Fund, which was established to prioritize investments in streets and other critical infrastructure. Residents have consistently identified roads as their number one concern, and the City remains committed to continuing its paving program.

However, the current Infrastructure Fund is not sufficient to address all of the City’s road and infrastructure needs. While maintenance and repairs will continue, the pace and scope of improvements are limited by available funding. Additional revenue is needed to accelerate road rehabilitation and address the City’s long-term infrastructure needs. That is why these budget discussions are so important. Upcoming public budget workshops will give residents an opportunity to help identify priorities across all service areas and provide the City with a clear understanding of where resources should be focused.

Will public safety service levels continue?

Public safety is among the city's highest-priority expenditure and the largest portion of the General Fund budget. The City is committed to maintaining police and fire service levels that keep Fullerton safe. At the same time, like every area of City operations, public safety departments are being asked to find efficiencies and ensure resources are being deployed as effectively as possible. Any changes to staffing or service delivery would go through a public process with full Council discussion. The goal is not to cut public safety, but to ensure the City can sustain these critical services for the long term.

Is there a sales tax measure being considered?

The proposed FY 26-27 budget does not assume any additional sales tax revenue.  The City is developing next year’s budget based on existing revenues and is identifying strategies to address the budget without relying on a new tax measure.

At the same time, a local sales tax measure is one of several options being considered to help address the City’s long-term structural deficit. If the City Council decides to move forward, it would need to place the measure on the ballot by July 21st for consideration by voters in November. If approved, revenue from a new sales tax would not begin to be received until April 2027.

What happens next?

The City is actively working through a series of steps to address the City’s fiscal challenges. In the near term, that includes public budget workshops where residents can weigh in on service priorities, continued review of operational efficiencies, and evaluation of potential revenue options, including a possible sales tax measure that would need to be placed on the ballot by July 21 for the November election.

At the same time, the City is undertaking a broader effort to strengthen its financial management practices. This includes evaluating existing financial policies and internal controls and implementing stronger procedures, oversight, and accountability measures. The City is also prioritizing investments in appropriate staffing, systems, and processes to support sound financial management and improve long-term operational effectiveness.

No single action will solve the structural deficit on its own. This is a multi-year effort focused on stabilizing the City’s finances, strengthening operations and governance, and building long-term sustainability. The City is committed to keeping residents informed at every step, and all major decisions will go through a public process.

Residents are invited to participate in two upcoming community workshops on July 7th and July 9th. Feedback from those meetings will help inform a subsequent City Council study session and the decisions that follow.