Lodi's Current Finances and Projections for 2026-2027

Lodi

Feb 5

Deep Dive: Lodi's Current Finances and Projections for 2026-2027

Executive Summary: The City of Lodi, California finds itself navigating a challenging but manageable fiscal environment in FY 2025-26, characterized by a projected $4.8 million structural deficit over the next five years, rising pension costs, and the lingering effects of the business license tax refund debacle. The mid-year budget report authored by Budget Manager Jennelle Baker reveals a complex picture where revenue shortfalls are being offset by unexpected gains in interest income, careful use of prior-year fund balances, and strategic inter-fund transfers.

Overview of Lodi's Fiscal Position

The City of Lodi faces significant fiscal headwinds as it enters the second half of FY 2025-26. General fund revenues are estimated to be less than expected by $188,530, primarily due to the latest projections from the city's sales tax consultant, HdL Companies. Adding to the pain, the city expects it will spend almost $3 million more than originally budgeted by the end of June, with most of the difference relating to increased salaries and benefits that the city negotiated with employee unions.

On a positive note, the city says it should receive $1.3 million more in interest income than they thought. The budget remains balanced mainly because of money carried over from the previous year, a sizable donation from the Lodi Fire Foundation, and significant inter-fund transfers. The city's budget has been challenging the past couple of years after the business license tax was found to be illegal and subsequently refunded, leaving an estimated $2 million hole to fill.

General Fund Revenue Analysis

The Sales Tax Shortfall

The most significant revenue concern for FY 2025-26 is the $1,012,130 decrease in sales tax revenue compared to the projections used when the budget was adopted in June 2025. This shortfall stems from updated projections from HdL Companies, the city's sales tax consultant, which came in substantially lower than the Q4 2024 estimates originally used for budget adoption.

According to HdL's statewide California Consensus Forecast, sales tax revenue across California is projected to increase by only 1.7% in FY 2025-26, with improvement expected in FY 2026-27 and FY 2027-28 at 2.6% each. While this represents a return to positive growth after two years of statewide declines, it remains below historical norms and signals continued constraints on Lodi's primary discretionary revenue source.

Revenue Adjustments Summary

Category	Amount	Reason
Sales Tax	-$1,012,130	HdL projections lower than 2024 Q4 estimates
Intergovernmental Grants	-$492,370	Assistance to Firefighters Grant expired Dec. 31, 2025
Fire Inspection Revenue	-$111,420	Lower than expected inspection volume
Interest Income	+$1,300,000	Year-to-date actuals exceeded projections
Transfer from GF Capital	+$233,110	Offset legal services costs
Net Revenue Decrease	-$188,530	Total adjustment to General Fund revenues

The net revenue decrease of $188,530 reflects the difference between the revised budget (which incorporated prior-year carryovers) and mid-year projections. The city's strong interest income performance—driven by favorable market rates—has been critical in cushioning the sales tax blow.

Expenditure Pressures: The MOU Impact

Labor Costs Driving Budget Increases

The mid-year budget reveals that the city will spend approximately $2.95 million more than originally budgeted by fiscal year-end, with $2.4 million (81%) directly attributable to Memorandum of Understanding (MOU) salary and benefit changes negotiated with city employees.

When the FY 2025-26 budget was adopted on June 4, 2025, most MOU negotiations were still in progress, forcing staff to use "best-guess assumptions" for salary and benefit costs. Now that most safety MOUs are finalized, the true costs have become apparent.

Departmental Expenditure Increases

Department	Increase	Primary Drivers
Police	$1,571,810	MOU ($1,321,810) + $250,000 overtime
Internal Services	$453,065	MOU ($301,565) + bank fees ($130,000)
Public Works	$341,020	MOU ($254,270) + facility repairs ($86,750)
Non-Departmental	$293,840	Legal services for employment investigations
City Attorney	$122,210	MOU salary adjustments
Fire	$68,433	Part-time increase + MOU changes
City Council	$70,000	Legislative advocacy appropriation

The Police Department alone accounts for more than half of the General Fund expenditure increase, reflecting both the negotiated MOU terms and a $250,000 overtime budget increase.

Balancing the Budget: Key Mechanisms

Carryover Funds

The city's ability to maintain a balanced budget relies heavily on fund balances carried over from the previous fiscal year. The adopted General Fund budget of $89.72 million was revised upward to $95.35 million for expenses after incorporating these carryovers. This practice, while necessary for continuity, masks the underlying structural challenges.

Inter-Fund Transfers

Strategic inter-fund transfers are helping bridge the gap. The city transferred $233,110 from General Fund Capital to offset legal services related to employment matters, personnel, and financial investigations. Additional capital project reallocations help preserve operational funding.

Capital Project Funding

At the August 6, 2025 Council meeting, approximately $1.6 million was available from Waste Management contract proceeds and General Fund Capital surplus. After reserving funds for unexpected legal expenses and prior appropriations, approximately $900,000 remains available for new capital projects.

Project	Amount
Skatepark Planning (Phase I & II)	$595,000
Kofu Skatepark Repairs	$175,000
Beckman Park Cricket Improvements	$900,000
Police Station Boiler Replacement	$40,000

The Lodi Fire Foundation's Role

While the source material mentions a "sizable donation from the Lodi Fire Foundation" as helping balance the budget, the specific donation amount is not detailed in the official mid-year budget documents. However, the Lodi Fire Foundation has been actively fundraising through programs like "Sponsor Your Local Fire Station" and has contributed equipment such as cardiac monitors to support the department's unfunded needs. The Fire Department receives approximately $19 million annually from the city budget, supporting 47 total firefighters.

The Business License Tax Legacy

Background of the $2 Million Hole

The business license tax issue dates back to September 2023, when city staff and the City Council discovered that the business license tax ordinance adopted in 1995 fell within the retroactivity window of Proposition 218 (1996), requiring voter approval that was never obtained. The city immediately stopped collecting the tax and issued refunds for all payments made in the previous twelve months—the statute of limitations under state law.

The refund process affected nearly 4,700 businesses, with individual refunds ranging from one dollar to $60,000. As of July 2024, approximately 600 checks remained uncashed, though the city emphasized that while checks have expiration dates, the funds set aside for businesses do not expire.

Ongoing Financial Impact

The business license tax provided an estimated $2 million annually in revenue to the General Fund. Its elimination forced the city to find alternative revenue sources and implement cost-saving measures. The city has since implemented a new $25 business license registration fee that is explicitly structured as a regulatory fee rather than a tax, avoiding the voter approval requirement.

Pension Obligations: A Growing Concern

Current Funded Status

Lodi's pension obligations through CalPERS represent a significant long-term liability. The city maintains a supplemental pension trust through Public Agency Retirement Services (PARS) with $31.1 million in assets achieving a 7.76% annualized return since inception. Combined with CalPERS assets, total pension funding reaches approximately 71.3% of liabilities.

Plan	Market Value Assets	Actuarial Liability	Funded Ratio
Safety	$163,202,177	$268,772,115	60.7%
Miscellaneous	$179,966,863	$255,976,314	70.3%
All Plans (CalPERS)	$343,169,040	$524,748,429	65.4%
PARS Trust Balance	$31,112,416	—	+5.9%
Total Pension Funding	$374,281,456	$524,748,429	71.3%

Rising Employer Contributions

CalPERS projections indicate employer contributions will rise from approximately $20.9 million in FY 2025-26 to $24.6 million by FY 2031-32—a 17.7% increase. The city's pension costs are projected to grow from approximately $6 million to $13 million over five years (a 115% increase), consuming an increasingly larger share of the General Fund budget.

Policy Changes

The Finance Committee recently approved reducing the Pension Stabilization Policy funded ratio threshold from 80% to 70%. This change allows for earlier PARS fund distributions to offset pension costs during challenging budget years—a tool that may prove valuable given the structural deficit projections. Notably, the city has not invested fund balance into the PARS trust for the past three fiscal years (FY 2022-23 through FY 2024-25), instead redirecting these resources to cover MOU cost increases.

Looking Ahead: FY 2026-27 Budget Considerations

Planning Session Priorities

Interim City Manager James Lindsay informed the council in December 2025 that an all-day planning session on January 28, 2026 would launch the FY 2026-27 budget process. Council members identified key priorities including:

Strategic vision review
Funding strategies and revenue diversification
Deferred maintenance needs
Pension stabilization
Permit reform and regulatory streamlining
Parks planning and downtown preservation

Structural Deficit Outlook

The $4.8 million structural deficit projected over the next five years represents the fundamental challenge facing Lodi. As Councilmember Lisa Craig-Hensley noted during budget discussions, addressing structural deficits requires "bringing in additional revenue sources and creating new opportunities for businesses to locate here."

Revenue Diversification Efforts

New revenue sources that will help support the budget include:

$560,000 annually in rental income from the new power plant on the southwest side of Lodi Lake
$1.7 million in interest income
Rate increases for Parks, Recreation and Cultural Services facility rentals

Measure L, the half-cent sales tax approved by voters in 2020, continues to contribute approximately $10 million annually to the General Fund. However, current practice "prioritizes service maintenance above enhancement as overall resources are limited."

Fiscal Health Assessment

Lodi's fiscal position can be characterized as stable but constrained. The city has avoided layoffs and service cuts thus far through careful management, use of reserves, and one-time revenues. However, the mid-year adjustments reveal that these balancing mechanisms are not sustainable long-term solutions.

Metric	Status	Trend
General Fund Balance	Adequate	Flat
Sales Tax Revenue	Below projections	Modest growth expected
Labor Costs	Rising significantly	Structural pressure
Pension Funding	71.3% combined	Improving slowly
Structural Deficit	$4.8M over 5 years	Persistent challenge
Reserves	Sufficient	Being utilized

The combination of the business license tax loss, rising pension costs, and MOU-driven salary increases creates ongoing structural pressures that will require either new revenue sources or service reductions to address. As Mayor Cameron Bregman noted when the FY 2025-26 budget was adopted: "Because of smart planning and solid reserves, we're in a good spot to handle an uncertain economy without cutting essential services." However, the structural deficit projections suggest this equilibrium cannot be maintained indefinitely without fundamental changes to revenue or spending patterns.

References and Sources

BudgetCity Goverment

Don Bradford