San Diego could face a deepening budget deficit as tariffs imposed by the Trump administration continue to push down the stock market and inject more uncertainty into the economy.
While the city does not bet on the stock market, its pension fund does. Charles Modica, the city's independent budget analyst, said the city's pension board assumes its investments will make 6.5% returns each year — and that shortfalls have to be covered by city taxpayers.
Modica said tariffs could also push up inflation, which impacts the city government in similar ways it impacts consumers.
"The city purchases goods and materials in order to provide services," Modica said. "When we are buying vehicles for our fleet, to the extent that those are impacted by tariffs, those would directly impact our cost to purchase them."
San Diego would have to cut roughly $258 million in spending to achieve a balanced budget in the fiscal year that begins July 1, according to forecasts developed last November. But those forecasts did not include the possibility of a recession, which Modica said is a growing threat.
"(A recession) directly impacts the city's revenues in that folks are spending less on consumer goods, so the city's sales tax receipts would decline, potentially less business or leisure travel, which could result in decreases to our hotel tax revenue," Modica said. "We're keeping a very close eye on that. It's somewhat disconcerting news."
The budget will be in a healthier position thanks to a handful of actions the city has taken in recent months, Modica said, such as increasing parking meter rates, implementing a voter-approved hotel tax increase and ending free trash pickup at single-family homes.
Still, cuts to city services like road repair, libraries, recreation centers and tree trimming are all but inevitable. Modica said until voters are ready to pay higher taxes, the city's infrastructure backlog will continue to grow.
"The best practice is to provide ongoing maintenance of our existing infrastructure so that it doesn't deteriorate and that it doesn't fail," Modica said. "When it fails, it costs us a lot more to fix than it would if we just maintain it.
