Merced may reduce reserve fund requirement to avoid $430k budget deficit

The Merced City Council will consider lowering the reserve amount to close a $430,000 general fund deficit and protect several programs and positions in its $438.5 million proposed 2025-26 budget.

To avoid freezing several public safety positions, the council voted June 2 to use funds from Measure C — a sales tax required to go to public safety. The budget proposal from the city manager included freezing one emergency dispatcher position, one firefighter position and four police officer positions.

Venus Rodriguez, the finance director for the city, said in an interview with the Merced Sun-Star that accumulated funds such as those from Measure C are generally used to cover one-time expenses rather than operating costs.

Police Chief Steven Stanfield said he had been approached by the Merced City School District about adding a third school resource officer — with the district paying 70% of the officer’s wages — and by the Weaver Union School District about adding a school resource officer. He also said there were two grants the department was considering.

The city has 560 total positions, 235 of which are public safety positions in total and 93 of which are firefighters. Rodriguez said the city will see around $4 million in added costs when a FEMA grant funding 24 firefighting positions ends in 2027.

Rodriguez told the Sun-Star the $430,000 general fund deficit was the result of flat sales tax revenue combined with inflation and negotiated raises.

To fill the hole, the council asked Rodriguez to present possible reductions to the required general fund reserves at its next meeting.

Currently the city must maintain reserves equal to 35% of its operating budget to protect against natural disaster or economic downturn but could vote to reduce the amount required to be saved. The 2025-26 operating budget would have the city transfer almost $1.9 million into the reserve fund.

“That number was based on our city’s revenues and how we get them,” Rodriguez said during the meeting. “Our general fund, the resource of sales tax is the highest revenue that we get and because there’s such volatility potentially in that source, they recommend anywhere between a 30 to 35% set aside in case you have a downturn or your sales tax plummets.”

The council voted to preserve arts funding, a zookeeper position that had been slated for elimination and funding for community projects, in the event that funds are available with less reserves required.

New expenses include the cost of maintenance for its newest park, opening this year, and transferring just under $370,000 to the airport to fill a deficit there.

The Parks and Community Services department will still experience cutbacks to its summer camp, sports clinic and trailer rentals for community block parties due to a decrease in revenue from taxes on cannabis sales as well as the belt tightening in the general fund.

The budget process involves the work of the city manager, finance director, city department heads and their staffs. Before passage, the city council holds public hearings on the proposed budget and gives direction on changes.

The council will meet Monday to hear public comment and vote on the final budget.