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The Eureka City Council wrapped up budget negotiations on Tuesday night, voting unanimously to approve a $110,133,542 budget for the upcoming fiscal year. The adopted budget represents a 8.5% decrease in spending from the 2025-26 fiscal year, which ends on June 30.

During a budget presentation at last night’s meeting, Finance Director Lane Millar said the city is going into the new fiscal year with less money in its reserves than staff had anticipated. When the current budget was adopted in June 2025, staff predicted the year would end with a roughly $800,000 deficit in the city’s General Fund, but Millar said that number has grown to $3.7 million.

Millar | Screenshot

“Even though we had a structural deficit in the current fiscal year, we were still going to end the year with a healthy reserve balance [in the General Fund],” he said. “Had that happened, then we would have started next fiscal year off at $11.6 million in [the] fund balance, which is just under our policy level of 25%. … Unfortunately, at the mid-year our deficit grew substantially to just under $4 million in the red. With that update, we expect to start next fiscal year with a beginning fund balance of about $8.7 million.”

Reached via email this afternoon, Millar told the Outpost that the $3.7 million deficit “was driven by one-time expenses, mostly due to capital projects like the Marine Fueling Facility” on Commercial Street. “When you remove the increases from the one-time expenses, the true structural deficit was approximately $1 [million] vs the negative $798,037 as assumed in the original FY25-26 budget.”

Millar added that the one-time budget increase will have “zero effect” on the 2026-27 fiscal year, which still shows a deficit “but is marginally better than where we were last year.”

However, going into the next fiscal year with $8.7 million in reserves only leaves the city with about two months of operating capital, which is one month short of what city policy requires. Now that budget season is over, Millar told the council, his office will develop a plan to replenish the reserves with the city’s Finance Advisory Committee.

If the city can maintain a 3% growth in revenue and maintain expenditure growth at 1% for the next three years, as seen in the table below, he said, the General Fund reserves should bounce back to roughly $11 million. 

“I think it’s more reasonable to restrict growth on the expense side and monitor what revenues are doing,” Millar said, emphasizing that the table above is a suggestion, not a concrete plan. “I think this is something we need to monitor, but as a goal, I think it would behoove us to try to restrict expenditure growth down to 1% over the next three years to build back a healthy reserve level.”

Asked how staff planned to limit growth to just 1%, Millar said the city could restrict salary growth. “It’s a hard thing to do, but if we don’t turn the ship around, it’s unlikely that we’re going to have a lot of money to provide for salary increases anyways.”

To limit spending over the next three years, the city could implement a hiring freeze, offer retirement incentives and reorganize departments.

“[That] gives you a lot of time to plan, [and] it’s a lot less painful than waking up one day and realizing that you need to cut 10% from your budget right away,” Millar said. “I think the goal here is to do things slowly, but to take this seriously, in the sense that getting a balanced budget — and even producing a surplus — is really the best way to keep our salary schedule competitive as well as meet unexpected needs.”

City Manager Miles Slattery chimed in to note that there are other costs that are “beyond [the city’s] control,” such as health insurance, that could cause expenditures to snowball. “If that’s the case during those fiscal years that are upcoming … it still could result in cuts that are going to be necessary in order to meet that 1% growth,” he said.

Councilmember Scott Bauer, who attending the meeting via Zoom, emphasized that “these kinds of times are exactly why we have reserves.” He suggested that staff look into increasing the city’s transient occupancy tax (TOT), which is set at 10%, to help generate additional revenue.

“A lot of cities have up to 12% [TOT], and I think these are the kind of times we need to talk about that,” Bauer continued. “It’s obvious we don’t want to cut services [and] we don’t want to lose staff, therefore we need revenue.”

Councilmembers Leslie Castellano and Renee Contreras-DeLoach asked about upcoming pay raises for staff, and whether the increased wages were factored into next year’s budget. Millar confirmed that all staff will receive a 3% pay hike in the 2026 fiscal year. 

Contreras-DeLoach | Screenshot

Contreras-DeLoach asked specifically about Humboldt Bay Fire, and whether its staff were slated to receive an additional wage increase. Millar and Slattery were reluctant to weigh in, given the “sensitive conversations around the negotiations.” DeLoach pushed for an answer.

“That could push us further into the red … and I don’t know what that amount would be,” she said. “That’s what I’m trying to ask, is whether or not there’s any kind of reasonable assessment that’s going on behind the scenes … or whether or not this budget we’re currently looking at could be dramatically different after that negotiation.”

“I don’t think this is an appropriate venue to be talking about negotiations,” Slattery said, suggesting that she speak with one of the council members who serve on the fire department’s joint powers authority.

Castellano chimed in to note that any “significant budget changes” would require approval from the city council. “We can’t include things that we don’t know,” she added.

After some additional conversation, including comments from just one speaker during public comment, Councilmember Kati Moulton made a motion to approve the budget, which was seconded by Bauer.  Before voting on the time, Millar said he would draw up some cost-savings projections for the council’s consideration in the coming months. 

The motion passed 5-0.

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Want to see the budget for yourself? You can check it out at this link.