Palm Springs faces mounting budget issues with $10 million deficit projected by 2027, council told

Palm Springs city officials presented a stark financial outlook during a budget study session last Thursday evening, projecting a nearly $10 million operating deficit by fiscal year 2026-27 that could force significant cuts to city services.

The city’s preliminary budget for the next two fiscal years shows a $1 million deficit in 2025-26 growing to $9.9 million the following year, according to Finance Director Chris Mooney. The projections have prompted city leaders to consider immediate cost-cutting measures, including a hiring freeze for non-public safety positions.

“Despite the tremendous number of positive initiatives outlined in this budget, there are critical concerns that we must pay attention to,” City Manager Scott Stiles told the City Council during the May 22 study session.

The financial challenges stem from several factors, including the expiration of state grant funding for the city’s Navigation Center homeless services facility, rising employee costs, and conservative revenue projections in an uncertain economy. For example: When state Homeless Housing, Assistance and Prevention grant funds run out in May 2026, the city will be responsible for more than $5 million in annual operations and maintenance costs at the Navigation Center.

The city’s unassigned fund balance is projected to decline sharply from $52.6 million currently to just $18.3 million by 2027. Mooney warned this trend is unsustainable beyond the two-year budget period.

“This sharp decline is not sustainable after fiscal year 2026-27 into the future years,” Mooney said during his presentation to the council.

To address the mounting deficits, Stiles announced plans to implement a soft hiring freeze for all non-sworn general fund positions following budget approval. The city currently has approximately 50 vacant positions in various stages of recruitment, many of which may remain unfilled to reduce personnel costs.

“If necessary, a hard hiring freeze and other cost cutting measures may need to be considered as we get towards the end of this current calendar year,” Stiles said.

The budget challenges come despite the city’s efforts to maintain public safety investments and community services. The proposed budget includes funding for three new police officers and three new firefighters, as well as major infrastructure projects including a $42.5 million library renovation and street maintenance programs.

City officials are pursuing multiple revenue enhancement strategies, including implementing new fee schedules and working with state and county partners to secure ongoing funding for homeless services. The budget also assumes conservative growth in key revenue sources like transient occupancy tax and sales tax.

Council members expressed concern about the financial trajectory while acknowledging the city’s commitment to public safety and community services. The council will continue budget discussions at meetings scheduled for June 11 and June 25, with final approval required by the state-mandated deadline of July 1.

The budget projections assume modest growth in tourism and retail sectors, with officials hoping that new developments including the reopening of the Plaza Theatre in December and potential fulfillment centers could provide additional revenue in future years.

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