San Diego County's National City faces $13M deficit and state takeover risk

Key Takeaways

• National City faces a nearly $13 million general fund deficit and could become insolvent by 2030.
• New City Manager Douglas Schulze warns that non-essential services like parks, the library and the swimming pool would be cut first, followed by public safety.
• A state receiver or trustee could take over city operations if the city cannot meet its debt obligations.
• Councilmembers rejected a business license tax measure that could have raised $7 million a year.
• Mayor Ron Morrison is retiring after 34 years, and four candidates are running to replace him.

Introduction

National City is running out of time to fix its finances. The newly hired city manager has three years to avoid a state takeover, and he says action is needed within the next six months.

City Manager Issues a Stern Warning

Douglas Schulze took over as National City's city manager about two months ago. He inherited a nearly $13 million deficit and a budget that has relied on the city's reserves for at least two consecutive years. Schulze said that if the city cannot meet its debt obligations, a state receiver or trustee could take over operations, removing the city manager and stripping the council of its budget authority.

"I don't want to sound like I'm trying to scare the council into something here, but we really need to think about what happens when a city becomes insolvent," Schulze said. "If that doesn't create urgency for everyone in this room, I don't know what will."

What Could Be Cut

Schulze told councilmembers that without additional revenue, discretionary services would be cut first from the nearly $90 million general fund. That includes parks, the library, the swimming pool and the nutrition center. By 2028, the city would then have to cut into public safety, and by 2030 there is a strong possibility the city would be unable to meet its debt obligations.

Schulze's plan includes assessing city spending at least once a month, using software to identify what to cut, and finding ways to boost revenue. He wants to avoid layoffs among City Hall's more than 300 employees.

Why the Budget Is Broken

Councilmembers point to several causes: unsustainable salary increases for workers, costly lawsuits from employee investigations, rising pension payments and slow-moving economic development. Councilmember Marcus Bush, who is running for mayor, blamed "poor leadership." Councilmember Jose Rodriguez said the city cannot keep running annual deficits.

City manager turnover has also made it harder to fix the problem. In 2023, Armando Vergara died unexpectedly after being permanently hired for the role. His successor, Benjamin Martinez, left two years later. Three interim managers followed before Schulze was hired.

The $10 Million Lawsuit

The city was ordered to pay former police officer Ashley Cummins $10 million after she accused the department of sexual harassment, discrimination and retaliation. The city is appealing the decision. That judgment is a heavy burden for a city that now operates on a nearly $90 million general fund budget.

Mayor Morrison Steps Down

Mayor Ron Morrison announced he will not seek another term after 34 years in public service. He is proud of his "I heart National City" buttons and the Port of San Diego's approval of his National City Balanced Plan, a 77-acre waterfront project that will expand public access and recreation while supporting maritime operations.

Morrison warned his successor to understand the city's limitations. "City comes first," he said. "Realize what your opportunities are, but realize what your limitations are and learn the art of how to say no even when you don't want to."

The Mayoral Race

Four candidates are running for mayor: Councilmember Marcus Bush, Councilmember Jose Rodriguez, former councilman and city treasurer Mitchel Beauchamp, and STEM-enrichment instructor Jacob Castrejon.

Rodriguez wants to examine reserves, cut expenses, freeze executive salaries and update the business license tax. Bush wants to give the new city manager time to evaluate each department, then pair cuts with new revenue from parking and development. Beauchamp says the city needs a reduction in force because of the financial situation.

Local Context

National City is a South Bay community in San Diego County. Morrison once described the city as having a bad reputation and being the "crime capital of the county" when he started. He used 500 "I heart National City" buttons to help build civic pride, and the city has now given out about 50,000.

Background

Morrison said the city's budget problems have lingered for around a decade. The council recently rejected a proposed ballot measure that could have generated up to $7 million a year by increasing business license fees. The split vote showed the difficulty of raising revenue in a city where many small business owners oppose higher costs.

Conclusion

The next six months will be crucial. Schulze has promised to report on spending regularly and to make the difficult choices needed to keep National City out of state receivership. Residents should pay close attention to council meetings and to the upcoming mayoral election, because the outcome will shape how deep the cuts go.