Long Beach Faces $40M Budget Deficit, Larger Shortfall Looms

City grapples with declining tax revenues and loss of federal and state funding

Published on Feb. 27, 2026

Got story updates? Submit your updates here. ›

Long Beach city leaders are dealing with a $40 million deficit in the FY25 general fund, nearly double the original projection, as external economic forces like federal and state funding cuts and declining tax revenues put pressure on the city's fiscal future. The projected structural shortfall for the upcoming FY26 budget now sits in the $60 to $80 million range, forcing the city to tap into reserves and one-time funds to balance the current year's budget.

Why it matters

The budget woes highlight the financial challenges facing cities like Long Beach as they grapple with the impacts of a turbulent economy, including higher costs of living, reduced consumer spending, and the loss of key federal and state funding sources. This could lead to difficult decisions about service levels and potential cuts in the future.

The details

Long Beach's FY25 deficit was driven by a $26 million drop in key revenue sources like property tax, sales tax, and utility users tax, as residents pulled back on spending and asset sales amid economic uncertainty. The city's health department also faced a $14 million deficit due to the loss of federal and state grants. To balance the FY25 budget, Long Beach used $7.8 million from its operating reserve and other one-time funds, while also implementing spending cuts across departments.

  • Long Beach ended fiscal year 2025 with a $40 million deficit in its general fund.
  • In May 2025, the city asked departments to reduce spending by 0.5% to 1% to generate savings.
  • In December 2025, the spending reduction target was increased to about 3% as the revenue declines became more apparent.
  • The city's projected structural shortfall for the upcoming FY26 budget now sits in the $60 to $80 million range.

The players

Tom Modica

The City Manager of Long Beach who has been warning of increased pressure on the city's budget and is overseeing efforts to balance the FY25 and FY26 budgets.

Long Beach City Council

The governing body of the City of Long Beach that approved recommendations to balance the FY25 budget.

Long Beach Department of Health and Human Services

One of three independent health departments in California that has been hit hard by the loss of federal and state funding, leading to the closure of several programs and a $14 million deficit that had to be covered by the city's general fund.

Got photos? Submit your photos here. ›

What they’re saying

“I don't think it is any surprise that we're in a very turbulent economy right now, everything from tariffs to inflation to changing policies. And it really does have impacts on the federal level, the state level and then the local level.”

— Tom Modica, City Manager (Press-Telegram)

“When our residents are worried about their economic situation, they're not spending a lot of money; they're pulling back on purchases. They may choose not to sell a home at this time; they may choose to just cut wherever they can. All of that affects the city as well.”

— Tom Modica, City Manager (Press-Telegram)

What’s next

The city has contracted Health Management Associates to conduct an evaluation of the health department's programs, funding strategies and cost structures, which is expected to be released in the next couple of weeks. This report is expected to provide a roadmap for addressing the challenges facing the health department.

The takeaway

Long Beach's budget woes highlight the financial pressures facing cities as they grapple with the impacts of a turbulent economy, including declining tax revenues and the loss of key federal and state funding sources. This could force difficult decisions about service levels and potential cuts in the future as the city works to address its growing structural deficit.