SAN DIEGO—Mayor Todd Gloria announced a hiring freeze Wednesday, along with restrictions on non-essential funding and a reassessment of the city’s leases and contracts as San Diego faces a $258 million deficit in the coming fiscal year.

Gloria, who won reelection for another four years governing the city, cited voters’ rejection of a proposed sales tax increase in last month’s election.

Measure E, known as the San Diego Transaction and Use Tax, would have increased the tax on transactions in the city by 1 percent, bringing the total sales tax to 8.75 percent. The current rate in the city, 7.75 percent, leaves the city tied for the fourth lowest of the state’s 482 municipalities and lower than nine of the county’s 18 cities, according to the California Department of Tax and Fee Administration.

“Measure E would have stabilized the city budget for the foreseeable future and allowed us to build on progress we’ve made with record infrastructure investments in recent years,” Gloria said. “Without these additional funds, next year’s budget process will be difficult, but we'll use this as an opportunity to re-imagine how the city operates, with a focus on delivering core services: repairing roads and other critical infrastructure, building more housing, addressing homelessness, and keeping San Diegans safe.”

The additional $400 million it was estimated Measure E would have raised could have gone to a wide range of city needs, including infrastructure projects, core services, and general city needs—money desperately needed to maintain San Diego, officials said.

Ultimately, the measure failed by fewer than 4,000 votes, just 0.8 percent of the vote. A similar countywide half a cent sales tax increase—Measure G—also failed by around 3,000 votes, or 0.9 percent of ballots cast.

As a result, Gloria said all but the most essential positions will remain unfilled. Overtime is being suspended, and a pause is in effect for spending on travel and training and the ongoing Civic Center redevelopment process. Officials will also look to monetize city properties such as Golden Hall, among other penny-pinching solutions.

“The Five-Year Financial Outlook makes it clear that projected revenue is insufficient to meet the needs of our city. The takeaway is unmistakable: We must cut expenses, and some cuts will be deep—very deep,” City Council President Pro-Tem Joe LaCava said. “I ask my council colleagues to engage now to safeguard the safety of all San Diegans, protect our most vulnerable residents, meet the needs of under-resourced neighborhoods, and ensure a thriving economy.”

The process begins in a week, at the Council Budget Committee on Dec. 11.

Last year, facing a $170 million deficit as COVID-19-era federal and state funding dried up, Gloria cut funding for services such as libraries and parks and recreation. Public backlash caused him to reconfigure, using one-time funding sources and strategic cost reductions as a stop-gap measure.

Those options aren’t available this time around, he said.

“As we seek to address our fiscal challenges ahead, it will be critical for the council to work collaboratively with the Mayor’s Office, the Independent Budget Analyst, and the public to ensure that we deliver a balanced budget that maximizes our limited resources while continuing to reflect the needs of each of our communities,” said Councilman Kent Lee, chair of the council’s Budget and Government Efficiency Committee.

In its Fiscal Year 2025-2029 Five-Year Capital Infrastructure Planning Outlook, the city identified critical infrastructure maintenance and construction needs in areas such as roads, sidewalks, street lights, parks, libraries, and other facilities totaling $9.25 billion over the next five fiscal years. That amount does not include the costs of maintaining public safety services like police, fire, and emergency services.