He has 3 years to save National City from a state takeover. Here’s how he plans to do it.

Douglas Schulze issued a stern warning: National City is headed for fiscal insolvency by 2030 if officials continue to deplete its reserves.

“It’s serious, and we absolutely have to address it in the next six months,” he said in a recent interview with inewsource.

Two months ago, Schulze took over as city manager, a position that has dealt with instability for years. Three people have cycled through the office in the past year alone. 

Immediately, Schulze inherited a nearly $13 million deficit and a budget that has for at least two consecutive years relied on the city’s depleting reserves. If the city is unable to meet its debt obligations, Schulze said a state receiver or trustee could take over operations — removing the city manager and stripping the locally elected councilmembers of their authority to oversee the budget.

But Schulze said he has a plan to fix the structural deficit, including assessing city spending at least once a month, using software to help identify what to cut, and finding more ways to boost revenue. What he wants to avoid? Layoffs among City Hall’s more than 300 employees.

Councilmembers agree that the city’s finances are a mess. In interviews with inewsource, several of them blamed unsustainable salary increases for workers, costly lawsuits stemming from employee investigations and the city’s slow-moving economic development.

The city manager office, meanwhile, has seen extraordinary turnover. In 2023, Armando Vergara died unexpectedly just days after he was permanently hired for the role. His successor, Benjamin Martinez, departed two years later. Three interim appointments followed before Schulze was hired.

Marcus Bush, who has served on the council since 2020 and is running for mayor, blamed the city’s budget troubles on “poor leadership.” He has also been critical of former City Attorney Barry Schultz, who left last year. Councilmember Jose Rodriguez has previously defended Schultz.

During Schultz’s tenure, the city was ordered to pay former police officer Ashley Cummins $10 million after she accused the department of sexually harassing, discriminating and retaliating against her. The damages amount to nearly one-fifth of the city’s general fund. The city is appealing the decision.

Bush said he doesn’t believe the council was properly informed to decide on a settlement or another decision. “Instead,” he said, “we had this huge judgment against us and we haven’t had the conversation about, how did this happen? Why did this happen? 

“And that happens so frequently in the organization when things happen. They’re swept under the rug, and that leads to things like this budget deficit.”

Approaching her fourth year on the council, Luz Molina said rising pension payments are also contributing to the budget deficit. 

But she also pushed back on assertions that the city was dysfunctional, saying the vast majority of council meetings “are ordinary business.”

“On the budget, I agree that we need to do more work on that,” she said. “Nobody up there is defending the current structure of the budget. I think everybody has committed to doing the work.”

Mayor Ron Morrison, who has served multiple terms since the 1990s, said budgetary issues have lingered for around a decade. From labor contract decisions to offering legal aid to immigrants, Morrision said certain spending is “not sustainable.” 

He said “it’s gotten really bad” over the past five to six years, and Schulze has his work cut out for him.

“He got thrown into a total meat grinder,” said Morrison, who announced last week that he won’t seek reelection.

Earlier this month, Schulze told councilmembers that without additional revenue, discretionary funds — spending on what’s considered non-essential city services such as parks, the library, swimming pool and nutrition center — would be cut first from the nearly $90 million general fund budget. 

By 2028, the city would then cut into public safety. He said there’s a “strong possibility” the city would be unable to meet debt obligations by 2030.

“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.”

That same night, councilmembers in a split vote rejected a proposed ballot measure that could have generated up to $7 million in annual city revenue by increasing the cost of business licenses.

Bush, Morrison and Molina voted against the measure, which garnered strong opposition from business owners and the National City Chamber of Commerce.

Employee unions supported the proposal. Karla Apalategui, president of SEIU Local 221’s National City chapter, wrote in an email to inewsource that the measure would have helped fund a “high quality” level of city services. 

“As a result of the council’s decision, our members and the services they provide are at risk,” she said.

National City Police Department Sgt. Richard Calixto, an employee for nearly two decades, said he wishes Schulze well and hopes he makes fair decisions.

“I know some of those decisions are gonna be tough and everything is gonna be give and take,” said Calixto, who is a member of the police union but spoke to inewsource as an individual. 

“Ultimately, whatever’s said and done, we’ll live with it, and it’s up to us to decide if we want to continue to be here and live with it, or we need to move on to find another place and job.”

Rodriguez, who is also running for mayor, said the city didn’t give voters a chance to decide the business tax.

“As a result our expected budget structural deficit is going to be larger,” he said. “That means we’re going to have more severe discussions for severe cuts for services in our city. That always places a city manager in a very difficult position.”

Rodriguez, who has served the council since 2020, said lack of economic development and personnel overtime have impacted the city’s finances over the years.

Councilmember Ditas Yamane declined a reporter’s request for an interview.

Schulze said he has other ideas for generating new revenue. He wants to expand the city’s tax base through hotel and commercial development, including potential hotels near Pepper Park and the adjacent area. The Port of San Diego, which shares jurisdiction of the city’s bayfront, voted last month to move forward on early stages of that development known as the National City Balanced Plan.

Schulze also wants to encourage investment with the creation of a downtown improvement district that would fund beautification and other upgrades in the area.

He has recommended the council consider contracting with a software company to implement “priority-based budgeting.” That would mean using artificial intelligence to sort spending into individual programs, identify their true costs and distinguish mandated city services from discretionary ones. 

Schulze is paid $300,000 a year under his three-year contract. The 63-year-old has worked in municipal management for more than three decades — and if the council likes his work, he said he plans to lead the city for the next five to seven years.   

“I’m looking at my goals and what I want to accomplish here much differently because there’s clearly a window that’s going to close,” he said. “I love what I do.”