City Budget Outlook Improves
Officials Warn That City Still Not Out of the Woods
By Dave Roberts
After several years of budgetary news ranging from bad to worse to talk of potential bankruptcy, the City Council cautiously welcomed a moderately positive financial report Tuesday night.
Due to cost savings from city employee layoffs, pay freezes and benefit concessions along with cutbacks in services and closing City Hall every Friday, the city is only running a $468,000 deficit in the current fiscal year ending June 30. That deficit is more than covered by a nearly 15 percent reserve fund balance in the $36 million General Fund budget.
The other good news is that the cost savings will extend into the 2011-12 fiscal year, which starts in July. As a result, the $2.1 million deficit that had been projected by July 2012, is now estimated to be just $366,000. Again, that deficit can be covered by a 14 percent reserve fund.
The bad news is that after that, the city returns to a collision course with fiscal insolvency and possible bankruptcy. “We are still not out of the woods,” warned Finance Director Dawn Merchant in her report to the council.
The reason is that the lingering after-effects of the Great Recession will continue to dampen revenue growth from sales and property taxes, while city employee pay and benefit concessions expire and 3-to-6 percent pay raises come due. As a result, the budget deficit is projected to balloon back up to $1.9 million.
And that shortfall can’t be covered by the reserve fund, which is projected to decrease to 8 percent in a $36 million budget. City officials want to maintain at least a 10 percent reserve and preferably 15 percent.
Council members are aware that while the city is no longer hemorrhaging red ink for now, they are still hacking their way through the trees.
“I sort of feel like we are still able to make our mortgage payment, but we are still utilizing our line of credit,” said Councilman Gary Agopian. “And at some point that line of credit is still due. So, keeping that image in mind, even though we have minimized our negative substantially for this upcoming budget year, it is still nonetheless a negative. It is still $366,000 that we are choosing to pay out of our reserve.
“And we are hoping through a combination of events – like grants and additional revenues and maintaining expenditures at a certain level and no other catastrophes – that we will be able to make it through the following budget year. But it certainly doesn’t feel like we are out of the woods. It feels like we have a little bit of stability this budget year coming up. But we still have real concerns for the upcoming years. So we certainly should not just be going down this path without considering what the implications are.”
And City Manager Jim Jakel reminded the council that the status quo – with many unfilled vacancies and a morgue-like emptiness on the third floor of City Hall where top management works – is far from satisfactory.
“We are in the triage mode,” said Jakel. “We are in a residual mode. There is no assistant city manager, no deputy city attorney, no human resources director, no deputy city clerk. The city attorney and I share a secretary. Nobody who works here has had a raise since 2008. We are doing what we have to do right now. It’s far from desirable. As soon as we can get out of this triage mode we need to get staffed up. Make no bones about it, when you walk up to the third floor the floor is dark pretty much.”
While they are happy that tax revenues no longer appear to be in decline, city officials are hoping that the economic recovery will kick in in the next year or two so that they can begin righting the ship.
Helping the city navigate the current rough seas has been a $1 million contribution by the city’s trash hauler in exchange for a contract extension with rate hikes, and a matching grant donation of up to $100,000 by auto dealer Tom Nokes for police services.
On the other hand, the federal COPS grant that has paid for extra police officers will expire in a little more than a year – a loss of $723,000. Officials are seeking other grants to keep them on the job. But Acting Police Chief Allan Cantando said that that could be a challenge with federal funding drying up. The federal budget is more than $14 trillion in debt, with the deficit increasing by more than $1.5 trillion each year.
