The Pleasanton City Council approved a downsized two-year budget plan Tuesday totaling $87.3 million for the fiscal year starting July 1 and $89.4 million for fiscal 2010-11 but acknowledged that possible state takeaways of local funds and a continued recessionary economy could make it difficult to keep those budgets balanced.
"The good news is that our operating budgets for the next two years are balanced," City Manager Nelson Fialho told the council. "But the bad news is that the economy is in such a fragile state that it will probably be a challenge to keep the budgets balanced over those two years."
Actually, the total city operating budget for the coming years is $186.1 million for fiscal 2009-10 and $190.3 million for fiscal 2010-11. More than half of those totals are dedicated to Enterprise Funds (36.5 percent ands 38.5 percent, respectively); Internal Service Funds (30.5 in both budget years); Special Revenue Funds (30.4 percent and 30.8 percent) and Debt Service & Trust Funds (2.4 percent in both budget years).
Revenue and expenditure allocations in those funds, such as park district programs and activities at the Callippe Preserve golf course, balance out as separate revenue generating programs.
It's the General Fund that accounts for 46.4 percent and 46.3 percent for the two budget years that determines the financial stability of the city.
Fialho and City Finance Director Dave Culver told the council that they built the fiscal year budgets with six strategies. They included:
1. The elimination of 10 vacant positions, with no line managers and other salaried personnel hired since last September. The vacancies came from every department, ranging from public safety to the public library to parks and recreation.
2. Non-personnel costs have been reduced 5 percent in the same period, including no new office equipment, vehicles and other materials.
3. General Fund transfers to the city's capital improvement program have been suspended for the next two years. Those transfers historically have totaled about $5 million and have gone to support funding needed for such projects as the Alviso Adobe Community Park, new tennis courts, park expansion, the Bernal lighted baseball fields and the Firehouse Arts Center. Those projects have all been fully funded by previous General Fund transfers.
4. A temporary reduction in General Fund transfers to specific reserves, such as major equipment replacement, medical retiree reserves and the city's self-insurance fund.
5. A lock has been placed on the recessionary reserve funds that now total over $10 million and will be used only if needed to accommodate state property tax and gasoline tax takeaways.
6. No salary adjustments for any of the city's 60 staff managers, including Fialho and Culver, for the next 12 months and no salary adjustments for unionized employees for the same period when their current contracts expire.
"Collectively these strategies provide a good short term approach to balancing the budget without causing any layoffs or cutbacks in programs or services," Fialho said. "However they are only short-term solutions."
"My sense is that if the economic impact that we are experiencing goes beyond the next 24 months, we'll have to revisit our assumptions and probably look at our baseline expenditures, which might include not only staffing but also programs," he added.
Culver said the statewide decline in sales tax revenue is affecting both the state and local governments. In the 1970s when there was rampant inflation, he said, sales tax revenue reached close to the 20 percent mark. Even though it dropped precipitously after that due to tight money policies by the Feds, the aerospace layoffs in the 1990s and the tech bubble in 2000, "the 6.2 percent decline in sales tax revenue in calendar year 2008 was unprecedented."
And it's not over.
"Sales tax is very important to our General Fund operating budget," Culver explained. "It is cyclical, it really follows the economy. Sales tax will turn on a dime whereas property tax kind of operates in slow motion."
"Sales tax revenue is already down 10 percent this year and will fall by an estimated 13 percent in the coming fiscal year. Besides that there will be a zero percent projected increase in next year's property tax revenue compared to +3.5 percent this current fiscal year and fees from development will be at a record low."
Fialho said that he and Culver are closely monitoring the state's fiscal crisis and its potential impact on the city's budget.
"It changes almost daily but I think the last number we saw was that the state now faces a $24.3 billion deficit that it is struggling with," Fialho said. "Some of the proposals that have been bandied about include not only shifting local tax dollars to help balance the state budget, such as property tax dollars, but also a potential grab of local highway dollars, such as local gas tax dollars that we utilize quite extensively to maintain and improve our streets."
Culver pointed out that for the state to take local property and other taxes from cities and counties is nothing new, that it started in the early 1990s.
"These takeaways reduce Pleasanton's property tax revenue that the city should have by about $9 million every year," he said. "That's more than $90 million so far and it has nothing to do with what the governor and state legislature are now proposing, which will be on top of all that."