Budget Update
Posted Date:6/1/2012 6:00 PM
Outlook for City budget looks brighter but RDA potential impacts are a serious concern
June 2012
The proverbial light at the end of the tunnel appears to be getting a little brighter for the City of Santa Clara’s budget situation, although there are still many miles to go before the City can fully emerge from the difficult days of the Great Recession. Serious concerns remain regarding the potential impacts on the City’s General Fund of the dissolution of the Redevelopment Agency by the State of California, which could be in the millions of dollars. Full impacts will not be known, perhaps for months.
The proposed City budget for Fiscal Year 2012-13 scheduled for public hearing on June 12 follows the Budget Principles. These principles have been adopted by the City Council and updated annually starting several years ago when revenues to the General Fund were hard hit by one of the worst economic climates in recent U.S. history, and emergency reserves were used over several years in order to balance the budget. Other major actions taken include keeping more than 100 positions vacant, and the implementation of unpaid furlough days.
A mid-year revenue report to the City Council at the end of March brought encouraging news about the three major sources of revenue to the General Fund – property tax, sales tax and Transient Occupancy Tax (TOT) charged to guests staying at local hotels and motels. Property tax, which had decreased for the previous two years, had leveled off and is expected to start to grow again in the upcoming fiscal year. Both sales tax and TOT were coming in above estimates and also expected to continue to rebound.
In March, staff projected that the City would end its fiscal year on June 30 with revenues about $8.9 million above budget. Of this, $6.1 million is in restricted development fees from the Stadium project. These one-time plan check fees and building permit fees can only be used for development review and any unspent amounts will be transferred at year-end to the Building Inspection Reserve in accordance with adopted Council policy and applicable laws. By policy, the first $3 million of unexpended, unrestricted revenues (currently estimated at $2.8 million) in the General Fund are transferred to the Working Capital (Emergency) Reserve account at the end of the year. Amounts above $3 million, if any, would be transferred to the Capital Projects Reserve. As of December 31, 2011, the Working Capital (Emergency) Reserve had a balance of $4.1 million towards its target goal of $35 million for emergencies.
In preparing the budget for FY 2012-13, the City continues to look for ways to reduce expenses and find long-term solutions to the General Fund’s structural deficit. Past actions have included concessions (specifically, foregoing salary increases and agreeing to unpaid furloughs) by eight of the City’s 10 bargaining units, and layoffs in represented employee groups who did not agree to concessions. In addition, the City has eliminated, frozen or held vacant more than 100 positions and reorganized systems and workloads to minimize the impact of the loss of these positions on delivery of services to the community. During negotiations with bargaining units in the coming year, the City will explore other actions such as a two-tier pension plan to help reduce the rising cost of retiree benefits.
Although the City has been aggressive in pursuing ways to balance the budget during the lingering recession that has so significantly affected revenues, its work has been made even more difficult by State actions such as the loss of motor vehicle license fees which took away about $400,000 in revenue during 2011-12 and the dissolution of the Redevelopment Agency that removed more than $3 million from the General Fund in reimbursements for staff time, and has the potential to impact an additional $12 million in lease revenues.
During the next year, more details about the RDA dissolution will be worked out by an Oversight Boardrepresenting the City, County, California Community Colleges, Santa Clara Valley Water District, and the County Office of Education. Potentially at risk are other RDA-related sources of revenue to the General Fund such as ground leases that bring in about $12 million per year. These leases of City-owned land could be challenged by the State due to past RDA involvement in the properties.
In the meantime, the City is moving ahead with plans for expanding its efforts to encourage business growth in Santa Clara. All of the current FY 2011-2013 City Council adopted goals focus on enhancing economic development for the benefit of the community. In addition to Council’s Economic Development Committee, the City Manager and Department Heads serve as the Economic Development Team, an award winning approach which has helped Santa Clara to foster business development. The position of Economic Development Officer is another point of contact for new businesses coming into the City and existing businesses that want to expand.
Things are also looking more positive for the Electric Utility, and also for the Water & Sewer Utility whose structural budget deficits have been reduced or eliminated through necessary rate increases that were approved and went into effect in fiscal year 2011-12. Neither of these funds is expected to need to use reserves in 2012-13 to achieve a balanced budget, and will be able to continue their work to update existing infrastructure for ongoing reliable and efficient service to the Santa Clara community.
An ongoing challenge for the General Fund departments is the Capital Improvement Project (CIP) budget which continues to struggle to keep up with infrastructure needs of the community. It is currently estimated the City has $125 million in unfunded capital project needs with no dedicated source of revenue.
June 2012
The proverbial light at the end of the tunnel appears to be getting a little brighter for the City of Santa Clara’s budget situation, although there are still many miles to go before the City can fully emerge from the difficult days of the Great Recession. Serious concerns remain regarding the potential impacts on the City’s General Fund of the dissolution of the Redevelopment Agency by the State of California, which could be in the millions of dollars. Full impacts will not be known, perhaps for months.
The proposed City budget for Fiscal Year 2012-13 scheduled for public hearing on June 12 follows the Budget Principles. These principles have been adopted by the City Council and updated annually starting several years ago when revenues to the General Fund were hard hit by one of the worst economic climates in recent U.S. history, and emergency reserves were used over several years in order to balance the budget. Other major actions taken include keeping more than 100 positions vacant, and the implementation of unpaid furlough days.
A mid-year revenue report to the City Council at the end of March brought encouraging news about the three major sources of revenue to the General Fund – property tax, sales tax and Transient Occupancy Tax (TOT) charged to guests staying at local hotels and motels. Property tax, which had decreased for the previous two years, had leveled off and is expected to start to grow again in the upcoming fiscal year. Both sales tax and TOT were coming in above estimates and also expected to continue to rebound.
In March, staff projected that the City would end its fiscal year on June 30 with revenues about $8.9 million above budget. Of this, $6.1 million is in restricted development fees from the Stadium project. These one-time plan check fees and building permit fees can only be used for development review and any unspent amounts will be transferred at year-end to the Building Inspection Reserve in accordance with adopted Council policy and applicable laws. By policy, the first $3 million of unexpended, unrestricted revenues (currently estimated at $2.8 million) in the General Fund are transferred to the Working Capital (Emergency) Reserve account at the end of the year. Amounts above $3 million, if any, would be transferred to the Capital Projects Reserve. As of December 31, 2011, the Working Capital (Emergency) Reserve had a balance of $4.1 million towards its target goal of $35 million for emergencies.
In preparing the budget for FY 2012-13, the City continues to look for ways to reduce expenses and find long-term solutions to the General Fund’s structural deficit. Past actions have included concessions (specifically, foregoing salary increases and agreeing to unpaid furloughs) by eight of the City’s 10 bargaining units, and layoffs in represented employee groups who did not agree to concessions. In addition, the City has eliminated, frozen or held vacant more than 100 positions and reorganized systems and workloads to minimize the impact of the loss of these positions on delivery of services to the community. During negotiations with bargaining units in the coming year, the City will explore other actions such as a two-tier pension plan to help reduce the rising cost of retiree benefits.
Although the City has been aggressive in pursuing ways to balance the budget during the lingering recession that has so significantly affected revenues, its work has been made even more difficult by State actions such as the loss of motor vehicle license fees which took away about $400,000 in revenue during 2011-12 and the dissolution of the Redevelopment Agency that removed more than $3 million from the General Fund in reimbursements for staff time, and has the potential to impact an additional $12 million in lease revenues.
During the next year, more details about the RDA dissolution will be worked out by an Oversight Boardrepresenting the City, County, California Community Colleges, Santa Clara Valley Water District, and the County Office of Education. Potentially at risk are other RDA-related sources of revenue to the General Fund such as ground leases that bring in about $12 million per year. These leases of City-owned land could be challenged by the State due to past RDA involvement in the properties.
In the meantime, the City is moving ahead with plans for expanding its efforts to encourage business growth in Santa Clara. All of the current FY 2011-2013 City Council adopted goals focus on enhancing economic development for the benefit of the community. In addition to Council’s Economic Development Committee, the City Manager and Department Heads serve as the Economic Development Team, an award winning approach which has helped Santa Clara to foster business development. The position of Economic Development Officer is another point of contact for new businesses coming into the City and existing businesses that want to expand.
Things are also looking more positive for the Electric Utility, and also for the Water & Sewer Utility whose structural budget deficits have been reduced or eliminated through necessary rate increases that were approved and went into effect in fiscal year 2011-12. Neither of these funds is expected to need to use reserves in 2012-13 to achieve a balanced budget, and will be able to continue their work to update existing infrastructure for ongoing reliable and efficient service to the Santa Clara community.
An ongoing challenge for the General Fund departments is the Capital Improvement Project (CIP) budget which continues to struggle to keep up with infrastructure needs of the community. It is currently estimated the City has $125 million in unfunded capital project needs with no dedicated source of revenue.
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