Balancing the budget or just spinning wheels?


Despite layoffs and millions in budget cuts, the recession has
returned the city back to square one.

Despite layoffs and millions in budget cuts, the recession has returned the city back to square one.

Sinking sales tax revenues, depressed home values and a standstill in development continue to pound city coffers and have practically negated the $3.8 million in general fund expenditure cuts City Administrator Tom Haglund made before Christmas.

When he came on board in May 2007, a month before the council passed the current budget, Haglund immediately cut $4.5 million in expenses. The budget the council approved still ran a $3.9 million deficit, but that shot up to $6 million as the economy slowed. Laying off 48 full-time employees, freezing vacant positions, cutting back on materials and services and tweaking major infrastructure projects brought the deficit down to $2.3 million.

But now, thanks to an economy that just seems to be getting worse, it’s back up to $3.8 million.

“The projections are based on the assumption of worsened economic conditions or a pessimistic outlook,” Finance Director Christina Turner wrote in a memo to Haglund this week. Additional cuts “would not be realistic” until next fiscal year, because City Hall is almost running on empty, Turner wrote. The remaining employees routinely complain about heavier workloads.

“This is all very frustrating from the council’s perspective. Every time we sit down to meet and make cuts, the projections don’t pan out because the economy continues to deteriorate,” Councilman Perry Woodward said. “It’s a moving target that’s moving in the wrong direction.”

Councilmembers – who escaped takeaways from the state this year – vowed to pass a balanced budget this spring when they approved layoffs. At the time, staff predicted fewer employees would bring next year’s budget to nearly $900,000 in the black, but with tough times expected through 2011, Haglund said he is not sure what that surplus will look like. However, he is confident layoffs and other cuts will secure a balanced budget.

To ensure that, staff has recommended, among other things, restructuring the city’s debt obligations – such as the annual $1 million payment for Gilroy Gardens the city will make to itself every March until 2028 – and cutting additional projects in the so-called “impact funds.” Developers pay into the accounts when they build new homes, but no developers means $18.5 million less in cash this year for the various projects city staff planned during Gilroy’s boom years.

The city had $10.5 million worth of projects it couldn’t afford four months ago, but staff has since whittled that down to $8.4 million – $4 million of which could re-purchase the now-volatile bonds the city issued to build the Sunrise Fire Station, the new police station, the sports complex and improvements at the corporation yard. The general fund reserve would have to cover all of this deficit spending plus the general fund’s shortcomings, all of which equals a $12.2 million hit to the general fund reserve of $20.6 million.

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