For the first time in more than a quarter of a century, city
staff are facing the possibility of losing jobs and recommendations
on how to deal with the budget deficit will be made public today,
according to City Administrator Tom Haglund.
For the first time in more than a quarter of a century, city staff are facing the possibility of losing jobs and recommendations on how to deal with the budget deficit will be made public today, according to City Administrator Tom Haglund.
At a special meeting Wednesday evening, the council will discuss potential layoffs, a move to close a nearly $6 million budget gap that resulted in part from a decision to buy back $42.7 million worth of auction rate notes it issued in 2003, a drop in sales tax revenue and a $13 million purchase Gilroy Gardens earlier this year.
“We will as a team, meaning all seven of us, work together to find the best solution and if it means laying off people then we will do it,” Mayor Al Pinheiro said. “The number one decision is based on the fact that I’ve got to protect the city in general and I’m going to make the decisions I need to make to bring the city back to a financial level to be able to pay our bills and not go any further into deficit than we already are at.”
When closing budget gaps, the city looks first to defer this fiscal year’s capital projects and materials and supplies, according to Haglund. Personnel reductions are the “last resort,” he added.
“We take a look at what are our core services and how many people are needed to provide (them). We do this department by department. Then we take a look at quality of life services – those that aren’t completely necessary but could define the community of Gilroy,” said Haglund.
A plan was develped in 2003 that included tiers to deal with budget deficits. It was never implemented because it was never needed and now it won’t work because the deficit is too large, Pinheiro said.
Councilman Dion Bracco said the city is in the “same boat as everyone else in this economy.” When asked what could have done to prevent the current state, he said “we could have started balancing the budgets years ago. When you keep operating out of deficit, sooner or later the bills come due.”
And those bills are now coming due.
The $42.7 million worth of auction rate notes represents the amount Gilroy still owes investors after issuing nearly $46 million worth of notes in 2003 to fund the construction of the Sunrise Fire Station, the new police station, the sports complex and improvements at the city’s corporation yard – where vehicles and materials are stored. The city had the cash for the projects back then, but rather than spend its own money, it opted to externally finance the projects and pay a lower interest rate to investors than it expected to earn on investing its the saved money in securities and federal bonds.
The gamble – which netted the city more than $600,000 – was paying off until several weeks ago, when interest rates on the notes shot up in tandem with an unsteady market. Investors could not sell the bonds and were required to keep them, triggering automatically higher interest rates based on a weekly index. Gilroy only has $152,000 per month budgeted for the interest payments on its notes – which corresponds to an annual rate of about 4 percent – but the weekly rates shot up from about 3 percent to nearly 12 percent, and now hover near 8 percent, according to Craig Hill, the city’s financial adviser who works for San Rafael-based Northcross, Hill & Ach.
Buying back the city’s notes will cut the general fund reserves from $16.6 million to $14.2 million – down from $26 million a year ago – and it will also lower Gilroy’s investment portfolio balance from $60.7 million to $17.3 million. The council heard from staff that this year’s general fund deficit would likely balloon from $3.9 million to nearly $6 million thanks to lower-than-expected revenues and shrinking sales tax receipts. September sales tax receipts, for example, fell $428,618, or 38 percent, compared to September of last year, according to city figures.
And that has some employees wondering what’s on the horizon.
“As long as I’ve been here, it has never come to this point,” said Bill Faus, planning division manager, who has worked for the city for the past 26 years.
Faus said that considering how the rest of the county is fairing with the economy, “I don’t think anybody who has picked up a newspaper or watched television in the past six months is surprised.”
Despite the gloomy projections, firefighter Jim Buessing, who represents Gilroy Fire Local #2805, said there were too many variables at this point to say whether lay-offs were definite.
Haglund said the budget deficit will reach about $6 million by the end of next June in the general funds, with an additional $7 million in the general fund by June 2010.
“If we don’t do anything to try to curb expenses, then we’re going to be spending through what we call our ‘general fund reserves’ and we need to be careful about that,” he said. “What we’re trying to make sure is that we’re turning every stone and looking for every penny to make sure we can still provide all the services that are important to the community”
Reporter Chris Bone contributed to this story.
