To get the budget out of the red and into the black while also
hanging on to millions in reserve funds, city councilmen must
decide how they want to tighten the city’s financial belt, and how
quickly.
Deficit-reduction plans could save the city millions
Chris Bone – staff writer
cb***@************ch.com
GILROY
To get the budget out of the red and into the black while also hanging on to millions in reserve funds, city councilmen must decide how they want to tighten the city’s financial belt, and how quickly.
The city’s discretionary cash comes from its $43 million general fund, which is running a $4.8 million deficit since the council approved nearly $48 million in expenses for the fiscal year that began July 1. Later this month staff will update these numbers when it reviews the city’s first six months of expenses and revenues.
Ahead of their internal audit, though, city financial staff presented council with a multi-step plan that could save more than $50 million over the next five years by cutting full-time staff by 21 percent.
But “we think that it would be in the best interest of the community to not take any drastic measures and wait until the end of 2007-2008 to determine if the tiered reductions are necessary,” Co-Finance Director Christina Turner wrote to City Administrator Jay Baksa, who reminded councilmen Oct. 17 that past projected deficits have often fallen since the council has historically adjusted spending as revenue fluctuates.
The tiered reductions Turner referred to are four separate money-saving plans that the city’s five departments could implement at the behest of the council. Councilmen are mulling over the details of the plan now and will discuss it again over the next two months before making any official decision, according to multiple councilmen.
Of the four plans, the least severe would save the city about $442,000 this fiscal year by making small four- and five-figure cuts to everything from the city’s sidewalk repair program to its custodial services. The most severe option, on the other hand, would save the city nearly $9 million this year, lifting the budget far into the black by firing 62 full-time employees and slashing city services and departments to their most basic levels.
Pinheiro shirked at this option and said the council “plans for the worst and hopes for the best.”
“There’s no reason to have a bare-bones operation,” he said. “Our community deserves the kind of services they pay taxes for. The deficit is there because we as a council did not want to take away any first-class services.”
But Councilman Craig Gartman, who is challenging Pinheiro for the mayoral seat, voted against this year’s budget and has advocated a speedy fix that would narrow the deficit to zero and ensure that the city’s reserve fund equals at least 15 percent of its expenditures.
The city has $27 million in reserves that represents about 56 percent of this year’s almost $48 million in expenditures.
Despite the plan’s overall positive reception from councilmen, Gartman said it was full of “scare tactics” because it emphasizes cutting employees instead of other income-saving measures. In general, the entire plan advocates chipping away at part-time and seasonal employees before cutting full-time positions. The city has 296 full-time and 76 part-time employees, according to Human Resources Director LeeAnn McPhillips.
“I would like to see everything in the general fund being put on the table for reduction, such as the need for new office furniture, new trucks, new cars, new computers,” Gartman said. “Until we get a good idea of where we stand financially, though, I can’t predict whether (a fix) will be this year or next year, but I’d like to see it as soon as humanly possible.”
Since the overall budget reduction plan calls for sustaining the city’s reserves while also knocking out the deficit within three to five years, the four different options could accomplish this goal at varying times.
If the council went just with option one – the lightest, least severe approach – then reserve levels would stay well above 15 percent of expenditures and the deficit would disappear by fiscal year 2011-’12.
The city could achieve the same results this year, though, if it implemented options one, two and three, which would save the city $3.6 million by cutting the sidewalk program even more, eliminating some full-time positions starting with assistants and cutting community service programs such as swim lessons and playground events. The city is projecting $1.3 million in budget savings this year, so that number plus the $3.6 million saved by implementing the first three options would surpass the current $4.8 deficit without jeopardizing the reserve fund.
But Councilman Russ Valiquette said a rapid fix is an expensive, short-sighted idea.
Instead the city should opt for the least severe options over the next three to five years, he said. He also reminded the council that union negotiations continually affect the budget, so the council would have to consult the fire, police and municipal unions before implementing any of the four options.
“It’d be very easy to do it this year, but at what cost? We won’t have money for sidewalks or other services, or money to pay for new police and fire workers,” Valiquette warned. “If we gradually tighten our belts and really keep an eye on everything, we can close that gap in the next four to five years.”
If the reserve fund ever sunk below the 15 threshold, then the necessary tiers would automatically be implemented, Baksa told the council. Nevertheless, savings from each of the tiers build on each other, so Turner said the council would most likely implement them successively if they decided to do so.
Regularly monitoring the budget alongside specific, updated budget reduction plans is a new move for the city. Staff has come up with specific deficit plans in the past, but never routinely to accompany the council’s semi-annual budget reviews, according to Pinheiro.
“Trust in the process will be gained each year as we analyze the revenues and expenditures of historical periods and use the knowledge to project for future years,” Turner wrote.
Last year the city slashed $2.3 million in expenses to shrink the gap by more than $1.6 million. The city ended up with a deficit of almost $820,000.
Planning Commissioner and council candidate Tim Day pointed to this trend as evidence that “that everybody keeps forgetting that we’ve never hit the budgeted deficit – we’re always below it,” he said.
Turner agreed.
“It is important to point out that historically, we have conservatively estimated the gap in the budgeting process by as much as $5 million or an average of $1.3 million over the last five years,” Turner wrote, thanks to “diligent spending” and “more revenue than anticipated.”
Pinheiro said he and his colleagues need to do more thinking.
“There are many more questions to be answered,” he said.
