As planned, the City of Gilroy has burned through most of its reserve fund intended for economic uncertainties while weathering the pandemic-induced recession.
But, as City Administrator Jimmy Forbis pointed out in his mid-year budget report to the city council on Feb. 1, should the economy take another dive, Gilroy will have to dig deeper than the cuts it has already made in the past year.
During this time, the city spent $3.5 million of its economic uncertainty reserve to prevent further cuts, according to Forbis, and the fund will be nearly depleted by the end of the fiscal year.
The city will be able to maintain its required 20 percent general fund reserve, which is used for emergencies that require an immediate infusion of cash, Forbis said.
But if the economy worsens, Gilroy won’t have the luxury of what Forbis called a “soft landing” as it had in the previous year, where the uncertainty reserve allowed the city the ability to reduce the number of layoffs and other cuts.
The city must find ways to replenish that fund at a future budget meeting, Forbis advised.
Sales tax revenue is down 21 percent over the third quarter, and roughly 20 percent between Jan. 1 through Sept. 30 compared to 2019, according to Forbis. The fourth quarter sales tax report, which includes the holiday shopping season, has not yet been released.
Overall, the city is expecting a $3 million reduction in sales tax revenue by the end of the fiscal year.
While property taxes and business license revenues remained stable, building permit fees surprised city economists by increasing during the pandemic, Forbis said, adding that low financing costs and housing demand were likely contributors.
Forbis told the council to “stay the course.”
“The fiscal recovery plan is working and has achieved its intended results,” he said. “But, it is reliant on what we know right now. We feel no reason to make any adjustments to the plan, and no further reductions.”