GILROY
– Now the
”
fun
”
begins.
Even if the state spares Gilroy from major impacts as it
addresses its budget crisis, city officials will have to
revisit
– and reduce – their operational spending priorities just to
compensate for the lackluster economy and skyrocketing employee
benefits costs, City Manager Jay Baksa warned the City Council
Monday.
GILROY – Now the “fun” begins.
Even if the state spares Gilroy from major impacts as it addresses its budget crisis, city officials will have to revisit – and reduce – their operational spending priorities just to compensate for the lackluster economy and skyrocketing employee benefits costs, City Manager Jay Baksa warned the City Council Monday.
Baksa said he has ordered department heads across the city to return with 10 percent cuts and prioritize their core services.
And what happens with the operating budget could mean more tough decisions – and possible delays – in capital projects such as the new police and fire station, he cautioned.
“The bottom line is despite good planning, things are getting rough,” he said Tuesday. “We’ll have to take a logical, professional approach to this and work our way through it.”
Despite what officials say was careful, conservative financial planning, projected lower tax revenues and rising health and retirement costs will drain city reserves much faster than anticipated, Baksa said Monday. The result: higher annual budget deficits and the draining of reserves around mid-to-late decade.
And that’s before the city knows what the state will do.
“With the state, it just gets so much worse,” he said. “We’ll see cuts we’ve never seen before. They won’t be cuts, they’ll be hatchets.”
The news came during a workshop on the city’s budget Monday where Baksa discussed what he said were an unusual and unprecedented series of budget dynamics facing the city.
While the city was slated to review a draft of the city’s capital projects budget for next fiscal year beginning July 1, Baksa delayed the presentation and instead produced a draft of the operating budget – which usually goes out to the Council in May.
“This is the most unusual set of circumstances I’ve seen since I’ve been in the business … and that’s been 30 years,” Baksa said.
Baksa told the Council Monday that because of the different dynamics – including rising employee costs, slumping tax revenues and the threat of state cuts, the city may have to in effect produce three different budgets for leaders to consider for next year.
Monday, he asked Council to start their process by prioritizing services provided by each of the city’s 32 departments to create a “framework of priorities.”
The 10 percent reductions would result in program cuts, Baksa said. Officials already trimmed a million dollars out of this year’s budget and expect to do so next year through freezing positions, reducing travel and boosting efficiency, he said.
“You can’t make that kind of cut up just sort of nickeling and diming it – we’ve already gone past that phase,” Baksa said. “I’d expect (the reductions) to be programmatic.”
But layoffs will be a last resort, he said.
“They have to be,” he said. “Those are the things that will be hardest to turn back around” if conditions improve.
Four different phenomena are “attacking” the budget, Baksa said.
The continued economic slowdown is not what officials expected.
“It’s really, really hard to figure this economy out,” Baksa said. “Everyone has different ideas on what’s going to happen.”
As a result, sales taxes and bed-taxes from hotels have dropped this year, and the city’s general fund or discretionary revenues are expected to be $800,000 lower than expected.
But the numbers are still very preliminary, Baksa cautioned.
“A lot could happen in five months,” he said.
Meanwhile, the city – like many other local governments and also private employers – is facing “mind-boggling” increases in costs for employee benefits that have risen above expectations, Baksa said.
The city’s annual costs to provide retirement benefits for city’s 259 employees have risen from $1.1 million to roughly $4.5 million in the last 2 1/2 years, he said. Health insurance costs have also doubled from $1.5 million to $3.1 million in the same period.But most alarming is the state’s threat to take away revenues it directs to cities from the vehicle license fee, or VLF, he said. The move proposed by Gov. Gray Davis could mean an $800,000 drop in revenues during this fiscal year and $1.8 million annually in subsequent years.
What happens with the operating budget will affect the capital decisions as well, he said.
Because the actual construction money in next year’s $64 million capital budget comes from impact fees collected and set aside from developers over the boom years of the last few years, those funds are stable, Baksa said.
But indirectly, the operating budget could affect how much money the city has to operate new facilities.
“Once they’re built, we need to clean, maintain and staff them,” Baksa said.
Meanwhile, capital expenditures such as sidewalk repairs, purchase of vehicles, computers and other equipment and facilities maintenance at City Hall that come from the General Fund could be directly affected, he said.
Officials had already planned to tap $3 million of the city’s $24 million in reserves this year and next year in order to pay for increased services – such as the new paramedic program – until the economy regained its full health and the city reaps tax money from new east-side retail developments.
“We built up our fund reserves in the good years so (come) the rainy day they would be there to get us through the bad times,” Baksa said.
