Tough budget decisions ahead, city administrator warns

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The Gilroy City Council got its first look at economic projections under Covid-19 at its May 4 meeting. The council is expected to make budget decisions in June.

According to interim finance director Bryce Atkins, concrete numbers are difficult to determine based on the rapidly evolving Covid-19 situation. However, based on current information, the city expects to lose 30 percent of its sales tax revenue, or roughly $3 million, this year, according to Atkins. The following year, a nearly $2 million shortfall is anticipated.

Transient occupancy tax, which is charged to hotel guests, will also be severely impacted, with about a $1.3 million shortfall expected over two years.

Across its various revenue sources, the city is anticipated to be short $11.3 million over two years, according to Atkins.

Revenue from Gilroy’s General Fund, which funds services such as police, fire and street maintenance, was already trending downward before the shelter-in-place order, Atkins’ report to the council showed, and would be in the red by 2022, which is three years earlier than pre-Covid-19 projections.

Interim city administrator Jimmy Forbis presented a list of projects that could be delayed to save the city $7.1 million. Those include postponing the Glen Loma Fire Station, Sports Park expansion and a downtown parking lot to a “future year.”

Forbis said the city’s $5.75 million reserve has bought the council time to “plan out well-thought-out decisions.”

“Some cities have had to do immediate budget reductions to make sure they remain solvent,” he said. “We have a little bit of time. This is really just step one.”

Forbis said the council will be having “difficult” decisions in the near future similar to those made during the Great Recession in 2009, “if not worse.” At that time, the city eliminated nearly 50 full- and part-time positions and reduced work days to close a $5 million budget gap.

“I apologize if I’m being pessimistic, but this is a type of recession that most of us will never see in our lifetime, and we have to do something to make sure the city remains fiscally solvent,” he said. “The only way for us to fix the sustainable budget issue is to look at the money we spend. Seventy percent of our spending goes to employee costs.”

Forbis said he will bring forward a proposal that rescinds all executive management raises that were set to go into effect on July 1. For the city administrator position, that would have amounted to $6,621.48, according to Forbis’ contract.

Mayor Roland Velasco said he will also propose a freeze on the councilmembers’ increase as well.

“It’s a very, very small amount of money, but it is important to show that we are tied in with everyone else,” he said.

Councilmember Cat Tucker said she was trying to remain optimistic, as the unknown nature of this recession could instead result in a faster recovery time than the Great Recession.  Councilmember Dion Bracco, however, said he thought Forbis was “being optimistic.”

“I think it’s going to be much worse than what we are planning for,” he said. “We are going to be faced with some really hard decisions, maybe even closing some of the departments in the city.”

The May 4 meeting was informational, and the council made no decision. Budget plans will be presented at the next meeting on May 18, with adoption in June.

“There is no blueprint for this type of recession,” Forbis said. “This is not like anything else we’ve seen.”