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April 29, 2009 > City of Fremont Budget Update

City of Fremont Budget Update

Use of Reserves and Staff and Service Reductions Necessary to Balance City Budget

Submitted By Melissa Dile

At the mid-year General Fund budget update presented to the City Council on February 17, 2009, staff noted concerns about the City's declining revenues and the likelihood that these declines would affect City services. Most services provided to the community, such as public safety services, park and street maintenance, and internal services, are funded by the General Fund. Other programs, such as development services, recreation services and human services, receive some General Fund money as well.

Sales and property taxes are the primary revenue sources for the General Fund. The City recently received sales tax information from the 2008 holiday quarter (October through December 2008). Unfortunately, the final numbers were worse than projections made in February. Property tax revenues are experiencing a similar fate due to falling home prices and reduced transactions, which will mean slower growth in property tax revenue in Fiscal Year 2009/10. Staff expects that property tax revenues will be weak for the next few years, as it will take time for housing values to bottom out.

At the mid-year update, staff projected budget gaps of $10.7 million in Fiscal Year 2008/09 and $13.1 million in Fiscal Year 2009/10. Now, as a result of these declining revenues, staff projects that those gaps will increase to $12.7 million in Fiscal Year 2008/09 and $16.3 million in FY 2009/10. Because it is difficult to pinpoint exactly how far City revenues will drop, and when recovery will occur, staff has developed a long-term approach to fiscal sustainability. This approach infuses one-time money to help offset what would otherwise be more dramatic operating reductions. One of those resources is the City's fund balance, and all of the remaining fund balance, $3.1 million, will be used this fiscal year. Additionally, $7.3 million from the Budget Uncertainty Reserve will be used in FY 2008/09.

For FY 2009/10, the City will tap into "core" reserves, or the City's savings account, for the first time. The City currently has $22 million in core reserves, which are intended to mitigate the effects of natural disasters and severe, unforeseen events. Because of the significant impact of the current recession, the City Council has approved a lower level of contributions to the core reserve, dropping from 15% of City expenditures to 12.5% in FY 2009/10. This will free up $4.1 million to help balance the budget in FY 2009/10 and beyond, if necessary. A total of $5.1 million in one-time resources will be used to close the projected $16.3 million gap in FY 2009/10.

"These are not steps we take lightly, as reserves serve as a critical buffer in times of economic crisis, but we believe it is appropriate to use all of the current Budget Uncertainty Reserve and use a portion of our core reserves over the next two years as we make a structural change to adjust to lower revenues. I appreciate the Council's support on this approach, and do not take it for granted," said City Manager Fred Diaz. Facing a long-term structural deficit, the City will need to make cuts in operating expenditures in order to fill the remainder of the gap.

City departments have been asked to permanently reduce expenditures by a total of 8.7% citywide. While this is a collective target, the actual percentage of expenditure reductions varies by department: 5% cuts to public safety, 10% cuts to other General Fund activities, and 20% cuts to the Community Development fee-based activities. "Unfortunately, even after tapping all other available resources to address this ongoing
deficit, we have to make some hard choices and cuts that will affect employees. We expect that approximately 74 of the 920 budgeted full-time equivalent positions (or 8%) will be permanently eliminated from the budget as of 2009/10," said City Manager Fred Diaz.

Of the 74 positions to be eliminated, 20.475 positions are filled by regular employees who will be laid off or subject to a reduced work schedule. Eleven frozen and unfunded positions will be eliminated from the budget, as will 42.5 positions which are budgeted and currently vacant. Approximately twenty temporary employees also will be eliminated. The affected employees are being notified at this time, and the City cannot provide additional details on the specific positions or City services affected. City management will be meeting with the City's bargaining units over the impact of the proposed cuts, and that process will take approximately a month.

Additional information will be provided at the FY 2009/10 budget workshop on May 26. In discussing the City's budget situation with City employees, City Manager Fred Diaz said "Reducing our workforce is a painful act, but one that is necessary for the City's long-term financial sustainability. We have prudently managed the City's resources, building up reserves and holding open vacancies, in an effort to give us as much flexibility as possible to develop a strategic, balanced, and sustainable approach to delivering City services. Even so, the depth of the current economic crisis demands that we reduce our operating expenditures and reassess our service levels to the Fremont community.

We value our employees and the services they provide to the Fremont community, and look forward to continued collaboration with our employees and the community as a whole as we move to more solid financial footing.

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