December 23, 2009 > How will the city balance its budget?
How will the city balance its budget?
By Dustin Findley
City Manager Tom Williams briefed Council on possible solutions identified by the Task Force on Revenue Expenditure to balance the city's budget.
The Task Force consists of Councilwoman Debbie Giordano, City Manager Tom Williams, Finance Director Emma Karlen and one representative from each of the labor unions - the police union, the fire union, Mid-Management, Milpitas Supervisors Association (MSA), Milpitas Employee's Association (MEA) and Milpitas Professional and Technical Group (Protech).
City Attorney Michael Ogaz commented on the propriety of the task-force process, stating that all unions are participating and are aware of the options being considered by the nine-member body.
"Thus, there is complete transparency regarding the process," said Ogaz.
As of December 15, only preliminary discussions had occurred regarding possible solutions for closing the structural deficit. The objective is to present a plan to close the budget gap by 2013. The current deficit is $8.7M.
"The only way to resolve this problem is to either reduce expenditure, increase revenue, or some combination of both," said Williams. "It sounds simple but is probably the most difficult challenge a city faces."
It is also a matter of what the city can directly impact. The city cannot control medical costs or what local revenues the state of California might decide to appropriate in "take-aways." Milpitas has some control over revenue, sales tax, property tax, transit occupancy tax (TOT) but these are subject to voter-approval.
The city has faced a deficit situation since FY 2001. City revenue sees average annual growth of about 2.4 percent but annual expenditures increase by about 3.1 percent.
"Assuming stagnant salaries, increases to medical insurance premiums and California Public Employee's Retirement System (CalPERS) contributions, we're looking at a deficit anywhere from $7M to $9M each year for the next five years," said Karlen.
The city's General Fund has around $67M. Employee salaries total $31M and benefits cost an additional $24.8M. Salaries and benefits constitute 83 percent of the budget. Benefits continue to increase significantly. The remaining $11M in the General Fund will cover equipment purchase and replacement, liability insurance, supplies, programs and utilities, areas at which efforts to balance the budget have been directed in the past decade.
Primary revenue sources are property tax, sales tax, TOT, service charges and fees for permits and licenses. These have all declined. They are expected to improve as the economy recovers.
The Task Force has considered ways to increase revenue and reduce expenditures.
Possible ideas include a sales tax increase of a quarter cent, reducing overtime costs by sub-contracting services, a utility users' tax and a 911 (emergency telephone number) fee.
Council member Althea Polanski is not thrilled at the prospect of more fees or at the impact on the public. Polanski asserts California does not have a revenue problem but a spending problem.
Vice-Mayor Pete McHugh recommended the task force make review-specific proposals, identifying pros and cons and ease of implementation. He is against increasing taxation.
Mayor Livengood wants a recommendation from the task force to close the budget gap and resolve the deficit.
"Doing nothing is not an option because the City will be broke in five years" said Livengood.
Cost-reduction ideas include a work furlough of one day per month, a 37.5-hours working week, employees increasing contributions to PERS instead of the City or reductions in benefits.
Other possibilities include elimination of city programs whose costs are not recovered in full, such as Milpitas Rainbow Theatre, Milpitas Tidal Waves swim team, preschool and Drug Abuse Resistance Education (DARE).
According to Williams, the last resort from management's perspective would be layoffs. This was not discussed by the Task Force and is not on the list presented to Council.
Any feasible plan must include a combination of revenue enhancements and cost reductions. Any meaningful revenue enhancement requires voter approval. Any meaningful cost reduction requires "meet and confer" and contract negotiations with labor unions.
The Task Force will finalize a draft plan and present it, with recommendations, to Council on February 16, 2010.