In the coming months, you may hear news about cuts in service
that your city government is considering. You will also hear that
the new aquatics center is opening, a new library is planned and
other facilities are being designed.
In the coming months, you may hear news about cuts in service that your city government is considering. You will also hear that the new aquatics center is opening, a new library is planned and other facilities are being designed. Some may wonder how these objectives from the city fit together. This column is my attempt to explain how the many pieces of the city’s financial system interrelate.
In short, the city has three major sources of money that make up the lion’s share of the city’s resources. Each type of money can be used for specific purposes.
The first type of money is called “enterprise funds” and a perfect example of an enterprise fund is the water fund. Revenue in the water fund comes almost exclusively from the sale of water to our customers and, therefore, can only be used to pay for the costs of providing that particular service. Not only is this a fair and just approach – it is also the law.
The city can’t use water fund revenue to pay for public safety services, for example, nor to build a new library. This barrier in the budget serves to give you confidence that your water rates are set at the level needed to provide your water service.
The second type of money is held by the city’s Redevelopment Agency. Redevelopment is a tool that many communities use to invest in the infrastructure and improvements needed to eliminate blighted areas in the community and encourage new private investment.
Redevelopment fund revenues come from the increase in property taxes created by the improvements in the redevelopment plan area. Redevelopment funds, like the enterprise funds described above, have strict legal limitations on their use. At least 20 percent of all redevelopment funds must support housing for low and moderate income residents. The remaining funds can only be used to remedy the problems identified in the specific plan adopted by the redevelopment agency.
In Morgan Hill, the lack of adequate public facilities was identified in our redevelopment plan and, therefore, redevelopment funds can be used to build new public facilities such as the community center, aquatics center and library. Redevelopment agencies are about investment and improvement in the community – they are not about operations. Redevelopment funds cannot be used to pay for day-to-day operational expenses and basic public services that residents expect from their city government.
The third type of money is the city’s general fund. Revenues in the general fund come from the different taxes we pay in various ways. When you shop in Morgan Hill, about 1 percent of your taxable purchases comes to the city’s general fund. Some of your property taxes and your vehicle registration costs also support the general fund.
The good news about the general fund is that, unlike enterprise and redevelopment funds, the city has broad discretion on how to spend its general fund resources. The bad news is that most of our basic city services need to be supported by the general fund and there isn’t enough money in the general fund to provide all of the services that the city would ideally like to provide.
The recessionary economy of the past few years has reduced our general fund revenues while costs have continued to rise. In the current year, the general fund is running a $900,000 deficit. While our general fund reserves are adequate to see us through this rainy day, all of our reserves will be consumed within just a few years unless we take steps now to get the city’s general fund in balance.
Even though we expect the economy to improve gradually, the expected slight increases in general fund revenues will not balance the budget. By recognizing this serious problem now, the city has several years to make needed reductions in services without having to make draconian cuts in a fiscal emergency.
As I wrote earlier, these three categories account for the lion’s share of the city’s budget. There is another factor, however, that has a huge influence on the city’s budget. In the past two decades, the state has repeatedly shifted city revenues into its own coffers. How, you might ask, can they do this … it doesn’t seem fair?
Well the answer is that it’s not fair but they do it because they can and doing so is easier than cutting their budget significantly or raising taxes in order to balance the state budget.
In his proposed budget, Gov. Schwarzenegger proposes to take over $400,000 away from the city on an ongoing basis. This loss adds to the city’s budget challenge and will require additional cuts in city services like police, fire, administration and recreation. In addition to making these cuts, the city will be maximizing its efforts to grow our local economy and identify new revenue sources that will enable your local government to continue providing the services that you value.
Eco-Web Pages of the Week: The city manager has developed a “Sustainable Budget Strategy” that is available on the city’s web site on the city’s Home Page at www.morgan-hill.ca.gov .
Anthony Eulo is an assistant to the city manager for the City of Morgan Hill who is diligently searching for painless approaches to reducing the city’s budget. He welcomes your questions, comments, and thoughts and can be reached at en*****@************ca.gov or 779-7247.
