City finances are back on a solid upward trend, but forecasts show elected officials will have to tackle some big decisions on how to augment or cut back in two key areas of public services—street maintenance and community development.
Street repairs is the “more challenging” of these two issues, according to Mayor Steve Tate.
The current state of Morgan Hill’s street and road infrastructure is so dire that if the city spends its current budgeted amount of $1 million per year, their condition will continue to decline, according to city staff. The city would have to increase that amount to $3 million per year just to keep the infrastructure in its current shape. But that much money is nowhere to be found with available funding sources—even if regular sales and property tax intake continues to climb as projected.
That means the council could end up pleading with voters to approve a new funding source such as a sales tax, utility tax, parcel tax or neighborhood assessment districts.
“We’re going to have to work with our taxpayers and voters,” Councilman Larry Carr said.
City Manager Steve Rymer plans to present the council with a report identifying and prioritizing the infrastructure maintenance needs—including public properties and recreation facilities—citywide by the end of September.
Tate and Carr said by then they expect the council to start talking about the best form of additional revenue, which will require significant public engagement and education.
Street maintenance and construction are currently funded by a variety of existing sources, including impact fees, state gas tax, federal and state grants, voluntary residential development fees, sales and property tax, according to city staff.
In 2012, the city lost a major source of street repair funds when the state shut down the Redevelopment Agency, city staff noted.
And while city officials were hoping to see a proposed county transportation measure on the November ballot that would provide some funding to Morgan Hill, the measure’s sponsor will not be able to advance such a measure until the 2016 election, Tate said.
“My personal preference is a utility tax because that’s something that our neighbor to the south (Gilroy) and our neighbor to the north (San Jose) have, but in past years the voters in Morgan Hill have said they don’t want that option,” Tate said. “So I’ve got to be open to other options.”
In fact, Morgan Hill is the only city in Santa Clara County that does not have a local tax, according to city staff.
The last time the city pushed a utility tax to the voters was in 2008. The measure would have dedicated the new revenue to more police staffing, but it was defeated soundly at the polls.
The council unanimously approved the 2014-15 operating and capital budget at the June 18 meeting. The budget includes the $32.4 million general fund, $40 million in special revenue funds, $16 million in capital projects and about $43 million in enterprise funds.
In the community development department, which is responsible for development services, an anticipated “structural deficit” starting in 2016 is expected due to a possible stall in development activity. Abundant residential growth in the last two years has been the result of developers catching up to a lack of activity during the 2008 recession, and that backlog is likely to run out by 2016.
Carr said the sudden decline in revenues to the department is “all about the fees we bring in” from developers. “We can solve it if development continues to occur.”
While city officials are unable to predict future growth, they are preparing for the imbalance.
Possibly making up for a return to a more deliberate pace of residential growth could be the coming development of downtown properties formerly owned by the RDA, a proposal to develop two new hotels on Cochrane Road, new proposed medical facilities and an initiative by staff to work with Morgan Hill’s 25 largest employers to retain them and possibly help them grow.
Until a clearer picture of future development is available, the city will respond to the possible drop in community development revenues by conducting a department-wide fee study over the next year or so.
“In community development the whole idea is to keep the costs neutral,” Tate explained. “When we project out over a few years our current billing structure and fees, if they don’t recover (all the costs) we will have to make an adjustment.”
Any shortfalls in revenues until this imbalance is solved will be covered by the community development department’s reserve fund, which has enough money to fund the department at current levels until 2018, city staff said.
