The good news is that the threatened $1.2 million in gas tax
revenues will go to the city’s general fund over the next two
years, not to state coffers.
The good news is that the threatened $1.2 million in gas tax revenues will go to the city’s general fund over the next two years, not to state coffers.
The bad news is that the Redevelopment Agency state takeaway swelled from $7.8 million to $12.5 million.
As Gov. Arnold Schwarzenegger gets his pen ready, Morgan Hill officials and their counterparts statewide scramble to re-balance their budgets after California’s expected new deal leaves holes in them.
While the gas tax revenue takeaway failure is a relief, the city still has a general fund revenue problem. Sales tax and transient occupancy tax revenues and development processing fees are down about $400,000 from what the city expected.
Faced with another shortfall from declining tax revenues and state budget borrowing, the city is looking again to its three labor unions for help closing its budget gap. Almost half of the $27 million general fund goes to staffing, according to the city budget.
The council met in closed session Wednesday night to discuss labor negotiations. The council directed staff to approach AFSCME, the Community Service Officers Association and the Police Officers Association, about “modifications to those contracts to see if we can save money,” City Manager Ed Tewes said.
Tewes declined to say how specifically contracts might be modified. Ideas floating around City Hall and during council meetings include furloughs, reduced city hall operating hours, and workers giving up their raises. Unionized city workers will receive a 2 percent cost of living increase Sept. 1, according to each of their contracts. Police union members are in line to receive an additional 4 percent raise in April. Both raises amount to a $150,000 blow to the general fund, according to Human Resources Director Brian Stott.
Mayor Steve Tate, too, was tight-lipped on union talks.
“We’ve got to look at absolutely everything,” he said. “And we’ll certainly get input from them.”
Tate did say that “everybody seems to be going to furloughs, and those can be used to prevent layoffs.”
AFSCME local President Mario Jimenez declined to comment on any possible upcoming negotiations, referring questions to AFSCME regional business manager Mike Ferrero.
Ferrero contemplated the union’s response to any requested contract changes.
“The normal course of events would be us saying come talk to us when our contract expires. But of course, we’re not in normal times,” he said. Then again, “The problem in Morgan Hill is, we’ve gone through this already. This is like a second go around. It’s much more difficult the second time around… It’s a harder sell.”
Ferrero referred to the January cuts that resulted in deferred and foregone raises for each union that amounted to an annual general fund savings of $500,000.
POA President Scott Silva said the city has approached the group about re-opening the contract but hasn’t gotten a consensus from members on giving up raises.
Staff will report back to the council Aug. 26 with a report and strategy, Tewes said.
So far, the strategy includes using the general fund’s healthy reserves, which now totals about $10 million or 39 percent of a year’s revenues, to make up for the $800,000 in property tax revenues the city will be forced to loan to the state, which promises to pay it back in three years.
“We have all kinds of concerns about their ability to pay that back,” Tate said.
The state budget deal will close the $26 billion budget gap through program cuts, accounting tricks and diverting property taxes from cities and redevelopment agencies.
The redevelopment agency will be walloped with a $10.5 million takeaway this fiscal year and another $2.1 million next year. Morgan Hill will be hit harder than other RDAs because the state chose to calculate each agency’s share based on tax revenue received in 2006/07, Tewes said. It was in 2007 that the city shrunk the size of the redevelopment area by about 20 percent. If the state used up-to-date property tax data, Morgan Hill’s contribution would be reduced by about $2.2 million. Tewes said the city has already approached state Senator Abel Maldonado and Assemblyman Bill Monning about co-sponsoring a “cleanup bill” that would correct this discrepancy, Tewes said.
Tate was critical of both state plans to take city money. He said solving economic problems by taking away money for projects that are supposed to solve them is “self-defeating.”
“The whole idea of an RDA is to stimulate the economy by eliminating blight,” Tate said. He pointed out that the council passed a resolution two weeks ago pledging support of legal action by the California Redevelopment Association or the League of California Cities. These groups have said taking RDA money is unconstitutional.
City staff estimate agency property tax revenue to be about $22.4 million this year and about the same next year.
While the state takeaways won’t affect the city’s payment to the $110 million bond the city issued in February 2008, or the city’s capital projects that are paid for with that bond money, it will affect agency staffing, according to Tewes.
The city has budgeted to spend $6.3 million on debt service this year, Tewes said. Last year, they spent $3.5 million on debt service.
Layoffs, then, “are certainly something we’re going to have to look at,” Tewes said. Eighteen full-time-equivalent staff positions are paid for with Redevelopment Agency funds.
Aside from capital improvement projects like the Tennant Avenue/U.S. 101 interchange and Butterfield Boulevard extension, which are paid for with bond money, other programs overseen by agency staff and funded with the tax income include the shopping center assistance program, commercial rehabilitation loans, and studies such as the ongoing Downtown Specific Plan Update. These are the projects that will be looked at for cuts, Tewes said.
Councilwoman Marby Lee said the number-crunching is “like a bad game of SimCity,” the popular computer game where players build and maintain cities.
Lee said she expects the programs and services that were preserved during January’s cuts will be on the table again, such as the Environmental Programs Division, letting park grass die and turning off street lights. She recalled a public works effort to convert street lights to LED lighting, which would save more than $150,000 a year. The city spends about $300,000 on street lights per year. The estimated cost of the conversion is about $2.3 million, and if the project were approved it would be paid for through the RDA. But now RDA coffers are being raided, so Lee reasoned that the conversion may not be possible at all.
Councilman Greg Sellers emphasized that they city works as a team, and the need for “shared sacrifices.”
Councilwoman Marilyn Librers said little on possible cuts, preferring to wait until staff recommendations come in.
