The city’s Sustainable Budget Principles are being turned on
their head in light of the recession.
The city’s Sustainable Budget Principles are being turned on their head in light of the recession.
Contingency plans abound: if the city dips below its targeted reserves – 25 percent of a year’s revenues – it will take action. If it dips below 15 percent of a year’s revenues, it will take more immediate action. If the unions don’t oblige by giving up raises or give up some benefits, then workers will likely be laid off.
City officials already planned to use about $1.5 million of the general fund reserves this year. Doing nothing means spending an additional $1.8 million of the reserves, and the city would end the fiscal year in June with $6.9 million, or 27 percent of a year’s revenue. Two main tenets of the city’s sustainable budget strategy are that the council have a balanced budget in five years and at least 25 percent of a year’s revenue in reserves at all times. The city started the year with $8.7 million in reserves, about 30 percent of a year’s revenues.
According to the rules, outlined in a report the City Council will hear Wednesday night, if reserves go below the 25 percent mark, the city will balance its books in three years, not the typical five, and that means layoffs, according to the report.
“Service-level reductions almost certainly will require layoffs and/or renegotiation of current labor costs,” the report states. Labor costs make up 55 percent of the general fund’s $28 million expenses.
Shorter contracts would allow the city to be more nimble, better able to roll with the economic punches, City Manager Ed Tewes noted. This, too, would need to be negotiated.
“We’ve just experienced a highly volatile economic period,” Tewes said. The longer term contracts most city employees have were based on long term stability, which is less likely to be the case, he said.
If reserves fall below the long term goal of 25 percent of a year’s revenues, the council will take action no later than the next budget cycle to rebuild reserves to the 25 percent goal within five years, the report states.
Further, if reserves fall below the 15 percent of a year’s revenues, or $4.6 million, the council must take action within 30 days to bring it back up to 15 percent within 12 months.
The city recently instituted a hiring freeze and there are three full-time and one half-time positions that are vacant. Tewes recommends leaving two of these vacant: the administrative assistant position in his office and a multi-service police officer position vacant. Tewes does not recommend leaving the public safety dispatcher position vacant, but does not give an alternative either. He recommends having a full-time parks maintenance person work half the time on street maintenance since that’s more of a public safety concern, according to the report.
If any of this reserve-dipping comes to pass, the city will have hard decisions to make with its unions. If the unions negotiate, it could mean moving from multi-year contracts to yearly contracts, to allow the city greater flexibility given the long-term economic outlook. It could also mean reduced retirement and health benefits. But, if the unions don’t negotiate on these points, it will likely mean layoffs.
The city projects a $1.2 million shortfall this year. In addition to a forced loan to the state of $755,000 in property tax revenues, sales tax revenue is down $200,000. Hotel tax revenue is projected to be down $120,000.
The unions have already given up raises totaling about $400,000. And, city management have forgone their cost-of-living increases totaling about $240,000. The unions have also experienced reduced staffing, with the police union giving up two vacant sworn officer positions. A Community Service Officers Association-represented dispatch supervisor and public safety dispatcher, both vacant positions, were eliminated too while another dispatcher position remains vacant. A multi-service officer position, under the CSOA, remains vacant and the city council could opt to eliminate it, too. American Federation of State, County and Municipal Employees Local 101 was hit hardest, with 11 of its 100 city positions eliminated, including the only true layoff, an assistant planner.
In addition to the forced property tax loan, the state will take $10.5 million from the Morgan Hill Redevelopment Agency this year, an almost 50 percent take from the RDA’s annual revenue. The state will take another $2.1 million next year as well. Twenty percent of the RDA’s $22 million annual revenue is set aside for low income housing. One option the city has to make up for the shortfall is borrowing from this pot of RDA money. Up to $4.3 million is available this year and another $2.1 million next year. The caveat is that the money would have to be paid back within five years. Tewes recommends borrowing the maximum allowed. He did not recommend any RDA staff changes but shortlisted five projects to put off until the state pays back the money. They include the Butterfield Boulevard northern extension, Monterey Road median improvements, and a traffic signal timing coordination project planned for Cochrane Road.
Police Officers Association President Scot Silva could not immediately be reached for comment Monday. Donna McKnight, President of the Community Service Officers Association, which represents dispatchers and other police support staff, said she hadn’t yet read the report and declined to comment. American Federation of State, County and Municipal Employees Local 101 business agent Mike Ferrero is on vacation this week.
Also on Wednesday night’s council agenda is a closed session labor negotiation with each employee group.
The body meets in council chambers at City Hall, 17555 Peak Ave., at 7 p.m. Wednesday.
