After months of work, the Morgan Hill City Council unanimously
approved next fiscal year
’s $106 million budget with a general fund of $20 million
without much fanfare Wednesday night. “We’re on track and I feel
very, very good about where we’re at,” Councilman Greg Sellers
said. “When we look at other city’s around us, we’re a whole lot
better off than they are.”
After months of work, the Morgan Hill City Council unanimously approved next fiscal year’s $106 million budget with a general fund of $20 million without much fanfare Wednesday night.
“We’re on track and I feel very, very good about where we’re at,” Councilman Greg Sellers said. “When we look at other city’s around us, we’re a whole lot better off than they are.”
Next year’s budget, which begins on July 1, marks a $25 million increase from this year’s $81 million budget, largely due to the costs of constructing and maintaining new facilities in the city such as the $4.2 million dollars to begin construction on the new library and about $400,000 in increased cost from maintaining the Aquatics Center, Morgan Hill Playhouse and the Cultural Center.
“That added to our budget (costs),” said Jack Dilles, Morgan Hill’s finance director. “We’re starting to maximize our revenue on those RDA projects. It’s certainly increased expenditures, but it’s really only one part of our shortfall.”
Likewise an increase in pension payments to the state retirement system and rising healthcare costs also added to city expenditures for next year.
To pay for the gap between spending and revenue, the city used $1.2 million from its reserve funds. Using reserves allowed the city to balance the new budget without having to impose cuts to city staff or services, according to City Manager Ed Tewes.
Fortunately, Dilles said, the city tucked away a substantial amount of money into reserves when the economy was strong. After this year’s draw, reserves will remain at $8.3 million dollars and city officials expect reserves to last until about 2010 or longer if sales tax increases follows it’s current trend.
“We’ve got six or seven years of reserve funds yet,” Dilles said.
“We were very conservative during the boom and built up our reserves,” he added. “We have money in the bank now and have some time.”
Though sales tax in the last half of the fiscal year have jumped almost 20 percent, the increase only brings the city close to the revenue levels it saw in 2001. Tewes said an influx of new businesses have been a boon the city hopes continues into the future. He cited the opening of Ford Store Morgan Hill, Home Depot and the House of Thunder Harley Davidson dealership as some of the city’s newest bread winners.
“My impression is the sales tax increased in the latter half of the fiscal year,” Tewes said. “This is the first time we’ve seen a sales tax increase since 2001.”
But the city is still feeling the effects of the tech bubble bursting and the resulting loss of jobs crippling Silicon Valley’s economy.
“We’re real similar to the rest of Silicon Valley,” Dilles said. “I think we’re still suffering from a loss of jobs. That has hurt us and the rest of the state didn’t have that problem.”
For example, Morgan Hill’s Transit and Occupancy tax is down 30 percent, or almost $500,000, since the decline of Silicon Valley’s economy.
“The drop in business travelers hurt us,” Dilles said. “At one time we had 100 percent occupancy in our hotels during the business week.”
By spending reserve funds, the city avoided painful layoffs to an already burdened staff, Dilles said. Last year, the city trimmed $800,000 from its budget mostly through reducing services and leaving vacant position empty, according to Dilles. He said cutting staff would be difficult for the city because personnel are already stretched thin.
“We’re leaner than we used to be and we can see our staff is busy and maxed out,” he said.
To avoid staffing cuts this year, Tewes directed the individual departments to meet specific budget targets in their departments depending on individual revenue and expenditures. The city knew they had to construct a budget with $1.2 million deficit to follow their long-term plan to solve the city’s budget problems. By calculating expenses and revenues with a planned deficit, Tewes was able to give each department a target they had to reach in order to create the $1.2 million deficit.
The city knows it needs to increase revenues to solve the structural budget imbalance and though sales tax helps, it isn’t the sole answer to their prayers.
“A good number of businesses have opened and increased sales tax and that’s been a good thing,” Dilles said. “That’s the good news; the bad news is we still have $1.2 million deficit. We know that and we’ve discussed having community conversations to increase sales tax or reduce services.”
To start the discussion, the city conducted a survey of residents in attempt to reconcile which services the public wants and how they are willing to pay for them. Tewes said the survey results were positive with 93 percent of respondents stating they enjoyed living in Morgan Hill and the services the city provides. He also said a modest majority of people surveyed said they would support a small tax increase to maintain services, but the survey could not determine a single tax residents would likely pass at the voting booths.
The result of the discussion could mean the city pursues increasing sales taxes and imposing new fees and assessments. Any tax increase would be subject to voter approval, but the city could create new fees on their own with or without public support.
“The council has came to the realization that the only way to generate new revenue would come from increasing taxes and imposing new fees,” Tewes said.
He said early discussions on raising sales tax have considered a half-cent or quarter-cent sales tax increase. Tewes said the city’s calculations have determined a quarter-cent increase would likely be sufficient to generate the revenue needed to solve the budget imbalance.
Meanwhile, the city is waiting to conduct public hearings before the council could impose a fire inspection fee that would generate approximately $220,000 in new revenue. The revenue from the new fee is already included in next year’s budget, though the council must hold the hearings and approve the fee. Dilles said that though the revenue has been budgeted, the city is still determining with local businesses how much the fee would cost. The inspection is an annual requirement of large employers and other businesses such as restaurants. Tewes said many cities in Santa Clara County have a similar inspection fee.
Solving the city’s financial woes for the future is a relatively simple formula – increase revenues through taxes and fees or cut city services to bring spending back in line, Dilles said.
“We’ve done our part in cutting costs long before starting discussion about increasing taxes,” Dilles said. “We knew we needed to cut costs. That’s one thing we’ve done, but we also know we need to increase revenue.”
Marcus Hibdon is the editor of the Morgan Hill Times. He can be reached at 408-779-4106 or by e-mail at mh*****@*************es.com
