Next year the city will have to cut about $1.7 million from its
general fund, which covers basic expenses such as police, parks,
street maintenance and employees’ salaries and benefits – almost
all of which will require cutting. And that means layoffs.
Next year the city will have to cut about $1.7 million from its general fund, which covers basic expenses such as police, parks, street maintenance and employees’ salaries and benefits – almost all of which will require cutting. And that means layoffs.
“At this point, there’s no way to avoid layoffs,” Councilman Greg Sellers said. “That’s not a preferred alternative, but it’s pretty obvious that layoffs will have to be part of our future, given the numbers we’re seeing.”
Exactly how many layoffs and from which departments is currently unknown. Those details will be worked out in the coming months. The council has until June 30 to devise and approve a balanced budget for the 2010-2011 fiscal year.
Last year, the city cut about $2 million from the general fund, but was able to keep the cuts where they had the least impact, Sellers said. Only one city employee was laid off last year due to revenue shortfalls.
This year, however, the cuts will affect “every department, in every sector of the city,” Sellers said.
The latest Morgan Hill financial report, submitted to the city council at Wednesday’s meeting, shows that in the first seven months of the current fiscal year, general fund revenues are 6.5 percent less than those collected during the same timeframe last year. Less than half of budgeted revenues have been collected so far. City Manager Ed Tewes said there’s no escaping the gloom reflected in the report.
“Recently, every time we get new data it seems to suggest that our revenues continue to decline, and we haven’t hit bottom yet,” Tewes said.
He added that layoffs are “very likely,” but their extent won’t be known until he and other department heads submit their recommended budget to the council May 15.
The drastic and sharpening decline in the city’s general funding is due to steep drops in sales tax and hotel tax revenues, according to the report produced by city finance Director Kevin Ryper.
Overall sales tax revenues have dropped 45 percent since a peak in 2007, because of a dramatic loss of transportation-related sales throughout the city. Two automotive dealerships – Courtesy Chevrolet and Alpine RV – shut their doors in 2009. These two businesses were consistently among the city’s top five sales tax generators, with Alpine RV alone reporting about $56 million of sales in 2007. About 1 percent, or $560,000 of that amount, or about 8 percent of Morgan Hill’s total sales tax revenues that year, went to the city to pay for general services. With Alpine’s closing, that trove of cash disappeared.
Furthermore, a steep decline in gasoline sales has taken a toll on city coffers. That’s uniquely traumatic in Morgan Hill, which has traditionally relied on service stations for about 16 percent of its total sales tax revenues, compared to a statewide average of about 8 percent.
Even Wal-Mart, identified as a “ray of hope” in the staff report, couldn’t absorb the shock. The store, which opened in September 2009 in Cochrane Plaza, does a substantial portion of its sales in groceries, which are not taxable. Plus, based on “anecdotal evidence” Wal-Mart has generated its sales mostly by pulling from other retail stores in Morgan Hill.
In 2007, the city collected about $6.6 million in sales tax revenues. In 2008, that number dropped to about $6.1 million, and to about $5.6 million in 2009.
The city’s most expensive department – the police department – was allocated about $11 million of the total $27.9 million general fund this year. Chief Bruce Cumming said next year’s cuts will be noticeable to the taxpayers, though he doesn’t yet know specifically where he will cut. He declined to speculate on whether or not any of his 36 sworn officers will be laid off.
“That possibility always exists,” Cumming said. “But for sure this is going to be a major change for the city and for the police department, and it won’t be business as usual after July 1. It’s clear to me that if we have to make significant cuts in the police department then our service levels will be reduced. We won’t be able to do all the things we do today.”
He added that the council and city staff have shown in the past that they are aware of the need for adequate public safety.
Considered last year as ways to save money included turning off street lights and eliminating maintenance at some city parks. Those cuts were not adopted, but could return to the chopping block for next year.
Councilwoman Marilyn Librers said the council has not yet begun the discussion about the specific nature of next year’s impending cuts, and cautioned that “nothing is set in stone,” including layoffs.
“The city is facing extreme challenges with county and state takeaway money. It’s going to be a lot of hard work in the next few months to come up with a balanced budget for next fiscal year,” Librers said.
In addition to the plummeting sales tax revenues, the city’s redevelopment agency will lose about $8.9 million in local property tax revenues in a forced takeaway by the state, which will divert the money to education.
The latest city financial report did note some positive savings. The Recreation and Community Services Department has spent about $100,000 so far this year, down from about $325,000 the same timeframe last year.
