Cautious, but able to complete capital projects and provide
services without layoffs, is the message in the proposed 2003-04
city budget, released Wednesday night.
Cautious, but able to complete capital projects and provide services without layoffs, is the message in the proposed 2003-04 city budget, released Wednesday night.
However, in his message to the City Council, Ed Tewes, city manager, said the city’s income resources are not enough.
“The available resources … are insufficient to sustain prior levels of spending,” Tewes said. But, through “prudent financial planning” the city should be able to meet its obligations.
The total budget has reached $101,289,097; the general fund, $16,073,853.
This year’s total budget is $86,544,838. Tewes attributed the year-to-year increase to capital spending for RDA projects including the aquatics center, indoor recreation center and youth sports complex.
The current fiscal year’s general fund budget is $16,549,161.
The budget, months in planning, is designed to meet the city goals of maintaining services – police, fire, parks and receation, sewer and water and streets – by cutting spending, dipping into the reserve fund and, if possible, finding new revenue sources and/or some short-term borrowing, if necessary.
Vacant positions – whose funding normally would remain in the budget – have been cut and 2003-04 will see less spending for capital equipment.
Higher revenue is expected from an increase in the impact, community development and water fees the council approved in 2002. Also affecting the budget is the need to staff and prepare to open the aquatic center, scheduled to open in May 2004. Four full-time staff will be hired starting in November 2003. This will be offset by eliminating a similar number of vacant but funded positions.
Tewes said that, after all, it will be necessary to use $370,000 from reserves to balance the new budget. The reserve general fund begins the fiscal year at $10,633,442 and is divided into two parts: designated ($7.5 million) and undesignated ($3,133,442).
CITY SNAPSHOT
Part of Tewes’ message to the council described a snapshot-like economic and demographic profile of the city. Morgan Hill’s population increased .5 percent to 34,918, and the top 40 employers – responding to the Silicon Valley-wide recession, employed 6 percent fewer people.
Housing prices in Morgan Hill proper are rosier. The median price for a single-family home rose from $527,000 in 2001 to $547,000 in 2002; monthly sales average rose from 25 in 2001 to 41 in 2002. The median housing price
While sales tax revenue fell by 6 percent in 2002-03 to $4.6 million, following a 12 percent drop from $5.5 million in 2000-01, a slight growth of 1 percent is projected for the fiscal year beginning July 1.
The Transient Occupancy Tax (TOT) also fell by 6 percent in 2002-03 to $873,000, following a 32 percent decline in 2001-02. The TOT is received from hotels and motels and reflects the much reduced traffic those businesses experienced from the combined effects of Sept. 11, 2001, and the recession. A growth of 2 percent – to $890,000 – is estimated for 2003-04.
DETAILS
The total budget of $101,289,097 includes capital project appropriations, Redevelopment Agency appropriations and transfers out (where one fund is obligated to contribute to another) and is $15,001,329 more than 2003-03 because of new capital projects and the aquatic center staff addition.
The capital improvement program (CIP) includes $36,367.000 for new projects.
The budget no longer includes positions of deputy city attorney or office assistant II in the city clerk’s budget. And an authorized management analyst position was not funded.
The police department office of emergency services coordinator position has been shifted from a full-time “permanent” to a contract basis.
Capital purchases – computers, furniture and vehicles – were eliminated as were the usual general fund contributions to street maintenance. Travel, training and conference costs were reduced.
To boost the revenue side, the annual transfer from the park maintenance fund to the general fund were increased by 50 percent to $200,000. And general fund reserves added $370,000 to the mix.
CHALLENGES
According to Tewes’ report, the city faces three budget challenges. Reduced revenue from the local economy, city costs – especially employee benefits – will go up significantly over five years and the state claim on the city’s funds is still unclear.
Tewes said that the city can manage these impacts with prudent fiscal behavior because of the reserves built up since the economic cataclysm of the early 1990s when the city laid off police officers and firefighters and eliminaed the recreation department.
Because even these reserves will not last forever, staff recommends continuing to cut costs and expanding the revenue base over the next four years.
RESERVES
Reserves of $10,633,442 approach 70 percent of expected revenue; the staff proposes a five-year plan to reduce reserves to 40 percent – subtracting the $200,000 delegated to aquatic center start-up costs. The reserves also include $1.4 million for implementation of the Fire Master Plan.
A five-year budget gap of $5.6 million – through 2007-08 – can be filled with $1.9 million from the undesignated reserve fund and the remaining $3.7 million reached from additional cost cutting and/or expanding the revenue base. Commercial and industrial development would contribute to these revenues. Or, one-thirds from reserves, two-thirds from traditional sources.
ENTER THE STATE
Jack Dilles, the city budget director, said he is still waiting to see what the state Legislature will do to city funds. He said it was somewhat positive that Gov. Davis’s revised budget, also released Wednesday, includes returning the Vehicle License Fees to 1998 levels. Those fees, much of which go into cities’ general funds – had been reduced by nearly two-thirds because of the economic boom. To date the state has “back filled” the difference.
However, because of the current economic bust, the state was not expected to continue to replace this lost funding. About 65 percent of Morgan Hill’s general fund goes to police and fire services, along with parks and recreation and smaller amounts for city administration.
“There are risks to the VLF,” Dilles said,” because the trigger hasn’t been pulled yet. And there is a threat to take legal action if the fees are raised.” VLF fees are mandated to rise when state reserves fall below a certain level.
STATE EYES RDA FUNDS
Redevelopment Agency funds are another area the state considers its own. Dilles said the city could lose $1.9 million to the state. He is fairly optimistic about planned RDA projects weathering cuts. The aquatic center, indoor recreation center and sports fields, plus affordable housing projects are all RDA projects.
“The RDA will be impacted but not threatened,” he said. “Whatever happens we will get the same amount out of it. It will just take longer.”
“If we do some short term borrowing, it my not affect project schedules.” The problem, he said, is that “$1.9 million is not just next year. The state could continue to take funds away.
“On the whole it’s better than it could been.”
ONWARD
Council will hear staff presentations about their department budgets at a workshop Friday, May 23, 8 a.m.-noon.
Council will delve more deeply into the meaning of the budget cuts, additions and adjustments at at special meeting, 6 p.m., Wednesday, June 11, and, if necessary, on Friday, June 13 at 9:30 a.m. The budget will get a public hearing during the regular council meeting, Wednesday, June 18, at which time staff will recommend the budget be adopted. The council must adopt a budget by July 1. All workshop and council meetings are open to the public.
More budget information is on the city website at www.morgan-hill.ca.gov
