City Faces Major Shortfalls, Finance Director Warns

By Elizabeth Schneider

Oct. 23 -- The City faces a projected $8.2 million budget gap next fiscal year and could fall $15.6 million short the following year due to low returns on retirement funds for City employees and a slumping economy, Finance Director Mike Dennis told the City Council Tuesday night.

The City will have to pick up the decline of Public Employees Retirement System (PERS) investment portfolios, Dennis said. In addition to increased health costs, the city will have to start putting more money in its PERS at the start July 1, 2003 to make up for the losses over the past two years.

"Those budget gaps, which are sizable, are primarily expenditure driven," Dennis said before the meeting. "The state-managed PERS has experienced two years of investment losses on funds paid to them by the City on behalf of its employees."

The shortfall comes in the midst of a slumping state economy and a return of federal deficits that have plunged the city into its current recession. In addition, the one-time revenues plugging the State's current multi-billion dollar budget gap are one time measures, and no decision has been made as to how they will be replaced.

Based on one quarter of sales tax information the city already is facing a $300,000 shortfall in actual sales tax receipts. And the future doesn't look much better. If receipts continue to come up short for the remainder of the year, Dennis said, the city could be facing a $1.2 million shortfall in sales tax revenues.

"Based on the current economic information that we know, the range of variability runs from $1 million to $1.5 million," Dennis said before the meeting.

The possibility of war with Iraq and the current state budget, which is a "giant mess, all these variables could impact the budget and make that $1 million to $1.5 million gap larger or smaller. We'll have to wait and see what unfolds."

If the city, and for that matter the nation, is to recover from the current economic slump, it will have to continue to rely on consumers, he said.

"We are coming out of a business recession, not a consumer recession," Dennis said. "There's not much history in terms of this kind of recession."

For the moment, Dennis said, the question is when businesses will begin investing again in the community.

"During the boom years businesses created capabilities for an economy that was growing at four percent a year," he said. "It just hasn't done that the past couple of years."

In response to Dennis' report the council (acting also as the Redevelopment Agency and Parking Authority) adopted the FY 2001-02 actual expenditures and FY 2002-03 budget changes. It also adopted two resolutions to revise various building and safety and planning-related fees and establish various new job classifications and salary rates.

The council also removed Code Enforcement's discretionary permit monitoring from the fee resolution, to allow an opportunity for a council policy discussion on permit categories and appropriate fees per category at an upcoming meeting.

Staff said that certain simpler construction permits would be 50 percent subsidized to help ensure that permits will be pulled and safe installations assured.

The City is currently looking at a "whole range of options" to bridge the funding gap, said Dennis.

Dennis announced last year that he will be retiring from the post he has held since 1983.