Budget Forecast: Revenues Up, But Utility and Pension Costs Are Concerns
Santa Clara’s 2015-16 budget forecast starts with a budgeted $7 million surplus and an anticipation that it will be even higher – potentially raising City reserves to $ $27.6 million. The upturn means that library, teen and senior center hours will be restored to pre-2010 levels, and about 50 staff positions (out of about 100) that have been vacant or cut will be filled.
Revenue from sales, property and hotel taxes are up $8 million, to $108 million. Santa Clara’s largest revenue source, sales tax, is projected to increase 5 percent, while property and hotel taxes are projected to take a bigger jump – 9 and 14 percent respectively. Hotel tax revenue growth is being driven by tech companies hiring new employees, according to Santa Clara City Manager Julio Fuentes.
Costs are up as well – mainly because of increased water and electrical production costs, which are taking an 8 percent jump to $320 million. And the specter of ballooning pension costs continues to loom on the horizon, with the City’s contributions to the state pension fund, CalPERS, up 18 percent to about $5 million. However, recent improved CalPERS investment returns may give the City a break on costs. New pension policies will eventually bring costs down, but those benefits won’t begin to have an impact for about 20 years.
The City’s total 2015-16 budget – including the General Fund, Capital Improvement and Enterprise (utilities, which include the City-owned electric company) – is $719 million, 9 percent higher than last year:
- Total operating budget: $647 million, up 8 percent from $598 million
- Capital improvement budget: $72 million, up 15 percent from $63 million
- General fund budget: $185 million, up 10 percent from $167 million
Salary and benefits costs are increasing $18 million to $191 million, up 11 percent from last year. There are several reasons for the growth:
- 24 new hires are needed to restore City services and to maintain service levels, $2.6 million
- Negotiated contractual pay and merit increases (for employees not at the top of their salary ranges) and as-needed personnel and overtime, $4.2 million
- Increased pension costs, $4.7 million
In addition, the budget includes about $3 million in reimbursable costs for as-needed public safety staff and overtime for Levi’s Stadium events and Super Bowl 50. The reimbursements are in services revenue.
The City currently has 1,000 employees.
Levi’s Stadium will begin the new fiscal year carrying over $25 million in its operating, capital and debt service funds. Since its opening last August, the stadium has delivered $2.6 million in ground and performance (the returns from events) rent, and $200,000 in ticket fees earmarked for senior and youth programs, Santa Clara Finance Director Gary Ameling reported at the May 19 City Council meeting.
Despite this generally happy picture, Fuentes struck a note of caution at last week’s Council meeting. “We can’t live on the natural growth. We need to go beyond 3 to 4 percent. It’s the economic growth the supports the ongoing services.”
Even though the City has added to its reserves in recent years, Fuentes said Santa Clara was far from where a city its size, located in the economically volatile Silicon Valley, should be. “We should be at $60 million [in reserves], even $100 million. That helps the city become bulletproof. If we can diversify [revenue sources] more, we can weather the economic changes better.”
However, he noted that even without factoring in more aggressive growth, the City would soon be back where it was financially before the RDA dissolution snatched $14 million in lease revenue from the general fund.
RDA Lease Revenue Loss Adds Up to Direct Impact on Residents
Santa Clara lost $14 million in general fund revenue as a result of redevelopment agency shutdown and subsequent county “clawback” of RDA lease revenues. That money could:
- Double parks maintenance ($13 million) or library ($11 million) budgets
- Quadruple Parks and Open Space Authority’s budget ($4 million)
- Increase Police Department’s general patrol budget ($24 million) by 50 percent
- Provide 14x increase in total funding for affordable housing projects and services
- Cover the increase in water prices this year
Where’s the money going now? Santa Clara Unified gets 40 percent. County agencies and the Community Colleges get another 40 percent. Twenty percent returns to Santa Clara, and $800,000 pays for RDA shutdown administration.
Water, Sewer, Garbage Fees Increase July 1
The Council unanimously approved monthly rate increases for garbage collection, water and sewer, and storm drain compliance fees. Garbage collection costs will increase about $0.75 (one can) to $25.06, storm drain fees by $0.86 to $1.04, sewer rates by $3.29 to $39.94 and water rates by $0.36 per hundred cubic feet (hcf) of water – an average monthly increase of $4.32 (12 hcf/month) for residential customers. The minimum monthly water charge will also rise from $11.85 to $13, and recycled water rates will increase $0.25 to $2.56/hcf.
The nearly 10 percent water rate increase is only half the increase in the City’s water costs. “It’s our deliberate intention to subsidize [water cost increases],” said Fuentes. “We know that Santa Clarans are doing their best to save water, unlike some other parts of the state, but things may change in the future.”
Sewer rate increases are driven by capital costs, principally $103.5 million in proposed capital projects at the Regional Wastewater Facility. Santa Clara’s share of that is $17.5 million. As with water, residents aren’t paying the full cost. Some reserves and possibly debt financing will be used to “mitigate” costs increases, which might otherwise increase rates by 30 percent.
Ulistac Nominated for Priority Conservation Area Designation
The Council accepted the Santa Clara County Open Space Authority’s (SCCOSA) nomination of Ulistac Natural Area as a Priority Conservation Area (PCA). The designation allows the City to apply for special grants for preserving and maintaining the park.
With County officials’ eagerness to plunder City real estate in the RDA shutdown fresh in City officials’ minds, they were inclined to refuse the nomination; worried the PCA designation would allow a backdoor taking of Ulistac. City Attorney Ren Nosky and SCCOSA General Manager Andrea McKenzie assured officials that a PCA wasn’t a land use designation, nor a conservation easement (giving a private land trust perpetual control over property without buying it). The Council approved the designation with the stated caveat that a conservation easement couldn’t be created without paying the City fair market value for the 40 acres.
Preservation Ordinance Going in Circles
A proposed City historic preservation ordinance is back where it was a year ago. In early 2014 the Council formed an ad-hoc committee to draft the ordinance; which the Council turned the draft over to Planning Department in November, with direction to reduce scope, complexity and land use authority given to the Historical and Landmarks Commission. Nothing’s been done since then. The Council decided to reconvene the committee by mid-July, and schedule another study session in August.