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Past and Future Deficits Haunt Santa Clara’s Operating Budget

Past and Future Deficits Haunt Santa Clara's Operating Budget

Santa Clara has a balanced budget this year. But the City has no choice. Since 2000, reserves were used six times to balance the City budget in the face of deficits – 2001-02, 2002-03, 2003-04, 2007-08, 2008-09, 2009-10 – leaving nothing much except mothballs in the emergency operating reserves.

None of this should been surprising. City Manager Jennifer Sparacino warned as early as 2004-05 that the city faced ongoing “structural” – rather than “emergency” – operating budget deficits and dangerously declining reserves.

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But it wasn’t until 2010, when the reserves were almost completely depleted, that the City Council found the political will to address the deficit and cut operating expenses, two-thirds of which is compensation for city employees. Even then, the choice was for short term savings – employee furloughs and a moratorium on raises – rather than addressing underlying causes – such as escalating mandatory contributions to California’s public employee pension program, CalPERS.

The current deficit reprieve will be short-lived, according to the City Manager’s transmittal letter for the proposed 2011-12 budget. Beginning in 2013, structural deficits will return as furloughs end in the middle of fiscal year 2013-14.

To balance the budget last year:

  • The city froze or left vacant 100 open full-time positions, cut about 9 full-time positions, and negotiated with eight of the city’s employee unions for pay concessions – one day a month furloughs and a moratorium on raises. Two of the city’s unions chose layoffs rather than concessions.
  • The City Manager and elected officials took voluntary salary or stipend cuts.
  • As-needed staffing and overtime budgets were reduced.
  • Fees and charges for services were increased to move closer to full cost recovery.
  • Materials, services, and supplies budgets were pared to a bare minimum.
  • The city sold its Altamont Pass property to the city-owned electric utility (Silicon Valley Power).

Despite these savings, salary, benefit and pension expenditures will grow $2.7 million -1.9 percent – in the coming fiscal year, due primarily to growing benefit and pension costs. One savings that Santa Clara wasn’t able to implement was a “fresh start” refinancing of its CalPERS unfunded liability – similar to refinancing a mortgage. CalPERS denied the city’s refinancing request.

When the reserve fund was established in 1985-86, the objective was to maintain 90 days – or 25 percent – of operating budget in case of financial emergencies or natural disasters. Currently, those reserves are about one tenth of that amount.

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