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Santa Clara’s $34 Million Forecast Budget Shortfall: There Will Be Pain

That’s the message of the City of Santa Clara’s recently released 2020-2021 operating budget overview. “Given that our resources are considerably lower than other agencies, reductions will have a significant impact to service levels,” Santa Clara City Manager Deanna Santana wrote in the overview.

To get a feel for the magnitude of the budget cuts Santa Clarans will face in the next four years, consider: The five-year $34 million shortfall is equal to the entire Parks and Recreation Department, half the Fire Department or one-third of the Police Department.

Two thirds of the revenue shortfall — nearly $23 million — hits in the coming fiscal year. The largest shortfalls are in sales and hotel taxes — $5.6 million and $6.8 million respectively. Property tax, which is less affected by economic conditions, is nonetheless forecast to be down almost $2 million.

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The cancellation of classes and recreation center programs will add up to just short of another $1 million in lost revenue, and lower interest rates will take another $1.8 million bite out of the City budget.

With no events in Levi’s Stadium, the City will also lose ticket fee that benefitted senior and youth services as sales taxes. Prior to the pandemic, revenue from big non-NFL events like concerts had dropped to next to nothing from $2-$4 million a year.

Because the City must have a balanced budget, $22.7 million will be transferred from the Budget Stabilization Reserves, which are currently at $70 million, according to a recent City Manager report. This is a temporary measure, however, City Manager Santana noted, until a new budget is approved.

 

$7M – $10M in One-Time Cuts, $8M – $12M in Ongoing Cuts

Several cuts are already in place, including a hiring freeze, overtime controls, as-needed staff, travel, and IT and vehicle purchases. These will continue through the next year for additional one-time savings.

The real hit to City services will come in the form of cuts in personnel costs — about 75 percent of the General Fund.

Reducing overtime and eliminating vacant positions yields between $6 million and $8 million, and layoffs aren’t off the table. “We will evaluate all positions funded by the General Fund,” wrote Santana, “[which] will require an evaluation of service levels and service delivery methods to identify potential reductions.”

The City is also looking at union contracts — Memorandums of Understanding (MOU). “Savings will be required in order to prevent additional service reductions and/or layoffs,” Santana wrote.  During the Great Recession all but one City union accepted furloughs, which reduce payroll but don’t affect pensions.

Another $1 million to $2 million can be realized by cutting outside supplies and services. The City will also look at reducing General Fund revenue that’s going into other City funds — for example, capital improvements, reserves, housing and cemeteries.

 

Increasing Fees

Overall the City’s cost of services is higher than the fees charged for those services, although “full cost recovery” always comes up in the annual discussion of fees. The most recent fee study shows Santa Clara recovering slightly more than 50 percent of its service costs, with the City “subsidies” adding up to about $22 million.

Some of these subsidies include (per each): Library room rentals ($84), burials in City cemeteries ($1,000 and up), replacing library cards ($3), special events permits ($166), taxi driver application ($818), commercial building electrical permits ($0.21/square foot), and Additional Dwelling Unit plan check and inspection ($1,564). (Source: SantaClaraCA.gov).

After about a year of discussion on raising the City’s hotel tax, at its May 27 meeting, the Council ultimately decided not to raise the $1 per night tax, postponing the question for a future time.

 

Service Cuts

Although no specific service cuts have been discussed, they’re under consideration for just about every City department. Here are some of the things that residents might see in the coming year according to the budget overview (list is in no particular order):

  • Longer Fire Department paramedic response time and more apparatus out of service
  • Lower Police Department minimum staffing
  • Longer planning and code enforcement response times
  • Reduced library hours and fewer programs
  • Lower funding for outside groups
  • Reduced or deferred infrastructure maintenance
  • Fewer Parks and Recreation programs and community events
  • Reduced levels of service from the City Clerk, City Attorney, City Auditor, and City Manager

 

Wildcards 

Other factors could make Santa Clara’s budget problem worse.

A prolonged economic downturn would depress all General Fund revenues, especially volatile revenues like sales and hotel tax, and eventually reduce the more stable property tax revenue.

Pension costs are another unknown. CalPERS has reduced its exposure to volatile investments since the dot-com bust, but nonetheless reported a 0.4 percent loss in the first quarter of this year instead of the projected 7 percent gain.

Santa Clara’s pension costs nearly doubled in the aftermath of the last economic crisis — the Great Recession. CalPERS’ investment losses, combined with a reduction in the time allowed for paying up unfunded liabilities, more than doubled the City’s pension costs to $50 million from $19 million since 2010.

The giant pension fund’s losses directly affect the City’s contribution rates because promised benefits remain the same, regardless of the retirement fund’s returns. Thus, a decline in the value of an agency’s contribution increases the agency’s unfunded liability. In 2019 Santa Clara’s unfunded pension liability was $516 million.

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9 Comments
  1. John Slos 5 months ago
    Reply

    City Manager is choosing to fire employees instead of liquidating assets. The City Manager is choosing to fire employees as a first option. The City Manager who made pay + benefits over $680,000 in 2018 and required a housing allowance of $42,000 a year when she already lives in Sunnyvale, is choosing to fire people to save money. If the City Manager would have given up her 10% increase from December over 40 as needed employees from the Libraries alone could have kept their jobs. The City Manager and Council is choosing to take pay and benefits from the persons who actually run the City and make all the work happen. ANYONE can be a manager, the entire management group makes over 31% of the Cities total budget for personnel and their retirements are even higher. If you fire the employees, the manager doesn’t know how to do the work, it makes no sense. Who are these people? Why does no one care?

  2. John Slos 5 months ago
    Reply

    Facts from Transparent California: 163 Employees in Unit 9 (Managers) in 2018 had a base pay that equaled 31% of the total spent on base pay and that equaled $25,110,889.86. When pay and benefits were added the total became $39,449,898.63. Managers, they wouldn’t even know where to begin to complete our tasks. Most managers spend their days in meetings slowing down paperwork and making our jobs harder because they don’t understand how things operate. It makes no sense, anyone can be a manager, let our senior employees manage the units and fire all of the pointless management staff. That is $40 million right off the top. The City Manager doesn’t actually do anything other than regurgitate other peoples words and fumble through covering her illegal money laundering tracks.

    • John Slos 5 months ago
      Reply

      In the above calculations for management and pay percentages I left out Police and Fire because I cannot put a price on anyone’s life.

  3. Thomas MacDevitt 5 months ago
    Reply

    Where is there 10% pay-cut to upper management (those that make more than $200K?)
    Where is the 5 % pay-cut to middle management? (those that make $100-$200K?)

    • John Slos 5 months ago
      Reply

      The only problem with that is management would be making less money and they are the ones who make the rules on money. They only present to council what they want the council to see, not what the employees analyze and give to them. Don’t you wonder why the City of Santa Clara was “in dire straights” financially when Deanna first got here, then the City was prosperous and she got a raise, then again when Unions were up for new contracts the “we are in a deficit” and a few months later the budget was great so the City Manager could get a 11% raise in December 2019, only to then 1 month later turn around and say the “budget is short” and the City will have to pay less to the workers.

      Its all a show, its all a sham, and either the Council is in on it… or they are so retarded they cants see past their own crooked agendas.

  4. Andy Brett 5 months ago
    Reply

    A city manager makes 680K? That’s outrageous – no doubt the taxes we pay for our houses is high ( if you buy a house now). Even the average salaries of engineers in Google or Facebook are not that high. I am paying a lot of taxes. I don’t understand how we can still have deficit. Seems like height of incompetency.

    • John Slos 5 months ago
      Reply

      They are raising rates for City services and Taxes for businesses and homeowners. This is the snowball at the top of the hill, the businesses are going to increase their rates to the consumer so they can break even. The consumer, homeowner, and citizen will get taxed 2-3 times as much because they have to fit the bill for everyone to operate. Deanna was kicked out of 2 cities already and has been sued for her shady practices, maybe its time we kicked her out of Santa Clara…

  5. pj lcs 5 months ago
    Reply

    City manager who takes expensive boondoggles at the tax payers expense needs to go!

    • John Slos 5 months ago
      Reply

      They are raising rates for City services and Taxes for businesses and homeowners. This is the snowball at the top of the hill, the businesses are going to increase their rates to the consumer so they can break even. The consumer, homeowner, and citizen will get taxed 2-3 times as much because they have to fit the bill for everyone to operate. Deanna was kicked out of 2 cities already and has been sued for her shady practices, maybe its time we kicked her out of Santa Clara…

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