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Santa Clara’s General Fund Budget Stabilization Reserves Since 2000: From Safe to Shaky to Safe — Right Now

By the time the new millennium was 10 years old, the City of Santa Clara’s general fund reserves had dropped from three months of operating expenses to six days. Between 2000 and 2011 reserves were used six times to balance the City budget in the face of deficits.

During that time the City Council spent down the general fund reserves from $30.1 million to $2.5 million — rather than cutting services, laying off employees, freezing wages or postponing capital projects that would create new operating expenses.

Only in 2011 would the Council swallow the bitter political pill of reducing costs, and then it did so only nominally — cutting hours for the library and other public services, freezing open positions and wages, and employee furloughs.

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The deficit spending was despite dire and repeated warnings from then-City Manager Jennifer Sparacino that this course would leave the City unable to address an emergency.

“I’ve worked for the City for the last 30 years and the situation is by far the worst I’ve ever seen,” Sparacino told the Council in April 2010. In 2011 the picture had improved, but structural budget deficits were still on the horizon and Sparacino told the Council that the City’s reserves at that time [$4.1 million] would keep it operating for only 11 days.

Improving economic conditions enabled Sparacino to bring the reserves up to $18 million before she retired in 2012.

From 2013 to 2017, continuing economic growth enabled former City Manager Julio Fuentes to increase the reserves to $54 million.  However, Fuentes believed that wasn’t enough because of the City’s reliance on revenue that’s highly sensitive to the ups and downs of the Silicon Valley’s volatile economy – sales tax and hotel tax.

“We should be at $60 million, even $100 million,” he said told the City Council in May 2015. “That helps the city become bullet-proof.”

Since City Manager Deanna Santana took the helm, the budget stabilization reserve is on track to grow to $78 million by the end of the fiscal year. That represents 114 days, or nearly four months of operating expenses.

Source: Santa Clara City budget documents and financial plans from 2005 through the present.

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