Santa Clara faces a $42 million budget shortfall in the coming fiscal year and residents can expect to see $24 million in City budget cuts over the next 12 months, plus possible increases in fees and taxes. That’s the message from the Santa Clara City Council’s 2021 goal-setting meeting earlier this month. This shortfall is up from about $29 million general fund deficit forecast last April.
Even assuming that the economy recovers toward the end of this calendar year, the City’s finances won’t recover for years, Santa Clara Finance Director Kenn Lee told the Council.
Costs Up $3 Million, Revenue Down $10 Million
The City’s general fund expenses — City services like police, parks and libraries — are up $3 million for the coming year.
While overall salary and benefit costs are down $500,000 this year, pension costs are up almost $1 million and fire department overtime is up $2.1 million. Other costs are up $1 million for non-personnel costs; other operating costs like unemployment insurance and outside legal bills are up $2.5 million.
Pension costs are growing and show no signs of stopping. The City’s current unfunded pension liability is $602 million, more than two-thirds of which is for current retirees.
While costs are growing, general fund revenues are down $10 million for the coming year.
Hotel tax revenue is down almost $7 million and isn’t forecast to return to pre-COVID levels until 2025. Charges for services are down $2.6 million, and an extended timeline for Related’s rent payment on the 240-acres across from Levi’s Stadium will reduce Santa Clara’s revenue by $2.4 million this year.
Sales tax is up $2.4 million, driven by business-to-business sales taxes paid by the City’s tech giants. Property tax, the single largest general fund revenue source, is projected to grow from about $2 million to roughly $65 million in the coming year.
A Year of Cuts Forecast
To balance the 21/22 budget, the finance department proposed a series of budget cuts — $12 million this month and another $12 million in May. The deficit-closing proposal also includes using $14 million of the budget stabilization reserve this year and $24 million of the land sale reserve over the next two years.
The first phase of cuts will be imposed this month. These include cutting 43 positions (no layoffs), cutting events and grounds maintenance, suspending Healthier Kids Foundation and Latchkey kids programs, and reducing public works and planning staff.
The City is also looking for concessions from its purchasing contracts, Lee said. “We’re
evaluating contracts with those that were being renewed or in process [and] we asked for
considerations [for] savings,” he said. “We continue to look for opportunities of expenditure
savings where we can to slow down the spending and generate savings.”
The second phase of cuts beings in May and that’s where the real pain starts. These cuts include:
- Cuts in police and fire operations and fire engine “brownouts” — rotating shut-downs of fire units
- Reduced library hours and community facilities availability
- Cuts in community group funding, and changing Rec Center class offerings to increase revenue
- Cuts in planning, code enforcement, maintenance and capital project oversight
- Cuts to City Hall back office operations like IT and City management and support
There was almost no mention of salary cuts or furloughs.
“With regards to labor our forecast reflects the contracts that are approved,” Lee said. “To the extent there’s additional labor contracts that move forward during the forecast period over the next couple of years those trade-offs could occur.”
Boosting Revenue: Federal Stimulus, Higher City Taxes and Fees
The most immediate budget aid Santa Clara could get is from the federal stimulus package, if it passes.
“It would give us one-time dollars to preserve services,” said Lee. “With the change in [presidential] Administration… I am hopeful some of the dollars would trickle through. I can’t comment on what that amount is. I can tell you from our lobbyist’s …best guess right now [would] give us $2 to $10 million.”
The City is considering increasing fees, rents and fines. Santa Clara’s fees are currently being reviewed, Lee said. Overall, fees like those for inspections and recreation programs cover only slightly more than 50 percent of the cost of providing services. Increasing development impact fees is also under consideration.
Another revenue source is new or increased sales taxes, a bond issue, a new utilities user tax and parcel taxes — add-on property taxes.
There was no discussion of enacting the commercial marijuana tax passed by voters more than a year ago. The City Council has banned marijuana businesses, despite voter approval. Nor was there any discussion of building future revenues from the City’s convention center and Levi’s Stadium.