Novato faces service cuts if it can’t find new sources of revenue to cover rising costs, the city’s chief financial officer said.
While federal stimulus dollars from the U.S. bailout and recent municipal property sales will solve short-term budget deficits, the funds are only a temporary fix and will not solve ongoing costs for employees, utilities and maintenance that will continue to increase, said Amy Cunningham. .
“It’s going to be difficult for us to contain costs further without reducing service levels if the goal is a balanced budget for next year,” Cunningham told City Council on Tuesday.
The City is preparing its 2022-2023 budget, which will come into effect on July 1. The board is due to hold its next budget workshop on May 10, when it plans to give more direction on the changes it wants to make.
Council members expressed concern over the budget forecast on Tuesday.
“Looking at our revenue challenge and these dramatically rising expenses, it’s incredibly stressful,” Pro Tem Mayor Susan Wernick said.
The city is expected to end the fiscal year with a deficit of $357,000, down from about $208,000 when the budget was passed last year. Staff attributed the increase to wage and benefit increases for city employees, rising utility costs and an increased allocation to the city’s youth financial assistance program for its programs. of summer.
Money from the city’s rainy day fund or one-time funding such as stimulus dollars will be used to cover the shortfall if further savings cannot be found in the coming months. The city has approximately $8.3 million in stimulus funds and $3.6 million in other one-time funding available.
If the city hadn’t received $16.1 million last year from the U.S. bailout and city property sales and deals, the shortfall would be even bigger, Cunningham told the board. At the height of the pandemic, the city had forecast it would start the current fiscal year with a deficit of $5.7 million. The city was able to cut the deficit to $2.5 million after cutting 17 staff positions — its first layoffs since the Great Recession — and cut it further to $208,000 using stimulus funds and a one-time funding.
But Cunningham said it was unsustainable to rely on one-time dollars and the city’s rainy-day fund to cover ongoing costs.
U.S. bailout funds have all been budgeted and are not available to fill shortfalls in the coming fiscal year, Cunningham said.
Novato is expected to face several cost increases next year and as the city continues to restore service after the pandemic, Cunningham said.
City payments to the California Public Employees Retirement System, or CalPERS, are expected to rise nearly 18% to $4.9 million next year. Costs for utilities such as garbage, water, electricity and sewer are expected to rise by up to 19%, Cunningham said.
The budget also assumes that employee compensation should increase by 3%, including an additional 1% for some employees who are paid below the market median to address a persistent employee turnover problem.
On Tuesday, the council approved a 1.5% pay rise for much of its police staff to deal with the high turnover of officers in recent years.
The city also lost sources of revenue. The city’s $1.2 million annual revenue from the old half-cent sales tax from 2010 to 2016 was exhausted last year. The expired half percent tax was replaced with a quarter percent sales tax in 2016.
The city has already started exploring new sources of revenue, including a potential ballot measure for November to raise the local sales tax by up to half a percent. Voters also approved a 2% increase in the city’s hotel use tax in 2020.
The more than 250 residents who responded to an online survey on the 2022-2023 budget said the city should prioritize and increase funding for public safety services, address homelessness and mental health, and fix the roads. In exchange, respondents said the city should cut funding for residential and business permits, environmental and sustainability programs, and maintenance of city buildings and facilities.
City Manager Adam McGill, the city’s former police chief, said the demand for increased police numbers is often an emotional reaction from residents and not something he would recommend. The challenge the city faces, McGill said, is that positions are not being filled and employees are leaving for better-paying jobs.
“It’s not that we need more police, it’s that we need to deploy and keep the ones we have,” McGill told the council. “We’ve had the same number for 20 years.”
Council members also discussed the possibility of using some funds to hire consultants to assist City staff in various departments.
“I know people don’t like to hear that we use consultants,” said board member Denise Athas. “But I think it has to be taken into account that we cannot continue to draw blood from our staff, trying to have these high expectations and not being able to meet them.”