A slowly improving economy has helped brighten Santa Rosa's budget picture, but the ballooning cost of public pensions, the annexation of Roseland and covering Bennett Valley Golf Course's debt all threaten the city's financial recovery.
During a presentation that Mayor Scott Bartley called "somewhat positive, somewhat sobering," the City Council on Tuesday learned Santa Rosa's general fund is expected to bring in $1.6 million more in revenue than it expected this year.
Higher sales of construction materials, automobiles, and furniture and appliances all contributed to sales tax revenues tracking about $1 million higher than expected mid-year, explained Betsy Howze, the city's financial reporting manager.
Bed taxes and real estate transfer taxes also are tracking higher, Howze said. They're coming in $432,000 and $420,000 higher than planned, respectively, she said.
The recovery of the housing market is a major factor in the city's changing fortunes. Sonoma County median home prices are up 23 percent over January 2013, fourth-quarter foreclosures were down 60 percent over the prior year, and $99 million worth of construction was approved in the city between July and January, an 8.6 percent increase.
The job market is also rebounding nicely. The city's unemployment rate dropped to 5.7percent in December, lower than the state rate of 8.3 percent. Only four other counties in the state - Orange, San Francisco, San Mateo and Marin - had lower unemployment rates, Howze said.
The city now expects to bring in $127.2 million in taxes and fees this year, versus expenses that remain stable at $123.6 million. That means the city's general fund, over which the City Council has the most control, is on track to end the year $3.6 million in the black.
"The takeaway is locally we are recovering more quickly than nation and state levels ... but we're not quite out of the woods yet," she said.
Huge financial challenges remain, particularly the city's pension liability, which continues to defy efforts to bring it under control.
Despite several years of increased contributions by the city and employees to state Public Employees' Retirement System and the creation of less generous benefit levels for new employees, the city's long-term unfunded liability continues to soar.
The city's three pension funds were underfunded to the tune of $251 million in 2012, a $53 million increase over the prior year when assessed by market value. That's of particular concern because the liabilities continue rising despite strong stock market returns, Councilman Gary Wysocky said.
"That to me is a sobering fact," Wysocky said.
Another huge looming financial issue is that Measure P, the quarter-cent general sales tax passed by voters in 2010 to help fund critical services is set to expire in 2019. The tax is generating $7.7 million a year currently.
"Without that, we would be in a world of hurt," Wysocky said.
A council subcommittee is discussing options for possibly extending the temporary tax.
Several other issues could be future budget busters. One is the annexation of the Roseland neighborhood into the city, which could take years and cost tens of millions of dollars. How the city and county plan to divvy up those costs remains to be seen.
The city also is suing the state to recoup $7.4 million, mostly from loans the city made to three different redevelopment areas before they were dissolved by the state and the loans deemed "unenforceable obligations."
Other future needs include increasing park staff and maintenance, hiring additional planning staff to keep up with development, and making payments on the $5.6million in bonds sold to finance upgrades to the city golf course.
Also looming but unmentioned at the meeting is that the city remains in protracted labor negotiations with its largest employee union, the Santa Rosa Employees Association, which is holding out for raises after years without any.
You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @citybeater.
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