The Santa Rosa City Council passed a $340.1 million budget Thursday that represents a 9 percent increase in spending as improved revenues allow the city to begin rebuilding staffing levels after years of cuts to many departments.
The budget adds 22 full-time employees across the organization, including additional police officers and firefighters and new staff in the finance, information technology and utility departments.
Council members made few changes to the budget proposed by City Manager Kathy Millison, but their views on it ranged from cautious optimism to deep skepticism.
"We're not out of the woods completely yet, but I think we're showing some positive signs," Councilman Ernesto Olivares said.
But Councilman Gary Wysocky, who cast the lone no vote, expressed concern that the budget wasn't addressing imbalances between departments or honestly accounting for pension costs.
Millison has called the budget balanced, but Wysocky, a certified public accountant, questioned that characterization.
"I feel this budget is not a balanced budget because we are significantly understating part of our compensation costs," he said.
Wysocky argued that city is failing to fully account for the full long-term cost of paying for the retirements of its workers.
At last count, the city had a $128 million unfunded pension liability as calculated by the state Public Employee Retirement System.
Mayor Scott Bartley said everyone is aware of the long-term challenges regarding the city's pension costs. But he argued the budget is balanced given the costs the city forecasts for next year.
"I'm not sure it's accurate to say this budget isn't balanced," Bartley said.
Millison acknowledged that the city's employee costs may be underestimated, but she said she is awaiting the outcome of an actuarial report detailing exactly how much.
She said it is possible the "pension stabilization fund" she previously proposed to cover higher future pension costs might need to be established in the future. The consequence of not setting that money aside in the budget, Wysocky argued, is that employees no longer see the need to continue giving concessions.
"The bargaining units see this and they see a surplus or they see a balanced budget. Why would they pay attention to something that's not there?" he said.
The city's nearly 1,200 employees, most of whom have given concessions in the form of unpaid furloughs and higher payments toward pensions and health care expenses, have not yet agreed to additional concessions next year, and it's unclear if they will.
If the one-time concessions are not renewed next year, the city's costs will go up $1.6 million.
Other key issues raised during the three-day budget hearing included the appropriate level of funding for police and fire, and the level of reserves the city should carry for emergencies.
Wysocky, Julie Combs and Robin Swinth all said the city needs to take a closer look at revamping MeasureO, the quarter-cent sales tax for public safety that, absent a special vote, requires the city to increase its spending annually by the consumer price index.
"We have a challenge where the basic assumption of Measure O is that that budget rises with CPI, and yet what we see is our general fund does not rise by CPI," Swinth said.
While she supported and voted for the public safety and gang prevention measure, Swinth said the result has been that "funding for the departments is disproportionate."
Wysocky went further, saying that the need to fund public safety at ever-increasing levels "really skews this budget process."
The council added $700,000 next year to the $42.3 million police budget in an effort to boost funding closer to the Measure O baseline for that department.
Wysocky and Combs sought to have $400,000 of that moved to the Recreation and Parks Department to hire six parks maintenance workers, but the effort failed on a 5-2 vote.
Millison said she would return within 60 days with options for how the council could fund the additional parks positions.
Whether next year's budget is balanced or not, city officials made it clear that future years won't be without some serious changes.
An additional spike in pension costs is on the horizon, as is the possibility of the city's general fund picking up the tab for the $470,000 in debt carried by the Bennett Valley Golf Club.
The exact amount of the spike in pension costs in 2014-15 is not yet known, but based on guidance from CalPERS, "it's fairly significant," city budget manager Jean Gill said.
Combined with other expected cost increases, finance staff projected the city will be $5.5 million in the hole by 2018 if nothing changes.
The following year, 2019, will see the expiration of Measure P, the quarter-cent sales tax passed in 2010 to help the city weather the post-recession revenue plunge. The tax is currently bringing in more than $7 million annually. In the face of such challenges, Millison stressed the importance of the city diversifying its revenues away from just property and sales taxes.
"These are both very dependent on the economic condition and they ebb and flow with that rise and fall," Millison said.
While the overall budget is going up 9 percent, much of that will be borne by water and sewer ratepayers, where capital projects to replace pipes and equipment are costly.
The portion of the budget where most taxpayer-funded services come from, the general fund, is expected to rise by 5.7 percent, to $123.6 million next year. General fund reserves are expected to remain stable at $20.3 million, or 16.4 percent of the general fund expenses, its highest level in several years.
City finance staff were loath to let those hard-fought reserve levels slip.
Combs wondered whether the city's savings would be better spent today keeping roads from deteriorating further as opposed to sitting in a rainy day fund earning negligible interest.
But Chief Finance Officer Lawrence Chiu said that would send the wrong message to the ratings agencies, one of which has downgraded the city in recent years out of concern about pension debt.
Those agencies are looking for reserves closer to 20 percent, he said.
Spending some of the reserves now "will have a significant impact on the credit rating for the entire city," Chiu predicted.
You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter@citybeater.
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