Breathing room, sharp debate as Santa Rosa tackles upcoming budget

KEVIN MCCALLUM
THE PRESS DEMOCRAT

Rebounding sales tax revenues and concessions by employees are giving Santa Rosa officials a little more maneuvering room as they put together their next budget, which takes effect July 1.

It's also triggering some sharp debate about how the city should spend the surplus, including a proposal to boost the Santa Rosa Police Department's budget by $1.2 million.

Formal budget hearings are still a month off. But City Manager Kathy Millison last week sought guidance from the City Council regarding three potentially thorny budget issues.

The most contentious - and complex - issue involves whether to increase the police department budget relative to the baseline set by Measure O, the quarter-cent, public-safety sales tax passed by voters in 2004.

Last year, the council balked at Millison's proposal to spread cuts across all departments, which would have pushed the department $2 million below the $41.6 million baseline set by the formula in the ballot measure.

The Measure O baseline for police, fire and gang prevention services automatically adjusts upward every year to match the change in the consumer price index, regardless of the city's budget challenges. Passing budgets below the baseline requires six votes of the seven-member council.

The council restored $750,000 to the police department last year, leaving it $1.2 million short of the baseline, and Millison agreed to find ways to restore the remaining the following year.

But since then the baseline has gone up again, and now the department would need an additional $2.9 million to reach the baseline level. Diverting that much money to police would cause a "severe loss of program services and operations" to other city departments, said Lawrence Chiu, the city's chief financial officer.

The council agreed that the entire $2.9 million would be too much, and told Millison to stick with the $1.2 million increase for now. That would leave the department even further below the baseline a year from now - at least $1.7 million, plus another

round of annual increases

.

Not everyone appeared comfortable with that direction. Councilwoman Susan Gorin said she would need a clear accounting of where that $1.2 million was coming from before supporting it. Councilman Gary Wysocky had similar concerns

"I don't see where the money is coming from," Wysocky said.

He said the proposal seemed like yet another example of revenue from Measure P, the quarter of a percent sales tax for "essential city services" passed in 2010, being spent on public safety at the expense of other city services.

"Was Measure P solely to bring the police department up to baseline? Because that's how this is working out," Wysocky said.

Chiu said because the baseline increases every year by an average of 2.5 percent, it could be several years before the city could get there.

City Attorney Caroline Fowler said the ever-increasing baseline was built into Measure O to ensure that the money enhanced police, fire and gang prevention services above funding levels in place at the time.

"I don't think it was ever thought about or assumed that the city could not be able to fund its general fund budget in the same manner that it was at the time Measure O was passed," Fowler said.

Wysocky floated the idea of asking voters this fall to amend Measure O. Mayor Ernesto Olivares agreed that the council needed to review its option for dealing with the baseline issue. But Councilman Scott Bartley said a ballot measure on such a complex issue would have "a lot of moving parts to it" and require significant voter education.

"I don't think it's something we are going to quickly snap our fingers and come up with something to throw on the ballot," he said.

Councilman John Sawyer, however, said he might be willing to support a "resetting" of the baseline, something he thinks voters would understand and support. "If there is a problem and we can fix it, I say fix it," Sawyer said.

The overall budget picture is a little brighter than city officials had predicted last year, Chiu said. Sales tax revenues have climbed somewhat and are now expected to total $118 million this budget year, $1.8 million higher than expected.

Property tax revenues continue to lag, however, coming in 1 percent below budget. Permit revenue, vehicle license fee revenue and recreation fees also are trending downward, Chiu said.

Higher revenues combined with lower expenditures resulting largely from employee concessions mean the city expects to end the current year $2.7 million in the black, he said.

Looking forward to next year, a $3 million savings from employee concessions will help limit labor costs while $530,000 in departmental reductions should further keep expenses in check, Chiu said.

Revenues should continue to rebound, led by sales tax increasing 4 percent, with permit and recreation revenues and other taxes all expected to improve slightly.

Property taxes, though, are expected to slide another 1 percent next year, to about $19.4 million. Chiu predicts 1.8 percent increases for the following four years. Wysocky, however, said he found that to be overly optimistic given that home values have continued their five-year slump.

"With one-fifth of the houses underwater and prices still going down, I don't know how wise it is for us to bank on that revenue," Wysocky said.

Chiu said he would revisit that assumption.

While

the $2.7 million surplus this year,

the $3 million in savings from employee concession next year and the prediction of rising sales tax revenues look encouraging, it's not that simple.

Most of the concessions were the same one-time concessions the city

negotiated this year, Millison

said. In addition, the city has numerous "rising costs standing still," such as higher fuel prices, utility costs, and pension obligations, she said.

"A lot of our costs in key areas continue to go up,"

she said.

Two other issues Millison asked for guidance on received less scrutiny. One was whether the city should pay down some of the principle on the $51 million in pension obligation bonds the city sold in 2003 to fund the cost of more generous pensions for city workers.

Millison advised, and the council agreed, that the city should continue to pay down some of the remaining $42 million principal due on those bonds to reduce future debt payments.

While no dollar amount was set, Millison said the city sets aside money to pay down the bonds when possible, and to date has paid down $3 million in principal. She suggested the city might want to pay down the bonds again in 2014, when the city is planning to refinance the bonds.

"We certainly want to try to pay off our pension obligation bonds as soon as we have the opportunity to do that," Millison said.

The third budget issue involved how the city could spend as much money as possible on shovel-ready street projects instead of building up reserves for larger future projects.

The $6 million the city will spend next year to upgrade streets is about half what is needed to keep them in good shape, said Public Works Director Rick Moshier.

That's not wise because it's far cheaper to resurface city streets before they fall apart completely, he said. "Roughly, if you spend $1 now you can save yourself $5 later," Moshier said.

He said he agreed with the council's goal of focusing on road projects that can be done now, and has been managing that way for some time.

"Getting the money out there on the street is better than the money sitting in an account," he said.

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com.

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