Santa Rosa faces bleak budget forecast following October wildfires

Santa Rosa’s post-fire budget picture darkened considerably Thursday when the City Council learned it’s on track to burn through nearly $18 million in savings this year, potentially leaving the city unable to pay its share of the cost of debris removal now underway.

City Manager Sean McGlynn told the council during its annual goal-setting process the city will be broke if state and local governments are required to pick up 25 percent of the ?$750 million cost of removing debris from the October wildfires.

“Right now as we sit, you do not have enough money in the bank to cover if that percentage does not change,” said McGlynn, stressing the figures were preliminary.

It was a sobering start to a three-day goal-setting process that began with members of the public urging the council not to ignore issues they held dear, from creating a greenway to protecting the homeless and immigrants, following its climate action plan, and establishing a public bank. But the session quickly veered toward a painful reckoning with the financial realities facing the city.

“I don’t need to remind anyone that this is going to be a unique year in the history of Santa Rosa,” Mayor Chris Coursey said. “It’s going to be a difficult year for the community. It’s going to be a difficult year for the council and our staff.”

Just how difficult became clearer when the city’s new interim Chief Financial Officer, Alan Alton, outlined just how quickly the city is burning through cash. The city started the year with $37.3 million in its reserves. It planned to spend ?$6 million of that as part of its $385 million budget, which included extra money for the annexation of Roseland, expansion of the city’s homeless shelter, and legal aid for tenants facing eviction.

The council subsequently signed off on an additional $4.9 million in raises, cannabis regulation costs and other expenses.

Then the fires hit, and the city was forced to spend $7 million extra responding, including $4 million in overtime from fire responders and other city workers, $4.6 million on a contract to speed rebuilding permit requests, and $500,000 to outside accountants to track it and help the city get reimbursement from the Federal Emergency Management Agency. That is expected to leave the city’s reserve level at $19.5 million at the end of the year. That’s $2.8 million below the 15 percent threshold the council has set as a policy for its budgets, and $5.6 million below the 17 percent reserve level the city prefers.

But the city’s share of the debris removal cost could be anywhere from $9 million to $23 million, depending on whether the city and state are required to pick up 25 percent of the tab or 10 percent. If the former, the city is in trouble, a point that Coursey and McGlynn said they made to legislators. There is a Senate bill proposing to cap local matching funds at 10 percent, but it’s far from clear when or if it will pass. It’s not even clear if the federal government will be operating past this weekend.

But McGlynn took pains to remind the council and the department heads assembled that even in the best case scenario - with the local matching share set at 10 percent - the city faced a serious financial challenge ahead.

“I can’t emphasize it enough. There’s no free ride here,” McGlynn said. “There is still an expectation that the local community contributes to its recovery process.”

To drive home the point, McGlynn noted that a bank recently turned down the city’s request to refinance some of its debt related to the golf course.

The city will be working with its outside accountants, Ernst and Young, to make sure its reimbursement request to FEMA is as complete as possible before an April 16 deadline, he said. But it’s not clear when those funds would be forthcoming, nor whether the city would be able to use them immediately, given audit requirements that can stretch for years. It’s possible the city would need a “cash advance” from FEMA.

“We are anticipating we may have some cash flow issues,” McGlynn said.

The city isn’t just facing a financial shortfall, however. It’s also facing significant leadership turnover, Alton said.

Shortly before the fires, the city’s director of parks and recreation, Nanette Smejkal, departed and has yet to be replaced. The move followed some playground equipment that was purchased outside proper procedures, according to finance officials.

Also the city’s chief building official, Mark Setterland, has been on paid leave since shortly before the fires, something city officials have declined to explain. And the city’s well-regarded chief financial officer, Debbie Lauchner, is scheduled to become director of finance for the city of Reno, hence Alton’s promotion to interim CFO.

All that being said, McGlynn and Coursey both struck an optimistic tone, saying that out of the tragedy there could be opportunity to emerge as a stronger community.

“We have real opportunity, but it’s going to require focus, discipline, and the ability to trust, because there is no template,” McGlynn said.

But councilman John Sawyer said he was having difficulty seeing how to proceed on the budget with so many unknowns.

“I’m feeling very uncomfortable,” Sawyer said.

The council and staff will meet at 8:30 a.m. today in the Chalk Hill Room at the Hyatt Vineyard Creek Hotel, 170 Railroad St., Santa Rosa. The council will meet again Thursday at the Hyatt, from 9 a.m. to 2 p.m., to settle on its goals and priorities.

You can reach Staff Writer Kevin McCallum at 707-521-5207.