‘Embarking on a challenging year’: Santa Rosa projects budget deficit with slowing revenues, increased costs

Administrators at Santa Rosa City Hall are proposing a budget, that while larger, mostly keeps spending in check for the second year as revenues begin to level off and expenses continue climbing.

The budget, tentatively set at $534 million for fiscal year 2023-24, which begins July 1, represents a nearly 11% increase from the current budget.

It reflects a continued push from City Manager Maraskeshia Smith to focus on core services and greater investment in city infrastructure after years of diverting resources to emergency response.

But that priority will be challenged by soaring payroll expenses and increased costs of goods and services that help local government run.

“I don’t want to paint a gloomy picture, but I want you to understand the narrative — we are embarking on a challenging year,” Smith told the City Council this week.

Finance officials provided the council with an overview Tuesday of Santa Rosa’s fiscal outlook and a preview of the spending plan, followed by presentations from 14 departments that extended into Wednesday.

The presentations capped weeks of behind-the-scenes discussions between City Hall administrators and department heads, who were tasked with maintaining a flat budget.

The general fund, which makes up the largest chunk of the city’s overall budget at about 38%, is projected to grow by about $10 million, or 5.3%, to $200.3 million. The fund, which is primarily made up of sales and other taxes, pays for salaries, benefits and other operational expenses.

Finance officials anticipate a $2.5 million deficit in the coming fiscal year that will be covered through reserve funds.

The deficit is expected to grow over the next five years, topping $11 million in fiscal year 2027-28 as operating expenses increase and one-time federal pandemic aid, wildfire assistance and other grants run out.

The projection doesn’t account for any impact on revenues from a recession.

“The bottom line is our expenditures are outpacing our revenues,” Chief Financial Officer Alan Alton said.

The city will need to take more drastic steps in future years to address the gap, he said.

The council is expected to adopt a final budget on June 20.

Challenges in the upcoming fiscal year

Revenues starting to slow: Sales and property taxes, which make up 56% of the general fund revenues, are steady but are starting to level off, Alton said.

Finance officials are projecting property taxes to grow by just $1.6 million, or 4.6%, while sales tax revenue is expected to grow by $1.2 million or 1.6%.

Rising payroll costs: Salary and benefit costs are the largest single expense in the general fund at $153 million, 76% of the general fund. That’s up nearly 4% year over year.

The increased payroll spending includes a 2.5% cost of living increase for all represented employees as well as anticipated step and merit increases.

The city has also seen costs for pensions, health care and workers’ compensation rise, financial analyst Veronica Conner said.

Staffing shortages: The city hired 158 new full-time employees since the start of the fiscal year last July but is still struggling with filling technical positions and retaining qualified candidates across the organization, interim Human Resources Director Dominique Blanquie said.

There were 125 vacancies among the city’s roughly 1,280-person workforce, nearly 10%, according to Blanquie.

Staffing shortages have been particularly tough in the Transit and Public Works Department, which has 49 openings. The shortages have led to reductions in Santa Rosa CityBus services and changes to bus schedules, among other changes in the department.

“We’re experiencing high level of turnover,” Assistant City Manager Jason Nutt said. “It’s really starting to hand tie us in certain areas.”

Rising costs of equipment, services: Department heads reported increased maintenance costs and a jump in costs to repair and replace equipment and vehicles.

Vehicle expenses are projected to jump by $2.1 million from $6.4 million this year to $8.5 million, a 32.8% increase.

Nutt said the Public Works Department has seen increases in utilities costs and for services like pest control, too.

Construction and public works contracts are also coming in above city estimates, he said.

Big ticket projects

Beyond operating costs, the city proposes spending $74.9 million in capital improvements across the city to address streets, parks and water and sewer infrastructure.

A more detailed capital budget will be presented to council as part of the final budget but some of the larger projects being funded include:

• Reconfiguration of the Hearn Avenue interchange and the overpass at Highway 101 in District 1.
• Development of Kawana Springs Community Park in District 2.
• Continuation of the Fulton Road widening project in northwest District 6.
• Road and transportation enhancements in District 7.
• Improvements to bike and pedestrian infrastructure and water and sewer lines across the city.

What do council members want to see prioritized?

Mayor Natalie Rogers said she wants to see equitable investment in programs and services across the districts and in particular in southwest Santa Rosa, which includes part of her District 7. She also wants to see improvements to pedestrian crossings and road safety.

Vice Mayor Dianna MacDonald, who represents Rincon Valley, the Skyhawk neighborhood and Oakmont in eastern Santa Rosa’s District 3, said she would like to see increased staffing in the police and fire departments to address response times and overtime costs.

Council member Mark Stapp supported greater investment in grants management and technology, which he said could help generate revenue and cut costs.

What are residents saying?

Bennett Valley resident Chris Guenther, co-founder of Bikeable Santa Rosa, a coalition of residents advocating for safer bike infrastructure, called on the city to make greater investments in that area.

“I want to emphasize that it’s important to think of this not just as a nice to have and something that we will do opportunistically when we can get to it,” Guenther said. “It needs to be a strategic investment and it needs to be an investment that is an alternative to continuing to invest in the transportation system we have now.”

Rigel Bowen, another Bennett Valley resident who serves on the North Bay Organizing Project’s police accountability task force, criticized the city increased spending on policing and said funds would be better allocated to housing and social services.

“Let’s work on preventing the problems that require a police response rather than increasing policing,” Bowen said.

Several speakers addressed the need for more housing in the city, while some said more work was needed to address safety and economic development downtown.

You can reach Staff Writer Paulina Pineda at 707-521-5268 or paulina.pineda@pressdemocrat.com. On Twitter @paulinapineda22.