Santa Rosa weighs flat budget as City Hall balances flush revenue projections with rising expenses

Santa Rosa has begun crafting its first budget under City Manager Maraskeshia Smith, who has prioritized a “back to basics” plan focused on core public services after years of extra attention and resources dedicated to wildfires, rebuilding and pandemic response.

That direction, including a proposal to hold 2022-23 spending at essentially the same level as the current fiscal year, is likely to be tested, however, by rising payroll expenses at City Hall and the soaring costs of goods such as gas and services that help local government run.

The proposed budget, tentatively set at $478.8 million, reflects Smith’s push to focus on greater investment in city infrastructure, including aging facilities, roads, parks and utilities. For Santa Rosa residents, that means work on new bicycle and pedestrian crossings over Highway 101, improved facilities at city parks, pavement maintenance in Roseland and repairs to downtown parking garages, among other projects.

Smith, who arrived in Santa Rosa in January after being hired in November from Stockton, where she served as deputy city manager, also wants to invest in economic development, support police and fire officials with additional staff and technology to meet job demands and address recruitment and retention across city government, which is struggling under mounting vacancies.

But how to do all that with a spending plan that is just 0.8% larger than the current year? Salary and benefit costs, the largest single expense, are projected to rise to $147 million, up $6 million or 4% from the current year, which ends June 30.

That doesn’t leave much wiggle room for new programs or positions, especially amid projected budget shortfalls in the next few years.

“While I would have liked to have given more funding and more resources to each department, it would only add to the structural imbalance that is expected in future years,” Smith told the City Council last week.

Officials helping to assemble the new budget provided the council with an overview Tuesday of Santa Rosa’s fiscal outlook and a preview of the 2022-2023 spending plan, followed by presentations from 14 departments that extended into Wednesday.

The $190 million general fund, which makes up the largest chunk of the city’s overall budget at 40% and pays for most salaries, benefits and other operational expenses, was boosted by flush tax revenue projections and one-time funding.

Sales tax revenue, the city’s main source of local income, was forecast to be up nearly 20%, at $74.7 million, with property tax revenue up nearly 9%, at $34.7 million.

Lodging taxes have seen a bump, too, as tourism rebounds regionally, while building and development fees also were projected to come in stronger than projected as the city issues more building permits than at any time since 2005, staff said.

“The last two budget cycles, to say the least, have been challenging,” Chief Financial Officer Alan Alton said “Fortunately, in most cases, revenue impact to the general fund were minimal and as we begin to open back up fully we can start planning our operations with a sense of normalcy.”

Despite improving revenues, department leaders told the City Council they’re seeing sharp increases in salaries and benefits among other financial challenges. That has made it hard to address needs, they said.

City transportation staff last month sounded the alarm that Santa Rosa’s streets were at risk of failing without additional funding for pavement maintenance. And in fire-damaged areas in north Santa Rosa, work is getting underway on repairs at six parks with additional roadwork planned nearly five years after the 2017 Tubbs fire destroyed 4,600 homes, including more than 3,000 in Santa Rosa, and killed 22 people.

Department heads reported increased maintenance costs of city buildings and a jump in costs to repair and replace equipment and vehicles. There was a $328,000 increase in gas expenses and a 20% increase in PG&E utility costs citywide.

Staffing woes also dominated the budget discussions with department leaders noting vacancies are hampering efforts to deliver services and that staff is feeling strained as they’re asked to take on more responsibilities. Sonoma County and other municipal employers are reporting similar staffing problems.

There were 161 vacancies among the city’s 1,264-person workforce — nearly 13% — with public-facing departments like public works, water, planning and economic development, police and fire reporting the largest shortages.

Clare Hartman, the planning and economic development director, said vacancies have made it difficult to keep up with the workload in what she described as a “banner year” for housing construction. The department, which has 16 vacancies, has had to go out multiple times for some positions, particularly for more technical jobs, and they are seeing newer and less experienced candidates apply, Hartman said.

Santa Rosa Water Director Jennifer Burke reported similar issues in her department where there are currently 39 vacancies.

An average of 16 employees left the department because of retirement or resignation each year between 2015 and 2020, but that jumped to 22 in 2021. Seventeen employees have left just in the first four months of this year, Burke said.

Santa Rosa Fire Chief Scott Westrope said his department, which has 16 vacancies, anticipates paying $1.4 million in overtime next fiscal year to help meet daily minimum staffing levels.

In a moment that illustrated the difficulty of balancing competing priorities, Councilwoman Victoria Fleming pressed department heads to detail what resources they required to better meet public needs.

While she said she understood staff was asked to propose a flat budget, ultimately it should be up to council to decide what priorities to fund, she said.

“I think that’s a decision that the council should be making on whether or not we want to move funding from one area to another,” said Fleming, who represents Santa Rosa’s northeast District 4.

In the case of the Planning and Economic Development Department, Hartman said the department asked for more than $1 million in additional needs to hire staff and implement new programs, including hiring code enforcement staff. That request was denied by top city administrators, including Smith, and budget officials.

“Outside of that, we have to get creative and that’s where we’re at,” Hartman said noting that the department is looking to technology and third-party firms to help fill gaps.

Alton, the CFO, said earlier in the hearing that departments made additional funding requests during weeks of behind-the-scenes budget discussions with City Hall administrators, but Smith and budget officials have said the city needs to keep spending in check.

He warned that while revenues are improving, the proposed budget represents “the limit of what we can spend.”

In the long term, Smith and budget staff said, the challenges likely will grow with expenses projected to continue rising as some of the federal pandemic aid, wildfire assistance and other grants supporting the budget run out.

Smith said though she would like to provide departments with more resources, the city has to tighten its purse strings to prevent adding to a projected deficits in future years.

Santa Rosa is projecting a $1.4 million deficit in fiscal year 2023-24 because of cost-of-living adjustments that will raise employee salaries.

In later years, as one-time funding runs out, the general fund will have to absorb costs for the new inRESPONSE mental health team, which responds to nonviolent emergencies, and homeless services. It is currently being funded through federal COVID-19 funds.

Staff projects a $1.1 million deficit in fiscal year 2025-26 and a $3.4 million deficit in fiscal year 2026-27 as that funding source dries up.

Budget staff said while the projections aren’t as bleak as expected, if there are additional operational costs that need to be covered, the city will have to get creative in how it pays for those services.

Mayor Chris Rogers said the meeting was a good introduction to the budget and council members will be in the community talking to residents about the impact the financial plan will have across Santa Rosa and seeking feedback.

“Doing the budget in the city of Santa Rosa the last few years has been like trying to get blood out of a stone,” he said during Wednesday’s meeting and thanked staff for their work.

Few residents commented on the budget, with just four people calling into the meeting to urge the city to put more resources toward bike and pedestrian infrastructure to make it safer for families to use alternative modes of transportation to get around the city.

Council members encouraged residents to speak out on what they want to see prioritized.

Staff will return to the City Council with a final budget in June and the council is expected to adopt the budget June 21.

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