$2 million city budget shortfall looms

Four months into the fiscal year, Petaluma City Hall is facing another multi-million-dollar shortage that is likely to come out of employee pockets — either through slashing payroll or benefits, officials acknowledged.

The scope of the problem will be presented to the City Council Monday Nov. 2, when officials conduct a first-quarter budget review and begin to look for ways to close the gap.

City Manager John Brown said the city’s $2 million hole has come about because of three main factors: lower-than-expected sales tax revenues at the end of the 2008-2009 fiscal year, a reliance on last year’s remaining fund balance and the state’s “misapportionment” of sales taxes that were incorrectly remitted to Petaluma.

Property taxes, expected to be flat from last year, have also dropped “a percent or two,” Brown said, and could be further reduced as properties are re-assessed in a down economy.

Cutting $2 million from the budget now is intended to keep the city’s spending balanced through the end of the fiscal year in June, Brown said.

He has already begun speaking with the city’s employee unions and hopes to have negotiations concluded by Nov. 16, the council’s second meeting of next month, in order to prepare for possible layoffs at the end of 2009, Brown said.

“We’re looking in the personnel direction,” he said. The city expects to ask for “some sort of give-back on the part of the employees instead of layoffs. Ultimately, the big question is, is it going to be layoffs or concessions?”

With most of the city’s General Fund spent on salaries and benefits for employees, “it’s going to be impossible to move forward and balance the budget without personnel reductions,” Councilmember David Rabbitt said.

Even so, cutting millions in personnel is “horribly unfortunate,” he said. “It’s not easy. It’s not where you want to be.”

“The next couple of years are going to be really tight,” Mayor Pamela Torliatt said. “It’s a sign of the economy that the council is having to deal with the budget issues and cuts, but we’ve been trying to put in an action plan for us to be able to start rebounding.”

In the past 18 months, the city has either laid off or granted early retirement to about 50 employees. The latest cuts came in July, when the city laid off or froze nine positions to balance the 2009-2010 budget.

Originally, 10 employees were targeted, but a decision by the city’s largest union to defer pay increases and openings in the ratepayer-funded water department allowed some employees to remain with the city and resulted in six actual layoffs.

Additional cuts would come at a time when the city’s unions — representing 97 percent of the city’s 288 full-time employees — are beginning to speak out about the impact recent reductions are having on worker morale and city services.

Representatives of five employee unions met with the Petaluma Area Chamber of Commerce last month and said city workers are facing “an inability to do our jobs” with fewer employees and shrinking budgets.

In a memo presented to the chamber, the group also stepped into the political battle over adding more retail stores in town, saying “Retail is not the only answer to generating revenue, but it is a big part of the solution.”

Torliatt said she believes recent steps the council has taken — including ordering an economic strategic plan, reviewing pending development projects and revamping the city’s Planning Commission process — will speed a recovery.

“We’re aggressively getting these types of projects in place to put people to work and create jobs, and that will come back to the city coffers,” she said. “We are trying to get some projects through the process as fast as we can.”

Rabbitt said he’d like city staff to present the council with several options for reducing the budget and explain how the cuts will affect specific services.

“I think it’s important for the council to talk about the policy implications of this,” Rabbitt said. “At some point, the city’s essential services become tighter and tighter.”

Unlike during two prior budget-cutting periods, the city is not likely to offer buyouts as an inducement for early retirement because they may not result in any savings, Brown said.

“I think we’ve gotten about as much as we’re going to get,” he said. “I wouldn’t rule it out, but I’m not looking at it as a significant relief valve this time around.”

If layoffs are approved by the council, they will likely take effect Jan. 1, to give affected employees enough notice and keep them on through the December holidays, Brown said.

(Contact Corey Young at corey.young@arguscourier. com)