Petaluma’s fiscal crisis is worsening

<p>The city of Petaluma is only four months into its new fiscal year and has already exposed an alarming $2 million shortfall between tax revenues and expenditures, a dire situation that has prompted city officials to meet next week to review the unavoidable prospect of additional job cuts and further reductions in public services. </p><p>During the last year, the city has cut 50 positions, or more than 15 percent of its overall payroll, to deal with steeply declining sales and property tax revenues brought about by the worst economic downturn since World War II. The city’s general fund, which pays for most city services, has shrunk from $44 million in the 2007-2008 fiscal year to just $32 million this year.</p><p>With fewer people shopping for cars and retail goods during that same period, sales tax revenues declined from $11.4 million to $8.4 million, according to City Manager John Brown. There is a strong probability that the downward sales tax spiral will continue well into 2010. </p><p>Property tax revenues, the city’s second-largest funding source behind sales tax receipts, are also plummeting. Sharp declines in residential and commercial property values have caused the county assessor to re-appraise properties, a practice that is providing tax relief to many Petaluma homeowners who bought their homes between 2003 and 2006 at the peak of the market. But these lower assessments have translated into significantly lower property tax revenues for the city.</p><p>Were these numbers not bad enough, the cash-hemorrhaging state of California is attempting to appropriate more than $1 million in Petaluma property tax revenues and $6 million in redevelopment agency funds. </p><p>With 80 percent of the city’s general fund dedicated to employee salaries and benefits, the city will be unable to avoid further staff reductions in attempting to close the budget gap. The exact number of jobs to be lost will largely be determined by the willingness of employee unions to consider reductions in their wage and benefits packages which, to date, have remained largely unchanged. Last summer, employee unions showed little willingness to make such concessions, and this forced the city to eliminate nine jobs. </p><p>City leaders have been reluctant to reduce staffing levels in their public safety departments, and with good reason. Public safety has been and should always be the single most important city service. But it’s also the city’s single largest expense, and it will be difficult to close the current budgetary shortfall without obtaining some pay or benefit concessions from the unions representing police officers and firefighters. Negotiations are ongoing, according to Brown, but whether they result in any tangible savings remains to be seen. </p><p>Given that the city has eliminated vacant positions, consolidated others and tapped very deeply into its reserves, there are few places left to cut. Petaluma has outsourced its swim program and planning services to private companies, and last month announced it was exploring the possibility of outsourcing or consolidating animal services with another agency, like the county of Sonoma. </p><p>In addition to making necessary cuts, some City Council members would be wise to begin looking more carefully at the revenue side of the balance sheet. Along with the effects of the ongoing recession, Petaluma’s weak retail sector is further undermining the city’s fiscal health. With local residents continuing to drive out of town for a host of goods and services not generally available in Petaluma, the city collects far fewer sales tax dollars than it would if it had a more fully developed retail sector.</p><p>Despite a six-year-old study showing that Petaluma is losing millions in sales tax leakage due to a lack of adequate shopping opportunities, the city has failed to cultivate a more robust and diverse local economy as called for in the city’s general plan. The plan notes the city’s commitment to “provide jobs for un- and under-employed segments of the work force” which, at this time, includes many people in the retail and construction trades who would benefit directly by the construction of two shopping centers awaiting city approval. Expediting those approvals would dramatically help improve the city’s revenue problem while also creating several hundred new jobs. </p><p>If the city is to achieve sustainable fiscal stability, it must be willing to make room for the types of stores identified in its General Plan. Only by being proactive in implementing General Plan goals can city leaders ensure that tax revenues will eventually catch up with the city’s unmet needs in the areas of road repairs, park maintenance, transportation improvements, law enforcement and a host of other underfunded municipal services.</p>