During its mid-year budget review the city found itself slightly ahead of its forecasted annual budget; however, staff said that over the next few years, increasing costs threaten financial stability and may require a sales tax measure to bring in more revenue.
City officials predict that Petaluma will end its fiscal year June 30 with a general fund balance of $1.4 million — about a million more than what was anticipated last July. But along with this good news comes the projection of a steadily declining balance over the next four years, as increases in spending are expected to outpace incoming revenues.
City Manager John Brown said at Monday night's City Council meeting that without some sort of additional revenue stream — such as a general sales tax measure — the city will find itself in the red ink within three years.
"The revenues we have right now won't keep up with our expenditures," said Brown. "Beyond the next two years, revenue rapidly trails off and we're going to need to think of some additional sources."
While more money came in than expected this year — mostly from a one-time $500,000 franchise fee payment from a newly signed garbage contract and increased property tax revenues — the city's expenditures are expected to increase by about $750,000.
Additional expenses include $310,000 in police overtime and funding a fifth police lieutenant's position created for former interim Police Chief Dan Fish, when the department hired an outside police chief instead of promoting a lieutenant from within the organization. They also include several unbudgeted expenses, such as $84,000 for a new parking enforcement computer system, $77,000 in police retirement payouts, $92,000 in fire department overtime and compensation and $40,000 in parks maintenance water usage bills. Still, the city is expecting to end the fiscal year about $155,000 ahead of their projected budget.
But Finance Director Bill Mushallo said that without an additional funding mechanism the general fund reserves will be completely used up over the next few years and warned that any unforeseen expenditures could deplete the fund balance sooner.
Possible "unforeseen expenditures" could include the city's share of pension contributions increasing and rising healthcare costs. Furthermore, any delays in opening the two large retail projects would decrease revenue coming in. More importantly, the city is expecting a large increase in its lawsuit costs.
"The claims paid by the city have been significantly more than we anticipated," said Mushallo. "The studies we have done on future claims also show a significantly increased amount that we may need to pay along the way."
Part of the increased legal costs payouts could come from a lawsuit brought against the city by former city councilmember Bryant Moynihan. Moynihan has alleged the city illegally used wastewater enterprise fund monies to finance its stormwater drain maintenance to the tune of $6 million. The city has acknowledged that it may need to pay back as much as $2 million, while Moynihan says he is pursuing the full amount.
(Contact Janelle Wetzstein at firstname.lastname@example.org)