Faced with reduced revenues and rising costs, the City of Petaluma is staring at a $1.2 million budget shortfall in the next fiscal year that will likely necessitate staffing cuts, employee union concessions on payroll and benefits, or a combination of both.
As a first step, City Manager John Brown recently asked department heads to submit budgets reflecting a five percent reduction in costs. That amounts to a $720,000 cut for the police department and $499,000 for the fire department.
Brown said he is trying to balance the budget for both the coming fiscal year, which begins July 1, and for the 2013-2014 fiscal year, in order to plan ahead. The city anticipates a shortfall of about $3.2 million for the two years combined, and so must cut about $1.6 million each year to balance the budget through 2014.
Many factors have combined to create the shortfall, including rising pension costs, the expiration of an $840,000 grant that funded six firefighter positions and the loss of redevelopment money that helped pay for some staff positions.
Earlier this year, the state did away with redevelopment agencies which channeled property tax dollars to fund city improvement projects and several staff positions.
Meanwhile, tax revenues remain lackluster for the city. Property taxes have been steadily declining since 2008 and are expected to stay flat next year. Annual sales tax revenues plummeted from $11.6 million in 2007-2008 to $8.4 million in 2010-2011. They are beginning to increase again, according to the city's Finance Director Bill Mushallo, but not enough to close the city's budget gap.
The City Council is considering placing a hotel tax increase on the fall ballot, but such a tax would only generate a fraction of the revenue needed to close the gap.
Brown noted that the new Target shopping center will not be open until the spring of 2013. It is expected to generate about $200,000 in new sales tax revenues for the 2013-2014 fiscal year and $500,000 in the following years, according the city's mid-year budget forecast.
Earlier estimates had placed sales tax revenues from the shopping center at closer to $1 million.
In the meantime, the City must focus mainly on cost reductions.
Brown said he will use the department's budget cutting proposals, which were due to him by the end of Tuesday, as a starting point to assess the city's options, one of which is the possibility of seeking concessions from city employee unions on compensation. A combination of some staff reductions and union concessions appear to be a strong possibility.
Unions last agreed to employees taking a 3.1 percent salary reduction. That reduction lasted for 18 months, ending in June 2011.
Police Chief Dan Fish described cutting $720,000 as a "monumental task," adding that it would be difficult to achieve such savings without personnel cuts.
He's been working with his command staff and union representatives to see what programs are most important and lay out different scenarios for reducing costs.
Fire Chief Larry Anderson also described the task as a difficult one, explaining that most of the easy cuts have already been made.
Brown acknowledged that some of the cost savings would have to come from staff reductions, but he couldn't give an estimate of how many positions might be lost.