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.