Petaluma's mid-year budget analysis shows a fairly rosy short-term picture, but potential trouble down the road without additional income.
At a special City Council meeting Monday night, Finance Director Bill Mushallo presented an adjusted 2013-2014 budget at the halfway point of the fiscal year.
It shows tax revenues in Petaluma are about $2 million ahead of forecasts, including increases in property taxes, sales taxes, hotel taxes and revenues from city services.
But spending is nearly on par, with expenditures almost $1.9 million higher than expected, increasing the $34.1 million adopted budget to about $36 million.
Ultimately, the general fund – the pot of money used to pay for city salaries and most services – should have about $200,000 extra this fiscal year.
The council unanimously approved the mid-year changes.
City Manager John Brown cautioned the council not to get complacent with the positive economic signs.
"We're covering our growth, but we really aren't covering our 'should-dos'," he said, referring to a variety of projects, services and maintenance the city deferred during the recession.
Councilman Mike Healy said residents shouldn't expect any "service enhancements."
Several elements of the improving economy spelled good news for Petaluma, Mushallo said.
Annual sales tax revenue was up almost 18 percent in 2013, equaling about $560,000. About $200,000 of that came from the Target shopping center, he said.
Revenue from city-provided services increased nearly $400,000, mostly from now-internal city attorney work.
Home prices rose in west Petaluma by nearly 20 percent last year, while the east side rose 23 percent, resulting in almost $130,000 more property taxes than expected.
Commercial space is filling up, at 22 percent vacant at the end of 2013 compared with 35 percent in 2009.
Petaluma's unemployment rate of 5.5 percent is below the county's 6 percent and the statewide rate, 8.3 percent – and is down from a high of 10 percent in 2010.
On the other side of the ledger, though, expenditures rose by nearly as much as revenue.
Salaries and benefit costs increased by more than $700,000, mainly because of a handful of new positions added in the new in-house city attorney department.
An additional $400,000 is being earmarked for storm water maintenance, a change from years past in which funds from sewer and water ratepayers funded the work.
The budget for services and supplies was increased by $645,000, for public safety and public works departments, as well as downtown sidewalk cleaning and beautification efforts.
City officials likely will put a sales-tax increase on the November ballot to fund city services.
Brown and Mushallo said the financial outlook for the next five years is tenuous, especially as the council tries to reach a goal of putting aside at least a 15 percent reserve. Currently, reserves are just under $1 million, less than 3 percent.
"We really need to identify additional revenues to cover the deficits," Mushallo said, noting that tourism and increased sales-tax revenue are helping.
"But we still have a lot of work to do."
You can reach Staff Writer Lori A. Carter at 762-7297 or lori.carter@pressdemocrat.com.
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