Revenue uptick, ‘hiring chill’ boost city finances; expenditures outpace revenue to end fiscal year | Government and Politics

Campbell reviewed the city’s economic trends at a recent Council meeting, noting that both sales tax (the City’s largest revenue stream), and transient occupancy tax revenues were down; but that property tax revenue increased over initial projections by $1.5 million.

In 2024-25 the City utilized the hiring chill, withheld $2.1 million in General Fund money to the Library — offset by the Library’s reserve fund — and used dollars from various reserve funds to balance the budget.

The reduction in staffing brought the total budgeted expenditure for city employees down by roughly 8% — $5.8 million — with Campbell noting that the savings were mostly attributable to vacancies in the city police and fire departments.

Campbell also told the Council that revenues overall were higher than projected for the fourth quarter, driven by property taxes and what Community Development Director Chenin Dow called historic levels of development licensing fees.

The revenue uptick created a $4.8 million positive fund rollover from the projected budget and decreased the total utilization of City reserves, specifically in the Local Economic Augmentation Fund and the Pension Reserve Fund.

Parts of the General Fund reserve were utilized to balance the 2024-25 budget, but its usage was less than projected, only drawing $4.7 million from the reserve to bring the balance to $44 million to end 2024-25.

Campbell said that current projections show the utilization of $5.9 million in General Fund reserves in 2025-26, bringing the total funds in that reserve to $38.9 million by the end of the fiscal year.

The Measure U reserve fund was drawn down by a little over $10 million from the $12 million that started the 2024-25 fiscal year, leaving $1.8 million to start 2025-26 — the remainder of the Measure U reserve balance is projected to be utilized this fiscal year to bring the balance to zero.

While LEAF funds were untouched in 2024-25, Campbell projects the utilization of 97 percent of the LEAF reserve in 2025-26, bringing the $23 million balance to start the fiscal year to a projected balance of $620,000 to end 2025-26.

Campbell said that $14.4 million of that will balance the general fund, $4.3 million will be used to balance the Measure U fund and the rest will balance out capital projects.

The outlook on enterprise funds — water, sewer and public transportation services — was solid; with the costs for providing those services to City customers driving the fees that are paid by residents and users. Vacant positions at the utility department and transit division of public works also created personnel savings that helped the bottom line in those departments.

After the presentation, council members asked Campbell to look ahead at the budget for the current fiscal year, and project some of the potential pitfalls. Campbell said that the City will face obligations that are not budgeted, which include increased pay for fire and police personnel, an estimated 3% increase in pension cost and a 10% increase in health care costs.

Councilmember Gloria Soto asked about increased budget allocations for general liability insurance and workers compensation, prompting City Attorney Thomas Watson to explain the additional costs are attributed to the escalating risk of “nuclear verdicts.”

“In the past history, [verdicts] would be in the $1 to $2 million range, we’re now seeing police issues in $10 to $20 million verdicts, so a substantial amount of verdicts across the pools, particularly for police and fire,” Watson said

Watson explained that the City does not purchase a standard insurance plan, as most consumers would, but instead partners with other cities to share the risk and costs for insurance.

“We work with other … jurisdictional agencies, larger cities, and we pool our risk almost as a collective, and then we share those risk pools, and that gives us an opportunity to have higher dollar values to protect the city at lower premium costs,” he explained.

Watson also noted that the increase in workers compensation costs are driven by a need for the City to prepare a reserve of money to cover injuries received when the worker is still relatively young and needs to be compensated for a full career term.

Councilmember Carlos Escobedo then spoke about the need to address the structural deficit that the City is facing and said that the City and council members need to get serious about the deficit.

“Are we still almost $25 million dollars in deficit?” Escobedo asked Campbell.

“Yes, we are in a structural deficit,” Campbell answered.

Escobedo said that when he brought the issue of a structural deficit up in the past he would hear that the City could use savings and reserve funds to balance the budget without making changes to address the structural imbalance.

“For years, we’ve been refusing to acknowledge, not just by the words but by the actions and the way that we have been making votes,” Escobedo said before adding, “I told you so.”

Escobedo used the budget presentation to explain why he has been voting no against previous budget actions, and other items by saying that the best way to support the community is by taking care of their money.

Campbell told the council that she, and City staff, plan to return on Jan. 20 to provide a report on the first quarter of 2025-26, and to also share solutions to the deficit.