[Noozhawk’s note: This is one in a series of articles on Noozhawk’s Santa Barbara Challenge, our public-engagement project on the city of Santa Barbara’s budget. Related links are below.]
Santa Barbara’s General Fund is at the epicenter of budget workshop discussions, since it makes up less than half the city’s budget but hosts almost all the deficits.
Economic downturns hit the General Fund hardest because it fuels the traditional government services that depend on tax revenues for income. Combined with ever-increasing expenses, the city of Santa Barbara has struggled with making multimillion-dollar spending cuts for the past several years.
The Last 10 Years: Rising Expenses Overtake Revenue Increases
The General Fund hosts the public safety, community development, parks and recreation, library, public works and administrative departments.
Tax revenues are the biggest source of income for governmental funds and all local taxes have lost years of growth as a result of the recession.
Monies have taken a nosedive since 2008, and because the city can’t easily raise tax rates, it’s forced to close the gap with spending reductions.
However, 75 percent of the General Fund’s monies are spent on salary and benefit costs, which are increasing every year even with labor concessions and eliminating positions through attrition.
Since 2000, the General Fund’s expenses have increased to $99.6 million for the 2010 budget from $63.9 million. Expenditures came in above revenue levels in 2004, 2005, 2007, 2008 and 2009, according to city documents.
The increased costs are related mostly to salary and benefit expenses, which have jumped up about $25 million — or about 68 percent — since 2000.
“For the last five years, we haven’t done a good enough job to keep costs down,” said Bob Samario, the city’s finance director.
Today: The Annual Multimillion-Dollar Problem
Raising revenues and cutting expenses is the practiced method to solve a deficit, but when revenues are tax-based and therefore less flexible, the options become one-sided: magically find money, or cut, cut, cut.
Staff members try to fashion solutions that limit significant cuts to service, such as leaving positions vacant, using reserves and negotiating labor concessions. These one-time fixes have been used extensively in the last two fiscal years, which each had a $10 million funding gap.
Concessions must be renegotiated every year for most labor groups and are one-time fixes. So far, voluntary concessions have included furloughs, or unpaid leave, postponing raises and suspending vacation cash-outs.
There have not been any layoffs yet, but about 80 positions have been lost through attrition and vacancies in the last few years, Samario said.
This year, banking on future labor concessions was the City Council’s last-ditch attempt at saving city services, such as the Police Department’s sobering center, park restroom maintenance, library collections and the Santa Barbara Channels public-access TV. The potential concessions were not negotiated by the time of budget adoption, and were not considered to be placed back into budget reserves.
A 25-percent reserve level represents three months of revenues, for unprecedented situations in which the city gets no revenues but still accrues expenses, Samario said. It breaks down into 15 percent for disaster reserves, 10 percent for budgetary reserves and a straight $1 million in capital reserves, which has never been touched.
The disaster reserves are designated for major natural disaster situations, and have never been needed, but the budgetary reserves have been nearly depleted. The City Council has voted to use most of the recommended $10 million, leaving reserves with $18.2 million of the recommended $25 million.
Those reserves are meant to be used in economically uncertain times, but the city has used them more than it should have, Samario acknowledged.
“In reality, we probably used them for more than fluctuations ... we used them to fund ongoing costs,” he said.
The Long-Term Picture:
Getting revenues and expenses to match up again is an uphill battle, likely with many painful proposals on their way.
The economy’s recovery will likely be slow, and tax revenues have lost years of growth. Samario mentioned the “bathtub” shape some believe the recovery will take — once in, it takes a long time to get out, and the possibility of a “double-dip” recession. Sales tax revenues, for one, have been “worse than we ever thought they could be,” he said.
Everything put forth as a potential cut — therefore low priority — last year is likely to come back, City Administrator Jim Armstrong said.
“If we get concessions, most are one-time,” he said. “So, next year, if they go away or are lower, we have a built-in problem.”
There’s not a desire by the City Council to cut significant services like a library or fire station, but those were options considered by department heads for fiscal year 2010, Armstrong said.
For 2011, the city is looking at a $3 million-to-$4 million problem if costs can be held down while revenues continue to get better, Samario estimates.
“If we hold the line we should be fine,” he said.