For second year, department heads asked to cut expenses
In the face of a still stumbling economy, Morgan Hill city
council members on Wednesday, for the second consecutive year, took
measures to make sure the city stays on its feet.
For second year, department heads asked to cut expenses
In the face of a still stumbling economy, Morgan Hill city council members on Wednesday, for the second consecutive year, took measures to make sure the city stays on its feet.
Council members asked administrators to reduce expenses 4 percent for all departments except fire and medical services. About this time last year, City Manager Ed Tewes was asked to cut expenses 5 percent.
End-of-the-year figures in June showed reductions of 6 percent.
But that was the easy part, finance director Jack Dilles told council members this week. Finding new places to whittle costs is going to be more difficult, he said.
“The most painless steps have already been taken,” Dilles said.
The city can dig into reserves, which it intends to do as one measure to offset a projected shortfall this year in income, Dilles said. It also could try to raise new revenue – subject to Proposition 218 limits and public support — in the form of a surcharge for services such as parks or fire protection.
On the down side, Dilles said, the city stands to lose money in state reimbursements, city contributions to the Public Employees Retirement System is going to rise and the cost of operating facilities is sure to increase.
On the other hand, the city can save money by not filling vacant jobs or by reducing expenses here and there.
“We’re asking for discretion in finding the nooks and crannies without giving council members the gory details,” Dilles said.
Tewes said internal expense reductions are preferable to external ones. Tolerable reductions may be in order, he said. For example, park visitors may find longer grass, but no “closed” signs.
Getting down to hard numbers, Dilles said staff members anticipate a budget shortfall of $367,000 this year – the difference between expenses over revenue.
The city expects to receive $530,000 less in sales tax, $100,000 less in state cost reimbursements and an $87,000 drop in earnings on investments. Those deficits would be offset by an extra $235,000 from motor vehicle in-lieu fees from the state, an increase of $84,000 in hotel/motel taxes and $31,000 in miscellaneous income.
In addition to the anticipated $367,000 shortfall that is now becoming apparent, the city must find $263,000 to erase a deficit built into the budget when it was adopted in June. Council members approved the deficit budget, but asked administrators to cut that amount in costs by year’s end.
By cutting the general fund – the money that pays for daily operations – by 4 percent, the city can save $446,000, Dilles said. The savings would erase the $263,000 built-in deficit as well as half the new $367,000 shortfall.
The remainder of the current debt would be erased by dipping into the general fund’s $1.1 million reserve earmarked for economic uncertainty. That money is held to counter fluctuations in two volatile sources of revenue – sales tax and hotel/motel tax.
Overall, the only significant increases in the general fund this year, Dilles said, is related to police and recreational projects. A “soft freeze” on hiring has allowed new positions in those departments to be filled, he said.
On a related issue, the council approved a policy that sets limits for the general fund reserve as well as reserves to meet non-recurring emergencies and cases qualifying for economic uncertainty fund help.
In a rare display of heated differences, the council settled on holding 20 percent of the general fund in reserve for emergencies. Ten percent of revenue is to be held in reserve in each the non-recurring emergency and economic uncertainty categories.
The council’s finance and audit subcommittee members – Larry Carr and Steve Tate – had recommended that a minimum of 17 percent of the general fund and 7 percent of each of the other funds be held in reserve.
Mayor Dennis Kennedy proposed setting the level at 17 percent in all three funds. Hedy Chang wanted to place the general fund reserve minimum at 25 percent. Greg Sellers agreed to the subcommittee proposal but made it clear that he has long believed that the city is holding too much money in reserve.
The city’s general fund balance has climbed steadily since fiscal 1992-93 when it stood virtually at zero following an economic crisis in which police department ranks were decimated and the parks and recreation department was eliminated.
The general fund balance today stands at just over $11 million.
Carr and Tate said their recommendation met their “comfort zone.” A 17 percent general fund reserve would tide over the city for 60 days in anything but an economic meltdown, they said.
The policy governing reserves calls for 25 percent of the operating budget of each the water and sewer fund to be held for emergencies. The community development fund would keep a minimum of 30 percent of its operating budget for slack periods when development – and consequently city revenue – declines. The city also should keep enough money in reserve to meet 100 percent of all unemployment claims, the policy says.
