City outlook improving as budget gap narrows
In the coming fiscal year, the city of Morgan Hill plans to
spend $27.7 million more than they will bring in with revenues, but
city administrators say the city’s budget woes are on the
decline.
City outlook improving as budget gap narrows
In the coming fiscal year, the city of Morgan Hill plans to spend $27.7 million more than they will bring in with revenues, but city administrators say the city’s budget woes are on the decline.
The city’s proposed overall budget for 2006-2007 is $119.7 million, which is expected to be approved by the City Council June 21.
The portion of the budget that has been of most concern to elected officials and administrators in the past few years is the $22.8 million general fund. The general fund pays for services such as public safety, parks and recreation, and city administration. Many of the services paid for under the general fund do not generate revenue and are paid for by property tax and other taxes.
“We first identified this structural budget problem in 2003,” said Ed Tewes, the city manager. “It was clear we had to take action to reduce services and cut costs or increase revenues.”
For the last few years, the city has been using reserves to make up the different between expenses and revenue in the general fund.
“We had a series of budget cuts over the years and some very good performance in sales and property tax [this year],” Tewes said. “We have been able to slow the rate at which we are drawing from reserves and we have the ability to work carefully through this long-range budget problem without making immediate changes.”
The city had unexpected increases in property-tax and sales-tax revenue during 2005-2006. As the value of homes increased during the year, the assessed value increased by 10 percent.
The city also collected $5.9 million in sales tax, 7 percent more than they collected at the peak of dot-com boom. The increase is credited to new businesses and modest economic growth, according to Tewes.
However, even with the increase in revenue, the general fund is expected to draw nearly $800,000 from reserves in the coming fiscal year.
In January 2006, the city launched a program called Community Conversations to gather input from Morgan Hill residents about how the city should proceed to bring the general fund into balance. At the time, the city projected a $1.5 million deficit in the general fund each year.
After deliberating over financial outcomes, forecast and the community conversation input during an all-day retreat May 19, the city council decided against putting a tax measure on the ballot in November.
“The budget does not include new revenue sources because there was insufficient support based on community conversations or survey polls,” Tewes said. “They [residents] seemed to be saying ‘before we are interested in new revenue sources, we want to have a deep, thorough conversation.'”
In April, when community leaders gathered to discuss the outcome of the community meetings, several participants said they didn’t want to focus on filling a budget deficit rather on how revenue increases would improve the community.
The city council has allocated $50,000 to continue the community meetings in early 2007. The new discussions will be focused on what community service levels are needed instead of on what cuts to make in the budget, Tewes said.
Another large chunk of deficit spending – $15.7 million more than it will bring in during the coming year – is the capital improvement projects fund. The city will continue or launch several major capital projects this year, including the new city library, an outdoor sports complex and a permanent skate park.
“The city does have a five-year analysis that looks at all the funds,” said Chuy Thai, the city’s budget manager. “Some [funds] may go negative or show a decline in the fund balance but will be made up by future revenues.”
For instance, with capital improvements funds are collected for projects from impact fees or through bonds that will later be paid back with impact fees. Many of the capital projects will begin to earn revenue as well, once they are completed.
One such capital project is the Centennial Recreation Center adjacent to Community Park in Morgan Hill. The center is expected to open in November and will include a fitness center, indoor pool and dedicated spaces for seniors and youth. Though the center will require money from the general fund to pay for two staff members during the fiscal year, Thai said service fees from the center will begin to generate revenue over the next few years and should be self-sufficient.
“We are always striving to balance the budget for all funds,” Thai said. “With impact fees, we have a plan that determines all the library facilities, all the parks, we are going to build …We have set a limit of how much impact fees we collect and its our goal to spend that down and fully build all that.”
