City’s budget strategy is working

Council hears that reduced expenses are compensating for flat revenues

On the same day Butte County leaders confronted a bunch of bad budget news (see “Butte County seeing red"), the Chico City Council learned that its 10-year budget-deficit-reduction strategy so far is working as planned, although it still has a long way to go before the budget is fully balanced.

That’s the message City Manager Dave Burkland and Finance Director Jennifer Hennessy gave the council Tuesday (Nov. 4) as they presented the city’s first quarterly financial report of the 2008-09 fiscal year. (Quarterly reports are new this year, thanks to the council’s desire to closely monitor the progress of its deficit-reduction strategy.)

As Burkland put it, “We’re making progress in decreasing costs, but we’re still spending more than we’re taking in.”

The strategy is the city’s response to an annual structural deficit of $6 million foreseen for the 2009-10 fiscal year and beyond. Key to the effort to reduce costs has been the city’s success in renegotiating contracts with its employee unions. So far six of eight unions have accepted reduced pay hikes and higher health-insurance payments to help the city reduce expenses. Council members were quick to praise and thank them for their cooperation.

The city also has cut staff by 14.5 positions through attrition and not filling vacancies, saving $1.3 million. Councilman Larry Wahl, who was narrowly re-elected to a third term in Tuesday’s election after running a campaign critical of the budget cuts, seemed to believe all the cuts had been in the Police Department. “What’s the plan to get the 14-plus police officers back on the payroll?” he asked.

Burkland replied, “Those 14.5 positions are from all city departments. In the Police Department, the figure is seven positions in 2008-09.” The only way to replace those positions is to increase revenues, he said, adding that the city “was making a very good effort in economic development to increase revenues.”

Wahl, still skeptical, then asked Burkland to explain what that economic-development plan is, “with so many businesses like Mervyn’s closing.”

Burkland replied that the city has 25 significant community-development projects going on right now that he expects to generate more sales-tax revenues. “Just last Thursday we had a meeting with some people from Chicago who want to add 80,000 square feet to the Chico mall. That’s how confident they are in the city,” he said.

Key to the success of the deficit-reduction strategy, Hennessy told the council, is the fact that Chico has a diversified tax base. “We’re not reliant on one major source of revenue, like an auto mall,” she explained.

She noted that, although sales-tax revenues were down this year, that was made up for by an 8.7 percent increase in property-tax revenues worth more than $600,000. “That’s primarily because the city hasn’t seen the foreclosures and reassessments seen in other areas,” where revenues are down by as much as 6 percent or 7 percent, Hennessy explained.

The city has more than $11.5 million in its operating and emergency reserves, money that it will use to handle any cash-flow or deficit problem that emerges, Hennessy said.

Wahl’s skepticism remained: “If we have $11.5 million in reserves but are running a deficit of $6 million, how are we going to balance the budget?” he asked.

“Right now we’re reducing the cost base while waiting for revenues to go up,” Hennessy replied. “The balancing point will occur sometime beyond year five or six [in the 10-year plan].”

“The way we’re going right now we can’t get there,” Wahl insisted.

Hennessy’s response was that there was no way of knowing when the economy would improve, and that the best the city could do was keep the budget sound in the meantime.

Mayor Andy Holcombe was more sanguine than Wahl. “In these challenging times,” he said, “it’s reassuring to know we’ve got a flexible plan that can meet emergencies.”