San Luis Obispo City staff is recommending that city officials agree to raise property taxes, promote marijuana businesses, reduce services and increase employee benefit contributions in an attempt to address a $8.9 million budget deficit.
Amid declining interest rates, SLO’s unfunded pension liabilities hit $148 million in June 2016. As pension costs have shot up, so has the city’s budget expenditures.
In 2002, SLO’s general fund budget was approximately $35 million. General fund expenditures, the majority of which are staffing costs, are projected to rise to approximately $85 million by 2022, according to the five-year forecast.
City officials presented the deficit issue to the public at a forum in October, in which they offered potential solutions that included charging residents more for city services, cost-cutting measures and employee concessions.
On Dec. 12, city staff plans to provide the SLO City Council with a report that addresses the projected budget gap. The plan includes implementing offsets totaling $8.9 million annually by fiscal year 2020-21 that could allow money to be set aside for increased payments to CalPERS.
The report recommends a three-pronged approach to close the projected budget gap in the general fund:
“1. Cut 30 to 40 percent through operating reductions and new ways of doing business.
“Expected to total approximately $3 million over a three-year period, operating reductions and new ways of doing business could include operational efficiencies, staff reorganizations, proactive fiscal management, and improved debt and investment management.
“2. Cut 20 to 30 percent through employee concessions.
“In keeping with the city council’s adopted compensation and financial responsibility philosophies and labor relations objectives that include cost sharing of employee benefits such as health insurance and retirement, the recommendation assumes approximately $1.7 million will be achieved through employee concessions. The city is obligated to meet and confer in good faith with its represented employee groups regarding the impacts of changes to wages, hours, and/or working conditions.
“3. Cut 30 to 40 percent through new revenue sources.
“Two areas that would generate additional revenue would be:
“Cannabis taxation: $500,000 growing to $3 million annually by 2020-21. The estimates are preliminary and based on all the uses allowed by state regulations. Actual revenues collected would depend on the range and scale of activities allowed in the city, as directed by council and guided by public feedback.
“Storm water parcel tax: $1.5 million. A parcel tax would generate approximately $1.5 million annually and would require two-thirds voter approval with the first revenue collection realized in fiscal year 2020-21.”
After the bottom fell out of the housing market, the majority of cities in California tightened their budgets to work under reduced tax revenues while a few increased staffing and fees to residents, temporarily masking the growing debt. Over the past 10 years, SLO has budgeted for an additional 47 full-time staffer and has the highest ratio of employees to citizens in the SLO County.
City staff points primarily at CalPERS declining rate of investment returns as the driving factor in the city’s budget shortfall.
“The staff report notes while CalPERS is the driver for the current fiscal challenge, it is not practically feasible for the city to leave CalPERS,” city staff said in a press release. “To exit CalPERS, the city would be required to meet its projected worst-case financial obligations within 30 days of the time of separation. That obligation is currently estimated to be between $377 million and $495 million. There are other legal barriers to reducing benefits for current employees and retirees.”