By Nick Diamantides
While City of Signal Hill employee layoffs and cutting back on non-essential city services are not likely scenarios for 2010, such moves could be necessary by 2011 and 2012. That was the gist of an approximately hour-long discussion at the Signal Hill City Council meeting on Tuesday night.
During the mid-year 2009-2010 budget review, City Manager Ken Farfsing and Finance Director Maida Alcantara told the council that the ongoing decline in sales tax revenues and the state’s perpetual budget crisis will eventually deplete the city’s reserve funds, forcing the council to make tough decisions in the not-too-distant future.
“The major recessionary forces impacting Signal Hill are not of our making,” Farfsing noted, but he stressed that the city cannot continue to face those impacts without further significant reductions in expenditures. Farfsing explained that at this point, the city projects a $1.4 million decline in sales tax revenues for the current fiscal year, bringing the city’s sales tax losses to $3.6 million, or 29 percent over two fiscal years (2008-2009 and 2009-10).
“As a revenue source, sales tax accounts for 67 percent of our general fund revenues,” Farfsing said. “This loss accounts for approximately 21 percent of our general fund expenditures.”
Alcantara noted that in 2007, when the current recession began, the city was well positioned to deal with a short-term reduction in revenues because the hefty amount in Signal Hill’s Economic Uncertainties Fund could be used to compensate for revenue shortfalls. “However this has not been a short duration recession and the economy may require years to recover,” she said in her report. “This means that continued budget savings are imperative in order to avoid more drastic action.” Alcantara recommended that the council trim an additional $333,433 from the current fiscal year budget. The specific reductions were listed in her 16-page report.
She noted that the city will also have to draw $1.4 million more from the Economic Uncertainties Fund, which contained slightly more than $4 million last July. “This amount [$1.4 million] will backfill the loss in sales tax revenues this year,” Alcantara said. “The projected Economic Uncertainties Fund balance will be $2,284,534 at the end of the fiscal year, while the General Fund balance will be at $3,759,264.”
Alcantara warned that the city’s revenues are not expected to return to previous levels for five years or more, and the Economic Uncertainties Fund is likely to be completely depleted in about two years.
After Farfsing’s and Alcantara’s presentation, Councilman Larry Forester praised all of the city department heads for developing more efficient ways to operate the city and reduce expenditures in their respective departments during the past two years. “Through all this we have not had to layoff anybody,” he said. “So far we have protected our employees.”
Councilman Mike Noll said he too was glad that layoffs had not been necessary so far, but he didn’t know how much longer it could be avoided. “It concerns me greatly that in two years we will be out of our Economic Uncertainties Fund,” he said, adding that the depletion of that fund could result in significant city employee layoffs in 2012.
Noll also repeated a phrase he uses often: “Is it necessary or is it nice?” He explained that the city must distinguish between programs and services that are essential and those that just make life more pleasant. He stressed that during recessionary times programs and services that are merely “nice” have to be cut back or eliminated.
Councilman Ed Wilson responded to Noll by noting that what is merely “nice” to one person might be “necessary” to another person. “Those things that benefit citizens and businesses should be the last things that we cut,” he said. Wilson added that he was against a proposal made earlier by Farfsing to reduce the amount of money the city gives to the Signal Hill Chamber of Commerce.
After Wilson’s comments, City Treasurer Emerson Fersch asked if the city could renegotiate existing contracts it has with various companies in order to reduce expenditures. City Attorney Dave Aleshire replied that all city contracts have a clause allowing the parties to back out of the contract without cause. He said using that clause, and the fact that the city is facing reduced revenues, could persuade the city’s vendors to agree to renegotiate existing contracts for lower amounts.
Wilson said Signal Hill should move cautiously in trying to renegotiate existing contracts as such a move could damage the city’s reputation.
Noll stressed that the city would have to look at all options. “We are going to have to look at a furlough plan and an employee reduction plan,” he said. “Everything is on the table because we are running out of money, folks.”
At the end of the discussion, the council voted 4-1 to approve the staff’s recommended adjustments to various programs and expenditures for the current fiscal year. Wilson was the lone dissenting vote. Later the council voted unanimously to conduct a budget hearing for the 2010-11 fiscal year on May 26 at 7pm in the Council Chambers.
The next meeting of the Signal Hill City Council is scheduled for March 2 at 7pm in the Council Chambers of Signal Hill City Hall.