San Luis Obispo may face difficult financial shortfalls in the next five years, city administrators predict, which will likely result in cuts to services and jobs.
An annual shortfall of $3 million in the city’s roughly $54 million annual general fund is expected in the 2011-13 two-year budget, according to a five-year fiscal forecast going before the City Council tonight. The annual shortfall is expected to grow to $5 million by 2013-15.
That deficit will more than double to $11 million by 2015-16 if the current half-cent sales tax known as Measure Y, which passed in 2006, is not renewed by city voters in 2014.
“The unfortunate continued downturn in the economy is requiring the city to re-examine all city services and the cost to provide those services,” City Manager Katie Lichtig said.
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City staff said they expect that the worst of the economic downturn has passed but that any increase in revenue is likely to be slow. In local governments, the general fund budget accounts for most unrestricted spending decisions made by its elected governing body. It doesn’t include money that is restricted for specific programs by state or federal laws.
The city’s current general fund is $54.4 million.
The source of the growing deficit is manifold. It includes a continued two-year decline of sales tax and declines in transient occupancy tax and development review fees. Additional future costs include higher retirement contribution rates for city employees.
Sales taxes generate about $11.5 million in annual revenue for the city and are used to pay for a variety of expenses, such as employees’ wages and road maintenance.
The transient occupancy tax — a tax charged for stays in hotels — is down 10 percent, meaning a decrease of more than $450,000 annually compared with the prior fiscal year.
In the future, significant increases in the city’s CalPERS retirement obligations beginning in 2012 also contribute to the expected shortfall.
City officials estimate that increased contribution rates will result in an additional annual cost of about $2.5 million by 2015.
The half-cent sales tax known as Measure Y generates about $5.3 million in additional general fund money. That measure sunsets in April 2015, unless renewed by voters in November 2014.
That loss, Lichtig said, could potentially exacerbate the budget shortfall.
In June, the council will be asked to cut $1.5 million from the budget. Doing so is expected to allow the city to end the current fiscal year with a mandated 20 percent reserve.
Specific cuts have not yet been identified but will likely include a reduction in capital improvement projects.
Lichtig said she intends to form an ad hoc advisory committee composed of employees, council members and the public to assist in deciding what cuts may have to be made.
The city’s total budget for 2010-11 is proposed at $99.6 million.