San Luis Obispo leaders should expect to cut millions from the city’s general fund in coming years to meet rising employee costs and declining revenue, staff said this week. A five-year fiscal forecast presented to the City Council on Tuesday identified an expected $2.2 million shortfall in the city’s roughly $54 million annual general fund in the budget for fiscal year 2011-12. That shortfall will grow to $3 million in 2012-13 and continue to average about $2.6 million over the next five years, according to city projections.
That gap will grow substantially if the current half-cent sales tax known as Measure Y, which passed in 2006, is not renewed by city voters in 2014. The measure generates more than $5 million annually toward the general fund.
Salary increases are not included in the projected budget. Adding a 1 percent increase to wages and benefits for employees paid out of the general fund would add about $400,000 to the ongoing shortfall.
Councilman Andrew Carter called the forecast a “very sobering report.” The budget forecast will be used as a starting point for preparing the city’s next two-year budget in January.
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The economic impacts of the recession, coupled with the rising costs of the California Public Employees’ Retirement System, are the main contributors to what has been dubbed a “structural deficit” in the city’s general fund, according to city staff.
Sales tax revenue, which accounts for 33 percent of the city’s general fund revenue, dropped to about $11 million in 2009-10 from its high of $14 million in 2006-07. It declined for more than two straight years.
However, sales tax reports for the first two quarters of 2010 show a slight increase over the prior year’s same quarters — leading city staff to think that the long decline is over.
The transient occupancy tax — a tax charged for stays in hotels — ended 2009-10 at $4.5 million, down 4 percent from the previous year and down 11 percent from its high of $5 million in 2007-08. Like sales tax, slight increases started to show in June and are expected to continue.
Carter advocated Tuesday for cutting even more from the budget in order to dedicate more spending to capital improvement projects — something he said the city promised with the passage of Measure Y.
According to Carter’s estimates, the city’s operating expenses have continued to grow for more than a dozen years while money spent on capital improvement projects has fluctuated year-by-year, typically declining.
In June, San Luis Obispo saved nearly $2 million of an estimated $3 million shortfall in the second half of the city’s 2009-11 budget by making reductions in the city’s capital improvement programs.