San Luis Obispo’s budget remains on track as city leaders keep a cautious eye on spending and remain steadfast at the negotiating table in demanding cuts from employees.
A midyear budget review shows that two of the city’s key sources of revenue, sales tax and transient occupancy tax — also called a hotel bed tax — continue to increase steadily, resulting in an unanticipated $927,800 in income for the 2011-12 fiscal year, which started July 1.
However, property tax for the 2010-11 fiscal year was less than anticipated, resulting in a loss of $425,000 in expected revenue.
This is the third straight year that property tax has declined in the city. That revenue is expected to continue to drop as the assessed home values align themselves more closely with declining property values.
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“The watchword is caution,” City Manager Katie Lichtig said. “There are signs the economy is recovering, but I think caution is really important, and we need to be somewhat conservative in our optimism.”
In June, the City Council cut $4.4 million from its $99.9 million budget, eliminating employee positions, reducing some city services and asking for large concessions from city employees.
City employees are being asked to accept a total of $4.5 million in pay and benefit cuts over the two-year period. The city is depending on cuts to save $1.5 million this year and $3.1 million in fiscal year 2012-13.
The proposed employee pay cut involves a 6.8 percent reduction in total compensation — salary and benefits combined — which actually amounts to a salary reduction of about 8 percent per employee.
The city estimates that those cuts, if implemented, would boost the city’s roughly $53 million general fund by $2.6 million starting next year.
Negotiations have stalled with one employee union, and an impasse was recently declared between the city and the San Luis Obispo City Employees Association, which represents 147 workers.
To date, the city has only reached agreement with the firefighters union and with unrepresented managers. It remains in closed-session negotiations with the San Luis Obispo Fire Battalion Chiefs Association and the San Luis Obispo Police Officers Association.
The city is missing out on $165,000 a month in budgeted savings because those negotiations have not been settled, said Charles Bourbeau, director of finance and information technology.
Lichtig said the property tax decline and the need to reduce personnel costs are the two main red flags revealed in the midyear budget review.
“The budget is on track, but it an ongoing effort,” Lichtig said. “We are making progress, and we need to continue to make progress.”
Reach AnnMarie Cornejo at 781-7939. Stay updated by following @a_cornejo on Twitter.