The worst may be over.
After four years of slashing its budget to stay solvent, the San Luis Obispo City Council on Tuesday unanimously adopted the second part of a two-year spending plan without making additional cuts.
Rising tax revenues and employee benefit cuts played a major role in digging the city out of its financial hole.
The good news: This is the first time in four years the council did not have to make drastic budget cuts. The city’s $55 million general fund revenues will exceed costs by $157,900, which city staff called a “razor-thin margin.”
The bad news: Money dedicated to capital improvements such as maintaining streets, sidewalks and city-owned facilities and parks is not nearly enough. It is about $4 million short of what it should be.
City Council members cautioned Tuesday that additional money will need to be dedicated to those capital improvements in future budgets.
In the 2012-13 budget that starts July 1, only $5.2 million is allocated for those costs. The city estimates it will take about $9 million annually to fully maintain and repair existing infrastructure.
“The council’s desire is to ensure that we invest an appropriate amount of money in infrastructure and capital improvements,” said Charles Bourbeau, director of finance. “What happens is, when going through tough budget years, it is easy to cut those things because they aren’t needed right away, but if we don’t repair things like streets, it just gets more expensive over time.”
The $96.1 million budget for the 2012-13 fiscal year includes $1.9 million more sales tax revenue than originally estimated. Sales tax is the largest revenue source for the city, equaling about 25 percent of its $55 million general fund. Measure Y, the half-cent increase approved by voters in 2006, provides for an additional 12 percent of the general fund revenue.
Another source of income for the city, transient occupancy tax (otherwise known as bed tax) is also increasing. Property tax revenue is expected to remain flat.
The city is expected to end the year with $11.1 million in reserves.
One area where the budget falls short is in expected employee cuts. The city had planned on saving $3.1 million in pay and benefit cuts in the 2012-13 budget but has so far only achieved
52 percent of that through negotiations in part because it allowed unions to phase in compensation cuts over several years. That money will be offset using money saved in prior budget years, Bourbeau said.
City leaders began negotiations with five of the six employee unions in December when their contracts expired. Agreements have been reached with all but one of those groups. An impasse was recently declared with the San Luis Obispo Police Officers Association.
At its peak in 2009-10, staffing costs accounted for 80 percent of the city’s general fund. The recent cuts to employee compensation bring that down to 77 percent. The savings gained during recent negotiations will be phased in over the next three years and ultimately result in reducing staffing costs to 73 percent of the general fund — the lowest level since 2003-04.
Reach AnnMarie Cornejo at 781-7939. Stay updated by following @a_cornejo on Twitter.