The Ceres City Council approved a $83.1 million “status quo” spending plan for the new fiscal year beginning on July 1 and the budget picture looks temporarily a bit rosier because of a use of federal ARPA funds.
The proposed General Fund budget is balanced by using $1.1 million of American Rescue Act funding and $618,943 of General Fund reserves, for a projected reserve fund balance of $6.9 million.
The city projects to end the 2022-23 fiscal year with a General Fund reserve level of about $6,955,307, or 25.6 percent. That level far exceeds the council set policy of maintaining at least an 18% reserve.
Finance Director Leticia Dias told the council that the city’s financial condition improved slightly over the current fiscal year because it froze positions and didn’t fill some once they became vacant. She also recommended freezing a vacant Associate Engineer position in the Engineering Division.
The city also realized less revenue from the cannabis industry in addition to revenue lost as a result of the COVID-19 pandemic.
The use of ARPA funds to replace lost revenues and to balance municipal budgets is an allowable use.
While the budget does not call for new positions, city staff is developing a final recommendation for additional Code Enforcement positions and equipment. The council also has expressed a desire for additional parks maintenance staff to open, maintain and operate the Lower River Bluff Park terrace.
Dias touched on how property tax revenues have slightly increased and how sales tax revenue for the 2021-22 budget year came in slightly higher than expected.
City Manager Alex Terrazas said Ceres is seeing significant commercial development on the immediate horizon which “will have a future positive impact on sales tax revenue.”
“Economic development at our local level is a critical element to the financial future for the city,” Terrazas told the council in a memo.
After the Walmart Supercenter opened in November, several significant commercial projects are underway. They include Ono Hawaiian BBQ, Chipotle, Starbucks, In-N-Out Burger, a Quick Quack Car Wash and possible hotel at the Ceres Gateway Center. He noted that the former Kmart property will be producing tax revenue with the proposed Dutch Bros and Raising Cane’s Chicken Fingers and other businesses.
“These commercial developments and businesses will increase tax revenue for future budget cycles.”
Rising pension costs continue to be a challenge for cities. Although Ceres is a member of StanCERA for retirement purposes, CALPERS issues will likely impact the already “significant impacts to budgets as a result of increased contributions for retirement purposes.”
City department heads and the city manager now pay their full employee contribution to retirement but the other labor groups are paying two-thirds of their employee contribution.
StanCERA retirement costs are significantly higher than the state system and Terrazas said the city is exploring ways to reduce pension costs, perhaps through the labor agreement negotiation process.
In Ceres there is a disparity in retirement costs for those employees hired after Jan. 1, 2013 under PEPRA (Public Employees’ Pension Reform Act) versus those “classic” employees hired before the law. PEPRA employees are required now to pay all of their share of retirement, while the classic employees are now only paying 67 percent of their share and the city picks up the rest.
By July of 2023, all city employees will be paying 100 percent of the employees’ share of retirement.
Terrazas said the city needs to remain optimistic about the growth of sales tax but also be prepared for the next economic downturn or pandemic related slowdown. He hinted at using the remainder of ARPA funds may have to be used to balance future budgets.
“With the increased revenues, it is imperative and fiscally responsible to plan for long term sustainability while maintaining the highest level of service we can afford,” wrote the city manager.
Another issue which the city wants to address is how it is not collecting enough assessments on those properties in the city’s Landscape and Lighting District (LLD). Originally created in the 1980’s, homeowners who are within an LLD pay annual assessment on their property tax bill to fund maintenance of certain landscaped areas. Since its inception the district and its assessment have not been adjusted and the city does not collect enough revenue to cover the expenditures. The new budget projects that the city will receive nearly $454,000 from assessments but spending nearly $580,000. The difference of $126,000 has to be made up by General Fund. To raise the assessments the city would have to conduct a Prop. 218 protest hearing.
Continually bleeding the city’s budget are the costs of running the Ceres Community Center. Since its opening, the Community Center has amassed a negative cash balance of $2,029,801. While that deficit has been reduced in the past couple of years, expenditures continue to exceed revenues each year. Helping will be an increase in rentals and the contract extension for Big Valley Grace (BVG) Church to use the center.
This budget plan has been impacted by increases in worker’s compensation and liability insurance, rising pension costs and contractually obligated increases in employee salaries. Further, while revenue from cannabis DA’s will be constant for the next four years it is far less than what was received in previous budget cycles. The lingering impacts of COVID-19 also continue to be a concern.
Councilman Jim Casey said while a lot of work was done on the budget, he disapproved of the use of ARPA funds to fill a budget gap.
Vice Mayor Bret Silveira said the city is fortunate to have “money to bail us out,” but said the city needs to sharpen the numbers and avoid spending over $800,000 in ARPA funds next year to do the same.
“We would be in a tough situation without those ARPA funds,” said Silveira, who added that those funds weren’t intended to be used that way
“They were intended for things that we don’t ordinarily have money for and budget deficits (are) not one that we should be spending ARPA money on. I’m not going to stop it this year … but I would not expect the next year’s budget to get to the point where we have to spend $800,000 of ARPA money to balance the budget.”
He called for quarterly budget meetings.
The council voted 3-1 to OK the budget with Casey voting no.