The Ceres City Council will be entering Fiscal Year 2021-22 on July 1 without a budget. Last week the council found itself in a 2-2 vote deadlock, leaving the city without a budget likely until September when a fifth member comes aboard.
The proposed General Fund budget draws down on reserves by approximately $1.69 million. That may sound like a big dip into the savings, but City Manager Tom Westbrook said the city added $1.58 million to the General Fund reserves related to salary savings due to freezing positions and not filling some when they became vacant. He projects the city to have a General Fund reserve of about 19.7 percent, or $5.28 million by June 30, 2022. The council has established a minimum General Fund reserve of 18 percent of expenditures.
Of the proposed $26.7 million General Fund, about 71 percent is spent on salaries.
Measure H is funding eight police officer positions and seven firefighters/engineers as well as loan payments and equipment, such as body cameras. The Measure H half-cent sales tax is expected to generate $4.3 million in the coming fiscal year.
Councilwoman Linda Ryno and Vice Mayor Couper Condit voted no on the proposed budget while Mayor Javier Lopez and Councilman Bret Silveira supported it. A 2-2 tie is the equivalent of a procedural denial.
City Attorney Tom Hallinan said the state doesn’t require the cities to adopt a budget but it does demand passage of a Prop. 4 Appropriations Limit. The council couldn’t even agree on that, ending up in a 2-2 tie.
Finance Director Leticia Dias said the council should pass a budget in September when the council is complete with a fifth member.
As she has repeated in past years, Ryno opposed the budget on the premise that the city “needs to live within its means.”
“When we continually spend more than we bring in I don’t think that is making us be good stewards of the community’s money,” said Ryno. “Granted our reserves look like they’re really going to be good, again, at what point are we going to learn within our means?”
Silveira disagreed, noting that the city saved money in salaries and that that money was placed in the reserves, which are being drawn upon.
“To say we’re spending money we don’t have, we actually have that money – it’s left over from last year and that’s what would balance the budget,” said Silveira.
Pointing out that the city has an accumulated $2 million deficit on the Community Center operation and after asking a series of questions about police operations, Condit made a surprise motion to strike the City Council operating budget of $184,000 which covers stipends, benefits and cell phone expenses. The motion died for a lack of a second. He then made a motion for all department heads to take a 20 percent pay cut, which died for a lack of a second. Condit made three more unsuccessful motions of a 15 percent, 10 percent and five percent salary cuts for department heads.
Condit then motioned for the city manager to cut $1.6 million from the budget and bring it back for council consideration. Ryno seconded but the matter died in a 2-2 tie.
Condit’s motion to take all marijuana revenues out of the General Fund into its own police and fire and code enforcement accounts stalled. Ryno balked, saying other city departments like Finance are impacted by the marijuana businesses and that it would be unfair to give all the revenue to public safety. She cited how Measure H is solely dedicated to public safety and how most of the General Fund goes to public safety.
Silveira, a 30-year law enforcement veteran, argued Condit’s motion made no sense, saying public safety gets almost 80 percent of the General Fund expenditures. He cited the difficulty in hiring more officers because of the negative publicity against police nationwide.
“If 80 percent of our money is going to public safety and you think that’s not enough,” Silveira told Condit, “if we take more money out of those funds, where are we going to get the money to pay for public works and parks and streets and sewers and lighting?”
“We’re not adding a single police officer in this budget,” said Condit.
“We have five positions we can’t fill,” retorted Silveira. “Why would we add another one that we can’t fill and take the money from some other department? That’s not logical. That’s illogical thinking.”
When Silveira motioned to approve the budget, Lopez seconded. Ryno and Condit voted no, leaving the council tied once again.
Westbrook said the financial picture for the city will look better once it receives $11.6 million from the federal America Rescue Plan (ARP) funding. Those federal dollars have not been included in the budget and must be spent by the end of 2024.
“Although the projection for the next several years is positive and shows a growing local economy, preparing for the next recession or pandemic related event is important,” said Westbrook in a memo to the council. He noted that ARP funds will “bolster the financial position of the city in future budget years” but added the caveat that “it is imperative and fiscally responsible to plan for long-term sustainability while maintaining the highest level of service we can afford.”
Once the federal ARP funds roll in by this month, the council may amend the budget.
While the city is receiving less revenue from the three marijuana developer agreements and from sales taxes because of the COVID-19 pandemic, the city has benefitted from CARES Act funding and significant reduction in expenditures.
On May 13, Westbrook presented the draft budget to the Council at a workshop and sought input, comments, and direction. The primary council directives to staff were to unfreeze and start recruitment of eight positions that had been frozen with the adoption of the 2020-21 budget. Those positions are: custodian, Code Enforcement Secretary, Deputy City Clerk, Deputy Finance Director, Director of Community Development, Human Resource Analyst, part-time Parks Maintenance Worker and Recreation Supervisor. The council also included some new positions within the budget but not to begin any recruitment process for those new positions.
The pandemic resulted in a loss of $1.4 million in revenue in less business license fees, rentals of city facilities, penalties for utility accounts.
Westbrook noted that property taxes increased slightly because of the higher prices of homes and their reassessment under Prop. 13.
Sales tax revenue for the 2020-21 budget year came in slightly higher than expected and was consistently strong over the past year.
The city is expected to receive $1.38 million in fees from marijuana businesses for the next four years and untold revenues from the sales tax generated from the two dispensaries.
Westbrook said the city expects to receive over $7.8 million in sales tax revenue for FY 2021-22, slightly higher than the current fiscal year.
Property tax revenues should be about $2.39 million.
The city can expect $4.2 million in motor vehicle “in lieu” fee revenue.
He said that economic development is critical to “our financial future for revenue growth to continue to exceed the projected expenditure growth for long-term sustainability.” Bright areas include the development of the Mitchell Ranch Center – which is expected to open around the Christmas season – and its Walmart Supercenter and anticipation of the beginning of construction of the Ceres Gateway Center in August. The city will gain from an increase in sales and property taxes.
The city will continue to face rising pension costs. Although the city is a member of StanCERA for employee retirement, said Westbrook, “the CALPERS issues will likely resonate across the state and clearly an issue that requires staff and Council to diligently monitor. Other cities in Stanislaus County are struggling to address the significant impacts to budgets as a result of increased contributions for retirement.”
In Ceres there is a disparity in retirement costs for those CalPERS employees who were hired after Jan. 1, 2013 versus classic employees hired prior to that date. Newer employees are required by state law to pay 100 percent of the employees’ share of retirement. While the classic employees are currently only paying half of their employee share and the city picks up the rest. Westbrook said the city could reduce its retirement cost share if classic members paid more of the employee share of retirement costs.
Due to ongoing negotiations with labor groups, no increases in salaries are included in the proposed budget. After the conclusion of negotiations, a budget amendment would be necessary to include any increase in costs.
Ceres resident John Osgood chided the council for preparing to adopt a budget that the City Treasurer Kayla Martinez hadn’t reviewed, suggesting she was higher than the city manager. Albert Avila, a Ceres resident and who is Oakdale’s finance director, set Osgood straight when he noted that the city treasurer is a ceremonial position only limited to review financial statements.
Avila said it appears the city is once again overspending and suggested the reserves would only carry the city for two months of operating expenses. He said Oakdale has 40 percent in reserves.