By Dan Carson
A city staff report released Friday says that better-than-expected growth in property tax revenues and the realization of the additional sales tax revenues from voter-approved Measure O have bolstered city finances to the point where the current fiscal year will end with a $7.1 million General Fund reserve.
The city staff’s estimates are preliminary and could well change for the better or worse as the city budget process unfolds between now and the June 30 end of the fiscal year. For example, a significant portion of property tax revenues are distributed to the city in May and could influence the final outcome.
However, if the numbers that will be presented to the City Council for discussion on Tuesday hold up, the city will have achieved an important fiscal benchmark heading into its deliberations on next year’s 2015-16 budget.
Current city policy calls for the city to have on hand in its General Fund reserve funding equivalent to 15 percent its annual revenues (after a technical adjustment to subtract out intragovernmental revenues). The newly released staff report (to which a link can be found here) says that the city will have a 14.9 percent reserve in hand at the end of the current fiscal year as things stand, and thus is essentially there
City policy may soon change to compute the reserve in a somewhat different way, but the new numbers are a clear signal that the city’s fortunes have improved since December 2013, when the city manager forecast a $5 million annual structural shortfall. Assuming continued fiscal discipline in the next and subsequent budget cycles, the trend means the city could be in a better position to address backlogged deferred maintenance and infrastructure replacement costs as well as continued personnel cost pressures.
Here are some of the key points highlighted in the city staff report:
— Property tax revenues for the current fiscal year now appear likely to be $897,000 above the level estimated when the 2014-15 budget was adopted. According to the report, an increase in the property tax monies coming to the city from the phase-out of redevelopment, and increases in citywide assessed values, account for the positive revenue trend.
— The half-cent increase in the sales tax approved by Davis voters last year as Measure O, estimated to bring in $2.7 million in 2014-15, is paying dividends. Better yet, about $578,000 more in sales tax revenues are coming in than were initially budgeted.
— A delay in completing a new contract with Davis Waste Removal means that a $500,000 a year increase in franchise fees designated for the General Fund is kicking in later than expected. That delay contributed to a $358,000 shortfall in this revenue source in 2014-15. However, the larger franchise fee payments started in March and should henceforth be received in the full amount each year.
Not mentioned in the new city staff report are the difficult past actions taken by the City Manager and City Council to help improve city finances, including another round of $1.2 million in General Fund budget reductions that were built into the 2014-15 budget package. However, the biggest single factor in improving the city’s bottom line was clearly Measure O, which is forecast to eventually bring in $3.6 million annually to city coffers.
These numbers should be seen in perspective. Sudden economic changes, such as the recession that hit the nation in 2008 and the recent plunge in oil costs, can dramatically affect city revenues and costs for the good and bad. But the likelihood that the city will have a full 15 percent General Fund reserve in its pocket means it is much better positioned than it has been in a long time to weather future budget storms.
Dan Carson worked for 17 years in the Legislative Analyst’s Office, a nonpartisan fiscal and policy adviser to the California Legislature, retiring in 2012 as deputy legislative analyst. He now serves as vice chair of the city’s Finance and Budget Commission. This commentary reflects his views only and does not represent the position of the commission on this issue.