Santa Rosa council members confront 'challenging' budget forecast, multi-year deficits

Santa Rosa is bracing for an immediate $20 million shortfall due to the coronavirus pandemic that city leaders will need to confront soon while eyeing a projected long-term revenue hole of as much as $74 million that could take years to exit without federal aid.

That’s the projection that went to a trio of City Council members Wednesday afternoon from Management Partners, a consulting firm that works on local government finance issues. The forecasts showed a $12 million loss through June and a $20 million shortfall from July through June 2021 - the upcoming hole amounts to about 12% of the general fund and about 5% of the overall budget.

Sales and hotel tax revenue - the largest sources of discretionary funding - as well as money from local fees and permits have already fallen and will continue to drop in the near future, the forecasts showed.

A second blow is expected next year from declining property taxes.

Through mid-2025, the cumulative revenue loss was projected at $74 million without any federal aid. Even with that relief, the city’s reserves are likely to be depleted under looming deficits for years to come.

“As you can see, there’s a lot of bad news there,” said Bob Leland, a special advisor with Management Partners, gesturing to one of the weightiest slides in his presentation.

The outlook, put forward during a 90-minute video conference, prompted few comments and questions from the City Council’s three budget committee members, Mayor Tom Schwedhelm, Vice Mayor Victoria Fleming, and Councilman John Sawyer.

“This is going to be a very challenging budget to put together,” said Councilman John Sawyer, the longest-tenured incumbent, who served as mayor in 2008 during the outset of the last recession. “My expectation is that the council will be very, very careful in its deliberations regarding where money is spent.”

The full council is to convene Tuesday to work on a new spending plan that reckons with what Gov. Gavin Newsom this week called a “pandemic-induced recession.”

On Tuesday, the city announced a hiring freeze covering most open positions with some exceptions where job offers had been made and for unspecified “critical” hires.

The pressure to slash public services and the city workforce also is driven by rising payroll costs, including employee pensions, where general fund spending is expected to climb from about $30 million to $50 million annually over the next 11 years, according to the analysis.

The forecast comes after Schwedhelm wrote to Treasury Secretary Steven Mnuchin on Monday asking for President Trump’s support in allowing smaller cities and counties with fewer than 500,000 people, like Sonoma, to directly access federal coronavirus bailout money.

Santa Rosa’s budget is supported in part by three separate voter-enacted quarter-cent sales taxes that are set to expire in the second half of the next decade. That’s right about when a full recovery from the COVID-19 recession is expected.

“That’s a fairly daunting prospect,” Leland said. He also noted that the impact between now and June 30 was easier to anticipate than the next fiscal year that starts in July. “While this year had three and a half months to go wrong,” he said, “next year there’s all 12 months that could go wrong.”

City staffers are using the forecast to propose a new budget with an eye on savings and recapturing roughly $39 million that has been allocated but not spent, said Alan Alton, the city’s interim finance director. That sum includes several million dollars slated for hazard mitigation, including wildfire projects, that await approval from the Federal Emergency Management Agency.

“Those are things that right off the top we could kick back to the general fund and start to add a little bit more fund balance that gives us that flexibility,” Alton said.

Alton’s predecessor, Chuck McBride, resigned last month to take a similar position with the Marin Municipal Water District. Alton also served as interim finance director before the city hired McBride.

No members of the public submitted comments or posed questions for the video conference.

You can reach Staff Writer Will Schmitt at 707-521-5207 or will.schmitt@pressdemocrat.com. On Twitter @wsreports.

Editor’s Note: This story has been updated to correct the amounts of projected revenue lost for the current and upcoming fiscal years.