Visalia's costs rising faster than its revenues
Thanks to improvements to Visalia's economy, the city should have a fiscal 2014-15 budget that is balanced for the first time in six years without having the cut jobs, city services, programs or maintenance.
On top of that, Visalia is expected to end the current fiscal year on June 30 with a surplus — unspent money — of a little more than $4 million, city Finance Director Renee Nagel told the Visalia City Council earlier this month.
But even if the economy continues to improve at its current pace, revenue the city collects is expected to shrink as the city's expenses are expected to rise, which will include higher costs for employee healthcare and increases in the city's contribution to the employee pension plan.
Salaries and benefits for employees account for about 78 percent of the city's operating expenses from its General Fund — the main pot of money from which the city pays its expenses — Nagel said. "These go up and don't go down."
On June 2, Nagel presented the Visalia City Council with a proposed 2014-15 budget of $231.1 million budget.
Officials note that budget includes $42.5 million in loan money from the state, part of an $139.1 million in loans Visalia is receiving to expand and upgrade its waste treatment plant, the largest public works project in the city's history.
Work began last month to demolish portions of the plant and to install miles of new water and sewage lines, said City Manager Mike Olmos.
Visalia approves budgets for two years at a time, and the proposed budget for the second year, 201t-16, is $119.4 million. The City Council will vote whether to approve the budgets during a special Thursday meeting on June 26.
During the recent recession Visalia cut its General Fund spending to the $55 million-a-year range because of reduced revenue from sales and property taxes. That included taking back in 2009 employees' 4 percent raises from the year prior.
With revenues expected to increase 1 percent in the next fiscal year and by 2 percent in the year after that, General Fund spending is schedule to grow, too, to $66.1 million the first year and $79.9 the next.
Part of those increases stems from planned 3 percent raises for city employees in 2014-15. Last year, Visalia provided 1 percent raises to its employees.
While salaries haven't been negotiated yet for city workers in 2015-16, the proposed budget for that year presumes a 1 raise, Olmos said.
Besides paying higher salaries, part of the additional spending is expected to come from new hires, Olmos said"The city is trying to rebuild some of our service levels that were hit during the recession."
That includes possibly adding 22 city positions over the next two years, including a couple of city engineering jobs, a financial analyst position, an animal control officer and five police officers.
As for retirement costs, Nagel said the city's mandatory payment to the California Public Employees' Retirement System is estimated to increase yearly, and in five years alone the city's costs will be about $3 million more than it pays now.
Factoring all of this, the city's costs for employee pay and benefits — expected to total about $43.8 million by the end of this fiscal year — likely will increase by about 5 percent to $46.3 million in fiscal 2014-15 and by about 2 percent more to $47.4 million the year after that, according to a report to the City Council.
Still, the report continues, "Based on current trends, the city is on a gradual path to recovery and has successfully weathered the greatest recession."
But one of the most important goals for Visalia is to restore its reserve fund if the economy goes bad again or if the city experiences some other crisis, Olmos said.That fund was at about $13.6 million in fiscal 2007-8, and now it's down to just $1.3 million after being tapped to get the city through recent hard financial times.
To that end, Nagel has recommended that any surplus money the city has this year and in the years after be put into the reserve rather than being spent the next year.