City’s Five Year Forecast Projects Increased Revenues with Rising Pension Costs

At the May 15, 2012 City Council Meeting Gary Ameling, Director of Finance for the City of Santa Clara presented the five year forecast of revenues and expenses for the City.  This is an annual presentation that up until recently has been very depressing, primarily due to the “Great Recession” that came to a technical end in the summer of 2009.  The City team pulls data from all the resources it can find to predict the future revenue and expenses for the City for the next five years.

The report was very thorough and well done.  But as you can imagine, there is some good news and some bad news.  First the good news:  All major revenue streams are projected to increase over the next five years.  The largest revenue contributor is sales tax.  This is projected to increase by 5.1% per year.  Next is property tax:  This is projected to increase 2% next year and 3% for the remaining 4 years.  Current charges for services comes in third and will continue to increase in revenue for the City since the goal is to bring the fees to a level that will cover total cost containment.  Rents and leases are also projected to increase in 2014-15 mainly due to the new stadium lease.  Contribution in lieu of taxes come from Silicon Valley Power and is dependant on the increased use of electricity.  This is also expected to increase over the coming years.  And the last major revenue stream is Transient Occupancy Tax (TOT) which is projected to increase 3% per year.  (This tax is generated when guests stay in our Santa Clara hotels.)

Now for the bad news: Unfortunately, expenses for the City are also rising at even higher rates in many of the future years.  Also, over 80% of the 2012-13 General Fund budget will be spent on salaries and benefits. The remaining 20% is spent on materials, services and supplies.  

The City has tried to control the salaries and benefits costs through furloughs, not filling over 100 vacant positions and curtailing general salary increases. However, even with these programs in  place, expenditures will continue to rise primarily due to pension fund obligations.  

The City participates in the California Public Employees Retirement System (CalPERS).  The costs for these obligations will have increased over 80% based on the last ten years and future five year outlook and will consume 16.1% of the general fund revenues.  Furthermore, this does not take into consideration the future unfunded liabilities which reached $223 million in 2010.

Taking all of these projections and variables into account, the City is projecting revenues to meet expenses in 2012-13 but not in 2013-14 and 2014-15.  2015-16, 2016-17 and 2017-18 do see revenues meeting and/or exceeding expenses.

In order to be sure City revenues increase and expenses are controlled, the Chamber of Commerce will continue to work cooperatively with the City Council and future City Manager and staff in focusing on economic development and finding creative ways to control expenses.

Please let me know what you think we should do to improve the business climate in Santa Clara and control City costs.  I can be reached by email at steve.vandorn@santaclara.org or at 408-380-1231.

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