The imploding economy has widened the projected hole in San Jose’s budget next year to more than $59 million, city officials said Thursday, making layoffs virtually certain and burying Mayor Chuck Reed’s hopes for eliminating chronic deficits in his first term.
Though city voters this month maintained two existing phone taxes at reduced rates — one of which was set to expire next year — and some employee groups have agreed to take lower raises, City Manager Debra Figone said “everything else has worsened.”
“At this point in time, I can’t see how we can avoid layoffs,” Figone said. City union leaders had no immediate response.
City officials previously had projected a $42.5 million deficit in the 2009-2010 budget year that begins in July, assuming the expiration of the phone fee that supports the city’s 911 emergency dispatch center.
But even though the city will be able to keep collecting that fee, sales and property taxes have swooned since September’s nationwide economic collapse. Meanwhile, the city is facing substantial spending increases next year, including $7 million toward fully funding retiree health care costs; $1.8 million to add 25 additional police officers; and more than $3.5 million in increased maintenance costs for new parks, libraries and police and fire stations.
Revised figures put the deficit at $59.1 million — nearly 7 percent of the city’s expected $901.6 million in expenses. An additional $5.9 million in infrastructure maintenance needs raises the total gap to $65 million. (Had the 911 fee not been renewed at the polls, the projected deficit would have gone up $24 million more.)
Along with the revised deficit projection, the manager’s office produced a long-awaited plan for eliminating the chronic deficits that have plagued San Jose for eight straight years. The city must balance its budget each year and has done so largely by eliminating vacant jobs and spending one-time windfalls.
Shortly after taking office in 2007, Reed declared chronic deficits “public enemy No. 1” and vowed to eliminate them before leaving office. A task force he convened to study solutions set a goal of fixing the problem in three years. But Figone said that window has now been extended to five years. The cumulative deficit over that period is $106.3 million.
Solutions offered in Figone’s report for bringing revenues and expenditures into balance are largely the same ones kicked around since Reed convened the task force last year, and they will require some hard choices by council members. A study session is planned for Dec. 5.
The manager’s office proposes to solve half the problem through reduction or elimination of unspecified city services. An additional 22 percent in spending cuts would come from various cost-saving strategies, ranging from streamlining bureaucracy to lowering personnel costs to tapping tobacco settlement money that is currently earmarked for community programs such as homework centers.
The rest of the gap would be closed through revenue increases, which would include raising business taxes, having nightclub owners contribute some of the $1 million needed to police the downtown entertainment zone and selling or leasing underused city land.
Reed said land management and help with downtown policing should be priorities and that slowing the growth in personnel costs “is a key part of our long-term strategy.”
But curbing those costs — which account for about two-thirds of the general operating fund — through such means as reduced pay or benefits for new hires or changes to sick leave and overtime policies will be among the most difficult to achieve.
The city’s costs per full-time employee have risen nearly 59 percent since 2000, even as the number of positions fell from 7,012 to 6,985. In addition, labor unions remain influential at City Hall, and concessions must be negotiated.
Other council members said the city needs to eliminate nonessential spending. Councilman Pierluigi Oliverio said San Jose should sell its subsidy-sucking golf courses and Hayes Mansion hotel conference center, though Reed noted the current real estate market is unfavorable.
Councilwoman Nora Campos suggested a $6 million redevelopment proposal for former Mayor Tom McEnery’s San Pedro Square retail quarter could be better spent relieving city operating costs. While redevelopment dollars are separate from the general fund, they can be used for such purposes as gang prevention or code enforcement.
“Now is not the right time,” she said, “to provide millions of dollars in subsidies to wealthy property owners.”
Contact John Woolfolk at jwoolfolk@mercurynews.com or (408) 975-9346.
