Belmont’s budget faces long-term revenue issues and a potential General Fund deficit by 2024 unless significant changes to revenue and expenditures occur, concerning the city and prompting recent changes.
“We have to be deliberate and strategic about our approach to this as we hope to see the light at the end of the tunnel and looking to a good outcome as we manage the COVID impacts,” City Manager Afshin Oskoui said.
The city is facing two overlapping financial crises causing yearly losses to the General Fund. One is overall revenue loss caused by the pandemic, and the other is property tax revenue losses due to state distribution changes. While sales tax revenue exceeds budget estimates during COVID-19, property tax and hotel tax are below budget estimates. The General Fund balance was $12.1 million at the end of 2020 and was $12.8 million in 2019. Revenue is generally coming below expenditures, causing dips into the General Fund balance. The revenue for this fiscal year General Fund is $12 million, while expenditures are $13.6 million.
The California Court of Appeals in May 2020 changed the calculations of the distribution of property taxes around redevelopment agencies which negatively affects the amount of revenue cities receive, causing Belmont’s second financial issue, acting Financial Director Grace Castaneda said. The decision is permanent after it was upheld by the California Supreme Court later in the year. Based on several actions by the state that have reduced revenue for the city, Belmont now faces a potential annual revenue loss of $1.8 million to the General Fund and a $900,000 loss to the fire district, which is significant for the city, particularly during a pandemic.
“If no action is taken on this second financial crisis, and with the data and what we know so far, projected fund balance is going negative in the fiscal year 2024,” Castaneda said.
Oskoui said the current situation is very concerning, and the city is taking action now to prevent further cuts to city services. The City Council approved COVID-19 action plan strategies in June 2020 to reduce overall expenditures. The city currently has a soft freeze in place in hiring staff with no end date and has implemented $1.1 million in expenditure reductions to date, Oskoui said. The city is currently running on a 10% vacancy, and some work has been redistributed among staff in response to the vacancies. Several city departments like Public Works and Parks and Recreation have also faced cuts. Job cuts are currently not planned or being considered but remain a last resort option if things do not improve. An update will be provided in May on how changes have worked.
Castaneda said that while the city is hopeful these changes will work, there is uncertainty around revenue due to the pandemic that complicates the budget process. Councilman Warren Lieberman asked staff to give updates as soon as possible about the future of the General Fund balance and corrective action taken to prevent future problems.
“Right now, we have half the picture, and we don’t see the picture connected to where we might be because of what we are doing. And I know it might be too early for that, but we’ve got to see that as soon as you’re able to put something together,” Lieberman said.
The information presented to Lieberman demonstrated how serious of a financial situation this has the potential to be.
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“We don’t know where it is going to go yet, but to everybody who thinks we are in great shape, we have weathered the storm, we are not even close to the eye of the hurricane yet, is what I’m taking away from the story,” Lieberman said.
Councilwoman Davina Hurt said the council is committed to working hard on plans and goals it had before COVID.
“But it’s going to be tight, and it’s going to be difficult, and we are going to need people to work with us. But we are focused, and we are committed to improve the general fund balance and get back to a better norm where we were thriving again,” Hurt said.
Mayor Charles Stone said in response to public letters and comments questioning the city’s outlook on the budget that each city faces different budget challenges that would not be the same for every city.
“We are all in a different boat here in San Mateo County, and it’s going to be a rough trip to shore for us,” Stone said.
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The article "Belmont facing budget woes" in the March 1 edition had incorrect information. The city general fund faces an annual potential $1.8 million revenue loss and $900,000 potential annual revenue loss to the fire district based on several revenue actions by the state that would reduce revenue for the city, not just the 2020 state court decision on calculations of the distribution of property taxes.
(2) comments
As a Belmont resident for more than 40 years we should all be grateful for having Mr. Strinden among our neighbors. He appears to be the only person who can explain what is going on in understandable terms. Also, for those of you who are constantly hammering on the Prop 13 effects, please note that Prop 13 is the culprit not for often mentioned reasons but for sneaky provisions that became clear in the report by the City Manager. We are collecting plenty of taxes but Sacramento is in charge of redistribution, that is how we get short-changed. Perhaps a reset of Prop 13 is in order to remove that control by the Sacramento bureaucracy.
State "takeaways" are in three areas, not just one. The one around the redevelopment agency is the only one that is permanent, and is expected to reduce revenues by $700K of the $1.8 million total. A reduction in property taxes in-lieu of Vehicle License Fees (VLF) is a greater threat to the budget, expected to reduce revenues by $1 million this year, increasing to $4 million in 6 or 7 years, according to Castaneda. However, cities are working with the State on a possible legislative solution for this, so it may not be permanent. The third area is "Excess ERAF" (Educational Revenue Augmentation Fund), which has not yet been decided by the State, so the County is withholding payouts to cities until it is. That may reduce revenues by $100K per year.
Redwood City is facing the same State "takeaways," but does not consider them a crisis like Belmont, and expects the reductions to be very manageable in the long run. So, one of these cities may be off in their projections.
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