While Foster City expects a small surplus in its 2022-2023 budget thanks to pandemic federal funding, the city faces structural deficits in the coming years it is working to address.
Edmund Suen
According to a June 6 staff report at a council meeting, the city expects a surplus of $114,000 for its projected budget, because of funding from the 2021 American Rescue Plan Act. However, it faces an operational structural deficit through 2026 that ranges from $4.1 million in 2023-2024 to $1.8 million in 2026, according to its budget forecast. At its current projection, the city’s reserves would go from $35.6 million in 2022 to $23.9 million in 2026.
Interim City Manager Edmund Suen said while the city faces a structural deficit, it is looking for revenue solutions through potential new business license tax changes. Foster City is considering increasing its business license tax cap and gross receipts rate through a ballot measure to increase city revenue amid financial instability. The city is currently reaching out to affected businesses to gauge willingness before putting it on a November election ballot measure. The city has a gross receipts rate of $0.00075 and a $35.9 million receipt cap, resulting in a maximum business license tax for a business of $26,985. Raising the receipt cap, for example, to $50 million would increase the maximum business license tax to $37,500, a potential citywide revenue increase of $163,000.
“I think we have plans to address the structural deficit,” Suen said.
According to a staff report, the city’s general fund revenue in 2022-2023 will be $53 million, with projected expenditures of around $53.5 million. The $440,000 deficit combined with additional costs of about $3.5 million will be addressed through $4 million in federal funding, resulting in a slight surplus.
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The city also faces unfunded pension liabilities and wage costs from new worker contracts. Foster City is watching potential cost escalations for its capital improvements projects, like wastewater treatment plant improvements and its Levee Improvement Project, which is designed to keep Foster City safe from storms and high tides. The city also faces revenue losses from a proposed change in the state’s budget rules that redirects property tax revenue to fund school districts, with excess money later returned to the county. These funds could soon be capped at this year’s property tax levels, meaning as property tax revenue grows, money would increasingly flow away from local jurisdictions. The funds are called the educational revenue augmentation funds, which account for around $1.6 million in revenue in the 2021 and 2022 budgets.
However, the city expects an increase in tax revenue in its coming budget. Sales tax is estimated to increase from $3.3 million to $3.5 million, while transient occupancy tax will go from $1.7 million to $2.4 million.
The city will discuss budget adoption at its June 20 meeting.
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