Officials OK $752 million budget plan

Corbett was encouraged by the money generated through Measure S — a quarter-cent sales tax expected to generate more than $5.5 million annually — to fund infrastructure, public safety enhancements and additional recreation improvements cited when voters approved its passage in 2015. But he noted those funds do not contribute to the city’s capacity to afford services through its general fund, which may be threatened by projections the city’s pension liabilities could nearly double in the next decade.

“We could certainly do more now, we could certainly add more capacity now,” he said. “We don’t want to add things now that we’re going to have to pull back later.”

After investment returns fell short of expectations in 2015 and 2016 and the CalPERS Board of Administration’s 2016 decision to lower the discount rate, the city’s general fund contributions for pension payments are expected to increase from $15.7 million in the 2018-19 fiscal year to $29.2 million in the 2028-29 fiscal year, according to the city’s 2018-20 business plan.

Though the city’s property tax revenue growth has exceeded 7 percent in recent years, Corbett didn’t expect the growth rates to continue at such a high level in the future. Driven largely by strong growth in assessed valuations, property tax revenue — which accounted for some 43 percent of the city’s general fund revenue in the 2016-17 fiscal year — has grown from more than $22 million in the 2004-05 to more than $50 million in 2016-17, according to the plan.

“I’m always going to be bullish on property tax in this area, but I also don’t think it’s going to be able to sustain the level of growth it’s had over the past five, six years,” he said. “I don’t think it’s going to grow as fast.”

Corbett said slowing property tax revenue growth could highlight the effect of the city’s stagnant sales tax, which has lagged behind the Bay Area’s consumer price index as retail sales have shifted to online marketplaces.

With more than $4.3 million in Measure S funds pegged for additional police officers, restored library hours, neighborhood traffic improvements and park enhancements, among others, next year’s budget is expected to bring long-imagined improvements to fruition. Looming over use of the funds is an effort to repeal Senate Bill 1, a gas tax increase state legislators passed last year that could fund street rehabilitation and reconstruction previously pegged as priorities under Measure S. Corbett acknowledged the uncertainty has caused officials to program only a portion of Measure S revenue collected in the coming year as they await the outcome of the November vote.

Funded by sewer rate hikes, an overhaul of the Detroit Drive wastewater treatment plant and improvements to the conveyance system constitute some $538 million of the $581 million budgeted for the city’s capital improvement program in the coming year. Dubbed the Clean Water Program, the project is aimed at meeting state mandates it cease discharging raw sewage into the Bay, which occurs during extreme storms when the plant’s capacity is maxed out.

Corbett looked to a fall study session with councilmembers to discuss potential new revenue streams addressing some portion of the cost increases and revenue reductions expected in the years to come. He said they may also consider pulling back on discretionary spending, such as pre-emptive payments toward its pension liabilities or using the city’s unassigned fund balance, which has offered officials some financial flexibility in the past, to maintain services as well as the city’s reserves.

But he was encouraged by the council’s approach thus far, which he said has allowed the city to balance service levels with planning for a rainy day in the future.

“I think we’re in a position where we have a lot of flexibility and I think we’ll be able to give the council some options — basically a full tool kit from which to work from while maintaining a balanced budget,” he said.

anna@smdailyjournal.com

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