Redwood City is expected to see a budget surplus this fiscal year, according to a mid-year budget update that also included proposals for containing costs in the future and enhancing transparency with respect to the city’s finances.
The surplus, or year-end operating balance, is estimated to be about $5.3 million because several sources of revenue are producing better than expected, said City Manager Melissa Stevenson Diaz. Those sources include property tax, hotel tax and development fees, according to a staff report.
Staff is recommending the council spend 80 percent, or $4.2 million, of that balance on pension liabilities — which currently total $242 million — and the other 20 percent, or $1.1 million, on the council’s three priority areas for 2019: housing, transportation, and children and youth, according to the report.
While the city’s budget appears healthy this fiscal year, pension debt continues to be a challenge and that’s why staff is proposing an accelerated timeframe for paying liabilities as well as a two-year budget cycle beginning in fiscal year 2020-2021 to trim staff time.
Diaz said the city received many questions from residents as to why a sales tax was needed last year so staff is looking to beef up outreach efforts about the city’s finances, first by holding a budget workshop in April.
To promote transparency, officials are also looking to implement OpenGov, an online platform that will ostensibly make budget information more accessible.
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Property tax revenue represents 43.8 percent of general fund revenue and it’s expected to grow by about $1.7 million this fiscal year as development projects are completed and start appearing on the tax rolls.
Sales tax accounts for 15.5 percent of general fund revenue and it’s expected to come in slightly less than budget. But the city’s new sales tax rate of 9.75 percent will kick in April 1, bringing in an extra $1.5 million in the last quarter of the fiscal year before generating an additional $8 million in revenue each subsequent year.
Hotel tax is projected to exceed budget by about $1.6 million or 13.3 percent because local hotels are seeing increased occupancy rates and because hotel tax is now collected from short-term rentals. That money specifically is spent on affordable housing.
Despite the good news for this fiscal year, a budget deficit is projected in the not-so-distant future brought on by an increase in required pension contributions and an economic downturn, which the city’s consultant predicts will occur in fiscal year 2020-2021, according to the report.
The deficit is expected to be almost $4 million by fiscal year 2022-2023 and could reach $18 million by fiscal year 2028-2029 if operating costs and expenditures are not adjusted, according to the report.
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