The Escondido city council this week begins preliminary work on a challenging budget process that will culminate in the final adoption of a $117.55 million fiscal year 2021/22 budget on June 9. The May 12 meeting will be the meeting where the city council really digs into this subject.
Before the COVID-19 pandemic, the city already had an impending crisis waiting in the wings. The long-term financial plan projected annual deficits growing to $13 million by Fiscal Year 2023/24 and further deficits continuing over the next 15 years. This was the result of the city’s pension liabilities because it is part of the state’s CalPERS system.
At a minimum, COVID has complicated those financial complications. As the staff’s budget report states: “The City’s Multi-Year Financial Plan adopted in the Fiscal Year 2020/21 Operating Budget accounted for the anticipated economic impacts of the pandemic and projected a budget deficit of $8 million in FY2021/22. In spite of many positive economic developments, federal aid packages, and a robust vaccine rollout in recent months, the restrictions from the COVID-19 pandemic have continued to negatively impact certain General Fund revenue sources although not to the degree that was anticipated one-year ago.”
The budget still projects a $8 million operating budget deficit, which the city will need to borrow from its reserves to meet. According to the report: “Departments were required to submit budget reductions which averaged around an 8% decrease from the prior year. Even after these cost saving measures, the budget relied on $4 million in one-time funds to balance.
As the local economy slowly recovers from the pandemic and yet no new revenue source has been identified for the upcoming fiscal year, the cost reductions to prepare and balance the budget for FY2021/22 would require a significant impact on City staff and the services the City provides. Compounding the issue is the increasing pressure for City services, particularly in the areas of traffic safety and homelessness.”
Staff advises that until the city comes up with a way to increase revenues (a half-cent or full cent sales tax increase has been discussed in the past—and voted down) it will need to rely on one-time funds and short-term funding to avoid drastic cuts to city services.
The report notes: “Since at least 2017, the City has maintained balance as a result of modest economic growth and stability and a combined strategy of a hardline on expenditures, cost saving measures that included reducing staff, deferring infrastructure maintenance, investing in technology to reduce ongoing costs, and outsourcing services. Recent budget structures were also combined with the use of one-time resources.”
The city created the Irrevocable Pension Trust in 2018 as a place to park funds that might be used to pay down the pension liability. It contains such things as funds from sale of city land.
This year staff is recommending taking from this fund to balance the budget. Currently it has a balance of $14,780,855. That money can, “be used to provide economic relief during recessionary cycles and/or rate increases that are significantly above anticipated projected employee rate increases. Funds placed in this Trust can also be used to offset the City’s ‘normal’ CalPERS costs, such that if funds are necessary for other purposes, a certain amount of flexibility is present.”
The figures below show where the money comes from and where it goes:
Sources of Funds:
Operating Revenue $107,219,510
Transfer from Gas Tax Fund 2,055,000
Transfer from Section 115 Pension Trust Fund 6,086,040
Advance Payback from Successor Agency – Redevelopment 2,194,370
TOTAL, Sources $117,554,920
Uses of Funds:
Operating Budget $117,063,760
Transfer to Reidy Creek Golf Course – Debt Service 365,620
Transfer to Successor Agency – Housing 25,000
Transfer to Vehicle Parking District 100,540