The State Budget and Sonoma: Navigating the tough times

As we read the headlines these days we see that the State of California continues to struggle with its budgetary woes, and the Governor and Legislature have not been able to reach an agreement on how to close the multi-billion dollar shortfall. Residents of Sonoma have a right to be concerned about how the State’s budget impasse and ongoing financial problems may affect their own city’s finances and the impact on their local services.

The State of California is in a crisis of immense proportions. As such, the Governor is considering reneging on the promise made not to raid local government coffers to balance the State’s budget. Voters may recall that in 2004 Proposition 1A was passed with overwhelming support to keep local governments fiscally strong by limiting the State’s ability to take money designated for local governments. Despite this constitutional amendment, the latest State budget balancing proposal calls for “borrowing” local tax dollars. Under the latest proposal, the impact to the City of Sonoma would be upwards of approximately $400,000 for this year. It is unknown at this time how many years the borrowing would continue to take place and in what amounts. The State has in the past relied on its ability to use local government funding to balance its budget. According to a report by the League of California Cities, the State of California has cumulatively taken from the City of Sonoma $5.1 million in revenue since 1991.

How would the latest State budget proposal impact Sonoma? I recently read a budget reference by a city official who stated, “The decisions you make in good times are more important than the decisions you make in bad times.” I believe this statement applies to the City of Sonoma’s ability to withstand the current economic downturn and the State’s fiscal malaise.

Residents should be aware that a combination of good fiscal planning, proactive revenue enhancement, prudent management of existing resources, and wise decisions in “good times” have placed the City of Sonoma in the position of being able to withstand economic ups and downs. The following nine-point explanation will hopefully also answer those questions from residents inquiring whether Sonoma is under any threat of a financial scenario that the City of Vallejo is now facing.

Overall, the City budgets conservatively, which means we do not optimistically over-predict our revenue nor underestimate our expenditures. This has placed us in the sound position of producing a balanced budget year after year. Secondly, the City has wisely developed over the years an emergency reserve and an operating reserve. Simply put, these are funds set aside in a “savings account” to provide for fiscal stability and are available in times of emergency, plus this policy allows the City to maintain an excellent bond rating and favorable terms when borrowing. Thirdly, the City’s solid revenue stream from local sales tax and transient occupancy (lodging) tax is not the result of luck, but rather from the proactive partnerships that the City cultivates with our local businesses through the Sonoma Valley Chamber of Commerce and the Sonoma Valley Visitors Bureau. Fourth, in “good times,” current and prior City Councils chose not to enhance our city employees’ pension plan. When many other agencies were moving to an enhanced retirement system in the late 1990s and early 2000s, our City Council chose to continue with the basic “2% at 55 miscellaneous” plan under the California Public Employees Retirement System. This decision has kept our retirement costs manageable. Fifth, wise risk management has meant that our premiums for workers compensation and general liability insurance have remained predictable and our losses have been favorable. Sixth, we have taken advantage of regionalization with respect to public safety services as a means of achieving economies of scale. Our contract with the Sheriff’s Department for police services has kept our police budget more predictable and our Sonoma Valley Fire and Rescue Authority partnership has meant more and flexible resources at our disposal while allowing for shared administration, enhanced staff coverage and equipment, along with cost containment. Seventh, the City is leanly staffed and did not enlarge its employee base to unsustainable proportions during the “good times,” and thus is not facing lay-offs to adjust to the reality of the “tough times.” Eighth, the City has wisely used redevelopment funding mechanisms to enhance our local economy through commercial rehabilitation loans to local businesses and through capital projects that do not require general fund (discretionary) dollars. Finally, the City Council has reacted to the current economic downturn and the potential State raid on our finances by amending our two-year budget by recently adjusting our general fund expenditures downward for the second year. Our Council has also recently taken a hard look at the use of consultants on special projects and directed staff to seek ways of reducing expenditures on projects and studies.

Because of these and other wise fiscal policies and choices made in the “good times,” I feel confident that the City of Sonoma will be able to continue to provide our residents the same level of services they have come to expect, should the State decide to dip into the pocketbooks of local government. Should the borrowing scenario come to pass over multiple years, I would ask the City Council lead us in re-examining any special projects or discretionary expenditures for future years, reconsider our planned spending on mandatory services versus discretionary projects, engage our employee unions in a conversation about the fiscal situation, seek ways to continue to partner with other local agencies including the County on cost-sharing and regionalization of services, and as an absolute last resort, consider utilizing, and then replenishing, our own operating reserve which has been set aside as a cushion in the event of financial adversity.

The City of Sonoma has been prudent in its financial management and we have lived within our means. To withstand the uncertain economy and the State’s looking locally to solve its problems, we will need to continue on our conservative fiscal course. We need to continue to be ever mindful of the threats to our financial stability while maximizing our locally-grown revenue sources including sales tax and transient occupancy tax. Ultimately, we need to stand by those decisions made and the policies we put into place during the “good times” so that we can make it through the tough times imposed by the State government and our national economy.

I appreciate the opportunity to make this statement about our City’s financial situation and I welcome any questions from residents and community members at lkelly@sonomacity.org. Residents may view the City’s budget at www.sonomacity.org, click on City departments, Finance and personnel.