While the city's tax revenues for its $88 million general fund have remained flat in recent years, the rising cost of employee pay raises, health care and pension costs have brought on new deficits every year as city employee salaries are 80 percent of the city budget. On Tuesday finance director Patty Kong said that a recent actuarial report showed the cost of giving pensions to retired employees would increase by $5 million over three years.
Having the city's pension costs increase by "$2 million, two years in a row, is a significant challenge," said City Manager Kevin Duggan.
With all of the city's unions' contracts expiring over the next two years, council members said that the automatic pay raises guaranteed in multi-year union contracts in better economic times would probably have to go.
"In previous years automatic COLAs (cost of living adjustments) added $3 to $5 million to our annual budget," said council member Laura Macias.
"We need to be more careful about what we guarantee," said council member Tom Means.
As an economics professor at San Jose State University, Means said his union contract made pay raises dependent on state funding, implying that the city should give pay raises depending on whether or not tax revenues allow it.
Other possibilities include asking the city's unions to share more of the cost of health insurance and pension benefits, something they already do to some extent.
On top of re-examining employee compensation, other strategies adopted by the council to be implemented over the next year include an evaluation of alternative ways to operate the city's money-losing golf course, examining the possibility of sharing services with other cities such as animal control and emergency communications services, and a look at ways to save money with the city's vehicle fleet.
The city will also consider a maintenance district for Castro Street that would assess a tax on downtown businesses, unless those businesses protest it en masse.
The consensus emerging among city officials is that there is very little to cut from the city's budget after several years of cutbacks. The city is functioning on a "skeleton crew" said Beverly Stenson, fiscal services manager for the police department.
"At some point (the city) is so streamlined there's no streamlining to be done — a point of diminishing returns," said Mayor Ronit Bryant.
Raising taxes significantly is not among the immediate strategies the council adopted, although a potential long term strategy is a voter-approved increase of 1 percent to the city's 3-percent utility user's tax on gas, electricity and phone use, which would raise $2 million a year. The city could also ask voters to increase sales or hotel taxes.
Council members said the city should more aggressively try raising revenues through economic development. For example, the city has recently purchased land at the corner of Moffett Boulevard and Highway 101 that city officials would like to turn into a shopping center that would produce sales tax revenue.
"The city has cash, and I would like to see us make more of an investment in the city's future," said council member Jac Siegel.
Stenson, president of the Eagles, a union that represents mid-level city employees, said her union was disappointed that they were not consulted by city management about the strategies the council adopted, saying that the city "put the cart before the horse."