But we have to strongly disagree with City Council members who are saying that with $30 million (or the interest from it) at their disposal, they are not inclined look at ways to reduce employee compensation to close the $2.6 million deficit forecast for next year.
Instead of facing the reality that the city has an ongoing structural deficit, caused by the increasing cost of pay and benefits for city workers, several council members seemed to be saying that they are growing weary of making budget cuts, which they have been forced to do for the past two years.
In our view, that is precisely the wrong approach. To their credit, in the last two years council members have reduced spending and cut positions in several departments. But despite these reductions, the city must continue to reduce staff compensation or reduce staff as it faces a tidal wave of dire financial news. For example:
• Expenses are expected to increase by $4.6 million next year, while revenues will grow by only $1.8 million;
• $3.7 million of the expense increase will come from rising city employee compensation costs;
• The city's employee retirement costs alone are expected to rise by $2.8 million next year.
• In addition, employee health care costs are expected to rise by $1 million next year, partly due to an unexpected jump in city employees' use of their medical benefits.
The least painful of the three budget options presented by staff to cover the $2.6 million deficit includes $1 million from the Google payment, $450,000 from "operational efficiencies," and $1 million or more in savings from putting the brakes on union employee expenses. But such a voluntary giveback is far from certain.
"I really don't have a lot of confidence in getting the $1 million we need from the unions," Mayor Jac Siegel said last week.
And, with Google's prepaid lease revenue in hand, unions are not likely to be in the mood to voluntarily back away from scheduled increases.
Without voluntary cutbacks from the city's unions, the council will have to consider staff-recommended cuts of "increasing levels of severity." The first tier plan includes laying off a finance department assistant, a theater stagehand and the fire department's public outreach person. Second tier options would lay off a code enforcement officer, an accounting technician, a park ranger and a community services officer. Another, possibly less painful, option for both tiers would eliminate vacant positions.
The inflation factor was another concern about the Google funds discussed by the council last week. In 52 years, the $30 million could be worth what $3 million is worth today, which prompted Mayor Siegel to argue for spending the money sooner rather than later.
The city staff has explained that if nothing is done to counteract the structural deficit, the city will face budget shortfalls until 2015 while burning through its reserves. Balancing the budget now will yield a much better picture, with revenues exceeding expenses by 2015 and lasting until the next recession.
Acting now to balance the budget will be a painful process for the council and city staff. But until employee compensation, including pensions, are reduced, budget deficits will continue to cast a dark cloud over the city.