Council: what to do with $30 million from Google?
Money from 52-year land lease makes budget cuts difficult for council
Now that Google has agreed to pay for a $30 million land lease up front, laying off city employees to fix the city's budget deficit appeared to have much less appeal in Tuesday's City Council meeting.
Google has agreed to make a one-time payment for a 52-year lease of city land — a 9-acre lot at Shoreline Boulevard and Charleston Road where an office building is slated. Meanwhile, the city has been facing recurring budget deficits because rising employee compensation costs are outpacing revenue growth.
"I don't think we need to do cuts at all," said council member Margaret Abe-Koga.
During city budget talks Tuesday council members appeared reticent about making cuts to fill a projected $2.6 million gap next year.
"This continual cutting, I think we've gotten to the point where there's not much that can be done there anymore," said council member Ronit Bryant. "We only have so much to go before the city is no longer the city we want."
With city employees already doing more with less, "at a certain point it just becomes a job to survive," Bryant said.
Instead of layoffs and cuts spread throughout the city's government to bring expenses in line with revenues, council members suggested that the city begin looking at doing "something radical," as Bryant said, to fix the budget in the future.
Abe-Koga seemed to be saying the same thing. "We need to look at what we can do for longer term savings," she said.
Council members pointed to ambitious budget fixes listed on the final tier of proposed budget cuts, which include property tax ballot measures, new land lease revenue, consolidation of city departments and sharing services and their costs with other cities.
Costs outpace revenue
For next year, city staff proposes to take $1,050,000 from the Google lease payment to fill an estimated $2.6 general fund budget gap. Relatively painless "operational efficiencies" would save another $450,000, bringing the deficit is down to $1.1 million, which could be filled by keeping employee compensation from rising too much — if the city's unions agree to it.
"I don't really have a lot of confidence in getting the $1 million dollars we need" from the unions, said Mayor Jac Siegel.
General fund budget revenues are projected to grow $1.8 million next year, while expenses could grow by $4.6 million, $3.7 million of which comes from rising city employee compensation costs. The city's employee retirement costs alone are projected to rise by $2.8 million next year. Health care costs would rise next year as well, by roughly $1 million. City employees are using their medical benefits more than average, explained finance department officials.
The city's unions are likely to point to the Google lease payment, and $1.4 million in general fund revenue that is going unspent this fiscal year, which is not automatically applied to next year's general fund budget. Instead, city policy is to put that money towards budget reserves or one-time expenses. With the city consistently under-spending its annual budget, the practice was questioned by council member Laura Macias.
Without concessions from the unions, city staff have listed possible cuts in three tiers of "increasing orders of severity" if the council wants to maintain a structurally balanced budget. The first tier is most likely, and saves $675,000, in part by laying off a finance department assistant, a theater stagehand and the fire department's public outreach person, Jamie Garrett.
Second tier options may be necessary without the $1 million reduction in the rise of employee compensation. That tier includes laying off a code enforcement officer, an accounting technician, a park ranger and a community services officer in the police department.
Those tiers also offer options that don't involve layoffs, but many would eliminate vacant positions.
"We haven't cut people's salaries and we haven't laid off employees," Siegel said. "We don't want to."
City staff members say that if nothing is done to lower costs, the city would continue to run a deficit until 2015 while quickly burning through reserves. But if a "structurally balanced" budget is achieved, revenues will cover expenses until 2015 when revenues may begin to exceed expenses until the next recession.
Google's $30 million
City officials predict that the interest alone on Google's $30 million lease payment would create $1.1 million a year in new general fund revenue. One option is to use that annual interest to fund city services for 52 years. Having that consistent revenue, "speaks to me," Bryant said. But she and other council members said they were concerned that inflation would eventually make the $30 million worth far less than it is today. In 52 years the $30 million would be worth what $3 million is worth today, Siegel said. "I have a real problem with that."
"I'd rather see the money used more quickly to get us more buying power," Siegel said, an opinion most council members appeared to agree with. Bryant said the council should periodically examine what the city should do with the money in the future, saying she had no interest in figuring out how to spend it all now.
The $30 million Google lease payment presents "a rare opportunity to both support current needs while also funding service enhancements," reported city staff, who recommend that 25 percent of the interest be used for "enhanced services" beginning in 2012-2013.
E-mail Daniel DeBolt at email@example.com