By practicing fiscal responsibility, Mayor Reed has worked to preserve core city services when faced with chronic budget deficits.
About San José's Structural Budget Deficit
Starting in FY 2002-03, the City of San José experienced a staggering 10 consecutive years of budget shortfalls. This structural budget deficit has been primarily driven by an unsustainable cost structure and has become even more severe due to the effects of the recent global recession.
The City is legally required to balance its budget every June, and to close these deficits, San José leaders were forced to continually reduce services to the community. The most drastic cuts came in 2010 and 2011, when the City experienced back-to-back General Fund deficits surpassing $100 million each. That is more than the City pays for parks, libraries, community centers, gang prevention programs and senior services combined!
The City Manager's Office is now projecting a small surplus in FY 2012-13. However, this came at a huge cost: the elimination of more than 1,000 jobs and a 10% reduction in total compensation for all employees over the past few years. In addition, this surplus does not reflect that the City is not yet fully funding its annual retiree healthcare contribution and that the City has more than $100 million in annual deferred road and infrastructure maintenance needs.
Even worse, the City is projecting a $22 million budget deficit in FY 2013-14.
Without fundamental reform, this structural budget deficit will destroy the
City's
ability to deliver basic services to the community.
Continue reading below to learn more about San José’s structural budget deficit.
*Note: the $10 million surplus that is projected for FY 2012-13 does not include more than $100 million in deferred road and infrastructure maintenance needs.
The City of San José has had to continually raise fees, reduce services and shrink its workforce to close the ongoing budget gaps in its General Fund. Early on, San José leaders were able to blunt the impact of budget deficits through strategies like: tapping into the city’s reserves, implementing controls on discretionary spending, and eliminating vacant positions. However, with each additional year of deficits, the city has been left with fewer options for closing its budget gaps.
As a result, San José residents have seen significant reductions in core city services. Over the past 10 years, the City has been forced to:
Shrink our police force by hundreds of officers, including cuts in patrol, special operations & investigative services.
Eliminate four engine companies and one truck company in the fire department, while also implementing flexible brownouts.
Cut branch library hours down from 6-7 days/week to only 4 days/week.
Reduce hours at “hub” community centers and seek alternative operators for all 43 satellite/neighborhood centers.
Greatly reduce funding for street paving
(the # of residential and arterial streets sealed are down 73% and 61%, respectively).
Eliminate funding for sidewalk repairs and street tree services (which are now the responsibility of property owners).
Delay opening newly built libraries, community centers and the police substation.
Significantly reduce funding for park maintenance, code enforcement, traffic calming, park rangers, crime and gang prevention programs, and youth/senior services.
Click on the above image to enlarge
The budget deficit has also had a dramatic impact on the City’s workforce. The City has cut approximately 2,000 positions (a 27% reduction) over the past decade, and the City's current staffing levels (approximately 5,400 FTEs*) are equivalent to those in the late 1980s, when San Jose’s population was about 750,000. These ongoing deficits have also forced the City to seek concessions from its employees, most notably in FY 2011-12, when every City employee (including the Mayor, Council and executive management staff) took a 10% reduction in total compensation to minimize layoffs and service cuts.
Without fundamental changes, San José residents are facing the prospect of even more devastating cuts in the years ahead. As a result, Mayor Reed and the City Council continue to pursue much-needed Fiscal Reforms to ensure that the City can continue providing basic public services to its citizens.
San José's structural budget deficit is the result of an unsustainable cost structure in which the the City’s expenses have been growing much faster than its revenues.
In particular, personnel costs (which includes salary, retirement and health care) have grown dramatically. Over the past decade,the average cost per employee has increased by about 85%, even though General Fund revenues have grown much more slowly and the City's workforce has shrunk significantly. Read more about increasing employee costs.
This growth has been primarily driven by the escalating cost of retirement benefits. In FY 2011-2012, the City's retirement costs will reach $245 million - more than three times what the City paid a decade ago. Retirement benefits now cost more than 50% of base payroll and consume more than 20% of the General Fund. Read more about the city’s pension problems.
Other factors that have exacerbated San José’s structural budget deficit include:
Maintenance costs for new city facilities
Operating costs have increased by more than $20 million per year due to extensive investment in community centers, libraries, parks, transportation infrastructure, and other facilities during "The Decade of Investment."
The economic downturn
While the roots of San José’s fiscal problems go back many years, the global recession has increased the severity of recent deficits. Property tax revenues and sales tax revenues remain below 2007-2008 levels and the City has had to make even larger payments into its pension funds to make up for recent market losses.
State budget takes
The State of California has repeatedly taken, or held onto, many of San José’s most critical revenue sources, including the city’s share of sales tax, gasoline tax and vehicle license fees. Over the past decade, the state has taken hundreds of millions of dollars from the City of San José.
Office of Mayor Chuck Reed
200 East Santa Clara Street San José, CA 95113
tel. (408) 535-4800 fax (408) 292-6422 mayoremail@sanjoseca.gov
The City of San Jose is committed to open and honest government and strives to consistently meet the community’s expectations by providing excellent service, in a positive and timely manner, and in the full view of the public.
- February 29, 2012