Friday, May. 16, 2008

Modesto's choice: Cut now or go bankrupt later

For the third time in four years, Modesto is facing a significant budget shortfall. We are not alone. Cities throughout California and the nation are facing difficult times, fueled by the foreclosure crisis. Vallejo has made recent headlines for considering bankruptcy, while Sacramento, San Jose and others are proposing substantial budget reductions.

Could Vallejo's experience happen in other cities? Regrettably, the answer is yes. To make sure it doesn't happen here we must understand our challenges and act to limit impacts on the services most important to our community.

The foreclosure crisis has hit our region hard. The tri-county area of San Joaquin, Stanislaus and Merced has been hit harder than most areas, with more than 2,000 foreclosures in March alone. Many of our neighbors are dealing with abandoned homes next door. Left untended, they devalue homes around them and become targets of vandalism and property theft.

Foreclosures have driven down consumer spending. When people buy a house, they purchase washers, dryers, furniture, landscaping and all the other things that make our homes livable. When home values are rising, they can use their home equity for big-ticket purchases such as cars and recreational vehicles.

In 2007-08, the impact of the housing crisis hit hard. Just two years ago, the city collected over $29.6 million in sales tax revenue and projected annual increases of 4 percent to 5 percent. Our budget estimated sales tax at $29.4 million for this fiscal year. Now, we estimate that we will end the year with slightly less than $27 million. Staff projections show next year it will be about $26.7 million.

Property tax revenues also have fallen. Homeowners unable to pay their mortgage also are unable to pay property taxes. With declining property values (about 30 percent countywide), there have been a staggering number of requests for property reassessments. The Stanislaus County assessor is anticipating a drop in property tax valuations of 4 percent to 8 percent. Our property tax revenue is expected to remain flat.

This council and councils before it have focused the majority of general fund resources on core services, specifically public safety. In the upcoming budget year, 69 percent of operating expenditures will go to police and fire department budgets. The remaining 31 percent must be spread thinly to provide vital services such as park maintenance, planning, and personnel and financial services.

That's why my state of the city address was titled "Keeping our Fiscal House in Order." Doing so requires discipline. We cannot continue to spend more than we take in. We cannot continue to provide every service that residents want. We must set priorities and we must, when able, fully recover the cost of doing business. This means asking hard questions about city programs and services: