Modesto faces budget shortfall due to coronavirus. Here’s what could be cut
Modesto could reduce watering at many of its parks from twice to once a week from spring through fall, do away with 14 police officer and seven firefighters positions — which now are vacant — and slash the roughly $2.2 million the Police Department spends annually on overtime by nearly 40 percent.
These are among the cost-savings measures city officials are considering to close an estimated $20.1 million deficit in Modesto’s upcoming general fund budget, which they say has been devastated by the closing of much of the economy because of the new coronavirus pandemic.
But Modesto faces lots of unknowns as it puts together its 2020-21 budget, which starts July 1. That includes how long it takes the economy to recover as it eases out of the restrictions put in place to stop the spread of the virus and how much financial help cities, including Modesto, will get from the federal government.
Another unknown is just how big the revenue losses will be. While the city expects they will be substantial, it does not yet have solid numbers from the state. For instance, California reports sales tax revenue to its cities two months after the sales.
So city officials are preparing for the worst and hoping for the best. Reducing park watering, eliminating open cop and firefighter jobs and cutting police overtime were among the $10.9 million in reductions city officials discussed during the City Council’s Finance Committee budget hearings last week.
The bulk of those reductions includes eliminating 30 open general fund positions and cutting discretionary spending.
Now comes the real pain — finding the additional $9.2 million in cuts to balance the general fund. Those cuts could include layoffs, but city officials have not said how many and from which positions. But the Police and Fire departments make up about three-quarters of the general fund budget.
City officials have said they hope to avoid layoffs through negotiating concessions with the city’s labor groups. The concessions could include city employees deferring pay increases, taking furloughs and paying more toward their pensions.
“I would hope it doesn’t get there,” Mayor Ted Brandvold said in an interview when asked whether layoffs were a real possibility. “If all of us work together, it could be avoided. But that (layoffs) would be a last, last resort. It would be a complete failure on reaching an agreement on concessions.”
The final decision on how to balance the general fund rests with the City Council, and council members will offer their suggestions when they take up the budget in June.
For instance, Councilwoman Kristi Ah You asked at the budget hearings whether Modesto could close City Hall every or every other Friday, offer incentives for early retirements and save money through sharing work, such as code enforcement, with Stanislaus County.
She also suggested Modesto consider eliminating more vacant police officer positions and bring police staffing to its 2016 levels. While the City Council increased police officer positions from 218 to 240 that year at Brandvold’s request, the department has never been able to reach that number. It has fluctuated from 215 to 225 officers and currently has about 20 vacancies.
Pandemic costs Modesto $7M
City Manager Joe Lopez told Ah You that Modesto is looking into everything it can do to save money.
This drastically reduced general fund is part of the city’s proposed $443 million operating budget for its 2020-21 fiscal year. The general fund makes up about one third of the operating budget.
Unlike the other funds within the operating budget — such as water and waste-water, which rely primarily on revenue from ratepayers — the general fund and the economy are tightly linked. That is because much of its revenue comes from sales and other taxes. So when business suffers, the general fund suffers.
Budget Manager Steve Christensen said before the pandemic and California’s March 19 stay-at-home order, Modesto was expecting $146.2 million in general fund revenue for 2020-21. He said the city now expects $139.4 million, a shortfall of roughly $7 million.
Christensen said the roughly $20 million in reductions includes the $7 million.
The budget hearings included a long-range forecast of the general fund, which showed that even before the pandemic, Modesto’s general fund faced increasing annual shortfalls primarily because of rising pension costs and “unsustainable staffing levels.”
Labor costs outpace revenues
The city has had roughly roughly 1,200 full-time employees for at least several years but the cost of those employees, including salary and wages, has grown faster than the city’s revenues. The 695 full-time general fund employees will cost Modesto $103.8 million in 2020 dollars, according to the forecast.
Modesto also has $18.4 million in general fund reserves, but officials are considering using $6.5 million of it to help make up for the general fund revenue shortfall in the current budget. Christensen, the budget manager, said Modesto expects to lose $8.1 million in general fund revenue from the state’s March 19 stay-at-home order in its current budget, which ends June 30.
“The shelter-in-place order has had a huge impact on revenue sources for the city,” Christensen said as shopping malls, stores, restaurants and other businesses partially or fully closed.
He has said it would not be prudent to use reserves to help balance the 2020-21 general fund because there is too much uncertainty about the economy.
Help from CARES and HEROES?
But city officials stressed they will continue to look for ways to balance the budget with as little pain to the community as possible.
So while Parks, Recreation and Neighborhoods Director Laurie Smith proposed reducing watering at 64 of the city’s 76 parks, she expects that is a temporary fix and she and her department will look at other ways to save money and protect city parks. (The dozen other parks are watered by wells or the watering is paid through assessments paid by nearby property owners.)
And Mayor Brandvold said in an interview that while Modesto faces a difficult budget there is the potential for some help. That includes Stanislaus County giving some of the $96 million it received from the roughly $2.2. trillion Coronavirus Aid, Relief, and Economic Security Act to Modesto and other cities in the county.
While the CARES Act money cannot be used to make up for Modesto’s tax revenue losses, it can cover what Modesto is spending to deal with the pandemic, including the purchase of personal protective equipment and other safety measures as well as overtime related to the pandemic. Modesto is tracking those expenses but is not prepared to say how much they are.
The Democratic-controlled U.S. House of Representative on May 15 passed the $3 trillion HEROES Act. But the bill still needs support from the Republican-controlled Senate. While the CARES Act provided financial help for cities with at least 500,000 residents, which left out Modesto, the HEROES Act has financial help for smaller cities, including Modesto.
This story was originally published May 27, 2020 at 6:00 AM.
