Balanced on a pencil point

Ask Jennifer Hennessy to describe her mood as finance director for the city of Chico, and the flicker of a grin soon gives way to a look of concern.

“For people who like to plan things out, it’s very tumultuous right now because it’s so volatile,” she responded Tuesday (June 9), a week—almost to the hour—before her upcoming budget presentation to the City Council. “I think it’s the most volatile time definitely in my career in government and probably as volatile as any time.

“The nature of this recession is different than others. It’s not like when the dot-com bust happened. There was some trickle-down effect then, but this is affecting all sectors of the economy, so to get your arms around it and be able to predict is very difficult.”

City finances reflect this. Hennessy, with the approval of City Manager Dave Burkland, is proposing a budget for 2009-10 that balances on a pencil point: just $131,000 to spare off $48 million in expenditures from the general fund. Reaching that balance requires fund transfers (predominantly from road maintenance), further cuts in operating expenses and for revenues to match assumptions.

Along with the latter is another big unknown: what the state will do with its budget, which determines how much money the city will have to surrender to Sacramento. Possible scenarios range from the city losing 75 percent of its gas-tax share to Hennessy having to issue a $1.2 million “loan” check.

“What can throw a monkey wrench into the whole thing is what the state may do to us,” she said. She has previously said that, if the state uses Proposition 1A’s emergency provisions to borrow money from the cities, the cost to the city would most likely be in the neighborhood of $1.2 million and come from the emergency reserve. (For more on the state budget, see the related story here.)

Tuesday’s day-long meeting won’t focus too heavily on various contingencies, Hennessy said, “because we’re still building the plan; the information from the state is just a week old, so we’re still sorting out what the impacts would be.” She anticipates the council going over worst-case scenarios July 7, when it will vote on the finalized figures.

The city budget for 2009-10—general fund plus redevelopment funds plus capital funds—preliminarily totals $157 million. That number will go up after the fiscal-year closeout, once carryover balances from capital projects get applied. (FY ’08-09 roughly stands at $213 million.)

The numbers upon which the council will focus are $39 million and $48 million. Those are the projected revenues and expenses, respectively, in the general fund—that is, the funding for City Hall to operate its departments.

In order to bridge the $9 million gap between those amounts, Burkland and Hennessy propose several measures:

• diverting gas-tax money to the general fund, in the amount of $2.6 million;

• making transfers from other accounts, to the tune of $5 million;

• cutting each department’s expenses by an additional 3 percent, on top of the 7.5 percent approved by the council last summer.

Where would those cuts come from?

Hennessy explained that the city is saving money on fuel, thanks to gas prices that are lower than in 2007. That’s just one line item; a bigger one is outside contracting. Because construction has slowed greatly, city employees in building-related departments have gotten jobs previously outsourced by other departments, such as environmental reports and inspections on capital projects. Other examples include engineers taking on design work and building staffers overseeing improvements to city facilities.

“They’re working differently than they were when the housing market was going crazy,” Hennessy explained. “We’re being very strategic about how we assign staff so what they’re working on is a funded activity.”

As for the gas-tax transfers, which the city has made every year but one since 1993-94, Burkland explained that the money goes to street maintenance performed by General Services Department workers, as opposed to commissioning more comprehensive roadwork from outside contractors via Capital Project Services.

These moves dovetail with savings reached through renegotiations with employee unions. Each bargaining unit agreed to reduce its members’ cost-of-living allowances to either zero or 1 percent for two years. Health-insurance contributions will rise 6.4 percent, but all told Hennessy estimates a net decrease in costs of 2.5 percent.

As for revenue, she’s calculated a decrease of 6.5 percent, based on a combination of factors including the state’s sales-tax projections, economic forecasts, historical patterns and curves specific to Chico. Again, she stressed, this is a moving target.

“I do a lot of research on general economic patterns and indicators,” Hennessy said. “You’ll find just as many people saying the recession will end this year as in two years.”

That’s why, even though the city continues apace with 10-year plans, “projecting out beyond one year at this point is speculative.” The ’09-10 operating budget balances, but the following nine fiscal years’ don’t. “We just don’t know what the revenue picture is going to be like,” she added, “so rather than assume draconian cuts in expenditures, let the market do what the market is going to do and react.”

The presence of so much red ink is raising some eyebrows. Mark Sorensen, a planning commissioner and business owner on the board of the Chico Chamber of Commerce, wrote via e-mail after surveying the budget that “there are certainly a lot of negative numbers where there should not be negative numbers. And, I remain (for the fourth year in a row) skeptical of their optimism on revenues. Even if the state does not raid funds in one or more ways, I think that they are being optimistic.”

Burkland appreciates that concern but considers the projections “conservative” because “the assumptions considered even more of a reduction in our tax base” than the reports the city has received.

“I definitely respect the people in the community who are helping us look at this,” he said. “Our paid professional staff who look at all elements are coming up with numbers that we think are realistic. … I don’t think it’s responsible to overreact, but [instead] be cognizant and every day look over things.”

Councilwoman Mary Flynn goes a step further. A member of the council’s Finance Committee, she takes exception to criticism she and her progressive colleagues have received regarding the state of the city’s finances.

“When I was elected, I recognized there was certain power that went with the office, but I didn’t realize the power was great enough to create a global economic downturn,” she quipped. “This is a city issue, but also a county issue, state issue, national issue, global issue—so attributing this economic downturn to this council’s leadership is really misleading, and we need to keep that in perspective….

“The budget issue right now goes to the infinite. I don’t see a clear point in time where things are going to level out, so we need to prepare ourselves for that.”