The Turlock City Council will have some hard decisions to make in the coming weeks, as the City prepares for a budget shortfall of $4 million or more in fiscal year 2020-2021.
City Manager Toby Wells and the City’s finance staff painted a bleak picture of Turlock’s finances during a budget workshop held May 13.
As of May 8, the City of Turlock was expected to be down $1.2 million in sales tax revenue alone in the coming fiscal year, as most businesses in town have shut down as part of pandemic health orders. All other sources of revenue — except for property taxes, which is expected to be up by 3.2% over last fiscal year — are projected to decrease. Along with the 10% decrease in sales tax revenue, hotel/motel taxes are projected to be down by 14% ($164,000), charges for services including recreation programs and penalties down by 7.2% ($192,415) and business licenses down by 13.7% ($100,000), among other revenue sources.
Along with the revenue decreases is an expected $1.6 million increase in expenses, mainly related to employee retirement and healthcare costs.
The hardest part of putting together a budget for fiscal year 2020-21, said Wells, is the fluidity of the current economic situation.
“Projections are always a challenge and this year it’s extremely challenging projecting revenues, primarily because this is something we haven’t seen before. We haven’t seen a situation that impacts so many segments of our economy in this global perspective,” said Wells.
The financial challenges Turlock faces looking forward come at a time when the Council was hoping to be able to reinstate staff and services that were cut in last year’s budget.
The Council adopted a budget for 2019-20 that saw a drastic tightening of the City’s financial belt and significantly impacted what services are provided to Turlock residents. Last year’s budget defunded 16 vacant positions and cut public safety overtime budgets, allowing for fewer police officers and firefighters on duty on a weekly basis.
When it was adopted, City department heads said the cuts wouldn’t be sustainable as safety equipment would eventually need to be replaced and public safety staffing wasn’t optimal for a city as large as Turlock.
“It’s no secret that the City has faced significant financial challenges in the past several years. This year…in through February the City was doing a fantastic job of managing a budget. The staff that I’m looking at and the rest of the team have done an outstanding job of managing the Fiscal Year ‘19-20 budget that, if not for COVID, would be in a really, really good position. The revenues were up, expenditures were down and it was tracking in a very good position through February, before the whole world changed on us,” said Wells.
The City of Turlock staffing had a 10% vacancy rate before COVID-19 started and over the past few months the City has made changes with its part-time employees.
The City’s General Fund Reserve is not able to shoulder the financial burden to make up the shortfall.
The Council has been spending down its reserves over the past several years and now it’s at a historically low point. General Fund Reserve (not including mandated funds for employee sick and vacation time) is estimated to be $5,844,803 by the end of the current fiscal year on June 30, which leaves a $655,197 gap for the $6.5 million in reserves the City of Turlock is required to have under Resolution 2011-123.
Wells asked the Council if they would consider amending the resolution mandating a minimum General Fund Reserve of $6.5 million (15% of overall budget) to something closer to $5.5. million (13%) or a certain percentage, rather than an amount, and use some of the reserve to cover the budget shortfall.
“Where this budget is today, with the percentage of vacant positions, doing more with less is not an option any longer. This is doing less with less,” said Wells. “If the direction is a balanced budget for Fiscal Year 20-21, using no fund balance, there’s no other option than reducing services, period.”
The majority of Council members were not in favor of raiding the reserve fund anymore than it already has been.
“We’re about to face a recession on top of all this. So, we need to figure out what that bottom line looks like without any additional help from the reserve because the reserve is really not that strong and we haven’t seen what this recession’s going to do to us,” said Mayor Amy Bublak.
“We took a hard line last year and I think we need to continue that this year,” said Council member Becky Arellano.
The Turlock City Council is expected to continue budget talks at its May 26 meeting, and possibly adopt a fiscal year 2020-21 budget at the June 9 meeting.