Slowing property and sales tax revenue is forcing the city to implement a selective hiring freeze, delay allocating $2 million toward the Downtown/Capitol Avenue redevelopment plan and institute accounting changes to keep money in its general fund. Without the cost-saving measures, officials said, the city would have faced a budget shortfall this fiscal year and the loss of its entire $11.2 million rainy day reserve fund by the end of next fiscal year. Despite the budget crunch, Fremont's finances still are in much better shape than during the dot-com bust when it eliminated more than 200 positions and cut a fifth of its budget, officials said. The city has no plans to reinstitute rotating fire station brownouts, and already has filled 10 vacant firefighter positions and seven police officer positions. "I don't see any dramatic (service) changes," City Manager Fred Diaz said. Police Chief Craig Steckler said he has been asked to trim his budget by 1 percent this year, which could force him not to fill police officer positions that become vacant. Whether the city has to initiate more cuts could depend on the state, which, facing its own $14 billion shortfall, could choose to hold on to sales tax revenue usually passed along to cities. The city's next budget update, which could include additional
cost-saving measures, is scheduled for February. This year marks Fremont's second consecutive December budget surprise. Last year, one month after voters rejected a utility tax ballot measure, city leaders announced an unexpected $6 million windfall that was used in part to boost police and fire department staffing. This year's news that revenue is lower than expected comes six months after the city approved new contracts with all its unions, including 6 percent pay raises this year and next year for police officers and firefighters.
Diaz said he has no regrets about employee raises, which accounted for $1.9 million in new expenditures this fiscal year.
"(The city) entered into (negotiations) with the best information we had at that time," he said.
Diaz attributed mistakes in recent budget forecasts to a "volatile" marketplace. "I've never seen an economy so hard to predict," he said.
Property and sales tax revenue increased last year, but not at the rate city officials had projected. Slumping revenue growth at the end of the last fiscal year left the city with $2.4 million less than anticipated, according to a city report.
Property tax revenue, which constitutes about one-third of city revenue, was slowed by fewer home sales, stagnant home prices and increased property tax delinquencies, officials said.
Much of the sales tax reductions were related to the slumping housing market, Fremont Finance Director Harriet Commons said. Sales tax revenue was down for appliances, home furnishings and construction supplies, she said.
If revenue had continued to slump without the cost-saving measures, she added, Fremont's operating budget deficit would have been $11.4 million this fiscal year and $6.7 million next year.
Several of the budget-balancing measures are accounting changes. The city is postponing the transfer of $2.8 million from its general fund to its risk management fund and is delaying the allocation of $2.3 million for retiree medical benefits, a major unfunded liability.
The delay in funding $2 million toward the Capitol Avenue development won't prevent the city and the developer from moving ahead with facets of the project, Diaz said.
City Council members were not sounding alarm bells about the budget crunch at a Tuesday workshop. "This is manageable," Mayor Bob Wasserman said comparing it to the dot-com bust. "And the right steps are being taken to match it."
