The city of Tracy will dip into its budget reserves and draw on Measure V sales tax money to maintain a balanced budget for 2020-21, with the expectation that the economy will bounce back soon enough to fund the projects that Measure V was expected to pay for.
City finance director Karin Schnaider reported on Tuesday that the city had expected to have revenue of about $87.4 million for 2020-21 before COVID-19, but the resulting slump in retail activity has put a dent in the sales tax the city collects. Sales tax accounts for the biggest share of the city’s revenue stream, about $37.9 million, including about $10.1 million from Measure V, the additional half-cent sales tax that Tracy voters approved in 2016.
Updated projections have sales tax dropping to about $32 million for the fiscal year to come. Once all revenue streams are added up, the city is looking at about $79 million in income, which is about $11 million short of what the city expects to spend.
Ordinarily, the city would draw upon its general fund reserve, which is expected to be about $32.7 million, but only about 10% of that reserve is available to help compensate for deficits. This year, city officials must consider spending cuts to keep a balanced budget.
In addition to spending $3.2 million from the general fund reserve, the City Council had already agreed to a hiring freeze, leaving 15 positions unfilled to save about $3.5 million. Putting off maintenance and replacement of city vehicles will save another $1.3 million. The council also previously agreed to cut back on consultant contracts, saving about $600,000, and cut another $200,000 that was to be spent on the Mayor’s Community Youth Support Network.
The discussion at Tuesday’s special workshop centered on where the city would come up with the other $2.2 million. Schnaider told the council that Measure V has its own reserve fund made up of money raised but not yet spent since 2017, adding up to about $14.1 million so far. If the city borrows money from that account, Schnaider said the city should also commit to rebuilding the Measure V reserve within two years, and the general fund reserve within five years.
The alternative would be further cuts to city jobs, which would in turn result in cuts to city programs for seniors, youths and teens, and also reduced services at city offices and reduced maintenance for city utilities. City Manager Jenny Haruyama added that the majority of the city’s personnel costs go to public safety, which is not immune to cuts.
Measure V money has been directed toward big projects, especially Legacy Fields and the Ellis Aquatics Center, but the aquatics center in particular keeps getting more expensive even though construction has yet to begin. In November, the developer of Ellis, The Surland Cos. LLC, showed the city concepts that could cost anywhere from $54 million to $130 million, depending on which features the water park would include.
Under a development agreement between Surland and the city, Surland would put up $10 million toward the water park and the city would pay the rest.
Former planning commissioner Pete Mitracos told the council that the city had an opportunity to reevaluate the budget for that project and consider building it independently.
“I think that our staff can deliver a swim facility for $40 million. The response will probably be, ‘What about the development agreement?’ Well, let me point out to you that the 2018 development agreement has been invalidated by the Superior Court of California,” he said, referring to a lawsuit filed by his wife, Mary Mitracos, and local attorney Mark Connolly, that challenged the validity of that development agreement. A San Joaquin County judge ruled against Surland and the development agreement in February.
“Because of that, the development agreement has to be renegotiated, which opens up the entire development agreement,” Pete Mitracos said. “The prudent thing to do would be to look at that budget again and take that swim center back under the city’s umbrella. Not a for-profit developer.”
Council members were hesitant to make cuts to jobs, but they also wanted more details on how and when Measure V money would be spent. Councilman Dan Arriola said the council should see timelines for the Legacy Fields and aquatics center projects and would need assurance on when future city revenues would reimburse the Measure V reserve account.
“If we are going to be touching Measure V, which unfortunately that seems to be the most efficient budget approach at this time, … I would like to thereby see a new timeline for Measure V,” he said, “with the projects we had previously agreed upon I believe earlier this year, or the end of last year, and basically demonstrate that commitment to our community, that we still remain committed to amenities, but provide a more realistic timeline given the budgetary circumstances that we’re in.”
Mayor Pro Tem Nancy Young cautioned against drawing money from accounts that will need to be replenished as the city balances future budgets, especially because the effects of COVID-19 will affect the city’s income and spending well into the future.
“What are we going to do beyond this? I know we have a strategic team that we need to activate, but we need to deal with reality and stop acting like we’re in a bubble, whether it’s an election year or not,” Young said. “We need to deal with what are we going to do going forward for the health of our community, whether we can get more income in, however we need to do that, but we need to look at it realistically.”
Haruyama will use the council’s recommendations to finalize the budget, as well as create a timeline to complete Measure V projects and repay money to the Measure V reserve account.