The City of Sacramento is facing a budget deficit of more than $50 million in the coming fiscal year, according to information presented during a Jan. 23 strategic planning workshop with the City Council.
Over the past several budget cycles, the City’s finance department has projected a pending deficit as part of its five-year forecasts. During last year’s budget development, the City projected a $24 million budget deficit for fiscal year 2024/25, which begins July 1.
“With the increase of services offered over the past years – including the City’s ongoing response to the homelessness crisis – the City projects that expenses will surpass available funding in fiscal year 2024/25,” City staff wrote when the proposed budget was released last April.
Staff also noted at that time that the deficit would likely grow following contract negotiations with nearly a dozen recognized employee organizations.
To continue discussions about the City’s financial challenges, City Manager Howard Chan last fall held a priority-setting workshop for the City Council. Through that process the Council declared homelessness, public safety, housing and deferred maintenance/infrastructure investment as its top priorities.
City Express recently sat down with Pete Coletto, the City’s finance director, to talk about the upcoming deficit and what steps may be taken to address it.
Question: The deficit the City is facing for the coming fiscal year is substantial. How did this come about?
Response: The City in its annual budget forecasts has been projecting a deficit for some time now. This deficit is not due to one thing. Instead, it’s the result of multiple causes including inflation, increased pension liability and insurance costs, new labor agreements, expansion into new service areas and voter approved ballot measures that direct general fund spending.
Q: There hasn’t been a downturn with the overall economy. So why is the City in this position?
R: The City’s deficit is not due to a recession. This is a structural deficit, meaning the City’s expenses are outpacing its revenue growth, and it will need to be addressed by a combination of increasing ongoing revenues and reducing ongoing costs. It’s worth noting that Sacramento isn’t the only city in California currently facing this type of structural deficit. For example, San Francisco, Oakland and San Diego are currently facing similar deficits.
Q: Didn’t the City receive millions of dollars from the federal government during the pandemic? How does that affect the City’s financial situation?
R: During and following the pandemic, the City and Council made choices to provide as many resources as we could to our community. We wanted to be responsive to the needs of our residents and businesses, and we were. During this time, some programs and services were launched that did not have ongoing funding, and that also is having an impact on our current financial situation.
Q: City revenues have been increasing over the years. Also, the City sometimes has resources left over at the end of the fiscal year. Would that be enough to fix the deficit?
R: Unfortunately, no. We will have an update of City revenues in the coming weeks, but any expected gains won’t be enough to solve this problem. There also could be year-end savings that offset the overall deficit. However, those one-time funds do not address the long-term structural imbalance we are experiencing. The truth is, there is no quick fix for this, so we are working on a suite of potential strategies that will be presented to Council.
Q: So, what does the solution look like?
R: The path to achieve structural balance will likely be through a combination of cost cutting, increasing revenues and potentially restructuring service levels and the City as an organization. Departments are currently putting together cost-saving plans of various levels. Ultimately, it will be up to the City Council to decide which strategies they would like to employ to address the deficit.
Q: What are the next steps for this process?
R: The deficit will remain a primary focus for staff and Council in the coming months. City departments will continue to provide Council with presentations on their operational programs, planning and the deployment of strategic resources. The presentations are a follow-up to the priority-setting workshop held for the Council last September. They are designed to inform Council and the public about what each department does and how it uses its finite resources to meet the department’s goals and missions, some of which are mandated by law.
In late February, the finance department will have an updated picture of City revenues for the year, and we will be sharing that information with the Council. We also will be reaching out to the community for their feedback. Proposed budget development occurs in March and April. Budget hearings occur in May, and the budget is adopted by Council in June. These budget hearings are open to the public. They also are streamed online and aired on Metro Cable Channel 14 and 96.5 FM. We encourage everyone to attend, listen and participate in this process.
Q: On a personal note, you have been the City’s finance director for less than a year, coming to Sacramento from Alameda County. Is this what you were expecting when you took the job here?
R: Actually, it was. I read through several recent budgets from the City before I was hired, and the financial forecasts and challenges were clear. And as I mentioned before, Sacramento isn’t the only city in California currently in a structural deficit. What I hope I can bring to the table is a fresh set of eyes and a creative mindset to help find meaningful and lasting suggestions for closing this deficit. It is going to be difficult, but we must balance our budget and define a path toward future fiscal sustainability.
