ESCONDIDO: Without drastic cuts, city would run out of money by summer 2012 Plummeting revenue blamed for 'biggest financial crisis ever'

North County Times

January 13, 2010

By David Garrick

Sales tax and other revenues are falling so much faster than expected that Escondido will exhaust its $27 million in remaining reserves by summer 2012 unless drastic cuts are made, city officials said Wednesday.

Those reserves include $8.1 million set aside to help build a downtown library, and about $17 million set aside for economic development projects including a downtown luxury hotel.

Because of the shortfalls, the city's budget subcommittee will meet Tuesday to begin crafting emergency cuts that will almost certainly include layoffs for a number of the city's roughly 800 employees, officials said.

City department heads have been asked for layoff suggestions, said finance chief Gil Rojas, who estimated that annual city revenue will dip below $69 million this fiscal year. Three years ago, annual city revenue was $87.8 million.

City Manager Clay Phillips told the City Council on Wednesday that it must act quickly to deal with "the immediate crisis," and that it would not be prudent to wait for the annual budget that will be adopted in June.

Councilman Sam Abed called the revenue shortfalls "the biggest financial crisis the city has ever seen."

When the current annual budget was adopted last June, general fund revenue was projected to be $72.9 million. Revised projections put the number at just over $66 million, creating a $6.9 million shortfall.

Rojas said the revenue shortfalls for this year would translate into even bigger problems for fiscal year 2010-11, which is now projected to have an $8.7 million deficit, and fiscal year 2011-2012, which projects to have a $6.8 million deficit.

If no cuts are made, the city will exhaust all reserves except the $17 million economic development fund by this June, and virtually all of the economic development money would be exhausted by summer 2012.

And Rojas said things might be even worse. He said the new projections estimated that sales tax revenue would dip 15 percent each year, but added that an extremely conservative budgeting approach might project 25 percent annual drops.

City officials closely monitor sales tax revenue because Escondido, which has nearly 20 auto dealers and the Westfield North County regional mall, relies on that money more than most cities to pay for police, fire, libraries and other services.

And sales tax has been falling faster and faster during the recession, with drops of roughly 20 percent when three-month periods are compared to the same three-month period of the previous year.

In June, Rojas projected sales tax revenue for the current fiscal year at $25.9 million. But on Wednesday, he said a more accurate prediction would be $20.5 million. That $5.4 million gap accounts for most of the new $6.9 million shortfall.

The rest of the shortfall was attributed to:

-- a $500,000 drop in franchise fees because of a dip in natural gas purchases;

-- a $163,000 drop in taxes generated by hotel bookings;

-- a $291,000 drop in interest earnings on city reserves;

-- a $494,000 drop in state revenue from vehicle licensing fees; and

-- a $134,000 drop in engineering fees.

The budget subcommittee, which includes Councilman Dick Daniels and Councilwoman Olga Diaz, will meet at 10 a.m. Tuesday at City Hall, Rojas said.