Clovis News

Towns' budgets suffer a squeeze

Selma's city budget has long been dependent on auto sales, which account for nearly half of its sales-tax revenue. So when car sales plunged, city officials realized late last year they had to make cuts.

But instead of slicing deeply into the city's $10 million budget, officials trimmed at the margins.

And now the city faces a financial crisis: Officials project a $1 million shortfall with two months remaining in the fiscal year -- and Selma has zero reserves. The city manager won't say specifically how he plans to make up the deficit, but says it will include borrowing.

A handful of other towns in Fresno County face similar problems -- though not as dramatic. Because they lack adequate reserves, officials in those cities are crossing their fingers and hoping their budgets will add up.

Cities are not required to have emergency funds, but experts say most set aside a sum that equals 10% to 40% of their general-fund budgets. Fresno and Clovis, for example, have healthy reserves.

"Virtually every city has reserves," said Michael Coleman, a fiscal policy adviser for the League of California Cities. "It's just like managing a household. You need to have some savings."

But Fowler, Parlier, San Joaquin, Sanger and Selma either have nothing or very little in their reserves. In the short term, this creates a cash-flow problem. In the long run, it could mean significant reductions to public safety, parks and other services.

Coleman said there are few options for cities that need money and don't have reserves. They can either make drastic cuts or borrow money.

View Towns suffering budget squeeze in a larger map

But borrowing is risky, Coleman said. Even towns that dip into funds set aside for future projects must repay that money with interest.

"You don't want to do that," Coleman said.

Selma City Manager D-B Heusser said his staff is developing a plan for dealing with Selma's deficit, but said he couldn't discuss details. Selma's finance director, Roberta Araki, said the city may in fact borrow from some of the city's special funds.

The Selma budget was cut by about $300,000 in November, but officials didn't start making more significant cuts until March -- months after the recession became official.

Selma could have made bigger cuts last year, Heusser acknowledged, but he said city officials were sure the economy was about to recover.

"If you say the sky is falling and it doesn't, then you've got egg on your face," he said.

The city has been forced to scale back work hours for employees by 10% to 50%. City Hall is shut down every other Friday, and the Police Department's records division is only open from 10 a.m. to 2 p.m. Monday through Thursday.

"We're cutting back on everything we possibly can," Araki said.

The city also accepted a number of early retirements, but so far has not laid off anyone.

Despite last year's deficit, Mayor Dennis Lujan said there was no way of knowing how bad this year would be for Selma's budget. But he said the city should have built up a bigger reserve in prior years. Selma used to have $1 million in emergency funds -- but it was all used to bridge last year's funding gap.

"I didn't think the bottom would have fallen out as quickly as it did," Lujan said. "Who's to blame? I don't know."

Coleman said cities shouldn't try to solve chronic budget problems with one-time fixes.

"The most responsible ... cities are realizing this isn't a short-term thing. They can't deal with it with temporary solutions like using reserves," he said. "They are realizing they have to make cuts in operations."

Kerman, for example, has a $4.4 million general fund budget and has $1.9 million in reserves. City Manager Ron Manfredi said he realized in late 2007 that the economy was taking a turn for the worse, so he implemented a selective hiring freeze. It's been a tough fiscal year, but he says that the city won't need more than $100,000 from its reserves to make up any deficits.

Cities that don't have reserves are in trouble, Manfredi said.

"I think it's a major, major problem because [the bad economy] is not going to go away in the next year," he said.

Coleman said he doesn't know of any other cities in California other than Selma that are facing deficits this fiscal year and are out of reserves. But it could be worse: Vallejo, for example, declared bankruptcy a year ago.

Cities should have serious policy discussions about building reserves so that they don't find themselves in crisis situations, Coleman said. But some Central Valley cities don't have policies to set aside reserve funds.

"It's difficult because you always want to spend more on more projects," said Ronney Wong, Fowler's finance director. "You never say, 'Hey, we've got a big pot of money left over' -- that never happens. It's a real challenge to set aside funds for a rainy day."

Fowler's original budget for this fiscal year projected revenues of $4 million, but they're closer to $3 million, Wong said. The city has postponed a number of capital projects and made other cuts. Its "meager" emergency fund of $165,000 might get used to cover any deficits this year, Wong said.

San Joaquin's city manager, Cruz Ramos, said the city doesn't have any reserves but also doesn't anticipate any deficits. She said the city has always had a "bare-bones" staff and hasn't had to make any major cuts this year. Ramos said she was too busy to talk about the city's finances in any detail.

Mayor Amarpreet "Ruby" Dhaliwal said the city has focused on digging itself out of past financial troubles and hasn't had the resources to build any reserves.

"We're doing a lot better than before," he said.

In Parlier, City Manager Lou Martinez said revenues this year have been much lower than expected, but he doesn't anticipate a large deficit. Still, he said, capital projects have been put on hold and "we're having to really pinch pennies."

He said the city doesn't have any reserves and doesn't have a policy for building such a fund.

Mayor Armando Lopez said the City Council hasn't had any discussions about building reserves because it doesn't have the sales-tax base to start saving money.

"We have a hard time just making ends meet," he said.

Last week, Sanger's finance director suggested borrowing $3.5 million to help solve the city's financial problems. Mayor Jose Villarreal and two other council members voted down the idea because they thought it was unwise, Villarreal said. But some borrowing may be necessary in the future because the city has no reserves, he said.

And as bad as this year has been, city managers in many Valley towns say that the next fiscal year, which begins in July, likely will be even worse.

"Our reserves are running thin," Villarreal said. "We find ourselves in a situation that is not good."