(Sept. 11, 2002) -- In a businesslike but blunt memo to the Mayor and Councilmembers, City Manager Henry Taboada has described in sometimes stark terms his assessment of Council options for adopting the FY 2003 budget...and beyond.

Mr. Taboada mentioned the memo during yesterday's budget hearing. We post it verbatim in pdf form on a link below.

The memo comes against the backdrop of Mr. Taboada's coming exit by October 4, the result of a Council vote last week dismissing him.

"Regardless of the all the media attention, you have been presented a budget that is balanced and that maintains services at prior year levels. There is no deficit in the FY 03 budget to deal with," Mr. Taboada's memo says in introduction. Among its noteworthy points:

• A Refuse rate increase, proposed in the Manager's proposed budget. is not absolutely necessary in FY 03 ("the Refuse operation has sufficient resources to remain solvent for one more year") but if the Council doesn't adopt the increase in FY 03, "an even larger rate increase would then be required during FY 04, since resources by then will not be sufficient to maintain current service levels in the Refuse program." [At its Sept. 10 meeting, the Council gave first-reading voted approval for the rate increase, roughly $1.15 per month for the average residential customers. Final approval of the rate hike requires a second Council vote next week.]

• Mr. Taboada recommends the Council adopt the budget "as scheduled and as proposed" and in addition to extending a hiring freeze to include elected and appointed "non-City Manager" departments, his memo advises the directing staff to return in January 2003 "with a strategy to bring General Fund expenditures in line with revenues that addresses "the fundamental budget problem: the City's revenues are not keeping pace with its expenditures." [emphasis in original]

• Mr. Taboada's memo says bluntly there are only "three ways to solve the problem: (1) Raise revenues; (2) Reduce expenditures; or (3) A combination of the two."

• In a significant statement, City Manager Taboada writes: "...[I]n spite of the excitement over the numerous new developments recently completed or under construction, in truth, their combined financial impact on City revenues will not be sufficient over the next two to three years to close the budget gap."

• He immediately adds, "Let's also not forget that we have three more years of Utility Users Tax rate reductions to look forward to (FY 03, 04, and 05). Each percentage point reduction represents a loss of approximately $7 million. As a result, net revenue growth will be relatively minor in the next three years."

• On cutting expenditures: "[I]f only budget cuts were employed to close the estimated $56 million General Fund gap for FY 04, that would require a 16 percent reduction of each department's budget, including Police and Fire. If Police and Fire were excluded, then the non-safety departments would have to take a 42 percent cut; nearly one-half of their budgets and services would have to be eliminated."

• His recommendation: "Obviously, the solution will have to include some tax and fee increases combined with judicious expenditure reductions, over a period of several years, so as not to unreasonably impact services to the public. This can only be done in conjunction with use of non-emergency reserves. Use of non-emergency reserves will temper the impact of budget cuts on service levels while allowing for revenues to begin catching up to expenditures. I must caution you, however, that non-emergency reserves, such as those held in the Insurance Fund, must not be used to increase the budget. To do so defeats the purpose of any budget strategy which seeks to bring City General Fund expenditures in line with revenues..."

• In conclusion: "The budget is balanced. Adopting the budget, whether this week or next week, does not prevent you from reopening and amending it at any time...[T]he current City Council, and City staff, will have to exercise great self-control to ultimately achieve financial stability for the City."

The memo was cc'd to Assistant City Manager Gerry Miller, Deputy City Managers Christine Shippey and Reginald Harrison, and all Department Heads.