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City Budgets Straining Under Economic Pressure

18 November 2008 No Comment

By Mateen Kaul  —

NEWARK – In a public forum Monday night, the city managers of Fremont, Newark and Union City detailed the stresses on their budgets because of falling tax revenues and the state budget crisis.

(Right to Left) Larry Cheeves, city manager of Union City, John Becker, city manager of Newark, Fred Diaz, city manager of Fremont, and Dominic Dutra, moderator, at a public forum in Newark on Nov. 17.

(Right to Left) Larry Cheeves, city manager of Union City, John Becker, city manager of Newark, Fred Diaz, city manager of Fremont, and Dominic Dutra, moderator, at a public forum in Newark on Nov. 17. Photo by Mateen Kaul

The city managers opened the forum with brief presentations showing how they were struggling to balance their budgets. All three have implemented belt-tightening measures and hiring freezes to try and trim expenses.

Fred Diaz, Fremont city manager, said the economic situation was so dire, it could be considered a “catastrophic emergency,” adding that the city of Fremont could conceivably dip into its $22 million fund reserved for disasters if the situation worsened. “What’s the use of all that money lying around if the salaries of fire and police officers are not getting paid?” he said.

The managers said the three cities’ main sources of revenue are property taxes and sales taxes.
Newark City Manager John Becker said the cities hire outside consultants to track sales tax from quarter to quarter, and it goes up and down with the economy. Property tax is usually slower to react, and has not gone down yet in the Tri-Cities area, the city managers said.
Diaz said the affects of the economic slowdown on buying habits would become clear in February, when sales figures for the Christmas season come in. The real affect of the mortgage crisis would not be seen in property tax until next October, he said. “I’m not optimistic,” he said, about the likely affect on city budgets.
Larry Cheeves, the city manager of Union City, said it was harder for a city government to cut expenses during times of economic hardship, compared to a private company. During a downturn, demand for a company’s product falls and so it could cut jobs and expenses, but demand for city services grows, he said.
The cities mainly spend money on fire and police services. Fremont spends 71% of its operating budget on fire and police, and Newark spends 61%. Figures from Union City were unavailable at the meeting.
Dominic Dutra, a former Fremont Council member and moderator for the evening, asked the panel what they thought of the 3 percent at 50 benefit, which allows officers to retire at the age of 50 with a pension equivalent to three times their number of years in the job. An officer with 30 years of service would thus be able to retire with a pension equal to 90 percent of his or her salary.
Becker said it was a big problem, but it’s one the cities could do little about since it was now standard in California. Not giving the benefit would put them at a competitive disadvantage when hiring police and fire officers.
However, the city managers said Fremont, Newark and Union City were not in the same danger as some other cities in Northern California, like Vallejo, which spent 80 percent of its budget on fire and police salaries. That city filed for bankruptcy protection in May in the face of falling property tax revenue and rising employee costs.
The state budget crisis has also affected the cities. Fremont, for example, lost $2.3 million in redevelopment funds due to state budget cuts, and Union City lost $1.6 million.
Dutra said the state budget had a structural deficit of $12 billion this year and it was expected to grow to $28 billion next year. The city managers felt there any solution to the deficit would require raised taxes and reduced spending.

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