Novato expects $ 17million infusion to cover budget deficits

Novato’s dismal financial outlook has brightened with an estimated $ 17.5 million infusion that would not only cover the city’s deficits but could add new services as well.

The funds are expected to come from a combination of real estate sales and deals, past savings and an estimated $ 10.4 million from the latest federal coronavirus stimulus program, the American Rescue Plan, according to the city ​​staff.

City council voted 4-1, with Mayor Pat Eklund dissenting, at its April 13 meeting to allocate those dollars to a variety of uses, including the repayment of the $ 4.6 million in budget deficits forecast for the next two years; create an online building permit system; replenish the city’s reserves; and repay pension and benefit obligations.

The city’s finance director stressed that federal relief funds, while large, are a one-time windfall that would not cover ongoing costs or staff layoffs approved last year. However, she told the council that the money should “strengthen our financial base so that we are ready for the next emergency, economic downturn or any other event that will negatively impact the city’s finances.”

It is still not clear exactly how much Novato would receive from the US $ 1.9 trillion bailout and whether anything will likely be reduced if more agencies qualify for the relief, Cunningham said. The city will also be limited in how it can spend these federal dollars, such as not being able to use them to pay off pension or benefit commitments and having to spend all the money by the end of the year. calendar 2024.

Half of the federal payment could come in June and the other half is expected to arrive 12 months later, Cunningham said.

In view of this uncertainty, Eklund urged the council to put on hold any decision with these funds until this summer, when the city’s financial situation is clarified. One of the main concerns she raised was the city’s projected budget deficit.

The city is expected to end the year with a deficit of $ 2.5 million and end the 2021-2022 fiscal year with a deficit of $ 2.1 million. The deficit is the result of rising costs and reduced revenue streams resulting from the pandemic and the city’s pre-existing financial woes. Using those one-time dollars to pay off some of the drivers of that deficit, such as the bond debt incurred to pay off the city’s pension liabilities, would help the city in the long run, she said.

“What we’re doing is shutting down to deal with the deficit,” Eklund said at the meeting.

The April 13 council decision provided a roadmap for how the city intends to spend the $ 17.5 million, but staff and council members said there was room for flexibility.

“I’m comfortable with that as a starting point,” said Councilor Amy Peele.

The council plans to use these funds in several ways, including:

  • cover the city’s projected deficit of $ 4.6 million for the next two years
  • covering an estimated loss of revenue of $ 4 million due to the pandemic in the last half of fiscal year 2019-2020
  • use $ 250,000 to create an online building permit system
  • use of $ 350,000 for computer security upgrades, finance tracking software and hardware upgrades
  • the addition of $ 500,000 to the city’s pension trust fund
  • budgeting of $ 550,000 to cover building maintenance backlogs
  • replenish the city’s nearly depleted insurance reserve $ 1.2 million
  • pay $ 502,000 in unpaid employee benefits liability
  • reserve $ 3 million for emergency projects
  • using $ 125,000 for future redistribution

In addition to the US bailout dollars, the city received $ 5.6 million from the sale of the Hamilton Commissary’s 5-acre parcel to City Ventures LLC, which closed the escrow in March. The company intends to build 75 townhouses.

The city received an additional $ 1 million this year from the Buck Institute for Research on Aging under a prior agreement on the future development of the institute’s campus. A recent audit of the city’s finances for 2018-19 also found it had $ 889,500 in additional savings.

Pro Tem Mayor Eric Lucan said he would also be open to Eklund’s suggestion not to allocate the dollars until later. Lucan also advocated for using some of the money to leverage more state and federal grants that could be used for projects benefiting the city.

“We know there will probably be a lot of money for improved transportation,” Lucan said at the meeting.

The one-time funds come as the city works to finalize its 2021-2022 budget in May and June, which will come with its own set of challenges, even with the increase of $ 17.5 million, Cunningham said.

In addition to the uncertainties caused by the coronavirus pandemic, the city is also facing increased pension and benefit costs, upcoming work negotiations, a backlog of deferred building and facility maintenance, rising utility bills; and running a municipal government with 17 fewer positions as a result of layoffs and staffing. cuts last year. For example, the city’s unfunded pension liability payment is expected to increase by almost $ 620,000 over the next fiscal year to $ 4.2 million.

The city’s budget deficit is only expected to persist unless the city finds ways to bring in new sources of revenue, according to city manager Adam McGill.

Several are under consideration and some of them have already been approved. Novato voters approved a 2% increase in the city’s hotel use tax, also known as the transitional occupancy tax. In normal years, this should bring in around $ 400,000 in new annual and more expected revenue from hotel projects such as the Residence Inn. The downside: The city’s financial consultants don’t expect the hotel to recover from pre-pandemic activity until 2023, so revenues could likely be below normal, Cunningham said.

The city’s approval of a Costco gas station at the Vintage Oaks Mall last month is also expected to generate $ 100,000 in new sales taxes in the next fiscal year, assuming it is built by this year. .

McGill said the council may also consider placing a sales tax measure on the ballot in 2022. The city had a half-cent sales tax from 2010 to 2016 as part of Measure F, voters choosing to extend the tax for 20 years under measure C in 2015, but under a reduced rate of a quarter of a cent. Novato has since exhausted all of its F measure revenue.

Council members said last week that the budget should also include funding to address homelessness issues, pay off the city’s pension liabilities, increase staff in finance and community development departments. of the city and other problems.

City council is scheduled to hold a budget workshop at its May 11 meeting. Council will review the proposed budget on June 8 and approve it on June 22.


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