Most Peninsula cities, faced with budget deadlines this month, are balancing their budgets by cutting operation costs or services, tapping reserves, or hoping voters approve proposed tax increases and fee hikes.
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San Carlos, however, has taken a different route by focusing on outsourcing some services and marketing others to other cities.
The move has paid off. In a single year, the small city of 28,000 has turned a $3.5 million deficit into a projected $400,000 surplus for the coming fiscal year.
San Carlos’ four-step recipe includes contracting landscaping and maintenance services out to private companies for half a million dollars in savings, contracting police services out to the San Mateo County Sheriff for $2 million in annual savings, and agreeing to provide parks and recreation services for Half Moon Bay.
Finally, the city will end a 30-year partnership with Belmont’s fire department and instead outsource its department’s management to Redwood City, saving $1.5 million a year, said Brian Moura, assistant city manager. This fourth piece of the pie is up for approval by the city council on June 27.
While other cities have pursued some mergers and outsourcing with other cities, San Carlos has taken the approach to an extreme — and officials say they were forced to do so by an extreme situation. Police costs had gone up 20 percent a year over the past five years, fire costs had increased 30 percent and revenues had flat-lined.
After voters rejected four ballot measures that would have increased taxes to pay for fire, shuttle and other services, officials were at the end of their rope.
“You have to have a bit of political courage to take steps like contracting out your police maintenance,” Moura said. “It’s not something for the faint of heart.”
Vice Mayor Andy Klein said the city’s predominantly novice city council was able to “think outside the box,” adding that the reforms would not result in the scaling back of services.
“I think we are on the front of what is going to become a very common model for cities because no one’s rich anymore,” Klein said. “We’re just the first ones to do it.”
Peninsula cities face shaky financial futures
Other cities have avoided outsourcing services as they work to balance their budgets, but as a result arguably face more uncertainty than San Carlos.
Redwood City intends to surmount a $2.6 million deficit not only by slashing employee cost by 7 percent across the board, but by asking voters to approve new hotel and business license taxes, said Communications Manager Malcolm Smith. But in November 2009, city voters shot down a similar measure to increase the business license tax.
Belmont has cut $1.5 million through measures such as leaving staff vacancies open and trimming spending across departments by 7.5 percent, City Manager Greg Scoles said. But its $400,000 surplus and swelling reserves are largely due to stable income from property tax, which makes up about a third of the city’s general fund revenue, whereas many Peninsula cities rely on more volatile sales taxes.
Foster City, for example, although debt-free, faces a $1.2 million deficit thanks to fallen sales and property tax revenues, City Manager James Hardy said.
The city plans to use $2.6 million from its reserves to balance its budget this year. Luckily, it has impressive reserves of $19.4 million — probably the highest of any city on the Peninsula — amassed through years of conservative fiscal policy and careful investment, Hardy said.
“We’re fortunate for many years to have had balanced budgets without the use of reserves,” Hardy said, but “the challenge we will continue to have in using $2.6 million in reserves is that you just can’t do that year after year.”
— Niko Kyriakou
Cooperation pays off
Projected budget figures for San Carlos for fiscal year 2011-12:
General fund revenue: $24.6 million
General fund expenditures: $27.1 million
Net transfers in: $3 million
Proposed reserves: $7.4 million
Budget hearing: June 13
Source: City of San Carlos
This article was corrected Thursday, June 2, 2011. The original article said Redwood City intends to surmount a $2.6 million deficit not only by slashing employee salaries by 7 percent across the board. The article now states that Redwood City intends to surmount a $2.6 million deficit not only by slashing employee cost by 7 percent across the board ...