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Municipal budgeting 101
A crash course to deal with housing crash impact
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Call it a crash course in Municipal Budget 101.

Fifteen Manteca residents who answered the call to help the City of Manteca find ways to bridge a budget deficit in the next fiscal year anticipated to hit $11.3 million by June 30, 2010 got a quick rundown on the nuts and bolts of municipal finance.

It included the state laws that restrict how general law cities such as Manteca can operate as well as what the city is up against in dealing with the economic slowdown triggered by the sub-prime mortgage crisis.

“It caught every city flat-footed about how hard and how fast this recession came,” City Manager Steve Pinkerton told the group at their first gathering Thursday.

The current adopted budget had a $7.3 million shortfall that was plugged in part by a $6 million loan from the bonus buck account. Bonus bucks are a discretionary fee paid by developers to secure residential sewer allocation certainty.

The city expected it would have to deal with a $7.3 million deficit in the budget year starting July 1. But after closely expanding revenue and expenditure trends in December, that deficit was projected upwards to $11.3 million.

“It is a moving target almost on a daily basis,” Pinkerton noted.

Pinkerton believes the city has taken steps so far through hiring freezes, golden parachutes for early retirement, non-paid furloughs and other moves that will effectively cover about half of the $11.3 million deficit. Now the city has to decide how to reduce services. That is where the committee comes in to advise what the City Council should do.

Manteca is a full-service city
Unlike municipalities such as Lathrop that contract out some of their municipal services such as police protection and garbage collection, Manteca is a full service city.

That means Manteca hires its own staff to man fire and police operations, public works (street and storm maintenance, infrastructure engineering, vehicle maintenance, and building maintenance), community development services, parks and street tree services, sewer and water service, garbage collection, golf course, library, and general administration.

Manteca, like all government entities, employs fund accounting.

Finance Director Susan Mallory likened it to setting funds up in “separate pots of money” to track resources for specific purposes. The source of the money determines how it can be spent. Each fund is equivalent to an individual business with a separate checking account. Manteca has 38 separate funds.

The general fund – where the deficit is expected to occur – is unrestricted and is not required to be put aside in separate funds but can be designated for a specific purpose. The general fund draws revenue from property tax, sales tax, business licenses, motel taxes, and utility user taxes paid by consumers of electricity, natural gas, and cable TV.

There are special revenue funds where revenues go for specific purposes and can’t be used for anything else. That includes the public safety tax, park grants, recreation assessment districts, landscape maintenance districts, and other accounts.

Capital improvement accounts consist of fees charged for specific purposes such as the gas tax, Measure K transportation tax, park fees, and such.

There are four enterprise accounts – water, sewer, solid waste and the golf course. User fees are charged for what it costs to provide the services.

There are also redevelopment agency funds that can only be used for specific purposes allowed by law such as eliminating blight, economic development and low/moderate housing.

All general taxes require a majority of voters to approve. Special taxes such as the public safety tax require a two-thirds vote. User fees such as for water can’t exceed the actual cost of the service. Development fees are based on cost recovery supported by a nexus study. Development impact fees are leveled to cover the cost of providing facilities to serve new growth and not existing residents. Any property related tax requires a majority vote of property owners.

Salaries & benefits account for 85% of municipal budget
Salaries and benefits account for 85 cents of every $1 spent in the $39.6 million general fund budget. Also, for every dollar in salary the city contributes 26.63 cents to the Public Employees Retirement System (PERS).

Fire and police services account for 75 percent of the city’s municipal general fund expenditures.

Sales taxes followed by property tax are the top two revenue sources for the general fund. Property taxes in Manteca did not drop in 2008 due to retail and business park construction but the city is anticipating a 15 to 20 percent drop this year. Sales tax dropped this past year for the first time in more than a decade due to softening consumer confidence.

It costs the city an average of $1,790 to provide services for a typical three person household. Taxes on a house with an assessed value of $250,000 results in $275 or 11 percent of the $2,500 in annual property taxes paid going to the city’s general fund.