Big deficits are on the horizon for the fund that supports the most critical municipal services in Manteca.

The fact the general fund that supports police, fire, parks, and streets is now on track to surpass a $6 million deficit this fiscal year due to the damage COVID-19 restrictions have inflicted was a key point made during an online question and answer session intended to clarify the city’s financial and accounting situation.

The live Q&A was conducted Wednesday by Manteca City Manager Miranda Lutzow and Interim Finance Director Stephanie ​Beauchaine.

Beauchaine stressed just because the City of Manteca is facing “accounting issues” that they’re working to rectify does not mean that financial issues aren’t looming.

In both  cases — funding deficits in specific accounts and the anticipated $6 million general fund shortfall — are expected to be covered by existing reserves. Beyond June 2021, however, deficit spending is likely to become unsustainable.

The current fiscal year revenue was based on forecasts made just as the pandemic hit in March. Given how the pandemic has created deeper economic impacts than experts projected as COVID-19 cases no are anticipated to be at a level to constitute a serious health emergency well into 2021,  Beauchaine cautioned that the picture that is emerging might not be a rosy one once clarity is achieved.

“We didn’t really speak to the financial situation or the position of the city at the last council meeting because we don’t have a complete financial analysis done at this point – we will have more information when we have our audited numbers,” Beauchaine said. “What we can tell you is that looking at your budget that was adopted in June – which is your provisional budget – and looking at the general fund which is the most important fund in the city because it’s unrestricted and that funds most of your public safety and other unrestricted needs, that budget was adopted with a $2 million shortfall and due to Covid we’re expecting to make additional adjustments during the midyear process that will bring that gap from about $2 million to more or less $6 million.

“A $6 million operating deficit isn’t really sustainable.”

While the accounting issues like an unreconciled ledger are going to be things that Beauchaine will work to correct, the shortfall that is likely coming because of the pandemic will be something that won’t be as easy for the city to rectify – even though they have the general fund reserves to cover that on an interim basis.

Kicking the can down the road and continuing to fund that deficit – which won’t be fully known until the tax revenue decline from the pandemic comes further into focus – isn’t something, Beauchaine said, that would be prudent for the city to do.

“The city has enough general fund reserves to cover that shortfall during the current year but as the city moves forward and if Covid continues – and at this point we don’t see any signs of the Covid situation changing – the city can expect to have shortfalls going into next year,” she said. “As a matter of practice, it would not be prudent for the city to carry a shortfall year-after-year using reserves to close that gap.

“Although we don’t have a complete analysis at this point, it’s very clear that the general fund has a shortfall and the city will look for ways to resolve that.”

One of the easiest ways for the city to close that gap will depend on the will of voters and how they ultimately decide the fate of Measure Z – a one-cent sales tax increase that would raise an estimated $10 million per year. It was projected at $12 million when the ballot analysis was penned, but sales tax is now down at least 17 percent in year to year comparisons.

While the city has been active in educating the public about where they could spend that money if voters approve the measure, Lutzow pointed out that by law the city is not allowed to lobby on behalf of the measure – choosing instead to use mailers to inform the public about the ways in which that money could be spent.

When pressed on whether the city is going back on its initial claim that the money that Measure Z would generate would not be used to pay salaries, Lutzow noted that the sales tax increase proposal was a two-year process and it was begun before Covid had arrived and decimated the financial outlooks of most municipalities.

Ultimately, she said, the city will follow the will of the community.

“At some point we might have said that it’s not going to be used for salaries, and if the community doesn’t want it to be used for salaries, that is definitely an option,” she said. “However, what I don’t feel like the community wants us to do that if we get to a point where we’re still going to continue to have these $6 million shortfalls and the public safety Measure M tax is bringing in lower revenues is get to a place where we’re laying off public safety officers because we’re not allowed to use any of that money on salaries.

“It’s really about identifying what the community’s priorities are, and that’s where we’re going to be spending the money.”

To contact reporter Jason Campbell email jcampbell@mantecabulletin.com or call 209.249.3544.