Sacramento city shortfall projected to mushroom to $200 million in five years

Sacramento's $58 million shortfall for next fiscal year is only the start of the city's budget woes: The gap between what the city takes in and pays out is forecast to become even wider over the next five years, requiring cumulative cuts of about $200 million, according to city officials.

The deficit – and whether the city has responded swiftly and managed money wisely – has become an issue as Mayor Heather Fargo seeks a third term in office.

The next mayor will lead the City Council as it confronts the red ink, sets priorities and makes hard choices – including deeper spending cuts, fee increases and little money for raises. Pressure will mount to grow the city's economy to ease the pain.

"A budget is the elected officials' way of charting the future," said Peter Detwiler, consultant to the state Senate Local Government Committee. "Whether that's money on neighborhoods, on downtowns, on public employees – those are the most obvious policy choices mayors and city councils make."

The city's general fund budget is $450 million. To close the $58 million gap, the city manager proposes to leave 338 positions vacant, cut nearly $6 million in services and supplies, generate some new revenue and use about $20 million in reserve funds.

Council members directed the city to keep public safety a high priority, resulting in cuts to the Police and Fire departments of 8 percent, while other departments took 20 percent hits.

Mayor Fargo said she is pushing the city manager to address the city's fiscal woes quickly, including evaluating all jobs, taking more cost-cutting measures, and deferring expenses that aren't essential.

She said she's focusing on ways to direct more money to the operating budget. For instance, Fargo said, at her direction the city will divert $1.7 million more in hotel occupancy tax revenue annually to the general fund instead of using it to more quickly pay off debts from a major expansion of the Convention Center.

Fargo said she is working to bring new green technology and medical businesses to the city, doing outreach with regional recruitment groups and pressuring the city's economic development department to make this a priority. She said she is pursuing an idea to form educational campuses in Natomas, downtown and Richards Boulevard.

"We need to talk about the stark reality of this situation," Fargo said. "We're going to have to look at everything."

Kevin Johnson, Fargo's primary challenger, declined a request for an interview for this story. Citing the reporter's role in investigations concerning Johnson, his political consultant, David Townsend, said the campaign would respond only to e-mailed questions to campaign staff.

Johnson has answered questions on the budget during the campaign. He has called for a thorough performance review of the city's books by an independent auditor. He also has criticized the mayor for what he called a lack of fiscal leadership.

"With a mayor who is very aggressive in terms of creating economic development in Sacramento, the sky's the limit," he said during a televised forum this month at the California Museum. "We've had tons of opportunities we've missed. I think the time now is to take advantage of those."

Johnson, a former NBA player turned developer and educator, has suggested that the city should have a new auto mall to produce revenue, an idea the city's economic development department has been pursuing. He has said his vision and contacts would help bring economic development opportunities – including former NBA player Earvin "Magic" Johnson, who has a $2 billion development investment fund.

Labor contracts raise costs

Like the state and other cities across the nation, Sacramento is struggling with the subprime mortgage meltdown and a worsening economy.

Russ Fehr, recently named city treasurer, said the budget crisis is caused by low revenue and escalating costs, much of that attributable to negotiated labor contracts. Sales tax revenue is below estimates. He said the downturn of the housing market and rising unemployment are likely to mean a significant slowdown in property and utility users tax revenue.

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