On paper, the city of Sacramento's budget for the fiscal year beginning July 1 looks a lot rosier than recent years. The $8.9 million deficit is the smallest budget gap the city has faced in the current economic downturn and, for the first time since 2008, no layoffs are being proposed.
But it isn't just this year that is worrying city officials.
City Manager John Shirey told the City Council on Tuesday night that the city is facing its own "fiscal cliff" in six years, when an increase in the sales tax rate expires and the city's required contribution to the state pension fund are expected to spike by as much as $17 million.
What's more, Shirey said the city faces an unfunded liability in retiree medical costs of $440 million, a number that is increasing by the day.
The city has already addressed cumulative deficits of more than $240 million over the past seven years, said Leyne Milstein, city finance director.
Those deficits are projected to continue, as the city grapples with increasing employee costs and modest increases in key revenue streams such as property and sales tax.
"For the first time in many years, we're actually showing revenue growth," Shirey said. "The bad news is that our growth is a lot slower and a lot less than our neighbors."
There was some good news provided in the budget.
City voters overwhelmingly passed Measure U in November, permitting a one half of one percentage point increase in the sales tax for the next six years. Under Shirey's proposed budget, the $27 million in revenue the tax increase will generate would pay for large restorations to public safety, parks maintenance and libraries.