Facing $50M budget gap, Sacramento city manager freezes hiring, travel, office supplies
Faced with a $50 million budget shortfall next year, Sacramento City Manager Howard Chan has instituted freezes on hiring, travel and office supplies.
“This deficit is not due to an economic downtown but is caused by an expansion of city services and an increase in overall costs that cannot be sustained by forecasted revenues,” Chan wrote in a Jan. 12 email to his executive team, obtained by The Sacramento Bee. “Departments have been directed to prepare reduction plans as part of the budget process.”
The email goes on to direct the supervisors to extend a citywide hiring freeze, which began in 2020, indefinitely. Exceptions to that freeze do occur, such as when the city hired a new finance director last year, but they require Chan’s approval.
The fiscal year 2024-25 deficit is double the amount Chan projected it to be when he released the estimate last time, in the spring. That’s due to new city services, including homeless services, according to a city blog post.
The city in the spring had roughly 1,100 homeless shelter beds and now, at the council’s direction, has about 1,300 — all of which are typically full, with over 2,400 people on a wait list. The city spends between $40 million and $50 million annually on the shelter beds — about the same amount as the projected deficit.
The email also directs supervisors to immediately suspend all travel or training using city funds. Travel that has already been approved must be reviewed by Chan’s office.
The email also states: “Minimal office supplies shall be ordered and kept in stock. Each department’s purchasing managers should heavily scrutinize all office supply orders to ensure need and use supplies before additional supplies are ordered.”
‘What you all approved we can’t afford’
Chan’s directive indicates that the council’s decisions to approve more generous labor contracts and open more homeless shelters without making cuts elsewhere, such as to the $228 million police budget, is sending the city into the red.
“What you all approved we can’t afford,” Chan said during Tuesday’s council meeting, referring to the new labor contracts. “It’s not sustainable ... These are not going to be easy discussions to be had. But if we do this collaboratively with the council, labor partners and departments, we’re going to end in a place where we can minimize as much pain as possible.”
The new police officer contract includes 6% raises this year and 4% raises next year. The new Local 39 contract, which covers the lowest paid city workers, includes the same raise percentages as the police contract.
To figure out what to cut, Chan asked department heads make presentations to the council, and also submit written “budget reduction strategies” to his office.
The directors of the public works, utilities and Youth Parks and Community Enrichment departments presented to the council Tuesday, painting a bleak picture that resources are already stretched then in those areas.
“We are on the precipice of a crisis that we have no clear indication will be solved soon,” said Pravani Vandeyar, director of utilities, referring to a $2 billion deficit in deferred maintenance for utilities infrastructure in the state’s oldest city.
Chan suggested one cut the council could make is to increase the amount of time it takes to fix potholes and broken streetlights.
“Maybe in this current environment we respond within a week,” Chan said. “It’s a creative way to right size our budget. In lieu of having, God-forbid, reductions where people will be walked out the door, which I hope will never happen again because that was very painful.”
The city’s average score on the Pavement Conditions Index is “fair,” a city official told the council. In less than eight years it could be reduced to “poor.”
Councilwoman Lisa Kaplan said she’s concerned about any cuts to public works.
“I have pause for looking at how we cut in public works because that is the core of what we do,” Kaplan, who represents North Natomas, said. “We aren’t even getting to all our potholes. That’s doing a disservice.”
The city received one-time funds from the state and federal government during the coronavirus pandemic, which under Mayor Darrell Steinberg’s leadership it largely allocated toward new services in disadvantaged neighborhoods, but that money has run out, the blog post said.
Steinberg, typically an optimist about money, Tuesday suggested the city use other one-time funds to deal with deficit.
“There is no value in cutting things that are important and precious to the people,” said Steinberg, whose term ends in December.
Since Chan became city manager in 2017, he has not had to make significant cuts or layoffs, even during the pandemic. The city’s last large round of cuts was following the Great Recession. However with the pandemic moving many state workers out of downtown office buildings, parking revenue is way down, and the city is struggling to pay for the Golden One Center and homeless shelters.
The capital city is not alone. San Francisco, Oakland and San Diego are currently facing similar deficits, the blog post said.
After the meeting ended Tuesday, the council went into a closed session to discuss Chan’s performance as city manager. Chan, who also makes more than Gov. Gavin Newsom, has been asking for a raise to bring his base salary to $420,000 with 240 hours of leave time. The council did not make a decision Tuesday.
On the budget, the council will hear presentations from other city departments, including police and fire, in the coming weeks. City staff will update the projected deficit amount in late February, the blog post stated. In the spring Chan will present his proposed budget, and council will need to approve a budget by June.
This story was originally published January 24, 2024 at 10:33 AM.
