Sacramento’s budget deficit may bring first layoffs in more than a decade
For the first time in more than a decade, the city of Sacramento may use layoffs to balance its budget.
Interim City Manager Leyne Milstein allegedly signaled this possibility to city employees in recent lunch meetings. While the city has resolved its budget deficits without layoffs since 2013, council members have not committed to the same outcome to address its $44 million budget shortfall this year. The deficit reflects a structural imbalance — rising expenses without matching revenue growth.
“It’ll be intense, and the decisions won’t be pretty, but we have to be responsible and adopt a balanced budget,” said Mayor Kevin McCarty last week.
Layoffs of city workers to address budget deficits are a seldom-used strategy in Sacramento’s history. In fact, the city’s only reported experience with widespread layoffs stems from the Great Recession — a severe nationwide economic downturn that began in late 2007.
The recession led the city to eliminate nearly 1,300 full-time positions from 2008 to 2013, according to previous reporting from The Sacramento Bee and city-adopted budgets.
“It was hard, and I have said that I never want to be in that place again where I have to look across the table and tell somebody that they’re being laid off,” said Milstein, the city finance director from 2008 to 2017.
‘We’ve never before laid off anyone’
Like cities across the country, Sacramento began experiencing the effects of the economic downturn in 2008. In February of that year, The Bee reported that the city was laying off 16 employees from the Development Services Department as it dealt with a $55 million budget deficit.
At the time, city officials said it was the first involuntary layoffs in Sacramento’s history.
“To my knowledge, we’ve never before laid off anyone,” said then-assistant city manager Marty Hanneman in a February 2008 article.
Layoffs continued for the next few years.
In June 2009, The Bee reported that the city sent out layoff notices to 168 people. Another 91 pink slips were sent out in June 2010.
These cuts affected “every single department,” said Milstein.
Among the hardest hit departments were police, fire, parks and recreation, code enforcement and community development. Other reduction strategies included closing pools and community centers, furloughs, reduced staffing at fire stations, fee increases, labor union negotiations and “golden handshakes” — incentivized early retirement.
“There was every tool you break out,” Milstein said.
The city slowly rebounded following a nationwide increase in revenues and the passage of Measure U, a half-cent sales tax approved in November 2012 to help restore personnel and programs slashed during the Great Recession.
“With that, we were able to restore core city services,” said McCarty, who was on the council from 2004 to 2014.
In July 2014, former City Manager John Shirey wrote that the city’s budget was the first in six years that did not “necessitate reductions in services, programs or employees.”
Shirey, who was city manager from 2011 to 2016, said much of his tenure was spent focused on ending the furloughs, improving staffing at fire stations and rebuilding the city reserves. The city had repeatedly drawn from its reserves fund, reducing it from 31% of general fund revenue in 2007 to just 6% in 2011, according to the non-profit Pew Charitable Trusts.
“You have to manage an organization with a reserve fund, and ours had dipped too low,” Shirey said.
The council has since adopted a policy that recommends the city maintain a minimum reserve fund of 10% of the general fund revenue. Last year, the reserve fund was approximately 9%, or roughly $75 million.
‘Lack of self-discipline’
Unlike during the Great Recession, the city’s current financial problems do not stem from a nationwide fall in revenues. Sacramento is now in a structural deficit, meaning its expenses are growing faster than its revenues.
“It has a spending problem, not necessarily a revenue problem,” Shirey said. “So that’s not driven by economic factors in the overall economy. That’s from lack of self-discipline.”
Milstein and McCarty agreed with Shirey’s “spending problem” assessment, with the interim city manager saying the city must “realign its revenues and expenditures.”
“I don’t want to pick any winners and losers, but we need to be very mindful that we need to focus on the core city services with our existing budget,” McCarty said.
Those “winners and losers” will become clearer Wednesday, when Milstein releases her spending plan to address the city’s budget shortfall. Last month, the city released a list of department budget reduction strategies including fee increases, dozens of employee layoffs and eliminating more than 100 unfilled positions.
There are even more looming threats to the city’s finances.
President Donald Trump’s administration is threatening to cut federal funding to sanctuary cities like Sacramento. The city’s potential funding at risk totals up to roughly $450 million, according to a recent city staff report. There have also been increasing fears of an upcoming recession by economists in recent weeks.
“I hope that we don’t see a double whammy here, but you can help and think that’s a possibility with what’s going on nationally on a daily basis,” Shirey said.
