Beyond Budget 101

In my last blog post, I wrote about the City’s “Budget 101” workshop and the challenge of understanding how our city budget works.  (My thanks to the 40 community members who attended the session.)

 This week, I want to get specific about what I see as the biggest controversy in our current budget process: funding for Community Programs.

First a quick history:  For more than 30 years, the City of Santa Cruz --and the County of Santa Cruz and the other cities in our county-- have made grants to local human services programs run by nonprofit organizations. (For example: senior and family nutrition programs, child care centers, health clinics, homeless shelters, youth mentoring activities, family support programs.)

The basic ideas behind this funding are: 1) the “social safety net” for lower-income families and individuals is important to our community; 2) local nonprofit organizations can very efficiently provide many of these safety net services at a lower cost than if a government agency provided them; and 3) funding these agencies allows the combining of private funding, government funding from multiple sources and volunteer resources so the positive impact will be at a higher level.

Looking at the City of Santa Cruz budget history, the “General Fund” (local tax revenue) allocation for these Community Programs peaked at just over $2 million about 10 years ago.  Since that time the amount has headed downward in most years and the current budget allocation is about $1.1 million.

This year, the controversy has stemmed from two areas. The first, which I will mention only in passing, is that the process by which the funds are allocated is being reformed. The criteria by which these programs are being evaluated have been clarified, some new standards have been set, and there has been a bumpy effort to modify the process by which specific allocations are decided.  This change has caused anxiety among the service providers that receive these Community Programs grants. They correctly fear one outcome could be loss of funding for services for their clients.

While I have some concern with one particular step along the way in this reform process, I do believe the reform was needed.  I hope the City Council will continue to build on the good work done this year.  But for me, that controversy is now on the back burner.

In my view, it has been replaced by the controversial question of how much money the City Council should allocate in total for Community Programs.

Let me lay out the fundamental values that motivate me on this issue. I am a strong supporter of the local safety net—I believe the work done and the services provided are extremely important for a healthy community. (I have a personal history of working with several local safety net organizations.) I support keeping community funding at the highest level possible within the difficult constraints of a troubled city budget. And I believe that cuts to the Community Programs budget should be fair and reasonably proportionate to other cuts that the Council makes in other parts of our city budget. 

I believe some of my Council colleagues – those with a different take on this issue—are particularly focused on the fact that the City Council has pursued and, for the most part succeeded, in reducing compensation costs to employees by about 10 percent over the last couple of years.

My sense is that these Councilmembers believe they therefore are expected to cut the Community Programs budget by a similar amount this year.  I think they also believe that since we will be doing significant budget cutting later this year, we need to cut Community Programs funding now. I have to concede that these reasons sound fairly logical —but they sound a bit less logical and less compelling if one looks at the recent history of city budget cutting and city funding. Let me explain…

Since the 2008, the City Council has reduced the Community Programs budget by 38 percent. In 2008, the allocation was about $1.8 million. In 2011, the allocation was $1.1 million.  (Late 2008 was the time the Council began its latest and most serious period of budget cutting.)  In that same period, the city department that took the biggest hit was the Parks and Recreation Department.  The Parks expenditure budget was cut by about 19 percent over those same three years.  That’s a big cut—more difficulty and loss for the people working there than in any other city department and a real loss to our community. But it still isn’t nearly as large as the 38 percent cut from Community Programs.  The rest of city’s general fund expenditure budget was essentially not reduced at all during that same period. (Note: this essentially flat spending has made for very austere budgets during this period. The City has had to pay for major increases in pension and health insurance obligations while having practically no additional income.)

So what’s in store for the new budget year?  Some of my colleagues have proposed another 10 percent cut to the 2012 Community Programs budget.  In the mean time, the rest of the draft city general fund budget proposed by City Manager Martin Bernal shows a total increase of about 6 percent above the 2011 allocation. 

Now it is important to acknowledge that the city manager also recommends that we bring that down to more like a 2 percent increase during the course of the year. I think everyone on the Council understands that this “2 percent increase” level will be about where we land. So, when all is said and done, the new city general fund budget will be a bit higher than last year even if we reduce what’s currently proposed by those 4 percentage points. (And, again, that modest increase will be fully consumed by rising health insurance and pension costs.)

That sounds a bit complicated but the basic point is this: Community Programs—already the hardest hit part of our strained budget over the last few years—is being asked to take a bigger cut than the rest of the overall budget. Again.

Now let’s look at the city employee compensation angle of this issue.  Since 2008, a typical city employee has received one or two very modest increases in compensation and then, subsequently, took about a 10 percent cut. 

To keep it simple, let’s say typical employees have lost about 10 percent of compensation between 2008 and the present. This 10 percent cut has been painful and difficult for many employees. (This is not an abstract point for me since my wife’s employer recently cut her pay by 25 percent.)  But 10 percent is the typical cut for a city employee over the same period that Community Programs took that 38 percent cut I keep talking about.

No pay cuts for employees beyond this 10 percent are expected in the coming year. I want to repeat that because it is quite important: Employees have generally taken a 10 percent cut recently but there is no additional pay cut expected in the coming year beyond those already described.   Yet some now favor another 10 percent cut  to the Community Programs budget in the coming yearto make sure it appears that others are sharing the sacrifice at least as much as our city employees. 

However no additional cut is needed to ensure that appearance.  All we need to do is look at this simple comparison:

Since 2008, Community Programs             Down about 38%

Since 2008, Parks and Recreation Dept.     Down about 19%

Since 2008, City staff compensation         Down about 10%

Since 2008, City Net General Fund             Up about 1%

In light of this, why would it be necessary to cut Community Programs by an additional 10% to demonstrate that the Community Programs section of the budget is taking its fair share of cuts?   This is not a rhetorical question.  I am prepared to move away from my advocacy of a zero cut if a good case can be made that I have made an incorrect comparison.  I would encourage others to suggest better benchmarks to use in making budget comparisons if mine are not the right ones.

One additional point… As I mentioned earlier our City Manager has asked that the City Council adopt the budget he recently presented with the understanding that the deficit shown in his budget would be cut by about $1.6 or 1.7 million later in the year.  He has noted that our cash reserves are in good enough shape at this moment and that it’s not necessary to make any hasty reductions to his essentially “status quo” budget. 

If this is the case, I need to be convinced as to why the Council should single out the Community Programs budget as the one place we would make an immediate cut…while we wait several months to consider reductions in every other part of our budget.  There may, in fact, be a good answer to this question but I haven’t yet heard it in the council and community discussion.  I am open to changing my position if sound reasoning is offered.

These budget issues were initially aired out at the Council meeting on Tuesday, but the clock ran out and the issue was carried over to a future council meeting for additional input and discussion.  I encourage everyone in the community to stay tuned and join in the conversation.