RICHMOND -- Disappointing tax revenues and difficulty cutting the budget have forced the city to draw down its reserve funds to a level below the city's minimum reserve guidelines, jeopardizing its future credit rating and raising the specter of layoffs of some city staff.
"There will have to be significantly more revenues, which we don't anticipate, or significantly less expenditures to get our budget balanced again," City Manager Bill Lindsay warned the City Council last month.
The biggest reason for the shortfall was an unexpected 14.62 percent drop in property tax revenues last year, making Richmond the only city in the county to face a decrease in property tax revenues at a time when housing prices are on the rebound.
The drop has been linked to the August 2012 fire at the Chevron Richmond refinery, which helped drive down tax revenues by $6.1 million last year. Contra Costa County Assessor Gus Kramer said at the time that the refinery's value dropped by about $1 billion because the fire idled its No. 4 crude unit and resulted in decreased business income generated by the facility.
The city's budget has also been hurt by a drop in sales tax revenue streams, due to changes in state funding mechanism that tie them to property values and drove down revenues by $1.8 million below projections.
Additionally, Utility Users Tax revenue is expected to fall about $1.7 million short of estimates, a drop city Finance Director James Goins attributed to more efficient energy usage by residents and businesses.
It all amounts to $9.6 million less in revenue and a deficit of $7 million for the city, according to a staff report, with the shortfall being absorbed by the reserve funds. The reserves are now down to about $7.9 million, Lindsay said, roughly $2 million below the 7 percent reserve threshold set by city policy.
Richmond leaders stress that the challenge isn't just building back the reserve, but bridging the operating deficit in the future. Lindsay declined to eliminate the possibility of layoffs.
"It's speculative to suggest exactly how we're going to do this, but nothing is off the table," he said. "It's not a matter of finding $2 million, but a matter of finding $10 million for next year."
Barring an unforeseen change, Richmond faces the daunting task of shaving millions of dollars from an already lean budget. About 780 people work for the city today, down from more than 900 in 2005. The city as a whole was given a net assessed value of $10.89 billion, a decline of more than $1.86 billion, while every other city in the county saw an increase in assessed value.
Long time Councilman Jim Rogers, who was on the council in 2004, when a fiscal crisis led to hundreds of layoffs and shuttered buildings, said the city will have to "slim down some more," but hopes layoffs can be avoided in lieu of not filling vacated positions and finding other operations reductions.
In 2004, "we laid off roughly one-third of our workforce and closed libraries and fire stations," Rogers said. "But I'm confident that our staff is giving us accurate information and we can cut the deficit as intelligently as possible."
The city's total expenditures are already down from a high of $146.4 million in 2011-12 to $132.6 million today, according to Lindsay.
Since November, when Lindsay and Goins pushed department heads to reduce expenditures, the city has wrung $3.2 million from its budget. But not all departments achieved savings. The Fire Department saw its spending go up by $1.2 million since November, which Fire Chief Michael Banks blamed on a combination of short-staffing and injuries that forced his personnel to work more overtime.
"We thought we could get by with less and with new hiring, but that didn't transpire as quickly as I had hoped," Banks said.
Lindsay said staffing levels played a role in the increased spending in the Fire Department.
"They haven't cut down the overtime as much as we wanted them to do," Lindsay said. "They need to make a conscious effort to work on that."
Councilman Tom Butt said he is optimistic that revenues will recover.
"We can't forget that the Chevron fire played the biggest role in putting us in this situation," he said. "It devalued the refinery, and I think it devalued the rest of the property values in the city too, but the flip side is that we are going to climb out of that."
Lindsay said Chevron's proposed $1 billion refinery modernization project, which is currently under public review, could be a crucial component to restoring lost revenues and shoring up the city's budget.
"The additional investment will add to the property tax basis for the refinery, no question," Lindsay said.
But in the short term, the city faces additional pressing challenges. The council voted earlier this month to relocate residents from the Hacienda, a poorly maintained public housing project. If the Department of Housing and Urban Development doesn't agree to pick up the tab, the city could get stuck with about $700,000 in costs for that operation.