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March 11, 2009 > Union City Warns of Budget Cuts

Union City Warns of Budget Cuts

By Simon Wong

Union City's financial position is stable, but the city council will have to implement further cuts next fiscal year to offset declining revenues and avoid potential cash flow problems.

"When we lost the 911 Emergency Communication fee, we made adjustments in this fiscal year. Next year, we'll have to make those adjustments again. That, coupled with the fact that our expenditures will exceed our revenues this year, means we'll have significant cuts next year. Even though we might appear to be in a good position at the end of the second quarter [of FY 2008-09], please be mindful of what lies ahead," stated City Manager Larry Cheeves.

Property and sales taxes, the City's main sources of revenue, are of particular concern. While General Fund revenues are down a mere 0.10 percent over the same period compared with last year, it is a sign that the City is not immune from economic woe.

Although property tax collections rose 5.6 percent over the same period last year, the County Assessor forecasts they will fall to four percent by the end of this fiscal year though this could prove optimistic in a difficult property market. Original spending estimates were based on five percent growth. The City receives delinquent property taxes when foreclosed properties are sold. Non-payment of property taxes creates a cash flow problem rather than a revenue problem. Property taxes account for almost half of the General Fund's revenues.

Sales tax revenue increased 3.42 percent, year-on-year. Overall, this revenue stream is tentatively projected to meet initial budget estimates but Christmas sales tax receipts will not be known until the third quarter. Importantly, the festive season is the largest generator of sales tax than any other period. Continuing economic weakness means that sales tax revenue is likely to be lower than originally forecast.

Budgeted spending is expected to be on target at the end of the fiscal year but a 6.2 percent revenue shortfall is projected.

To close the gap, the City will draw down an additional $600,000 from the Reserve Fund which, fortunately, increased by $400,000 last year; in essence $200,000 as of June 30, 2009. This assumes that revised forecasts are realistic and accurate and spending is within budget.

No action is required at this stage. Staff will monitor the City's budget and inform the Council of any material developments.

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