City to start making reductions across board

Increasing pension costs, possible loss of Measure G creating deficit 

WATSONVILLE — After a few years of steady growth the City of Watsonville will have to start chipping away at a predicted deficit that could force several changes at multiple departments across the city.

Staff at Tuesday night’s City Council meeting presented a somewhat gloomy outlook for the next five years. Growing pension costs, the possible loss of Measure G funds and a “flattening” in tax revenues will all create a deficit between the city’s expenditures and revenues.

As a way of offsetting the deficit for fiscal year 2019-20, city staff proposed the freezing of several positions — Assistant City Manager and Division Fire Chief among the biggest — in different departments, restructuring the Contigo Program and Neighborhood Services and funding the Police Activities League entirely through Measure G, a half-cent sales tax that will sunset in 2021, barring an extension by voters. 

The changes would create a savings of $1,031,579, according to city staff.

The council will make a final decision on the budget at a meeting on June 25.

“Any reduction is going to be painful,” said Administrative Services Director Cindy Czerwin. “We’re trying to make the reductions as slow and as less painful as possible.”

The California Public Employees’ Retirement System (CalPERS), which manages the city’s pensions, is faced with an imbalance in its fund, paying out more in benefits than it is collecting from workers’ contributions.

As a result, the agency announced in late 2016 that it would lower its discount rate from 7.5 percent to 7 percent over a period of three years, which means government agencies and other organizations that contract with CalPERS must pay more into the fund to address the imbalance.

The increases in the general fund alone are expected to cost more than $10 million over the next five years, nearly triple the cost from 2014-15. 

That number could rise if the discount rate continues to drop as it has in recent years.

“I think that it’s very likely that in two years from now I’ll be coming back to you and showing even a worse situation,” Czerwin said.

The tapering of tax revenues has also put the city in a tight spot.

Sales tax growth in recent years has been driven by automobile sales, a market which has steadily leveled out statewide. 

Without that boost the city has started to look for other ways to generate sales tax. 

City Manager Matt Huffaker highlighted the city’s focus on restructuring and rethinking its downtown to bring in more business, and, in turn, more sales and property tax. 

Huffaker also said the city should see a boost in tourism dollars when the 117-room Hampton Inn & Suites off Lee Road and a planned Hilton Hotel at the end of Main Street are completed in the near future. 

“Hotels do a number of things, they bring people into town that want to visit local restaurants and craft breweries and shop at local stores, but they also generate a bedroom tax,” Huffaker said. “We continue to put a major focus on economic development and look for those opportunities. Part of the challenge is many cities, for decades now, have been highly reliant upon sales tax, and that sales tax base is eroding as e-commerce and online sales continues to grow… It’s about thinking creatively about the types of businesses that will do well and working on ways to attract those businesses to Watsonville.” 

When asked by the city council how citizens can help generate more revenue for the city, Czerwin said extending Measure G would go a long way.

The voter-approved tax, according to an annual report from an oversight committee presented at Tuesday’s City Council meeting, generated roughly $3.9 million for public safety — 40 percent going to the Watsonville Fire and rest to Watsonville Police Department. 

“[Renewing Measure G] is honestly the biggest thing you can do right now for the city,” she said.


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