Government

Santa Fe faces a budget deficit and an unpopular surplus

Gerry McDonald

City officials in Santa Fe, New Mexico, are looking for creative solutions to overcome a significant budget deficit while still providing funding to start new programs and address public outcry over fee hikes.

 

As the Santa Fe New Mexican reported, city officials need to reconcile an $18 million deficit in the operating budget for the fiscal year that begins in July. The city was already working on overcoming a $15 million shortfall when the need for an additional $3 million was discovered due to poor funding practices for regular maintenance.

 

In an interview with the New Mexican, City Finance Director Oscar Rodriguez explained the $15 million deficit is a result of a decline in tax revenues that began in 2008. As the city has not raised taxes or made wide-scale cuts to services, the deficit has grown annually. Previous attempts to balance the budget, including internal cuts to management positions, employee benefits, maintenance, technology upgrades and construction, have been inadequate to overcome the shortfall, Rodriguez said.

 

Additionally, Rodriguez said the city cannot continue its previous practice of paying for infrastructure maintenance, such as street paving and building repairs, by taking $3 million annually from the capital improvements fund. As this fund was not designed to pay for regularly recurring expenses, Rodriguez convinced the city council to discontinue this action, but this has added to the city’s current deficit. Santa Fe city officials are proposing overcoming the budget deficit by tapping into a water division surplus.

A contentious surplus

In order to address the $18 million deficit, Rodriguez presented the city council with a new budgetary framework that would increase taxes and fees while also tapping into a large surplus in the city’s water division, which was created by increased water rates in the last few years and is projected to be $94 million.

 

Rodriguez’s plan proposes to address the deficit through $3.8 million in unspecified new taxes, $4 million in unspecified spending cuts, $2.5 million in increased debt collections and fees, and $1.5 million in revenue from existing taxes at existing rates. The rest would come from the water division’s surplus, which was also aided by the sale of $80 million in government bonds two decades ago so the city could purchase the water system and make it publicly owned.

 

However, that surplus has raised some public ire. When the bonds were issued, many elected officials touted the municipalization of the water system as a way to make future rate hikes unlikely. Yet the council has passed several rates hikes over the years and used those funds to bolster the general fund budget, leading to a series of public protests from rate payers. According to the Albuquerque Journal, Santa Fe’s water rates are among the highest in the country.

 

Finance Committee Chairman Carmichael Dominguez also called the practice of transferring funds from the water utility to cover non-utility expenses unsustainable. However, Rodriguez argued the practice is an acceptable interpretation of a gross-receipts tax revenue provision voters have previously approved that would allow the council to create revenue for the general budget through a fee on the water division. As the Journal reported, the new framework would impose a franchise fee on the water division of $7.9 million, an increase from a $4.7 million fee imposed previously.

 

Further complicating the issue, Mayor Javier Gonzales has publicly expressed the desire to create a “Verde Fund” from the water division’s surplus. This $50 million endowment fund would be used to finance programs addressing climate change and child poverty. As the Journal reported, the mayor has originally proposed taking this $50 million from the water division’s reserves, but is now proposing tapping the gross-receipts tax, which could make balancing the general fund budget more difficult.

 

“The point of the Verde Fund was not to do something with the excess cash that was available in the water fund, the point was to put money where our rhetoric has been,” Gonzales told the Journal.

 

How Questica can help

Drafting a city budget is a complex act of balancing not only current spending needs with existing revenue, but planning for initiatives that are important to elected officials and the general public. In order to make more informed financial decisions about allocating funds or raising fees, municipalities need to have access to strong data analysis and forecasting tools.

 

With Questica’s web-based software, city governments can replace inefficient spreadsheets with a tool that allows for increased communication, transparency and unlimited multi-year forecasting of unlimited hypothetical budget scenarios. With specific platforms designed to manage operating and capital budgets, as well as salary and position planning and performance metrics, Questica combines all budgetary data into one streamlined and comprehensive solution.

 

Cities like Santa Fe that are balancing citizen concerns with budgetary deficits and new spending initiatives should contact Questica to learn how public sector budgeting software leads to sound management of the complex budgetary decision-making process.

FacebookTwitterEmail