After Years of Red Ink and Cuts, Many City Budgets Stabilizing

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After several years of red ink and wrenching cuts, the balance sheets for most Orange County cities, while not necessarily causes for celebration, seem to have at least stabilized, according to a Voice of OC analysis of city budgets for the 2012-13 fiscal year.

The majority of the county’s municipalities are projecting combined increases in property and sales tax revenues — the primary general fund revenue in most cities — ranging between 1 and 4 percent for the fiscal year that starts next week, the analysis shows. At the same time, some city officials are reporting that they have begun to reap the financial rewards on the expenditure side of the ledger that come from years of budget cuts.

“We’re looking very good,” said Steve Hayman, the city manager of Rancho Santa Margarita, which is projecting a small general fund surplus next fiscal year.

“We spent three years cutting to ensure that we did not have a structural imbalance to our revenue,” he added. “We believe things are turning around.”

But not every city in the county has such a rosy outlook. In fact, due largely to Gov. Jerry Brown’s successful effort to do away with redevelopment agencies, some municipalities are in even worse shape going into next year than they were during the depths of the Great Recession.

For the most part, though, city finances are expected to modestly improve along with the overall economy, said Anil Puri, dean of the business school at Cal State Fullerton.

“We are better off today than we were last year,” said Puri, who provides sales tax forecasts for local cities. He predicts a 3.3-percent average increase in sales tax revenue next fiscal year and says real estate prices are stabilizing after hitting their low point.

While additional sales tax revenue is expected in nearly every local city, about a third expect modest decreases in property tax revenue. The other two-thirds anticipate increases averaging almost 4 percent, as high as 15 percent in Dana Point, according to city budget projections.

Puri cautioned, however, that the European debt crisis leaves “a lot of uncertainty” about the U.S. economy.

And even if the overall economic tide does rise, not all boats are expected to rise with it.

In Cypress, “revenues are way down from what they were at their peak five years ago,” said Assistant City Manager, Richard Storey. The city’s projected growth in sales tax, 1.6 percent, is among the lowest in the county.

This coming year, Cypress plans to hold back significantly on infrastructure projects, spending about half as much on capital improvements as in the current year. Storm drain projects will face the largest decrease, from this year’s $7 million to slightly more than $800,000 in 2012-13.

The city’s industrial base doesn’t include major sales tax generators like car dealerships, Storey added. The city instead relies heavily on tax revenue from the construction industry. “We don’t see that turning around yet,” he said.

Stanton has also faced millions of dollars in cuts, which have forced layoffs and the shutdown of some parks. The city expects to bring in about $30 per resident in property taxes next year, by far the lowest amount in Orange County. The countywide average is around $250. Stanton also devotes more than three-fourths of its general fund budget to public safety, among the highest rates in the region.

“While the general economy is showing great signs [of] improvement, which manifests its way to cities. … it’s still tough out there,” said Steve Greyshock, a representative of the Association of California Cities — Orange County.

The end of redevelopment agencies was “catastrophic for many cities,” he added. Some cities relied on redevelopment funds to pay for salaries at City Hall.

A prime example of this scenario is Westminster, where officials established the entire city as a redevelopment zone. With redevelopment’s dissolution, the city found itself faced with a $10.5-million deficit because so many of its employees were paid with redevelopment funds. The result is a layoff of nearly 70 workers, including roughly a fourth of its part-time staff.

But by and large, cities that are not overly dependent on redevelopment, have a tax base that is growing modestly and keep costs under control should not only see stable budgets but also improving end-of-year fund balances, a key sign of a city’s overall fiscal health.

Ultimately, efforts in many cities to scale down in the wake of an economic downturn appear to have paid off financially, as difficult as it’s been to cut services like community events and youth centers.

“We basically made sure that we could live within our means,” said Hayman of Rancho Santa Margarita. “The city is in very good shape.”

You can reach Nick Gerda at ngerda@gmail.com, and follow him on Twitter: twitter.com/nicholasgerda.

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