Santa Ana officials this week gave city residents a first glimpse of something that might have seemed nearly impossible just a few months ago — a balanced city budget.
After spending the fall and winter mired in a $30-million budget deficit, the Santa Ana City Council was presented with a $196.5-million operating budget for 2012-13 that is balanced largely through the outsourcing of the city's fire department and negotiated concessions from police officers and service employees.
The Orange County Fire Authority's takeover of the city's fire department is projected to save approximately $10.5 million going into next fiscal year, and the union concessions will save about $10.7 million.
City officials are also expecting increases in sales tax revenue. New property tax revenue — estimated between $1.1 million and $4.8 million — will result from the elimination of the city's redevelopment agency, which was funded by capturing local property tax revenue.
However, challenges remain. Some of the union concessions, like payouts of police overtime hours and an overtime freeze, are only effective until the 2013-14 fiscal year. If the overtime costs return, they will cost the city an estimated $7 million and create a $2.3-million budget gap, according to the city's budget presentation.
Rising retirement costs and a state budget deficit — currently estimated to be $16 billion — must also be considered. City officials across the state have been highly critical of the state balancing its budget by raiding local funds, such as the dissolution of redevelopment agencies.
City officials will also have to adjust to delivering services with a dramatically lower work force than in years past. The city has reduced its workforce by 582 employees over the past five years, according to a letter from interim City Manager Paul Walters.
“We're not out of the woods yet,” Walters said.
Just last year, council members were advised to consider municipal bankruptcy when the city's unrestricted general fund balance — a $41.4-million reserve — was nearly spent. Other internal service funds that the city had been using to balance the budget were also shrinking, according to a consultant's report.
Most of the budget deficit can be traced to skyrocketing public safety costs and the revenue impacts of the recession. In recent decades, Santa Ana politicians cut deals with public safety unions that gave politicians a public-safety-first credibility. As a result, public safety costs rose from 50 percent of Santa Ana's general fund budget in the early 1980s to 60 percent by the 1990s.
In the last several years, the cost of public safety has consumed well over 70 percent of the general fund budget. Even with the cost-cutting measures taken, the budget for the next fiscal year is more than 72 percent dedicated to public safety costs, according to the city's budget presentation.
Council members expressed a mix of relief and continued resolve in reacting to the news that the city had pulled itself back from the brink of financial collapse.
“To be able to see a truly balanced budget, that's a relief,” said Councilman David Benavides.