The Westminster City Council Wednesday night approved a two-year spending plan that closes a $4.6-million gap for fiscal year 2013-14 largely by dipping into reserves and other internal funds.

But the budget does little to address a built-in or structural deficit that appeared when the city was hit especially hard by the statewide elimination of redevelopment agencies.

Using an unusual strategy that helped finance staff compensation but ended up crippling the budget, officials had declared the entire city a redevelopment zone, which captured additional property tax revenue to improve blighted areas. For years the city depended on the agency to subsidize staff time with $6 million per year in revenue.

Last year after the elimination of redevelopment statewide, the city faced a $10.4-million deficit and laid off 67 employees. City leaders are relying on future revenue growth to close the structural deficit.

The 2013-2014 budget does not call for any additional layoffs but trims $1.1 million from the deficit by reducing operation costs, eliminating vacant positions and shuffling around management duties.

With 25 percent less city staff than it had in 2007, the budget also moves $3.5 million from reserve funds to fill “front-line, worker bee” positions to maintain service levels and speed up response times on permits.

“We are coming out of the recession. Things are going slow, but at least we’re moving forward,” said City Manager Eddie Manfro.

While staffing in many departments is thin, Manfro said the city can continue to operate until more revenue starts coming in.

“The bottom line is we’re getting it all done. It’s tight, but we can do it at this level of staffing for as long as we need to,” Manfro said.

While revenues are improving and the city is doing considerably better than it was one year ago, city leaders have yet to articulate a detailed plan for closing the structural deficit, which is projected to deplete reserves within six years if expenditures remain at their current levels.

Since the Great Recession, the city has relied on one-time transfers and its reserves to cover its $1.5-million average annual deficit. While the reserve fund is still looking healthy at $21.8 million next fiscal year, Manfro warned that at the current rate, the city will consume $10 million over the next three years to close the deficit

Even if the city continues to rein in costs, employee pension costs and annual increases to the city’s contract with the Orange County Fire Authority could widen the deficit, Manfro says.

The police department continues to be the city’s largest expense, roughly $24.5 million annually or 50 percent of the total budget. Staffing of sworn personnel will remain the same, although three vacant positions will be eliminated.

The city is hoping for new business growth to drive up revenue in the coming year, said Chester Simmons, assistant to the city manager.

Among ongoing projects is the renovation of the Elmore Toyota facility, the expansion of a Harley-Davidson dealership and the opening of a new Airstream location.

Staff will present the council with additional options, including possible increases in city fees, at a study session in coming weeks.

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