Facing an audience of city employees in the council chambers Wednesday night, the Westminster City Council passed a $105 million 2015-2016 budget, that closes a $5.3 million deficit by largely drawing on general fund reserves.

But they made it clear that the days of balancing the budget by raiding reserve accounts will soon be over.

If the city continues to rely on its reserves to eliminate its annual deficit, that fund will be depleted by 2018, according to Assistant City Manager Chet Simmons.

“[Staff] can’t run anymore numbers and crank out more savings. We can’t reduce or discount ourselves out of the deficit,” said councilman Tyler Diep. “We either raise taxes to maintain the level of services, or you cut services in the form of cutting employee salaries and layoffs.”

“Even cutting employee salaries is not realistic — how do you cut six million off employee salaries?” Diep added.

To be sure, the 2015-16 projected deficit is a far cry from the $10.4 million budget hole that was created when Gov. Jerry Brown eliminated redevelopment agencies statewide, which forced Westminster to lay off 67 employees, nearly a third of its workforce.

But after three years of penny-pinching and pulling from general fund reserves to make ends meet, the city is running out of options.

The deficit is likely to grow in coming years, due in part to the increased cost of public employee pensions and a built-in increase in the city’s contract with the Orange County Fire Authority.

Adding urgency to the situation was an unexpected increase in the deficit in recent months, after a “miscalculation” by the city’s former finance director Michael Solorza, revealed a larger than expected deficit.

Council members had the option Wednesday of passing the one-year budget or drawing up an emergency spending resolution to keep the city operating while staff draw up a more permanent budget plan.

They chose the former in a 5-0 vote, even though Councilman Sergio Contreras pushed for a six-month budget hoping it would create extra “urgency” for staff and council to create vision for the budget as soon as possible.

Councilwoman Diana Carey said not passing a budget or suggesting more cuts to staff would hurt already poor employee morale.

“Our employees are already doing double duty. People who aren’t getting paid as much as people in other cities are going to look around, if they’re young enough, and leave,” Carey said. “We do not need to be talking about more cuts.”

The council opted to pass the one-year budget, leaving out about $116,000 in supplementary staff requests, including costs for building maintenance, a park maintenance contract and an online garage sale permit system aimed at saving staff time devoted to the issue.

They approved $138,000 in new staffing paid for out of the city’s water fund, in order to do education, outreach and enforcement related to the drought and water conservation.

Still, the city has limited options for raising new revenue. A Costco is expected to open in the next year and a new recreational vehicle business, Dillon RV, opened in April. Next year’s budget does not include projections for revenues from those businesses, Simmons said.

Overall, revenues are likely to remain flat, Simmons added.

The city is also largely built out, leaving few options for new developments.

At a study session in late May, council members discussed the possibility of placing an initiative on the 2016 ballot for a sales tax increase.

According to city staff, a one cent increase to the sales tax could generate $12-13 million dollars for the city.

But so far, no member of the council has pushed to move forward on the sales tax initiative, although Carey and councilwoman Margie Rice said they would support it, according to minutes from the study session.

Instead, the council will have a series of sessions this summer to formulate the budget strategy.

Contreras also pressed staff to hire a third-party auditor to examine transactions handled by Solorza.

“Our finance director was, I don’t know, out to lunch and decided he wanted to hide what our true deficit was — if it was an accident, I don’t know that. What else was hidden, what else was misstated, I don’t know,” Contreras said.

Simmons said the city already hired an auditor in late May when the issue was discovered, and that he hopes to have an interim finance director in place by next week.

Although Simmons wouldn’t comment on the budget miscalculation — saying he can’t comment on personnel issues — he said part of the problem was new rate increases for public employee pensions that weren’t accounted for.

Contreras, meanwhile, was the only council member who was outspoken about Solorza’s departure.

“I’m pleased we have a plan to address the issues with our finance department,” Contreras said. “I don’t think that’s minor – it’s two million dollars.”

Carey defended Solorza.

“There wasn’t any maliciousness there. I think that this was an oversight in one area that put us out of whack,” Carey said.

Contact Thy Vo at tvo@voiceofoc.org or follow her on Twitter @thyanhvo.

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