Troubled Times Ahead

blogimage.jpgRichmond’s municipal government may face a challenging year ahead as its financial difficulties mount.  Projected budget deficits for the year range from $7 million to $20 million and the city instituted a hiring freeze as a first step to address the fiscal crisis.

The city's total expenditures are down from a high of $146.4 million in the 2011-12 fiscal year to $132.6 million today.  Yet, city leaders may be required to reduce costs even further. In the coming months, Richmond elected officials have stated that conversations about raising taxes, issuing new debt, or cutting services will begin in earnest.

The question is, as the economy reaches new highs in other Bay Area cities, how did Richmond get to this place?  According to city records, plunging tax revenues and difficulty cutting the budget have forced the city to draw down its reserve funds to a level below the city's minimum guidelines.  These guidelines call for the city to have 7% of its overall budget in reserve.  These low levels of reserves have jeopardized Richmond’s future credit rating, which it has used up to now to borrow away its fiscal problem.

In addition, the city’s unemployment rate sits at 11.5%, well above the national average of 6.7% and the state rate of 7.8%.  The recovery of Richmond housing prices has also fallen behind much of the rest of the nation and even the Bay Area. As a result, Richmond currently has a much weaker tax base than it has in the past, with lower revenues for city coffers.

As they work toward a solution, the City Council voted to freeze city hiring for the immediate future. Notably, the hiring freeze excludes police and fire positions, which make up the bulk of the city's budget. But closing the gap without cuts to public safety could be unrealistic, given size of the deficit cautioned City Manager Bill Lindsay at a recent council meeting. He has asked all department managers in the city to prepare plans with 17% cuts to their budgets.

The Council has also considered both a sales tax and increasing the minimum wage as possible ways to ultimately increase city revenue. They are also trying to create more jobs by ensuring local hire ordinances are followed on new projects.

Lindsay has indicated that a clearer picture of the state’s budget deficit will be available in the next few weeks.  As the city learns the true state of its finances, residents warn options may become increasingly limited for the city council in light of a citizenry already facing high unemployment and weakened housing prices. 

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