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Capitola's City Manager Hill Stirs Tension with New Layoff Talk after Sales Tax Drops
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Capitola's City Manager Hill Stirs Tension with New Layoff Talk after Sales Tax Drops
By Mary Bryant
Most of Capitola employees are on furloughs, and some employees just had their wages frozen for the next year. However, after Capitola's City Manager Rich Hill saw the most recent sales tax report from the city's first fiscal quarter (July through September), he started talking about more layoff notices – three for the city's small police department — initiating a new round of debate on what the city's budget will look like through June 30. That debate included whether major mid-year cuts should begin sooner rather than later.
The city's police officer's association also got busy reaching out to council members and others.
Within days the mayor and others were speaking out on the topic, saying they are not looking for a quick fix especially without some time to examine the budget issues.
Hill had taken the matter to council in closed session in January under the auspices of employee negotiations. Without the formal negotiation process, the city's employee groups were surprised with the mid-year news and request for additional concessions.
Capitola Police Officer Chris Thompson said his group was told that unless they acquiesced to the city's request then "we will lose police officers."
On the day of the Jan. 28 council meeting, Capitola Mayor Sam Storey sat with The Post to answer some questions.
Storey had become aware of layoff discussions, and believes such were premature until a clearer picture emerges of the sales tax downturn. Among his reasons: the recent downward sales tax projects are very steep and based on the most recent quarter's returns. Additionally, if cuts are to be made, he wants cuts made strategically.
"It is not wise to cut across the board," he said.
For instance, the police and public works departments already took cuts last year, while other departments that have grown significantly during the past decade didn't, he said.
Storey used the planning department as an example that may have less need; since building projects are slow because of the economy, and perhaps not as many employees are needed there.
But at the same time, crime and the number of arrests were up this past year. Storey wants to prioritize police and public safety services and develop a "thoughtful and selective" process, if such is needed.
At the Heart of the Matter
Each spring, Capitola leaders projects what the next fiscal year's tax revenues are going to be.
Then they wait to see what actual sales are reported.
The most recent report was for the first fiscal quarter (July through September), which saw an additional $505,000 credited to the three-month total. That topped projections by almost 15 percent.
So why worry?
The $505,000 was a one-time award after a state audit revealed Orchard Supply had not properly reported its jurisdiction in collecting sales tax for multiple quarters. Without that, the collections may have dropped some 31 percent.
Incoming city manger Jamie Goldstein, who will be working with Hill until Hill retires this summer, said that despite many attempts, the state has yet to fully explain the discrepancy. However, even if the city got some extra money, the current projections propose that sales tax is off 31 percent year-to-date, and disaster could be lurking.
With more regional competition and the closure of such retail landmarks like Mervyns and Gottschalks, the city started worrying about it retail base more than a year back. While new stores have arrived – Kohls' and Whole Foods – the city was already off its top producing years.
With economic revitalization projects underway, the question becomes how far will the city's sales tax base drop?
Since the same sales tax revenues have fueled a ramp up of general government services during the past decade, the other question may be what to cut if additional revenues don't materialize.
If the mayor doesn't want to cut across the board, then how does the city go about cutting?
One idea is to look at the departments that have grown fastest over the past decades.
"I can remember back to the days when we had the same number of residents but one person in finance," veteran Capitola councilman Ron Graves said.
Now, there are seven employees in the city's finance department. It would be eight, but the finance director's position remains frozen.
Is There Trouble Ahead?
While Capitola has $2 million in reserves and another $2.3 million in money owed it by the city's RDA, any big loss of sales tax on an extended basis could spell trouble.
Hill is projecting a nearly $2 million drop for next year.
To measure the extent of the sudden decline, if Hill is right, then the city will fall back to 1992 budget. This was just after the Loma Prieta earthquake and before the voter-approved Measure P was passed adding a quarter-cent to the city's extra share of tax.
Most city leaders interviewed believe this project decline represents the worst case, and the result will be better. However, at the same time, most also believe sales tax will be down, plus the recently released city audit shows spending for the fiscal year ending June 30, 2009, exceeded revenues by $700,000.
Vice Mayor Dennis Norton called for government cuts to be one of the city's top priorities at a recent goal-setting meeting.
Mayor Storey also thinks it is time for the council to take a more active role, and along with council members Graves and Bob Begun is calling for an open process to consider the prospects and the current year budget.
"The better we crunch the numbers, the better we develop our budget," Graves said.
City manager Hill did not return calls in advance of press time.
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