Immediate Release

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November 14, 2002

Larry Lisenbee, Budget Director
(408) 277-5111

San José Takes Steps to Address Budget Forecast

San José, CA ---- The City of San José today announced measures to address an estimated $63 million General Fund shortfall that is projected for the fiscal year that begins on July 1st, 2003. The City’s early budget projection for the 2003-04 budget year shows sales tax and other economically sensitive revenues continuing to decline below last March’s conservative forecast. Sales tax revenues for 2003-04 are now projected to be $25.4 million less than the March estimate.

To address the projected revenue gap, the city administration has renewed cost management plan targets for each department to reduce expenditures in the current fiscal year. The administration is also continuing the hiring freeze put in place last year and has directed all departments to develop additional cost reduction strategies that could be implemented in next year’s budget. In addition, strategies for increasing revenues are being evaluated.

"Even with our successful efforts to cut costs and build rainy day reserves, the prolonged recession means we face serious budget challenges in the coming year that will require difficult choices," said Mayor Gonzales. "We remain firmly committed, however, to doing all we can to protect the services that are the foundation for quality of life of San José residents and neighborhoods."

“The disciplined steps we are taking now will reduce the impact on next year’s budget,” said Del D. Borgsdorf, San José City Manager. “By planning ahead, we will protect our ability to deliver the priority services our residents and business community expect.”

The City has maintained a rainy day reserve fund and over the last two years it set aside additional reserves. However, since all indications are that the current economic downturn will continue past the next fiscal year, the City will need to preserve a significant portion of these reserves for potential future deficits.

Despite the fact that budgets for the last two years were prepared using conservative estimates, the magnitude and duration of the downturn in our region’s economy has far exceeded even those conservative expectations. In addition to the projected decline in sales tax, other estimated revenue drops include: the transient occupancy tax (hotel tax), down $1.6 million; utility tax revenues, down by $3.5 million; and motor vehicle in-lieu fees, down $5.1 million. Local, state, and national economies all remain stagnant, and no local economic recovery is predicted until at least the 2004-05 fiscal year.

While estimated revenues have dropped much lower than expected, the City also projects a 5.2% growth in expenses, primarily from labor costs that the City is contractually obligated to deliver under existing multi-year contracts. Labor costs represent 71% of the City’s General Fund. New contracts will be negotiated this spring with bargaining units that together make up approximately 53% of the General Fund labor costs.

All of the current revenue projections are preliminary, based on early data that will undoubtedly change. In addition, these assumptions do not presume any impact from actions the State may take in the future to address its own budget problems.

The City Manager is acting now to continue the City’s prudent and conservative approach to fiscal management and to minimize, to the extent possible, impacts on vital public services in the face of what will be a formidable fiscal challenge in the coming fiscal year.

The City is now beginning preparation of its budget for the coming fiscal year, which starts in July. The Council will review the proposed budget in May, with adoption schedule in June. Specific budget reduction decisions will be made at that time.