Atherton braces for $2 million revenue shortfall
Even by Atherton standards, a $2 million revenue shortfall is a big deal — and the town isn't nearly as rich as of many of its residents.
Mid-year budget projections for the fiscal year ending in June show a gaping hole in the town's $10.6 million adopted budget.
"We're in a pretty serious situation," said Atherton City Manager Jerry Gruber at the Feb. 18 City Council meeting. He promised that a number of budget cuts are in the works, but none of them was part of the proposed mid-year budget adjustments before the council.
"There's no way I can vote to approve a mid-year budget that is $2 million more than we're taking in," said Councilman Jim Dobbie. "It's almost absurd to consider."
Mr. Gruber said that every department head has been charged with coming up with a plan for budget cuts of 10 percent, and the results of those proposals will come before the council in March.
"This isn't about paper clips and pencils, but about large items — capital improvement projects and even staffing cuts, if necessary," Mr. Gruber said.
The biggest hit to the budget is $1.1 million stemming from problems with the business license fees charged to building contractors, according to Finance Director Louise Ho.
Flaws in the town's methodology for calculating the fees — which it scrapped recently, amid threats of lawsuits — could translate into a loss of $425,000 in projected income, and an additional cost of $680,000 to refund all the contractors who were overcharged in the past two years.
Thanks to the troubled housing market, property tax revenues could be $116,000 lower than anticipated, and sales tax projections are off by $68,000. Building permit fees are $500,000 lower than expected. Interest revenue on the town's funds are half of what was budgeted, a drop of $200,000.
Atherton also lost $282,500 of funds invested with the San Mateo County treasurer's investment pool when Lehman Bros. went belly up last fall.
Ms. Ho said that her revenue projections are "based on a very ultra-conservative approach."
"I hope revenues will be better than what I projected," she told the council.
The lone bright spot in revenues is an additional $60,000 in encroachment permit fees, thanks to Cal Water projects in town, Ms. Ho said.
All in all, the town is now forecast to take in $8.6 million by the end of this fiscal year, as opposed to the more than $10.6 million it budgeted for last year.
"At the beginning of the year, we had a balanced budget," said Mayor Jerry Carlson. "Part of this is just cleaning up past problems," he said, referring to the business license refunds.
Absent some major budget cuts or an unexpectedly big jump in revenues in the next few months, Atherton's reserve funds could take a major hit.
If the $2 million revenue shortfall holds up, the town's general fund balance is projected to drop from $7.6 million to $5.5 million by the end of June. And the full amount of those reserve funds aren't there for the taking — most of that is earmarked or restricted to things ranging from natural disasters to compensation for employee sick days and vacations.
Besides delivering alarming news about revenues, the mid-year budget report included requests for additional funding.
The town's budget for legal services is nearly gone, with five months remaining in the fiscal year, triggering a request for an additional $100,000.
Town staff also asked for $64,000 to buy new financial software and computer servers, saying that the existing DOS software system is cumbersome and inefficient.
The council did not take action on those requests.
After the meeting, Ms. Ho said she believes that it's still within the town's power to balance the budget by the end of year. Next month, she and City Manager Gruber will present the council with a proposal for a long-range, five-year financial plan that should clarify whether Atherton is facing an ongoing structural budget deficit, Ms. Ho said.