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At its June 11 meeting, the Menlo Park City Council held a public hearing on its proposed budget for the upcoming fiscal year, which begins on July 1. The city faces an approximately $800,000 deficit. Due to the deficit, few additional programs are slated to be added to the city in the next year, and the city is considering whether it needs to place a tax measure on a future ballot to make up the difference.
The major theme of the proposed budget was lost revenue for the city. In preparing the budget for the upcoming fiscal year, city staff are anticipating a property tax in lieu of vehicle license fee shortfall of $2 million. The city’s sales tax revenues are expected to decrease by $500,000 due to a slowing in consumer spending. Income from planning and building permits are anticipated to decrease by $1.7 million due to less development activity within the city.
The last of the city’s American Rescue Plan Act funds were fully expended in this current fiscal year, which represents a loss of a $3 million subsidy to the general fund.
Additionally, the Menlo Park City Council adopted a resolution in May 2023 to decrease the utility user tax rate to 0%, after it was struck down by a class action lawsuit. This resulted in an annual revenue loss to the city’s general fund of $1.7 million.
Part of the shortfall can also be attributed to the city paying down its pension liability.
The total anticipated revenue for the city in the upcoming year is $73.4 million, compared to $77.6 million in the 2023-24 fiscal year. Staff have proposed a $74.2 million budget, which would result in an $800,000 deficit for the city. This amount can be covered by the city’s $10.7 million unassigned general fund budget, without dipping into city reserves.
Personnel is the city’s largest expenditure, with $53.3 million slated to cover city salaries and wages.
Five-year projections show this deficit continuing to increase without additional sources of revenue, which may lead to the city having to use some of its reserve funds.
The fiscal year 2023-24 budget also anticipated a $1 million deficit, but the city ultimately will end the year with a $3.1 million surplus.
“This is primarily due to savings from staff turnover and vacant positions, as well as lower spending from the reduced staff capacity,” said Assistant Administrative Services Director Jared Hansen.
Few new services for the city
In light of the strained general fund, the budget does not include many enhancements to city services. The only new service enhancements included in the budget are the addition of fixed automatic license plate readers to the city, and an additional part-time overnight parking enforcement position.
“We have worked really hard as a city to align our expenditures with our revenues … we’re building an efficient budget as possible,” said Hansen. “Like many cities in San Mateo County, we’re facing challenges in our general fund. So given these challenges, staff had limited the number of service level enhancements.”
Council members expressed appreciation for the lack of service cuts within the budget.
“It is helpful and useful to see that the proposed budget that’s being presented to us for this coming year is $1.2 million less than (the budget for) last year, despite the increase of staff costs and just general costs increasing across the board,” said Council member Maria Doerr. ”That indicates to me that staff has taken a thoughtful look at decreases … made to tighten things without reducing service levels.”
Despite the efficient budget for the upcoming year, Doerr acknowledged that if the trend of decreasing revenues continues, the city may have to look at where services have to be reduced.
“I wonder on the expenditure side, if we should open it to staff to explore additional options for the difficult process that is exploring where we might have, might have to reduce service levels for some things,” she said. “It’s not an inquiry that would be very fun.”
In addition to the operating budget, the city also has a $97 million capital improvement plan budget, which includes 64 projects to address city buildings and systems, the environment, parks and recreation, stormwater, streets and sidewalks, transportation and water. Funding for the CIP comes from special revenue funds, grants, the city’s municipal water fund and a $3.2 million transfer from the general fund.
Council members Jen Wolosin, Doerr and Mayor Cecilia Taylor also expressed concern for how the city will fund new priorities, such as projects outlined in the city’s new environmental justice element that will be reviewed by council on June 18.
Mayor Taylor also said that she would like this year’s budget to look at addressing heat island issues in Belle Haven, and future budgets to ensure that all Menlo Park employees are afforded a livable wage.
Addressing uncertain state funding
The problem is not unique to Menlo Park. Many other cities, as well as San Mateo County, are currently dealing with revenue shortfalls from uncertain state funding.
The property tax in lieu of vehicle license fee is the “most vulnerable area of the budget and corresponding long-term forecast is the shortfall in funding available for the State to pay the property tax in lieu of vehicle license fee obligation to the cities in San Mateo County,” according to a Menlo Park staff report.
The in-lieu VLF is a payment owed to local cities and counties, which is taken from property taxes and the Educational Revenue Augmentation Fund entitlements of local nonbasic aid school districts. Nonbasic aid school districts are those school districts that receive extra state support because local property taxes are not sufficient to meet the minimum funding requirement for the district based on the statewide Local Control Funding Formula.
Many school districts in San Mateo County are designated as basic aid, or community funded, so the funding source for the VLF payment to the cities and county has been decreased.
“In meetings with other City Council members across the county, everyone is dealing with this, and it’s really a vexing problem,” said Council member Betsy Nash.
‘In meetings with other City Council members across the county, everyone is dealing with this, and it’s really a vexing problem.’
Council member betsy nash
The staff budget report urges the council to consider adding additional local sources of revenue.
According to the report, “voter-approved local funds must be spent on services and needs within our community and cannot be taken by the state. This benefits Menlo Park residents and can allow us to focus on addressing our community’s priorities”
The City Council will evaluate placing a revenue-generating measure to address the local funding shortfall on the November 2024 ballot, such as an increase to the Transient Occupancy Tax. Such an increase could generate an additional $875,000 to $3 million for the city annually, according to Menlo Park staff.
Mayor Taylor also mentioned that the council should take a look at modernizing the city’s business license tax for future budget cycles as another method to increase revenue.
The council will continue to explore other options to address uncertain state funding and budget shortfalls.
“To deliver and maintain essential services at the levels our community has told us they want and expect, the city council is exploring all options as the state continues to place expensive regulations and take local funds away from cities like Menlo Park,” according to the June 11 staff report.
A finalized budget will return to the council for approval and adoption on June 25.
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What is the pension deficit now? Thanks.
Since 2008, Menlo Park population up ~5%, City of Menlo Park employee headcount up ~17%, General Fund revenues up ~14% in real terms.
Menlo Park has a spending problem not a revenue problem. Just look what they spend money on and you can see that they have too much money.