Menlo Park's proposed $78.1 million budget for fiscal year 2015-16 may look upside down to some: The city's staff has asked to spend $49.3 million from the general fund, while revenue is projected to lag behind at $48.1 million.
"The theme for the budget this year is, it's time to invest," City Manager Alex McIntyre told the City Council during a public hearing on June 2.
According to the staff report, that investment entails "ramping up staffing to meet service-level demand for development-related activity, as well as to achieve other Council priorities." That translates to hiring the equivalent of about 11 full-time staff members during the next year in the public works (six), community development (four) and information technology (one) departments, on top of nine positions already added to the city's roster this year.
Overall personnel expenses for the city would be $36.7 million, according to the budget report, with $32.9 million of that coming from the general fund.
Money from various reserve funds, such as the capital improvement fund, would be transferred to cover the deficit, which is projected to last through fiscal year 2017-18. At that point projects already in the works, such as the Menlo Gateway complex, are expected to generate enough revenue to overcome the gap, leaving Menlo Park with at least $3.1 million more in revenue than it had in 2015, according to the city manager.
Conservative assumptions were built into the budget, Finance Director Drew Corbett explained, and those may prove too conservative. In three years, annual hotel tax revenue from Menlo Gateway is expected to reach $3.1 million, for example, but the budget rounds that down to $2.2 million to anticipate a possible economic downtown.
The budget also estimates Excess Educational Revenue Augmentation Funds (ERAF) -- the amount of property tax revenue left over from local school funding and returned to the city -- at about $700,000 annually, or 50 percent of what it may actually be.
Three years of deficit spending did not go over easily with the City Council, although three members backed what they described as a "counter-intuitive" budget.
"I do support this budget," Councilman Peter Ohtaki said, but he added that he'd like to see the deficit spending end sooner rather than later.
Vice Mayor Rich Cline acknowledged that the general fund is healthy to the point where investing the money makes sense. So the question becomes, "How do we invest the money and get all these projects through before the window of opportunity shrinks?" he asked, and the answer is that it requires adding staff, quickly. Given the conservative assumptions, he said, he thought the budget looked very strong.
Councilwoman Kirsten Keith noted that she would like to see the city catch up on the backlog of projects, but raised the specter of layoffs in the future should the economy take another downturn.
Mayor Catherine Carlton said she was "loath" to have an unbalanced budget, but that delayed projects get more expensive. There's also an opportunity cost, she said, as developers decide to walk away from Menlo Park and take their proposals to other cities. She asked what the community's return on the investment would be.
City Manager Alex McIntyre responded that the return is a financially stable Menlo Park in three years. Each month that the Menlo Gateway project stagnates without sufficient city staff to move it along, the city loses $300,000 in revenue, he said.
Councilman Ray Mueller said he wasn't comfortable with the budget as proposed. "I understand it's called making an investment in the future" but it's really just servicing the projects that have come into town, he noted. The economy is robust now, which to him means building reserves, not spending more, to plan for the downturn. "I don't see this economy lasting five more years."
The budget returns to the council for adoption on Tuesday, June 16.