Following a City Council meeting on Tuesday, officials say the City of Santa Maria is preparing for budget cuts that may lead to service level reductions.
According to an official staff report, the city's projected expenditures are exceeding projected revenues; Santa Maria officials expect a budget deficit of more than $21 million in the 2024-2025 fiscal year and more than $20 million in the 2025-2026 fiscal year.
The city's staff report says the main reason for the discrepancy is that "the primary discretionary revenue sources paying for [the] majority of the general governmental services, including public safety, are growing at a steady but not a rapid pace."
Officials clarify in the report that the sources of revenue are sales tax, property tax, charges for services, and hotel tax.
Interim City Manager Alex Posada said in a press release Wednesday that significant national or regional economic downturn isn't to blame for the budget discrepancy. Instead, he says the deficit has evolved in part due to service demands exceeding revenues. Posada added that the cost of labor and materials has skyrocketed over the past few years.
At Tuesday's meeting, the Santa Maria City Council reviewed a staff analysis and heard several recommendations for potential revenue enhancement options to close the budget gap.
One proposed solution is to increase the sales tax in the City of Santa Maria. The staff report says that "a sales tax increase of an additional half-percent would generate the most significant dollar amount of revenue, totaling approximately $13.5 million per year."
The city may also consider an increase in hotel tax, cannabis tax, parking fees, an update to recreation and parks fees, fire medical response fees, and a reformed business license tax based on percent of sales, according to the staff report.
The city council advised that it would rejoin in February 2025 with an established plan.
In the meantime, staff recommended using three reserves to bridge the deficit in the first year. Officials also directed staff to examine proposed budget reductions starting this fiscal year and to report back with suggestions.
“It will take several months to establish and execute a responsible plan to improve the city’s financial condition through a possible combination of budget cuts, labor concessions, and new revenues,” said Posada in a press release. "Most of the options would require a form of voter approval and would take time to realize revenue."
