CARLSBAD — The Carlsbad City Council this week took the first step in approving its Fiscal Year 2022-23 operating budget.
Staff presented the preliminary operating budget during its May 24 meeting. Each department cut 2% from its operations and maintenance budget (a $1.5 million savings), while a total of 22 new full-time hires were tentatively approved.
The council will reconvene on June 14 to adopt the budget, which also allows them to make any changes. Also, staff will present the Capital Improvement Program and Strategic Digital Investment Program budgets during the June 7 meeting, according to City Manager Scott Chadwick.
The operating budget totals $342.2 million with $339.8 million in revenue, while General Fund revenues are projected at $198.8 million, and expenditures estimated at $198.3 million. The operating budget is nearly identical to last year, according to staff.
The council also voted to approve continuing the police department’s GUIDE program for counseling at-risk youth, which costs $130,000. With the addition, the city is expecting a total surplus of $200,000.
Chadwick said the city’s general fund reserve account is estimated to reach $116 million, which is an increase of 41% since 2019-20. However, Chadwick, along with Deputy City Manager Laura Rocha and Finance Director Zach Korach said the city is still projecting a funding gap by the FY 2025-26 where expenditures exceed revenues.
“The annual budget is the singlemost important policy document,” Chadwick said. “It shows our City Council and the community where our funding comes from and exactly how it’s being used.”
Most of the new hires, meanwhile, consist of public safety personnel with police, fire and lifeguards accounting for 17 of the new positions. Several of the new hires are also temporary, as they have a five-year lifespan with certain departments to assist the city completing various projects.
The city is also estimating total revenues for FY 2021-22 of $204.9 million, which Korach said is a “historic high” and comparable to the FY 2019-20, prior to the pandemic, when the city was also on track for record revenues.
“A lot of that has to do with an accelerated recovery built up by pent up demand,” Korach said. “These highs may not be sustainable over the near term.”
Korach said future surpluses are also expected to vary over the next four years starting with estimated surpluses of $460,000 in FY 2023-24, $3.5 million in FY 2024-25, and $800,000 in FY 2025-26. The year after 2025-26 is when the city is expecting “the lines to cross” with expenditures and revenues, unless the council opts to add revenue streams.
However, Korach said the forecasts do not include modeling for a recession, which economic experts are predicting as a result of record inflation, rising prices and supply chain issues. Korach noted that inflationary aspects, such as increases in utility costs, are being applied to the upcoming budget.
“We did apply conservative estimates,” Korach said of tax revenue sources. “Development is another big one. Over the next five years, we’re not anticipating development revenues to come in at the same rate as they have over the last five years.”
The council held a special meeting on April 20 to discuss those options, which included a sales tax increase, other tax increases and cannabis legalization, but declined to take action. However, city officials said the city can take other actions, such as barring annual department increases based on inflation and prohibiting rollovers of unspent funds, to address those projected shortfalls.
A majority of the council said it felt comfortable with the current state of the budget and forecasts and the plans in place allow for staff to be flexible to address any shortfalls.
But Mayor Matt Hall was less optimistic and recalled the challenges and similarities from the Great Recession in 2008.
“I would suggest we’re over optimistic on our revenue and our expenditures,” Hall said. “I could not support this. I’ve been there a couple times. This is too optimistic for me. In 2007 and ’08, we hit the pause button for three or four years. We managed our way through it.”
Also, Councilman Peder Norby advocated for the city to allocate $3 million to jump-start the railroad trenching project in the village. However, the council split 2-2 on the vote, with Councilman Keith Blackburn in support, so Norby’s motion died. Hall recused himself for a conflict of interest.
Norby said the project will happen as it is a priority for the federal government, San Diego Association of Governments, railroad companies and others. However, a small contingent of residents are pushing back, citing the cost, which ranges between $400 million to $600 million, although the city would be expected to only pay a fraction of the total.
