SAN MARCOS — San Marcos officials are approaching the city’s 2022-23 budget with cautious optimism as revenue starts to return to pre-pandemic levels, but the possibility of a nationwide recession looms on the horizon.
The San Marcos City Council unanimously approved the operational budget for the upcoming year at its June 14 meeting, discussing the economic peaks and valleys over the last two years and how far the city has come since.
Twelve months ago, the city began the 2021-22 fiscal year facing a nearly $2.7 million budget deficit, with the loss of rental revenue largely contributing to the shortfall. The loss was patched over at the time using reserve funds, and fully eliminated shortly afterward with the arrival of federal relief funds.
Going into this year, the city has a remaining $9.1 million in American Rescue Plan Act (ARPA) funds, infrastructure reserves are bolstered and revenue is projected to exceed pre-pandemic levels. However, city staff noted, the country is also seeing the highest inflation rates in decades and stock prices have been dropping.
“We have to be nimble,” said City Manager Jack Griffin. “We’re seeing a continued rise in inflation, and we’re aware that the Federal Reserve has signaled toward additional interest rate increases potentially next quarter, and we’re uncertain of property and sales tax conditions. Currently, the forecast is positive, but if a recession comes our way, that may affect our overall budget.”
This year’s budget was increased by 3% to account for inflated operational expenses and still-high construction costs, according to a staff report.
Staff propose using the $9.1 million in ARPA funds to replace lost revenue as well as fund mental health and wellness programs for students and families recovering from the pandemic, in partnership with the San Marcos Unified School District.
The city’s General Fund, used for public safety services, parks, public works and general government services, is balanced going into the new fiscal year at $89.3 million, according to city staff. Revenue from sales and property taxes, both of which appear to be returning to pre-pandemic levels, contribute to around half of the total General Fund.
Administrators boasted a much lower apportionment of General Fund spending on public safety than the majority of other cities, with fire services receiving 22.5% of the General Fund and law enforcement receiving 26.1%.
“While law enforcement is the biggest part of the budget — it’s the biggest part of every city’s budget — in our city, police and fire make up less than 50%. I don’t think there’s any city that has public safety making up less than 50% of their General Fund budget,” Griffin said. “I think our law enforcement costs are in a really great, solid place and we get great service.”
Rather than having its own police department, San Marcos is one of nine cities contracting with the San Diego County Sheriff’s Department for local police services. The five-year contract with the department approved earlier this year features a 1% cost increase in the first two years and 3.5% increases in each of the following three years.
The city will also continue to provide funding, split with the school district, for four full-time school resource officers, according to a staff report.
After being unable to contribute money into reserves such as the infrastructure fund during the beginning of the COVID-19 pandemic, the city is resuming its contributions to these funds during 2022-23, allocating $1.26 million from the General Fund for a total of $3.9 million set aside for future projects.
“Having that $3.9 million in reserves in the infrastructure fund certainly gives us flexibility, if the economy does sort of turn in a negative direction and we start to see these revenues not grow as much as we’d hoped, or even turn the other way,” Griffin said.
The 2022-23 budget also includes $14.1 million in new appropriations for capital improvement projects, with the overall Capital Improvement Project (CIP) fund totaling $236 million through 2026. Revenue for the CIP fund comes mainly from the half-cent TransNet tax.
Over a third of CIP funding goes toward street projects, with around a quarter going toward San Marcos Creek improvements and another quarter to city facilities.
According to Griffin, there are 50 projects on the docket for the upcoming year, including the ongoing San Marcos Creek Project, which recently reached a major milestone with the reopening of the Bent Avenue bridge.
The list also includes improvements to Rancho Coronado and South Lake Community parks, and various street improvement projects such as a $10 million annual surface seal, improvements to the San Marcos Boulevard and Discovery Street intersection, the Woodland Parkway SR 78 Interchange and Barham Road widening project and San Marcos Boulevard reconstruction.
The budget also sets aside around $250,000 for the city to conduct a feasibility study for a new fire station, according to Griffin.
Mayor Rebecca Jones thanked the city’s various departments for their work in developing their individual budget projections and for being willing to keep costs low.
“Thank you for all of your hard work and not coming in with a wish list that’s a mile long and understanding that we are going to have some tougher times in the next couple of years, depending on what happens. We just need to be very careful, and that’s the San Marcos way,” Jones said.
After keeping several positions vacant in various departments to cut costs, the city is also planning to fill eight positions in human resources, GIS, administration, public works, parks and recreation, development services, traffic, and planning over the next year, according to Community and Economic Development Director Tess Sangster.
While the city appears to be in the clear going into 2022-23, the following fiscal year is likely to present more challenges with the lack of one-time relief funds that have assisted the city since the beginning of the pandemic, city leaders say.
“We’ll have a pretty good drop in one-time revenue. It’s going to be a bit more of a challenge budgeting in 2023-24. We think we’ve set that up to be manageable once we get there,” Griffin said.