SAN MARCOS — Leaders in San Marcos have adopted a “strong” budget for the next fiscal year despite lingering challenges from the COVID-19 pandemic, making a withdrawal from the city’s reserves to close a $3.8 million budget gap.
As predicted last year, San Marcos feels the absence of federal COVID-19 funds that have provided millions of dollars in padding over the past three years. This is the first year the city has used reserves to cover a budget deficit without federal funds to smooth things over.
“This was a more challenging budget situation for us, and I think for every city, as we all come back to normal both in terms of operations and in terms of funding,” City Manager Jack Griffin said at a June 14 City Council meeting. “The budget we presented you is not the budget we would ideally present you, but we believe it’s a strong budget.”
San Marcos was allocated $18 million in ARPA (American Rescue Plan Act) funds in 2021, $10 million of which were used to recover lost revenue. Other dollars were utilized for nonprofit grants and school-based mental health resources.
Griffin said the city cut expenditures wherever possible without cutting positions to prevent a larger deficit this year. Hiring freezes in some departments are continuing into next year.
Despite the $3.8 million withdrawal, the city maintains liquid reserves totaling 41% of expenditures — just over $37 million — above the city’s minimum 40% goal. However, staff warned that the city could dip below this minimum in future years if they don’t find ways to increase revenue.
“We don’t want to bring budgets to you that use reserves,” Griffin said. “We are going to reach a point where there’s going to be some service level reductions if we don’t get the revenue side of it back even with the expenditure side, and we all want to avoid that.”
Staff are predicting a 4.2% revenue increase compared to a 1.3% expenditure increase over the coming years, which will help to close the current budget gap. Based on current financial predictions, the city expects the gap between revenue and expenditures to close in 2028.
However, expenditures are expected to grow over revenues once again beginning that same year, when the city pursues a new fire station and park facilities.
To prepare, Griffin said the city would be exploring ways to raise revenues. As a landlord, this could include new ways of managing its commercial and office rentals at Creekside Market Place and the San Marcos Civic Center.
City Council members said they favor getting ahead of the issue and exploring solutions now.
“I think this is the first time we’ve had to use our excess reserves to balance the budget, and so I’m all in favor of addressing it early and not having multiple years of having a situation like that,” said Councilmember Sharon Jenkins.
While the city moved $1.9 million into the infrastructure fund last year, this year’s budget does not allow further transfers. Staff said the fund has sufficient money for project needs over the coming years.
San Marcos operates under a 5-year, $238 million capital improvement project (CIP) program through 2026. For the 2023-24 fiscal year, the city council approved a $5.7 million CIP budget for 46 new and ongoing projects.
Most CIP funding comes from the half-cent TransNet tax and the gas tax.
Completing the multiyear San Marcos Creek project is one of the most anticipated capital improvements this year. Crews are closing out the $100 million project with approaches between the road and the newly-constructed Via Vera Cruz bridge, work on the habitat and creek channel under the bridge, the sound wall on Discovery Street, and construction of the new Paseo de Arroyo park.
Griffin said the city is facing some delays related to work from SDG&E, which will push off a ribbon-cutting for the project into early fall.
“We’re trying to move forward as fast as possible,” he said.
Other active projects include upgrades to San Marcos Fire Station 3, including an interior remodel, storage improvements and mechanical upgrades. A $2 million state grant partially funds the $3.2 million project.
The city will also realize the $2.5 million replacement of the Olive Street bridge, the construction of the $2 million Bradley Park Pump Track, and planning and design work for the interchange project at Woodland Parkway and Highway 78.
“We appreciate staff paring down our wish list. It’s like Christmas and you get that Sears catalog when you’re a kid … and you go shoot, I don’t get everything that I want,” said Mayor Rebecca Jones.