Fresno faces potential $37 million deficit amid rising costs. ‘Something has to give’

The city of Fresno is confronting the potential of a $37.2 million budget shortfall for its 2024-25 budget year – a result of anticipated increases in costs including labor, utility bills and obligations for pension plans and workers compensation.

At a City Council meeting Thursday, Mayor Jerry Dyer outlined the situation as his administration prepares a budget for the coming fiscal year that starts July 1. He discussed potential strategies for closing the gap. The shortfall involves the city’s General Fund – the pot of money from which many of the city’s day-to-day expenses are paid.

Dyer told the Council that if the city did not make any cuts, Fresno would be more than $37 million “in the red.” That figure, he added, already considers an estimated $21 million in salary savings from leaving current vacant positions empty and not filling new openings when employees leave.

Councilmember Mike Karbassi described the news from Dyer as an “eye-popping” revelation.

Dyer and City Manager Georgeanne White said they didn’t expect any layoffs to make ends meet next year. “We may have some additional attrition, we may have to cut some expenses, we may have to increase our revenues,” Dyer told the Council.

“We’re absolutely not looking at laying anybody off. We’re looking at maintaining,” White added. “But something has to give.”

Between now and May, when the mayor will formally present a proposed budget for 2024-25, Dyer said his staff will meet with department heads, labor unions and individual city council members to explore ways of closing the gap. He said each city department will be asked to present budget requests that represent a 3% reduction in expenses compared to this year – a move that Dyer said would generate about $15 million in savings.

“We’ll get there, but there’s going to be a lot of pain,” he said.

The projected deficit comes even as various sources of income for the city – including sales taxes, property taxes and and taxes on the sales of legal cannabis by licensed dealers – are expected to rise from their current levels.

But those increases won’t be enough to offset higher costs that the city expects. Based on current city staffing levels and operations, the preliminary estimate is that spending from the General Fund would amount to almost $506 million – about $43 million more than the budget for this year as amended in December.

Among the factors driving the expected deficit are a predicted $4.8 million increase in the city’s utility bills for gas and electricity next year – an 11% hike over this year’s budget, Dyer said.

Raises already promised in multi-year contracts with various city employee unions and other employee costs represent an increase of more than $17 million and boost total personnel expenses next year to about $256.6 million. Then there are unspecified increases built into contracts for such things as janitorial services, software and technology licensing, security and equipment leases. Economic inflation in the costs of other goods and services, including parts and equipment, tires, vehicles and other big-ticket items, is also expected.

Another $12.3 million in added expenses are related to increases in what the city anticipates paying for employee benefits, retirement plan contributions and workers compensation.

Councilmembers Tyler Maxwell, Nelson Esparza and Miguel Arias each asked about the prospect of dipping into the city’s financial reserve fund – a pot of money socked away during good years to provide a cushion for leaner times. Assistant City Manager Ruthie Quinto said Fresno has between $46 million and $47 million in reserves.

Tapping into the reserves would require the mayor to declare a fiscal emergency, defined as a sustained reduction in revenues rather than increases in costs, as well as a five-vote “supermajority” of the seven-member City Council, under rules contained in the Fresno City Charter. But, Quinto said, “we do not meet that classification.”

Dyer added that releasing any of the financial reserves would be “a last resort.”

“I would prefer exploring more (borrowing through bonds) and increasing projected revenues in order to get us out of this mess before we touch the reserves,” Dyer said. “If we have to down the road, maybe in 2026 we hit a decline, or 2027, we need to have something to fall back onto. I don’t think this is the time.”