“It puts us in a very difficult situation,” said Leyne Milstein, City of Sacramento finance director.
The longer the legislature takes to come to an agreement, the less time cities have to adjust their spending plans. “If cuts are retroactive to July 1, that could make it especially difficult,” Milstein said.
The city is still negotiating with its largest union in hopes of avoiding more layoffs, but adopted a balanced budget in June that planned for what seemed like the worst-case scenario at the time.
The city has back up plans to adjust for state “borrowing” of Proposition 1A funds for a year. However, if the state withholds $7.8 million in Highway Users Tax Account (HUTA) funds (15 percent of the city’s transportation budget) for the foreseeable future with no plans for repayment, that could require the city to reopen budget discussions.
“That is a staggering amount,” Milstein said. “It could impact the city’s ability to be responsive to transportation signaling problems.”
When it comes to financial planning, timing is everything.
“If we knew this was in the works earlier, we would have gone down a different path,” said Jerry Way, director of the City of Sacramento Department of Transportation.
Instead, Way feels as if he is running the department with the shadow of a retroactive HUTA loss over his shoulder. He is putting off any hires for the department’s 50 vacant positions and the purchase of essential equipment.
“Our position is we would like to have a decision – even a horrific decision – sooner because then we can take action,” Way said.
Still, Sacramento is in a better position than many cities. In 1988, city voters approved a ½ percent sales tax for transportation that could allow the city to limp along. Many jurisdictions rely solely on HUTA taxes for repair and maintenance budgets.
Counties, which implement many of the state’s social programs, find themselves in a position of being required to pay for the delivery of services and programs without knowing when or how much they will get paid.
“Essentially, the state has pushed its cash crisis down to counties,” California State Association of Counties (CSAC) said in a July 1 press release when the IOUs started rolling out of the state treasurer’s office.
CSAC estimates current proposed budget cuts could cost counties $4.3 billion. This includes two years worth of HUTA revenue for a total of $868 million and $900 million in Proposition 1A borrowing.
One month of IOUs to counties would leave a $776 million hole that will have to be covered by cash-strapped local agencies to deliver services already being scaled back.
San Diego is one of those counties. San Diego Chief Financial Officer Don Steuer was scrambling on Friday to cash his first $2,300 promissory note before Wells Fargo ceased taking the script.
“The uncertainty is very difficult,” Steuer said.
Steuer anticipated that the state would be deferring payments on CalWORKS programs (a $25 million a month expense in his county) and borrowed two months worth of Tax and Revenue Anticipation Notes to get the county through until September.
Further borrowing against Proposition 1A loan repayments may not be an option. Everyone from the State Treasurer Bill Lockyer to League of California Cities Executive Director Chris McKenzie have warned that securing loans based on the governor’s promise to pay local government back could be expensive.
For Steuer, September 1 will be a pivotal date. In addition to the social programs, many state checks are issued quarterly. Every day that San Diego delivers services is a day that it could be piling up bills the state will later refuse to pay.
If Steuer and other county executives knew what the state was going to cut, they could begin cutting their losses now.
Even though many administrators have a good idea of what the end package will look like, their hands are tied until the ink is dry.
“We can’t legally take any action [to cut or scale back programs] until a budget is signed,” Steuer said.
If the state gets too close to that September date with no deal in sight, Steuer said he may start sending out notifications warning of imminent program changes, but he will wait for the state to actually start turning out the lights.
JT Long can be reached at jtlongandco@gmail.com