Santa Clara reserves fall short of revenue needs
Santa Clara's budget deficit has dropped sharply due to a faster than expected recovery from the pandemic. File photo.

Santa Clara’s budget deficit has shrunk dramatically, but city officials warn that new tax strategies are necessary to build up long-suffering coffers.

City officials told the Santa Clara City Council this month the $27 million deficit has dropped to about $9 million. But to maintain this downward trend, city employees recommended some adjustments to the $99.7 million budget. That includes adding $20 million to the capital projects reserve, adding $6.4 million to the budget reserve and putting $5.1 million in the pension reserve.

Councilmembers unanimously approved the framework. Mayor Lisa Gillmor commended city employees for their hard work, noting the jump in the city’s revenue.

“We’re going in the right direction. It’s nice to see us start to fill up our reserves again,” Gillmor said.

Director of Finance Kenn Lee said the general fund ended the year with a $36.4 million balance, while taking in $286.7 million in revenue—9.7% above budget. Expenses were $271.4 million, which was 6% below budget.

Lee told San José Spotlight the significant drop in the deficit is primarily due to a faster than expected recovery from the pandemic.

“While some of the revenue recovery is expected to help with regards to the ongoing structural deficit, we continue to face pressure from higher expenditures such as labor costs and health benefits,” Lee said. “We will provide an update to where we stand with the $9 million deficit in early 2024.”

At the council meeting, City Manager Jovan Grogan said his employees are focused on improving aging infrastructure and augmenting reserves. But the budget is short nearly $600 million for facility upgrades.

Councilmember Suds Jain was less optimistic about the deficit reduction, saying the reserves are not doing enough for the city’s ongoing structural deficit. He requested officials explore potential costs for improvements for Central Park. Councilmember Karen Hardy agreed, saying that more than $20 million in reserves is a mere “drop in the bucket.”

Grogan said even spreading out $20 million between various reserves only provides 4% for infrastructure needs.

“Our challenge financially is every time we do the operating budget, things are left on the table,” he said at the meeting. “This city, like every other city, makes very hard decisions about what programs and services to put forward.”

Jain told San José Spotlight he wants the city to better educate residents about what a structural deficit is, and why employee vacancies get in the way of improving the city’s chances of increasing revenue opportunities. The city has been able to reduce vacancies from 15% to about 12% this year.

That is why despite a surplus in some revenue streams, the city continues to focus on how to increase gains, such as raising its transient occupancy tax to 12% and placing a document transfer tax measure on the November ballot. These potential sources of revenue would help repair the International Swim Center.

Jain said residents need to understand that cities running in the red must look for sustainable ways to recuperate losses.

“Right now, that means work isn’t getting done in the city,” Jain told San José Spotlight. “We haven’t hired people that should be doing that work. We need this (tax measure) because we’re understaffed, and we need to provide more services for our residents.”

Contact Natalie Hanson at [email protected] or @nhanson_reports on X, formerly known as Twitter.

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