Sunnyvale on solid footing while neighbor strapped for cash

While one Santa Clara County city pinches pennies to make ends meet and juggles budget shortfalls, its neighbor to the west sits on a surplus that can easily cover its deficit.

Santa Clara and Sunnyvale, although similar in size, couldn’t be more different in their approach to governing. Sunnyvale’s 2024-25 budget has a structural surplus for the next 20 years, allowing the city to comfortably pull from millions in reserves. City officials attribute their stability to long-term planning and fiscal responsibility. Santa Clara officials said their city has historically lacked both skill sets, as it wrestles with a $624 million infrastructure deficit.

Sunnyvale and Santa Clara are respectively the second and third most populous cities in the county following San Jose. They share a border near Lawrence Expressway and are similar in geographic size. While Sunnyvale has a $6.5 million deficit this fiscal year, it has $91.3 million reserved specifically to help balance the budget. Santa Clara has $40.8 million for the same purpose, and is hoping to double it by the end of fiscal year 2024-25.

While Sunnyvale has about 20,000 more residents, the city runs on a leaner workforce and budget compared to neighboring Santa Clara. Both cities also have different public utilities. Sunnyvale Interim City Manager Tim Kirby pointed out unlike Santa Clara, Sunnyvale doesn’t have a convention center or major sports stadium to incorporate into its annual planning process.

“It’s not that we’re flush with money, but we plan accordingly,” Sunnyvale Mayor Larry Klein told San José Spotlight. “We’re forward thinking to make sure that when we make those decisions, we have that money there.”

Klein said Sunnyvale’s policies of forecasting the city budget 20 years in advance helps plan for potential downturns and keep the budget stable. The city is also required by charter to balance its 10-year budget, which he said keeps councilmembers and employees from picking up long-term financial commitments without considering revenue sources.

Kirby said the city’s revenue exceeded expectations, and the local economy has been strong. The city has enough money to put about $3.5 million away for possible new services or service increases.

Santa Clara spokesperson Janine De la Vega said Santa Clara’s budget is larger than comparable cities because it operates its own utilities, like Silicon Valley Power, which makes up the largest portion of the city’s budget.

Officials said the city has lacked long-term planning and with its efforts to close its deficit, reserves are running thin. This year, the city will place a $400 million general obligation bond on the November ballot to help meet critical infrastructure needs, such as repairing the George F. Haines International Swim Center, which the city had to close in January. But that’s still $224 million shy of what the city needs to cover the remaining infrastructure requirements.

De la Vega said the city will continue pulling from general fund reserves to address infrastructure needs not covered by the bond at the end of every fiscal year. This still poses a challenge, she added, because of the city’s projected shortfalls and competing obligations between services and infrastructure.

“In any business, you have to recognize that your buildings, your machinery, everything’s going to be worth less, and there doesn’t seem to be this long-term thinking,” Councilmember Karen Hardy told San José Spotlight. “No more kicking this can down the road, that’s not acceptable.”

Hardy said Santa Clara has had many dents in its budget over the years, such as creating Silicon Valley Power after the deregulation of power entities in the early 2000s. The city also spends more on upkeep for city-owned structures, like the Santa Clara Convention Center. And while Levi’s Stadium brings billions into the local economy, little makes it to the city’s general fund, since stadium revenue goes first to paying off the construction debt.

Until recently, Santa Clara lagged in tapping into potential revenue streams. For example, the city recently increased its park impact fees to match neighboring cities, which Councilmember Suds Jain said allowed for the city’s parks to be refurbished.

Santa Clara voters also approved a higher business tax in 2022 to help the city bring its policy up to date. Hardy said the move has already benefitted the budget. Before the tax increase, the maximum a company paid based on number of employees was $500, regardless of size. The cap was raised to $350,000, with $45 per employee.

Hardy said Santa Clara provides many services to residents, such as helping homeowners clean backed up drains free of charge, which takes city resources. Jain also said free services for residents means the city covers the cost.

“We don’t charge for a lot of things. We don’t charge for parking, we… heavily subsidize the swim center,” Jain told San José Spotlight. “I’ve been trying to start charging for things, just to be comparable to other cities, so we can be in a better situation.”

Hardy said the city has to have discussions with its employee unions about the amount the city spends on its workers. Santa Clara has historically paid its employees among the highest salaries in the state, including paying former City Manager Deanna Santana the highest base salary of any city manager in California in 2020.

Right now, Santa Clara has carved out 77% of its fiscal year 2024-25 general fund, or about $216.5 million, on salaries and benefits for the city’s 1,149 employees. Sunnyvale has 952 employees and budgeted $139 million, or 66% of its general fund, for salaries and benefits.

“We do have agreements, but being realistic about those and having both sides be realistic is important,” Hardy said. “People can say, ‘well, the city’s always going to be here.’ Well, we saw what happened to Stockton. We saw what happened to Vallejo. Cities can go bankrupt.”

Contact B. Sakura Cannestra at [email protected] or @SakuCannestra on X, formerly known as Twitter.