By KEVIN McCALLUM
THE PRESS DEMOCRAT
Higher tax revenues from the improving economy combined with cost savings from employee concessions should put Santa Rosa in the black for the third year in a row.
The city should end this fiscal year with $17.8 million in reserves, the first time in five years it has hit its goal of having at least 15 percent of its general fund set aside for emergencies.
“We’re not out of the woods yet, but we’re trending in the right direction,” Mayor Ernesto Olivares said after the City Council heard its fall financial update.
It would be the first time the city met its 15 percent goal since the city had $25.1 million in reserves in 2007.
The council has long had a policy of keeping 15 percent of its general fund in reserve for emergencies. The recession put that goal out of reach for five years. Reserves plunged to $11.1 million in 2010, to 10 percent, as the housing bubble burst and tax revenues swooned. But cost controls and improving revenues have helped reserves improve every year since.
Improved auto sales and business-to-business sales helped the city pull in $2.4 million more in tax revenue than expected last year, while concessions from employees were $1.4 million higher than originally budgeted, Chiu explained.
There are plenty of signs that the overall economy is improving, Chiu said.
There were 9,500 jobs added in Sonoma County in the past year, pushing unemployment down to 8.3 percent in August. Business confidence is at a five-year high, and median homes price in September was up 5.2 percent over the prior year, to $325,000, Chiu said.
But challenges remain. City pension and health care costs continue to rise, while inflation is expected to drive up the cost of just about everything else, Chiu said.
In addition, the city saw the ratings on its pension bonds reduced this month, Chiu said.
Moody’s Investors Services said earlier this month that Santa Rosa was one of 30 California cities whose credit rating were being reviewed for possible downgrades.
What it didn’t say at that time was that it had actually already reduced the rating on the city’s pension obligation bonds, from Aa2 to Aa3, Chiu explained.
The city sold $51 million in pension obligation bonds in 2003 to help finance more generous pension benefits for its workers. The outstanding debt remains about $42 million.
But Moody’s is concerned that the finances of California cities are too tied to “economically sensitive revenue sources,” such as sales business and hotel taxes, Chiu said. The agency is also worried that the cities face stagnant revenue sources, rising fixed costs and now have easier access to bankruptcy, Chiu said.
At Aa3, the bonds still represent a “high grade” investment. The downgrade was not significant enough to trigger additional costs to the city, though further such downgrades could, Chiu said.
He said he expects to meet soon with Moody’s officials to discuss the city’s overall credit rating and its rating on another $10 million in bonds that funded some building acquisitions.
You can reach Staff Writer Kevin McCallum at 521-5207 or email@example.com. OnTwitter @citybeater