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Milpitas struggles to close a $9.2-million shortfall

By Jessica Parks | 20 Mar 2012

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In January, the California Supreme Court upheld a law disbanding local redevelopment agencies and remanding their funds to the state. The ruling shot holes through Milpitas' entire city budget. (Photo: Jessica Parks/ Peninsula Press)

In January, the California Supreme Court upheld a law disbanding local redevelopment agencies and remanding their funds to the state.  The ruling left many cities scrambling to tie up loose ends. In Milpitas, it shot holes through the entire city budget.

The Milpitas Redevelopment Agency was among the 10 largest in the state, even though the city’s population doesn’t break the top 100.  It had only one full-time staff member and funneled project money through other city departments.  For example, the agency would reimburse the Public Works Department for any tree-trimming or street repairs performed in areas tagged for redevelopment.

The redevelopment program began in the 1950s to help local governments make blighted areas more attractive for economic development.  To close a perennial budget shortfall, the Legislature decided to end the program and reallocate the property taxes that redevelopment agencies would have received.

When Milpitas dissolved its agency in February, about 40 percent of the city was zoned for redevelopment, according to City Manager Tom Williams.  Redevelopment funds subsidized $7 million of the city’s annual payroll, accounting for about 30 percent of many employees’ salaries, city officials have said.

The fiscal year 2011-2012 budget relied on millions of dollars in contributions from the agency, including:

  • $47,204 for building inspection services
  • $71,942 for public works inspection services
  • $149,886 for the city attorney
  • $96,604 for public works administration
  • $322,573 for design and construction
  • $346,393 for land development
  • $49,808 for traffic engineering
  • $263,574 for planning
  • $176,440 for neighborhood services

In addition, each of the five council members received $4,000 a year to serve on the redevelopment board, a common practice statewide.  And the agency contributed $6.3 million to the city’s Capital Improvement Project, a fund set aside for infrastructure, maintenance and other long-term investments.

Williams said the agency’s huge size, relative to the city population, was evidence that redevelopment works.  Milpitas’ redevelopment projects caused land values to rise, bringing more revenue to the agency, the city and the school district, he argued.

The end of redevelopment left a $9.2-million hole in next year’s budget.

This isn’t the first time the council has had to make cuts.  In recent years, the city had been gradually drawing down a deficit — cutting it from $12 million to $2.2 million for the next fiscal year.  Councilman Armando Gomez said most of that was done through attrition, allowing the city to avoid layoffs.

The city workforce declined 30 percent over that time, but Gomez and Williams said it didn’t result in any service reductions.  “We were just doing more with less; we’re prioritizing and people are working harder,” Williams said.

The loss of redevelopment funds was a more abrupt, and “devastating” blow to the city’s finances, he said.

Since the Supreme Court ruling, city council meetings have been long and contentious.  The council is exploring a wide range of cost-cutting options including taking one fire engine out of commission, replacing vacation cash-outs with a use-it-or-lose-it policy, and increasing employee contributions to healthcare and retirement funds.

The Milpitas Post’s editorial board has accused the city of grossly overpaying public workers, particularly in the police and fire departments.  In a Feb. 29 editorial, the paper said the council declared a fiscal emergency so “Milpitas can pretend it’s Greece. Nobody seems to like real belt-tightening austerity in Milpitas or Greece.”

Gomez said he agreed that public employees’ “benefits can afford to be brought down.”  Some of the retirement allotments are “just not sustainable.  Pension and medical just have to be dialed back.”

Civilian employee unions said they already made deep concessions in previous negotiations and urged the council to spread the pain to public safety unions.  Police officers and firefighters point out that their unions last year agreed to staff vacancies, furloughs and the elimination of cash-outs for vacation pay.

So far, all of the unions have agreed to talk to the city but not to reopen their existing contracts.  The council says if they don’t come up with concessions or their own plans to cut costs by May 8, layoffs will be the only option left.

The council did consider raising taxes to replace the redevelopment funds.  But public polling showed that a ballot measure would stand a better chance of passing in November, and the council must pass a balanced budget by June 30.

Milpitas has one of the lowest property tax rates in the county.  Its per-capita property tax in 2011 was about 30 percent lower than that of Mountain View, a city of similar size and demographic.

“At some point we’ve got to be fair with the voters.  I personally feel these impacts are going to be somewhat severe, and we’ve got to ask the voters, ‘Hey, do you want to restore some of these services?’” Gomez said.  “I kind of feel I’m obligated to give them that choice.”

The council will meet again tonight at 7 p.m.

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