Saratoga could have a $4.8 million budget deficit by 2026

The city of Saratoga could face a $4.8 million budget deficit by 2026, staff said at a special city council meeting Wednesday.

Council heard a presentation on the city’s preliminary three-year budget forecast, which showed the city’s spending will likely surpass its revenues, ahead of salary negotiations and the council’s goal-setting retreat.

“I’m not happy to present this to you, but I think it reflects the best information we have available today,” administrative services director Nick Pegueros said.

Pegueros’ presentation was meant to brief councilmembers and the public on major considerations that will influence the 2023-24 budget, like salary negotiations and law enforcement costs.

Property taxes, which are Saratoga’s largest revenue source, are forecasted to grow at around 4%, increasing by a half-million dollars annually. But expenditures are expected to increase by $1.5 million annually.

“That isn’t to say there aren’t other revenue options,” Pegueros said. “It is indicative and supports the reality…that eventually our expenditures would grow faster than our revenues could keep up.”

The most significant threat to the town’s forecasted deficit is the potential loss of $1.3 million in annual revenue from the city’s solid waste franchise fees, which are threatened by the state Supreme Court’s ruling in Zolly v. the City of Oakland. The ruling challenged the franchise fees that Oakland charges to certain waste hauling companies.

The city is still waiting on a decision from West Valley Solid Waste Management Authority, but Pegueros said that losing those revenues would be a “significant hit” to the city’s $26 million general fund.

The city’s largest expenditure is salaries and benefits, coming in at more than $9.8 million annually. Saratoga is entering negotiations to replace two labor contracts expiring on June 20.

If salaries and benefits increased by 3% to 5%, it would cost the city $300,000-$450,000 a year.

The second largest expenditure is Saratoga’s nearly $7.4 million annual contract with the Santa Clara County Sheriff’s Office. City council could choose to modify the services provided under the current agreement.

Council could choose to use the city’s $1 million in reserve funds to offset the estimated deficit, or could cut or modify community services.

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