‘Bleak’: Novato scrambles to hack down deficit before budget vote

Novato officials are chipping away at the city’s multimillion deficit as the council prepares to approve a budget for the 2024-25 fiscal year.

The City Council received a presentation from the staff on June 11 about the upcoming budget, which projects a deficit of approximately $4 million.

Officials are projecting $54.3 million in expenses and $50.3 million in revenues in the 2024-25 budget. This fiscal year the deficit is estimated at about $3.3 million.

City Manager Amy Cunningham said the budget will be adopted on June 25. The new fiscal year begins on July 1.

“We’re still struggling to balance the budget,” Cunningham said. “One-time funds are depleted and we are now being forced to dip into our emergency reserves to provide basic services.”

The 2024-25 fiscal year will be Novato’s fifth in a row with a deficit.

“It’s a bleak budget, but I think it’s about as good as could be hoped for given the current restraints,” said Councilmember Tim O’Connor.

Carla Carvalho-DeGraff, the city finance director, said this year is a tipping point, with no one-time money available or substantial increases in revenue. She said reserves are dwindling to cover the deficit.

“This is the most conservative picture I can present,” she said.

The city has proposed using the emergency disaster response fund to cover the deficit. The fund’s projected available balance this year is $8.75 million, which would nearly halve the fund to cover the upcoming fiscal year deficit.

At the end of the year, the city would be out of conformance with policy that dictates that the fund have a minimum of 15% of expenses. The fund would be reduced to approximately 9% of expenses, Carvalho-DeGraff said.

The budget figures are based on projected budget figures for the 2022-23 budget year, Carvalho-DeGraff said. The city is completing a financial audit of that year, she said. She added that the current fiscal year needs to be completed before a total review is done on the year as well.

“Is this next year going to be the year where we don’t have any money to go to?” Councilmember Pat Eklund said.

Revenues are up 1.24% from last year. Property taxes amount to $19.4 million in revenue. Sales taxes are about $16.2 million.

The largest expense to the city is salaries and benefits. The city has 198 full-time employees, up from 197 last year and 195.5 the year before. The staff peaked in 2019-20 with 208.5 employees. The year after that, it was 188.5.

The city is also staring down a 20.1% unfunded liability for CalPERS, the highest in the last five years.

The capital improvement fund includes 56 ongoing projects and three proposed projects. The city has $18.8 million in ongoing project balances carrying over into the next fiscal year and $4.1 million in new funding proposed.

Projects in the coming years include utility undergrounding work for the Novato Boulevard widening project and work on the Grant Avenue bridge work.

The city’s property tax distribution from the county is considered one of its weak spots. The city receives 7% — the lowest in Marin — and only receives only 1.25% of its 8.5% sales tax.

The city is weighing an increase in the city’s sales tax, one of the lowest in Marin. An increase of 0.75% could bring in up to $10 million, the city has estimated.

The city would have to put the tax increase on the ballot. City leaders have about two months to meet the deadline for the Nov. 5 ballot.