Escondido adopted its annual operating budget last month, again tapping into its pension and other one-time funds to close an $11.2 million budget deficit. The average annual deficit over the next 20 years is projected at $18.2 million.
The city approved a total operating budget of $248 million, with a general fund budget of $130.8 million.
To close this year’s gap, Escondido pulled $1.5 million from its pension trust, $1.4 million from Covid relief funds and almost $7 million from other reserves. It also deferred $1.4 million in major purchases of vehicles and equipment.
This isn’t the first time the city has relied on one-time funding sources to close its budget deficits. It has tapped into reserves and other sources the past several years. And this time likely won’t be the last. “Until revenue is increased on an ongoing and structural basis, the city must continue to rely on short-term, one-time resources to continue operations and avoid substantial cuts to city services,” the staff report said. “With no funding plan or known option for replenishment, the reserves in Internal Service Funds will be depleted in the upcoming fiscal years.”
Internal Service Funds account for services provided by one city department to another city department.
In other words, that money they are using to close their gaps doesn’t come from endless pots.
Those Covid relief funds the city used are from the American Rescue Plan Act, and all of it must be allocated by the end of 2024 and will no longer be a source of revenue for the city’s General Fund, the staff report said.
As for the city’s 115 Pension Trust, there’s no penalty for taking or diverting funds from it, but it’s not a limitless source of money.
The city created its Pension Trust in 2018 to set aside funds to reduce pension liabilities and stabilize pension costs.
Pension liability is the difference between the total amount the city owes to retirees and the amount of money available to make those payments. Escondido currently has around $270 million in unfunded pension liability.
The city has to make annual payments toward this debt to the state pension system. These payments are currently around $25 million per year, according to CalPERS. As of March 2022, the city’s Pension Trust Fund had a balance of $25,840,638.
Continuing to pull funds from its Pension Trust will, in the long term, increase the size of the city’s pension liability, which is where most of the city’s projected debt is coming from.
For the past several years, Escondido’s use of one-time funding sources has kept drastic cuts to city services at bay. Still, balancing its budget has hit some aspects of the city.
The biggest impacts so far have been on maintenance and public works. That includes maintenance of parks, playgrounds, libraries, recreation centers, pools, streets, sidewalks, bridges, storm drains, fleet and other city facilities.
Voice of San Diego previously reported that more than $8 million of maintenance has been deferred annually since around 2008.
This annual $8 million in deferred maintenance compounds, meaning a park or recreation center that has not been maintained will remain that way until the city finds the funds to do so. That leaves roughly $120 million in backlogged fixes that Escondido doesn’t have the money for.
Community programs like Tiny Tots, Volunteer Escondido and the Kit Carson Skate Park have narrowly avoided steep cuts, and so has the California Center for the Arts, Escondido.
Youth development programs run by nonprofit Escondido COMPACT, the Escondido Police Department and other outreach programs have also been considered for cuts over the last couple years. For now, one-time funding sources have kept them afloat.
Escondido has twice attempted to address the structural gap by raising sales taxes, with ballot measures projected to raise around $20 million annually. The first one didn’t get past the City Council in 2020, and the second failed at the ballot box last year.
City staff are now working with consultants to explore more revenue options for the city, said Christina Holmes, director of finance. Those findings will be presented to the council in September.