Campbell gets brief reprieve from its financial challenges

The agreement reached this week on the city of Campbell’s operating budget means that a year-end shutdown of government has been averted. But it would be foolhardy of Mayor George Krinos and members of council to consider this development as anything more than the calm before the fiscal storm next year — if tough decisions about spending aren’t made post-haste.

Indeed, in the midst of the figurative sigh of relief in City Hall that disaster had been avoided this year, there was this poignant observation from Finance Director Sherman Miles: “In 2011, there will be no more funds to raid.”

Miles’ comment is not only a clarion call to the mayor and council to focus on next year’s budget, but it revealed how Campbell was able to stanch the bleeding this year. City and state officials met recently and did some juggling of the various accounts. Expenditures from the troubled general fund were moved to other funds. With the overspending in some departments and the less-than-anticipated income tax revenue, Campbell government was on the verge of collapse.

The situation prompted the state Fiscal Planning and Supervision Commission, which was created in 2004 after the city was declared by the state auditor to be in fiscal emergency, to set a Monday deadline for Krinos and lawmakers to submit a financial recovery plan. The commission has statutory authority over Campbell’s finances.

Last Thursday, city officials met with representatives of the state auditor’s office and Paul Marshall, chairman of the oversight commission, and endorsed the recovery plan developed by a financial supervisor from the auditor’s office.

But while city government avoided a showdown with Marshall and his colleagues, the bottom line is that the future remains bleak. That’s because the state and national economies continue to sputter, causing at-risk communities like Campbell to suffer the loss of tax revenue.

There is nothing to suggest that the first months of 2011 will be any different from what the city has experienced this year. Revenues will remain stagnant or even decline, which means that city officials will have to do the only thing government can do under such circumstances: Cut expenditures.

Taxes

The public sector gets most of its operating funds from taxes, and when the people who pay the taxes, mostly in the private sector, lose their jobs or have their wages frozen or cut, the revenue stream is reduced to trickle. While some government officials believe that raising taxes is the only option available to them, the mayor and council must be aware of the fact that the city’s tax base has diminished to the point that the money just isn’t there.

Therefore, a reduction in spending is the only viable option.

In fact, because the city is in fiscal emergency it must develop a five-year plan that shows how the annual budgets will be balanced. Therein lies the challenge.

As a matter of fact, the long-term forecast must take into consideration this reality: The city’s six police officers stand to receive pay raises this year that will carry a price tag of $16,500, including the cost of benefits.

The raises were ordered by an arbitrator — despite the city’s state of fiscal emergency.