Norwalk declares fiscal emergency

NORWALK − The Norwalk City Council approved a $135 million, 2014-15 fiscal year budget on Tuesday, but also declared a fiscal emergency as nearly $2 million in tax revenues may vanish if residents do not vote to modernize the utility users tax this November. While city officials were able to mitigate a $1.5 million deficit during budget negotiations this year, a flat sale taxes and an outdated utility users tax are slowly choking the city’s revenue stream just as necessary costs are escalating.

While projected revenues during the 2014-15 fiscal year are expected to reach $41,625,006, an increase of 2.4 percent, city expenditures will total $41,606,570, leaving a small operational surplus.

New expenditures include a 2.6 percent increase in the city’s contract with the Los Angeles County Sheriff’s Department and a $176,000 increase in utility costs. The city also green lit 33 new capital projects, totaling over $20 million. Fifteen of the projects are park improvements.

The new budget does not include any layoffs, but some positions were reclassified including the elimination of a vacant accountant position. Due to recession, the city held back on replacing major equipment and vehicles, but next fiscal year, funds are allocated to update old equipment and purchase new vehicles.

However, Jana Stuard, the city’s finance director, says the problem lies in the city’s revenues, which have returned to pre-recession levels, but have not kept up with inflation.

“Our sales tax has seen no growth and we can expect it to drop,” said Stuard, who linked the decrease to the I-5 Freeway widening project and changes in consumer shopping habits. “We must prepare for future decline.”

Stuard also highlighted the utility user tax, a major source of revenue for Norwalk that has been declining since 2009. City officials say the tax on electric, gas and phone lines needs updating to incorporate newer forms of technology, such as cell phone service.

City Manager Mike Egan said any change in language on the utility users tax must go before the voters this November, but if it’s not passed, the city stands to lose $2 million in revenue that will negatively affect public safety programs, community services, and city maintenance.

However, the threat of losing $2 million in revenues is not the only reason council members agreed to declare a fiscal emergency.

CalPERS retirement costs to the city are also expected to increase by $1.9 million over the next six years as more employees enter retirement. The Affordable Care Act will also soon require action from the city as well as $32 million in unfunded liability as a result of retiree’s medical benefits.

On May 22, Norwalk councilmembers adopted a revised reserves policy, which pledged to increase the city’s emergency funds to 20 percent of operational expenditures, but Stuard said the city’s reserves will not significantly increase by the end of the 2014-15 fiscal year.

“We are going to end with a budgetary fund balance of $9.06 million, which is within our new reserves policy,” she said. “This allows the city to have two and a half months of operating money in case of disaster, earthquake, or economic downturn.”

Although Mayor Marcel Rodarte expects blowback after the unanimous vote, he defended the decision to declare a fiscal emergency in Norwalk.

“This is not an easy decision -- but it allows us to put a measure on the ballot,” he said. “We’re not really saying we’re in a dire financial situation, but if [the utility users tax] ends up on the ballot in November, the voters will have to decide. If it fails, we’ll have to cut programs.”

Rodarte said the council is working on ways to mend the flat sales tax in the city, but he maintained that modernizing the utility users tax is vital.

“I know the utility users tax is not popular, but we must fix the language. If we don’t, we run the risk of losing that revenue,” he said. “Without it, we will see significant cuts.”

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Published: June 19, 2014 - Volume 13 - Issue 10