After years of deficits and budget shortfalls, the city of Sacramento suddenly finds itself with a revenue windfall. City leaders should proceed with caution.
The money comes courtesy of Measure U, the temporary half-cent local sales tax increase voters passed in 2012.
Measure U was expected to generate about $31 million in the current fiscal year, but new projections show that the special tax will produce a third more than that, about $10 million more than original estimates. Updated projections suggest a similar gain in each of the next four years before the tax expires in 2019.
The extra money is mostly due to better-than-expected economic growth and the retail sales that growth generates. New car sales are a big part of that, as the city gets a share of the sales tax even when a city resident buys a car at one of the big suburban auto malls.
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Another new source of revenue is the tax that has always applied to retail sales on the Internet but only recently has been collected and passed on to local government by giants like Amazon and other big online sellers.
What should the city do with the money?
Some of it is already committed to salaries and pensions for city workers previously hired with Measure U funds.
The city also is considering spending the money on new fire stations and park facilities, and upgrading public swimming pools. Other worthy ideas no doubt will emerge in the weeks ahead.
But City Council members should think twice before putting any of this new money into employees or programs that would need an ongoing source of funding.
The updated estimates put the Measure U revenue at about 10 percent of the city’s general fund. That’s a hole that will have to be filled in a few years if the tax expires on schedule, which it would unless voters agreed to extend it or make it permanent.
A better approach would be to use the money for capital projects and repairs, or grants to community groups that would be awarded on a year-to-year basis with no expectation of continued funding.
Another prudent move would be to use some of the new-found money to begin paying down the city’s huge unfunded obligation for public employee pensions and health benefits.
That way, if the latest estimates prove unrealistic or the voters decline to extend the tax, the city will have improved its financial condition rather than setting itself up for a very painful transition to life without the Measure U tax.