Mayor pitches $2 billion Fresno budget. How will city close a $47 million shortfall?

A proposed Fresno city budget of nearly $2 billion for the 2024-25 fiscal year includes a range of measures intended to close what was forecast as a $47 million gap between income and expenses.

Mayor Jerry Dyer told the Fresno City Council on Thursday that those measures largely safeguard the jobs of city employees, leaning instead on finding ways to save costs or generate revenue while striving to keep most city services intact.

“No layoffs, no furloughs, no hiring freezes — none of those draconian things that we had to do during the recession,” Dyer said as he unveiled his budget proposal to the City Council.

Between the city’s General Fund — the pot of money from which many of the city’s day-to-day bills are paid — and other funding categories, the total budget proposed by Dyer amounts to $1,991,205,000.

It will take what are likely to be intense negotiations between the City Council and the Dyer administration to hammer out differences in priorities before a final version of the budget is adopted by the end of June. The new budget year begins on July 1.

The General Fund budget, projected at about $483 million, is where the city has the greatest flexibility in how dollars are spent. But it’s also where sources of revenue are subject to variability and vagaries of the economy.

Since 2020 and the outbreak of the COVID-19 pandemic, Fresno and other local government agencies in California and throughout the nation received millions of dollars in coronavirus relief to help prop up their budgets and operations. “While we have previously relied on one-time funds such as the CARES Act, the Emergency Rental Assistance Program and ARPA (American Rescue Plan Act) to offset increasing expenses in the city of Fresno, those funds are no longer available or severely diminished,” Dyer said at a Wednesday press conference on the budget proposal.

The city does still have some ARPA money available, and “we are going to use some of those funds this year to balance the budget,” he added, “but once that occurs, they will be gone.”

While property taxes on land and buildings in the city have increased, Fresno has experienced less-than-expected income from several important sources, including sales taxes, business license taxes and hotel/motel room taxes. At the same time, expenses have been on the rise, from utility bills from PG&E to insurance for workers compensation and liability, pension obligations, health benefits, and computer technology and software.

The city’s gas and electric bills from PG&E, for instance, are expected to be about $46.8 million — an increase of $4.8 million over the current budget year, Dyer said.

Fresno also faces contractual obligations with its employee labor unions for pay increases in 2024-25 that add up to $15 million from the General Fund and $32.2 million across all of the city’s departments. Additionally, a multi-year federal grant that enabled the city to hire 42 firefighters is expiring this year, and the city now has to absorb the expense of keeping those firefighters, at a cost of $4.9 million in the 2024-25 budget.

All told, what had been forecast in late March to be a budget shortfall of $37 million ballooned to $47 million, Dyer told the council.

Between March and May, Dyer asked most of the city’s 22 operating departments to find ways to reduce their expenses by 3%. “The overall savings from this exercise was $3.5 million,” the mayor said.

That’s on top of anticipated savings of more than $21 million from attrition – not having to pay a salary between the time a city employee leaves a position and the time when it is filled. That amounts to an attrition rate of about 6.2% in all of the city departments except for the fire department, where leaving positions unfilled creates an additional cost in overtime pay.

While sales taxes fell short of expectations this year, Dyer said he anticipates that income from cannabis-industry taxes and fees will climb dramatically in 2024-25 as the number of licensed, legal retail dispensaries continues to grow, from two in the fall of 2023 to more than a dozen now. Cannabis industry revenue for the city is expected to reach $7.1 million.

The budget also includes about $15.7 million from the city’s transient-occupancy tax — taxes paid by people who stay in hotels, motels and short-term rentals. Dyer said a new agreement with short-term rental platform AirBNB to collect taxes on Fresno rentals on behalf of the city is expected to result in about $10 million that otherwise was going uncollected.

Cutting costs, saving money

Several City Councilmembers voiced particular concern over one budget proposal floated by Dyer: reducing the number of firefighters on engine crews from four to three at three Fresno Fire Department stations: Station 2 on West Avenue north of Herndon in northwest Fresno; Station 16 at Polk and Clinton avenues in west-central Fresno; and Station 17 at Maple and International avenues in northeast Fresno.

Fresno Fire Chief Billy Alcorn said that in developing the budget proposal, the three stations were chosen for crew reductions based on the volume of calls relative to other stations.

“I understand the need (for) everyone across the board to make those cuts,” said Councilmember Mike Karbassi, whose District 2 encompasses northwest Fresno and the area served by Station 2. “I just fought last year to get Station 2 back to four persons.

I just want to say that by the time this budget is over, Station 2 will be at four firefighters,” Karbassi added. “I will not allow (the budget) to go through unless that happens. I fought really hard for that station. … That’s going to be a red line for me.”

Other strategies that Dyer and his team have proposed to make up the deficit are issuing bonds and taking on long-term debt for a pair of big-ticket items including about $15 million for construction of a new Fire Station 12 and more than $9.2 million for development and construction of a new 911 dispatch center. Dyer said the debt service will cost about $1.3 million per year.

Station 12 will move from its current location on Marks Avenue south of Shaw Avenue to a new site near Ashlan and Valentine avenues. The 911 dispatch center, now located inside the Fresno Police Department headquarters, will be built at the city’s municipal service center at El Dorado and E streets.

Short-term savings, long-term debt

The city had originally anticipated using ARPA funds to pay for both Station 12 and the 911 call center. “However, the cost for these two projects significantly increased over time, and I am proposing to the council … that both projects be fully bonded, freeing up American Rescue funds to help absorb other expenses in the General Fund,” Dyer told the council.

While issuing bonds means the city will be paying interest on debt for several decades, borrowing is expected to be less expensive since three major credit-rating services — S&G Global Ratings, Moody’s and Fitch Ratings — have recently upgraded the city’s credit rating. “In fact, on May 3, Fitch announced an upgrade to the city’s rating from A+ to AA, which is a notable two-notch increase,” Dyer said Wednesday. A higher credit rating typically translates to lower interest rates on bonds.

Dyer is also proposing that the city enter long-term leases to acquire a new helicopter to replace one of the Fresno Police Department’s two 20-year-old Eurocopter helicopters, and to pay for communication upgrades including a new antenna tower for the city’s emergency dispatch system.

Police Chief Paco Balderrama said the helicopters used by the department are no longer in production, nor are the parts, making maintenance expensive as the vehicles are now at the end of their expected life cycle. The price tag for a new helicopter is likely to be about $5 million. Between the sale of one of the aging choppers and selling property that is no longer being used by the police department, Dyer said, the cost of leasing a helicopter is expected to be about $300,000 in the 2024-25 budget.

The lease for upgrades to the communication system, in the meantime, would pare a one-time cost of $1.7 million into easier-to-digest annual lease payments of $80,000.

But despite these and other measures, Dyer warned that future years could also be difficult.

“We recognize that the budget challenges we currently face in (the 2024 and 2025 fiscal years) could possibly grow worse in FY 2026, based on all indications,” he said. “Therefore it is imperative that we continue to maintain, in my opinion, a strong reserve and to look for innovative budgeting solutions that will further reduce expenses and increase revenues in FY 26.”