Grim News in Arizona State Budget and Sacramento City Budget

Sacbee is reporting Sacramento aims to cut staff by 10%.

The city of Sacramento announced Friday it is trimming its work force by more than 9 percent and, in an effort to avoid massive layoffs, it is offering buyouts to as many as 200 employees.

Assistant City Manager Gus Vina said the city has eliminated 204 jobs through a hiring freeze, attrition, layoffs and other measures. But to stanch its fiscal hemorrhaging, the city intends to eliminate about 300 more jobs and make cuts in service.

Now, with the potential of more layoffs looming, the city and labor unions have proposed an employee buyout plan, hoping up to 200 workers will voluntarily give up their jobs.

In the fiscal year beginning July 1, the capital city is facing a $58 million budget shortfall in its $450 million general fund, Vina said.

The city's financial crisis is caused by unexpectedly low revenue and escalating costs, budget officials said. Sales tax revenue is below estimates. Also, the downturn of the housing market and rising unemployment are likely to mean a significant slowdown, or even a loss, in property and utility users tax revenue.

I have news for Sacramento: This is round one. More layoffs will be coming.

Layoffs cannot be good news given the Sacramento region's unemployment rate is the highest in 11 years.

The Sacramento region's unemployment rate shot up a half-point in January to 6.4 percent, the Employment Development Department reported Friday. Although the increase was due mainly to seasonal cutbacks, it was also clear that the Sacramento area is getting clobbered by the soft real estate market.

Unemployment in greater Sacramento is nearly a point higher than a year ago, and the highest it's been since the 6.6 percent rate recorded in January 1997. Back then the region was shaking off the lingering effects of the early 1990s recession.

Statewide unemployment in January held steady at 5.9 percent, but 20,300 jobs vanished. The loss was largely the result of the TV and movie writers strike, which shut down much of Southern California's entertainment industry, said Howard Roth, chief economist at the state Department of Finance.

But while the show-business jobs are likely to return, gloom continues to spread across other industries. EDD's annual revision of its statistics show that California's employers added just 40,700 jobs last year, a growth rate of only 0.3 percent. The uptick was only about half as strong as previously reported.

Vallejo Unions Agree To Cut Wages

In Vallejo, cops, firefighters agree to cut raises.

Vallejo police and firefighters have tentatively agreed to forgo raises amounting to millions of dollars in savings as part of concessions aimed at staving off bankruptcy for the cash-strapped city.

The deal, which will be considered Monday for approval by the City Council as part of an emergency financial plan, doesn't necessarily end debate over whether the city should seek bankruptcy protection.

Vallejo is expecting to go over its $80 million general fund by $13 million and is looking to dramatically trim its spending to keep it from becoming the state's first sizable city to seek bankruptcy protection.

The 8.5 percent salary increase scheduled for fiscal 2008-09 would be cut to 2 percent. The starting salary of Vallejo firefighters is about $85,000, a union official said.

For more on Vallejo please see Vallejo California On Brink Of Bankruptcy and State, Municipal Governments Feeling Pain.

No wonder Vallejo is in trouble. A starting salary of $85,000 for firefighters is absurd. The starting salary for New York City Firefighters was $36,400 (2006 data). Chicago starting firefighter salary is $40,000+ (2006 data).

The best thing for Vallejo taxpayers would be bankruptcy and compete renegotiation of union contracts.

Dramatic Drop In Arizona Revenue

With a tip of the hat to Credit Bubble Stocks, the Arizona Joint Legislative Budget Committee report shows grim January data.

Total January General Fund revenue collections were $849.3 million, or (16.1)% below January of last year. This amount was $(226.2) million below the forecast based on the June enacted state budget.

For the first 7 months of FY 2008, General Fund collections are down (3.5)% when compared to last year, and are $(619.2) million less than the enacted forecast. When factoring in Urban Revenue Sharing, year-to-date collections are (5.1)% below last year.

The January decrease represents the largest percentage year over year decline since April 2002. The dramatic drop in January revenues was across the board in all 3 main revenue categories:

• Sales tax collections were down (7.5)% compared to January 2007, and were $(71.9) million short of the monthly forecast. This is the largest percentage year over year decrease since at least FY 1991.
• Individual income tax collections were down (11.9)%, which was $(98.7) million below forecast.
• Corporate income tax collections were (138.9)% below last year, and $(35.7) million below the forecast.

City by city, state by state there are going to be budget shortfalls. These shortfalls are going to get worse over time. Unions are not going to like it, but contracts are going to have to be renegotiated.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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