City Expenses are Increasing Faster Than Revenue, Creating a Structural Deficit in Lafayette

The cost to maintain Lafayette’s 92 miles of public roads has increased by $1M a year, primarily due to a 33%.Photo byCity of Lafayette

Lafayette, Calif. -- The City of Lafayette first became aware of potential long-term financial challenges in FY21-22 as we emerged from COVID-19 and began running calculations for the five-year budget forecast.

For the past two years, the Council has focused on its short-term and long-term finances as one of its highest priorities and discussed options at several public meetings regarding the ongoing deficit of more than $2M annually.

At the request of the City Council, City staff reviewed all City services, projects, and programs to identify which services could be reduced or eliminated to match expected revenues and presented their extensive budget analysis to identify what a 10% reduction in expenses would look like at the City Council meeting on June 10, 2024.

At that meeting, rather than making immediate spending reductions that would impact services such as the number of police officers, street and drain maintenance, support for senior services, and other services, the Council decided to:

• utilize remaining one-time American Rescue Plan Act (ARPA) funds to bridge the deficit through FY24-25
• forego adding any new tasks or projects to the current workload
• freeze hiring for four approved staff positions
• take steps to place a funding measure on the November 5, 2024 ballot, asking Lafayette voters to authorize a local sales tax increase to avoid cutting back or even eliminating some programs and services.

One of the main reasons the City of Lafayette is experiencing a structural deficit now is that expenses are increasing faster than revenue. “From gas to groceries -- everything is more expensive than it used to be; the City’s experience is no exception,” says City Manager, Niroop Srivatsa.

Examples of increases in City expenses include:

• The cost to maintain Lafayette’s 92 miles of public roads has increased by $1M a year, primarily due to a 33% increase in the price of contracted labor and materials over the last five years compared to a revenue rise of only 23% over the same time period.
• The cost of insurance (general liability, property, and employment insurance) has increased by $385,000 over the past five years. This includes the most recent estimate for FY24-25, which has increased by $85,000 (17%).
• The cost of maintaining the Downtown Core Area Landscape and Lighting District has increased by 23% over the past 10 years, while the assessments designated for this purpose have remained unchanged. The District’s funding deficit is now approaching $250K annually and has been bridged with City General Fund monies.

Tracy Robinson, Administrative Services Director, said, “In addition to inflation, there are several projects that have been required by the State that have led to increasing costs.” These include:

• The State continues to mandate programs and policies for cities without providing additional revenue. One example is stormwater pollution prevention, where the State Water Board consistently increases compliance requirements without providing revenue to pay for that compliance. This year's deficit related to storm water pollution prevention is nearly $300K, up 36% from five years ago.

• Ancillary infrastructure such as curbs and ramps to satisfy ADA requirements, plus sidewalks, paths, speed bumps, and flashing beacons, which improve traffic safety, have redirected money away from paving projects.

• Affordable housing mandates are also expensive. In addition to the $215K annually set aside to assist with affordable housing, 60 programs have been identified to implement the City’s new housing element (necessary to comply with expanded state laws around housing). These programs require the equivalent of at least one full-time employee for the next several years. Currently, the Planning Department has one FTE position frozen because of the deficit.

“As the City has grown and acquired assets, the cost of maintaining its infrastructure has continued to increase, Robinson continues. “While the City’s practice has been to set aside money in “sinking funds” in order to accrue money over time for large capital expenses, inflation has rendered those amounts insufficient for the future.

“In addition, all the infrastructure related to traffic safety projects and neighborhood traffic calming require ongoing maintenance. Every future project, even those built primarily with grant funds, will require money to be set aside for maintenance, and those funds do not currently exist,” Robinson added.

The Lafayette City Council has placed Measure H, the Lafayette Sales Tax Measure, on the November 5, 2024 ballot for Lafayette voters to decide whether to approve a local sales tax increase of 1/2% (half a cent for every taxable dollar) to maintain the current level of City services and programs.

For more information email LafayetteListens@LoveLafayette.org.