With the city running short on funds for street and infrastructure repairs and traditional sources of funding disappearing, staff has commissioned a thorough study on the “sidewalk-to-sidewalk” needs for future repairs and maintenance of all the city’s streets, and some council members recently suggested they might one day have to go to the voters for more revenue.
The city’s general fund currently funds street repairs to the tune of about $1 million annually, but they need about $2.5 million just to keep the streets in their current condition, according to Morgan Hill community services director Steve Rymer. In many cases, those streets are deteriorating.
In order to “address all identified street maintenance needs,” city staff estimate they would have to spend $6.2 million annually for each of the next five years.
“Each year we get further and further behind” on street, sidewalk and gutter repairs and maintenance, city manager Ed Tewes said.
Tewes and council members evoked the “leaky roof” scenario faced by homeowners in their need to put aside some money or make annual, smaller, less-expensive repairs to streets and infrastructure in order to avoid potentially catastrophic damages that could decimate the budget.
“We’ve always been in a situation where we are deferring maintenance, and it’s going to cost more to fix in the future,” Rymer said.
One example that was discussed at a City Council retreat in August is Watsonville Road, which currently shows significant “wear and tear,” Rymer said. The city has enough money to spend on minor repairs such as patching potholes, but not enough to make a long-term fix for the entire road.
“Every year we wait, the further the degradation will be,” Rymer said.
The city is now in the process of hiring a consultant to conduct a comprehensive study of all street-related infrastructure, and how much money the city will have to spend to make different levels of repairs and improvements to that infrastructure, according to Morgan Hill program administrator Anthony Eulo.
That study, expected to be completed in about six months, will consider the current condition and advised repairs to all of the city’s sidewalks, trees, curb and gutters, asphalt, street lights, traffic signals, medians, stormwater system, traffic and street name signs, parking lots and other related items.
The current $1 million budget for street repairs only includes the driving surface asphalt on city streets, from “gutter to gutter,” staff said.
The city currently has a general fund reserve of about $5.9 million, which is projected to rise slowly over the next five years, according to city administrative director Kevin Riper. Currently, if the council wanted to add funds to the street repairs budget, the only source for that money is the reserves.
Delivering a particularly big hit to the street maintenance budget was the closure of the redevelopment agency earlier this year, according to city staff. Until Feb. 1, when the state mandated the RDA’s closure, the city used to use a portion of redevelopment funds to subsidize street repairs, but that money is no longer available.
And that was only the most recent in a string of complications that have resulted in declining funding. The recession that started in 2008 put a halt to economic development, which provides property and sales tax revenues for the general fund.
Even though economic development and sales tax revenue have picked up in recent months, “It would have to be significant to improve the streets,” Tewes said.
The recession also diminished the availability of grants and other funding from the state and federal governments, Tewes added.
In the absence of all of these sources, if the City Council wants to improve services the only option would be to ask the voters to approve a local tax such as a 1/4- or 1/8-cent sales tax, utility tax or parcel tax. The council would have to approve such a ballot measure, and each tax would require differing levels of majority voter support, depending on if it is proposed as a special tax or general tax.
No such tax has been proposed, but at the August retreat the council briefly discussed the possibility of going to the voters at some point in the future, if economic development and other sources of revenue remain inadequate.
In recent weeks, the elected officials have said they would have a lot of work to do in order to get a tax on the ballot, including thoroughly assessing the need and educating voters. They also noted that the last time the city promoted a local tax - a utility tax to fund public safety staffing - it failed dismally in the November 2008 election.
“There’s no question that the infrastructure wears out and needs to be replaced,” Mayor Steve Tate said. “We really need to educate the public and get them on board with the fact that the coffers are empty. Without giving them a complete explanation we’re not doing our job.”
City staff and council members also often note that Morgan Hill has one of the lowest levels of per-capita revenue among cities in Santa Clara County. Only Saratoga and Monte Sereno fall behind Morgan Hill, which collects about $325 per capita each year. The city of Campbell, by contrast, collects about $700 per capita.
One reason Morgan Hill is behind other cities is because most other cities have some sort of local tax that was approved by the voters.
The City of Gilroy generates about $4.4 million annually from its utility tax, which is imposed on all customers of PG&E, steam, gas and electric, phone, wireless phone and cable television providers.
Gilroy’s utility tax rate is 5 percent for PG&E, gas, electric and steam customers, and 4.5 percent for cable and telecommunications users, according to Gilroy revenue officer Irma Navarro. The revenue goes to the general fund to pay for public safety, streets and other basic services.
While the tax was initially approved in 1971, predating state laws that require voter approval for local taxes, the reduction of the telecommunications tax from 5 to 4.5 percent was approved by voters in 2007, Navarro said. The tax does not have a sunset clause.
Morgan Hill Council member Larry Carr said the priority now should be continuing Morgan Hill’s “sustainable budget strategy” which strives to keep the general fund reserve between 15 and 25 percent of annual revenues. The reserve level now is about 21 percent, and Carr would like to see that level “replenished” to 25 percent before considering a local tax. He added he would support the expenditure of at least some those funds to repair “catastrophic” street damages in the absence of other revenue.
But he added the city and voters should at the minimum await the results of the sidewalk-to-sidewalk study before discussing a local tax.
“There’s no doubt that increasing services and maintenance on things like streets isn’t something that is sustainable. If we want to increase services we need to increase revenue, and we’ll need to engage the public a lot,” Carr said.
Council member Gordon Siebert added that it’s “premature” to consider putting a local tax on the ballot, but it’s clear that the city can’t keep up with road maintenance costs.
“It’s not like the city goes on vacation, or does anything discretionary,” Siebert said. “We would ask the residents to provide the funding for infrastructure (if necessary) and the roads they drive on every day which we have an obligation to maintain. But if we don’t have the funds we want to make sure the residents understand the obligations and costs.”
Council member Rich Constantine noted at the August retreat, a possible local tax was brought up as a last resort if the economy doesn’t improve the way that city staff and other experts are predicting. And even though most residents, himself included, don’t want to pay more taxes, they sometimes are necessary. A couple current examples are the Morgan Hill Unified School District parcel tax, and a Santa Clara Valley Water District tax coming up on the Nov. 6 ballot - both of which Constantine supports.
“We would much prefer economic development (to bring in more revenue) rather than taxing our citizens,” he said.
Council member Marilyn Librers said she doesn’t foresee a local tax winning a vote at the polls any time in the near future. If and when the city reaches a point where it can’t do without a voter-approved tax, “It’s going to be a hard sell,” she said.
Two candidates for Carr’s and Librers’ seats who will appear on the Nov. 6 ballot (along with the incumbents who are seeking re-election) also weighed-in on the revenue problem.
Matt Wendt, an attorney who is seeking election to the council, said the city should focus on being more “business friendly, in order to attract quality businesses and employers.”
“A city sales tax could hurt many local businesses in this tough economy,” Wendt said. “I don’t think raising taxes will be the best solution to this city’s budget problems.”
And council candidate Joseph Carrillo, the owner of a handyman and home repair business, said of the three most likely local tax options, if the city ever gets there, he would prefer a parcel tax on property owners. But he added he would have to take a closer look at the city’s finances before supporting a ballot measure.
“If the city can’t afford (street repairs), they can’t afford it,” Carrillo said. “In the olden days, if they didn’t have enough money to repair them, (the streets) would go back to dirt.”