Did you know that FY 2010-2011 will be the ninth consecutive year of budget deficits for the City of San Jose, or that the City faces its largest deficit since the 2002-03 dot.com bust?

The most recent deficit estimate is $116.2 million, up from an estimate of $100+ million in the Mayor’s State of the City message last week.  Unfortunately, this will probably reach much higher and begin to approach $150M if the economy remains slow, unemployment stays high, and the state legislature once again raids city tax revenue to balance their budget.

Unlike the Federal Government, California cities are required by law to balance their budgets.  Revenue varies with business and consumer activity, rising as business activity increases, the economy expands, and unemployment is reduced.

Unfortunately, in recent years, San Jose has experienced declines in many major sources of revenue (click here for larger image):

In times of deficits, budgets are balanced by reducing non-legally required or contractual costs, borrowing from other city funds, reducing fund reserves, issuing city bonds, increasing taxable business or consumer activity, increasing tax rates, imposing new taxes, fees and service charges, or — usually the last choice — reducing staff.

In times of surplus, one would expect the city to put money aside to pay down deficits during tough times.  However, in San Jose — and many other jurisdictions — city leaders have responded to surpluses by spending more in long-term programs that may outlast the surplus, thus setting us up for what we currently face: structural budget deficits.  Our city consistently lacks the revenue in bad times to pay for programs created during good times which the city is obligated to fund.

The only way out of structural deficits is to reduce spending and increase revenue, but that's easier said than done.

In future blogs, we'll look closer at projected revenue and spending forecasts for FY 2010-2011.  In the meantime, you should read the 2010-2011 Preliminary General Fund Forecast presented to Council last November to get a better idea of where we stand.

Ed Rast is a neighborhood leader who does in-depth research and statistical analysis.  Opinions expressed are his alone and should not necessarily reflect upon groups of which he is member.