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MIJ: Novato struggles under $1.5 million deficit
Wednesday 1 Oct 2008, 09:32
Filed under: Marin, Novato

About Half of Marin County foreclosures were in Novato. They could be in deficit in two years. IE Bankrupt.

Rob Rogers
Article Launched: 10/01/2008 06:19:10 PM PDT

Slumping auto sales and a moribund housing market have ravaged Novato’s city budget, leaving the city with a $1.5 million deficit over the next two years.

Yet unlike the Novato school district, which has already laid off 41 employees, city leaders insist they can weather the coming storm without laying off workers – even though their salaries account for as much as 80 percent of the city budget.

Instead, City Council are proposing a range of strategies – from boosting retail development to selling off the city’s surplus furniture – to offset a drop in property, real estate transfer and sales taxes.

“We need to batten down the hatches and all get through this together,” Mayor Pat Eklund said at a budget workshop Tuesday. “The idea is for us not to do any layoffs.”

But interim City Manager Patricia Thompson said it’s unlikely the city will be able to pay its bills without significant personnel cuts.

“You’re trying to plug a sizable hole, and most of the pieces you’re talking about are very small,” Thompson said.

Although every Marin city has been affected by the stumbling economy, Novato has been hit especially hard by plummeting auto and real estate sales.

“A good percentage of the sales tax base comes from a couple of major sources,” said Coy Smith, chief executive officer of the Novato Chamber of Commerce. “One is Vintage Oaks, and the other is car dealerships. Clearly, retail sales are down, and car sales are definitely down dramatically. That has a huge impact.”

Novato officials expect the town to suffer a $500,000 deficit in fiscal year 2008-09 and a shortfall of more than $1 million in 2009-10. The city’s property tax revenues are expected to grow by 4 percent in this year – half as much as in recent years – while sales tax revenue will increase by 0.1 percent.

“We have a long list of revenues that are either flat or taking a dive overall,” Assistant City Manager Mary Neilan said. “Overall, revenues are down by 3.5 percent this current year. While expenses are also projected to decrease by 2 percent, it’s that gap we have a problem with.”

In the past four months, more than 300 Novato properties have gone into foreclosure – nearly half of Marin’s total, according to The median price of a single-family Novato home fell 20 percent from $870,000 in August 2007 to $702,500 in August 2008. In addition, about half of the 2,600 Marin properties reassessed by the county are in Novato, lowering property tax revenues still further.

Novato schools, which already slashed 41 positions as a result of state budget cuts, have no plans to make further reductions this year. But Superintendent Jan La Torre-Derby expects next year to be twice as bad as the district previously predicted.

“Instead of a $2 million cut, we’re planning on $4 million,” La Torre-Derby said. “If you’re a revenue-limit district like we are, you depend on state funds. We don’t want to overreact, because a lot can change. So far, we’ve done the cuts we needed to do.”

In March, former City Manager Dan Keen urged the council to reduce spending in order to curb declining revenues, arguing that the city could reach deficit conditions within two years.

“I knew it was coming, but sometimes it takes a while to face it and grapple with it,” said Councilwoman Jeanne MacLeamy. “Now we’re in a situation where we have to do something about it.”

The expansion of retail giant Costco, the opening of Hamilton Marketplace and the impending arrival of Whole Foods in downtown Novato will help, city leaders say – but not enough. To boost that revenue, businesses are pushing for the city to create a major new retail development near the Trader Joe’s grocery store on Redwood Boulevard.

“The ability to add 400,000 square feet of new retail would provide not only additional property tax revenue for the redevelopment district, but would potentially add significant sales tax revenue in excess of a million dollars every year,” said John Williams, chairman of the Novato Economic Development Commission. “When you look at the money that went into Vintage Oaks – $8 million or $9 million, which has produced somewhere in the range of $35 million in sales tax revenue – that’s a good return on investment. And that’s what the city has in mind for North Redwood.”

The council this week said it would consider about $300,000 in cuts recommended by city department heads, keeping most vacant positions open. The exception was the police department, where council members were reluctant to eliminate a sergeant’s position.

Yet council members doubted they would be able to avoid further cuts – including layoffs – in the near future.

“Overall, the city budget is 75 to 80 percent staff,” MacLeamy said. “We don’t have any quick fix for new revenues, and we’re going to have to make some undesirable and unpopular cuts.”

The City Council plans to hold its next budget workshop Oct. 21.

Contact Rob Rogers via e-mail at; IJ reporter Jim Staats contributed to this report.

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