By Hutton Marshall

The La Mesa City Council will hold a final vote in August to adopt the city’s bi-annual budget, which dictates the city’s public spending for the next two years. The proposed budget shows that despite higher revenues amid a strengthening economy, city leaders plan to use $1.5 million in reserves to counter growing city spending needs.

The proposed budget is the result of a lengthy process of community input and analysis to identify major spending priorities. The community review began in February with two town hall meetings and a survey to gather input from residents. In March, city staff and elected officials gathered for a day-long strategic planning workshop, where key budget initiatives were determined. This year, city staff categorized 25 priority budget items into six overarching budget goals, which include public safety, sound financial management and neighborhood revitalization, among others.

New liabilities for the city include a 3 percent salary increase for city employees, rising costs to maintain prior pension commitments, and the replacement of outdated city equipment, some of which was delayed during the recession. The city will also add three new employees to its 260-person staff.

Sales tax revenue continues to make up the majority of money — approximately 52 percent — coming into the city’s General Fund over the next two years. (By comparison, sales tax revenue accounts for just 22 percent of General Fund revenues for the city of San Diego.)

Sales tax revenues often fluctuate at the mercy of economic downturns, which made La Mesa’s heavy reliance on them problematic during the recession. With the passage of Proposition L — the local 0.75 percent sales tax increase that took effect in 2009 — the city’s dependence on sales taxes has only grown.

Property tax revenue is projected to get a bump as well, as the housing market continues to improve. Next year, property taxes are expected to make up 28 percent of city revenues.

In addition to several other capital repairs and replacements, the city will replace 14 police vehicles over the next two years at a cost of more than $500,000. The 3 percent salary hike will add another $790,000 to the city’s expenses.

In order to maintain a balanced budget, the city will use $1.5 million in reserves over the next two years. The budget summary states that the general fund reserves — nearly twice as high today as they were during the recession — will still remain at adequate levels. Pensions, capital improvements and other costs — the primary reasons for the need to dip into reserves — are expected to outpace revenue growth in the coming years. Rising pension costs are perhaps the chief spending concern in the budget.

“While ongoing revenues are improving, expenses are increasing at a faster pace,” city staff warned in their budget summary.

Councilmember Kristine Alessio said the rising pension costs are a serious concern for the city, although she praised the staff for a sound budget and conservative money management goals.

“Continued costs for public employee pensions still strap the taxpayers and as a result of prior decisions by previous officials, La Mesans continue to see a large portion of their tax dollars being spent on pensions and not on things such as roads, parks, sewer improvements, sidewalks, etc.,” Alessio said in an email.

In the 2014-2015 fiscal year, the city will spend an estimated $5.7 million on pension obligations. That is projected to increase to $6.1 million in 2015-2016, then to $6.7 million in the 2016-2017 fiscal year. The budget proposal projects pension payments will approach $8 million annually by 2020. Included in the proposed budget is the creation of a pre-funded retirement trust fund to help offset future increases to pension costs.

The City Council approved a preliminary version of the budget in June. Final adoption of the budget is expected to take place in August. An update to the two-year budget will occur next summer at the budget cycle’s halfway point.

–Hutton Marshall is a freelance writer. Write to him at [email protected].