2011 Index of Silicon Valley - Silicon Valley Community Foundation

Special Analysis The Crisis in Local Government and Choices Facing Our Communities
Understanding the Challenge
continued from page 11
Local Finance Trends: Revenues, Spending, and Deficits
City and county governments provide essential public services that enable a thriving community and growing economy. These services
include public safety (police, fire, and emergency services), the justice system, social services, parks and recreation, and land use
planning. City and county governments both maintain roads, water systems and sewers, waste disposal and in some cases electric
utilities. County governments have the additional role of administering state and federal programs, such as child protective services,
public health, adult and juvenile detention and probation, and elections. Funding for these services comes from a variety of sources.
The actual mix of funding is different for cities and counties based on the different roles they play in our system of government and
can vary from county-to-county and city-to-city.
The current economic downturn has put tremendous pressure on city and county governments that are faced with declining revenues
and increasing demand for public services. Maintaining a mix of stable and more elastic revenue sources has traditionally helped
communities buffer themselves from the ups and downs of the business cycle. While sales tax revenue declines when the economy
slows (as consumer spending declines), property tax revenue has traditionally served as a significant and stable source of local revenue
until the latest recession. Unfortunately, the bursting of the housing bubble and the related foreclosure crisis has led to steep declines
in property values and county revenue from property taxes.
In addition to the increased exposure to economic cycles, communities made substantial commitments in the way of salaries and benefits
to attract employees during the economic expansion of the late 1990s. These are long-term commitments that are difficult to roll back
without affecting current and future employees, but the resulting problem of future unfunded pension and retiree health obligations
is hitting local governments across the nation. 4
Trends in City Revenue
and Expenditures
Silicon Valley’s cities are facing an unsustainable financial situation:
falling revenues and increasing expenditures. Projected revenue
for the fiscal year 2009/10 is estimated to be 2 percent lower
than in 2001/02, while total expenditures are projected to increase
8 percent over those of 2001/02 (Figure 2-1). In dollars, this
has meant a drop of $24 million in revenue and an increase of
$119 million in expenditures over this period; and this is only
for the ten cities in the region which provided comparable information.
The largest source of city revenue is service fees and charges for
city services, including sewer and water and solid waste disposal.
But the use of this revenue is limited to the delivery of these
services. As a result, the daily operations of a city government
are funded through a variety of taxes such as sales and use tax,
property tax, business license tax, transient occupancy tax and
utility user tax. 5
Figure 2-1
Growth Relative to Fiscal Year 2001/02
(100=2001/02 inflation-adjusted values)
Growth Relative to Fiscal Year 2001/02
110
105
100
95
Revenue and Expenditures
Silicon Valley Cities
2001/02 2009/10*
Total Expenditures
+8%
Total Revenues
-2%
2001/02 2009/10* Change
Total Expenditures $1,444,052,924 $1,563,920,519 $119,867,595
Total Revenues $1,389,148,720 $1,364,736,426 -$24,412,294
*Fiscal year 2009/10 is projected
Note: Only Silicon Valley cities that provided financial data for all years are included (Atherton, Belmont, Daly City, East Palo Alto, Half Moon Bay, Menlo Park, Millbrae, Pacifica, San Mateo, Woodside, Campbell, Cupertino, Milpitas,
Morgan Hill, Mountain View, San Jose, Santa Clara, and Sunnyvale)
Data Source: Joint Venture Survey of Silicon Valley Financial Officers
Analysis: Collaborative Economics
4 "All Economics is Local," The Economist (November 18, 2010). Downloaded from http://www.economist.com/node/17525731
5 A use tax is a fee on the use of a product which was purchased outside the state and a sales tax does not apply. See Charles Summerell, "Understanding the Basics of County and City Revenues." The Institute for Local Government, 2008.
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