My Council Corner in January of this year was titled ?CAUTION ? ENTERING 2003?. That caution was well placed, because, as I examine the State Budget, California is in very serious financial trouble! Economists tell me they have never seen such a dire financial crisis.
How did this happen? Is California the only state with this problem? Who is to blame? How will all of this effect our town? All good questions. Let?s look for some answers.
For several years state and federal governments received well above normal income tax revenue through high employment, capital gains, and closure of tax loopholes. These ?good years? provided both state and federal governments a lot of money to spend. The State Legislature and the Governor both concluded that this revenue was the new paradigm, and would go on forever. WRONG! New programs were initiated that grew and will continue to grow much faster than revenue, even in good years.
Is California the only state with this problem? No, most states are in financial trouble. California is the worst of all, because we had the greatest surplus just a couple of years ago. That encouraged the new run-away programs mentioned above.
Who is to blame? The answer is market forces ? meaning no customers for products. Money, including huge retirement funds as well as small investor savings, went into speculative ventures involving high-tech, high growth products that did not come close to meeting investor expectations. The so-called Internet bubble burst and with it went an awful lot of paper profits and money. Capital gains that fueled tax revenue growth vanished overnight. To the extent that state and federal governments should have foreseen capital gains revenue as windfall and saved - not spent - share the blame for bad planning.
How will this effect our town? Foster City?s Budget will be less impacted than the State Budget. Local government is very different than state government. Cities have City Managers who are responsible for long term planning with direction provided by the City Council. This does not exist at the state level. Foster City has adequate reserves with which to weather this economic downturn. The state does not. Foster City looks at a five-year financial plan. The state does not.
If you want to observe the final development of Foster City?s 2003-04 Budget and the 2004-05 to 2008-09 Financial Plan, please attend the Budget Study Session from 9 AM to 1 PM on Saturday May 10th or from 4 PM to 7 PM on Monday May 12th. Both sessions are held in the Wind Room, second floor above the Library.
Over the past two months the City Council provided the City Manager and his staff policy guidance for preparation of the Foster City Budget and the Foster City Financial Plan. I believe you will be pleased with the results. Come and see!
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