FREMONT, Calif. — The city of Fremont has gotten substantially more money through sales taxes over the past two years than expected, but it turns out that was by mistake.
Earlier this month, city staff shared a year-end budget report with the Fremont City Council that showed that the city’s tax revenues, primarily driven by sales tax, exceeded May projections for fiscal year 2022-2023 by $8.7 million. However, the state Department of Tax and Fee Administration recently informed city staff that a portion of that sales tax revenue was incorrectly reported by local businesses, resulting in the city being overpaid by millions.
“The state will be taking it back by reducing our sales tax remittances over the next two to three years,” David Persselin, the city’s finance director, told the council. “The state agency responsible for administering sales tax is still investigating the misreporting, so we don’t yet know how much we’ll need to repay, but our current estimate is approximately $28 million.”
Anticipating that the increase in sales tax revenue might be an error, the council set aside a portion of that money in a reserve fund intended to offset costs during periods of economic uncertainty. The council also earmarked a portion of the funds for infrastructure projects, to reduce its debts, establish a reserve fund to ensure it can pay outgoing employees any accrued vacation or sick time they’re owed, and ensure the risk management fund has enough resources to address potential risks and liabilities, like legal claims, that could arise in the future.
The city finished the prior fiscal year with $21.9 million remaining in the general fund, the city’s primary source of discretionary spending. Persselin recommended leaving those funds untouched in order to ensure they can help offset any reductions in future sales tax revenue.
The state is expected to provide more detailed information in the coming months. Persselin said city staff will recommend any necessary changes to the current fiscal year’s budget during the mid-year budget report in March. Until then, the city is rolling back a $5.5 million increase in annual parks, buildings and roads maintenance for the 2023-2024 fiscal year.
“Once we know what our situation is going to be on an ongoing basis, then we’ll determine whether we can afford to reinstate those increases or whether we need to keep the maintenance spending at the current level,” Persselin said.
Councilmember Desrie Campbell asked how that would impact the city’s ability to address potholes and other street maintenance issues. Persselin said that the ongoing maintenance budget was increased by $2 million the prior fiscal year, so the city is actually doing better on that front than it has historically.
“Clearly we would like to be able to spend more on street and building and parks maintenance,” Persselin said, “but the other thing to think about is because we were able to transfer so much one-time money into the capital improvement program, we have a large number of capital improvement projects that are moving forward and will not be affected by the suspension of the ongoing maintenance transfers.”
Sonia Waraich can be reached at 510-952-7455.
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