City ponders 10% in cuts to offset major shortfall

The heavy lifting begins for Scottsdale as the city's top management combs through finances to figure out how to lop 10 percent off of the budget.

It's too soon to tell what is on the chopping block, but the city's top financial officer said every option, including layoffs or dipping into the city's rainy-day fund, will be on the table.

"Our highest priority is maintaining critical services," Acting City Treasurer Craig Clifford said in a message to city employees explaining the budget problems. "That means we must thoughtfully evaluate how to retain the dedicated people who provide those services, while also being fiscally responsible."

Scottsdale expects a budget shortfall of $25 million to $35 million for the next one to two years.

The worldwide economic downturn has lowered consumer confidence, reducing spending and sales-tax income.

Sales taxes are the city's biggest revenue source and are down by about 13 percent this year.

Local business owner Peter Betteridge said fewer people are walking through the door of Betteridge Jewelers on Indian Bend and Scottsdale roads. Although he deals with a clientele that is more insulated from the ups and downs of the economy, he has still noticed a dip in traffic.

The increasing cost of precious metal and gems has also dented his profits, but Betteridge said he hasn't raised prices.

"This is not a great time, but it's not the end of the world either," Betteridge said. "We don't need to run around like Chicken Little. We should all hang in there and try to spend locally."

Along with falling sales-tax income, revenues from building and development are also down, as investors are finding it harder to obtain credit to finance projects. Revenue from development fees and permits is expected to be $6 million less than expected.

"I talked to my management team, and we're all going through and doing some analysis to see where we can cut," said Connie Padian, interim acting planning and development services general manager.

But while construction activity is down, several city road projects paid for by sources outside the general fund will continue. Some road projects are financed by bonds or other income that can only be spent on transportation projects. So residents who wonder why the city is ripping up roads if it is hurting financially should know that, "we either build the street or that money sits unused," Clifford said.

Scottsdale isn't the only city suffering from the world economic downturn. Over the next several months, Phoenix plans to cut about $100 million from its budget, the biggest in the city's history.

Scottsdale has never seen an economic decline like this. In past recessions, Scottsdale has generally seen slower growth but not negative growth. The only time the city saw negative growth was after the 9/11 attacks in 2001, and even then revenue was down 1 percent. Last year, the city saw a 4 percent drop in revenue, a decline that has sunk to 13 percent in recent months.

Scottsdale hasn't enacted a hiring freeze but will only fill what top managers consider the most critical positions. "Every effort will be made to manage our service demands with existing staff and natural attrition rather than layoffs, but we cannot guarantee more serve measures will not be necessary," Clifford told city employees.

The city is also reconsidering whether employees will receive a 2 percent cost of living salary increase, which was scheduled to kick in next year.

No one knows when exactly the economic tides will rise, but as long as "fear, uncertainty and doubt" continue to stifle consumer spending, the city will need to run a tighter ship, Clifford said.

The city will be taking the next several months to identify and enact cuts, to "do it right" instead of with "an axe or a chainsaw."

"The longer we take to thoughtfully do this, the better our decisions will be," Clifford said.

"This is not a great time, but it's not the end of the world either," says Peter Betteridge, owner of Betteridge Jewelers. "We don't need to run around like Chicken Little. We should all hang in there and try to spend locally."