The Modesto City Council on Tuesday approved a $386 million budget that will strive to maintain essential services as revenues decline.
In other decisions, the council hired an outside firm to handle workers compensation claims, lowered development fees and put up $18 million in collateral to satisfy a bond insurance agreement with a Wall Street bank.
The city was able to close a $12.7 million general fund shortfall with cuts to services and staff and concessions made by employee labor groups.
The council ratified agreements with unions representing police officers, firefighters and management employees, which will save the city $3.1 million. The group representing more than 400 public works and clerical employees will vote on a contract Jan. 28 and voting is scheduled for nonsworn law enforcement workers later this week.
City Manager Greg Nyhoff said he will ask the council July 6 to approve an as yet undetermined number of layoffs. Officials said last week as many as 40 employees could lose their jobs.
Most city employees will give up almost 5 percent of their salaries by taking 96 hours of unpaid time off in the budget year that starts July 1.
Modesto police officers agreed to the furloughs and postponing a 5 percent pay raise until 2012-13.
The budget eliminates a Fire Department engine company and includes cuts to park maintenance, recreation and other serv-ices.
Mayor Jim Ridenour said the city could revise the budget when other labor groups ratify contracts and when it knows how much money it will carry over from the 2009-10 budget year.
The council lowered development fees, because of the cheaper cost of buying land to widen roads and develop parks. The fees will be $18,135 per single-family home, down from $21,670, and $9,435 for senior housing, down from $11,455. Fees for retail development will be $18.48 a square foot and $23.80 per square foot for medical offices.
Those charges normally climb automatically, but the city has been reviewing the fees because of the prolonged recession. Ceres made a similar move last week.
The Modesto governing body agreed with Councilman Garrad Marsh to review the land values and fees every year. A comprehensive review of the city's fee system is under way.
The council approved a $1.65 million contract with York Insurance Services Group to administer workers compensation claims for the city. It's the first time the city has gone with an outside firm since 1983.
Officials said in-house staff can't keep up with the complexity of more than 460 work-injury claims. In a comparison of 11 similar cities, Modesto ranked highest in worker compensation losses.
A risk management consultant for the Modesto Confidential Management Employees Association advised against outsourcing the service.
Consultant Jeff Pettegrew said a small percentage of the claims are in litigation and the city's legal costs could skyrocket if claims are challenged.
"If your litigation goes up, you are going to see incredible costs," he said.
Ridenour said that hiring an outside firm had brought down work-injury costs for his previous business and the city expects to get its costs under control.
In a matter that was not published in the council agenda because it came forward too late, the council agreed to move $18 million from the water fund to satisfy a demand for collateral from J.P. Morgan Bank concerning a 2007 revenue bond for a water treatment plant the city built with the Modesto Irrigation District.
According to a bond insurance agreement, J.P. Morgan can require the collateral as protection against the city trying to get a lower interest rate.
Committing the money could slow certain water projects, but it won't lead to a water rate increase, Nyhoff said.
The council also voted to:
Shift $491,000 in Neighborhood Stabilization Program funds from home buyer assistance to purchase and rehabilitate property for rentals. The city has to commit the federal funds by mid-September or it could lose the money. Four potential home buyers are losing funding.
Seek funds for an affordable housing project at Tower Park at 17th and G streets. Funding for the project became uncertain when the city lost $2.4 million in redevelopment money to the state budget fix last month. The council action will enable the developer to apply for other government funding.
Appoint Councilmen Brad Hawn and Garrad Marsh to the steering committee working on the Tuolumne River water treatment project and approved an agreement with Ceres, Hughson and Turlock to share the costs of preparing a $237,000 water management plan. Modesto and the three cities are working with the Turlock Irrigation District on a plan to treat river water and distribute it to customers.
Bee staff writer Ken Carlson can be reached at firstname.lastname@example.org or 578-2321.