Sunnyvale's tool for surviving fiscal challenges.

• Author: Bradley, Mary J.

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Most U.S. cities have been hit hard by the economic downturn, in terms of both lower revenues and increased operating costs. But because of its culture of long-term planning, the City of Sunnyvale, California, has a tool that helps it identify fiscal challenges early on and gives it time to deal strategically with major issues.

Every year, staff prepares a 20-year financial plan for all city funds, covering all foreseeable elements of revenues and expenditures. Major assumptions are included in the budget transmittal letter and are discussed with the City Council, which ultimately approves the plan. This approach has allowed the city to weather economic cycles and provide stable and consistent services to its residents.

This does not mean Sunnyvale has been immune to reducing service levels in response to economic downturns such as the dot-com bust or the current recession. The city has had to "reset" its revenue base and make permanent adjustments to its levels of service. But Sunnyvale has been able to avoid the necessity of constantly adding or reducing services through normal economic fluctuations. The city's long-term financial plan gives it time to deal rationally with required cuts to ongoing operations.

BUDGET STABILIZATION FUND

Sunnyvale has a reserve policy requiring that 20 percent of general fund operating costs be set aside to deal with natural disasters or similar emergencies. The policy also establishes a budget stabilization fund, to which the city adds or subtracts money, based on economic cycles. One of the primary functions of the stabilization fund is to keep the city from adding unsustainable services during good times and then inevitably reducing them in bad times. When a jurisdiction receives increased revenues, adding services or increasing the level of existing services is a natural response. But unless the increase in revenues is permanent (and not simply a peak in the economic cycle), the increased services will just need to be cut when the economy slows down again and revenues decrease.

The key to developing Sunnyvale's 20-year financial plan each year is understanding the city's sustainable trend line for revenues, and then budgeting expenditures--and setting service levels--at that point. When revenues exceed the trend line, additional money is added to the budget stabilization fund, and that money does not go toward providing new or increased services. Therefore, when the economy slows...