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Fremont says it can cover $20 million reimbursement to state, but more financial problems loom


A mid-year budget report provides a first look at how Fremont will handle an accounting error that will force the city to repay tens of millions of dollars to the state.

The miscalculations began in 2022, when Fremont began receiving unusually high quarterly sales tax allocations from a California tax agency.

The unexpected cash, totaling $37 million, was a financial windfall for the East Bay city of 225,000. At the time, city officials attributed the revenue to “higher than expected” auto sales tax revenue. They quickly revised their revenue forecasts upwards, counting on continued payments until 2025, and potentially beyond.

But those optimistic projections gave way in November, when the state said the payments were made in error and informed Fremont it would have to repay most of its windfall.

At the time, Fremont didn’t know exactly how much the city owed. Last month, the state finally announced the final figure: $20 million over the next two years, a significant amount for a city with an annual budget of about $300 million.

Will the City therefore have to make significant cuts to meet its obligations? For now, officials insist they won’t need to do so. Because it was initially wary of the payments, the city had set aside a reserve fund to prepare for this eventuality. He also has extra money from unfilled salaried positions.

“We were fortunate to have put that one-time funding into those reserve accounts,” said Geneva Bosques, the city’s communications director. “We think everything will be fine.”

Beyond the immediate burden of repaying the state, the city also faces shaky revenue projections. The city now projects a $50 million decrease in sales tax revenue this year, and a continued decline of $34 million in future years.

Although the city says the reserve fund will cover its payments this year, spending is also being cut by $9 million, millions of which come from reduced spending on maintaining streets, buildings and parks. The city may have to use more than half of its reserve fund to cover the shortfall.

David Persselin, the city’s finance director, blamed the state for its sales tax woes. Ultimately, California calculates sales tax, not Fremont. Depending on the nature of the transaction, sales tax payments could be allocated to Fremont, a state or county pool, or another jurisdiction. Although sales tax reporting details are confidential, it is likely that overpayments are the result of companies misreporting certain types of transactions, according to Persselin.

In an earlier statement, the California Department of Tax Administration said it does not release information about specific taxpayers due to privacy laws. However, a spokesperson acknowledged that it was the ministry’s responsibility to “ensure that local tax is allocated to the relevant jurisdictions”.

Kelly Abreu, a Fremont resident who has followed the sales tax saga, disputed the city’s narrative and expects significant reductions in 2025 and beyond.

“The city’s labor contracts, pay scales and staffing levels have been increased based on inflated sales tax revenue projections,” Abreu said. “The contingency reserve will be insufficient to cover the ongoing and recurring $34 million decline in sales tax revenue. »

Regardless of who is to blame, community members like Abreu fear the city is covering up key budgetary issues that could arise in the future.

“They say that in the future everything will be fine,” Abreu said. “But it’s like predicting your salary is going to double in two years.”

Underscoring Abreu’s concern is the knowledge that the city’s financial situation could have been even worse if it had failed to establish a reserve fund, or if the state had requested reimbursement more pupil.

But at least the result of the sales tax error is proof that Fremont’s financial future is in good hands, according to city officials.

“This is exactly why we have a reserve fund,” Bosques said. “Financial stability is a very important goal of our board.”


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