Thanks to its 20-year budgeting plan and a slight rise in sales tax this year, Sunnyvale has--for the time being--made it through another year without having to cut people from its operation, while also preserving the core services residents demand.

However, these services are not assured.

Budget problems could arise during the city's mid-year assessment. If so, there are plans for possible cuts to staff and services. Residents could even see shorter hours in city offices and closed buildings or parks.

Residents will vote Nov. 8 whether to increase two city taxes--the transient occupancy tax--paid by hotels and motels--and the business license tax, which would bring additional revenue into the city.

On June 21, the city council unanimously approved the city's fiscal 2005/2006 budget.

The budget, with $216 million in revenues, contains almost $227 million in expenditures, a shortfall of around $11 million. City finance manager Grace Kim said most of that gap is filled with reserves set aside each year as part of the 20-year plan, but those reserves only cover about $9 million.

"The reserve built up during the boom time, and we've been drawing it down since 2002-2003," Kim said. "We're able to shore up most of the difference, but after using all the reserves we have, we still need $1.75 million."

Because so much of Sunnyvale's growth was fueled by money from the tech boom, the "dot-bomb" hit the town hard. Businesses stopped growing or moved to more affordable cities, reducing the property tax. Employees stopped taking business vacations, which reduced the transient occupancy tax. Rising gas prices have also increased vacancies in local hotels and motels.

"Anything that affects travel prices means we won't get as much transient occupancy tax money," Kim said. The lack of revenue has also stopped the city from expanding and improving city property. In the 20-year plan is more than $400 million in unfunded capital projects. One of those projects is an upgrade to the city hall campus.

"We don't have a lot of additional money to put into projects; we're just trying to maintain what we do have," Kim said.

The city's coffers took another hit from increases to medical coverage and retirement plans for city employees. Last year, the city paid 6.6 percent of an employee's wage towards a retirement fund, but that percentage almost doubled to 11.4 percent this year. The cost of medical coverage for employees also went up 14.9 percent this year.

City Manager Amy Chan has a three-pronged approach to dealing with the budget's problems. The first is through internal cost-savings actions, such as more efficient procedures or even reduced office hours. But after three years of cost cutting, there isn't much more room for trimming.

The second effort is revenue enhancements, a number of which will appear on the November ballot. The city has proposed increases to both the transient occupancy tax--paid by hotels and motels--and the business licensee fee paid by business based on how many employees or rental units they have.

Kim said increasing the license tax could give the city an additional $840,000, while the occupancy tax could bring in $600,000. There is also an additional proposed fee for 911 calls that the city is interested in, but officials are waiting until legal issues about the fee are resolved.

The tax increases on the ballot--each would require just over 50 percent of residents' approval--would almost fill the entire budget gap, but that will not be decided on until November.

If those efforts are not successful, Chan says the third approach is to look at service reductions, which could include cuts to employees or services, possibly closing certain city buildings or parks, reducing the number of services provided to residents or cutting employee hours. Reducing hours could effectively leave some people out of work.

"I think [cuts] would affect staff. At this point--to do any sort of reductions for savings--we would have to lay people off or at least cut hours," Kim said.

The city has already looked at and prioritized cuts that could be made in case they are needed. During last year's budget process, the city held a number of public meetings to work with the community and rank city services.

Using the priorities set at those meetings, Mary Bradley, the director of the city's department of finance, and her department came up with 5 percent and 10 percent reduction plans that could help the city. They were meant to be used in the middle of the 2004/2005 fiscal year, but the city was able to make ends meet.

Those cuts included cutting maintenance or hours of some city parks.

Even with hard budget decisions ahead of them, Kim said the city and her department are optimistic about Sunnyvale's future because they--like the local business community--are beginning to see signs that the economy is turning around.

"We kind of feel that we've already hit bottom; things aren't going to get any worse," Kim said.