Navazio Finally Admits What We All Knew About the Budget

On this night, Interim City Manager Paul Navazio finally admitted what we all knew, his budget assumptions are rosy, with small changes in them that mean huge swings in the revenue projections.  He also finally admitted that the city is not allocating nearly enough for road re-pavement.

The best way to put it is that the Interim City Manager designed this budget for the last council – a council that was all too eager to accept optimistic and eventually unrealistic assumptions.

The meeting went so late last night that, unfortunately, we were not able to get the PowerPoint slides to show this graphically.  However, the budget with current proposed “treatments” is supposed to end up being balanced and in fact in the black in the “out” years of a five-year forecast model.

While this looks good on a graph, the reality is that the city manager is withholding numbers to make it look better.  He basically admitted as much, if you read between the lines.

In essence, he said that the revenue projections are contingent on the transportation funding.

The current budget proposes about $485,000 (as we presented on Monday) to be diverted from current spending purposes such as the Community Pool to a conglomeration of new spending purposes, including $150,000 to road maintenance.

The problem is that $150,000 is not enough, nor is the total of $350,000 budgeted for road maintenance this year enough.  On Monday, we reported that the city needed about $800,000 to maintain its current commitment, and even that would cause the roadways to decline from current conditions.

Paul Navazio talked about the need for incremental funding increases throughout the five-year period – but he doesn’t budget them.  He talks about finding ways to cut $1.2 million, in addition to revenue that needs to be put into the budget.

He said plainly on Tuesday night, “Transportation and streets continues to be a huge challenge.”  He said they were looking at restoring the funding levels of road maintenance to $600 to $800 thousand.  But he said that is “still woefully shy of what is needed.”

The reality is that there will be about $12 million in deferred street and road maintenance this time next year.  The city needs to spend probably $1.5 to $2 million a year to really get a handle on it.  At best they are looking at $600 to $800 thousand. 

And yet Mr. Navazio is calling the budget balanced, with the contingency for transportation funding.

Councilmember Stephen Souza pointed out that staffing levels were lower than they were since 1997, in absolute terms.  That means that staffing levels per capita are probably the lowest they have been in two decades.

What was not pointed out is that the residents are paying more in taxes than they were two decades ago, employees make far more in compensation, benefits and retirement than they did at that point, so what has basically happened is that residents are getting far less for their spending than they did two decades ago.

This is not something to brag about, it is an example of how increases to pay have made the city less efficient, not more efficient as was suggested on Tuesday night.

Finally, there is the other big piece and that is retirement.  Paul Navazio showed how sensitive his model was to slight changes in revenue projections.  However, a huge piece is the sensitivity on growth of salary and pension obligations.

The current model assumes the current PERS (Public Employees Retirement System) rates and interest assumptions.  However, for every quarter percent adjustment in the Assumed Rate of Return (ARR), the city would have to spend about $900,000 more.

As Councilmember Sue Greenwald put it, the current assumptions do not assume any kind of cost of living adjustment, and the pension increases assume estimates that PERS has given under current assumptions.  The major risk factor is the ARR where every quarter downtick in the ARR assumptions means a 3 to 5% increase in the cities PERS rate and about a million dollars.

Sue Greenwald argued that we need to make structural changes, no more nickel and diming.  Saving one thousand dollars on paper clips is not going to get us there.

Rochelle Swanson argued we have to move forward with more sustainable contracts and more pessimistic assumptions.  She again beat the drum for a multiyear budget, stating that she wanted the 2012-13 budget plan adopted by December of this year.

There is good news in this budget, however.  Despite the fact that Paul Navazio introduced a budget for the last council this time, this council is fully committed to making the tough choices.

In the coming days, we will have further analysis of the budget and will propose a radical new plan that will bring forth enough savings to make a lot more things work.

—David M. Greenwald reporting